TRUMP & WTO — The Coming Litigation, Sooner than Later.

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On President Trump’s first full workday at the White House he signed an executive memorandum requesting the United States Trade Representative to formally withdraw the United States from the Trans-Pacific Partnership and its negotiations. This was primarily a symbolic move, since the TPP had no chance of Congressional approval.

     Trump’s actions and pronouncements raise the question what is the future of U.S. trade relations? It is difficult to say precisely, but we have a good idea: It is not good! Just get ready for some rocky times.

       The president has broad delegated authority from Congress to take a range of actions. He will most certainly attempt to enforce some of his views through the WTO especially concerning China.

       The former WTO Appellate Body member from the US declared: “The real battle would come in Geneva, in international lawsuits before the judges of the World Trade Organization.”

   Whether he will be successful is another story, and whether he will accept adverse decisions is also another matter. Failure to do so would certainly upend the global trading order.

      The trade battle within the administration will not be a simple one; it will undoubtedly be messy.

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TRUMP TRADE POLICY — The Upcoming U.S. – China Trade Fight in the WTO ……

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     China and U.S. litigation in the WTO will almost immediately be ground zero for the new Trump administration’s aggressive global trade policy. This is clearly evidenced by the appointment of his new trade team. These appointments include a harsh China trade critic and a leading protectionist trade lawyer.

     Trade has clearly been elevated by Trump to a top issue in the new White House, reflecting the critical role of trade in the presidential election in which millions of those who felt marginalized by globalization and resented it, particularly in the Rust Belt, supported him. This resentment is a central aspect of a wave of populist nationalism sweeping a number of countries.

     What’s the future of trade relations with China under the new Trump administration? It is difficult to say precisely, but we have a good idea. It is not good. Just get ready for some rocky times.

    The president has broad delegated authority from the Congress to take a range of actions. He will most certainly attempt to enforce some of his views through the WTO. Whether he will be successful is another story. Whether he will accept adverse decisions is also another matter. The trade battle within the administration will not be a simple one. It will undoubtedly be messy. There are many players involved.

     On top of all this, we have a changing global environment in terms of declining support for global engagement and the rise of new trading powers. Whether Trump decides to terminate agreements unilaterally will depend on whether he transcends his narrow view of trade and grows in office.

 

                               (From a forthcoming article of mine in China and WTO Review).

        

 

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TRUMP & TRADE — Does his business background lead to bad trade policy?

    

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    Trade is about the only international issue Trump has really cared about consistently since his Japan bashing of the 1980s. His business school background at Wharton and then his experience running the Trump Organization have informed his view of trade as a zero-sum transaction. There are only winners and losers.

     Now Trump has appointed the little-known business school professor Peter Navarro as his alt- ego on China bashing. What is this all about? How do these two seminal events, the Wharton School and his real estate experience, lead to this devastating appointment and Trump’s mindset?

     Once you pose the question like this the answer is simple.

     Business schools then and now rarely teach much about global trade. What they do is discuss international business. And this is discussed as transactions from the corporate perspective. That is the bottom line. Do you make money or don’t you.

     Business school courses may be called multinational business, corporate strategy or the like. But business schools do not teach trade in a contextual situation. This is not within their core agenda. They never discuss trade in the context of foreign policy, national interest, national security, or geopolitics.

     What about Trump’s global business experience?

    Well that just enforces his worldview of trade as being a bottom line business transaction. Do you make money or not. How do you negotiate? Well, there is simply no real difference between real  estate negotiations from diplomatic negotiations. Just bluster and bully. That’s all you need to do. Well that just won’t work very well in a multipolar world where there are a world of variables at work and many powerful players.

     So what’s the bottom line for US trade relations under Trump? Not good.

    China, the EU, Japan, Korea, India or even Russia are not buying or selling real estate, cross-licensing trademarks or refinancing hotels and casinos. These countries have long histories with many interests and great deal of experience over many years. The world of power politics is different from the world of New York real estate deals.

     My conclusion. The immediate future is not going to be pretty. We’ll see. Just buckle up.

 

Krugman. “And the Trade War Came.” New York Times (December 26, 2016).Donald Trump Really Might Start a Trade War.” Washington Post (December 24, 2016).

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NEW WTO CASE BY CHINA — RESPONSE TO TRUMP’S INSULTS?

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     Trump threatens a great upheaval in foreign policy and global trade relations. Especially in U.S. trade relations with China. But is it somewhat consistent with the Obama’s tough enforcement policy against China in the WTO’s dispute resolution system.
   Over the last 15 years, since China’s accession to the WTO, U.S-China trade relations have largely been conducted within a framework of international law rather than open trade warfare. One of the great achievements of the past 15 years has been the role of multilateral rules in containing arguments. China, whose leaders initially seemed to regard being sued in the WTO as a personal affront, has come to recognise international litigation as a routine way of doing business.
   Then what happened recently since Trump’s election?  
   On December 10th the day before the 15th anniversary of China’s accession to the WTO, the Obama administration decided it was not going to grant China ‘market-economy status.’ Most legal experts believe this was intended to be automatic on December 11th, 2016. Fifteen years from the date of the Accession Protocol of 2001 under Article 15(d).  
     Two days later, one day after the 15th anniversary, Beijing marked the anniversary by filing a new WTO case against the United States and Europe. China alleged that they failed to treat it as a market economy and therefore not utilizing a more favorable calculation of anti-dumping duties on Chinese goods. Since they would continue to use third-country cost (and not China’s lower actual costs). Of course, which allows for a finding of a larger margin of dumping and consequently a larger antidumping duty.
     The Obama administration two days later filed a new case against China contesting its agricultural duties relying on ‘tariff rate quotas’ mechanism’ (TRQ). This continues a hardline approach by the Obama administration against China in the WTO dispute resolution system in which it has filed 15 cases. This has been a very tough enforcement approach since his inauguration. More aggressive than an also tough Bush administrations.
    But now the question arises why China’s immediate response to this case and not all the other times during the Bush – Obama years?
      My take ………….. It was probably Trump’s consistent threats (trade, tariffs, TPP, Taiwan, South China Sea) against China. If it wasn’t for them China probably would have waited until dumping or subsidy cases were actually determined and then ask for WTO review. That has been the general practice.
     But of course China has the option to go directly to the WTO when a country has restrictive legislation or other practices or policies in place. It doesn’t have to wait until a case is actually decided. It’s China’s option. And China decided to take a rather unusual and aggressive step.
     Why?
      My guess is to send a broader message to the U.S. ‘Don’t mess with us. If you want confrontation then you get confrontation.’ This is unfortunate for both countries. A new administration allows a natural inflection point to allow for new diplomatic initiative to allow peaceful resolution of disputes. Not more aggressive actions. At least not usually.
     We’ll see how this plays out.
     But this is not a good beginning to U.S. – China trade or diplomatic relations in the Trump era.

 

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CyberBulling, Real Estate Scrooge — Global Affairs & National Security — The Next Four Years.

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    Trump has engaged in cyber shaming and this should be held up as a model. As a model for all school children of what never to do.

     Trump’s soul is one of the architype scrooge in real estate. Bluster, don’t pay your contractors, nor investors, and then file bankruptcy while deducting other people’s losses resulting in no tax liability for years.

     How will this play out in the world of diplomacy, international affairs and National Security?

   There is no doubt in my mind it will be disastrous. Why?

     For example, real estate negotiations to purchase property is essentially a zero sum game. As a buyer you get a lower purchase price and the seller gets less. You save money, the seller loses money. That winner-take-all approach is not going to work in a world where there are so many variables to consider. There is a multitude of national interests and power positions to assess as well as a global networking effect that magnifies unilateral actions.

     What about bluster and fear?

     I can tell you that historically even if a country gets its way initially as to an international agreement, as soon as circumstances change, the agreement will be repudiated and thrown out. Such unequal agreements are often the seeds of a newer and fiercer confrontation.

     Just look at what happened after the Versailles Peace Treaty that ended World War One. This treaty led in great part to the rise of the Nazis in Germany, to the overthrow of the Weimar Republic, and in a few short years to World War II. China is still unhappy about a wide-range of colonial era and other agreements imposed upon it from the Indian border to the Russian border.

   By the way Hitler was democratically elected and then appointed as Chancellor of Germany. To a great extent this resulted from the immense  resentment to the grossly one-sided peace treaty and grave economic stress caused by a U.S.-inspired trade war and the Great Depression.

     What’s my conclusion concerning Trump’s foreign policy over the next four years? Buckle up. We’re in for a ride. It may not be good.

 

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TRUMP, TRADE & STATE ECONOMIC DEVELOPMENT — Chaos Ahead?

Trump and Trade
Full working paper at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2876655

                               INTRODUCTION.

     The founding of the Virginia Colony in the New World by the Virginia Company reflected the British Empire’s notion that enlightenment would come through trade. By the post-World War II era this notion was unequivocally adopted by U.S. policymakers.

     This belief in the linkage between trade and the spread of liberal values has been the cornerstone of U.S. foreign policy for over 75 years. It was the underpinning of the architecture of the United States’ international trade and investment rules-based system that has evolved since the adoption of the Bretton Woods system, the General Agreement on Tariffs and Trade and subsequently, by the World Trade Organization (WTO). It resulted in the historical growth of liberal democracy in the United States and elsewhere globally. Donald Trump was elected, in large part, by those who now felt marginalized by globalization. Globalization and the liberal economic order is now under challenge by him and his trade policy pronouncements.[1]

     Now what?

TRUMP AND U.S. TRADE POLICY.

     The election of Donald Trump as a protectionist president proclaiming “America First” jeopardizes this post-war historical development of a firmly grounded international political system. He won the election by appealing to those harmed by globalization and his war against globalization.[2] He lost the nation’s global cities to rural voters and the Rust Belt. Now state, national, and international economic development is at stake.

     The recent failure of Trans-Pacific Partnership (TPP) to even come up for a vote in Congress and Trump’s recent vow to walk away from the TPP his first day in office[3] not only weakens the economic leadership of the U.S., but also the national security and foreign policy of the U.S. in Asia and the larger global system. This weaponing of trade ignores the strategic role of global trade in U.S. diplomacy. It represents a new age of deglobalization.[4] Most of all, it provides openings for other countries, namely China, to compete more effectively geopolitically and economically against the U.S. and to write newer rules governing global trade.[5] It puts US firms and industries at significant risk.[6]

     The TPP would have reduced some 18,000 tariffs for U.S. firms, strengthen intellectual property rights, impose restrictions on government-owned corporations, provide other advantages and protections for U.S. firms abroad.

     Indeed, China’s President Xi Jinping declared at the recent Asian-Pacific Economic Cooperation summit in Peru, given this new “hinge moment” in China-U.S. relationship, China is now the emerging leader in international commerce. That China will be broadening its own Asian regional trade arrangement, the Regional Comprehensive Economic Partnership, with fewer disciplines on trade than TPP, with newer members, perhaps including Singapore, Vietnam, Japan and Australia, among others.[7]

     Of course, Trump also has his sights on NAFTA and the WTO. Both those organizations contain withdrawal provisions. However, under the U.S. Constitution presidents have the authority to terminate international agreements at any time whether or not this would violate U.S. international legal obligations. If this would happen global legal matters would become much worse.

VIRGINIA IN THE GLOBAL TRADING SYSTEM.

     Before concluding, here a few comments concerning the significance of global trade for Virginia.

     First and foremost global trade is the critical core of Governor McAuliffe’s focus on developing a “New Virginia Economy.” His administration has conducted over 20 foreign trade missions to promote Virginia exports and foreign direct investment into the Commonwealth. Virginia has trade and related offices throughout the world. Governor McAuliffe’s trade policies can be traced directly back to those of Governor Baliles up through Governors Warner, Kaine and McDonnell.

     Here are some basic facts concerning global trade and economic development that the Virginia Economic Development Partnership provides on its websites.[8]

 

  • In the last five years foreign companies have created more than 15,000 new jobs and $4.6 billion in direct investment in the Commonwealth.
  • More than 700 foreign companies have operating subsidiaries or affiliates within Virginia.
  • Small and midsize companies can become major competitors through exporting, especially with the utilization of the Internet, websites, and digital ecommerce.
  • 95% of consumer demand is outside of the U.S.
  • Companies have increased 8-14% productivity due to export sales and competition.
  • 60% of small and midsize companies do business in more than six countries.
  • Workers at companies that export earn 15% more than workers at domestic-only companies.

 

     Here are some additional facts provided by the Port of Virginia on its website.[9]

 

  • 374,000 jobs, or 9.4% of Virginia resident workforce, work in port-related jobs.
  • Over $1.6 billion of total merchandise is received in the Port of Virginia’s Foreign Trade Zone.
  • The Port of Virginia’s Foreign Trade Zone produces over $430 million in exports annually.
  • $1.2 billion is invested in port-related economic development.
  • The Virginia Inland Port has generated investments totaling more than $620 million.

 

     While there is a recent report[10] by the Joint Legislative Audit and Review Commission questioning efficacy of specific foreign investment activities and state economic incentives there is overall realization that export trade activities have been outstanding and are essential to the well-being of Virginia in today’s global economy. Indeed, the General Assembly authorized the establishment of the new Virginia World Trade Corporation to promote exports and global trade that is to commence operation in 2017.[11] Thus, the General Assembly is attempting to keep Virginia in the forefront of global activities, ahead of many other states competing in the global system.

     While the focus on global trade has almost always been on the role of the federal government, it is states that have the principal responsibility of providing for the well-being of its citizens. Virginia has been very aggressive in promoting trade and investment for many years as a means of economic development in all areas of the Commonwealth, from the most rural to the most urbanized.

   But Virginia and other states are obviously subject to all of the crosswinds of laws, politics, and policies emanating from Washington. From trade agreements to trade sanctions and to reactions by foreign governments. It is the Congress that has exclusive authority to regulate international commerce and the federal government that has exclusive authority over states concerning trade under the Supremacy Clause (Article VI) of the U.S. Constitution. Presidents have great delegated authority and some inherent authority in trade as part of their general foreign affairs powers. Nevertheless, states have a very real and significant role in engaging in global trade.[12] This involves export and investment promotion activities as well as issues of state taxation.[13] A recent example is Virginia concluding a sister-state understanding on cyber development with Victoria, Australia.[14]

     Put very simply, the failure by the new administration in Washington, D.C., to protect and promote global commerce would have more than a trickle-down effect on Virginia and other states. From perhaps higher foreign tariffs to outright restrictions on new foreign investment. This is terrible for state economies still struggling from the 2008 financial crisis and consistent budgetary restrictions from Washington that impact Virginia from its defense industries to high-tech firms to agricultural exports and to almost everything else.

   Keep in mind that of all developed countries the United States has one of the lowest level of engagement with global trade as evidenced by the low ratio of foreign trade to overall GDP – 28% in 2015[15] and U.S. trade accounts for only 11% of global trade volumes. This should not be looked at as a problem but as an incentive to grow trade significantly.

Now returning to Trump’s trade policies.

CONCLUSION.

     With respect to U.S. domestic policy over the past eight years, the United States has incomprehensibly failed to provide effective legislation and policies directly aimed at those left behind in this new era of hyper-globalization.

     That was a terrible blunder, indeed. Instead of focusing on interest rates day after day the Congress and the President should have specifically targeted jobs. Those endangered by globalization, new global supply chains, technological developments in communications, robotics, digital commerce, among others. Unfortunately, we can’t go back. We can’t have a do-over. Trade is developing in many different ways regardless of trade policy.

     But to formulate trade policies primarily to protect rural and unemployed manufacturing workers is a grave mistake. It is global cities and states connected to the global economy that are the drivers of economic development and global prosperity, such cities contribute 80% of global gross domestic product.[16]

      Many other countries are facing this same political dynamics and policy choices including the UK, France and Turkey, among others. This is what has been called the rise of populist nationalism.[17] The rise of such corrosive nationalism led to nothing good in the 1930s, where it was nurtured by a mercantilist zero-sum view of global trade, unemployment, persecution of numerous populations, protectionism and extreme nationalism.[18]

      The challenge now is for the U.S. to put in place immediately a broad range of domestic policies regarding trade adjustment assistance, public and private reinvestment into infrastructure, and global tax reform to recapture the billions of offshore dollars being hoarded by U.S. multinationals.

     Both federal and state governments, with a broad outward-looking mindset, need to aggressively engage collectively the global system. This entails having complimentary domestic social and economic policies ensuring a competitive home front.

     Blustering away at globalization, walking away from the TPP, withdrawing from NAFTA or the WTO, and from leadership in the global trading system are not good for developing viable U.S. policies for trade, geostrategic relations or promoting state economic development.

     It’s certainly not too late to start over.

 * Stuart S. Malawer, J.D., Ph.D., Diploma (Hague Academy of International Law), is the Distinguished Service Professor of Law and International Trade at George Mason University (Schar School of Policy and Government). Dr. Malawer is a former Chairman of the International Practice Section of the Virginia State Bar, a recipient of its Hardy Cross Dillard Award, and formerly Special Editor of the Virginia Lawyer’s International Practice issue for many years. He recently served on the Board of Directors of the Virginia Economic Development Partnership (2008-2012). He is the author of recent books including Global Trade and International Law (Hein and Co., 2012), U.S. National Security Law (Hein and Co., 2009) and WTO Law, Litigation and Policy (Hein and Co., 2007). Dr. Malawer can be contacted at StuartMalawer@msn.com. His website is http://www.GlobalTradeRelations.net. An earlier version of this article appeared as an Op-Ed, Malawer “On the Importance of International Trade in the Era of Trump.” RICHMOND TIMES-DISPATCH (November 27, 2016).

 

[1] Editorial. “Donald Trump’s Victory Challenges the Global Liberal Order.” FINANCIAL TIMES (November 10, 2016).

[2] Chandy and Selde, ”Donald Trump and the Future of Globalization.” BROOKINGS UP FRONT (November 21, 2016) at https://www.brookings.edu/blog/up-front/2016/11/18/donald-trump-and-the-future-of-globalization/?utm_campaign=Brookings+Brief&utm_source=hs_email&utm_medium=email&utm_content=38230996 (Accessed November 26, 2016).

[3] Announced on a You Tube video on November 22, 2016. https://www.youtube.com/watch?v=8W84i3aeo60 (Accessed November 23, 2016).

[4] Sharma, “When Border Closes.” NEW YORK TIMES (November 13, 2016).

[5] Donnan and Schipani, “China Manoeuvres to Fill US Free-Trade Role.” FINANIAL TIMES (November 21, 2016); Editorial Board, “A Retreat from TPP Would Empower China.” NEW YORK TIMES (November 21, 2016).

[6] Porter, “A Trade War against China Might Be a Fight Trump Couldn’t Win.” NEW YORK TIMES (November 23, 2016).

[7] “China Touts its Own Trade Pact as U.S. Backed One Withers.” WALL STREET JOURNAL (November 22, 2016).

[8] http://yesvirginia.org/; http://exportvirginia.org/ (Accessed November 23, 2016).

[9] http://www.portofvirginia.com/ (Accessed November 23, 2016).

[10] Joint Legislative Audit and Revie Commission, MANAGEMENT AND ACCOUNTABILITY OF THE VIRGINIA ECONOMIMIC DEVELOPMENT PARTNERSHIP.” (Draft Report) (November 2016) at http://jlarc.virginia.gov/pdfs/reports/Rpt488.pdf

[11] HB 858 “Virginia World Trade Corporation.” (2016 Session of the Virginia General Assembly). Losi, “Virginia Doubles Down on its Commitment to Trade.” VIRGINIA BUSINESS (June 2, 2016) at http://www.virginiabusiness.com/opinion/article/virginia-doubles-down-on-its-commitment-to-international-trade; Malawer, “Virginia Needs Aggressive Trade Authority,” RICHMOND TIMES-DISPATCH (Letter-to-the Editor) (February 8, 2016).

[12] Bradsher,” In China-U.S. Trade War, Trump Would Have Weapons.” NEW YORK TIMES (November 10, 2016).

[13] See generally, “Globalism & States: International Trade & State Policies,” 16 VIRGINIA BAR ASSOCIATION JOURNAL 5 (No. 1, Winter 1990); Malawer, “‘States’ & International Transactions: Federalism & Foreign Affairs,” 37 VIRGINIA LAWYER 11 (No. 11, May 1989).

[14] “MOU between VEDP and Victoria, Australia.” GOVERNOR’S PRESS RELEASE (November 21, 2016) at https://governor.virginia.gov/newsroom/newsarticle?articleId=18349 (Accessed November 26, 2016).

[15] WORLD BANK NATIONAL ACCOUNTS DATA, AND OECD NATIONAL ACCOUNTS DATA FILES. http://data.worldbank.org/indicator/NE.TRD.GNFS.ZS (Accessed November 23, 2016).

[16] “About the Global Cities Initiative of the Brookings Institution.” https://www.brookings.edu/about-the-global-cities-initiative/ (Accessed November 24, 2016). See also, “Cities of the West are Bulwarks against Right-Wing Nationalism, Experts Say.” WASHINGTON POST (November 24, 2016).

[17] Fukuyama, “US against the World? Trump’s America and the New Global Order.” FINANCIAL TIMES (November 12, 2016).

[18] Editorial, “Donald Trump’s Dangerous Delusions on Trade.” FINANCIAL TIMES (November 14, 2016).

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Trump & TPP Withdrawal — Now What? — Domestic Crumps & Global Tsunamis? Most Likely.

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     Trump now promises to withdraw from the TPP on his first day in office. Great. This is the start of Protectionism Part II — Continuation from the Depression and Smoot-Hawley of the 1930s. This New Protectionism 2.0 is a disgrace for U.S. diplomacy and trade policy.

    It’s contrary to U.S. national interests, geopolitical strategy in Asia, and global trade relations generally. It also raises serious national security considerations and those of global competitiveness of the U.S. and its firms. Of course fostering higher prices for goods purchased by every American.

      Clearly this withdrawal plays into China’s hands. Helping them to trade more within their own region (the Regional Comprehensive Economic Partnership or the RCEP).  Helping China to develop their own trading bloc with our friends. It also opens the gates to allowing China to write the new rules-of-the road for global trade and its newer issues.

    What was Trump thinking? Really! Probably not much at all. Real estate deals are not the same as diplomacy. They are not zero sum games that maximizes profits and cash flow for one party and commissions to a third party. Obviously, withdrawal from TPP is throwing a bread crumb to the Rust Belt and to its unemployed workers with outdated skills.

     The problem is not trade but technology and long-term demographic changes, among others.. It is also the failure of public and corporate policy to reinvest funds into infrastructure of all types and thus create widespread employment. This would help those suffering from the harshness of globalization, technological changes as well as demographic changes.  

     Withdrawal from TPP is not going to help anyone.  It will only cause an avalanche of international political and economic tsunamis for the U.S.  Just wait.

 

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