TRADE AND NATIONAL SECURITY. TRUMP’S DANGEROUS STATUTORY RELIANCE — FOR US, WTO AND GLOBAL TRADE.

 

 

Trump (WTO) 3

Newly completed article putting Trump’s trade remedy actions and perhaps foreign investment actions under rarely used national security, national emergency and foreign investment legislation. See ….. Malawer, TRUMP AND NATIONAL SECURITY (March 2018).

Advertisements
| Leave a comment

§232 + Art. XXI = WTO Blowup?

 

     The reliance of the Trump administration on Section 232, the national security provision under the Trade Expansion Act of 1962, to impose trade restrictions on import of steel and aluminum, would certainly run into very serious WTO challenges.  This defense by the U.S. in the WTO most likely would lead to blowing up the WTO.

  The possibility of this has been heightened by the recent determination by the Dept. of Commerce recommending to President Trump to take a range of retaliatory trade actions based on this provision concerning steel and aluminum imports.

      In the WTO’s dispute resolution procedure the United States would have to rely upon the almost never-used defense of the “security exception” provided under Article XXI of the GATT agreement.  The U.S. did offer this defense in the older GATT case, never finalized by an adopted panel report, brought by Nicaragua in the 1980s.  Bahrain has recently stated its intention to rely upon this same defense in the new case brought by Qatar against Bahrain over its trade embargo.

   No matter what the outcome would be over the U.S. defense of national security, if either it is upheld or rejected, the outcome would not be pretty. In fact, it would be an unmitigated disaster.

     Why?

     If upheld the WTO decision would allow other countries to potentially take trade actions under Gatt Article XXI. For example, China could argue its Internet rules and various export controls of minerals are for the protection of its national security. The Russian Federation could argue that it could impose restrictions on trade with the EU because of its trade sanctions over the Ukraine and this would be a valid exercise of Russia’s rights of the national security exception.  

      If the U.S. loses this major case undoubtedly the Trump administration would never honor its obligation to comply with the decision.

     Here you would have the major architect of the WTO and its dispute resolution system rejecting the core aspects of today’s global system. That’s certainly not good. 

     By the way Article XXI has requirements that the U.S. most likely could not meet in its defense. For example, trade restrictions such as higher tariffs or trade sanctions, need to be in protection of “essential security interests …. or taken in time of war or other emergency in international relations.” There is a global glut of steel and aluminum. The U.S. is not in a time of war or other international relations emergency.

     Added to this the Trump’s administration’s public contemplation of declaring a “national emergency” under the International  Emergency Economic Powers Act of 1977, concerning China’s restrictions on intellectual property right, the situation becomes even more bizarre. There is simply no national emergency concerning intellectual property rights. U.S. firms are free to enter into joint ventures in China or not to enter into such business relationships that involves licensing of technology. This is really a matter of global corporate strategy.

     That law provides the President to regulate commerce after declaring a “national emergency” in response to any unusual and extraordinary threat to the United States which has a foreign source. While administrations have relied upon this, often in cases involving foreign military actions, no administration considered violation of intellectual property rights as a national emergency. This would most certainly also be rejected by the WTO.

     In addition, the U.S. Supreme Court in  the seminal cases of Curtis Wright (1936), Youngstown (1952), and Dames & Moore (1981)  make it clear that the President has no inherent authority as commander-in-chief to  impose embargoes or to take other actions relating to commerce. Authorizing these actions are within the exclusive authority of the Congress. The President can only act pursuant to a delegation of authority in these areas. Thus, the Presidents determination of “national security” under Section 232 or “national emergency” under the IEEPA is  reviewable by the federal courts.

     Federal courts have consistently upheld their right to review executive actions in light of the executive’s claims of foreign policy and national security. Just look at the recent wave of decisions concerning review of President Trump’s immigration decisions. Just recall the Supreme Court’s review of post-9/11 cases concerning detainees rights and the right of habeas corpus.

     This entire scenario of possible reliance on national security or a national emergency to impose U.S. trade restrictions because of concerns over steel and aluminum imports or transfer of intellectual property rights, foreshadows a potential trade disaster of the first order. One that U.S. economic history and trade diplomacy have not seen since the founding of the post-war international economic order.

| Leave a comment

TRUMP AND TRADE — Waiting for the Other Shoe to Drop?

 

Here’s some passages from my upcoming article in the China and WTO Review (Spring 2018) on Trump’s trade policies ………………

………………………………………………………..

     The recently concluded WTO Ministerial Conference in Buenos Aires, in December, achieved no significant accomplishments. During the conference, the United States Trade Representative (“USTR”) Robert Lighthizer made unsettling and acrimonious statements.

 The WTO is losing its essential focus on negotiation, and is becoming a litigation-centered organization …. Too often members seem to believe they can gain concessions through lawsuits they could never get at the negotiating table .… It’s impossible to negotiate new rules when many of the current ones are not being followed.

     Ominously, a few weeks after the Buenos Aires ministerial conference on the first anniversary of President Trump’s inauguration the administration submitted to Congress its report on China’s WTO compliance. It stunningly stated:         

It seems clear that the United States erred in supporting China’s entry into the WTO on terms that have proven to be ineffective …. [T]his mechanism (the WTO dispute resolution system) is not designed to address a situation in which a WTO member has opted for a state-led trade regime …

      Most recently, in his first State of the Union Address President Trump directly addressed global trade but only in five surprisingly short sentences. He neither announced any new trade actions, nor lambasted the global trading system or its institutions or specific countries. Interestingly, President Trump seemingly narrowed his concerns primarily to protecting American intellectual property rights through trade enforcement. President Trump simply stated:

The era of economic surrender is totally over ….We will work to fix bad trade deals and negotiate new ones …. And we will protect American workers and American intellectual property through strong enforcement of our trade rules.

     From 1995 to 2017, the US has been a complainant in 115 cases and a respondent in 130 cases at the WTO. It has won a huge majority of them as complainant and a majority of all cases. The US has been involved in nearly half of all WTO cases. Clearly, it is the greatest user of the dispute-resolution system.

     There was a 16-year high on private corporate actions (79 new investigations by the Department of Commerce) in 2017, undoubtedly inspired by the administration’s anti-trade rhetoric. The Trump administration during its first year conducted 82 major antidumping and countervailing investigations, a 58 percent increase over 2016. 

          The grave decline in cases brought to the WTO compared to other presidential administrations is historic. (None have been brought by the Trump administration.)

         The administration’s noise and tone are quite unsettling. Failure by the administration to act more forcefully so far is undoubtedly a result of the clash of domestic interests. But the rhetoric and posturing (over national sovereignty, unilateral measures, bilateral trade deals, sanctions, and trade deficits) are already impacting trade flows and diminishing the American standing in the global system. This is occurring even as domestic and global economies and public markets are rebounding significantly.

      Hopefully, these trade noises and recent actions are not an overture to really harmful policies. We’ll see pretty soon ……………

 

 

Posted in Global Trade Relations | Leave a comment

Trump’s Attack on the Trade System and Rules — Main Show About to Start?

Malawer, “One Year In — Trump’s Trade Legacy,Richmond Times-Dispatch (January 7, 2018).  

 

The following is an excerpt from my op-ed in this weekend’s Richmond-Times Dispatch …………..

U.S. leadership in developing newer rules for global trade and in litigating existing concrete and complex cases cannot be abrogated. It should be one of the primary aims in current U.S. trade policy.

******

President Trump’s well-known disregard of rules, stemming in part from his years of unrelenting real estate litigation, undoubtedly colors his administration’s disdain for multilateral rules and institutions and its espousal of unilateral actions in global affairs.

The impact on the role of the U.S. in the postwar order seems most worrisome. China, Japan, and the European Union are the ones moving to fill the leadership gap. Most recently, Japan and the EU signed a huge bilateral trade agreement.

The U.S. is increasingly isolationist and parochial, reminding one of the 1930s in terms of the pre-Cordell Hull days of the Great Depression. Trump’s revisionist view of U.S. national interests is different from other presidents since World War II. These views are moving away from active engagement and moving toward being more isolationist and more nationalist.

It abandons the American architecture of the postwar world and its leadership. It creates more uncertainty and promotes disorder. That’s not good.

The administration’s recently released national security strategy merely restates President Trump’s belligerent trade rhetoric. It moves trade to the center of national security policy. But this strategy otherwise breaks no new ground. There are the same trade complaints: unfair trade, violations of U.S. sovereignty, disparagement of multilateral institutions, and a need for greater trade enforcement.

President Trump’s nihilistic efforts are those of an international cowboy, rebranding, unfortunately, the earlier stereotype of the Ugly American. Reflecting the views of his tribal and nativist base in the U.S., the traditional Republicans and their support of international trade have inexplicably fallen away and are complicit in the humiliation of America’s historical leadership and greatness.

| 1 Comment

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.

 

| Leave a comment

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).

 

| Leave a comment

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).
| Leave a comment