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Daily Memo: Russian Money and NAFTA Talks

All the news worth knowing today.

GPF Staff |August 11, 2018

The Russian government has set its sights outside the energy sector in its search for new sources of revenue. President Vladimir Putin is studying a tax proposal that would give the government an additional $7.6 billion from metals, mining, petrochemical and chemical companies. The study will also include an assessment of how they would affect investment. It’s clear that the government feels its financial constraints, but it’s unclear how much its efforts to break free of them will rankle other companies, many of which have already expressed their opposition to the proposal. At this point, confrontation seems inevitable.

The defense ministers of India and China are trying to regain each other’s confidence. China’s will soon travel to New Delhi, and India’s will take a goodwill tour of China next week. The ministers will also set up a hotline between their armies to reduce the risk of conflict breaking out. These mark the first high-level military visits since the standoff at Doklam, where it appeared the two militaries were on the brink of conflict. Token ministerial niceties aren’t enough to allay the deeply held concerns each side has of the other, but the countries appear to be setting aside their differences to manage matters at home and deal with the United States.

Mexico and the U.S. are talking rules of origin in NAFTA. Canada is sitting on the sidelines. The U.S. continues to play hardball, having reportedly refused to budge on its calls for 75 percent local content as a baseline, with 40-45 percent of regional content coming from high-wage zones (the U.S. and Canada). Washington is, moreover, now overtly linking the talks with potential tariffs on automobiles and auto parts. The U.S. proposal now includes a measure to exempt existing Mexican auto plants from the tariffs, which would still apply to any new Mexican auto plants. Mexican media indicate that Mexico is willing to be more flexible on rules of origin for automobiles with the U.S. in exchange for leeway in other areas – eliminating the sunset clause and keeping the dispute resolution mechanism, for example. Still, the current proposal is too steep even for Mexico, so bilateral talks on the issue will continue into next week. Meanwhile, Canada remains in direct contact with its counterparts but is staying out of it until its southern neighbors resolve the questions on automobiles. This doesn’t mean Washington has forgotten about Canada – President Donald Trump recently threatened Ottawa over its high tariffs and trade barriers. The current goal is for an agreement in principle by the end of the month. Meeting that goal will require some major concessions over the next couple of weeks.

Honorable Mentions

  • The U.S. secretary of defense will leave for his first South America tour on Sunday. Stops include Brazil, Argentina, Chile and Colombia.
  • The defense ministers of South Korea and India discussed denuclearization efforts on the Korean Peninsula and areas for increased defense cooperation.
  • A security vehicle for a music festival in northwest Amman exploded Friday. The Jordanian Interior Ministry confirmed that the blast came from an explosive device intentionally placed in the security parking area.
  • Tens of thousands of Romanians took to the streets to protest the government, low wages, attempted judiciary reforms and corruption.
  • Russia’s Pacific Fleet conducted exercises in the Sea of Japan that simulated a joint missile strike against enemy warships, repelling air attacks and providing assistance to distressed ships.
  • Iranian Foreign Minister Javad Zarif said he had no plans to meet with his U.S. counterpart.