Could Brexit lead to an agreement with the U.S.?

With help from Victoria Guida, Megan Cassella and Laurens Cerulus

COULD BREXIT LEAD TO AN AGREEMENT WITH THE U.S.? As we await the results of today’s British referendum on whether to leave the European Union, ponder this not-so-far-fetched scenario: In a TTIP-less future where the United Kingdom has voted yes on Brexit, the U.S. could pursue a free-trade agreement with the U.K.

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President Barack Obama warned in London this spring that a Brexit would send the Brits to “the back of the queue” in trade negotiations, but the outgoing U.S. leader’s statement might have been presumptuous. Several Republican senators told POLITICO’s Ben Oreskes and Victoria Guida this week that they’d be more than happy to pursue a U.S.-U.K. deal once the smoke clears.

“They’ve been a great trading partner to the United States for decades and decades, and I wouldn’t stop trading with them ’cause they got out of the EU,” Sen. Johnny Isakson (R-Ga.) told POLITICO. “I’d be happy to negotiate a bilateral agreement.” In fact, the Senate Finance member added that “it might even be easier” than negotiating TTIP.

The U.K. broadly supports free-trade deals, an increasingly rare phenomenon in Europe, observed Gary Hufbauer, a senior fellow at the Peterson Institute for International Economics. London is also not a major player on controversial U.S.-EU agricultural debates over geographical indications and genetically modified organisms, and, as part of the EU, its tariffs are low and its services market fairly open.

But one TTIP roadblock would still remain: how to handle financial regulation, the U.K.’s one real demand in the talks, said Hosuk Lee-Makiyama, director of the European Centre for International Political Economy. “You could argue the necessity for regulatory cooperation is less between U.K. and U.S.” than other European countries, he said in an interview. “The U.K. is far more deregulated in its approach. … But … would they actually throw financial services under the bus?” Click here to read the story.

IT’S THURSDAY, JUNE 23! Welcome to Morning Trade, where if you’re following Brexit, it all comes down to Article 50. Got any news, tips or gossip to share? (Our tip for you: The House has left for recess early.) Let me know: abehsudi@politico.com or @abehsudi.

U.S.: NO, I WON’T BACK DOWN: The U.S. says it’s not backing down from its move to block the reappointment of Seung Wha Chang to the World Trade Organization’s Appellate Body despite warnings that the action could cause delays to an already resource-strained dispute settlement process. The U.S. opposes the reappointment of Chang, charging that some of the dispute panel’s decisions during the South Korean national’s tenure have gone beyond its legal scope.

South African Ambassador to the WTO Xavier Carim, who chairs the Dispute Settlement Body, said the continued vacancy could increase the likelihood of a waiting period for making future appeals. Members are also undecided on how to fill a seat vacated by China’s Yuejiao Zhang, who recently ended her second term.

Carim said consultations over the vacancies show that both may need to be considered together and urged members to come to a decision by the next Dispute Settlement Body meeting July 21, Geneva sources said.

The U.S., in its statement, reiterated the rhetorical question of whether WTO members would accept a new Appellate Body member if they were to say openly that he or she would issue reports reflecting the “systemic concerns” raised by the U.S., which would lie outside the panel’s purview.

“We would think most WTO members would say no,” the U.S. said. “And a candidate not suitable for appointment is no more suitable for reappointment.”

CANADA OFFERS DISPUTE PROCESS IMPROVEMENTS: Canada at the DSB meeting invited other members to consider its proposals for alleviating some of the strain on the WTO’s dispute mechanism, which is faltering under a crushing workload and slim resources. This voluntary approach would be an alternative to the unlikely event that WTO members could actually reach consensus on altering the Dispute Settlement Understanding, which establishes the process for handling trade disputes. The proposals would establish specific practices and deadlines for countries involved in a dispute. One element of the proposal would improve information sharing by requiring members to issue certain written notifications on certain aspects of a case. For example, if a member thinks it has fully complied with a ruling, it should notify without delay a description of any measure that it considers compliant.

To streamline proceedings, Canada suggests a number of ideas that countries could adopt. One would have members provide questions in writing no later than 10 days in advance of consultations prior to the formation of a dispute panel. The proposal would also have members “to pursue only claims and arguments, and submit only evidence, that will contribute to securing a positive solution to their disputes in a timely manner.” Another suggestion would have parties in a dispute meet informally before a request for the establishment of a panel “to explore ways to reduce the scope of the dispute and focus the proceedings on only those issues that contribute to securing a positive solution.”

Switzerland, Australia, Taiwan, and New Zealand said they support Canada’s efforts, Geneva sources said.

U.S. TURNS DOWN CANADIAN DISPUTE REQUEST: In other DSB action, the U.S. rejected Canada’s request for a dispute panel aimed at U.S. countervailing duties on imports of Canadian imports of glossy or supercalendered paper. The Commerce Department issued final duties based on imports from two Canadian paper companies. The U.S. defended the duties at the meeting, arguing that Canada provides “massive subsidies” to its industry. Under WTO rules, a member can initially reject a panel request but cannot reject a second request.

Compliance panels were also established in two cases involving the U.S. The first would investigate whether China is complying with a ruling that faulted anti-subsidy duties it placed on imported poultry products. The EU, Canada and Japan expressed interest in joining the dispute as third parties.

Another compliance panel was established at the request of Mexico to determine whether the U.S. is in compliance with a ruling that faulted its dolphin-safe tuna labeling policy. The U.S. had requested its own compliance panel earlier in an effort to confirm that policy changes conformed to the previous ruling. Mexico is threatening to retaliate against the U.S. by suspending tariff cuts worth more than $472 million. That retaliation request is subject to a separate arbitration process that will proceed along with the compliance proceedings.

EU LEADERS HAVE NO APPETITE TO TALK TRADE: The European Commission failed to get trade on the agenda of a meeting of European leaders next week after a range of countries opposed adding a full-scale trade debate to summit schedule, POLITICO Europe’s Florian Eder and Hans von der Burchard report.

Last week, the Commission submitted a proposal to the Council to add trade to the summit conclusions, which would send a strong signal of endorsement for Commission President Jean-Claude Juncker’s goal to conclude negotiations with the U.S., ratify a deal with Canada and tackle the difficult issues of Chinese dumping and trade defense. Summit conclusions are published online and are far more valuable than a discussion behind closed doors.

Juncker wanted the conclusions to say that leaders “welcome the progress made” in the ongoing negotiations on a Transatlantic Trade and Investment Partnership and reconfirm the Commission’s mandate to conduct these talks, according to an internal document seen by POLITICO.

EUROPEAN COMMISSION VP: PRIVACY SHIELD READY FOR JULY: Andrus Ansip, the European Commission’s vice president for the digital single market, sat down with U.S. Commerce Secretary Penny Pritzker on Wednesday to go over the final details of the EU-U.S. data transfer agreement known as Privacy Shield, POLITICO Europe’s Laurens Cerulus reports. The EU is “ready to wrap it up in July,” according to a tweet by Ansip.

— Companies have been annoyed at the commission for slow progress and fuzzy communication about the agreement. The EC’s hesitance to finalize the details triggered some to express their “continued frustration” and say the commission is “making a joke out of Europe’s business environment.” We’ll have the full story soon so keep your eyes on your inbox.

NO MORE EASY WAY IN FOR CHINESE, JAPANESE STEEL: The U.S. International Trade Commission has signed off on steep duties for imports of cold-rolled steel flat products from China and Japan after finding domestic industry is being injured by unfair trade practices by those countries. Next up will be a final order from the Commerce Department finalizing the duties, which lawmakers on both sides of the aisle celebrated.

Sen. Sherrod Brown (D-Ohio) applauded the unanimous ITC ruling and said the decision would help steel companies with locations in his home state that he said provide jobs to more than 8,225 residents.

“The surge in unfairly traded steel has shut down factories and put our steelworkers out of jobs,” Brown said in a statement. “Today’s decision will hold China and Japan accountable for their actions and provide needed relief to our domestic steel industry.”

Another Ohioan, Republican Rep. Pat Tiberi, similarly embraced the ruling and called it “great news for jobs and great news for our local economy.”

Commerce last month announced final anti-dumping duties of nearly 266 percent on imports of cold-rolled flat steel products from China and 71 percent on the same product from Japan in a case filed by major U.S. steel producers. Chinese producers will also face a countervailing duty rate of nearly 266 percent.

ICYMI: SENATORS WANT SAY ON CHINA’S ECONOMIC STATUS: Sens. Ben Sasse and Al Franken introduced an amendment this week to give Congress authority to define China’s economy as market-based or non-market-based, a responsibility that currently lies in the executive branch. China’s “non-market economy” designation, established when it joined the WTO in 2001, means the U.S. has more leverage to implement tariffs and anti-dumping measures than if it were a market economy.

But China’s “non-market economy” label is due to expire in December, and the country is pressuring trade officials in the U.S. and elsewhere to upgrade its status. The senators’ amendment would ensure Congress has the authority to determine China’s fate by saying the Commerce Department could not use taxpayer resources to unilaterally grant market-economy status to China.

INTERNATIONAL OVERNIGHT

— A poll finds that trade is more popular with voters in a number of swing states, especially among Democrats, The Hill reports.

— Kenya will soon ratify an agreement that will put it in line with WTO food safety rules, The Star reports.

— Global population growth and a weakening dollar will give a boost to U.S. commodity exports, the Journal of Commerce reports.

THAT’S ALL FOR MORNING TRADE! See you again soon! In the meantime, drop the team a line: abehsudi@politico.com and @ABehsudi; vguida@politico.com and @vtg2; mcassella@politico.com and @mmcassella; dpalmer@politico.com and @tradereporter; mkorade@politico.com and @mjkorade; and jhuffman@politico.com and @JsonHuffman. You can also follow @POLITICOPro and @Morning_Trade.

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