Do you know the President’s authority as it related to international trade and commerce? This presentation provides insight into the President’s authority according to language in the Constitution, Executive Authority per specific Trade Acts, as well as historical precedents. The presentation also reviews the current status of NAFTA and the potential impact to Regional Value Content if the trade agreement is renegotiated.

1. Global Network – Local People – Superior Service – Leading Technology
Presidential Authority to Regulate
International Trade &
Potential Impacts to NAFTA
September 2017

2. The President’s Campaign Promises
• Renegotiate or Withdraw from the North American Free Trade
Agreement (NAFTA)?
• Impose a 35 percent tariff on imports from Mexico and a 45 percent
tariff on imports from China?
• Withdraw or renegotiate free trade agreements (FTAs) with 20
countries and impose high tariffs on designated countries?
• Withdraw from the World Trade Organization (WTO), the core
framework for US commerce with 163 countries?

3. THE PRESIDENT’S TRADE POLICY AGENDA
The USTR submitted the President’s National Trade Policy Agenda for
2017 in accordance with 19 U.S.C. § 2213(a)(1)(B) on March 1, 2017.
The Agenda articulated the following principal objectives:
1. Defend Our National Sovereignty Over Trade Policy
2. Strictly Enforce U.S. Trade Laws
3. Use Leverage to Open Foreign Markets
4. Negotiate New and Better Trade Deals

4. Constitutional Authority
to
Regulate International Commerce
• The Constitution (Art. I, Sec. 8, cl. 1) gives Congress:
• The “Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the
Debts and provide for the common Defense and general Welfare of the
United States” (Art. I, Sec. 8, cl. 1), and
• “To regulate Commerce with foreign Nations, and among the several States,
and with the Indian Tribes.” (Art. I, Sec. 8, cl. 3)
• Congress has delegated some of this authority to the President
• Contingent upon a specified threshold determinations

5. Executive Authority
• Balance of Payments under Section 122 of the Trade Act of 1974 (Section 122);
• Safeguards under Section 201 of the Trade Act of 1974 (Section 201);
• National Security under Section 232 of the Trade Expansion Act of 1962 (Section
232);
• Unfair Trade Practices under Section 301 of the Trade Act of 1974 (Section 301);
• Discrimination under Section 338 of the Tariff Act of 1930 (Section 338);
• National Emergency under International Emergency Economic Powers Act
(IEEPA);
• Rescission of Free Trade Agreements under Section 125 of the Trade Act of 1974.
• North American Free Trade Agreement Implementation Act §201(b)(1)(1993)
(NAFTA).
• Antidumping (ADD) and Countervailing (CVD) Duties

6. Historical Precedents
• Increased Duties
• President Nixon to add a 10 percent “import surcharge” in 1971, based on a
continuing “economic emergency.”
• President Ford invoked Section 232 of the Trade Expansion Act of 1962 in 1975 to
impose additional duties and licensing fees on imported petroleum products.
• President Regan used Section 201 of the Trade Act of 1974 in 1983 to impose a 45%
tariff surcharge on heavy weight motorcycles.
• President George W. Bush used Section 201 of the Trade Act of 1974 in 2002 to
impose tariffs of up to 30% on steel.
• Antidumping (ADD) and Countervailing (CVD) Duties
• The United States initiated 35 ADD investigations in 2016 and imposed 30 ADD
orders.
• The United States initiated 16 CVD investigations and imposed 16 new CVD orders in
2016

7. Sections 201: SAFEGUARDS
• Section 201 of the Trade Act of 1974 authorizes investigations by the USITC
to determine if an article is being imported is a substantial cause of serious
injury, or the threat thereof, to a domestic industry.
• COUNTRY SPECIFIC: No. Affects all imports of the Product(s) at Issue
from all countries
• REMEDIES: (a) Increase in or imposition of a duty,
(b) A tariff-rate quota;
(c) Quantitative restriction;
(d) Trade adjustment assistance; or
(e) Or any combination of such actions.
• INVESTIGATIONS: Solar Cells & Washing Machines

8. Section 232: NATIONAL SECURITY
• Section 232 of the Trade Expansion Act of 1962 authorizes the
Secretary of Commerce to determine whether articles are being
imported into the United States in such quantities or under such
circumstances as to threaten to impair national security.
• COUNTRY SPECIFIC: No. Affects all imports of the Product(s) at
Issue from all countries
• REMEDIES: The President has authority to take action to
“adjust imports” of the article in question.
• INVESTIGATIONS: Steel & Aluminum

9. Section 301: UNFAIR TRADING PRACTICES
• The President invoked Section 301 of the Trade Act of 1974 to investigate
the theft of intellectual property such as computer software in China. He
also directed the USTR to examine Beijing’s requirement that U.S.
companies turn over proprietary technology as a condition of entering
China’s markets.
• COUNTRY SPECIFIC: Yes, but not product specific.
• REMEDIES: The President has the Authority to:
(a) Impose duties or other import restrictions;
(b) Impose fees or restrictions on services; or
(c) Restrict service-sector authorizations
• POSSIBLE OUTCOME: Not specified, but possibly Steel @ 20% Duty

10. Investigation Time Frames
• SECTION 201 - The USITC must make its injury finding within 120 days (150 days in more complicated cases),
and must transmit its report and recommendations to the President, within 180 days after receipt of the
petition.
• INITIATION DATES: SOLAR PANELS - May 17, 2017 & RESIDENTIAL WASHING MACHINES - June 5, 2017
• SECTION 232 - Commerce has 270 days to present the President with a report and recommendations. Within
90 days after receiving the report, the President must determine whether he concurs with the Department's
finding and, if so, the nature and duration of the action that must be taken to “adjust” the imports of the
article
• INITIATION DATES: STEEL - April 19, 2017 & ALUMINUM - April 27, 2017
• SECTION 301 - Typically, the President’s request for an investigation is a preliminary step to a long process: the
investigation can take months or years and then, in principle, the United States should take its findings to the
WTO and only proceed with sanctions if the WTO also finds that the U.S. has been treated unfairly – its trade
rights denied or violated.
• INITIATION DATE: August 18, 2017
• Tuesday, October 10, 2017: The Section 301 Committee will convene a public hearing
• Written comments and requests to appear at the hearing by Thursday, September 28, 2017
• Posthearing rebuttal comments must be submitted by Friday, October 20, 2017.

11. NAFTA
• The President was prepared to end the North American Free Trade
Agreement deal, which had governed trade relations for the past 23
years, with a dramatic announcement April 29th at a Pennsylvania
political rally marking his 100th day in office.
• But after speaking with the leaders from Canada and Mexico, the
President announced he will not cancel the North American Free
Trade Agreement and will instead work to renegotiate it with Mexico
and Canada,
• Reserving the right to cancel if the US does not obtain a favorable
deal.

12. NAFTA: Current Status
• May 18: USTR notified Congress of the President intention to renegotiate
NAFTA.
• Aug 16-20: The First Round was held in Washington.
• Sep. 1 – 5: The Second Round of discussions took place in Mexico City.
• Sep. 23-27: The Third Round of negotiations scheduled for Ottawa, Canada.
• The timeline for the renegotiation is very tight. With Mexican elections coming up in July
2018, the countries are hoping to sign the agreement by the end of this year. This is
important for the following reasons:
• President Enrique Peña Nieto’s six-year term ends next year. The constitution bars
him from seeking re-election.
• Mexico’s political parties must nominate candidates by March 2018.
• President Trump's election has triggered a rise in Mexican nationalism. Andrés
Manuel Lopez Obrador, a populist Mexican leftist who wants to reduce economic
dependence on the United States, is channeling that nationalism.

13. NAFTA: Contentious Issues
• Rules of Origin;
• Expand the market for United States-made goods in Canadian &
Mexican government procurement;
• Environmental and Labor Standards;
• Standards to protect Digital Freedom; and,
• Chapter 19 - Dispute Resolution.

14. NAFTA Rules of Origin
• Preference Criterion A – Wholly Originating
• Preference Criterion B – Tariff Change and
Regional Value Content
• Preference Criterion C – Goods Made from Originating
Materials
• Preference Criterion D – Unassembled/Disassembled Goods

15. NAFTA – Regional Value Content
• Regional Value Content: the percentage of the value of the goods that
represents its North American Content
• Direct & Indirect Materials
• Direct Labor
• Direct Overhead associated with Production
• Two Methods
• Net Cost
• Transaction Value
• Difference: Net Cost excludes Profit
• Required Percentages
• 50% - if the Net Cost Method is used; or
• 60% - if the Transaction Value Method is used

16. NAFTA
Rules of Origin
• CLUTCH COVER
(PRESSURE PLATE)
ASSEMBLY FOR
AGRICULTURAL
TRACTOR

17. Determining Regional Value Content
Review the Bill of Materials (BOM)
Item Cost C/O
Setup $ 2.50 US
Labor $12.00 US
Machining $17.00 US
Clutch Plate $96.00 CN
Diaphragm Springs $37.00 CA
Pressure Plate $53.00 US
Net Cost $217.50
RVC = ((NC - VNM)/NC) x 100
RVC= ((217.50-96)/217.50) x 100 = 55.86206897
Net Cost RVC > 50%
Qualifies for NAFTA Preference

18. Changing the RVC
• Increasing the percentage of the value of
the good that represents its North
American content to
• 60% (if the Net Cost Method is used) or
• 70% (if the transaction Value Method is
used)
• Eliminates the Clutch Assembly from
NAFTA Eligibility
Duty $5.44
MPF $0.75
Total $6.19
• Unless the Clutch Plate is sourced
from the US, CA or MX
Cost C/O
Setup $ 2.50 US
Labor $12.00 US
Machining $17.00 US
Clutch Plate $96.00 CN
Diaphram $37.00 CA
Press Plate $53.00 US
Net Cost $217.50
RVC= 55.86206897

19. What Should We Expect?
• President Trump to Gen. John Kelly in his first week as Chief of Staff:
“Tariffs. I want tariffs … China is laughing at us. Laughing.”
Reported by Axios on August 27, confirmed by sources with knowledge of the
meeting and undisputed by the White House

20. Summary
• The Trump Administration
• Promised fundamental change in direction of U.S. trade policy
• Has the Statutory Authority to do so
• Is taking significant steps to deliver on that promise.
• We should expect increased tariffs on at least some products, e.g.
Steel

21. Thank you!