What is the Trump war on the WTO and its dispute resolution system all about?
Sour grapes for not getting 100% wins? Personal animosity by the new USTR because of his failures in private practice? Trump’s abuse of domestic courts as a real estate developer – he’s been involved in over 3,500 private law suits?
It’s hard to say. Probably a bit of each of the above.
But what can be said with certainty is this — the current U.S. anti-WTO policy is a critical part of Trump’s disdain for international institutions that try to negotiate and apply rules of law to international relations and international transactions.
Trump shows no appreciation or understanding the crucial role the United States played in formulating the post-war global institutions nor the great strides made in channeling highly politicized trade disputes into a regularized system of settling disputes outside of the gaze of harsh domestic interests and rabble rousers.
More than anything else the WTO’s dispute resolution system was an American creation and we were the principal architect of bringing law to global trade and to have commercial issues adjudicated as being in our national interest.
That system has prospered over the last twenty years. The U.S. is the largest user of the WTO’s dispute resolution system. We win most cases brought as a complaining party. We also win a large number of the cases brought against us. The system is used widely by countries across the world.
What’s my conclusion? The Trump – Lighthizer foreign trade policy opposing the WTO and its dispute resolution system is against our national interest and the interest of the global trading system. They must rise above their personal and business biases for the good of the United States.
Earlier this week the Appellate Body of the WTO reversed a panel report and found that seven Washington state tax measures did not amount to a prohibited subsidy to Boeing.
The EU had alleged that the state tax measures were conditioned or contingent upon Boeing’s use of domestic fuselages and wings — instead of imported ones. This is considered by the USTR as a complete victory in the segment of the long-running WTO litigation concerning Airbus and Boeing. It probably is.
This case is particularly interesting because it considers the validity of state or sub-national units as being subject to the subsidy disciplines of the WTO. Applying global trade rules to US states is often overlooked.
But more importantly my concern is that this ruling may actually be used against the U.S. in its recent action against China concerning some of its practices calling for domestic content. We’ll see.
The USTR fired a direct shot at Beijing last week as it formally started a §301 investigation into China’s intellectual property practices and entry of US firms into China, particularly in joint ventures.
The formal decision to open an investigation followed Trump’s executive memorandum earlier last week. The USTR will hold a public hearing on the subject in October at the International Trade Commission, when members of the public may testify.
The USTR will examine whether Beijing’s practices – specifically requirements that U.S. companies transfer technology in order to do business in the country. It will need to determine if this violates the statutory standards of unreasonable, discriminatory or restriction of U.S. commerce.
If the USTR determines if any one of these standards has been violated the U.S. could eventually take unilateral action. But the rules indicate that a case shall be filed first in the World Trade Organization.
The problem is much of the global trading community consider that §301 in and of itself violates the WTO rules. That states joined the WTO as a means of restraining such unilateral actions, particularly by the U.S., the principal supporter of the WTO and the primary architect of the dispute resolution system.
As far as U.S. – China trade relations this may be viewed as only a very mild trade action — the filing of an administrative action within the U.S. Yet, even though Bannon is gone from the White House staff the USTR Lighthizer still represents his nationalistic – protectionist- China hawk sentiments. U.S.-China trade relations are still precarious.
The best practice for the U.S. is it should just go ahead and file an action with the WTO directly. That’s the proper forum. We have litigated many cases with China as both a complaining party and a responding party. That’s the normal and customary way of doing things in global commerce.
Why choose this unilateral and domestic action. A somewhat discredited and nationalistic approach. This is not clear. But the answer in part is probably because the Obama administration did not. We’ll see …………….
- ….. “USTR Initiates Section 301 Investigation of China.” USTR News Release (August 18, 2017).
- ….. “Lighthizer’s Economic Deficit.” Wall Street Journal (August 22, 2017).
- …..”Bannon Exit Highlights China’s Success in ‘Containing Trump’.” Financial Times (August 22, 2017).
President Trump is going to sign a memo tomorrow Monday delaying actually filing a §301 USTR case against China for violation of U.S. intellectual property rights. By the way he has also failed to follow through on his bullying threats to declare China a ‘currency manipulator’ and to file a §232 case concerning steel from China. Needless to say we all remember his bluster on the campaign trail.
What’s going on? Hard to say. But this practice of over threatening and underperforming is basic to his business dealings forever going back to his early real estate days in New York City.
My take …………… In terms of trade policy President Trump has actually done a lot less damage so far than could have been expected. Actually almost no damage concerning China. Of course this may change. But so far that’s good for the U.S., China and the trading system.
Good piece in the New York Times today discussing foreign investment into U.S. manufacturing and the role of cities and states in promoting this – all in the name of jobs. States and cities are on the frontline.
The article also discusses the disconnect between this investment / manufacturing trend and the role of global value chains (parts are produced worldwide) with Trump’s protectionist foreign trade policies. Especially his rhetoric and claims of promoting US manufacturing by restrictive national policies (such as buy domestic products).
This article focuses on the state of Tennessee, a Southern state, as a case study. A state that has prospered in attracting foreign investment and particularly investment into the auto sector.
To me it’s clear that state economic development strategy to create jobs need to focus on promoting foreign investment in order to encourage foreign corporate strategies to place new manufacturing facilities within local U.S. communities.
This needs to be a critical part of a state’s international policies that also encourages export promotion all in the name of job creation.
Trade and investment are intricately linked together and ought to be synchronized in a dedicate institution focusing on these two pillars of economic development. It cannot be assumed that an entity focusing also on local economic development can ever devote enough energy or know how to do this critical international piece. It never works out. A hyper focused and aggressive agency needs to do this.
The global system is different from the U.S. domestic one, but the local one can only prosper by active engagement with the global economy. It’s unfortunate the Trump trade team doesn’t understand this. At the best of times the federal government can help but it’s up to states and cities to take the lead.
…..”Foreign Investment into U.S. Manufacturing and Cities and States.” New York Times (August 6, 2017).
….”Toyota and Mazda to Build Joint U.S. Plant (and Foxconn Too).” New York Times (August 5, 2017).
The Trump administration is now on the verge of initiating a new trade case against China even while its prior case concerning ‘national security and steel imports has not yet been filed. The problem is the Trump administration is now putting trade back on the table concerning China. It has not lived up to its campaign threats yet.
If the Trump administration is serious about both these actions. It needs to do two things: one, do not use domestic administrative procedures (namely the USTR). This will catty no international legitimacy. Two, file an action or actions in the WTO’s dispute resolution process. If the U.S. is successful it will then be recognized as a legitimate trade action. But WTO trade rules (especially under China’s Accession agreement) may very well work in China’s favor.
My conclusion, however, is something else. Both actions to me do not seem to be based on strong empirical evidence. Better to negotiate than file a formal request for consultation. Nevertheless, filing for consultation will allow for a possible diplomatic negotiated settlement within a short time period. This type of negotiation is not otherwise available outside of this format.