37609 (Author at Cato Institute) https://www.cato.org/rss/people/37609 en Simon Lester discusses the trade negotiations between China and the US on Hearst TV https://www.cato.org/media-highlights-tv/simon-lester-discusses-trade-negotiations-between-china-us-hearst-tv?utm_source=author&amp%3Butm_medium=rss&amp%3Butm_campaign=rss Sun, 15 Sep 2019 11:13:44 -0400 Simon Lester https://www.cato.org/media-highlights-tv/simon-lester-discusses-trade-negotiations-between-china-us-hearst-tv?utm_source=author&amp%3Butm_medium=rss&amp%3Butm_campaign=rss Of Precedent and Persuasion: The Crucial Role of an Appeals Court in WTO Disputes https://www.cato.org/free-trade-bulletin/precedent-persuasion-crucial-role-appeals-court-wto-disputes?utm_source=author&amp%3Butm_medium=rss&amp%3Butm_campaign=rss Simon Lester, James Bacchus <div class="lead text-default"> <p>In many domestic legal systems, the highest court has a special role in interpreting the constitutional or other foundational documents of the society. The precedents it sets through its interpretations do more than simply resolve a dispute, they also create a body of law for lower courts to apply and for the high court itself to follow in the future. This reliance on precedent provides certainty and foreseeability to individuals, businesses, and other domestic actors within the society. They can have confidence that they know what the law is and how it will be applied.</p> </div> , <div class="text-default"> <p>In the arena of international law there is no single high court. There are, however, various international tribunals and other judicial and quasi-judicial bodies that play a similar role with respect to specific international jurisdictions. Yet these decisions have no binding force except between the parties and in respect to that particular case. Thus, there is no rule of stare decisis&mdash;no rule of precedent&mdash;in international law.</p> <p>Nonetheless, in practice, international legal rulings do provide guidance to participants as to what the legal obligations mean. While there is no formal system of precedent, there is an informal practice of taking into account past rulings to help ensure certainty and foreseeability for those who are affected by the rulings.</p> <p>The precise role for precedent appears to be one of the main causes of the current crisis involving the Appellate Body of the World Trade Organization (WTO). The United States is blocking appointments of new judges to fill vacancies on the Appellate Body, which could prevent the tribunal from hearing new appeals and thus threatens to undermine the continued functioning of the WTO dispute settlement system. One of the reasons the United States cites as a justification for its stonewalling of new judicial appointments is the Appellate Body's alleged treatment of its past rulings as binding precedent. In the view of the United States, the approach taken by the Appellate Body strays from the mandates of WTO dispute settlement rules and is not appropriate for the world trading system.</p> <p>In this brief commentary, we examine the U.S. objections to the use of previous legal judgments in new disputes, and we offer some suggestions for how best to move forward on this issue. In doing so, we consider several underlying questions: What is the value of having an appeals court in international trade disputes? What is the proper role of previous legal interpretations in resolving new disputes? What standard has the Appellate Body created in this regard? How would the alternative approach proposed by the United States differ? And how, if adopted, would the approach favored by the United States impact the world trading system?</p> </div> , <div class="text-default"> <h2>The Creation of the Appellate Body</h2> <p>The Uruguay Round of the General Agreement on Tariffs and Trade (GATT) negotiations was transformative in numerous ways, not least in the establishment of the World Trade Organization in 1995. However, the creation of an appeals court for disputes was not thought at the time to be the most significant change. Appeals were expected to be somewhat narrow in scope and frequency, and thus the role of the Appellate Body would be limited. The reality turned out to be very different: about 70 percent of WTO cases were appealed, and the number and depth of the issues appealed were much greater than anticipated.</p> <p>Despite the restrained expectations of the drafters, however, the Appellate Body&rsquo;s value has become clear. Before the WTO, when GATT panels operated without an appeals mechanism, panel reports often diverged on core principles. One GATT panel might interpret the national treatment principle of nondiscrimination one way, while another would interpret it another way. That made understanding and applying GATT legal obligations very difficult, and it undermined certainty and foreseeability in the rules-based trading system. How could a nondiscrimination obligation be enforced fairly and appropriately when governments, businesses, and other actors did not even know what it meant?</p> <p>Through its clarifications in WTO dispute settlement, the Appellate Body has brought more consistency, and thus certainty and foreseeability, to the meaning of WTO law. Like every other institution of human making, the Appellate Body is not perfect. But it has significantly improved upon the sometimes confused situation that existed under the GATT. Some people may have forgotten those past difficulties, but if the Appellate Body is lost because of the current crisis, there will be a quick and harsh reminder of why it was established in the first place.</p> <h2>Precedent and Predictability</h2> <p>In domestic legal systems, we talk about the precedents that high courts create, with stare decisis as its strongest expression. In international law, by contrast, because there is no formal system of precedent, courts are not bound by their past reasoning. At the same time, if a court reasoned in a particular way on the meaning of a particular legal obligation one time, it would be surprising to see it reason in a different way on the meaning of that same legal obligation in the future. If the judges are the same, it is even more likely that the reasoning will be consistent. But just as with domestic legal systems, as time goes on and as judges change, the likelihood of the occurrence of divergent reasoning increases.</p> <p>The WTO Dispute Settlement Understanding provides some guidance on this point. Article 3.2 states: &ldquo;The dispute settlement system of the WTO is a central element in providing security and predictability to the multilateral trading system.&rdquo; Consistent reasoning over time in the clarification of WTO obligations is a key element of ensuring security and predictability. If legal reasoning about the meaning of an obligation were to change from one case to the next, the multilateral trading system would have neither security nor predictability.</p> <p>That provision also states: &ldquo;Recommendations and rulings of the DSB [Dispute Settlement Body] cannot add to or diminish the rights and obligations provided in the covered agreements&rdquo; of the WTO Agreement. Thus, the job of members of the Appellate Body and panels is to clarify the meaning of the WTO legal obligations that already exist. It is not to invent new obligations, and it is not to erase existing obligations.</p> <h2>The Appellate Body&rsquo;s Approach</h2> <p>The Appellate Body has been aware of the potential controversies since it was founded. In its first appeal, <em>United States&mdash;Gasoline</em>, the Appellate Body made its frequently quoted statement that the GATT &ldquo;is not to be read in clinical isolation from public international law.&rdquo;<sup><span id="endnote-001-backlink"><a href="#endnote-001">1</a></span></sup> Then, in its second case, <em>Japan&mdash;Alcohol</em>, the Appellate Body addressed the role of previous cases. It noted that adopted GATT panel reports &ldquo;are an important part of the GATT acquis&rdquo; and &ldquo;are often considered by subsequent panels.&rdquo;<sup><span id="endnote-002-backlink"><a href="#endnote-002">2</a></span></sup> The previous reports &ldquo;create legitimate expectations among WTO Members, and, therefore, should be taken into account where they are relevant to any dispute.&rdquo;<sup><span id="endnote-003-backlink"><a href="#endnote-003">3</a></span></sup> But importantly, the Appellate Body also made clear in that appeal that such reports &ldquo;are not binding, except with respect to resolving the particular dispute between the parties to that dispute.&rdquo;<sup><span id="endnote-004-backlink"><a href="#endnote-004">4</a></span></sup> The Appellate Body was trying at the outset of the WTO dispute settlement system to establish boundaries that allow for recourse to past interpretations of WTO legal obligations where the same obligations must be clarified in a current dispute, while also respecting its mandate in the Dispute Settlement Understanding.</p> <p>In 2008, the Appellate Body was confronted with this issue again in the appeal in <em>US&mdash;Stainless Steel (Mexico)</em>. This time it employed a phrase that has since caused increasing consternation, mainly for the United States. At the panel level in that case, the European Communities argued that in order for a panel &ldquo;to depart from previous Appellate Body findings,&rdquo; the panel &ldquo;would have to identify cogent reasons for why it proposes to take a different direction.&rdquo;<sup><span id="endnote-005-backlink"><a href="#endnote-005">5</a></span></sup> In its own submissions in that case, the United States, at one point, also used the term &ldquo;cogent reasons,&rdquo; although it did not assert that this should necessarily be the relevant legal standard.<sup><span id="endnote-006-backlink"><a href="#endnote-006">6</a></span></sup></p> <p>On appeal, the Appellate Body adopted this cogent reasons standard, stating:</p> </div> , <blockquote class="blockquote"> <div> <p>Dispute settlement practice demonstrates that WTO Members attach significance to reasoning provided in previous panel and Appellate Body reports. Adopted panel and Appellate Body reports are often cited by parties in support of legal arguments in dispute settlement proceedings, and are relied upon by panels and the Appellate Body in subsequent disputes. In addition, when enacting or modifying laws and national regulations pertaining to international trade matters, WTO Members take into account the legal interpretation of the covered agreements developed in adopted panel and Appellate Body reports. Thus, the legal interpretation embodied in adopted panel and Appellate Body reports becomes part and parcel of the <em>acquis</em> of the WTO dispute settlement system. Ensuring &ldquo;security and predictability&rdquo; in the dispute settlement system, as contemplated in Article 3.2 of the DSU, implies that, <em>absent cogent reasons</em>, an adjudicatory body will resolve the same legal question in the same way in a subsequent case.<sup><span id="endnote-007-backlink"><a href="#endnote-007">7</a></span></sup></p> </div> </blockquote> <cite> </cite> , <div class="text-default"> <p>All the factual descriptions provided by the Appellate Body in this paragraph are accurate. Governments <em>do</em> attach significance to reasoning provided in previous panel and Appellate Body reports; adopted panel and Appellate Body reports <em>are</em> cited by parties in support of legal arguments in dispute settlement proceedings; and those reports <em>are</em> relied upon by panels and the Appellate Body in subsequent disputes. The use of the phrase &ldquo;absent cogent reasons&rdquo; by the Appellate Body was, however, new, and that phrase does not appear in the WTO Agreement. It is not treaty language; it is interpretive language used to clarify the treaty. And any language that is new will inevitably provoke questions as to its significance. In particular, new language will inspire questions as to whether it is truly different and therefore adds something new to the line of judicial interpretation, or whether it is only an alternative way of restating the same legal perspective.</p> <p>In our view, the use of the phrase &ldquo;absent cogent reasons&rdquo; was essentially a restatement of the position previously expressed by the Appellate Body that, where the legal issues are the same, it is appropriate and to be expected that panels will rely on Appellate Body reasoning and rulings in previous disputes. Panels are free not to do so. There is, to be sure, no rule of stare decisis in the WTO. And yet legal issues are subject to appeal, which means that the panel&rsquo;s legal judgments can be overturned by the Appellate Body. So, practically speaking, it is only to be expected that when panels choose to depart from previous Appellate Body reasoning and rulings they will try their best to explain their reasons in order to prevent a quick reversal on appeal.</p> <p>The Appellate Body itself is free to depart in subsequent appeals from its reasoning and rulings in previous appeals. Again, there is no rule of stare decisis in the WTO. Like any other international tribunal, the Appellate Body should feel free to revisit its previous reasoning and rulings. But if it does, what then are the implications for the security and predictability of the multilateral trading system? What if a division of three Appellate Body members in one appeal says that &ldquo;national treatment&rdquo; means one thing, and another division of three Appellate Body members in a different appeal says that it means another? What if there is no longer any consistency in the legal rulings in WTO appeals? Reversals of past reasoning are allowed, but they should be undertaken with caution.</p> <h2>The U.S. Objections to the Cogent Reasons Standard</h2> <p>As part of the efforts by the United States to block appointments of new judges to the Appellate Body, it has cited what it sees as the Appellate Body&rsquo;s establishment of a role for past interpretations as precedent. In December 2018, the United States made the following argument to the WTO&rsquo;s Dispute Settlement Body: &ldquo;The United States requested this agenda item to draw Members&rsquo; attention to an important systemic issue, the concern that the Appellate Body has sought to change the nature of WTO dispute settlement reports from ones that assist in resolving a dispute, and may be considered for persuasive value in the future, to ones that carry precedential weight, as if WTO Members had agreed in the DSU [Dispute Settlement Understanding] to a common law-like system of precedent.&rdquo;<sup><span id="endnote-008-backlink"><a href="#endnote-008">8</a></span></sup> The United States also said that &ldquo;the Appellate Body&rsquo;s statement concerning &lsquo;cogent reasons&rsquo; in <em>US&mdash;Stainless Steel (Mexico)</em> is profoundly flawed.&rdquo;<sup><span id="endnote-009-backlink"><a href="#endnote-009">9</a></span></sup> The United States argued instead that the use of past Appellate Body interpretations should be based on their persuasiveness. On its proposed standard of persuasiveness, the United States explained, &ldquo;This does not mean that the United States considers a prior panel or Appellate Body interpretation to be without any value. For example, to the extent that a panel finds prior Appellate Body or panel reasoning to be persuasive, a panel may refer to that reasoning in conducting its own objective assessment of the matter.&rdquo;<sup><span id="endnote-010-backlink"><a href="#endnote-010">10</a></span></sup></p> <p>In our view, the concerns voiced by the United States about the Appellate Body&rsquo;s cogent reasons standard and its alleged illegitimate adherence to precedent are vastly overstated. Although the cogent reasons language is new, it is not clear to us that an interpretative approach stating that a panel should have cogent reasons for departing from previous appellate reasoning and rulings differs from a reliance on persuasiveness. It could be argued that there are subtle differences in the two approaches, based on who has the burden to show that a previous ruling should not be followed.<sup><span id="endnote-011-backlink"><a href="#endnote-011">11</a></span></sup> It seems likely, though, that the Appellate Body would have been explicit if it had intended to announce such a distinction. The Appellate Body has not been known for pronouncing major points of departure in its jurisprudence by implication.</p> <p>Furthermore, it is not at all clear how the use of one interpretative approach instead of the other would lead, in practice, to different outcomes. Rather, it seems most likely that the use of the two different interpretative approaches will each reach the same result. In fact, a recent WTO panel applied the absent cogent reasons approach in a way that allowed it to depart from past Appellate Body reasoning.<sup><span id="endnote-012-backlink"><a href="#endnote-012">12</a></span></sup> The difference between the absent cogent reasons approach and the standard of persuasiveness endorsed by the United States seems to us to be one mainly of semantics. This perceived legal distinction by the United States does not warrant the emphasis the United States has given it.</p> <p>Of course, underlying this semantic debate is the true U.S. concern. The United States has long hoped that, in deciding new appeals, new members of the Appellate Body would overrule the judgments of previous members of the Appellate Body on an assortment of legal issues of political significance to the United States, particularly on antidumping, subsidies, and safeguards. The United States seeks more legal elbow room in employing these trade remedies than it is allowed by WTO rules as the Appellate Body has clarified them in previous appeals in WTO dispute settlement. Failing this, the United States wants WTO panels to disregard these previous Appellate Body rulings on trade remedies and rule differently in new disputes.</p> <h2>Implications of the U.S. Challenge for the World Trading System</h2> <p>Whatever their merit and practical impact, the United States continues to press hard for changes to the system regarding the role of previous Appellate Body reasoning. Without a resolution to this and several other issues, the Appellate Body may soon cease to function. That would be a significant loss for the world trading system. The security and predictability provided by an Appellate Body independent of political pressures and intimidation is crucial to the continued success of the WTO dispute settlement system.</p> <p>In hopes of reaching some resolution, several other WTO members have tried to engage on this issue by offering reform proposals of their own. Australia and Japan have proposed a draft decision stating that &ldquo;Members confirm that an interpretation by the Appellate Body of any WTO provision does not constitute a precedent for posterior interpretations,&rdquo; and that &ldquo;Members confirm that panels may adopt an interpretation of a WTO provision that is different from the one developed by the Appellate Body.&rdquo;<sup><span id="endnote-013-backlink"><a href="#endnote-013">13</a></span></sup> And Honduras put forward a number of underlying questions in order to stimulate thinking in this area.<sup><span id="endnote-014-backlink"><a href="#endnote-014">14</a></span></sup></p> <p>Unfortunately, the United States has not offered a response to this engagement, and a great deal of uncertainty remains about the U.S. criticism in this area. In the U.S. view, when exactly should the Appellate Body depart from the reasoning in past appeals? Where and how does the United States draw the line about following previous reasoning in its alternative approach that focuses on &ldquo;persuasiveness&rdquo;? And&mdash;importantly&mdash;what will be the result for the trading system if the United States gets what it wants? If the United States wants to convince other governments that a change from current practice is needed, it should set out its vision and explain what its alternative system looks like and how it compares to the existing system.</p> <p>The &ldquo;absent cogent reasons&rdquo; language is one articulation of a standard that can be used for guidance here; the persuasiveness of past reports is another. In our view, the two standards are not all that different. The United States certainly continues to cite past cases when it litigates at the WTO, just as all other WTO members do. And, when past decisions do not support the United States&rsquo; current arguments, it tries to distinguish the current case from the past cases, just as all other WTO members do. Perhaps, then, this is just a question of finding language that sets a tone that all parties can accept. For example, adding a sentence to Article 3.2 along these lines could help: &ldquo;Clarifications provided by panels and the Appellate Body can have persuasive value, but are of less authority than the interpretations adopted under Article IX:2 of the WTO Agreement.&rdquo;<sup><span id="endnote-015-backlink"><a href="#endnote-015">15</a></span></sup> The explicit reference to persuasive value could assuage the United States&rsquo; concerns by adopting its terminology without changing the rules or functioning of the Appellate Body in a way that could cause concern for other members.</p> <p>An overarching consideration, however, is that, whatever resolution may be reached, security and predictability through judicial consistency and coherence must be maintained. A court system, including an appellate court, that offers interpretations to guide future cases is crucial in this regard. Nobody thinks the Appellate Body is set in stone, unchangeable for all time. All institutions must adapt and learn from experience. But the value of an appellate court for WTO disputes is indisputable, and all necessary efforts must be made to maintain the Appellate Body. The issue of the role of past cases has been vexing for some, but the differences in viewpoint, between cogent reasons and persuasiveness, are not actually all that large, and a compromise should be possible through a good-faith discussion of the issues by all the members of the WTO.</p> </div> , <div class="text-default"> <h2>Notes</h2> <p><sup><span id="endnote-001"><a href="#endnote-001-backlink">1</a>.</span></sup> World Trade Organization, Appellate Body Report, &ldquo;United States&mdash;Standards for Reformulated and Conventional Gasoline,&rdquo; WT/DS2/AB/R, adopted May 20, 1996, p. 17; James Bacchus, &ldquo;Not in Clinical Isolation,&rdquo; in <em>A History of Law and Lawyers in the GATT/WTO: The Development of the Rule of Law in the Multilateral Trading System</em>, ed. Gabrielle Marceau (Cambridge: Cambridge University Press, 2015), 507–16, <a href="https://doi.org/10.1017/CBO9781316048160.038" target="_blank">doi:10.1017/CBO9781316048160.038</a>.</p> <p><sup><span id="endnote-002"><a href="#endnote-002-backlink">2</a>.</span></sup> World Trade Organization, Appellate Body Report, &ldquo;Japan&mdash;Taxes on Alcoholic Beverages,&rdquo; WT/DS8/AB/R, WT/DS10/AB/R, WT/DS11/AB/R, adopted November 1, 1996, p. 14.</p> <p><sup><span id="endnote-003"><a href="#endnote-003-backlink">3</a>.</span></sup> WTO, &ldquo;Japan&mdash;Taxes on Alcoholic Beverages.&rdquo;</p> <p><sup><span id="endnote-004"><a href="#endnote-004-backlink">4</a>.</span></sup> WTO, &ldquo;Japan&mdash;Taxes on Alcoholic Beverages.&rdquo;</p> <p><sup><span id="endnote-005"><a href="#endnote-005-backlink">5</a>.</span></sup> &ldquo;United States&mdash;Final Anti-Dumping Measures on Stainless Steel from Mexico,&rdquo; (DS344), Third Party Submission by the European Communities, April 11, 2007, para. 174, <a href="http://trade.ec.europa.eu/doclib/docs/2008/february/tradoc_137716.pdf" target="_blank">http://trade.ec.europa.eu/doclib/docs/2008/february/tradoc_137716.pdf</a>.</p> <p><sup><span id="endnote-006"><a href="#endnote-006-backlink">6</a>.</span></sup> &ldquo;United States&mdash;Final Anti-Dumping Measures on Stainless Steel from Mexico,&rdquo; (DS344),Opening Statement of the United States of America at the First Substantive Meeting of the Panel, May 22, 2007, para. 4, <a href="https://ustr.gov/sites/default/files/uploads/Countries%20Regions/africa/agreements/pdfs/dispute_settlement/ds344/asset_upload_file352_11098.pdf" target="_blank">https://ustr.gov/sites/default/files/uploads/Countries%20Regions/<br>africa/agreements/pdfs/dispute_settlement/ds344/asset_upload_file352_11098.pdf</a>.</span></sup> For a detailed overview of the origins of the cogent reasons standard in the stainless steel case, see Simon Lester, &ldquo;The Origins of the &lsquo;Cogent Reasons&rsquo; Approach to the Precedential Value of Appellate Body Reports,&rdquo; <em>International Economic Law and Policy Blog</em>, June 24, 2019.</p> <p><sup><span id="endnote-007"><a href="#endnote-007-backlink">7</a>.</span></sup> &ldquo;United States&mdash;Final Anti-Dumping Measures on Stainless Steel from Mexico,&rdquo; WT/DS344/AB/R, adopted May 20, 2008, para. 160 [emphasis added].</p> <p><sup><span id="endnote-008"><a href="#endnote-008-backlink">8</a>.</span></sup> &ldquo;Statements by the United States at the Meeting of the WTO Dispute Settlement Body,&rdquo; December 18, 2018, para. 10, <a href="https://geneva.usmission.gov/wp-content/uploads/sites/290/Dec18.DSB_.Stmt_.as-deliv.fin_.public.pdf" target="_new">https://geneva.usmission.gov/wp-content/uploads/sites/290/Dec18.DSB_.Stmt_.as-deliv.fin_.public.pdf</a>.</p> <p><sup><span id="endnote-009"><a href="#endnote-009-backlink">9</a>.</span></sup> &ldquo;Statements by the United States,&rdquo; p. 21.</p> <p><sup><span id="endnote-010"><a href="#endnote-010-backlink">10</a>.</span></sup> &ldquo;Statements by the United States,&rdquo; para. 36.</p> <p><sup><span id="endnote-011"><a href="#endnote-011-backlink">11</a>.</span></sup> Canadian trade official Rob McDougall has put this argument as follows: &ldquo;&lsquo;Absent cogent reasons&rsquo; implies &lsquo;follow it unless there is a reason not to&rsquo;; &lsquo;persuasive value&rsquo; implies &lsquo;follow it if there is reason to&rsquo;. This reverse onus could be significant in many ways.&rdquo; See Robert McDougall, Twitter, December 19, 2018, 8:10 a.m., <a href="https://twitter.com/rdmcdougall/status/1075377837706788866">https://twitter.com/rdmcdougall/status/1075377837706788866</a>.</p> <p><sup><span id="endnote-012"><a href="#endnote-012-backlink">12</a>.</span></sup> World Trade Organization, Panel Report, &ldquo;United States&mdash;Anti-Dumping Measures Applying Differential Pricing Methodology to Softwood Lumber from Canada,&rdquo; WT/DS534/R, April 9, 2019, para. 7.107.</p> <p><sup><span id="endnote-013"><a href="#endnote-013-backlink">13</a>.</span></sup> World Trade Organization, &ldquo;Informal Process on Matters Related to the Functioning of the Appellate Body: Communication from Japan and Australia,&rdquo; WT/GC/W/768, April 18, 2019, paras. 7 and 8.</p> <p><sup><span id="endnote-014"><a href="#endnote-014-backlink">14</a>.</span></sup> World Trade Organization, General Council, &ldquo;Fostering a Discussion on the Functioning of the Appellate Body, Addressing the Issue of Precedent: Communication from Honduras,&rdquo; WT/GC/W/761, February 4, 2019.</p> <p><sup><span id="endnote-015"><a href="#endnote-015-backlink">15</a>.</span></sup> See Simon Lester, &ldquo;Persuasive Value vs. Precedent in Appellate Body Reasoning,&rdquo; <em>International Economic Law and Policy Blog</em>, December 19, 2018.</p> </div> Thu, 12 Sep 2019 00:00:00 -0400 Simon Lester, James Bacchus https://www.cato.org/free-trade-bulletin/precedent-persuasion-crucial-role-appeals-court-wto-disputes?utm_source=author&amp%3Butm_medium=rss&amp%3Butm_campaign=rss Simon Lester discusses a possible US-UK trade deal and what it means for beef on BBC London https://www.cato.org/media-highlights-tv/simon-lester-discusses-possible-us-uk-trade-deal?utm_source=author&amp%3Butm_medium=rss&amp%3Butm_campaign=rss Fri, 06 Sep 2019 16:04:49 -0400 Simon Lester https://www.cato.org/media-highlights-tv/simon-lester-discusses-possible-us-uk-trade-deal?utm_source=author&amp%3Butm_medium=rss&amp%3Butm_campaign=rss Simon Lester discusses the Japan trade deal on tbs eFM’s This Morning https://www.cato.org/media-highlights-radio/simon-lester-discusses-japan-trade-deal-tbs-efms-morning?utm_source=author&amp%3Butm_medium=rss&amp%3Butm_campaign=rss Mon, 02 Sep 2019 11:07:00 -0400 Simon Lester https://www.cato.org/media-highlights-radio/simon-lester-discusses-japan-trade-deal-tbs-efms-morning?utm_source=author&amp%3Butm_medium=rss&amp%3Butm_campaign=rss Trump’s "Flimsy" Steel Tariffs Challenged https://www.cato.org/cato-daily-podcast/trumps-flimsy-steel-tariffs-challenged?utm_source=author&amp%3Butm_medium=rss&amp%3Butm_campaign=rss William Yeatman, Simon Lester, Caleb O. Brown <p>A case in federal court challenge the Trump Administration over steel tariffs. Cato's Simon Lester and Will Yeatman comment.</p> Wed, 28 Aug 2019 17:39:00 -0400 William Yeatman, Simon Lester, Caleb O. Brown https://www.cato.org/cato-daily-podcast/trumps-flimsy-steel-tariffs-challenged?utm_source=author&amp%3Butm_medium=rss&amp%3Butm_campaign=rss Trump's Trade Policy So Far: Too Many Trade Wars, Very Little Trade Liberalization https://www.cato.org/trumps-trade-policy-so-far-too-many-trade-wars-very-little-trade-liberalization?utm_source=author&amp%3Butm_medium=rss&amp%3Butm_campaign=rss Simon Lester <p>This past week was an eventful one for trade policy, and not in a good way. In the trade world these days, no news is good news, and any tweets are probably bad news. President Trump's trade policy has been stridently protectionist, abusive of the constitutional separation of powers, destructive to U.S. alliances, and fundamentally flawed as a strategy to achieve its stated goals.&#13;<br /> &#13;<br /> Last week, President Trump was agitated by China's retaliatory tariffs (which were in response to tariffs previously imposed by the Trump administration), and in reaction to the Chinese retaliation, <a href="https://twitter.com/realDonaldTrump/status/1165005927864512512">Trump announced</a> on Twitter some retaliation for the retaliation, this time bumping up the various existing and promised tariffs by 5 percentage points. In doing so, he escalated a trade war that has been quickly spiraling out of control. By the end of 2019, if all tariff threats are implemented as planned, the vast majority of Chinese imports to the United States and U.S. exports to China will be subject to tariffs. And not just the low tariffs which had become the norm in recent years: the Chinese imports in question will be subject to tariffs of either 15% or 30%, which is a significant tax. American importers, retailers, producers, and consumers will feel the effects.&#13;<br /> &#13;<br /> Beyond tariffs, Trump <a href="https://twitter.com/realDonaldTrump/status/1164914960046133249">made the following</a> over-the-top, anti-free market demand in relation to China: "Our great American companies are hereby ordered to immediately start looking for an alternative to China, … ." That sounds borderline authoritarian as well as extremely harmful to the U.S. companies operating in and selling products in China (ceding the Chinese market to European and Japanese competitors makes no sense). How could Trump possibly have the power to do such a thing? There is, in fact, <a href="https://fas.org/sgp/crs/natsec/R45618.pdf">a statute that gives the president emergency powers</a> that might be broad enough for this executive power grab, but of course it is subject to judicial and legislative oversight. One would hope that those co-equal partners in the U.S. government would play their role and prevent a president from executing such an order.&#13;<br /> &#13;<br /> Trump's defenders will say that a trade war has been going on with China for years and that Trump is the one who finally had the courage to fight back. It is true that the best defense of Trump's approach to trade is that China really does engage in bad trade practices (such as high tariffs and subsidies, and a failure to protect intellectual property). Unfortunately, the Trump administration's aggressive trade policy is not focused only on China. The administration has been abusing the power Congress delegated to the president over the years and is targeting just about every major U.S. trading partner (and when it does take on China it <a href="https://www.cato.org/blog/taking-china">does not do so very effectively</a>)&#13;<br /> &#13;<br /> With regard to the role of Congress, Article I, Section 8 of the <a href="https://www.usconstitution.net/xconst_A1Sec8.html">Constitution</a> gives Congress power over customs duties and regulating commerce with foreign nations. Over the years, however, Congress has delegated a fair amount of this power to the president. Most presidents have used the power to focus on signing trade agreements that promoted trade with other countries, through mutual tariff reductions and other forms of liberalization. By contrast, President Trump has done very little of this. His negotiations with other countries have mostly focused on reopening old trade deals in order to make trade less free; and he has invoked a statute, rarely used in recent years, that gives him the power to impose tariffs on the basis of "national security" considerations, even in industries where such concerns have little basis. In this way, with regard to domestic trade practices, Trump has pushed the United States in a far more protectionist direction than anything seen <a href="https://www.piie.com/blogs/trade-and-investment-policy-watch/trumps-2019-protection-could-push-china-back-smoot-hawley">since the 1930 Smoot-Hawley tariffs</a>. &#13;<br /> &#13;<br /> The results have been clear and unsurprising: Higher costs for consumers. A number of <a href="https://www.nber.org/papers/w25672">studies</a> have come out showing that most of the costs of the tariffs are being borne by U.S. consumers (either ordinary purchasers or businesses who use imported goods as inputs in their own manufacturing). &#13;<br /> &#13;<br /> The domestic trade policy disruption also has an impact on international affairs, as our trading partners are being hurt too. The Trump administration has imposed tariffs and quotas on steel and aluminum imports from most trading partners (in response to which, many of these partners have retaliated with tariffs of their own); and it has threatened tariffs on imports of automobile imports, which would be <a href="https://www.piie.com/publications/policy-briefs/vehicular-assault-proposed-auto-tariffs-will-hit-american-car-buyers">a massive tax imposed on U.S. consumers</a>. These actions, along with Trump's <a href="https://www.cato.org/blog/how-solve-wto-judicial-crisis">attacks on the World Trade Organization</a>, have made our allies less likely to work with us in the effort to push China to liberalize.&#13;<br /> &#13;<br /> The Trump administration has offered up the explanation that the U.S. tariffs are necessary in order to negotiate trade liberalizing deals with these countries. But that logic is undermined by all the deals negotiated by past administrations without such tariff threats, as well as the continued failure of the administration to achieve new liberalization. Any tiny bits of liberalization on the part of foreign governments (e.g., through <a href="https://www.cato.org/blog/grading-new-nafta">the renegotiated NAFTA</a>, or a talked about <a href="https://ielp.worldtradelaw.net/2019/08/news-reports-about-the-us-japan-trade-deal-raise-questions.html">U.S-Japan trade deal</a>), are dwarfed by what was negotiated by the Obama administration through the Trans Pacific Partnership, from which Trump withdrew rather than look for a path for it to be passed by Congress.&#13;<br /> &#13;<br /> Trump's misguided approach to trade policy may be based on a number of factors, and it is difficult to get into his head fully. It is worth noting, however, that he has called himself a "<a href="https://twitter.com/realdonaldtrump/status/1069970500535902208">tariff man</a>." Perhaps that is all the explanation we need. An additional factor is almost certainly his misunderstanding of the concept of trade deficits. When Trump sees that the United States has a trade deficit with a country, he automatically thinks that the United States is "<a href="https://twitter.com/realDonaldTrump/status/1165005927864512512">losing</a>." But that is not how trade works. The trade balance is <a href="https://www.cato.org/blog/trade-deficit-disorder">not a scorecard</a>, and having a trade deficit with a country does not mean you are losing to them.&#13;<br /> &#13;<br /> There was a point where <a href="https://twitter.com/realdonaldtrump/status/1021909900941815809">Trump</a> and <a href="https://www.marketplace.org/2018/08/03/larry-kudlow-transcript/">his trade advisers</a> suggested he wanted a world with "zero tariffs, zero barriers, zero subsidies." That statement seemed like a fantasy at the time, and the ensuing months have proved it to be clearly false. Tariffs continue to climb, and massive farm subsidies have been authorized to <a href="https://www.agriculture.com/news/crops/trump-tariff-payments-could-triple-farm-subsidies-this-year">bail out</a> the farmers hurt by Trump's trade war.  We are in the midst of what feels like a "forever trade war." Cooler heads are sure to prevail some day, but how much damage will be done in the meantime?</p> Tue, 27 Aug 2019 11:46:00 -0400 Simon Lester https://www.cato.org/trumps-trade-policy-so-far-too-many-trade-wars-very-little-trade-liberalization?utm_source=author&amp%3Butm_medium=rss&amp%3Butm_campaign=rss Simon Lester discusses the latest on the trade war with China on WWL's First News with Tommy Tucker https://www.cato.org/media-highlights-radio/simon-lester-discusses-latest-trade-war-china-wwls-first-news?utm_source=author&amp%3Butm_medium=rss&amp%3Butm_campaign=rss Mon, 26 Aug 2019 12:09:00 -0400 Simon Lester https://www.cato.org/media-highlights-radio/simon-lester-discusses-latest-trade-war-china-wwls-first-news?utm_source=author&amp%3Butm_medium=rss&amp%3Butm_campaign=rss Taking on China https://www.cato.org/taking-china?utm_source=author&amp%3Butm_medium=rss&amp%3Butm_campaign=rss Simon Lester <p>Yesterday, President Trump <a href="https://www.whitehouse.gov/briefings-statements/remarks-president-trump-marine-one-departure-60/">said the following</a> about how he was "taking on" China in relation to its trade policy:&#13;<br /> &#13;</p> <blockquote><p>But one thing I have to do is economically take on China because China has been ripping us off for many years. President Clinton, President Bush, and President Obama, and others should have done this long before me. My life would be much easier — although I enjoy doing it — but my life would be much easier if I just said, “Let China continue to rip off the United States.” All right? It would be much easier, but I can’t do that.&#13;<br /> &#13;<br /> We are winning against China. They’ve lost two and a half million jobs in a very short period of time. They want to make a deal. It’s got to be a deal that’s good for the United States, where they want to make a deal — probably, we will make a deal.&#13;<br /> &#13;<br /> But if I didn’t do that — and I’m not doing this — somebody said it’s Trump’s trade war. This isn’t my trade war. This is a trade war that should have taken place a long time ago by a lot of other Presidents.&#13;<br /> &#13;<br /> Over the last five or six years, China has made $500 billion. $500 billion. Ripped it out of the United States. And not only that — if you take a look, intellectual property theft. Add that to it. And add a lot of other things to it. So somebody —&#13;<br /> &#13;<br /> Q (Inaudible.)&#13;<br /> &#13;<br /> THE PRESIDENT: Excuse me. Somebody had to do it. I am the chosen one. Somebody had to do it. So I’m taking on China. I’m taking on China on trade. And you know what? We’re winning. Because we’re the piggybank. We’re the one that all these countries — including the European Union — wants to rob and takes advantage of. European Union — $200 billion. China — more than $500 billion. Sorry.&#13;<br /> &#13;<br /> Q So it sounds like a recession is worth it —&#13;<br /> &#13;<br /> THE PRESIDENT: I was put here —&#13;<br /> &#13;<br /> Q — is that what you’re saying?&#13;<br /> &#13;<br /> THE PRESIDENT: I was put here by people — I was put here by people to do a great job. And that’s what I’m doing. And nobody has done a job like I’ve done.&#13;<br /> &#13;<br /> Now, would China rather wait for a little more than a year and try and get Sleepy Joe Biden to negotiate with, instead of President Trump? Maybe. But I don’t think so. You know why? They’re losing too many jobs too fast. They had the worst year in 27 years, but I think it was actually 52 or 54 years. It’s the worst year they’ve had in a half a century. And that’s because of me. And I’m not proud of that. But you know what? They want to negotiate.&#13;<br /> &#13;<br /> And Sleepy Joe doesn’t have a clue. Sleepy Joe said, “Oh, China is wonderful.” Well, China is wonderful for China. But I’m wonderful for the U.S.A.</p> </blockquote> <p>The transcript does not quite do this justice. It's worth watching <a href="https://www.cnn.com/videos/politics/2019/08/21/president-trump-us-china-trade-war-chosen-one-sot-ip-vpx.cnn">the video</a>.&#13;<br /> &#13;<br /> Putting aside the inaccurate description of the U.S. trade balance with China (they are not "ripping us off," we are simply trading with them), is President Trump "taking on" China? It depends what you mean by that. If you mean, is President Trump taking actions that could induce China to reduce its protectionism, to protect intellectual property better, and to let foreign companies invest in China without transferring technology to their Chinese partners, then I'm not sure he is. The Trump administration has imposed tariffs on Chinese imports in a way that has led to China retaliating with tariffs of its own. But there hasn't been much indication so far that a deal to address China's bad practicies is in sight. We may just end up with higher tariffs that stay in place as long as Trump is president.&#13;<br /> &#13;<br /> Instead of public bluster and an arbitrary use of tariffs, the better approach would be to <a href="https://www.cato.org/publications/free-trade-bulletin/its-time-negotiate-new-economic-relationship-china">negotiate in the normal way</a>, which often results in trade liberalization. We make some demands and offer some concessions, and the other side does the same. Why didn't that happen under previous administrations? It's hard to say for sure, but it's possible that one reason it didn't happen under President Bush is that we were so distracted by the mess in the Middle East that China was overlooked. President Obama "pivoted to Asia," and as part of that negotiated the Trans Pacific Partnership, which could have put pressure on China by excluding it from the TPP's trade liberalization and thus leaving it at a disadvantage. But Trump withdrew from the TPP.&#13;<br /> &#13;<br /> So here we are. Right now, the Trump administration looks like it favors tariffs over negotiated trade liberalization. The main Democratic contenders for the 2020 election have not said enough to get a sense of how they would approach trade policy in relation to China, although <a href="https://ielp.worldtradelaw.net/2019/05/kamala-harris-on-trade.html">some</a> <a href="https://ielp.worldtradelaw.net/2019/06/pete-buttigieg-on-tariffs-and-trumps-trade-strategy.html">have</a> expressed skepticism about at least some of Trump's tariffs. It would be nice if someone would eventually "take on" China, in the sense of adopting an approach to trade policy that encourages China to liberalize.</p> Thu, 22 Aug 2019 11:05:00 -0400 Simon Lester https://www.cato.org/taking-china?utm_source=author&amp%3Butm_medium=rss&amp%3Butm_campaign=rss The Crucial Role of a WTO Appeals Court https://www.cato.org/commentary/crucial-role-wto-appeals-court?utm_source=author&amp%3Butm_medium=rss&amp%3Butm_campaign=rss James Bacchus, Simon Lester <div class="lead text-default"> <p>Imagine there were no Supreme Court, and questions about fundamental issues such as free speech, religious freedom and equal protection were left up to various lower courts to decide. One court might rule one way; a different court might rule another way. There would be no certainty as to what the law meant and what policies were in place.</p> </div> , <div class="text-default"> <p>In domestic legal systems, the highest court has a special role in interpreting the nation's laws. The “precedents” it sets through its interpretations do more than simply resolve a dispute. They also create a body of law for lower courts to apply and for the high court itself to follow in the future. This reliance on precedent provides certainty and foreseeability to individuals, businesses and other domestic actors within the society.</p> <p>In international law, there is no single high court and no law of precedent. Even so, there is an informal practice of taking into account past rulings to help ensure certainty and foreseeability for all those who may be affected by rulings, whether they are formal parties to them or not.</p> <p></p> </div> , <aside class="aside--right aside pb-lg-0 pt-lg-2"> <div class="pullquote pullquote--default"> <div class="pullquote__content h2"> <p>The value of an appellate court for resolving WTO disputes is indisputable, and all necessary efforts must be made to maintain the independence and the very existence of the Appellate Body.</p> </div> </div> </aside> , <div class="text-default"> <p>The role of precedent is one of the causes of the current crisis involving the Appellate Body, the highest court of appeal for the World Trade Organization. The United States is <a href="https://www.cato.org/blog/how-solve-wto-judicial-crisis">blocking appointments of new judges</a>to fill vacancies on the Appellate Body. This threatens to prevent the tribunal from hearing new appeals and thus threatens to undermine the continued functioning of the WTO dispute settlement system. One of the reasons <a href="https://ielp.worldtradelaw.net/2018/12/persuasive-value-vs-precedent-in-appellate-body-reasoning.html" target="_blank">the United States cites</a> as a justification for its stonewalling of new judicial appointments is what the U.S. alleges is the Appellate Body's treatment of its past rulings as “binding precedent,” which, in the U.S. view, is not appropriate for the world trading system.</p> <p>In fact, this allegation is unfounded. Since its creation in 1995, the Appellate Body has been aware of the potential for controversy over its use of its previous rulings, and it has always emphasized that they are not “binding precedents.” In <a href="http://www.worldtradelaw.net/document.php?id=reports/wtoab/japan-alcohol(ab).pdf" target="_blank">an early case</a>, the tribunal said that past reports "create legitimate expectations among WTO Members, and, therefore, should be taken into account where they are relevant to any dispute," but it also explained that these reports "are not binding, except with respect to resolving the particular dispute between the parties to that dispute."</p> <p>The U.S. objections arise in response to <a href="http://www.worldtradelaw.net/document.php?id=reports/wtoab/us-stainlessmexico(ab).pdf" target="_blank">a later case</a>, where the Appellate Body said: “Ensuring ‘security and predictability’ in the dispute settlement system, as contemplated in Article 3.2 of the DSU, implies that, <em>absent cogent reasons</em>, an adjudicatory body will resolve the same legal question in the same way in a subsequent case.” It is through this language, according to the United States, that the Appellate Body elevated its past cases to the level of “binding precedent,” rather than simply being “persuasive,” the preferred U.S. standard.</p> <p>We think the United States is reading too much into these words. In our view, the use of the phrase “absent cogent reasons” was essentially a restatement of the position previously expressed by the Appellate Body that, where the legal issues are the same, it is “appropriate” and to be “expected” that panels will rely on Appellate Body reasoning and rulings in previous disputes. In fact, in a recent ruling, a WTO panel (in effect, the lower court) found “cogent reasons” not to follow the Appellate Body's reasoning in a past case.</p> <p>Nevertheless, the Trump administration has cited the Appellate Body's approach to reliance on past cases as one reason for blocking new appointments to the Appellate Body. Without a resolution to this and several other issues, the Appellate Body may soon cease to function. That would be a significant loss for the world trading system. The “security and predictability” provided by an Appellate Body independent of political pressures and intimidation is crucial to the continued success of the WTO dispute settlement system.</p> <p>A court system, including an appellate court, that offers interpretations to guide future cases is extremely valuable. No one claims perfection for the Appellate Body or thinks its rulings are set in stone, unchangeable for all time. All human institutions are fallible, and all must adapt and learn from experience.</p> <p>Yet the value of an appellate court for resolving WTO disputes is indisputable, and all necessary efforts must be made to maintain the independence and the very existence of the Appellate Body. The role of past cases has always been vexing for some, but the differences in viewpoint, between “cogent reasons” and “persuasiveness” are not actually all that great, and a compromise should be possible through a reasoned discussion of the issues in good faith.</p> <p>Before the WTO, when panels judging disputes operated without the possibility of an appeal, panel reports often diverged on the meaning of core principles, creating confusion in the trading system. Through its clarifications of treaty obligations in WTO dispute settlement, the Appellate Body has brought more consistency, and thus more certainty and foreseeability, to the meaning of WTO law and, thus, to the smooth and rising flow of trade in the world everywhere and every day. Forging a consensus on the meaning of precedent in the WTO can help end the current crisis.</p> </div> Wed, 21 Aug 2019 14:39:00 -0400 James Bacchus, Simon Lester https://www.cato.org/commentary/crucial-role-wto-appeals-court?utm_source=author&amp%3Butm_medium=rss&amp%3Butm_campaign=rss The Elizabeth Warren Trade Policy Checklist https://www.cato.org/cato-daily-podcast/elizabeth-warren-trade-policy-checklist?utm_source=author&amp%3Butm_medium=rss&amp%3Butm_campaign=rss Daniel J. Ikenson, Simon Lester, Caleb O. Brown <p>Elizabeth Warren's priorities for trade agreements may differ from the current President, but the final result may simply be less liberalized trade. Dan Ikenson and Simon Lester comment.</p> Tue, 06 Aug 2019 17:02:00 -0400 Daniel J. Ikenson, Simon Lester, Caleb O. Brown https://www.cato.org/cato-daily-podcast/elizabeth-warren-trade-policy-checklist?utm_source=author&amp%3Butm_medium=rss&amp%3Butm_campaign=rss Simon Lester discusses the trade war on KDMT's Business for Breakfast with Jimmy Sengenberger https://www.cato.org/media-highlights-radio/simon-lester-discusses-trade-war-kdmts-business-breakfast-jimmy?utm_source=author&amp%3Butm_medium=rss&amp%3Butm_campaign=rss Tue, 06 Aug 2019 11:03:00 -0400 Simon Lester https://www.cato.org/media-highlights-radio/simon-lester-discusses-trade-war-kdmts-business-breakfast-jimmy?utm_source=author&amp%3Butm_medium=rss&amp%3Butm_campaign=rss Simon Lester discusses President Trump's recent tariffs on Hearst TV https://www.cato.org/media-highlights-tv/simon-lester-discusses-president-trumps-recent-tariffs-hearst-tv?utm_source=author&amp%3Butm_medium=rss&amp%3Butm_campaign=rss Fri, 02 Aug 2019 11:43:00 -0400 Simon Lester https://www.cato.org/media-highlights-tv/simon-lester-discusses-president-trumps-recent-tariffs-hearst-tv?utm_source=author&amp%3Butm_medium=rss&amp%3Butm_campaign=rss Simon Lester discusses U.S.-China trade relations on Yahoo! Finance https://www.cato.org/media-highlights-tv/simon-lester-discusses-us-china-trade-relations-yahoo-finance?utm_source=author&amp%3Butm_medium=rss&amp%3Butm_campaign=rss Fri, 02 Aug 2019 11:42:00 -0400 Simon Lester https://www.cato.org/media-highlights-tv/simon-lester-discusses-us-china-trade-relations-yahoo-finance?utm_source=author&amp%3Butm_medium=rss&amp%3Butm_campaign=rss Senator Warren's Protectionist and Misleading Trade Plan and Rhetoric https://www.cato.org/senator-warrens-protectionist-misleading-trade-plan-rhetoric?utm_source=author&amp%3Butm_medium=rss&amp%3Butm_campaign=rss Simon Lester <p>Senator Warren is said to have a "plan" for every policy area. But on trade policy, her plan and her general rhetoric on the issue are not very impressive. It would be better if she had no plan at all and just governed by tweet! (Ok, not really).&#13;<br /> &#13;<br /> She recently announced her trade plan <a href="https://medium.com/@teamwarren/trade-on-our-terms-ad861879feca">here</a>. I gave it a <a href="https://ielp.worldtradelaw.net/2019/07/warrens-trade-policy-agenda.html">quick rundown</a> and concluded: "my sense is that this proposal means there would probably not be any trade deals in a Warren administration, while there would be various proposals to add new protectionism to U.S. domestic trade policy." The Fletcher School's Dan Drezner took some more time and <a href="https://www.washingtonpost.com/outlook/2019/07/30/elizabeth-warrens-trade-plan-is-bad-politics-worse-policy/">offered this assessment</a>: "Elizabeth Warren has put forward a terrible, horrible, no good, very bad trade program. Other Democratic candidates would be wise to avoid this garbage fire and come up with something more sensible." And CFR's Ted Alden <a href="https://www.cfr.org/blog/elizabeth-warrens-new-approach-trade-looks-awfully-dated">said this</a>: "When voters in places like Michigan, Ohio, and Pennsylvania look at the candidates’ trade policies this fall, the question will be what’s in it for them—for their economic futures and the opportunities for their children? Warren’s plan ticks a lot of Democratic Party boxes, but offers no compelling answer to that question."&#13;<br /> &#13;<br /> At last night's Democratic primary debate, there was a chance to talk about this plan, and the candidates <a href="https://ielp.worldtradelaw.net/2019/07/trade-in-last-nights-democratic-primary-debate.html">got into the details a little bit</a>. Two things struck me about Warren's remarks at the debate: They were misleading, and they completely ignored some obvious criticisms.&#13;<br /> &#13;<br /> For example, she said:&#13;<br /> &#13;</p> <blockquote><p>Anyone who thinks that these trade deals are mostly about tariffs just doesn’t understand what’s going on. Look at the new NAFTA 2.0. What’s the central feature? It’s to help pharmaceutical companies get longer periods of exclusivity so they can charge Canadians, Americans, and Mexicans more money and make more profits.</p> </blockquote> <p>Whatever you think of a 12 year exclusivity period for biologic drugs (I'm skeptical of it), it's definitely not the case that it is the "central feature" of the new <a href="https://ustr.gov/trade-agreements/free-trade-agreements/united-states-mexico-canada-agreement/agreement-between">U.S.-Mexico-Canada Agreement</a>. There are so many features to trade agreements these days that it's hard to say what the "central" one is, but lower tariffs is still a main one, rules on e-commerce are important, and there are a wide range of other provisions as well. It's true that there is a controversial provision on biologic exclusivity, but it's hardly the "central feature."&#13;<br /> &#13;<br /> Along the same lines, she says: "We're going to negotiate our deals with unions at the table." But trade agreements have already been expanded to cover labor rights. Given the extensive labor provisions in modern trade agreements, including <a href="https://ustr.gov/sites/default/files/files/agreements/FTA/USMCA/Text/23_Labor.pdf">the USMCA</a>, it is clear that unions already have a big role "at the table" to help draft these agreements.&#13;<br /> &#13;<br /> And she didn't have a response to John Delaney's point that her approach is "so extreme that it will isolate the American economy from the world." It's really not clear that any trade deals could be negotiated under her approach. And what about China, the biggest trade issue of all? What's her plan there? She didn't have much to say on this.&#13;<br /> &#13;<br /> Of course, politicians have been known to change their positions, so it may be that as president she would conduct trade policy differently than she is currently suggesting. Right now she is talking to a particular domestic audience. As president, she would have to meet some foreign counterparts, and her view of the world might change a bit. For now, though, she and many of the other Democratic presidental candidates are, as my colleague Dan Ikenson <a href="https://www.cato.org/blog/democratic-presidential-hopefuls-are-failing-us-trade">put it yesterday</a>, "failing us on trade."</p> Wed, 31 Jul 2019 11:16:53 -0400 Simon Lester https://www.cato.org/senator-warrens-protectionist-misleading-trade-plan-rhetoric?utm_source=author&amp%3Butm_medium=rss&amp%3Butm_campaign=rss Are Free Trade's Best Days Behind Us? https://www.cato.org/commentary/are-free-trades-best-days-behind-us?utm_source=author&amp%3Butm_medium=rss&amp%3Butm_campaign=rss Simon Lester <div class="lead text-default"> <p>If you were a U.S. trade negotiator in the 1950s or 1960s, you might be a little shocked by the aggressive trade rhetoric thrown around today. China is an existential threat? Our European allies are almost as bad? What exactly went wrong with U.S. leadership of a rules-based trading system?</p> </div> , <div class="text-default"> <p></p> </div> , <aside class="aside--right aside pb-lg-0 pt-lg-2"> <div class="pullquote pullquote--default"> <div class="pullquote__content h2"> <p>What exactly went wrong with U.S. leadership of a rules-based trading system?</p> </div> </div> </aside> , <div class="text-default"> <p>In truth, the state of American trade policy has been precarious for a while now, and for understandable reasons: the industrial development of a sizeable portion of the developing world; the expansion of trade rules beyond traditional issues of protectionism; and a more powerful international judicial system with "teeth" that can have an impact on U.S. policies. We cannot expect a return to the post–World War II era of bipartisan support for trade agreements.</p> <p>But thanks to President Donald Trump, the situation has gone from precarious to falling off a cliff. Tariffs have proliferated, as the Trump administration has expanded the use of some trade statutes and dusted off other ones that had been all but forgotten. To the surprise of very few people, U.S. trading partners have retaliated with tariffs of their own.</p> <p>The Chinese-American relationship may have soured for the foreseeable future. People on both sides of the political spectrum have reasons not to like China these days—human rights violations, security threats—and that will make it difficult to address the trade wreckage left by the Trump administration.</p> <p>It's tempting to look for relief from some of the many Democrats running for president. But economic nationalism is alive and well on the left. And while voters support trade openness more than they ever have, they tend not to feel strongly about the issue.</p> <p>Of course, all of the above relates only to U.S. trade policy. The rest of the world is moving in a different direction. The European Union and Japan have just implemented a new trade deal; Canada, Mexico, Japan, and eight other countries are part of the Trans-Pacific Partnership (from which Trump withdrew); China and New Zealand are updating their trade agreement.</p> <p>In the United States, some future administration will almost certainly get the country back in the game, but it may not happen until we fall far enough behind that the economic pain forces people to take notice.</p> </div> Mon, 15 Jul 2019 09:37:00 -0400 Simon Lester https://www.cato.org/commentary/are-free-trades-best-days-behind-us?utm_source=author&amp%3Butm_medium=rss&amp%3Butm_campaign=rss Misunderstandings on the WTO, Trade, and the Environment https://www.cato.org/misunderstandings-wto-trade-environment?utm_source=author&amp%3Butm_medium=rss&amp%3Butm_campaign=rss Simon Lester <p>These days, the Trump administration's attacks on trade liberalization, trade agreements, and the World Trade Organization are focused on issues such as trade deficits and allegations that the United States is being treated "unfairly." But before Trump and his trade team hijacked the trade debate, there had been a critique from the left that trade was bad for the environment in various ways. One example was that trade agreements supposedly got in the way of domestic environmental regulation. There had been some trade disputes over domestic environmental regulations, some of which had included provisions that discriminated against foreign products in favor of domestic ones, and environmental groups were concerned about the impact of adverse rulings by WTO "panels" (i.e., quasi-judicial courts) on their ability to adopt such regulations. &#13;<br /> &#13;<br /> While that debate has been overshadowed recently, it came back yesterday after a <a href="https://www.wto.org/english/news_e/news19_e/510r_e.htm">WTO panel ruling</a> on various U.S. state measures that discriminate against foreign products in the renewable energy sector. In reaction to this ruling, Todd Tucker of the Roosevelt Institute <a href="https://www.washingtonpost.com/politics/2019/06/28/theres-big-new-headache-green-new-deal/?utm_term=.638ab8d5ab71">wrote the following</a>: &#13;<br /> &#13;</p> <blockquote><p>The World Trade Organization (WTO) is back in the news, with a Thursday ruling against seven <a href="https://www.wto.org/english/news_e/news19_e/510r_e.htm">U.S. states’ renewable energy</a> policies. The WTO is already unpopular with right-wing nationalists like Donald Trump. By siding with India against the U.S., the WTO is likely to make left-leaning politicians and the burgeoning global environmental movement unhappy. </p> <p><strong>States Are Acting on Climate because the federal government won’t</strong></p> <p>The WTO is acting against state level policies intended to improve the environment, stepping into the void left by the federal government. In 2009, the U.S. Senate refused to vote on what was at that time the most ambitious climate change legislation: the Waxman-Markey Act. Concluding that federal action might never be forthcoming, U.S. states (especially those than lean Democratic) began enacting climate policy of their own.&#13;<br /> &#13;<br /> The measures range from biodiesel incentives in Montana, through nudges for Michigan-made clean energy manufacturing, to other schemes in California, Delaware, Connecticut, Minnesota and Washington State. The common denominator of these policies is an attempt to soften the inevitable economic dislocations of moving away from the carbon economy. The Michigan policy was typical: electricity providers get a renewable credit when they generate one megawatt of green energy. However, they get another tenth of a credit when that energy uses Michigan-made equipment or Michigan laborers.&#13;<br /> &#13;<br /> ... &#13;<br /> &#13;</p> <p><strong>The WTO sees “Buy Local” politics as protectionist</strong> </p> <p>When India complained about these green schemes, they did not have to show that Indian companies tried to qualify for any of them, or that they had been denied access, or that they lost any money to make a case at the WTO. Under the rules of the General Agreement on Tariff and Trade (GATT), Michigan’s energy credit was invalid, because Indian solar panel exporters <em>in theory </em>would have not qualified for that extra tenth of a renewable energy credit if they had tried to sell them in Michigan.</p> <p>...&#13;<br /> &#13;<br /><strong>This is a Problem for the Green New Deal</strong>&#13;<br /> &#13;<br /> The WTO decision collides with a groundswell of <a href="https://twitter.com/rooseveltinst/status/1144243991694594048">progressive interest</a> in a Green New Deal — a plan that looks a lot like the state policies that the commercial body just ruled against. The Green New Deal resolution by Rep. Alexandria Ocasio-Cortez (D-N.Y.) and Sen. Edward J. Markey (D-Mass.) outlines five goals, 14 projects and 15 requirements to help evaluate those projects. Instead of just going ahead with carbon taxes (which would likely be unpopular), it gives groups that might be expected to oppose a carbon tax — front line communities, manufacturing workers — a stake in the deal’s success. It uses Buy Local or Hire Local requirements to make its proposed climate solutions politically sellable and viable. These are the sorts of provisions that India and other countries can be expected to challenge if and when a Green New Deal ever gets through Congress.&#13;<br /> &#13;<br /> ...</p> </blockquote> <p>In reality, while there may be some actual trade and the environment conflicts that are hard to sort out, this is not one of them. The WTO ruling here is very narrow. It is not a general condemnation of subsidies for environmental causes. Rather, it simply says that governments cannot discriminate against foreign goods when adopting their environmental policies. That ruling is actually pro-environment. If governments are trying to promote the adoption of environmentally-friendly products, competition is helpful not harmful. Generally speaking, environmentalists should want more trade in these products, not less. As I jokingly put it <a href="https://twitter.com/snlester/status/1144298553289977857">on twitter</a>, "The fundamental question: Do you want artisan, hand-crafted solar panels from the Eastern Shore of Maryland for a million dollars a pop, or do you want highly efficient solar panels made by a Chinese factory in Iceland that is powered by geothermal energy?" Shielding local producers from competition makes them stagnant and inefficient. That's not the way to develop good renewable energy products. If the Green New Deal does that, it is not going to be very green.&#13;<br /> &#13;<br /> There is a group of people out there who still believe in old school industrial policy, advocating a wide range of government interventions in the economy (including protectionist measures like the ones at issue here), in order to build up domestic manufacturing. But the policies they are pushing cannot be categorized as pro-environment, and often these policies will be pretty bad for the environment. It's a shame, because this is one area where supporters of trade liberalization should be able to work together with environmentalists by pushing for lower trade barriers on these products, as my old colleague Bill Watson and I wrote about <a href="https://www.cato.org/publications/free-trade-bulletin/free-trade-environmental-goods-trade-remedy-problem">here</a>. </p> Fri, 28 Jun 2019 09:16:56 -0400 Simon Lester https://www.cato.org/misunderstandings-wto-trade-environment?utm_source=author&amp%3Butm_medium=rss&amp%3Butm_campaign=rss Growing Abuse of the National Security Rationale for Restricting Trade https://www.cato.org/cato-daily-podcast/growing-abuse-national-security-rationale-restricting-trade?utm_source=author&amp%3Butm_medium=rss&amp%3Butm_campaign=rss Simon Lester, Caleb O. Brown <p>Many of the trade restrictions imposed by the White House have been accompanied by concerns over national security. Simon Lester is coauthor of <a href="https://www.cato.org/publications/policy-analysis/closing-pandoras-box-growing-abuse-national-security-rationale">a new paper</a> detailing how this rationale can and has been abused.</p> Tue, 25 Jun 2019 12:46:00 -0400 Simon Lester, Caleb O. Brown https://www.cato.org/cato-daily-podcast/growing-abuse-national-security-rationale-restricting-trade?utm_source=author&amp%3Butm_medium=rss&amp%3Butm_campaign=rss Closing Pandora's Box: The Growing Abuse of the National Security Rationale for Restricting Trade https://www.cato.org/policy-analysis/closing-pandoras-box-growing-abuse-national-security-rationale?utm_source=author&amp%3Butm_medium=rss&amp%3Butm_campaign=rss Simon Lester, Huan Zhu <div class="lead text-default"> <p>Over its first two years, the Trump administration has aggressively reshaped U.S. trade policy. One of its most controversial initiatives is the expansive use of national security to justify imposing tariffs and quotas. Section 232 of the Trade Expansion Act of 1962 gives the president authority to restrict imports on this basis after an investigation by the Department of Commerce. The administration has already done so for steel and aluminum and is now threatening similar actions on automobiles. The World Trade Organization (WTO) has a special exception for such measures, so there is at least an argument that they are permitted under international law.</p> </div> , <div class="text-default"> <p>However, the administration has taken what was previously considered a narrow and exceptional remedy and broadened it to serve as a more general tool to protect domestic industries. In the domestic arena, there have been court challenges against the tariffs imposed under Section 232 and against the constitutionality of Section 232 itself. In addition, legislation has been introduced in Congress to rein in the president’s authority by requiring congressional approval of tariffs or other import restrictions before they can go into effect. Internationally, many U.S. trading partners responded immediately to the steel and aluminum tariffs with tariffs of their own, and both the U.S. tariffs and the retaliatory tariffs are the subject of litigation that will test the limits of the WTO’s dispute settlement process and the trading system itself.</p> <p>This study argues that WTO dispute settlement cannot easily resolve disputes of this kind and suggests an alternative mechanism to handle these issues. Instead of litigation, a rebalancing process like the one used in the context of safeguard tariffs and quotas should be utilized for national security measures. Safeguards are a political safety valve that allows the trading system to pursue broad-based liberalization by providing the flexibility to protect domestic industries under certain conditions (ideally, by offering compensatory liberalization elsewhere). By adopting a similar political arrangement for national security trade restrictions, the overall balance in the system can be preserved, permanent damage to the WTO dispute system avoided, and a potentially destructive loophole kept closed.</p> </div> , <div class="text-default"> <h2>Introduction</h2> <p>The Trump administration has raised tariffs under a variety of pretenses, but one of the most controversial has been the invocation of national security under Section 232 of the Trade Expansion Act of 1962. So far, only steel and aluminum imports have been assessed tariffs under this statute, but the administration soon may announce tariffs on automobiles and automobile parts, as well as on uranium and titanium sponges.</p> <p>The administration has already received some strong pushback domestically to the steel and aluminum tariffs. There have been federal court challenges both to the tariff measures and to the constitutionality of the Section 232 statute itself. Meanwhile, Congress is considering various bills to rein in the president’s authority in this regard (Congress delegated some of its constitutional power over tariffs via the Section 232 statute and could take some of it back through new legislation). Congressional action would be the simplest and most straightforward way to restrain the Trump administration’s trade restrictions, but the political hurdle of convincing a Republican Senate to do this appears to be significant.</p> <p>Beyond the domestic aspects of Section 232, there is also an international crisis over the Trump administration’s invocation of national security to justify tariffs. Many governments consider these actions to be in bad faith and a threat to the world trading system. Trade agreements involve a carefully balanced set of commitments to lower tariffs and other trade barriers. If countries can adopt protectionist measures simply by invoking national security, the trade liberalization achieved through such agreements may start to unravel.</p> <p>To preserve the system, governments should consider new international trade rules to address trade barriers that have been justified as national security measures. The original drafters of the national security provisions of trade agreements recognized the sensitivity of this issue and hoped for the good-faith application of such measures. But good faith seems to be disappearing from the trade policy world, and additional rules may be needed. In this regard, rules that allow for national security trade barriers but that encourage trade liberalization for other products and services as compensation could prevent a spiral of protectionism and maintain the stability of the trading system.</p> <h2>History of the GATT/WTO Security Exception</h2> <p>From the earliest proposals for an international trade organization, it was clear that the General Agreement on Tariffs and Trade (GATT) would include some sort of exception for security concerns. The specific wording evolved during negotiations, but in the final text of the GATT, Article XXI, titled “Security Exception,” explained that nothing in the agreement shall prevent a government from “taking any action which it considers necessary for the protection of its essential security interests.” When the WTO was created and trade rules were expanded to cover trade in services and intellectual property, the security exception was included for those areas as well.<sup><span id="endnote-001-backlink"><a href="#endnote-001">1</a></span></sup></p> <p>Over most of the history of the GATT/WTO, governments have, for the most part, been careful to invoke national security only when it was genuinely applicable. The original negotiators recognized the political difficulties that would arise and the potential for abuse, and governments presumably kept these concerns in mind over the ensuing decades.<sup><span id="endnote-002-backlink"><a href="#endnote-002">2</a></span></sup> In one of the most comprehensive articles on this exception, written in 2011, legal scholar Roger Alford noted, “Member States have exercised good faith in complying with their trade obligations” as “invocations of the security exception have only been challenged a handful of times, and those challenges have never resulted in a binding GATT/WTO decision.” Alford recounted the few instances when tensions over Article XXI arose, including over export controls for Eastern Europe during the Cold War, an embargo of Argentina led by the European Community related to the Falklands War, and the U.S. embargoes on Nicaragua and Cuba.<sup><span id="endnote-003-backlink"><a href="#endnote-003">3</a></span></sup> As a result of governments’ good-faith efforts, the GATT/WTO system has been able to avoid both major conflict over this issue and having to decide what Article XXI actually means.</p> <p>The long period of harmony over Article XXI seems to be ending. A WTO dispute between Ukraine and Russia has provided the first WTO panel interpretation of the provision, but the more serious controversy will arise over the U.S. tariffs recently imposed by the Trump administration on imports of steel and aluminum.</p> <p class="center"> </p><div data-embed-button="image" data-entity-embed-display="view_mode:media.full" data-entity-type="media" data-entity-uuid="e447b018-b9b1-48b2-90e6-e2e91f04379d" data-langcode="en" class="embedded-entity"> <img width="700" height="435" alt="Media Name: pa874-img1.png" class="lozad component-image lozad" data-srcset="/sites/cato.org/files/styles/pubs/public/images/pa874-img1.png?itok=GZJBe_D5 1x, /sites/cato.org/files/styles/pubs_2x/public/images/pa874-img1.png?itok=3ehyXeY4 1.5x" data-src="/sites/cato.org/files/styles/pubs/public/images/pa874-img1.png?itok=GZJBe_D5" typeof="Image" /></div> <h2>The Trump Administration’s Aggressive Use of Section 232</h2> <h3>Overview of Section 232</h3> <p>Section 232 of the Trade Expansion Act of 1962 gives the president the authority to adjust imports on national security grounds.<sup><span id="endnote-004-backlink"><a href="#endnote-004">4</a></span></sup> A decision to impose restrictions is based on an investigation by the Department of Commerce, which includes consultations with the Secretary of Defense. The Department of Commerce investigation can be self-initiated, or it can take place at the request of any U.S. department or agency or at the request of the domestic industry that stands to benefit from the restrictions.</p> <p>During a Section 232 investigation, the Department of Commerce considers a number of factors, including domestic production needed for national defense requirements, the capacity of domestic industries to meet such requirements, and how the importation of goods affects such industries and affects the capacity of the United States to meet national security requirements. The department must also take into consideration the impact of foreign competition on the economic welfare of individual domestic industries. These factors make clear that the national security justification under the statute is tied closely to economic considerations.</p> <p>The statute provides that the investigation shall last no longer than 270 days, and the Secretary of Commerce is required to submit a report to the president with recommendations of action or inaction.<sup><span id="endnote-005-backlink"><a href="#endnote-005">5</a></span></sup> Within 90 days of receiving the report, the president will make a decision, and may either follow the recommendations of the Department of Commerce or take other actions.<sup><span id="endnote-006-backlink"><a href="#endnote-006">6</a></span></sup> Generally speaking, these actions will be in the form of tariffs or quotas.</p> <p>To date, there have been 31 Section 232 investigations. In 16 cases, the Department of Commerce determined that the goods did not threaten to impair national security. In 11 cases, the Department of Commerce found that the imported goods threatened to impair national security and provided recommendations to the president. (In 8 of these 11 cases, the president took action.) One case was terminated at the petitioner’s request before a conclusion was reached. Three investigations are still pending.<sup><span id="endnote-007-backlink"><a href="#endnote-007">7</a></span></sup></p> <p>The first 24 cases occurred from 1963 to 1994. After that, the mechanism fell into disuse. There was a case brought in 1999 and one in 2001, but then nothing for 16 years. Since President Trump took office in January 2017, there have been five Section 232 investigations, on steel, aluminum, autos and auto parts, uranium, and titanium sponges. The Trump ad­ministration’s tariffs on steel and aluminum were the first and second times that trade restrictions have been imposed under this law for a product other than oil or petroleum.<sup><span id="endnote-008-backlink"><a href="#endnote-008">8</a></span></sup> In the two years since Trump’s election, his administration has clearly tried to expand the scope of this previously narrow remedy.</p> <p>Both Congress and private actors have tried to push back against the administration’s aggressive use of Section 232. Multiple bills are under consideration in Congress, and court challenges have been initiated against specific tariffs and against the Section 232 statute itself.<sup><span id="endnote-009-backlink"><a href="#endnote-009">9</a></span></sup> These efforts could lead to a more appropriate allocation of powers between Congress and the president on trade and national security issues. However, as will be seen later, they would not necessarily address the international aspects of trade restrictions that are based on national security, which can arise even without an executive branch that is willing to push the boundaries of the law in order to pursue protectionist policies.</p> <h3>The Section 232 Actions on Steel and Aluminum</h3> <p>Trump’s enthusiasm for heavy manufacturing in general, and for steel and aluminum in particular, was evident during his election campaign. “We are going to put American steel and aluminum back into the backbone of our country,” Trump vowed at a 2016 campaign rally in a former steel town in Pennsylvania.<sup><span id="endnote-010-backlink"><a href="#endnote-010">10</a></span></sup> Steel and aluminum were at the center of his America First trade policy.</p> <p>After Trump took office, it quickly became clear that the administration might impose broad tariffs on steel and aluminum imports, using Section 232 as the vehicle. In April 2017, Trump instructed the Department of Commerce to initiate investigations on the national security threat posed by steel and aluminum imports.<sup><span id="endnote-011-backlink"><a href="#endnote-011">11</a></span></sup> The department immediately initiated Section 232 investigations on steel and aluminum and sought public comments.<sup><span id="endnote-012-backlink"><a href="#endnote-012">12</a></span></sup></p> <p>In January 2018, the department issued its reports. It concluded that the importation of certain types of steel and aluminum products threatened to impair the national security of the United States and recommended that the president reduce imports through tariffs or quotas, suggesting three options each for steel and aluminum. For steel it recommended a tariff of 24 percent on all steel imports; a tariff of 53 percent or more on steel imports from 12 countries, plus a quota for all other nations that equaled their exports to the United States in 2017; or a quota of 63 percent of each country’s 2017 steel exports to the United States. For aluminum it recommended a tariff of 7.7 percent on all aluminum imports; a tariff of 23.6 percent on aluminum ­imports from five countries, plus a quota for all other nations that equaled their exports to the United States in 2017; or a quota of 86.7 percent of each country’s 2017 aluminum exports to the United States.<sup><span id="endnote-013-backlink"><a href="#endnote-013">13</a></span></sup></p> <p>On March 8, 2018, Trump issued two proclamations that imposed a 25 percent tariff on steel products and a 10 percent tariff on aluminum products; they were set to take effect on March 23, 2018. Some countries negotiated export quotas to avoid the tariffs, and others received temporary tariff exemptions, but as of June 1, 2018, the tariffs were being imposed on most U.S. trading partners.<sup><span id="endnote-014-backlink"><a href="#endnote-014">14</a></span></sup> The tariffs have been estimated to apply to $44.9 billion worth of steel and aluminum imports.<sup><span id="endnote-015-backlink"><a href="#endnote-015">15</a></span></sup></p> <p>In terms of the actual purpose of the actions, there were reasons to doubt the claimed national security justification, as the Defense Department was skeptical of the value of the tariffs. Then secretary of defense James Mattis expressed concern that tariffs would sabotage relationships with key allies.<sup><span id="endnote-016-backlink"><a href="#endnote-016">16</a></span></sup> He also acknowledged that the military’s requirements for steel and aluminum could be satisfied with about 3 percent of domestic production, casting doubt on the concerns about the impact of imports and on the justification of the Section 232 actions.<sup><span id="endnote-017-backlink"><a href="#endnote-017">17</a></span></sup></p> <p>Beyond national security, a number of explanations have been offered by Trump to justify the tariffs. At times, he has emphasized that the tariffs would protect the U.S. economy and jobs.<sup><span id="endnote-018-backlink"><a href="#endnote-018">18</a></span></sup> He has also linked the tariffs to trade negotiations, suggesting that the tariffs have forced U.S. trading partners to the negotiating table.<sup><span id="endnote-019-backlink"><a href="#endnote-019">19</a></span></sup> A further explanation is that the tariffs are being used to combat unfair trade practices.<sup><span id="endnote-020-backlink"><a href="#endnote-020">20</a></span></sup> Ultimately, we do not know the true motivation of Trump for these tariffs, and views may vary within the administration. But it is worth noting that Trump often makes it clear that he simply likes tariffs.<sup><span id="endnote-021-backlink"><a href="#endnote-021">21</a></span></sup></p> <p>Many U.S. trading partners responded quickly to the imposition of the Section 232 tariffs by imposing retaliatory tariffs. Their argument was that the Section 232 measures are not really about national security but are in fact more like a safeguard measure designed to protect domestic industries from injury caused by imports. As a result, the special rebalancing provisions of the Safeguards Agreement (discussed in more detail below) apply here and justify immediate retaliation.<sup><span id="endnote-022-backlink"><a href="#endnote-022">22</a></span></sup></p> <p>In addition to the retaliatory tariffs, from April to August 2018 nine governments requested consultations at the WTO, which is the first step in WTO litigation. From November 2018 to January 2019, dispute settlement panels were established to hear the cases. In late January, the panels were appointed, and litigation will soon begin.<sup><span id="endnote-023-backlink"><a href="#endnote-023">23</a></span></sup></p> <p>The complainants’ legal claims are fairly straightforward, focusing on GATT Article I (MFN treatment) and GATT Article II (tariff commitments). As discussed in the next section, the U.S. defense constitutes a serious threat to the system, as the United States has invoked GATT Article XXI. As repeatedly stated by the United States at the relevant meetings of the WTO’s Dispute Settlement Body (DSB), in the U.S. view, after Article XXI is invoked the panel cannot even hear the case.<sup><span id="endnote-024-backlink"><a href="#endnote-024">24</a></span></sup></p> <p>While the steel and aluminum tariffs have caused great friction, an even bigger test of Section 232 lies ahead: the Department of Commerce has completed a Section 232 investigation on imports of automobiles and auto parts, and Trump is considering whether to take action against imports of these products based on the allegation that they are a national security threat.<sup><span id="endnote-025-backlink"><a href="#endnote-025">25</a></span></sup> The value of trade potentially affected would be much larger than that of steel and aluminum. It is estimated that the Section 232 auto tariffs could cover more than $200 billion of auto and auto parts imports.<sup><span id="endnote-026-backlink"><a href="#endnote-026">26</a></span></sup>Some U.S. trading partners have already warned that they will retaliate if tariffs are imposed.<sup><span id="endnote-027-backlink"><a href="#endnote-027">27</a></span></sup></p> <h2>The Threat to the WTO Dispute Settlement Mechanism</h2> <p>The administration’s use of Section 232 presents a challenge to the WTO dispute settlement system, and even to the WTO itself, because of the invocation of GATT Article XXI. WTO dispute settlement has had success over the years in adjudicating core trade issues such as ordinary tariffs, trade remedy tariffs, and regulatory trade barriers. It cannot induce governments to remove the measures that violate WTO rules in every case, but it has a fairly good record here. However, there are limits to what can be achieved, and it is clear that some sensitive measures cannot be dealt with through WTO litigation. National security measures pretty clearly fall into this category, and thus litigation of these measures has been carefully avoided over the years. But after decades of restraint over litigating the scope and meaning of Article XXI, the Section 232 measures threaten to undermine the system by creating a WTO litigation outcome that either takes the U.S. view and opens a Pandora’s box involving a proliferation of invocations of national security as a basis for trade restrictions, or rejects the U.S. view and risks the Trump administration pulling out of the WTO.</p> <p>The problem with applying and interpreting Article XXI in these cases is part legal and part political. In terms of the law, there is no simple answer on the provision’s meaning. The use of the word “considers” in subparagraphs (a) and (b) of Article XXI gives the provision a self-judging nature, but the question is how far to take this. Alford describes the interpretive possibilities as follows:</p> </div> , <blockquote class="blockquote"> <div> <p>According to one interpretation, a Member State can decide for itself whether a measure is essential to its security interests and relates to one of the enumerated conditions. Another interpretation would recognize a Member State’s prerogative to determine for itself whether a security exception is applicable, but would impose a good faith standard that is subject to judicial review. Under a third interpretation, a Member State can decide for itself whether “it considers” a measure to be “necessary for the protection of its essential security interests,” but the enumerated conditions are subject to judicial review.<sup><span id="endnote-028-backlink"><a href="#endnote-028">28</a></span></sup></p> </div> </blockquote> <cite> </cite> , <div class="text-default"> <p>Questions about the scope of the exception were raised during the GATT negotiations, but they are not easy to resolve as an interpretive matter.<sup><span id="endnote-029-backlink"><a href="#endnote-029">29</a></span></sup></p> <p>This legal uncertainty is reflected in a political divide. Two leading powers, the United States and Russia, take one view of the provision’s interpretation, while most of the WTO membership takes another (as made clear by the parties’ submissions in a recently decided WTO case called <em>Russia—Traffic in Transit</em>). On one side, the United States and Russia argued that the WTO security provisions are nonjusticiable, meaning it is left entirely to governments to decide whether to impose trade restrictions for this purpose. In their view, once a party has invoked Article XXI, the WTO panel can no longer hear the case.<sup><span id="endnote-030-backlink"><a href="#endnote-030">30</a></span></sup> In contrast, other members believe that WTO panels must engage in some degree of scrutiny of measures for which Article XXI has been invoked.<sup><span id="endnote-031-backlink"><a href="#endnote-031">31</a></span></sup></p> <p>The WTO panel in the <em>Russia—Traffic in </em><em>Transit</em> case recently provided the first word on the issue of interpretation of GATT Article XXI, taking the view that the provision is not entirely self-judging and leaving room for some panel scrutiny.<sup><span id="endnote-032-backlink"><a href="#endnote-032">32</a></span></sup> Other ongoing WTO panels that are hearing cases on similar issues may approach the interpretation of this provision similarly, but it is possible that there will be some variation in approaches. The ­<em>Russia—Traffic in Transit</em> panel report was not appealed, which means that the Appellate Body has not considered the issue. At some point in the future, the Appellate Body may provide additional clarification. The state of the Appellate Body reappointment process adds some complexity here. Currently, the United States is blocking the appointment of new Appellate Body judges, which has created a backlog of appeals and the possibility that by the end of the year there will not be enough people on the Appellate Body to hear cases.<sup><span id="endnote-033-backlink"><a href="#endnote-033">33</a></span></sup></p> <p>However, a problem larger than figuring out the proper interpretation of the provision looms: if a WTO panel or the Appellate Body were to rule that Article XXI did not justify the U.S. steel and aluminum tariffs, would the United States comply with the ruling? Given the U.S. rhetoric on the issue, it seems unlikely.<sup><span id="endnote-034-backlink"><a href="#endnote-034">34</a></span></sup> (Worse yet, the Trump administration may pull out of the WTO. It has long complained that the organization’s dispute-settlement rulings are unfair to the United States.)<sup><span id="endnote-035-backlink"><a href="#endnote-035">35</a></span></sup> In the event of noncompliance, the only remedy is for the DSB to authorize a suspension of concessions under which the complainants could impose tariffs or other retaliation of their own, but most of the complainants have already retaliated, relying on the legal theory that the U.S. measures are safeguard measures and that rebalancing under Safeguards Agreement Article 8 is permitted immediately.<sup><span id="endnote-036-backlink"><a href="#endnote-036">36</a></span></sup> As a matter of law, such an assertion has little basis and further undermines confidence in the system.<sup><span id="endnote-037-backlink"><a href="#endnote-037">37</a></span></sup> Responding to violations of the rules with other violations of the rules leaves everyone wondering if the rules have any value.</p> <p>As a result, it is unclear how WTO dispute settlement can help in this case. Trump’s Section 232 actions called attention to the possibility of a broad national security loophole and triggered a response that could be characterized as abuse of the safeguards-rebalancing rules. In this environment there is a real worry that the system will no longer function.</p> <p>While rebalancing as practiced by U.S. trading partners here may fail to solve the problem, the concept may nevertheless offer a way forward for this kind of dispute. Adapting it for use directly in the context of national security could provide a solution to the impasse. An attempt to expand the existing safeguard rules for rebalancing beyond their scope undermines the rule of law, but a new rebalancing regime designed specifically for the national security context could help restore it.</p> <h2>Rebalancing under the Safeguards Agreement</h2> <p>The idea of some type of rebalancing in response to safeguard measures originates in the reciprocal trade agreements negotiated by the United States and other countries in the 1930s. The first modern safeguard provision appeared in the United States-Mexico Reciprocal Trade Agreement of 1942. It provides that when a country will “withdraw or modify a concession” as a safeguard to protect domestic industry, “it shall give notice in writing to the Government of the other country as far in advance as may be practicable and shall afford such other Government an opportunity to consult with it in respect of the proposed action”; if no agreement is reached, the other government “shall be free within thirty days after such action is taken to terminate this Agreement in whole or in part on thirty days’ written notice.”<sup><span id="endnote-038-backlink"><a href="#endnote-038">38</a></span></sup> The consultations provide an opportunity for the parties to reach agreement on compensation, for example, lowering tariffs on other products.<sup><span id="endnote-039-backlink"><a href="#endnote-039">39</a></span></sup></p> <p>This idea was carried over to the GATT negotiations, where the United States proposed the initial text. At this point, “terminat[ion]” was replaced with “suspension of obligations or concessions” as the appropriate response when compensation could not be agreed on.<sup><span id="endnote-040-backlink"><a href="#endnote-040">40</a></span></sup> The provision was refined further during the negotiations, and the London Draft of the GATT refers to suspension of “substantially equivalent obligations or concessions.”<sup><span id="endnote-041-backlink"><a href="#endnote-041">41</a></span></sup> In the final version of the GATT, the relevant provisions appear in Article XIX, paragraphs 2 and 3.<sup><span id="endnote-042-backlink"><a href="#endnote-042">42</a></span></sup></p> <p>Practice under the GATT suggests that compensation was used extensively early on but tapered off over the years. As of 1987, there had been 20 instances of agreement or offers of compensation (10 cases during 1950–1959, 8 in 1960–1969, 1 in 1970–1979, and 1 in 1980–1987).<sup><span id="endnote-043-backlink"><a href="#endnote-043">43</a></span></sup></p> <p>During the Uruguay Round of trade negotiations, the specific requirements for rebalancing were elaborated further in the Safeguards Agreement. Under Article 8 of the agreement, a government proposing to apply a safeguard measure or seeking an extension of one shall try to maintain a substantially equivalent level of concessions and other obligations, and in order to achieve this objective, “the Members concerned may agree on any adequate means of trade compensation for the adverse effects of the measure on their trade.”<sup><span id="endnote-044-backlink"><a href="#endnote-044">44</a></span></sup> If compensation cannot be agreed on, retaliation is permitted almost immediately in cases where the justification for the safeguard measure is based only on a relative increase in imports, but it has to wait three years if there has been an absolute increase in imports.<sup><span id="endnote-045-backlink"><a href="#endnote-045">45</a></span></sup></p> <h2>Why Rebalance at All?</h2> <p>The basic idea behind rebalancing is as follows. When countries negotiate trade agreements, the concessions and other obligations they take on—including commitments to reduce tariffs, commitments to avoid certain protectionist domestic laws, and various other requirements—are part of an overall balance. Roughly speaking, each side accepts a particular degree of liberalization or other obligations, which constitutes the balance that was agreed to.</p> <p>There are times when things get out of balance, however. One example is when a government that is a party to the agreement believes that another party has taken actions that violate the agreement. After adjudication of the dispute, if a violation is found, the offending government can remove or modify the measure or offer some sort of compensation. If it does neither, it will be subject to trade retaliation by the complaining government in an amount equivalent to the effect of the violation. In this way, balance is restored.</p> <p>In some circumstances, adjudication is not first required. In the context of safeguards, the very nature of the measure indicates that the balance has been upset. If a government imposes a tariff or quota as a safeguard measure, with rare exceptions that measure will constitute withdrawal or modification of a tariff concession or breach of the obligation not to impose quotas. When that happens, the balance needs to be restored. Ideally, rebalancing would take place through compensation in the form of trade liberalization in other areas by the government imposing the safeguard measure. However, when compensation cannot be worked out, the affected countries are allowed to raise their own tariffs in an equivalent amount. Such a scenario may not be ideal, but it acts as a deterrent against the abuse of safeguard measures.</p> <h2>A Rebalancing Proposal for National Security</h2> <p>Under WTO rules, governments may impose tariffs and other trade restrictions beyond what was agreed for a variety of reasons, including for temporary protection as safeguards; as a response to dumping or subsidies; for environmental, public morals, or public health reasons; or in support of national security. Whether to make rebalancing available is a political and policy decision. Traditionally, immediate rebalancing has been available only for safeguards, but the case could be made for rebalancing in other contexts too.</p> <p>In the national security context, there are several arguments for allowing a similar kind of rebalancing. First, retaliation is already happening. In the case of the Section 232 tariffs, as noted above, a number of governments have declared the measures to be safeguard measures and have applied retaliatory tariffs. Instituting rebalancing rules in these cases would provide an opportunity to replace retaliatory tariffs with compensatory liberalization, which is impossible with the current retaliatory tariffs as the United States does not accept that the safeguards rules even apply here. In addition, in circumstances when compensation is impossible, rebalancing would formalize the retaliation process and make it more orderly, limiting the possibility of a trade war that spirals out of control.</p> <p>Second, as explained earlier, WTO dispute settlement probably cannot help here. A ruling that the Section 232 measures violate GATT obligations and are not justified under Article XXI is unlikely to make the United States comply, and retaliation is already being imposed by many countries even without authorization.</p> <p>Third, national security measures are like safeguard measures in the sense that there is often no debate about their consistency with the rules. It is acknowledged that they violate the rules, and national security is offered as the excuse. This makes national security more like safeguard measures than, say, environmental regulations, where the responding party generally argues that the regulation is not in violation.</p> <p>Finally, rebalancing would afford an important benefit by limiting the abuse of the provisions. A full WTO dispute proceeding typically lasts from two to four years, depending on the complexity of the case. National security measures are particularly susceptible to abuse due to the vagueness of the national security exception’s language, and rebalancing would reduce the time that governments can impose import restrictions for national security purposes without any response from trading partners.</p> <p>Rebalancing of national security measures can draw on principles from the safeguards arena but would have its own characteristics and a different focus.</p> <p>One of the primary goals of national security rebalancing would be transparency. As things stand now, governments have the ability to impose trade restrictions for protectionist purposes but can later invoke Article XXI during litigation. It would be preferable to have all national security trade restrictions notified as such immediately to foster proper debate and discussion. Bringing these cases to light early, and having WTO members think carefully about the proper scope of the exception, would be of great value. To this end, the national security rebalancing rules should encourage notification and explanation of national security tariffs by offering more time before rebalancing can be applied when restrictions have been notified. For example, rebalancing can be immediate when an Article XXI justification is invoked as part of litigation when no notification or explanation has been given, but must wait six months to a year when notification has been given.</p> <p>To help oversee the discussions, a WTO Committee on National Security Measures should be formed to examine these measures and any proposed rebalancing. Members should meet regularly to consider the practice in this area.</p> <p>Compensation is the preferred approach to rebalancing. Ideally, governments that impose tariffs or other restrictions on specific products for national security purposes would offer to reduce tariffs or restrictions on other products or services. Adding services as a compensation option may be significant. One of the reasons compensation has worked less well in recent years in the safeguards context is that as tariff levels have decreased, it has become harder for countries invoking safeguards to find alternative products on which they could give meaningful concessions.<sup><span id="endnote-046-backlink"><a href="#endnote-046">46</a></span></sup> Adding services to the mix would open a wide range of compensation possibilities, especially considering how few services commitments most countries have made and thus how much potential exists for additional liberalization.</p> <p>Negotiations over the extent of the compensation will never be easy, but they can be facilitated through carefully designed rules. For example, there could be a requirement that in order to impose an import restriction for national security reasons, a government must identify three products or services for which it would consider negotiating compensatory liberalization.</p> <p>When compensation cannot be agreed upon, however, retaliation designed to restore balance is a possibility. To prevent abuse, a quick arbitration process should be established for determining whether any retaliation is commensurate with the economic impact of the national security restrictions in question.</p> <h2>Conclusion</h2> <p>Not every dispute can be resolved through litigation. U.S. constitutional law has the political question doctrine. A similar principle may be appropriate for certain international trade disputes.</p> <p>The proposals outlined here are designed to help provide a political solution to disputes over trade restrictions based on national security. They are fairly straightforward as a policy matter, although much more debate is needed.</p> <p>The politics are more complicated, of course. The Trump administration is the main party pushing the boundaries of national security restrictions, so for the time being the United States is unlikely to be open to any reforms. The views of a future U.S. administration are uncertain but may not differ considerably from the current position.</p> <p>As a result, any hope for change may have to come from other governments as they negotiate bilaterally, regionally, or on a plurilateral basis with countries that are interested in pursuing this idea. Governments that are concerned about the abuse of national security measures can incorporate provisions along these lines in agreements they sign that do not involve the United States. In this way, the norm can spread, with the hope that its usefulness will be demonstrated and with the aim of eventual inclusion in a multilateral agreement.</p> <h2>Notes</h2> <p><sup><span id="endnote-001"><a href="#endnote-001-backlink">1</a>.</span></sup> See Article XIV bis, General Agreement on Trade in Service, and Article 73, Agreement on Trade-Related Aspects of Intellectual Property Rights.</p> <p><sup><span id="endnote-002"><a href="#endnote-002-backlink">2</a>.</span></sup> Simon Lester, “The Drafting History of GATT Article XXI: The U.S. View of the Scope of the Security Exception,” <em>International Economic Law and Policy Blog,</em> March 11, 2018; Simon Lester, “The Drafting History of GATT Article XXI: Where Did ‘Considers’ Come From?,” <em>International Economic Law and Policy Blog,</em> March 13, 2018.</p> <p><sup><span id="endnote-003"><a href="#endnote-003-backlink">3</a>.</span></sup> Roger P. Alford, “The Self-Judging WTO Security Exception,” <em>Utah Law Review</em> 3 (2011): 697, 706–25. See also Tania Voon, “The Security Exception in WTO Law: Entering a New Era,” <em>American Journal of International Law</em> 113 (2019): 45–50.</p> <p><sup><span id="endnote-004"><a href="#endnote-004-backlink">4</a>.</span></sup> 19 U.S.C. §1862.</p> <p><sup><span id="endnote-005"><a href="#endnote-005-backlink">5</a>.</span></sup> 19 U.S.C. §1862(b)(3).</p> <p><sup><span id="endnote-006"><a href="#endnote-006-backlink">6</a>.</span></sup> 19 U.S.C. §1862(c).</p> <p><sup><span id="endnote-007"><a href="#endnote-007-backlink">7</a>.</span></sup> Congressional Research Service, “Section 232 Investigations: Overview and Issues for Congress,” April 2, 2019.</p> <p><sup><span id="endnote-008"><a href="#endnote-008-backlink">8</a>.</span></sup> In addition, in a case on machine tools that was initiated in 1983, a formal decision on the Section 232 case was deferred, and the president “instead sought voluntary restraint agreements starting in 1986 with leading foreign suppliers and developed a domestic plan of programs to help revitalize the industry.” Congressional Research Service, “Section 232 Investigations: Overview and Issues for Congress,” Table B-1, April 2, 2019.</p> <p><sup><span id="endnote-009"><a href="#endnote-009-backlink">9</a>.</span></sup> Legislative proposals aimed at restricting presidential power under Section 232 include the Bicameral Congressional Trade Authority Act of 2019, sponsored by Senator Pat Toomey and others (Bicameral Congressional Trade Authority Act of 2019, S.287/H.R.940, 116th Cong. [2019]); and the Trade Security Act of 2019, sponsored by Senator Rob Portman and others (Trade Security Act of 2019, S.365/H.R.1008, 116th Cong. [2019]). With regard to the courts, the Swiss company Severstal filed a case challenging the Section 232 steel tariffs, but after the Court of International Trade rejected a motion for a temporary restraining order, the parties filed a joint motion to dismiss. Inside U.S. Trade, “CIT Judge Unconvinced ­Severstal Can Succeed on Merits in 232 Challenge,” InsideTrade.com, April 5, 2018. In addition, the American Institute for International Steel brought a case claiming that the Section 232 statute is unconstitutional, which is currently pending before the Court of International Trade. Inside U.S. Trade, “In Steel Case, CIT Judges Probe Broad Executive Powers under Section 232,” InsideTrade.com, December 21, 2018.</p> <p><sup><span id="endnote-010"><a href="#endnote-010-backlink">10</a>.</span></sup> Susan Jones, “Trump: ‘Put American Steel and Aluminum Back into the Backbone of Our Country,’” CNSNews, June 29, 2016.</p> <p><sup><span id="endnote-011"><a href="#endnote-011-backlink">11</a>.</span></sup> Administration of Donald J. Trump, “Memorandum on Steel Imports and Threats to National Security,” April 20, 2017; Administration of Donald J. Trump, “Memorandum on Aluminum ­Imports and Threats to National Security,” April 27, 2017.</p> <p><sup><span id="endnote-012"><a href="#endnote-012-backlink">12</a>.</span></sup> Department of Commerce, “Notice of Request for Public Comments and Public Hearing on Section 232 National Security Investigation of Imports of Steel,” 82 Fed. Reg. 19205, April 26, 2017; Department of Commerce, “Notice of Request for Public Comments and Public Hearing on Section 232 National Security Investigation of Imports of Aluminum,” 82 Fed. Reg. 21509, May 9, 2017.</p> <p><sup><span id="endnote-013"><a href="#endnote-013-backlink">13</a>.</span></sup> Office of Public Affairs, U.S. Department of Commerce, “Secretary Ross Releases Steel and Aluminum 232 Reports in Coordination with White House,” press release, February 16, 2018.</p> <p><sup><span id="endnote-014"><a href="#endnote-014-backlink">14</a>.</span></sup> Congressional Research Service, “Section 232 Investigations: Overview and Issues for Congress,” Table D-1, April 2, 2019.</p> <p><sup><span id="endnote-015"><a href="#endnote-015-backlink">15</a>.</span></sup> Sherman Robinson et al., “Trump’s Proposed Auto Tariffs Would Throw U.S. Automakers and Workers under the Bus,” ­Peterson ­Institute for International Economics, May 31, 2018.</p> <p><sup><span id="endnote-016"><a href="#endnote-016-backlink">16</a>.</span></sup> Ellen Mitchell, “Trump Tariffs Create Uncertainty for Pentagon,” <em>The Hill</em>, March 11, 2018.</p> <p><sup><span id="endnote-017"><a href="#endnote-017-backlink">17</a>.</span></sup> Mitchell, “Trump Tariffs Create Uncertainty for Pentagon.”</p> <p><sup><span id="endnote-018"><a href="#endnote-018-backlink">18</a>.</span></sup> Donald J. Trump (@realDonaldTrump), “We must protect our country and our workers. Our steel industry is in bad shape. IF YOU DON’T HAVE STEEL, YOU DON’T HAVE A COUNTRY!,” Twitter post, March 2, 2018, 5:01 a.m.</p> <p><sup><span id="endnote-019"><a href="#endnote-019-backlink">19</a>.</span></sup> Andrew Mayeda, “Trump Turns Steel Tariffs into NAFTA Bargaining Chip,” Bloomberg.com, March 6, 2018.</p> <p><sup><span id="endnote-020"><a href="#endnote-020-backlink">20</a>.</span></sup> A White House fact sheet explained, “President Donald J. Trump is addressing global overcapacity and unfair trade practices in the steel and aluminum industries by putting in place a 25 percent tariff on steel imports and 10 percent tariff on aluminum imports.” White House, “President Donald J. Trump Is Addressing Unfair Trade Practices That Threaten to Harm Our National Security,” Fact Sheet, March 8, 2018.</p> <p><sup><span id="endnote-021"><a href="#endnote-021-backlink">21</a>.</span></sup> Donald J. Trump (@realDonaldTrump), “I am a Tariff Man. When people or countries come in to raid the great wealth of our Nation, I want them to pay for the privilege of doing so. It will always be the best way to max out our economic power. We are right now taking in $billions in Tariffs. MAKE AMERICA RICH AGAIN,” Twitter post, December 4, 2018.</p> <p><sup><span id="endnote-022"><a href="#endnote-022-backlink">22</a>.</span></sup> Canada imposed 10–25 percent tariffs on approximately $12.05 billion of U.S. exports. Mexico imposed tariffs ranging from 7 to 25 percent on $3.52 billion of U.S. exports. The European Union imposed 10–25 percent duties on $2.91 billion worth of U.S. products. China imposed 15–25 percent tariffs on $2.52 billion worth of U.S. products. Russia and Turkey also imposed tariffs on selected U.S. products, ranging from 4 to 140 percent. See Congressional Research Service, “Section 232 Investigations: Overview and Issues for Congress,” April 2, 2019, figure 5; International Trade Administration, “Current Foreign Retaliatory Actions.”</p> <p><sup><span id="endnote-023"><a href="#endnote-023-backlink">23</a>.</span></sup> Simon Lester, “Panels Composed in the Section 232/Retaliation Cases,” <em>International Economic Law and Policy Blog</em>, January 28, 2019.</p> <p><sup><span id="endnote-024"><a href="#endnote-024-backlink">24</a>.</span></sup> World Trade Organization, “Panels Established to Review U.S. Steel and Aluminum Tariffs, Countermeasures on U.S. Imports,” November 21, 2018.</p> <p><sup><span id="endnote-025"><a href="#endnote-025-backlink">25</a>.</span></sup> David Lawder and David Shepardson, “U.S. Agency Submits Auto Tariff Probe Report to White House,” Reuters, February 17, 2019.</p> <p><sup><span id="endnote-026"><a href="#endnote-026-backlink">26</a>.</span></sup> Robinson et al., “Trump’s Proposed Auto Tariffs Would Throw U.S. Automakers and Workers under the Bus.”</p> <p><sup><span id="endnote-027"><a href="#endnote-027-backlink">27</a>.</span></sup> Doug Palmer and Megan Cassella, “U.S. Allies Warn of Retaliation If Trump Imposes Auto Tariffs,” Politico, July 19, 2018.</p> <p><sup><span id="endnote-028"><a href="#endnote-028-backlink">28</a>.</span></sup> Alford, “The Self-Judging WTO Security Exception.”</p> <p><sup><span id="endnote-029"><a href="#endnote-029-backlink">29</a>.</span></sup> Lester, “The Drafting History of GATT Article XXI: The U.S. View of the Scope of the Security Exception”; Lester, “The Drafting History of GATT Article XXI: Where Did ‘Considers’ Come From?”; Lester, “More GATT Article XXI Negotiating History,” <em>International Economic Law and Policy Blog,</em> May 1, 2018.</p> <p><sup><span id="endnote-030"><a href="#endnote-030-backlink">30</a>.</span></sup> Russia states that “neither the Panel nor the WTO as an institution has a jurisdiction” over the dispute. Russia’s first written submission, para. 7, cited in “European Union Third-Party Written Submission, Russia—Measures Concerning Traffic in Transit (DS512),” para. 10, November 8, 2017. Along the same lines, the United States argues, “The text of Article XXI, establishing that its invocation is non-justiciable, is supported by the drafting history of Article XXI. In particular, certain proposals from the United States during that process demonstrate that the revisions to what became Article XXI reflect the intention of the negotiators that the defence be self-judging, and not subject to the same review as the general exceptions contained in GATT 1994 Article XX.” “Responses of the United States of America to Questions from the Panel and Russia to Third Parties, ­Russia—Measures Concerning Traffic in Transit (DS512),” para. 3, ­February 20, 2018.</p> <p><sup><span id="endnote-031"><a href="#endnote-031-backlink">31</a>.</span></sup> For instance, the EU argues that “Article XXI of GATT 1994 is a justiciable provision and that its invocation by a defending party does not have the effect of excluding the jurisdiction of a panel.” “European Union Third-Party Written Submission, Russia—Measures Concerning Traffic in Transit (DS512),” para. 21, November 8, 2017; and Australia argues, “[T]his deference to Russia does not preclude the Panel from undertaking <em>any</em> review of Russia’s invocation of Article XXI(b) or dispense with the Panel’s obligation to undertake an objective assessment of the matter before it, including an objective assessment of the facts of the case.” “Australia’s Third-Party Executive Summary, Russia—Measures Concerning Traffic in Transit (DS512),” para. 30, Feb­ruary 27, 2018.</p> <p><sup><span id="endnote-032"><a href="#endnote-032-backlink">32</a>.</span></sup> WTO Panel Report, “Russia—Measures Concerning Traffic in Transit,” WT/DS512/R, adopted April 26, 2019.</p> <p><sup><span id="endnote-033"><a href="#endnote-033-backlink">33</a>.</span></sup> James Bacchus, “<a href="https://www.cato.org/blog/how-solve-wto-judicial-crisis" target="_blank">How to Solve the WTO Judicial Crisis</a>,” <em>Cato at Liberty</em> (blog), August 6, 2018.</p> <p><sup><span id="endnote-034"><a href="#endnote-034-backlink">34</a>.</span></sup> In a recent DSB meeting, the United States reiterated that its invocation of Article XXI should not be reviewed by the panel: “[A WTO review] would undermine the legitimacy of the WTO’s dispute settlement system and even the viability of the WTO as a whole.” Inside U.S. Trade, “Azevêdo: Challenging U.S. 232 Tariffs at WTO a ‘Risky’ Strategy,” InsideTrade.com, December 6, 2018.</p> <p><sup><span id="endnote-035"><a href="#endnote-035-backlink">35</a>.</span></sup> Gina Chon, “Trump’s Anti-WTO Rhetoric Hurts America First,” Reuters.com, December 11, 2017.</p> <p><sup><span id="endnote-036"><a href="#endnote-036-backlink">36</a>.</span></sup> For an overview of rebalancing under the Safeguards Agreement, see Matthew R. Nicely and David T. Hardin, “Article 8 of the WTO Safeguards Agreement: Reforming the Right to Rebalance,” <em>St. John’s Journal of Legal Commentary</em> 23 (2008): 699.</p> <p><sup><span id="endnote-037"><a href="#endnote-037-backlink">37</a>.</span></sup> Simon Lester, “How to Determine If a Measure Constitutes a Safeguard Measure,” <em>International Economic Law and Policy Blog</em>, August 15, 2018.</p> <p><sup><span id="endnote-038"><a href="#endnote-038-backlink">38</a>.</span></sup> United States of America and Mexico, Reciprocal Trade Agreement, article XI, para. 2, December 23, 1942, 57 Stat. 833 (1943), E.A.S. No. 311.</p> <p><sup><span id="endnote-039"><a href="#endnote-039-backlink">39</a>.</span></sup> John Jackson, <em>World Trade and the Law of GATT</em> (Charlottesville, VA: Michie Company, 1969), p. 565.</p> <p><sup><span id="endnote-040"><a href="#endnote-040-backlink">40</a>.</span></sup> Suggested Charter for an International Trade Organization of the United Nations, article 29, para. 2, Publication 2598, Washington: Department of State.</p> <p><sup><span id="endnote-041"><a href="#endnote-041-backlink">41</a>.</span></sup> London Draft of a Charter for an International Trade Organization, article 34, para. 2, Report of the First Session of the Preparatory Committee, UN Conference on Trade and Employment, UN Doc. E/PC/T/33 (Oct. 1946).</p> <p><sup><span id="endnote-042"><a href="#endnote-042-backlink">42</a>.</span></sup> GATT, article XIX, paras. 2 and 3, April 15, 1994, 1867 U.N.T.S. 187. </p> <p><sup><span id="endnote-043"><a href="#endnote-043-backlink">43</a>.</span></sup> “Drafting History of Article XIX and Its Place in GATT,” Background Note by the Secretariat, MTN.GNG/NG9/W/7, para. 22, September 16, 1987; and GATT Analytical Index, p. 525.</p> <p><sup><span id="endnote-044"><a href="#endnote-044-backlink">44</a>.</span></sup> Article 8, para. 1, Agreement on Safeguards, April 15, 1994, WTO Agreement, Annex 1A.</p> <p><sup><span id="endnote-045"><a href="#endnote-045-backlink">45</a>.</span></sup> Article 8, para. 3, Agreement on Safeguards states, “The right of suspension referred to in paragraph 2 shall not be exercised for the first three years that a safeguard measure is in effect, provided that the safeguard measure has been taken as a result of an absolute increase in imports and that such a measure conforms to the provisions of this Agreement.”</p> <p><sup><span id="endnote-046"><a href="#endnote-046-backlink">46</a>.</span></sup> John Jackson, <em>The World Trading System</em> (Cambridge, MA: MIT Press, 1994), p. 168; Chad Bown and Meredith Crowley, “Safeguards in the World Trade Organization,” February 2003. (“Although compensation for safeguard measures was often ­negotiated in the 1960s and 1970s, as tariff rates fell and more products came to be freely traded, as a practical matter, it became difficult for countries to agree on compensation packages”); see also Matthew R. Nicely and David T. Hardin, “Article 8 of the WTO Safeguards Agreement: Reforming the Right to Rebalance,” <em>St. John’s Journal of Legal Commentary</em> 23 (2008): 699, 716.</p> </div> Tue, 25 Jun 2019 00:00:00 -0400 Simon Lester, Huan Zhu https://www.cato.org/policy-analysis/closing-pandoras-box-growing-abuse-national-security-rationale?utm_source=author&amp%3Butm_medium=rss&amp%3Butm_campaign=rss Simon Lester discusses US-Mexico relations on Bearing Drift’s The Score with Rick Sincere https://www.cato.org/media-highlights-radio/simon-lester-discusses-us-mexico-relations-bearing-drifts-score?utm_source=author&amp%3Butm_medium=rss&amp%3Butm_campaign=rss Sun, 23 Jun 2019 10:45:00 -0400 Simon Lester https://www.cato.org/media-highlights-radio/simon-lester-discusses-us-mexico-relations-bearing-drifts-score?utm_source=author&amp%3Butm_medium=rss&amp%3Butm_campaign=rss Trump’s First Trade Deal: The Slightly Revised Korea-U.S. Free Trade Agreement https://www.cato.org/free-trade-bulletin/trumps-first-trade-deal-slightly-revised-korea-us-free-trade?utm_source=author&amp%3Butm_medium=rss&amp%3Butm_campaign=rss Simon Lester, Inu Manak, Kyounghwa Kim <div class="lead text-default"> <p>While the renegotiation of the North American Free Trade Agreement has received far more attention, a lesser-known U.S. trade deal has also been reworked. In April of 2017, President Trump proclaimed his displeasure with the Korea-U.S. Free Trade Agreement (commonly referred to as “KORUS”), stating, “It was a Hillary Clinton disaster, a deal that should’ve never been made.”<sup><a id="endnote-001-backlink" href="#endnote-001">1</a></sup> Trump said he had told the South Koreans, “We’ll either terminate or negotiate. We may terminate.”<sup><a id="endnote-002-backlink" href="#endnote-002">2</a></sup> This set the wheels in motion for a relatively low-profile trade renegotiation that became Trump’s first trade deal.</p> </div> , <div class="text-default"> <p>The renegotiation of KORUS provides a useful example of Trump’s trade dealmaking in practice. As we will show below, the renegotiation made only minor changes to the agreement and could be taken to mean that the reality of Trump’s trade policy may not always match the rhetoric. However, the administration’s concerns about trade with Korea have always been less prominent than its concerns about trade with other trading partners, so the conclusion of the KORUS talks with only small changes may simply be a reflection of the administration’s focus on other areas of trade policy rather than an indication of its general approach to trade policy.</p> </div> , <div class="text-default"> <h2>The Original KORUS</h2> <p>The original KORUS grew out of bilateral consultations that began in late 2004, although the idea of a trade agreement between the two countries had been floated as early as the 1980s. A deal was concluded in April 2007, revised the next month to reflect demands from Congressional Democrats, and signed by the parties on June 30, 2007.<sup><a id="endnote-003-backlink" href="#endnote-003">3</a></sup> Important features of the agreement were a phase-in period for the removal of most tariffs on bilateral trade, with autos and agriculture the most noteworthy areas of liberalization; a reduction in the burden of various Korean tax and regulatory policies; and the opening up of certain Korean services markets.<sup><a id="endnote-004-backlink" href="#endnote-004">4</a></sup></p> <p>The initial version of the deal faced several hurdles with domestic ratification. Although Korea had significantly opened its agricultural market as part of the negotiations, Korean restrictions on U.S. beef imports had not been fully resolved. Max Baucus, a powerful farm-state senator, objected to the deal until that issue was fixed. The U.S. auto industry also had concerns about the new competition it would face from its Korean counterparts. Finally, presidential elections in Korea led to delays in consideration of the deal, and then came the 2008 U.S. presidential election and the financial crisis. These issues held up ratification for the remainder of the Bush administration and a couple of years into Obama’s first term.<sup><a id="endnote-005-backlink" href="#endnote-005">5</a></sup></p> <p>In December 2010, the two parties agreed to a set of minor changes: U.S. tariff cuts on cars and light trucks were delayed for a few years, and Korea made changes to certain regulatory policies that would help U.S. carmakers with access to the Korean market.<sup><a id="endnote-006-backlink" href="#endnote-006">6</a></sup> These changes paved the way for ratification in both Korea and the United States, and the agreement entered into force on March 15, 2012.<sup><a id="endnote-007-backlink" href="#endnote-007">7</a></sup></p> <h2>Timeline of the KORUS Renegotiation</h2> <p>President Trump and his Korean counterpart, Moon Jae-in, first spoke about a KORUS renegotiation during the June 2017 U.S.-Korea Summit. Soon after, U.S. Trade Representative Robert Lighthizer requested convening a special session of the KORUS Joint Committee.<sup><a id="endnote-008-backlink" href="#endnote-008">8</a></sup> The special session was held in August but failed to reach a resolution. At that point, press reports suggested that Trump was hinting at a possible U.S. withdrawal from the agreement.<sup><a id="endnote-009-backlink" href="#endnote-009">9</a></sup> However, after another meeting in October, the two sides agreed to start the process of amending the agreement.<sup><a id="endnote-010-backlink" href="#endnote-010">10</a></sup></p> <p>The two countries held the first round of talks on possible amendments in early January 2018, focusing on automotive trade and the further opening of Korea’s agricultural market.<sup><a id="endnote-011-backlink" href="#endnote-011">11</a></sup> The second round of talks began at the end of that month, occurring just a week after Trump had announced safeguard tariffs that would affect Korean washing machines and solar panels.<sup><a id="endnote-012-backlink" href="#endnote-012">12</a></sup> During this tense second round, the United States continued to push for changes concerning the sale of autos in Korea. Meanwhile, Korea made detailed suggestions to reform the investor-state dispute settlement (ISDS) mechanism and raised concerns about the safeguard tariffs on washing machines and solar panels.<sup><a id="endnote-013-backlink" href="#endnote-013">13</a></sup></p> <p>The third round of talks, held in March, coincided with the Trump administration’s announcement of sweeping new tariffs on steel under Section 232 of the Trade Expansion Act of 1962. Korea negotiated an exemption from the tariffs in exchange for agreeing to limit steel exports to the United States. The two sides also discussed further opening the Korean market to U.S. pharmaceuticals. Both governments seemed to take a more diplomatic approach to these talks in order to avoid adding complications to the upcoming inter-Korea and U.S.–North Korea summit.<sup><a id="endnote-014-backlink" href="#endnote-014">14</a></sup> On March 28, Korea and the United States released a joint statement announcing that they had “reached an agreement in principle on the general terms of amendments and modifications to the United States–Republic of Korea Free Trade Agreement.”<sup><a id="endnote-015-backlink" href="#endnote-015">15</a></sup> The two parties signed the renegotiated trade deal on September 24, 2018.<sup><a id="endnote-016-backlink" href="#endnote-016">16</a></sup></p> <p>Shortly thereafter, Korea completed its domestic procedure to effectuate the amended KORUS, and on December 7, 2018, the National Assembly ratified the agreement, voting 180–5 in support of the deal, with 19 abstentions.<sup><a id="endnote-017-backlink" href="#endnote-017">17</a></sup> Although the Koreans had hinted that they would demand an exemption from the Trump administration’s possible Section 232 tariffs on all automobiles in exchange for their approval of the new KORUS, the legislation was finalized without addressing this issue.<sup><a id="endnote-018-backlink" href="#endnote-018">18</a></sup> Meanwhile, no congressional vote was required in the United States because of the limited scope of the revisions and the absence of changes to any U.S. statutes.</p> <p>Upon exchanging written notifications that each country had completed its respective legal requirements and procedures, the new KORUS entered into force on January 1, 2019.<sup><a id="endnote-019-backlink" href="#endnote-019">19</a></sup></p> <h2>Major Changes to KORUS</h2> <p>KORUS 2.0 is mostly just a tweak of the original KORUS, but it contains a few noteworthy changes. Some issues were addressed as modifications to the original KORUS, while others that were not covered in the original were negotiated as side agreements secured by exchanges of letters between the parties. Changes demanded by the United States included steel export restrictions, a larger quota for U.S. cars exported to Korea that meet U.S. emissions and safety standards instead of Korea’s idiosyncratic rules, an extension of the duration of the U.S. 25 percent tariffs on imported pickup trucks, changes to rules on Korean medicine pricing, and new procedures for Korean customs inspections. There were also several Korean demands that resulted in changes to the investor-state dispute settlement and trade defense mechanism procedures, as well as rules of origin requirements for certain textile products.</p> <h3>Voluntary Export Restraint on Steel from Korea</h3> <p>Regarding the side deals, the biggest (and most negative) economic impact will arise from the export restrictions on Korean steel. Pursuant to these restrictions, Korea will cap steel exports to the United States at 70 percent of the average volume from the past three years on a product-by-product basis.<sup><a id="endnote-020-backlink" href="#endnote-020">20</a></sup> This was done in exchange for an indefinite exemption from the Trump administration’s Section 232 national security tariffs on steel. These quotas will lead to some degree of price increase for U.S. consumers, with the amount of the increase dependent on how the measures are implemented, among other factors.</p> <p>In anticipation of the quotas, larger Korean steel producers had already been looking to other markets, such as India, for their exports, and some of Korea’s smaller steel producers, such as Seah Steel and Husteel, have considered moving more production to the United States to circumvent the quotas altogether.<sup><a id="endnote-021-backlink" href="#endnote-021">21</a></sup></p> <p>This outcome is troubling because it takes trade policy back to the 1980s and utilizes a tool that operates outside current international rules. Tying unrelated national security issues to pressure Korea into concessions signals a new approach to trade negotiations that we are likely to see more of from the Trump administration.</p> <h3>Increased Export Quotas and Expansion of Eco-Credits for U.S. Autos</h3> <p>Under the original KORUS, U.S.-based auto manufacturers can export up to 25,000 vehicles (per manufacturer per year) to Korea that will be deemed compliant with Korean safety standards as long as they meet U.S. standards. As part of the renegotiation, the annual quota has now been increased to 50,000 vehicles per manufacturer.<sup><a id="endnote-022-backlink" href="#endnote-022">22</a></sup> On its face, this appears to be a good market-opening provision and a positive development for increasing U.S. access to the Korean market. However, the real economic value is unclear. In 2017, U.S. passenger vehicle and light truck exports to Korea totaled only 52,687 units; to put this figure in perspective, Canada is the leading destination for U.S. auto exports, with 917,669 units, and China is second at 262,527 units.<sup><a id="endnote-023-backlink" href="#endnote-023">23</a></sup> Furthermore, Ford and General Motors each shipped fewer than 10,000 vehicles to Korea in 2017.<sup><a id="endnote-024-backlink" href="#endnote-024">24</a></sup> Given the low volume of U.S. auto exports to Korea, increasing the quota will probably not have much impact.</p> <p>In addition, most U.S. automobiles will be exempt from Korea’s stricter CO2 emission requirements. In order to achieve this, the cap on eco-credits that U.S. manufacturers can use to “pay” for increased CO2 emissions will be raised to match the discrepancy between the U.S. and Korean emission standards.<sup><a id="endnote-025-backlink" href="#endnote-025">25</a></sup> In addition, Korea will continue to provide leniency on both fuel economy and greenhouse gas emissions regulations for small-volume U.S.-vehicle manufacturers that sell small quantities of cars to Korea. As with the increased quota for autos meeting U.S. safety standards, given the low level of U.S. exports to Korea, this change is likely to have a minimal effect on trade.</p> <h3>Phaseout of Tariffs on Light Trucks from Korea </h3> <p>While the auto provisions noted above could open Korea’s market a bit to U.S. exports, on trucks the Trump administration has moved in the direction of greater protectionism. Korea agreed to a U.S. demand to extend a 25 percent U.S. tariff on light-truck imports until 2041 (the tariff was supposed to be phased out by 2021 under the original KORUS). Because Korea does not currently export trucks to the United States, this will have no immediate impact on the market. However, the change could delay any future export plans Korean truck producers may have pursued. Ambassador Lighthizer has said, “The Koreans don’t ship trucks to the United States right now and the reason they don’t is because of this tariff,” and, “They were going to start next year — we would have seen massive truck shipments. So, that’s put off for two decades.”<sup><a id="endnote-026-backlink" href="#endnote-026">26</a></sup> Along the same lines, in a study published in June 2018, the U.S. International Trade Commission estimated that the extension of the duties “could avoid an increase of 59,000 units in light truck imports” and “7,600 units in medium/heavy truck imports from Korea” over the 20-year extension period.<sup><a id="endnote-027-backlink" href="#endnote-027">27</a></sup> Although the actual plans of Korean automakers were unclear, the tariff extension certainly limits their options for producing trucks for the U.S. market and keeps imported light trucks out of reach to U.S. consumers for another 20 years.<sup><a id="endnote-028-backlink" href="#endnote-028">28</a></sup></p> <h3>Korean Medicine Pricing</h3> <p>The Pharmaceutical Research and Manufacturers of America has long complained about how Korea’s national health insurance pricing entities — the Health Insurance Review and Assessment Service and the National Health Insurance Corporation — have priced imported drugs at below-market prices.<sup><a id="endnote-029-backlink" href="#endnote-029">29</a></sup> In this regard, the association has claimed that “Korea’s pricing policies severely devalue U.S. intellectual property and favor Korea’s own pharmaceutical industry at the expense of U.S. companies.”<sup><a id="endnote-030-backlink" href="#endnote-030">30</a></sup> According to the U.S. Trade Representative’s Office, as part of the KORUS renegotiation, “Within 2018, Korea will amend its Premium Pricing Policy for Global Innovative Drugs to make it consistent with Korea’s commitments under KORUS to ensure non-discriminatory and fair treatment for U.S. pharmaceutical exports.”<sup><a id="endnote-031-backlink" href="#endnote-031">31</a></sup> In essence, the amended KORUS was supposed to ensure that Korea bring its pharmaceutical policies in line with what was originally agreed. Korea made the amendments as scheduled, but criticism of the new rules has emerged from both domestic and foreign pharmaceutical companies, and the policy may continue to be contested.<sup><a id="endnote-032-backlink" href="#endnote-032">32</a></sup></p> <h3>Korean Customs Procedures</h3> <p>Another KORUS change targets red tape involving customs procedures. Korean customs, as compared to U.S. customs, traditionally demands more detailed documentation, a practice that acts as a nontariff barrier to trade. Whereas U.S. Customs and Border Protection places scrutiny primarily on Tier 1 suppliers (direct suppliers to original equipment manufacturers) as long as certificates exist for producers farther down the supply chain, the Korean Customs Service often demands significantly more documentation, even from suppliers as far removed as the Tier 3 level (suppliers of raw material).<sup><a id="endnote-033-backlink" href="#endnote-033">33</a></sup> The KORUS renegotiation has produced a list of eight principles designed to reduce this customs slowdown and calls for the creation of a working group to monitor these issues.<sup><a id="endnote-034-backlink" href="#endnote-034">34</a></sup></p> <h3>Other Notable Changes and Omissions</h3> <p>Although the majority of KORUS 2.0 amendments were designed to satisfy U.S. demands, three smaller changes were made at the request of Korea. First, the investor-state dispute mechanism has been revised in minor ways and largely resembles the rules in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership. ISDS is an arbitration process that allows foreign investors to bring claims against governments before an ad hoc panel. Some Korean officials are dissatisfied with the burden this system has placed on their government. As of this year, Korea is facing a number of ISDS claims that put it at risk of upward of $50 billion in damages. Korea lost its first ISDS case this year against Iran’s Dayyani Group, after which the Korean government was required to pay 73 billion <em>won</em> (approximately $64 million).<sup><a id="endnote-035-backlink" href="#endnote-035">35</a></sup> This, among other factors, has reduced Korea’s support for ISDS and led it to seek revisions.</p> <p>Second, the KORUS amendments also seek to promote transparency in antidumping and countervailing duty proceedings.<sup><a id="endnote-036-backlink" href="#endnote-036">36</a></sup> The renegotiated terms are a direct response to the frequent use of this type of import restriction by the United States. While this change may not do much to curtail U.S. recourse to these trade remedies, improving transparency in the process is a net positive result.</p> <p>Third, Korea asked for modifications to rules-of-origin requirements for three product categories of textile inputs that are not available in either Korea or the United States and thus have to come from other countries.<sup><a id="endnote-037-backlink" href="#endnote-037">37</a></sup> This change was requested because the current “yarn-forward” rules only allow a textile product to qualify for a free-trade agreement’s lower tariffs if it is made of yarns and fabrics from one of the free-trade-agreement parties. The United States favors yarn-forward rules in its trade agreements because they restrict inputs from other countries.<sup><a id="endnote-038-backlink" href="#endnote-038">38</a></sup> The United States agreed to expedite its domestic commercial-availability review process, agreeing to make rule changes in the Specific Rules of Origin for Textile and Apparel Goods (Annex 4-A) if it is determined that commercial availability does not exist. This would be a welcome development in relaxing stringent yarn-forward rules that impede the most efficient ways of manufacturing textiles and clothing.</p> <p>Finally, and notably, the agreement lacks provisions addressing currency manipulation, which the United States has sought in other recent trade negotiations. Initially, it appeared that the United States was pushing for KORUS provisions similar to those agreed to in a side letter to the Comprehensive and Progressive Agreement for Trans Pacific Partnership, which the United States helped negotiate but from which it later withdrew.<sup><a id="endnote-039-backlink" href="#endnote-039">39</a></sup> The Trump administration was later able to include currency provisions in the renegotiated North American Free Trade Agreement, known as the United States-Mexico-Canada Agreement, which has not yet been ratified by Congress.<sup><a id="endnote-040-backlink" href="#endnote-040">40</a></sup> In spite of early talk about a KORUS currency chapter,<sup><a id="endnote-041-backlink" href="#endnote-041">41</a></sup> the final renegotiated KORUS says nothing about currency issues. However, Korea has stated that it will begin disclosing its foreign exchange transactions.</p> <h2>Conclusion</h2> <p>Overall, the KORUS renegotiation is a minor tweak to the U.S.-Korea trade relationship rather than the wholesale revolution that Trump and his trade advisers portray it to be. That is probably for the best. However, concerns about KORUS have been less prominent for the Trump administration than concerns about other trade relationships in which the United States may take more aggressive actions. The escalating U.S.-China trade conflict, the administration’s persistent use of various unilateral tariffs, and its blocking of nominations to the World Trade Organization’s highest court are taking center stage. The resolution of these hot-button issues will reveal more about whether the administration can figure out a way to put together a coherent trade strategy that does not unravel decades of trade liberalization.</p> <h2>Notes</h2> <p><sup><a id="endnote-001" href="#endnote-001-backlink">1</a></sup> Philip Rucker, “Trump: ‘We May Terminate’ U.S.–South Korea Trade Agreement,” <em>Washington Post</em>, April 28, 2017.</p> <p><sup><a id="endnote-002" href="#endnote-002-backlink">2</a></sup> Rucker, “Trump: ‘We May Terminate’ U.S.–South Korea Trade Agreement.”</p> <p><sup><a id="endnote-003" href="#endnote-003-backlink">3</a></sup> Jeffrey J. Schott, “Why the Korea–United States Free Trade Agreement Is a Big Deal,” <em>SERI Quarterly</em> 4, no. 3 (2011): 24.</p> <p><sup><a id="endnote-004" href="#endnote-004-backlink">4</a></sup> Jeffrey J. Schott, “The Korea-US Free Trade Agreement: A Summary Assessment,” Policy Brief no. PB07-7, Peterson Institute for International Economics, 2007, pp. 2–9.</p> <p><sup><a id="endnote-005" href="#endnote-005-backlink">5</a></sup> Schott, “Why the Korea–United States Free Trade Agreement Is a Big Deal,” pp. 26–27.</p> <p><sup><a id="endnote-006" href="#endnote-006-backlink">6</a></sup> Jeffrey J. Schott, “KORUS FTA 2.0: Assessing the Changes,” Policy Brief no. PB10-28, Peterson Institute for International Economics, 2010, p. 1.</p> <p><sup><a id="endnote-007" href="#endnote-007-backlink">7</a></sup> “As KORUS Enters into Force, No Timelines to Tackle Drug, Beef Problems,” <em>Inside U.S. Trade</em>, March 15, 2012.</p> <p><sup><a id="endnote-008" href="#endnote-008-backlink">8</a></sup> Robert Lighthizer, letter to Korean Minister of Trade, Industry, and Energy, July 12, 2017, <a href="https://ustr.gov/sites/default/files/files/Press/Releases/USTR%20KORUS.pdf">https://ustr.gov/sites/default/files/files/Press/Releases/USTR%20KORUS.pdf</a>.</p> <p><sup><a id="endnote-009" href="#endnote-009-backlink">9</a></sup> Steve Holland, “Trump Hints at Withdrawal from U.S.–South Korea Free Trade Deal,” Reuters, September 2, 2017. Around this time, North Korea announced the successful test of a nuclear weapon that could be loaded onto a long-range missile, which may have influenced U.S. and South Korean thinking about trade issues. “North Korea Nuclear Test: Hydrogen Bomb ‘Missile-Ready,’” British Broadcasting Corporation (BBC) News, September 3, 2017.</p> <p><sup><a id="endnote-010" href="#endnote-010-backlink">10</a></sup> “U.S., Korea Agree to Tackle KORUS Implementation Issues, Amendments,” <em>Inside U.S. Trade</em>, October 4, 2017; and “U.S., Korea Agree to Discuss FTA Amendments,” Sandler, Travis, and Rosenberg Trade Report, October 6, 2017.</p> <p><sup><a id="endnote-011" href="#endnote-011-backlink">11</a></sup> “First Round of Talks on Renegotiating KORUS FTA Take Place,” <em>The Economist, </em>January 9, 2018.</p> <p><sup><a id="endnote-012" href="#endnote-012-backlink">12</a></sup> “Korea, US to Hold 2nd Round of FTA Renegotiation Talks Next Week,” <em>Korea Herald</em> (Seoul), January 26, 2018.</p> <p><sup><a id="endnote-013" href="#endnote-013-backlink">13</a></sup> Hyunjoo Jin, “South Korea Complains to U.S. about Tariffs on Washing Machines, Solar Panels,” Reuters, February 1, 2018; and “U.S., Korea Continue Talks on KORUS Implementation and Revision,” Sandler, Travis, and Rosenberg Trade Report, February 2, 2018.</p> <p><sup><a id="endnote-014" href="#endnote-014-backlink">14</a></sup> Jane Chung and Christine Kim, “How Seoul Raced to Conclude U.S. Trade Deal ahead of North Korea Denuclearization Summit,” <em>Japan Times</em> (Tokyo)<em></em>, March 20, 2018.</p> <p><sup><a id="endnote-015" href="#endnote-015-backlink">15</a></sup> Office of the United States Trade Representative, “Joint Statement by the United States Trade Representative Robert E. Lighthizer and Republic of Korea Minister for Trade Hyun Chong Kim,” press release, March 28, 2018.</p> <p><sup><a id="endnote-016" href="#endnote-016-backlink">16</a></sup> Donald J. Trump and Jai-in Moon, “Joint Statement on the United States–Korea Free Trade Agreement,” White House, Statements and Releases, September 24, 2018.</p> <p><sup><a id="endnote-017" href="#endnote-017-backlink">17</a></sup> “National Assembly Ratifies Revised S. Korea–U.S. Free Trade Deal,” Yonhap News Agency (Seoul), December 7, 2018.</p> <p><sup><a id="endnote-018" href="#endnote-018-backlink">18</a></sup> Kwanwoo Jun, “Trump’s ‘Great Deal’ with South Korea Jeopardized by Car Tariff Dispute,” <em>Wall Street Journal</em>, August 7, 2018.</p> <p><sup><a id="endnote-019" href="#endnote-019-backlink">19</a></sup> Office of the United States Trade Representative, “Protocol between the Government of the United States of America and the Government of the Republic of Korea Amending the Free Trade Agreement between the United States of America and the Republic of Korea,” September 3, 2018.</p> <p><sup><a id="endnote-020" href="#endnote-020-backlink">20</a></sup> White House, “President Donald J. Trump Is Fulfilling His Promise on the U.S.-Korea Free Trade Agreement and on National Security,” Fact Sheets, March 28, 2018.</p> <p><sup><a id="endnote-021" href="#endnote-021-backlink">21</a></sup> Jane Chung and Yuka Obayashi, “Trumped: How Seoul’s U.S. Trade ‘Coup’ Left Korea Steel in Limbo as Japan Marches On,” Reuters, September 13, 2018; and Shin Eun-jin, “Korean Steelmaker to Bolster U.S. Output amid Tariff Wars,” <em>Chosun Ilbo </em>(Seoul), September 28, 2018 (in Korean).</p> <p><sup><a id="endnote-022" href="#endnote-022-backlink">22</a></sup> Office of the United States Trade Representative, “Protocol between the Government of the United States of America and the Government of the Republic of Korea.”</p> <p><sup><a id="endnote-023" href="#endnote-023-backlink">23</a></sup> International Trade Administration, “US Exports of New Passenger Vehicles and Light Trucks $US.”</p> <p><sup><a id="endnote-024" href="#endnote-024-backlink">24</a></sup> Hyunjoo Jin and Joyce Lee, “U.S., South Korea Revise Trade Deal with Quotas on Korean Steel,” Reuters, March 26, 2018.</p> <p><sup><a id="endnote-025" href="#endnote-025-backlink">25</a></sup> Office of the United States Trade Representative, “Protocol between the Government of the United States of America and the Government of the Republic of Korea Amending the Free Trade Agreement between the United States of America and the Republic of Korea.”</p> <p><sup><a id="endnote-026" href="#endnote-026-backlink">26</a></sup> “Lighthizer: US Strikes 3-Part Trade Agreement with South Korea,” CNBC, March 28, 2018.</p> <p><sup><a id="endnote-027" href="#endnote-027-backlink">27</a></sup> United States International Trade Commission, “U.S.-Korea FTA: Advice on Modifications to Duty Rates for Certain Motor Vehicles,” Publication no. 4791, June 2018, pp. 10–11.</p> <p><sup><a id="endnote-028" href="#endnote-028-backlink">28</a></sup> Hyundai is planning to sell a new pickup truck, called the Santa Cruz, in late 2019. Jinwoo Park, “Hyundai Plans the First Appearance of Pickup Trucks in the Second Half of This Year,” <em>IT </em><em>Chosun</em> (Seoul), January 17, 2019 (in Korean).</p> <p><sup><a id="endnote-029" href="#endnote-029-backlink">29</a></sup> International Trade Administration, “2016 Top Markets Report Pharmaceuticals: Country Case Study, South Korea.”</p> <p><sup><a id="endnote-030" href="#endnote-030-backlink">30</a></sup> “PhRMA 2018 Special 301 Submission Calls for Urgent Action to Address Serious Access and IP Barriers,” PhRMA, press release, February 8, 2018.</p> <p><sup><a id="endnote-031" href="#endnote-031-backlink">31</a></sup> Office of the United States Trade Representative, “New U.S. Trade Policy and National Security Outcomes with the Republic of Korea,” fact sheet, March 28, 2018.</p> <p><sup><a id="endnote-032" href="#endnote-032-backlink">32</a></sup> Seungduk Lee, “The Amended Pricing Policy of Global Innovative New Drugs Is Implemented as Originally Planned without Further Change,” <em>Yakupnews</em> (Seoul), January 2, 2019 (in Korean); and Jihyun Lee, “The Amended Pricing Policy of Global Innovative New Drugs Lost Its Original Intent Due to the KORUS FTA; Multinational Firms Oppose the Policy Again,” <em>Hankyung</em> (Seoul), January 4, 2019 (in Korean).</p> <p><sup><a id="endnote-033" href="#endnote-033-backlink">33</a></sup> Larry Ordet, “US, Korea Get Tough on Verifying Compliance with FTA Claims,” <em>Sourcing Journal</em>, May 13, 2014.</p> <p><sup><a id="endnote-034" href="#endnote-034-backlink">34</a></sup> Office of the United States Trade Representative, “Protocol between the Government of the United States of America and the Government of the Republic of Korea.” See “Attachment: Customs Principles under the Free Trade Agreement between the United States of America and the Republic of Korea.”</p> <p><sup><a id="endnote-035" href="#endnote-035-backlink">35</a></sup> “S. Korea to File Lawsuit against Earlier Ruling in Favor of Iranian Firm,” Yonhap News Agency (Seoul), July 4, 2018.</p> <p><sup><a id="endnote-036" href="#endnote-036-backlink">36</a></sup> Office of the United States Trade Representative, “Protocol between the Government of the United States of America and the Government of the Republic of Korea,” part 3(a).</p> <p><sup><a id="endnote-037" href="#endnote-037-backlink">37</a></sup> These include certain viscose rayon staple fibers classified in subheadings 5504.10 or 5507.00; certain textured and nontextured cuprammonium rayon filament yarns classified in subheading 5403.39; and certain cashmere yarns classified in heading 51.08.</p> <p><sup><a id="endnote-038" href="#endnote-038-backlink">38</a></sup> U.S. Customs and Border Protection, “Textile and Apparel Products: Rules of Origin,” last modified May 29, 2014.</p> <p><sup><a id="endnote-039" href="#endnote-039-backlink">39</a></sup> The United States pulled out of the Trans-Pacific Partnership in January 2016. The agreement was renamed the Comprehensive and Progressive Agreement for Trans Pacific Partnership and went into effect on December 30, 2018, among the remaining 11 members: Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam.</p> <p><sup><a id="endnote-040" href="#endnote-040-backlink">40</a></sup> Office of the United States Trade Representative, “USMCA Chapter 33: Macroeconomic Policies and Exchange Rater Matters.”</p> <p><sup><a id="endnote-041" href="#endnote-041-backlink">41</a></sup> David Lawder, “U.S., South Korea to Revise Trade Pact with Currency Side-Deal, Autos Concessions,” Reuters, March 28, 2018; and Congressional Research Service, “U.S.–South Korea (KORUS) FTA,” December 28, 2018.</p> </div> Thu, 13 Jun 2019 03:00:00 -0400 Simon Lester, Inu Manak, Kyounghwa Kim https://www.cato.org/free-trade-bulletin/trumps-first-trade-deal-slightly-revised-korea-us-free-trade?utm_source=author&amp%3Butm_medium=rss&amp%3Butm_campaign=rss Enforcement in the USMCA: The Draft SAA and the Trump Administration's Elevation of Section 301 https://www.cato.org/enforcement-usmca-draft-saa-trump-administrations-elevation-section-301?utm_source=author&amp%3Butm_medium=rss&amp%3Butm_campaign=rss Simon Lester, Inu Manak <p>Enforcement of the U.S.-Mexico-Canada Agreement (USMCA) has proven to be an important stumbling block to its ratification in the United States. Democratic law makers have demanded that enforcement provisions be strengthened, particularly with regard to labor and environment provisions. Specifically, some have asked for the correction of a major flaw in the NAFTA state-to-state dispute settlement chapter, under which the appointment of dispute panels had been blocked (in part due to the absence of a roster of panelists to draw from). U.S. Trade Representative Lighthizer stated in <a href="https://www.finance.senate.gov/imo/media/doc/SFC%20WTO%20Hearing%2003.12.19%20QFRs%20Responses%20FINAL.pdf">congressional testimony</a> that this issue had been addressed in the renegotiated text. In a response to a question from Sen. Ron Wyden (D-OR), asking “Would you be opposed to clarifying that the text of Chapter 31 of the revised NAFTA is not meant to allow panel blocking?,” Lighthizer said:&#13;<br /> &#13;</p> <blockquote><p>The text of Chapter 31 of the United States – Mexico – Canada Agreement (USMCA) is not meant to allow panel blocking. Indeed, panels have been successfully formed under Chapter 20 of the NAFTA (its precursor). As we move forward with Congressional consideration of the USMCA, we look forward to discussing this and any other issues related to enforcement with you and your colleagues.</p> </blockquote> <p>However, as we have pointed out on <a href="https://thehill.com/opinion/finance/409498-the-fundamental-flaw-in-the-new-nafta-deal">multiple</a> <a href="https://www.cato.org/blog/grading-new-nafta">occasions</a>, it’s not clear that the problem of panel blocking has been resolved by the new USMCA text. Notably, Lighthizer did not say it has been, instead emphasizing that the agreement “is not <em>meant </em>to allow panel blocking,” which is vague enough to suggest it does not preclude it.&#13;<br /> &#13;<br /> To add another healthy dose of skepticism to Lighthizer’s claim, a <a href="https://insidetrade.com/sites/insidetrade.com/files/documents/2019/jun/wto2019_0165.pdf">draft</a> [$] of the Statement of Administrative Action, which was submitted on May 30<sup>th</sup> (the final version of which will be part of the implementing legislation), seems to suggest he has something else in mind when it comes to enforcement.  Two relevant aspects are as follows.&#13;<br /> &#13;<br /> First, on the problem of the roster, the draft SAA states:&#13;<br /> &#13;</p> <blockquote><p>b. Dispute Settlement: Nominations for Dispute Settlement Roster&#13;<br /> &#13;<br /> Article 31.8 of the USMCA requires that by the date of entry into force of the USMCA the Parties establish a roster of up to 30 individual[<em>sic</em>] who are willing to serve as panelists. USTR will consult with the Committee on Ways and Means of the House of Representatives and the Committee on Finance of the Senate (“Trade Committees”) as it considers nominees for the roster of panelists and will provide the Trade Committees with the names of the experts it is considering, and detailed background information on each, at least 30 days before submitting the names of any nominees.</p> </blockquote> <p>On its face, this appears to suggest that a roster will be established by the date of entry into force of the USMCA. However, there may be a problem ensuring that this happens. The problem is, there is nothing that guarantees that USTR will submit the names of nominees. Furthermore, even if they are submitted and a roster is established, there is no guarantee that the roster will be maintained.&#13;<br /> &#13;<br /> In <a href="https://object.cato.org/sites/cato.org/files/pubs/pdf/lester-manak-public-letter-june-4-2019.pdf">comments</a> to the House Ways and Means Committee on enforcement of the agreement, we suggested two options for Congress to address this problem. First, they can call on the U.S. Trade Representative to reopen the USMCA and introduce new language to Chapter 31 that addresses the three principles we highlighted in a <a href="https://www.cambridge.org/core/journals/world-trade-review/article/access-to-trade-justice-fixing-naftas-flawed-statetostate-dispute-settlement-process/833E151474CD2198068A6EB094759545">recent paper</a>: the roster should not be a hurdle to appointing panelists; an independent third party can act as a facilitator in the panel appointments; and, in the absence of an independent third party, the complainant should have the power itself to appoint, in order to prevent the respondent from delaying panel formation. And second, Congress could call on the U.S. Trade Representative to work with Canada and Mexico to establish a roster of panelists right now, thus ensuring a roster is in place upon entry into force of the agreement.&#13;<br /> &#13;<br /> Second, on the issue of enforcement more generally, the SAA devotes substantial attention to the use of Section 301 of the Trade Act of 1974 as an enforcement tool. The document states, at length:&#13;<br /> &#13;</p> <blockquote><p>c. Enforcement of U.S. Rights&#13;<br /> &#13;<br /> Legislative authority currently exists for the Executive Branch fully to enforce U.S. rights under Chapter 31. Section 301 of the Trade Act of 1974, as amended, authorizes the United States Trade Representative (“USTR”) to take specific action, subject to the President’s direction, and to take all “appropriate and feasible action” in the President’s power that the President directs the USTR to take to enforce U.S. rights under trade agreements such as the USMCA.&#13;<br /> &#13;<br /> The United States shall enforce its rights under the USMCA through consultations and the dispute settlement mechanism provided for in Chapter 31 when possible. However, a decision by Canada or Mexico to prevent or unreasonably delay formation of a dispute settlement panel would not prevent the Executive Branch from enforcing U.S. rights. In this circumstance, the USTR’s determination on whether the USMCA partner breached USMCA obligations or impaired U.S. rights under the USMCA would be based on the USTR’s evaluation of the relevant legal and factual issues, including the fact that the USMCA partner failed to cooperate in the dispute settlement process.&#13;<br /> &#13;<br /> Once the USMCA enters into force, an interested person may file a petition with the USTR requesting section 301 action in any case in which the person considers that another USMCA government has failed to honor a provision of the Agreement or has caused the nullification or impairment of benefits that the United States could reasonably have anticipated under the Agreement. Alternatively, the USTR may, on his or her own initiative, institute a section 301 proceeding.&#13;<br /> &#13;<br /> If the USTR decides to initiate an investigation under section 301 with respect to alleged Canadian or Mexican practices, section 303(a) of the Trade Act requires the USTR initially to attempt consultations with the government of the relevant USMCA country to resolve the matter. If the case involved a possible breach of the USMCA or impairment of U.S. rights under the USMCA, and if consultations have failed to produce a mutually acceptable solution, then section 303(a) requires that the matter be submitted to the formal dispute resolution procedures of the Agreement, or to the applicable dispute settlement procedures of another trade agreement to which the United States and the other USMCA country are parties. The USTR will seek information and advice from the private sector, including form the petitioner, if any, in preparing U.S. presentations for consultations and formal dispute resolution procedures.&#13;<br /> &#13;<br /> Section 301 provides the USTR with authority to take appropriate retaliatory action in the event that a panel report upholds a U.S. allegation that another USMCA government has breached the Agreement or nullified or impaired U.S. benefits and the other government does not take satisfactory remedial action or provide satisfactory compensation.</p> </blockquote> <p>There are few things worth highlighting here. First in its description of enforcement under the USMCA, USTR seems to be emphasizing and prioritizing the use of unilateral enforcement tools, as it tries to make the case that enforcement authority exists even without a functioning state-to-state dispute settlement mechanism. The contrast with the draft SAA for the <a href="https://ustr.gov/sites/default/files/DRAFT-Statement-of-Administrative-Action.pdf">Trans Pacific Partnership</a> (TPP) is interesting, as the TPP SAA did not mention Section 301 in the context of dispute settlement at all.&#13;<br /> &#13;<br /> Second, it is interesting that “a decision by Canada or Mexico to prevent or unreasonably delay formation of a dispute settlement panel” is singled out as the problem. As far as we know, these countries have never done this. Instead, it was the United States that prevented a panel being appointed. Thus, the key question to ask here is, what happens if the United States takes a decision to delay the formation of a panel? If the United States were to do so again, perhaps Canada or Mexico would retaliate by doing the same thing. But the real concern here is whether USTR will allow panels to be appointed.&#13;<br /> &#13;<br /> Third, and most troubling, is the statement that a breach of the obligations “would be based on the USTR’s evaluation of the relevant legal and factual issues, including the fact that the USMCA partner failed to cooperate in the dispute settlement process.” At the core of all this, it seems as though Lighthizer is looking to create a shift away from neutral adjudication, and towards unilateral determinations and enforcement.  That would be a major step backwards for the rule of law in international trade agreements.&#13;<br /> &#13;<br /> There is still time to address these issues before USMCA is ratified. Members of Congress are working with the administration to address these enforcement issues.  Ideally, they will be able to fix the flaws in NAFTA so that the USMCA actually works the way that it was intended: The three parties will be held to account for the obligations they have agreed to.</p> Wed, 12 Jun 2019 11:05:40 -0400 Simon Lester, Inu Manak https://www.cato.org/enforcement-usmca-draft-saa-trump-administrations-elevation-section-301?utm_source=author&amp%3Butm_medium=rss&amp%3Butm_campaign=rss Is the Trump Administration Pushing for a Cold War with China? https://www.cato.org/trump-administration-pushing-cold-war-china?utm_source=author&amp%3Butm_medium=rss&amp%3Butm_campaign=rss Simon Lester <p>In a <em>Washington Post</em> <a href="https://www.washingtonpost.com/opinions/global-opinions/to-avoid-conflict-the-united-states-must-deter-chinese-aggression/2019/06/06/400b8ef0-8899-11e9-98c1-e945ae5db8fb_story.html">op-ed last week</a>, Josh Rogin argued this:&#13;<br /> &#13;</p> <blockquote><p>Despite what you may have read, the United States’ strategy toward China does not entail launching another Cold War, imposing a zero-sum game or even winning a “clash of civilizations.” In fact, the entire objective of the Trump administration’s Asia approach is to avoid outright conflict with China. But to do that, Beijing must be deterred from continuing on its aggressive path.</p> <p>The idea that the White House’s new approach to confront China’s economic aggression and military expansion represents a “Cold War mentality” is popular with pundits both in <a href="https://www.theatlantic.com/ideas/archive/2019/04/us-trade-hawks-exaggerate-chinas-threat/587536/">Washington</a> and in <a href="http://www.globaltimes.cn/content/1150289.shtml">Beijing</a>. But that accusation misunderstands what the United States is trying to do with China. ...</p> <p>&#13; </p> </blockquote> <p>Perhaps I am one of the pundits he had in mind, given that <a href="https://nationalinterest.org/feature/talking-ourselves-cold-war-china-40612">I wrote</a> the following earlier this year:</p> <blockquote><p><strong>Talking Ourselves into a Cold War with China</strong>&#13;<br /> &#13;<br /> Sometimes the latest turns of phrase in policy circles are just fleeting headlines, soon to be forgotten. As a presidential candidate, Hillary Clinton called for “<a href="https://www.dispatch.com/content/stories/local/2016/10/11/hillary-clintons-speech-at-ohio-state.html" rel=" noopener noreferrer" target="_blank">smart and fair trade</a>.” But she disappeared from the political scene before we figured out what that meant.&#13;<br /> &#13;<br /> However, other times they lead us down the road towards real changes in policy. Soon after the 9/11 attacks, Bush administration officials were accusing Saddam Hussein of being involved. At the time, the invasion of Iraq was hardly inevitable, and may not have seemed likely, but armed with the phrase “weapons of mass destruction,” the administration got the war momentum going, and that is the direction in which the country went.&#13;<br /> &#13;<br /> The U.S.-China relationship is facing similar attempts to define it with very serious sounding terminology, as U.S. policymakers are in the grips of the latest bout of buzzwords and groupthink. The U.S.-China relationship, we are told, may undergo a “<a href="https://www.bloomberg.com/view/articles/2018-09-16/trump-needs-allies-for-the-great-u-s-china-trade-divorce" rel=" noopener noreferrer" target="_blank">conscious uncoupling</a>.” The two countries could be moving towards an “<a href="https://www.wsj.com/articles/an-economic-cold-war-looms-between-the-u-s-and-china-1537968600" rel=" noopener noreferrer" target="_blank">economic cold war</a>.” Actual war is unlikely (although you<a href="https://twitter.com/billkristol/status/1066080100658147328?lang=en" rel=" noopener noreferrer" target="_blank"> never know</a>), but nevertheless a seismic geopolitical shift is supposedly upon us.</p> </blockquote> <p>There is certainly plenty of talk in Washington about a Cold War and a "clash of civilizations." But is any of it coming from the Trump administration, rather than from pundits? Rogin points to one piece of recent evidence and quickly dismisses it:</p> <blockquote><p>Those who criticize U.S. policy on China argue that the United States went looking for another enemy after the fall of the Soviet Union. Some <a href="https://www.ft.com/content/52b71928-85fd-11e9-a028-86cea8523dc2">point to</a> the unfortunate remarks by Kiron Skinner, the State Department’s policy planning director, who clumsily called the U.S.-China competition “a fight with a really different civilization and ideology.” That was an error, not a defining statement on U.S. policy.</p> </p> <p>&#13; </p> </blockquote> <p>To me, though, the <a href="https://www.newamerica.org/conference/future-security-forum-2019/">full quote</a> from Skinner, as part of a conversation with Anne-Marie Slaughter, indicates that there is a lot more to this than Rogin suggests:</p> <blockquote><p><em>Skinner</em>: ... not to make light of the Cold War, and the reality of nuclear war that could have happened — and the fact that we came close in some instances — but when we think about the Soviet Union and that competition, in a way it was a fight within the Western family. Karl Marx was a German Jew who developed a philosophy that was really within the larger body of political thought … that has some tenets even within classical liberalism. And so, in that way, I think it was a huge fight within the Western family.&#13;<br /> &#13;<br /> You can look at the Soviet Union – part West, part East – but it had some openings there that got us the Helsinki Final Act in 1975. It was a really important Western concept that opened the door really to undermine the Soviet Union, a totalitarian state, on human rights principles.&#13;<br /> &#13;<br /> That’s not really possible with China. This is a fight with a really different civilization and a different ideology, and the United States hasn’t had that before, nor has it had an economic competitor the way that we have. The Soviet Union was a country with nuclear weapons, a huge Red Army, but a backwards economy. That was the insight of Reagan when the intel community told him differently. He said I just don’t see the signs that it can survive a technology race with the West. So in China we have an economic competitor, we have an ideological competitor, one that really does seek a kind of global reach that many of us didn’t expect a couple of decades ago, and I think it’s also striking that it’s the first time that we will have a great power competitor that is not Caucasian.&#13;<br /> &#13;<br /><em>Slaughter</em>: You sound like Huntington’s Clash of Civilizations&#13;<br /> &#13;<br /><em>Skinner</em>: Some of those tenets but a little bit different, and all of those things together are a bit perplexing for the American foreign policy establishment, and I think we have to take the rose colored glasses and get real about the nature of the threat and I think we also have to give a kind of respect for I think what the Chinese seek to accomplish.</p> </blockquote> <p>Clumsy or not, this wasn't just a slip of the tongue. It seems like a fairly well-developed worldview, one that perhaps has been discussed around the State Department and that she articulated pretty clearly in a very public forum.&#13;<br /> &#13;<br /> Along the same lines as a Cold War, although more restrained, is all the talk of Great Power competition. In this regard, there was <a href="https://www.state.gov/re-learning-a-competitive-mindset-in-great-power-competition/">this speech</a> from Christopher Ford of the State Department, in which he says the following:&#13;<br /> &#13;</p> <blockquote><p><strong>Re-learning a Competitive Mindset in Great-Power Competition</strong>&#13;<br /> &#13;<br /> ...&#13;<br /> &#13;<br /> Hence, of course, our need for competitive strategy. Indeed, the challenge from China may be even deeper than that, for in some sense it is developing not only at the somewhat prosaic, <em>realpolitik</em> level of power and influence, but also at the more profound level of what one might call socio-political “operating systems.” As observed in the National Defense Strategy, “[i]t is increasingly clear that China and Russia want to shape a world consistent with their authoritarian model – gaining veto authority over other nations’ economic, diplomatic, and security decisions.” China, in particular, has become notably interested in exporting its state-capitalist, high-technology police state model of government to other countries – what I believe the journalist Nicolas Kristof once called “Market Leninism” – even while ensnaring ever-greater portions of the developing world in manipulated debt dependencies and “neo-neocolonial” economic relationships. The global competition, in other words, is becoming ideological. Increasingly, it seems to be not just about <em>who</em> will dominate the 21st century world, but also about what the <em>operating system</em> of that world will be, and the predominant mode of governance within it. Clearly, this is serious stuff.&#13;<br /> &#13;<br /> But this is where competitive mindset comes in. For a long time, our mindset was part of the problem. As I have noted elsewhere, after the collapse of Communism and the end of the Cold War, our country and its democratic and capitalist “operating system” stood seemingly unchallenged, feeling happily vindicated after decades of struggle against ideologized tyrannies of both the Right and the Left. Concluding that the world’s most important ideological and Great Power conflicts had all just resolved themselves conclusively in our favor, our policy community basically went on a complacent vacation from Great Power competitive strategy – even while China took our post-Cold War ascendancy as a compelling reason to <em>improve</em> its competitive game, and Beijing has spent the last quarter-century implementing a strategy dedicated to challenging and undermining our power and influence in the world.</p> </blockquote> <p>Is this kind of Great Power competition similar to a Cold War or a "clash of civilizations"? It is all probably a matter of degree. Rogin is arguing that the Trump administration is simply "deterring" China, rather than "clashing" with China. It's kind of a fine line, though.&#13;<br /> &#13;<br /> I haven't collected the full range of quotes from Trump administration officials, to see what each person thinks. But it seems to me there is some good evidence that at least a few high-ranking Trump administration officials are pretty enthusiastic about something Cold War-ish with China.</p> Mon, 10 Jun 2019 09:49:43 -0400 Simon Lester https://www.cato.org/trump-administration-pushing-cold-war-china?utm_source=author&amp%3Butm_medium=rss&amp%3Butm_campaign=rss Simon Lester discusses Trump's proposed tariffs on Mexican goods on Hearst TV https://www.cato.org/media-highlights-tv/simon-lester-discusses-trumps-proposed-tariffs-mexican-goods-hearst?utm_source=author&amp%3Butm_medium=rss&amp%3Butm_campaign=rss Sat, 08 Jun 2019 11:54:00 -0400 Simon Lester https://www.cato.org/media-highlights-tv/simon-lester-discusses-trumps-proposed-tariffs-mexican-goods-hearst?utm_source=author&amp%3Butm_medium=rss&amp%3Butm_campaign=rss Elizabeth Warren’s ‘Economic Patriotism’ https://www.cato.org/cato-daily-podcast/elizabeth-warrens-economic-patriotism?utm_source=author&amp%3Butm_medium=rss&amp%3Butm_campaign=rss Simon Lester, Caleb O. Brown Senator Elizabeth Warren's presidential campaign has presented a broad economic plan that includes a shift in priorities for trade under the banner of "<a href="https://medium.com/@teamwarren/a-plan-for-economic-patriotism-13b879f4cfc7" target="_blank">economic patriotism</a>." Simon Lester comments. Fri, 07 Jun 2019 16:26:00 -0400 Simon Lester, Caleb O. Brown https://www.cato.org/cato-daily-podcast/elizabeth-warrens-economic-patriotism?utm_source=author&amp%3Butm_medium=rss&amp%3Butm_campaign=rss Simon Lester discusses U.S.-U.K. free trade on Newsy's The Why https://www.cato.org/media-highlights-tv/simon-lester-discusses-us-uk-free-trade-newsys-why?utm_source=author&amp%3Butm_medium=rss&amp%3Butm_campaign=rss Tue, 04 Jun 2019 10:01:00 -0400 Simon Lester https://www.cato.org/media-highlights-tv/simon-lester-discusses-us-uk-free-trade-newsys-why?utm_source=author&amp%3Butm_medium=rss&amp%3Butm_campaign=rss