Overview of Possible Post-Election Changes in US Trade and Sanctions Policy
By Glen Kelley, Doug Jacobson, and Michael Burton
Jacobson Burton Kelley PLLC
With Donald Trump’s surprise election victory, there is now a great deal of uncertainty regarding the future direction of the US government on international trade and foreign policy issues. President-elect Trump’s campaign and transition teams have released few specific policy proposals and plans in these and other areas.
Just as the pollsters could not predict the outcome of the election, no one really knows what will happen after January 20, 2017. Candidate Trump took many conflicting positions during the campaign and many campaign promises are never implemented.
However, we can already envision some significant changes in US trade and sanctions policy. We will closely watch the Trump transition team and the new Administration over the next few months for indications of the policies they will be formulating.
Trade Policy
For more than a year, a major part of President-elect Trump’s platform has been rejecting major US free trade agreements as “bad deals” for America, promising dramatic changes in the US approach to trade agreements. Ostensibly the goal is to better protect the interests of American workers and consumers.
As set out in President-elect Trump’s “100 day action plan”, his Administration could:
- terminate US support of the Trans-Pacific Partnership (TPP), which would, if adopted, greatly reduce the remaining trade barriers between the US and 11 other countries in the Americas and Asia. If the US chooses to withdraw from TPP, the other 11 countries may choose to enact their own free trade agreement. It is possible that Trump Administration will seek to re-open the TPP to new negotiations, although that will be difficult since many of the TPP member countries have already commenced the ratification process.
- seek to renegotiate the terms of the North American Free Trade Agreement (NAFTA), which could trigger substantial regulatory uncertainty, and possibly economic disruption, for manufacturers and exporters in the US, Mexico, and Canada. It is important to note that this same promise was made by candidate Obama during the 2008 presidential campaign and was never acted upon. President Obama became a leading advocate of free trade agreements during his second term.
- reject other trade agreements and arrangements that “unfairly impact American workers”. How a Trump Administration views the US-EU Transatlantic Trade and Investment Partnership (T-TIP), which is currently being negotiated, remains to be seen. It is possible the US will choose to enter into a free trade agreement with the United Kingdom, once Brexit has occurred.
As set out on the Trump campaign website, the Trump Administration can be expected to ramp up enforcement of US trade remedy laws, as authorized in the Trade Facilitation and Trade Enforcement Act (TFTEA) that was enacted in early 2016, to combat perceived unfair trade practices and subsidies by major US trading partners, particularly China. Also, candidate Trump indicated that he would direct the Secretary of the Treasury to take action against China's alleged currency manipulation. Of course, there is a significant risk that these measures could trigger a damaging trade war (such as mutually escalating tariffs) with China and other trading partners.
Economic sanctions
Iran – During the presidential campaign, President-elect Trump frequently disparaged the current multilateral nuclear agreement with Iran and several other countries, known as the Joint Comprehensive Plan of Action (JCPOA) (commonly known as the Iran deal). Since the JCPOA was implemented on January 16, 2016, most US sanctions have remained on Iran ("primary sanctions") although most US and EU sanctions applicable to EU and other non-US companies have been suspended by waivers, general licenses and other regulatory action ("secondary sanctions"). Non-US companies have been gradually increasing their new business and investment in Iran.
It is possible that the Trump Administration could reject all or some of the terms of the JCPOA and choose to reimpose some of the suspended sanctions, or the US Congress could enact additional sanctions on Iran. Either action would be viewed by Iran and the other parties to the agreement as a violation of the JCPOA. It seems unlikely that the EU, Russia or China would agree to any US request to renegotiate the JCPOA or to reimpose sanctions on Iran.
If the US reimposes sanctions, the Iranian government may be willing to continue with their nuclear-related commitments in exchange solely for continued EU sanctions relief, considering that the practical impact of US sanctions relief has been limited. On the other hand, if Iran rejects the JCPOA and accelerates its nuclear program, the world could once again see tensions escalate towards potential armed conflict.
Cuba – Over the last two years, the Obama Administration has made numerous gradual amendments to the US sanctions regulations on Cuba. This has opened up opportunities for greater travel and cargo service between the US and Cuba, exports from the US of certain categories of goods, and US participation in the development of Cuban infrastructure, agriculture, and telecommunications. Last month the White House made clear these changes were intended to “make our opening to Cuba irreversible”.
However, all of these changes were made by executive action, without the active support of Congress, and so the next President could immediately unwind them and put all of the sanctions back in place. President-elect Trump has signaled that he intends to “renegotiate” with the Cuban government. It seems that further relaxation of the sanctions will come slowly, if at all, and we will be watching for any indication that some of the sanctions could be reimposed next year.
Russia and Ukraine – President-elect Trump has expressed skepticism over the current US sanctions related to the situation in and around Ukraine and the underlying policies. These sanctions include a broad embargo of the Russian-occupied territory of Crimea, capital markets and other targeted sanctions on the Russian oil and gas, banking and defense sectors, and targeted sanctions on numerous Russian companies and individuals.
With a weakened US commitment to the sanctions, we might see the US sanctions start to fall away in 2017. For example, they might be traded away in exchange for agreement with Russia on other issues. If this occurs, the voices within the EU against the continuation of sanctions may gain the upper hand, and we could also see some or all of the EU sanctions lifted.
Export controls
To date, there has been no indication how the Trump Administration will view export controls, many of which are subject to multilateral agreements. The Trump campaign website suggests that simplifying and reducing regulation will be a focus of the new Administration, but this may not apply as directly to regulations such as export controls that are primarily intended to protect US national security interests. We will be watching to see whether the current level of funding and support for the export control agencies can be expected to continue.
While President Obama's Export Control Reform initiative (ECR) has made significant progress toward accomplishing the goal of achieving the "Four Singles" – a single control list, single licensing agency, single enforcement coordination agency, and single government IT system – the process is incomplete. The most significant progress from the perspective of exporters has been: (1) the review and update of the US Munitions List (USML) and the Commerce Control List (CCL); (2) the transfer of jurisdiction from the USML to the CCL of a broad range of less sensitive defense articles, such as parts and components; and (3) reducing the differences in the definitions of key terms in the two main sets of regulations, the ITAR and EAR.
The overall process, however, remains incomplete and further progress under the next Administration is in question given the close association of ECR with President Obama, a potential leadership gap within the agencies due to retirements and replacement of key political appointees driving ECR, and whether this initiative will be a priority of the next Administration. That being said, such significant investments have been made in ECR and momentum created that completing the less controversial portions of ECR seems likely. In sum, we may see further regulatory reforms next year, but it is unlikely that Congress will enact implementing legislation required to combine US export control agencies and lists.
Regarding defense manufacturing and exports, the Trump campaign website suggests that the new Administration will seek to enact legislation to expand all of the branches of the US military, to expand the US missile defense system and to expand US cyber warfare and defense capabilities. This implies an emphasis on growing the US defense industrial base.
Other trade and investment controls
Anti-corruption – it is difficult to say whether the Trump Administration will continue the aggressive enforcement of the Foreign Corrupt Practices Act (FCPA) against non-US and US companies found to have engaged in bribery or corruption. In a 2012 CNBC interview Trump stated that the FCPA is a “horrible law and it should be changed.” Relevant factors include president-elect Trump's stated focus on domestic (US) political corruption, on reducing regulations impacting US companies, and avoiding an interventionist foreign policy. It is possible FCPA enforcement could be de-prioritized in favor of national security, anti-terrorism and a greater focus on domestic corruption.
Anti-money laundering (AML) – much of the AML regulatory system built up by the last several presidential administrations is focused on countering the financing of terrorism. While little specifics can be gleaned from candidate Trump's public statements thus far, with the overall focus on anti-terrorism we can assume that AML compliance and enforcement will remain a priority, both for financial institutions and companies involved in cross-border payments and transactions.
Foreign investment review/ CFIUS – we anticipate that the Trump Administration will be very focused on reviewing foreign investments into the United States. The Trump campaign has emphasized national security issues and on the perceived harm to the US economy of the policies of other countries and has had an unfortunate tendency to espouse protectionist policies. The range of transactions scrutinized by the US Committee on Foreign Investment in the United States (CFIUS) may continue to expand. Unfortunately, as with the risk of a tariff-based "trade war", any significant tightening of the US foreign investment review process could trigger increased restrictions on US companies investing in other countries.
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