TRUMP AND TRADE: One Year (Almost) — How Bad?

         

    It’s been almost one year since President Trump took office. He came to office riding a tide of anti-trade rhetoric. One of the most protectionist candidates ever to have won election. Clearly trade was a major issue. Which is very rare in presidential politics. So what’s the record? Any conclusions at this point? 

   Here are some international highlights for global trade during this first year of the Trump administration.

  • The U.S. withdraws from the TPP.
  • Both the U.S. and the EU opposes granting of market economy status to China.
  • The U.S. is continuing Obama’s case in the WTO against China involving aluminum and the issue of market economy status.
  • But no new WTO case has been filed.
  • The WTO’s Trade Facilitation Agreement (TFA) has come into effect along with the previously updated Information Technology Agreement (ITA). (Which China has joined.) So the WTO is continuing negotiating new trade rules, somewhat, despite the failure of Doha.
  • The OECD has agreed upon a global tax avoidance treaty that the U.S. has not signed.
  • The WTO in the Boeing case reversed its state subsidies ruling in favor of the U.S.
  • The WTO upholds the U.S. labeling regulations for tuna in a compliance case brought by Mexico.
  • The U.S. has just won a WTO case brought against it by Indonesia concerning U.S. antidumping duties.
  • The Trump administration is still dealing with a WTO case filed by China concerning the anti-dumping methodology not utilizing a market economy status.
  • The U.S. withholds appointments to the Appellate Body of the WTO.
  • The U.S. opens renegotiation of NAFTA.
  • No withdrawal from the WTO or its dispute resolution system.
  • But consistent complaints by the Trump administration about the WTO and its dispute resolution system. Even though it handles increasingly complex regulatory cases (not merely tariff disputes but ‘non-tariff issues) from a broad range of countries. Disputes are fairly promptly decided, decisions are generally complied with, and just a few sanctions were authorized.
  •  No new bilateral trade agreements. Nothing much is happening concerning negotiations with the EU. Even though the EU is moving forward, most recently with Japan.
  • Some additional trade controls concerning Cuba and Iran.

    And here are some U.S. domestic highlights for global trade:

  • The U.S. has not declared China to be a currency manipulator.
  • The U.S. has not imposed a border tax on U.S. exports.
  • The USTR is assessing Section 232 (national security) action against China for its domestic steel policies.
  • The ITC is considering safeguard action under Section 201 against China concerning solar panels and washing machines.
  • The Dept. of Commerce ruled against China concerning aluminum imports using non-market economy methodology in its anti-dumping calculation.
  • Dept. of Commerce on subsidy duty on Canadian Lumber.
  • The USTR is assessing Section 232 action against China for its intellectual property polices in the context of U.S. joint ventures and requirements of technology transfer.
  • The pending U.S. tax legislation provides for greater taxation of U.S. multinationals and a reduced tax rate on repatriated income. Probably resulting primarily in corporate dividends and buy backs.
  • The Congress is considering revising and extending CFIUS to outward transactions.

  What are my conclusions?

  • Not much international action but a bit more domestic action against China.
  • No real significant action against the WTO.
  • In fact, the U.S. continues to win its cases in the dispute resolution system as both complainant and respondent.
  • The U.S. continues to defend and have outstanding cases yet to be decided.
  • The U.S. has been a complainant in 115 cases and a respondent in 130 cases. (The U.S. has been involved in nearly 1/2 of all WTO cases.)
  • The WTO continues to negotiate new trade agreements, somewhat.
  • NAFTA renegotiation is moving along slowly. There is always an international legal right to request to renegotiate international agreements when circumstances evolve.
  • Some actions on trade in the Dept. of Commerce and the International Trade Commission. For example. a Commerce Dept. subsidies ruling against Canada’s Bombardier. But really nothing very much at this point.
  • Reliance on domestic trade remedy legislation, and even somewhat of an increase, is usual U.S. practice going back decades.
  • But the decline in cases brought to the WTO compared to other presidential administrations is significant.
  • Review by USTR has not resulted in any unilateral actions, yet.
  • Congressional action concerning both CFIUS and global taxation seem imminent. Tightening up foreign investment rules and taxation of multinationals seem about right.

 What’s the bottom line?    

  However, noise and tone are quite unsettling. This rhetoric and posturing (over national sovereignty, unilateral measures, bilateral trade deals, sanctions, and trade deficits) are already impacting trade flows and diminishing the standing of the U.S. in the global system. This even as the domestic and global economies are rebounding well.

The impact on the role of the U.S. in the post-war order seems most worrisome. It’s more isolationist and more parochial, reminding one of the 1930’s. Reflecting a view of U.S. national interest differently than presidents have since World War II. It’s moving away from active engagement and toward being more alone and abandoning the American architecture of the post-war world. In a sense his unilateral international efforts could well be labeled that of an international cowboy. Reflecting his tribal and nativist base in the U.S.

     This has ominous implications for America’s national security. But that’s another story.

    Be careful. The year isn’t over, yet.

 

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Qatar-UAE in the WTO — National Security Defense — Scary Outcome for Everyone?

       

     At the request of Qatar, the WTO’s Dispute Settlement Body (DSB) agreed on November 22nd to establish a panel to examine trade sanctions imposed by the United Arab Emirates (UAE) on Qatar.

   In another words the litigation process has now actually started for real between Qatar and the UAE in the WTO’s dispute resolution system. Essentially, it raises the issue of the legality of the Saudi-UAE-Bahrain boycott imposed on Qatar.

     Most importantly this litigation, raises specter of the ‘security exception’ under GATT Article XXI. This defense has never been litigated nor decided upon in the WTO. It poses real problems for the trading system.

     A review or ruling by the WTO on this issue has the possibility of blowing up the global trading system. Certainly if it is heard by the panel and most certainly if it is decided that the defense is not applicable.

     The United States notes that this dispute is political in nature and is inappropriate for WTO dispute settlement. But Qatar argues that the security exception is subject to multilateral review and the UAE and Saudi Arabia are incorrect in believing otherwise. The UAE argues that issues of national security are political matters and are not capable of review by the WTO dispute settlement mechanism. It argues that members have the authority to self-determine its application.

     Needless to say the issue of the national security exception, as it is generally known, raises the very basic question of the competence of the WTO to review its application and then to make a determination. The group of issues presented by the national security exception is clearly the third-rail of the WTO system.

     Let’s quickly look at Article XXI. It states, in part:

Nothing in this Agreement shall be construed
 (b) to prevent any contracting party from taking any action which it considers necessary for the protection of its essential security interests         
(iii) taken in time of war or other emergency in international relations ….

 

     So it seems to me that the national security exception is limited to actions taken during a “time of war” or “another emergency in international relations.” It is not a wide open exception, to be self-policed or unilaterally applied. It also seems to me the language of this provision requires a factual determination. Were the measures taken during a time of war? Were they taken during an international emergency? And most importantly were essential security interests involved? I see no limitation anywhere in the WTO documents restricting normal judicial review of this provision nor the conditions prescribed within it.

      In the recent past there was some hint that the Russian Federation did not consider security defense available to the U.S. if an action was brought against it for its sanctions imposed on Russia because of its intervention in the Ukraine. The Russian Federation threatened to bring an action in the WTO. But this hasn’t happened, yet. China also indicated that it might avail itself of the national security exception if the U.S. brought an action contesting China’s cybersecurity hacking of U.S. firms. A wide reliance on the national security exception is in no state’s national interest.

     The hope of many is that this pending Qatar-UAE dispute will be resolved before the underlying Saudi-Iranian relations spin further out of control. It’s in everybody’s interest. Including those of the U.S. and the Trump administration.

 

 “WTO Agrees to Set up a Panel (Qatar v. UAE.).” WTO News (Nov. 22, 2017).

Malawer, “Chinese Economic Cyber Espionage — U.S. Litigation in the WTO & Other Diplomatic Remedies.” Georgetown Journal of International Affairs (Summer 2015); Malawer “Confronting Chinese Economic Espionage with WTO Litigation.New York Law Journal (2014).

 

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Ominous Signs — For China and Even More So for the WTO?

                                              

     No new final trade actions by the Trump administration, but several ominous signs — for both China and the WTO as well as the trading system.

  • The U.S. International Trade Commission is recommending escape clause action under Section 201 (tariff-rate quotas) concerning Samsung’s washing machines being imported from Korea into the United States and action concerning solar panels from China.
  • Bills are moving along in Congress concerning CFIUS which are in fact aimed at  confronting Chinese investment into U.S. technology and communications firms.
  • The USTR is continuing its Section 301 investigation (unilateral retaliation) as to China’s intellectual property practices.
  • The aluminum case pending in the WTO was originally filed by the Obama administration is heating up. Parties are arguing over the “market-economy status” of China.
  • The national security Section 232(b) case concerning steel imports is also pending.

     So the question is now this — Do these actions indicate a willingness by Trump and Lighthizer to confront China more forcefully? Or do they go a gigantic step further to contest the legitimacy of the dispute resolution system of the WTO and, in fact, the entire WTO along with the entire international economic order of the post-war world?

    My guess is that you’ll see more aggressive confrontation concerning China and a broadside on the WTO. This would be a great mistake. This would amount to tearing down well-working systems and no attempt to build upon them. But we’ll see ………………

….. “Trump to Decide on Tariffs for Imported Washing Machines.” New York Times (Nov. 22, 2017).
….. “U.S. Toughens on China Trade.” Wall Street Journal (Nov, 22, 2017).
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America First, Trade Last? — 13 Obvious Observations.

    

                             

Here are 13 observations relevant to the current trade debate …… They indicate to me that Trump’s trade policies are already detrimental to the U.S. and does nothing to help us domestically or internationally.

  • Only 1% of U.S. companies export and not many government entities try to increase this.
  • Trade and tax policy in the U.S. does almost nothing to promote manufacturing exports.
  • Withdrawing from TPP, Nafta or the WTO won’t help increase U.S. exports but only worsen them as other countries take our current markets.
  • Trade agreements have opened a huge number of foreign markets to U.S. exporters.
  • Bilateral trade deficits as a concept doesn’t make any sense.
  • With the China’s WTO Accession Agreement the U.S. did not reduce one tariff. China reduced its tariff levels significantly.
  • Strategically, pulling out of TPP gave China a huge political and foreign policy victory in the largest markets in the world.
  • The WTO’s dispute resolution system has been a great success — the U.S. has won most of its cases it has filed. This has furthered the rules-based system of trade and international relations.
  • U.S. multinationals are doing well internationally and are keeping much of their profits offshore and untaxed by the U.S.
  • Repatriating offshore trillions of U.S. multinationals (mainly IT firms) won’t increase U.S. reinvestment but only increase shareholder dividends — this is what  happened last time there was an offshore tax holiday.
  • Unilateralism is not the way to go in the post-war international system which the Trump administration seems to disdain along with multilateral trade agreements and multilateral institutions. The world has rejected such actions and so has former U.S. administrations.
  • Sovereignty is not abrogated when we enter into mutually beneficial agreements and arrangements. Mutual consent is the basis of good treaty law and global governance.
  • The role of states such as New York, California and Virginia in promoting trade and foreign investment is increasingly important as the federal government is becoming more anti-trade and restrictive as to foreign investment.
………. “America First, International Trade Last.” Financial Times (Nov. 2, 2017).
……….”The Wrong Way to Think About Trade.” Wall Street Journal (Nov. 20, 2017).

 

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Trump’s Asia Trip — Just More Complaints?

                                                                         

Donald Trump just returned from his trip to Beijing and Vietnam (APEC). He was nice to China in Beijing, critical of China in Vietnam, and when home complained about the WTO again. What’s up?

Very simply he is out to get the WTO and its dispute resolution system. Who really knows why? He and the USTR Lighthizer complain about loss of U.S. sovereignty and loss of U.S. cases in the WTO.

Just don’t know where they get this stuff from.

The U.S. has filed more cases than any other country in the WTO. The U.S. won most of them and only lost a small share of cases when it was the responding party. In fact, just in the last few days the U.S. won three additional cases involving Indonesia, Mexico and Korea.

Most importantly, the U.S. was the principal architect of both the WTO and most certainly of its dispute resolution system as well as the post-war international system. Which saw a destroyed world economy return to great prosperity for millions of people.

This system reflects the American focus on rules and enforcement of them by a litigation / judicial process. The system has proven to be extremely effective and, in fact, the most effective international judicial mechanism ever, period.

Both Trump and Lighthizer both have a grievance mentality. Lighthizer lost most of his trade remedy cases, when in private practice, they were appealed to the WTO. Trump just always views himself as a victim.

The post-war system, rules and institutions are under attack by Trump and his administration. This serves no rational purpose.This really needs to stop, now.

Trump’s Unpredictability on Trade.” New York Times (Sept. 29, 2017).
WTO Held Hostage by the U.S.” The Economist (Sept. 23, 2017).
Trump Ignites Another Fire in Trade (WTO/DSU).” The Hill (Sept. 29, 2017).
WTO Chief Warns of Risks to Trade Peace.” Financial Times (October 2, 2017).
Trump Undermining the WTO from the Inside (AB).” Financial Times (Oct. 17, 2017).
Trump, Trade and Unilateralism.” Brookings Blog (Oct. 24, 2017).
“Trump’s Undoing of Global Trade Rules.” New York Times (Nov. 1, 2017).
Globalization without Trump.” Financial Times (November 7, 2017).
Trump — APEC Speech (Vietnam).” White House (Nov. 10, 2017).
Trump’s Asia Trip.” Washington Post (Nov.15. 2017).
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Trump’s War on the WTO — Part II — The Constitutionality of Withdrawal.

 

My earlier post is at “Trump’s War on the WTO ….”   Here are some additional thoughts:

  • Sidelining the dispute resolution system in the WTO is a sneaky means of killing the WTO’s effectiveness as an international institution. 
  • By vitiating the WTO / DSU might well encourage more unilateral actions against the U.S. since there would be no international mechanism to address trade complaints.
  • If the president withdraws from either NAFTA or the WTO this would most likely generate domestic law suits in the U.S.
  • These agreements (Nafta and the WTO) were authorized by Congress and then effectuated by implementing legislation.
  • Diplomatic agreements have been abrogated by former presidents but not trade agreements.
  •  Terminating the WTO agreement, even though it has a withdrawal provision, raises questions if the president is even permitted to do it internationally.
  • This is because powers to conclude these agreements were delegated to the president in the first place and there is implementing legislation that serves as law of the land. That he can’t do anything about. Indeed, he seems to be required Constitutionally to enforce these provisions.

My sense it that the above raise questions that are not clearly answered by prior case law and makes for really good litigation by the interested parties. Almost guaranteed. We’ll see ………………

 

…. “Weakened NAFTA, WTO Pave  Way for Conflict..” Wall Street Journal (Oct. 19, 2017).

…. “Strategy to Thwart NAFTA Pullout Emerge.” Wall Street Journal (Oct. 21-22, 2017).

…. “Republicans Gear up to Fight Trump Over NAFTA.” Financial Times (Oct. 20, 2017).

 

 

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Trump’s War on the WTO — Not Enough Wins? — Yes and More.

                                  

 

 

     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.

 

 

 

 

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