Tag: wto

U.S. Trade Policy Agenda in 2019? Fixing What’s Been Breaking Since January 20, 2017

Upon taking office in 2017, President Trump accused trade partners of underhandedness, demonized U.S. companies with foreign supply chains, and perpetuated the false narrative that trade is a zero-sum game requiring an “America First” agenda. He withdrew the United States from the Trans-Pacific Partnership, threatened to pull out of North American Free Trade Agreement and the Korea-U.S. Free Trade Agreement, and initiated a war of attrition against the World Trade Organization by refusing to endorse any new Appellate Body judges until his unspecified demands were met. Yet, those were still the halcyon days of trade.

In 2018, straining all credulity, the Trump administration dusted off a seldom-used law (Section 232 of the Trade Expansion Act of 1962) to impose tariffs on imported steel and aluminum from most countries on the basis that national security is threatened by U.S. dependence on foreign sources of these widely available commodities.

Later in the year, invoking another controversial U.S. trade statute (Section 301 of the Trade Act of 1974), which is widely considered an act of vigilantism under WTO rules, the administration announced tariffs on $50 billion worth of imports from China for alleged unfair practices, such as forced technology transfer and intellectual property theft. When Beijing retaliated with tariffs on U.S. agricultural products, Trump announced that he would hit another $200 billion of imports from China with tariffs. Once again, Beijing responded by broadening its list of targeted U.S. products and the president subsequently threatened to apply U.S. levies to all imports from China (over $500 billion in 2017).

To be fair, U.S. trade policy in 2018 wasn’t only rancor, hostage-taking, and trade war. Juxtaposed against this contentious, grievance-based, enforcement-oriented U.S. posture was some “trade liberalization.” Instead of withdrawing from NAFTA and KORUS, the Trump administration renegotiated both. Both included some liberalizing provisions, but also some lamentable, protectionist retrogression, which wasn’t totally unexpected given that, in both cases, U.S. insistence on renegotiation was motivated less by an interest in updating, expanding, and modernizing the agreements than by a desire to revise provisions that would—at least nominally—tilt the playing field in favor of U.S. workers and certain manufacturers.

As 2019 begins, five major issues cast long shadows over the trade policy landscape. First is whether and how the U.S.-China trade war will be contained, scaled back, and ultimately ended. Second is the looming possibility that the Trump administration will invoke national security to impose sweeping new tariffs on automobile imports. Third is the question of whether and when Congress will pass the implementing legislation for the new NAFTA (the United States-Mexico-Canada Agreement or USMCA). Fourth is whether, when, and how the crisis at the WTO will be resolved. And fifth concerns whether the Trump administration has the wherewithal to make good on its stated intentions of negotiating new trade agreements with Japan, the European Union, the Philippines, possibly the United Kingdom, and other countries. With much of the rest of the world moving forward with a slew of new trade agreements and the United States stuck on revamping old deals, the real and opportunity costs to U.S. businesses, consumers, and taxpayers continue to mount.

Throughout the year ahead, these major issues will be the predominant focus of the research and writing of the Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies.

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How the World Trade Organization Can Curb China’s Intellectual Property Transgressions

Quite rightly, President Donald Trump and his Administration are targeting the transgressions of China against US intellectual property rights in their unfolding trade strategy. But why not use the WTO rules that offer a real remedy for the United States without resorting to illegal unilateral action outside the WTO?

Seventeen years after China joined the WTO, China still falls considerably short of fulfilling its WTO obligations to protect intellectual property. About 70 percent of the software in use in China, valued at nearly $8.7 billion, is pirated. The annual cost to the US economy worldwide from pirated software, counterfeit goods, and the theft of trade secrets could be as high as $600 billion, with China at the top of the IP infringement list. China is the source of 87 percent of the counterfeit goods seized upon entry into the United States.

One possible response by the United States is the one the Trump Administration seems to be taking: slapping billions of dollars of tariffs on imports of more than 100 Chinese products through unilateral trade action. Given its protectionist predilections, taking this approach is surely tempting to the Trump Administration. Doing so will, however, harm American workers, businesses, and consumers, and contribute to further turmoil in the global economy.

Disciplining China at the WTO

The scope of the Trump administration’s Section 232 “national security” tariffs is filled with uncertainty – exemptions are being negotiated this week – but we are already on to the next set of aggressive trade moves: reports suggest that the administration will announce tariffs on imports of Chinese products today, as punishment for China’s alleged unfair trade practices. This would be a unilateral response to China’s practices, with the U.S. Trade Representative acting as the judge, jury, and executioner. This approach may not be all that effective in getting China to change, and risks retaliation by China.

But there is another way: Bring complaints against China to the WTO, and get rulings from a neutral arbiter on these practices.

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Can the WTO Handle China?

We often hear arguments that the World Trade Organization cannot handle an economy like China’s, with its heavy state intervention. Trade rules are just not up to this task, some people say. Here’s a recent example from a Wall Street Journal article entitled “How China Swallowed the WTO”:

Rather than fulfilling its mission of steering the Communist behemoth toward longstanding Western trading norms, the WTO instead stands accused of enabling Beijing’s state-directed mercantilism, in turn allowing China to flood the world with cheap exports while limiting foreign access to its own market.

“The WTO’s abject failure to address emerging problems caused by unfair practices from countries like China has put the U.S. at a great disadvantage,” Peter Navarro, a trade adviser to President Donald Trump, said in an interview.

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Trump’s Fear of the WTO

President Trump’s speech at the UN General Assembly yesterday has been getting a lot of attention, mostly for issues other than trade. But he did mention trade briefly:

For too long, the American people were told that mammoth multinational trade deals, unaccountable international tribunals, and powerful global bureaucracies were the best way to promote their success.  But as those promises flowed, millions of jobs vanished and thousands of factories disappeared.  Others gamed the system and broke the rules.  And our great middle class, once the bedrock of American prosperity, was forgotten and left behind, but they are forgotten no more and they will never be forgotten again.  

Almost everything in all of these sentences is misleading or inaccurate, but I’m going to focus on just the first sentence.  The reference to “multinational” trade deals – usually the word “multilateral” is used here – probably means the World Trade Organization (WTO), which has 164 countries in it.  From 1999 through 2001, I worked at the WTO, so I have some familiarity with the system he is criticizing.  Let’s go through his points one by one.

His first complaint is that these multinational trade deals are “mammoth.” He is right in a sense. There are thousands of pages of WTO legal texts. Let’s talk about why that is.

First of all, a large chunk of this is made up of what are referred to as schedules of tariff reductions. Each country in the WTO makes commitments, on a product by product basis, not to charge above a certain tariff (e.g., no higher than 10% on passenger cars). Clearly, it would be simpler and better if each country just agreed, in one sentence, to charge zero tariffs on all products. But for political reasons, this is the best we can do right now.

Beyond the tariff reductions, there are also long substantive texts of trade rules. For example, the Agreement on Trade-Related Aspects of Intellectual Property Rights is 28 pages. The Agreement on the Application of Sanitary and Phytosanitary Measures is 14 pages. But keep in mind here that many of the rules of this sort have been demanded by the U.S. government on behalf of U.S. business interests as a way to open foreign markets. Certainly, you could shorten the trade deals by excluding some of these rules. But they are mostly rules that somebody in the U.S. government or business community thinks are in the U.S. interest.

Trump and his team have been talking about pulling away from the multilateral, towards the bilateral. It’s possible they think this will somehow make trade deals less “mammoth,” but the reality is it would simply mean many more deals, all of which would be around the same length in terms of the rules they establish. If you are pursuing the same policies, for example on intellectual property protection, you would have the same rules in multiple agreements. All this would add to the system is complexity.

The second issue is Trump’s reference to “unaccountable” international tribunals. Unaccountable is a common term used to criticize courts, as judges are not usually elected. But if you want rules enforced, it is necessary to have some sort of judicial system to adjudicate complaints (as Trump does above, the U.S. often complains about other countries breaking the rules). Are the WTO tribunals any more “unaccountable” than domestic courts? It’s a complex comparison, but at the least, the WTO tribunals are accountable to the governments who are the members of the WTO: The WTO appeals judges are appointed directly by the governments themselves. The Trump administration can argue for scaling back the power of WTO tribunals, but it will come at the expense of enforcement of U.S. complaints about foreign protectionism.

Finally, Trump expresses a concern about powerful global bureaucracies. Here, it is important to understand how little power the WTO itself has. It is commonly said that the WTO is a “member driven” organization. People working at the WTO Secretariat are, for the most part, working on behalf of the governments who are members of the WTO. And there really aren’t all that many people there. The total number of staff is 634. That’s a pretty small number, and keep in mind that many of these people are technical and administrative staff, or economists gathering data. One area where you could argue that the bureaucracy has its own power is in the dispute process, discussed in the previous point. But here we should keep in mind the limits of that power. These tribunals can make rulings, but governments can and have ignored them when they disagree. One prominent example is a late 1990s ruling that an EU ban on hormone treated meat violates WTO rules. Well, the EU still bans hormone treated meat, and shows no sign of bowing to this “powerful”global bureaucracy. The U.S. has ignored a few rulings too, sometimes caving in to pressure eventually, but other times simply maintaining laws that violate WTO rules.

Trump and his team have focused much of their attention so far on renegotiating NAFTA, but there is a good chance they will propose changes to the WTO at some point, most likely in relation to the dispute process. There is always room for refinement of trade rules, so there is no need to panic just yet, but Trump’s misunderstandings of the WTO are not a good sign.

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The WTO Does Not Usurp U.S. Sovereignty

With steel industry lawyers and executives populating key trade policy positions in the Trump administration, we are witnessing the return of an old, rusty narrative that portrays the World Trade Organization as unaccountable global government intent on running roughshod over U.S. sovereignty.  On the Forbes website, today, I explain why that is a protectionist canard.

Here are the opening paragraphs:

John Bolton took to the pages of the Wall Street Journal yesterday to assert America’s interest in abandoning international institutions that threaten U.S. sovereignty. In identifying the World Trade Organization’s Dispute Settlement Body as such an institution, Bolton was reinforcing a central theme of the Trump administration’s recently-minted 2017 Trade Policy Agenda. That document is short on specifics, but makes one thing clear: Under threat of going rogue, the United States will leverage its indispensability to compel changes at the WTO that accommodate a more expansive, less surgical application of domestic trade laws.

“Defending our national sovereignty over trade policy” and “strictly enforcing U.S. trade laws” are, explicitly, the top two priorities on the agenda. Taken together, those priorities suggest the Trump administration will aggressively execute U.S. trade laws with little regard for whether that execution violates internationally-agreed rules established to prevent and discourage abuse of such laws. Agreeing that “all animals are equal,” then adding the famous caveat “but some are more equal than others” is what is meant by “defending our national sovereignty.”

Given the prominence of domestic steel industry representation in the Trump administration, these priorities aren’t surprising. High on the list of talking points of the Washington-swamp-savvy U.S. steel lobby is the assertion that the WTO’s DSB, by finding U.S. antidumping and countervailing duty practices in violation of WTO obligations on numerous occasions over the years, usurps U.S. sovereignty over its own laws. This is a complaint frequently made by Robert Lighthizer, Trump’s USTR-designate, who for decades has represented domestic steel interests in AD/CVD cases before U.S. agencies.

And here are the concluding paragraphs:

The prominence of the claim that U.S. sovereignty is threatened reflects the over-representation of steel interests in the Trump administration. It is intended to add credibility to the implied threat that the United States will ignore DSB rulings with which it disagrees unless and until there are changes made to the WTO texts that render compliant the United States’ non-compliant actions on trade remedies.  But it is irresponsible to risk blowing up the system, especially on behalf of an industry that accounts for less than 0.3 percent of the U.S. economy.

The bottom line is that the WTO dispute settlement system, though not perfect, offers a reasonable formula for balancing the simultaneous imperatives of preserving the rule of international trade law and national sovereignty.

But there are many paragraphs in between that I hope you will find time to read here.

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Clayton Yeutter, RIP

After a long battle with cancer, Ambassador Clayton Yeutter passed away on Saturday at the age of 86 at his home in Potomac, Maryland. With his passing, the world parts not only with a brilliant, effective, accomplished leader, but an extraordinarily generous, decent man whose enduring kindness and humble demeanor made politics and policymaking in Washington more tolerable for all involved.

Clayton Yeutter had a long an illustrious career spent in both the private and public sectors, as well as in academia, but he is probably best known for his service during the Ronald Reagan and George H.W. Bush administrations.

As Reagan’s U.S. Trade Representative from 1985 to 1989, Ambassador Yeutter presided over implementation of the very first U.S. bilateral free trade agreement (with Israel) and he launched and oversaw negotiation of the U.S.-Canada Free Trade Agreement, which evolved into the North American Free Trade Agreement, to include Mexico, in 1994.

As USTR, Ambassador Yeutter also launched and advanced the “Uruguay Round” of multilateral trade negotiations in 1986, under the auspices of the General Agreement on Tariffs and Trade, which resulted in broader and deeper reductions in global barriers to trade than had previously been achieved, and it established the World Trade Organization in 1995.

During the first two years of the George H.W. Bush administration (1989-91), Yeutter served as Secretary of Agriculture, where he was instrumental in steering U.S. agricultural policy back to a more market orientation, from which it had deviated in the mid-1980s. The 1990 farm bill (The Food, Agriculture, Conservation, and Trade Act of 1990) included reductions in agricultural subsidies that were negotiated during the Uruguay Round.

Yeutter held other high-profile positions, including an eight-year stint as President and CEO of the Chicago Mercantile Exchange—a period during which the volume of trade in agricultural, currency, and interest rate futures more than tripled. He served as Republican National Committee Chairman for two years, following the death of Lee Atwater.

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