The Craft Beverage Modernization Act, which covers beer, wine and spirits, will remain in effect through 2020, instead of expiring at the end of this year. Senate Finance Committee Chairman Chuck Grassley, R-Iowa, said that the CBMA made it into a tax extenders package that was negotiated after midnight on Dec. 17. The provision allows importers and exporters a refund on alcohol excise taxes.
With the announcement of a phase one deal, Flexport chief economist Phil Levy said the promise is for stability in tariff levels -- even if the large majority of goods facing Section 301 tariffs will retain the 25 percent hike. But, he noted in a Dec. 16 webinar, many times over the last eight months, “a deal was announced, and it didn't last. That should sort of serve as a precautionary tale.” Levy, like many observers, doesn't believe that a phase two deal, that could lead to rolling back more tariffs, is likely in the next year.
As the auto industry grapples with how much the rules of origin for cars and trucks will change from NAFTA to USMCA, the implementing bill that will be voted this week suggests there may be an opportunity to re-evaluate the system when USMCA undergoes review in six years. In two years -- and again in four, and six years -- the International Trade Commission must prepare a report on the economic impact of the auto ROO, including on exports and imports; aggregate employment, employment and wages of automotive workers, “production, investment ... and profit levels in the automotive industries and other pertinent industries in the United States affected by the automotive rules of origin and the interests of consumers in the United States.”
Sen. Ron Wyden of Oregon, the senior Democrat on the Finance Committee, and Sen. Sherrod Brown, an Ohio Democrat who voted against NAFTA, have endorsed the NAFTA rewrite, known as the U.S.-Mexico-Canada Agreement. The two had said they would oppose the USMCA unless it included a labor enforcement mechanism that carried consequences for Mexican imports from factories that weren't honoring workers' rights.
With the last round of consumer goods imported from China spared, and a reduction in Section 301 tariffs on about $120 billion in goods that were first subject to additional tariffs Sept. 1, some business interests welcomed the de-escalation, but warned that the U.S. should stay focused on more significant economic reforms in China. The tariffs on List 4a, which are at 15 percent and apply to about 3,800 8-digit tariff lines, will go to 7.5 percent.
Rep. Kevin Brady, the top Republican on the House Ways and Means Committee, said that despite lots of negotiating -- even through the last several weekends -- Democrats and Republicans are not finding a compromise on bringing back expired temporary tax provisions or renewing tax provisions that are due to end this year, such as the Craft Beer Modernization Act. With regard to the provisions that expire this year, like the one for beer, wine and spirits, Brady said he does not expect them to survive “if these discussions fall through.” That said, if there is a way to find a compromise, there are a few items that have wide appeal, and the Craft Beer excise tax break is “a high priority for both parties,” he said at a press conference Dec. 11.
House Democrats and the Office of the U.S. Trade Representative say that the new NAFTA can serve as a template for future trade deals, but experts question how that might come to pass, and a key Republican wants at least one Republican priority restored in future deals.
Although the Senate Finance Committee will still have a mock markup on the U.S.-Mexico-Canada Agreement, it will happen after the implementing bill has been sent to Congress, so it will be more “mock” than in past deals. The reason the process of Congress weighing in on a trade deal is a mock markup is that under fast track, or Trade Promotion Authority, Congress cannot amend the deals. But typically, the administration sends up a draft implementing bill, and then does incorporate at least some of Congress's suggestions on language before sending the final implementing bill.
Trade groups that oppose tariffs sent President Donald Trump a letter asking that the Dec. 15 tariffs not go into effect if a phase one deal is not reached by then. “We urge you to reach a Phase One deal with China and take the necessary steps to resolve the ongoing trade dispute. We certainly hope that this will lead to further negotiations, which ultimately lead to a final deal that not only addresses our key concerns with the U.S.-China trade relationship, but also eliminates the current tariffs imposed on both goods sourced from China and our goods exported to the critically important China market,” they said. The Americans for Free Trade coalition said in the Dec. 11 letter that it hopes the phase one agreement reduces some tariffs as well.
If a panel of labor experts determines that a Mexican factory is violating its workers' rights to collective bargaining, the U.S. may deny the goods from that factory the tariff benefits of the U.S.-Mexico-Canada Agreement -- but that denial of tariff benefits is not automatic.