Global Trade and Economic Outlook Plenary Panel

Maureen Smith Jeff Weiss Guido Gries Daniel Krassenstein Bill Clifford Int. Trade Admin./Dept. of Commerce Director of Supply Chain Jeff Weiss Venable LLC Partner Guido Gries Dachser Americas Managing Director Daniel Krassenstein Procon Pacific LLC Global Supply Chain Director Bill Clifford World Affairs Councils of America President and CEO John Carver LAWA Deputy Executive Officer

USC Global Supply Chain Summit Panel: Global Trade and Economic Outlook Jeff Weiss, Esq. Partner, International Trade August 9, 2019 Venable LLP +1 202.997.0752 jweiss@Venable.com

Agenda Evolution of U.S. trade tools Status of U.S.-China trade talks Status of NAFTA/USMCA implementation

Traditional Trade Tools Used to Combat Unfair Trade Antidumping and Countervailing Duties (AD/CVD): Dept. of Commerce enforces U.S. trade laws by conducting antidumping and countervailing duty investigations in response to U.S. industry petitions alleging that imports are being dumped (sold at less than fair value) or unfairly subsidized The independent U.S. International Trade Commission (ITC) determines whether the imports are materially injuring/threatening to materially injure the competing U.S. industry. Affirmative determinations result in an AD/CVD order instructing Customs to collect duties on imports Section 201 of the Trade Act of 1974 (safeguards): The President can impose tariffs or other measures to protect a domestic industry for a limited period of time – with no need to prove dumping or subsidization – provided that the ITC finds that imports are injuring, or threatening to injure, the domestic industry Both AD/CVD and safeguards are permitted and regulated by GATT/WTO rules GATT/WTO rules also allow the U.S. to request WTO dispute settlement against a measure of another WTO member country if it believes that the measure is inconsistent with those rules The WTO dispute settlement process typically takes years. If the case is successful, the U.S. can be authorized by the WTO to impose retaliatory duties against the other country in the amount of the breach, but those duties are prospective only

Traditional Trade Tools Used to Combat Unfair Trade Antidumping and Countervailing Duties (AD/CVD): Dept. of Commerce enforces U.S. trade laws by conducting antidumping and countervailing duty investigations in response to U.S. industry petitions alleging that imports are being dumped (sold at less than fair value) or unfairly subsidized The independent U.S. International Trade Commission (ITC) determines whether the imports are materially injuring/threatening to materially injure the competing U.S. industry. Affirmative determinations result in an AD/CVD order instructing Customs to collect duties on imports Section 201 of the Trade Act of 1974 (safeguards): The President can impose tariffs or other measures to protect a domestic industry for a limited period of time – with no need to prove dumping or subsidization – provided that the ITC finds that imports are injuring, or threatening to injure, the domestic industry Both AD/CVD and safeguards are permitted and regulated by GATT/WTO rules GATT/WTO rules also allow the U.S. to request WTO dispute settlement against a measure of another WTO member country if it believes that the measure is inconsistent with those rules The WTO dispute settlement process typically takes years. If the case is successful, the U.S. can be authorized by the WTO to impose retaliatory duties against the other country in the amount of the breach, but those duties are prospective only

Additional Trade Tools Used by this Administration Rationale: we need to negotiate better, fairer trade deals and have more robust enforcement Section 232 of the Trade Expansion Act of 1962: provides the President with the ability to impose restrictions on certain imports based on an affirmative determination by the Dept. of Commerce that the product under investigation “is being imported into the United States in such quantities or under such circumstances as to threaten to impair the national security” Administered by Commerce/BIS; very rarely used until this Administration Tariffs and quotas imposed on steel and aluminum; potential measures on automobiles Arguably covered by GATT/WTO exceptions for national security, but rarely used Section 301 of the Trade Act of 1974: tool to address unreasonable, unjustifiable, or discriminatory foreign government acts that burden U.S. commerce (whether a WTO issue or not) USTR may self-initiate an investigation or interested persons may petition USTR Tariffs have been imposed on China; investigation against France in process; and the Administration is considering India as a potential next target Not allowed by GATT/WTO rules because it is self-judging, so section 301 had not been used in this way since before the WTO was established in 1995

Additional Trade Tools Used by this Administration (continued) International Emergency Economic Powers Act (IEEPA): the President can take measures if there is an “unusual and extraordinary threat … to the national security, foreign policy, or economy of the United States” that originates “in whole or substantial part outside the United States” Even more broad than just national security or trade Used to justify proposed immigration-related tariffs on Mexico (the tariffs would have started at 5% and been gradually increased to 25% unless Mexico took certain unspecified measures) Anti-currency manipulation measures Designation of China as a currency manipulator Use of currency manipulation by the Commerce Department in calculating anti- subsidy duties We expect this trend to continue The President believes it’s a political winner for him There is broad bipartisan support to go after China in particular One caveat: keep an eye on the economy and markets

Trade Negotiations between the U.S. and China The current redlines of the two sides are incompatible with reaching a comprehensive deal: The U.S. side wants substantial Chinese purchases of U.S. agricultural products, and Chinese agreement to address long-running structural issues, such as allowing greater market access for American companies and boosting protection of intellectual property rights China won’t make changes to its domestic law to implement an agreement on structural issues, which is a must-have for the U.S. (this is the issue that derailed the talks this spring) The U.S. won’t drop the tariffs until it sees Chinese compliance with the agreement, given past U.S. experience in the JCCT and S&ED. The U.S. also wants to be able to impose/re-impose tariffs if it judges China to be out of compliance AND China would not be allowed to retaliate with tariffs of its own (which is unacceptable to China) To get back to the negotiating table, both sides had to publicly reinforce their respective redlines Both sides likely feel that waiting until after 202o to strike a deal is the best strategy The escalations of the past week on tariffs, agriculture, and currency reflect that reality

“U.S.-Mexico-Canada” Agreement (USMCA) In late August 2018, U.S. and Mexico reached a preliminary agreement to replace NAFTA In September 2018, Canada also joined the agreement Mexico ratified the deal in June 2019; Canada is waiting to see what happens in the U.S. Notable provisions of the deal include: Rules of origin tightened for autos and other products Retention of NAFTA state-to-state dispute resolution and a weakened ISDS mechanism Agreement to extend patent protection for certain types of pharmaceuticals from eight to ten years Stronger labor and environmental commitments ITC Report found that the deal would increase U.S. GDP by 0.35% and U.S. employment by 0.12% by its sixth year, assuming full compliance; C.D. Howe Institute found that the deal would slightly decrease U.S. GDP House Democrats want to re-open the deal to address labor, environment, pharmaceuticals, and enforcement concerns, whereas the Administration does not; negotiations with USTR have just began Timing: USMCA implementation seems possible in the fall, but more likely that the agreement remains in limbo until after November 2020

Questions?

Partner, International Trade jweiss@Venable.com Jeff Weiss, Esq. +1 202.997.0752

Krassenstein – 09-Aug-2019 – USC GSCM 2019

Procon Pacific - Global Supply Chain Director 30 Years Global Supply Chain AmCham Shanghai Board (past) OSAC Shanghai Exec Board Mandarin & Spanish fluency Adjunct Professor UCLAx Daniel M. Krassenstein USC Marshall School of Business MS Global Supply Chain Mgt LSS Green Belt (Black Belt soon) Guest Lecturer USC Marshall Center for GSCM Advisory Committee (China Ambassador) Krassenstein – 09-Aug-2019 – USC GSCM 2019

Largest FIBC (Big Bags) importer to North America from China AIB, BRC, Kosher, HACCP, ISO 22000 & C-TPAT Certified Shanghai WFOE with J/V factories in Jiangsu, Shandong & Chongqing. India sharp production growth Krassenstein – 09-Aug-2019 – USC GSCM 2019

2017 PROBLEM STATEMENT Overreliance on China Procon is vulnerable to labor cost increases, strict EPA disruptions/costs and US-China trade conflict risks. Krassenstein – 09-Aug-2019 – USC GSCM 2019

AGILE QUICK, RESOURCEFUL AND ADAPTABLE 2008 = 100% Jiangsu production 2010 = 80% Jiangsu, 20% Shandong 2015 = 50% Shandong, 40% Jiangsu, 10% Chongqing 2019 = 50% India, 40% China, 10% Vietnam 2020 = Probable: 60% India, 20% China, 20% Vietnam Krassenstein – 09-Aug-2019 – USC GSCM 2019

危(wéi)险(xiǎn) = Dangerous 机(Jī) 会(huì) = Opportunity CRISIS = OPPORTUNITY 危(wéi)机(jī) = Crisis 危(wéi)险(xiǎn) = Dangerous + 机(Jī) 会(huì) = Opportunity Krassenstein – 09-Aug-2019 – USC GSCM 2019

OPPORTUNITY LABOR COST SAVINGS Krassenstein – 09-Aug-2019 – USC GSCM 2019

KEY CHALLEGES Staffing – Asia HQ in Shanghai, some shift to India Delivery Time Integrity – LSS Black Belt Analysis Production Lead Time Origin/Feeder Pre-Line Haul Time Line-Haul Sail Time North America Port to Delivery QC Auditing Cultural Learning Remain Nimble for Future Changes Krassenstein – 09-Aug-2019 – USC GSCM 2019

LAX and its Role in Global Trade John Carver Deputy Executive Director jcarver@lawa.org

79.4% 44/6 2.3MAT/#1 4th/2nd 737 74 87.6M It’s about the numbers! 737 74 87.6M 4th/2nd – passenger numbers ranking in world/U.S. 737: Daily nonstop domestic flights 2.3 Annual Tons of Air Cargo 87.6M – 2017 passenger numbers 74 – carriers 79.4% - Percentage of passengers at LAX that were origination or destination passengers Meaning that we have to deal with more traffic than airports that are “hub” airports 44 countries/6 continents 79.4% 44/6

It’s about the numbers! 2.3MAT/#1 4th/2nd 737 74 87.6M 3,821 4th/2nd – passenger numbers ranking in world/U.S. 737: Daily nonstop domestic flights 2.3 Annual Tons of Air Cargo 87.6M – 2017 passenger numbers 74 – carriers 79.4% - Percentage of passengers at LAX that were origination or destination passengers Meaning that we have to deal with more traffic than airports that are “hub” airports 44 countries/6 continents 79.4% 44/6

Los Angeles World Airports – 3,821 Acres

LAX Trade Activity Today Far More Globally Driven As for most U.S. airports, calendar year 2000 had been LAX’s peak year followed by recession surrounding 9/11 and then an even worse recession in 2008/9. LAX has experienced relatively steady growth since 2009, surpassing 2 million metric tonnes in 2016 for the first time since 2000 and establishing new annual cargo records consecutively in 2017 & 2018. International cargo first overtook domestic cargo at LAX in 2004. That margin widened almost every year since to the point that LAX’s international freight is now almost double its domestic freight. Source: Data from Los Angeles World Airports with analysis by L&B

Importance of Global Trade to US Transcontinental Carriers While U.S. international gateways typically consider international passenger operations as their top priority, airport operators must recognize that cargo revenues are critical to many of these carriers’ business models. Freighter-operating Asian combination airlines such as Cathay Pacific, China Airlines, EVA Air and Korean Air rely on cargo revenues for more than 20% of their total revenues. Source: Data U.S. Census Bureau with analysis by L&B

LAX Role in Global Trade Year 2018 Measures Air Exports SWT (kg) Air Exports Value ($US) Exports Chicago, IL (Port) 536,769,971 51,227,977,573 Los Angeles International Airport, CA (Port) 436,570,143 57,284,827,804 JFK International Airport, NY (Port) 407,327,704 92,486,040,427 Miami International Airport, FL (Port) 306,812,284 35,490,032,303 Cleveland, OH (Port) 204,081,455 35,533,780,627 New Orleans, LA (Port) 169,034,572 34,522,872,334 Atlanta, GA (Port) 160,448,372 20,244,508,536 Dallas-Fort Worth, TX (Port) 144,640,720 23,341,326,514 San Francisco International Airport, CA (Port) 143,120,522 29,795,910,976 Houston Intercontinental Airport, TX (Port) 118,028,196 8,375,040,018 According to data provided by the U.S. Census Bureau, the LAX Customs Port accommodated a combined a total of more than one billion kilos of exports and imports with a combined value of almost $ 120 billion. LAX trailed only the Chicago O’Hare Customs Port in air exports (ranked by weight) and trailed only Chicago and Miami International Airport in air imports (by weight). LAX’s air exports and imports more than doubled that of Atlanta and roughly tripled that of Dallas/Ft. Worth and San Francisco. Year 2018 Measures Air Imports SWT (kg) Air Imports Value ($US) Imports Chicago, IL (Port) 834,979,809 125,349,354,055 Miami International Airport, FL (Port) 647,435,757 25,004,623,398 Los Angeles International Airport, CA (Port) 641,145,991 62,382,501,443 JFK International Airport, NY (Port) 622,118,371 100,160,136,873 Atlanta, GA (Port) 247,850,375 35,113,595,029 New Orleans, LA (Port) 221,140,120 48,110,119,131 San Francisco International Airport, CA (Port) 207,018,883 36,413,525,427 Newark, NJ (Port) 170,808,961 25,651,375,596 Dallas-Fort Worth, TX (Port) 167,846,487 30,291,927,243 Cleveland, OH (Port) 156,631,845 26,746,610,191 Source: Data U.S. Census Bureau with analysis by L&B

LAX Air Cargo Modernization In an effort to modernize its air cargo infrastructure, LAWA is evaluating the replacement of aging cargo facilities with a consolidated and integrated air cargo complex. LAWA seeks to inspire innovative technologies, state of the art handling systems, and to otherwise leverage private sector expertise through a P3 model as it continues to explore transformation of its air cargo infrastructure. LAWA expects its next-gen cargo facilities to become the first multi-level cargo buildings in the US, building upon the early multi-level pioneers in East Asia and Middle East. Examples shown above and to the left.

Palmdale LAWA continues to hold the FAA designation for air service in Palmdale, airport code PMD, This airfield could represent a downstream opportunity to create a dynamic global trade port connecting the Southern California economy with direct access to International supply chain destinations. LAWA welcomes the creative input of USC Supply Chain Management experts to help assess and validate the potential for optimizing PMD as a logistics solution to serve the Western U.S. 17,000 Acres

Thank You! #flyLAX airport

Statistics and trends in international trade Guido Gries Managing Director DACHSER Americas Air & Sea

DACHSER Intelligent Logistics Company overview

Global network The intercontinental connection is provided by DACHSER Air & Sea Logistics' global network Shipments across Europe are handled by the closely knit Food Logistics and European Logistics networks Seamless visibility and integration via Dachser The worldwide warehouse network (177 own warehouses) offers high levels of quality and functionality and rounds off the service portfolio Air & Sea Logistics location Road Logistics location

Corporate figures 2018 41.3m tons 83.7 m Tonnage Shipments 30,609 5.6bn € Employees Revenue (net, consolidated)* 55.4 % 44 399 2.6m m² Equity ratio Countries Own locations Warehouse space in 171 locations 234 m € Invest. volume 2019 *As of 2019, group and business field revenue are reported as net consolidated figures.

Trends in international trade Indicators & measures

Industry changes’ effects on trade We see already some industries on the verge of change due to technological progress and automatization The automotive industry is fast heading towards a new phase: the electronic era The enforcement of tariffs are accelerating these changes

DACHSER trade barometer showing a mild decline Visible deceleration of the global trade growth: Slight negative growth of global trade Global PMI reaching below Oct 2012 according to ISA* Negative forecasts for air and ocean trade Negative outlook due to the decline in China decreased by 7% => trade and tariffs are reducing imports US-China trade conflict is creating a shift in trade routes and supply chains *Institute for Supply Management

US – China trade dispute affects China exports to US Container volumes decrease => a 6.5% reduction in Chinese exports to US ports Overall US container imports grew by 2.9%, as most origin countries recorded volume increases Vietnam recorded the largest increase => 30.7% Total containerized inbound cargo in TEU Millions Source: Alphaliner based on analysis derived from PIERS data

Main Trade Lanes Development (average CAGAR 2020e - 2023e in brackets) Ocean Freight Main Trade Lanes Development (average CAGAR 2020e - 2023e in brackets) + 3.9 % Global Container Trade 2019: 151.2 mil. TEU North America incl. Mexico 18.5 North America - Europe (+1.5%) 2.3 40.7 Europe 7.3 APAC - N. America (+3.4%) Europe - APAC (2.2%) 4.3 14.6 Europe - N. America (+2.2%) Intra-Asia (+3.8%) 7.6 N. America - APAC (+3.0%) APAC - Europe (+3.8%) APAC 0.4 2.0 Europe - S. America (+3.4%) S. America (+4.4%) - Europe S. America - N. America (+3.9%) N. America - S. America (+3.0%) 1.7 4.4 APAC - S. America (+4.9%) S. America - APAC (+4.0%) 1.7 1.5 South America Volume in million TEU 2019e Source: Seabury, June 19, 2019 Source: Seabury, June 19, 2019

Bill Clifford World Affairs Councils of America President and CEO