International Economic Law and Policy Blog

More on Charming Betsy

In my last post, I raised the possibility that Charming Betsy could play a role in the challenges to the Trump administration's IEEPA tariffs. (There have been three new complaints filed since that post: State of Oregon v. Trump, Learning Resources v. Trump, and Princess Awesome v. CBP. By my count, that makes eight cases in total.) Recall that the Charming Betsy canon of interpretation, as articulated by the U.S. Supreme Court in 1804, states that "[a]n act of Congress ought never to be construed to violate the law of nations if any other possible construction remains." That was a long time ago, and in a 2020 article, law professor Justin Hughes explains some later refinements:

Just a few years after [the 1982 case of Weinberger v. Rossi], the Restatement (Third) of United States Foreign Relations Law expressed the doctrine in words that track Justice Marshall but expands it to include all public international law:

Where fairly possible, a United States statute is to be construed so as not to conflict with international law or with an international agreement of the United States.

The Restatement Third tweaks Marshall's interpretative standard ("fairly possible") while also clarifying that the canon - couched in the nineteenth century idea of the "law of nations" - applies to both customary international law and the specific international legal obligations that the United States undertakes through agreements.

(footnotes omitted)

As noted in the earlier post, a key issue in the IEEPA complaints is whether the statute allows for the use of tariffs. There are two main aspects to the Charming Betsy analysis on this issue: Is the statute ambiguous on this question? And if so, how might international obligations guide the interpretation of the statute?

With regard to whether the IEEPA allows tariffs, I think there is a good argument that it does not, which would put an end to all this. But at the least, I would say the statute is ambiguous on this point, which brings in Charming Betsy. I won't go into the details on that point here, though, because I want to focus on the role of international obligations in providing interpretive guidance. In this regard, let me turn to an issue on which I raised questions in my earlier post: What exactly are the "international obligations" at issue here, and how should a U.S. court ascertain their meaning?

When determining what the "obligations" in an international agreement are, I think it's clear that you have to look at both the obligations and any exceptions that qualify them. As I noted in the earlier post, the key WTO obligations at issue are GATT Articles I and II, and for our purposes I don't think there is much doubt about the application of these provisions to the IEEPA tariffs (the tariffs are in violation). Rather, the focus here will be on interpretive questions related to the Article XXI security exception: How should a U.S. court think about whether the tariffs are justified under that exception?

There are several approaches I can imagine here:

• The court could accept the official U.S. government position that the security exception is totally self-judging, and on this basis find that the tariffs would not violate the international obligations of the U.S. on the basis that the U.S. has invoked Article XXI.
• The court could do its own interpretation of the text of Article XXI, in order to decide whether (1) it is totally self-judging or (2) it requires some type of good faith/objective analysis to determine whether a particular measure is justified; and in the case of (2), the court could then do that analysis and determine whether the IEEPA tariffs are justified under the Article XXI exception.
• As a variation on the second approach, the court could take into account WTO dispute settlement rulings that interpret and apply Article XXI, and use those interpretations to help it determine whether the IEEPA tariffs are justified under the Article XXI exception.

(An additional consideration would arise if there were a panel ruling on the IEEPA tariffs themselves. If such a ruling existed, the courts could just rely on that to determine that the tariffs are or are not consistent with international obligations. But we are not there yet.)

In thinking about how courts should approach these issues under Loper Bright (i.e., in a post-Chevron world), Jacobson and Finan argue that "if applicable international law is too ambiguous to guide the interpretation of an ambiguous statute, only then should courts give agencies’ interpretations 'respect' to the extent they have the 'power to persuade.'" How would Article XXI be treated under this approach? I think it's fair to say that the Article XXI text itself, on its face, is a bit ambiguous in terms of how much deference to national governments it requires. If we were ignoring the WTO panel interpretations of this provision that clarify it (I'll get to those later), we could then turn to the post-Loper Bright approach that Jacobson and Finan lay out:

Notably, the Supreme Court in Loper Bright “warmly embraced Skidmore v. Swift & Co., which calls not for deference, but for respectful attention to the views of the relevant agency.”  The Court held that interpretations “‘made in pursuance of [an agency’s] official duty’ and ‘based upon . . . specialized experience,’ ‘constitute[d] a body of experience and informed judgment to which courts and litigants [could] properly resort for guidance,’ even on legal questions.”²⁷ Courts should use the Skidmore factors to weigh whether the agency’s interpretation is entitled to such “respect.”  Factors for a court to consider include the “thoroughness evident in [the agency’s] consideration, the validity of [the agency’s] reasoning, [the interpretation’s] consistency with earlier and later pronouncements, and all those factors which give it power to persuade, if lacking power to control.”  Under this approach, courts can fulfill their duty to interpret statutes, while relying on agencies’ expertise as a guide when both the statute and applicable international law present true ambiguity, in line with the standard established in Loper Bright.

Applying that approach here, does the U.S. government view of whether the tariffs are justified under Article XXI merit the Skidmore respect? Was its consideration of these issues "thorough", "valid", and "consistent"? I'm really not sure how a court would see this. Maybe the judges would defer to the Executive branch here, or maybe they would want to do their own analysis of Article XXI. I can imagine that the views of the U.S. Supreme Court justices would vary on these issues, but I'm not familiar enough with these views to make a prediction on how they would come out.

Regardless of how U.S. courts would approach an analysis of the text of Article XXI on its own, in my view there is a strong argument that the courts should take into account WTO dispute settlement rulings on these issues, which have removed much of the ambiguity from Article XXI. The DSU has a specific provision that explains the role of the dispute settlement system as "clarifying" the meaning of the agreements through "the customary rules of interpretation of public international law":

The dispute settlement system of the WTO is a central element in providing security and predictability to the multilateral trading system. The Members recognize that it serves to preserve the rights and obligations of Members under the covered agreements, and to clarify the existing provisions of those agreements in accordance with customary rules of interpretation of public international law. Recommendations and rulings of the DSB cannot add to or diminish the rights and obligations provided in the covered agreements.

The Uruguay Round Agreements Act Statement of Administrative Action has a similar statement, making it clear that U.S. negotiators were on board with this approach. As a result, in thinking about what Article XXI means, U.S. courts should take into account the clarifications provided through WTO dispute settlement (which, of course, may be ambiguous themselves at times). I won't walk through it all in this post, but applying the clarifications set out by WTO panels, I think a court should find that the IEEPA tariffs are not justified under Article XXI. And consequently, under Charming Betsy, to avoid a conflict with international law, the court should reach an interpretation of the IEEPA that does not allow tariffs.

The IEEPA Lawsuits and Charming Betsy

By my count, so far there have been five lawsuits filed in U.S. court related to either the IEEPA fentanyl tariffs or the IEEPA "reciprocal"/universal tariffs:

- Barnes v. U.S., CIT (complaint) (fentanyl tariffs)

- Emily Ley Paper v. Trump, U.S. district court, N.D. Florida (complaint) (fentanyl tariffs)

- Webber v. DHS, U.S. district court, D. Montana (complaint / amended complaint) (reciprocal/universal and fentanyl tariffs, as well as Section 232 steel/aluminum tariffs)

- V.O.S. Selections v. Trump, CIT (complaint) (reciprocal/universal tariffs)

- California v. Trump, U.S. district court, N.D. California (complaint) (reciprocal/universal and fentanyl tariffs)

(There have been motions filed to transfer the California, Florida, and Montana cases to the CIT).

An issue I haven't seen mentioned in any of the lawsuits is Charming Betsy. As a new Harvard International Law Journal online piece by Michael Jacobson and Stephen Finan, entitled "The Charming Betsy Canon: Time to Ride the Tide of Loper Bright," reminds us, "[t]he Charming Betsy canon of interpretation, articulated by the U.S. Supreme Court in 1804, states that '[a]n act of Congress ought never to be construed to violate the law of nations if any other possible construction remains.'"

So how might Charming Betsy apply in the context of these IEEPA lawsuits? The authors don't address that question explicitly, but they do put forward "a three-phase approach that courts should employ when reviewing agency interpretations of statutes where international law is at play": 

a. Step 1

     First, courts should determine whether a statute is clear.  If the statute lacks ambiguity, in particular if Congress expressly declared its intention to legislate in a manner that contradicts an international obligation, courts should apply the statute as written, irrespective of international law.  Where Congress has clearly spoken, Charming Betsy is inapplicable. 

b. Step 2

     Second, if the statute is ambiguous, courts should look to international law to guide their interpretation of the best meaning of the statute.  In accordance with Charming Betsy, courts should interpret the domestic statute in a manner that comports with the United States’s international obligation, with the goal of avoiding conflict between domestic law and international law wherever possible.  This interpretive exercise should take precedence over agency interpretation of a statute, in accordance with the Supreme Court’s clear directive in Loper Bright that courts should seek the best meaning of a statute, irrespective of agency interpretation.  Courts have long applied Charming Betsy as an aid in the statutory interpretation process in this way.  Unbridled by Chevron, Charming Betsy should be a primary tool employed to interpret ambiguous statutes where coinciding international obligations exist. 

c. Step 3

     Third, if applicable international law is too ambiguous to guide the interpretation of an ambiguous statute, only then should courts give agencies’ interpretations “respect” to the extent they have the “power to persuade.”  Notably, the Supreme Court in Loper Bright “warmly embraced Skidmore v. Swift & Co., which calls not for deference, but for respectful attention to the views of the relevant agency.”  The Court held that interpretations “‘made in pursuance of [an agency’s] official duty’ and ‘based upon . . . specialized experience,’ ‘constitute[d] a body of experience and informed judgment to which courts and litigants [could] properly resort for guidance,’ even on legal questions.”²⁷ Courts should use the Skidmore factors to weigh whether the agency’s interpretation is entitled to such “respect.”  Factors for a court to consider include the “thoroughness evident in [the agency’s] consideration, the validity of [the agency’s] reasoning, [the interpretation’s] consistency with earlier and later pronouncements, and all those factors which give it power to persuade, if lacking power to control.”  Under this approach, courts can fulfill their duty to interpret statutes, while relying on agencies’ expertise as a guide when both the statute and applicable international law present true ambiguity, in line with the standard established in Loper Bright.

In the IEEPA context, we are not dealing with an agency interpretation, but nevertheless the same principles could apply to the Trump administration's interpretations of the statute. 

To illustrate how Charming Betsy might come up in an IEEPA lawsuit, looking at their step 2, there is some uncertainty about whether the IEEPA allows for the imposition of tariffs, which are not explicitly mentioned as a possible government action authorized by the statute. Arguably, then, this ambiguity means that under Charming Betsy, international law -- as articulated through international trade agreements -- should play a role in interpreting this aspect of the statute. Applying Charming Betsy to this interpretive issue, U.S. courts should look for constructions of the IEEPA that avoid a violation of these trade agreements.

If the courts were to find that the fentanyl and reciprocal/universal tariffs are permitted under the statute, that will certainly lead to violations of GATT obligations (e.g. MFN and tariff bindings). Whether these violations are justified under the Article XXI security exception is a more difficult issue, but there are strong arguments that they would not be. As a result, pursuant to Charming Betsy, it could be argued that, in order to avoid a violation of international law, the courts should adopt an interpretation of IEEPA that does not allow the imposition of tariffs.

In addition to issues related to ambiguity in the statute, there is also the question of whether the international law in this area is clear enough to guide the statutory interpretation (their step 3). If the international obligations are ambiguous, more "respect" for the government's interpretation may be required. With regard to the meaning of the relevant international obligations here, how exactly should a U.S. court approach the issue of whether the IEEPA tariffs violate GATT Articles I or II and whether they would be justified under Article XXI? While the violations of Articles I and II are probably clear to everyone, would a court think the text of Article XXI is too ambiguous to reach a conclusion on the security justification? Should WTO panel interpretations in past cases play a role in this consideration by U.S. courts? Should the U.S. courts do the WTO legal analysis themselves, making their own determination of whether the the tariffs are consistent with GATT obligations or justified by the Article XXI exceptions? And then there's the issue of a WTO complaint against the specific IEEPA tariffs at issue. Would a WTO panel ruling that the IEEPA tariffs themselves violate GATT obligations and are not justified by the Article XXI exception make the applicable international law in this case more clear?

None of the complainants have made an argument based on Charming Betsy yet, but despite the uncertainty as to how it would apply in this context, I can see some value in putting it out there for courts to consider.

Dark Globalization: Authoritarian Arbitrage in the Case of Kilmar Abrego Garcia

One dimension of the current case of Kilmar Abrego Garcia concerns the dark side of globalization:  arbitrage by authoritarians to subvert constitutional and human rights protections.    

Abrego Garcia has been strategically disenfranchised through jurisdictional arbitrage implemented by physical transfer to El Salvador.  If he remained in the U.S., he would have had important due process rights and would be entitled to better treatment and perhaps release.  But the U.S. now claims that it has no jurisdiction/power to correct its error and bring him back, and rejects judicial interference with its foreign policy powers on constitutional allocation of powers grounds.  For El Salvador’s part, President Bukele says he has no power to return Abrego Garcia to the U.S.  With power comes responsibility:  the disavowal of power by the U.S. and El Salvador is a disavowal of responsibility resulting in the stripping of rights from Abrego Garcia.  Furthermore, the Abrego Garcia case is a test case for a broader strategy that can be applied to all residents and citizens.  President Trump has stated that it might be applied to “home grown” criminals.  This would nullify constitutional rights of citizens. 

The Trump administration is asserting the power wantonly to physically move people in order to subvert their constitutional rights.  MNCs have long moved physically or notionally to seek legal treatment more favorable to them.  The Trump administration’s innovation here is to utilize the power of government arbitrarily to move people in order to accord legal treatment less favorable to them. Effective constitutional and human rights will require constraints on this power, either in national law or In international law. As Jeffrey Dunoff and I explained in our 2013 volume, Ruling the World, “Constitutional subsidiarity implies that under some changes in technological or social circumstances, the vertical level at which it is appropriate to guarantee certain constitutional values may change. Supplemental constitutionalization responds to gaps in the domestic law constitutional framework that are created or accentuated by globalization.”

Questions About the Upcoming Trade Deals

There have been a lot of U.S. tariffs in recent months, and it's getting hard to keep track of them all. This post deals with the IEEPA "reciprocal tariffs" announced on April 2, rather than the earlier IEEPA fentanyl tariffs or the various Section 232 tariffs or any other tariffs. Soon after imposing the April 2 tariffs, President Trump announced a 90 day pause on a portion of the tariffs, starting on April 9 (except for tariffs on Chinese imports, which were increased because China had retaliated). That modification left us with a 10% baseline tariff in place on all countries except China, with the Trump administration indicating that negotiations would now begin on issues related to the tariffs and non-tariff barriers of these countries. An administration official suggested they could sign "90 deals in 90 days."

I have a few questions about the trade deals that may (or may not) result from these negotiations.

1. What will the content of these agreements be? A recent Washington Post article identified the following possibilities for things the U.S. will be pushing for:

• Lower tariffs on U.S. exports
• Purchases of U.S. natural gas
• Removal of barriers for U.S. agriculture exports
• Lower taxes on U.S. tech companies
• Coordination on limiting imports from China
• Stopping transshipment of goods from China

You can also imagine coordination on export controls and investment screening being in there; weakening of the regulations affecting U.S. tech companies; and language related to currency manipulation.

2. Will the U.S. undertake obligations too? Presumably a big ask of the other countries will be to remove the reciprocal/baseline tariffs, but they may push for other things as well.

3. Relatedly, how will these agreements play in the domestic politics of other countries? Will governments be accused of caving to U.S. demands if they can't show they got something more than just the tariff rates that existed prior to Trump raising the tariffs?

4. Will there be any formal process for outside input into the negotiation of these agreements? At the moment, it does not seem like there will be.

5. Will these agreements be durable? Will there be a text, or will it be more of a handshake agreement?

6. Assuming there will be a text, will there be some sort of dispute settlement mechanism in the agreements? The 2019 U.S.-Japan trade agreement had a simple request for consultations procedure, with nothing further spelled out. The U.S.-China Phase One deal had what I have characterized as an internationalized version of Section 301, under which one party can declare the other to be in violation and then impose duties. And then standard FTAs have an adjudication mechanism under which panels assess formal complaints of violation filed by a party. Will any of these be used? Or will there be nothing at all included in these agreements about dispute settlement?

7. Will there be a formal process for the Trump administration to make its assessments of compliance with the agreements? How transparent will this decision-making be? Will they seek public comments?

8. What role will Congress play here? Will they hold hearings? Will they offer a formal endorsement like they did with the U.S.-Taiwan trade deal legislation in 2023? Would that kind of action shift these new agreements from being purely trade executive agreements into something with a stronger domestic legal foundation?

9. How many agreements will there be? Over on Bluesky, I guessed 5-20. Will that prediction be close to the reality?

10. What statutory authority will the administration cite for negotiating these deals? The tariffs were imposed under IEEPA. Is IEEPA broad enough to allow for negotiating trade deals of this sort?

11. Will there be adjacent issues that exist separately from the trade part of the agreements, such as agreements to purchase specific U.S. military equipment?

Stephen Miran on the U.S. Providing Global Public Goods

Last week, Stephen Miran, the Chairman of the Council of Economic Advisers, gave a speech at the Hudson Institute in which he explained that the U.S. deserved compensation for certain "global public goods" it provides to the world. In his opening remarks, he identified two such public goods:

Today I’d like to discuss the United States’ provision of what economists call “global public goods,” for the entire world.  First, the United States provides a security umbrella which has created the greatest era of peace mankind has ever known.  Second, the U.S. provides the dollar and Treasury securities, reserve assets which make possible the global trading and financial system which has supported the greatest era of prosperity mankind has ever known. 

He then explained the costs to the U.S. of providing these public goods:

Both of these are costly to us to provide.  On the defense side, our men and women in uniform take heroic risks to make our nation and the world safer, preserving our liberties generation after generation.  And we tax hardworking Americans mightily to finance global security.  On the financial side, the reserve function of the dollar has caused persistent currency distortions and contributed, along with other countries’ unfair barriers to trade, to unsustainable trade deficits.  These trade deficits have decimated our manufacturing sector and many working-class families and their communities, to facilitate non-Americans trading with each other.

Focusing on the financial side, he elaborated on how "our financial dominance comes at a cost":

While it is true that demand for dollars has kept our borrowing rates low, it has also kept currency markets distorted.  This process has placed undue burdens on our firms and workers, making their products and labor uncompetitive on the global stage, and forcing a decline of our manufacturing workforce by over a third since its peak and a reduction in our share of world manufacturing production of 40%.

At this point, given the high costs he laid out, you might think he would be making the case for the U.S. to stop providing these public goods. But instead, he wants the U.S. to keep doing it but get more compensation from others:

President Trump has made it clear that he will no longer stand for other nations free-riding on our blood, sweat, and tears, whether in national security or trade. ...

...

In my view, to continue providing these twin global public goods, there needs to be improved burden-sharing at the global level.  If other nations want to benefit from the U.S. geopolitical and financial umbrella, then they need to pull their weight, and pay their fair share. ...

The best outcome is one in which America continues to create global peace and prosperity and remain the reserve provider, and other countries not only participate in reaping the benefits, but they also participate in bearing the costs.  By improving burden sharing, we can enhance resilience, and preserve the global security and trading systems for many decades into the future.

Let me stop with the quotes for a moment and talk about some of what he has said so far.

Are the U.S. security umbrella and financial umbrella best described as "global public goods"? Or could they also be thought of as "policies that the U.S. government sees as being to its advantage and wants to continue doing"? I'm not totally sure about the right characterization, and I think opinions vary considerably around the world (and within the U.S. as well). There are a handful of countries that face specific security threats and thus have a strong desire for U.S. military support. But I think this is a minority, and in most countries opinions on these U.S. policies are pretty mixed. As a result, asking other countries to pay more for the U.S. to do these things may not be well received, as a fair number of people might prefer the U.S. stop doing them entirely.

I feel like the way the Trump administration is approaching this is to say: "These are some services we are providing, and you have to pay us what we think they are worth." But in terms of creating a stable international economic and security system, a better approach might be to ask: "Do you want us to provide these services? If so, let's talk about how the costs should be allocated." Because as things stand now, it comes across to many as if the U.S. government is doing something it believes is in its interest, and then asking for compensation.

Getting back to his remarks, he provides the following examples of the burden sharing he would like to see:

What forms can that burden sharing take?  There are many options, here are a few ideas:

- First, other countries can accept tariffs on their exports to the United States without retaliation, providing revenue to the U.S. Treasury to finance public goods provision.  Critically, retaliation will exacerbate rather than improve the distribution of burdens and make it even more difficult for us to finance global public goods.

- Second, they can stop unfair and harmful trading practices by opening their markets and buying more from America;

- Third, they can boost defense spending and procurement from the U.S., buying more U.S.-made goods, and taking strain off our servicemembers and creating jobs here;

- Fourth, they can invest in and install factories in America.  They won’t face tariffs if they make their stuff in this country;

- Fifth, they could simply write checks to Treasury that help us finance global public goods.

I have several questions/comments here.

On the idea that other countries should accept U.S. tariffs without retaliation, it's important for people in the U.S. to understand that other countries have domestic politics too. Looking weak in the face of U.S. economic demands could hurt a foreign government's standing with its people, and that's not good for the future prospects of the leaders of that government.

As to the unfair and harmful trading practices, sure, it would be great to address those, but other countries are going to want to address similar U.S. practices (there are loads of these). That's how normal trade negotiations and agreements work.

On boosting defense spending for U.S. goods, some U.S. allies are feeling conflicted about that right now as a result of certain of the Trump administration's foreign policy moves.

And as to foreign investment in U.S. factories, with China being a big target of the U.S. tariffs, the question arises as to whether Chinese companies can build factories in the U.S. My sense is that Trump himself might be OK with that. I'm not so sure that most top officials in the administration (or many members of Congress) would agree though.

Miran also offered the following thoughts on tariffs and trade deficits:

One reason the economic consensus on tariffs is so wrong is because nearly all of the models that economists use to study international trade assume either no trade deficits at all, or assume that deficits are short-lived and quickly self-correct through currency adjustments.  According to standard models, trade deficits will cause the dollar to weaken, which reduces imports and boosts exports, eventually wiping out the trade deficit.  If that happens, tariffs may be unnecessary, because trade will balance itself over time and, in this view, intervening with tariffs can only make things worse.

However, that view is at odds with reality.  The United States has run current account deficits now for five decades, and these have widened precipitously in recent years, going from about 2% of GDP in the first Trump Administration to a high of nearly 4% of GDP in the Biden Administration.  And this has happened all while the dollar has appreciated, not depreciated!

The long run is here, and the models are wrong.  One reason is that they fail to account for the U.S. provision of the global reserve currency.  Reserve status matters and, because demand for the dollar has been insatiable, it has been too strong for international flows to balance, even over five decades.

My view is that there are two main reasons U.S. trade balances have not adjusted more during the longstanding period of U.S. trade deficits: (1) the relatively low U.S. savings rate, and (2) the role of the U.S. dollar as the reserve currency. He doesn't mention the first one, which I think is a big omission. On the second one, he makes clear that he wants the dollar to remain the reserve currency (during the Q & A, he said "dollar dominance is a great thing"), but it's clear that such a policy will limit the prospects for any adjustment taking place. Maybe he is saying that his "burden sharing" options can operate as an alternative way to reduce deficits, even with the dollar remaining as the reserve currency, but that has the problems noted above (among others). Or do they have in mind a plan to weaken the value of the dollar while keeping its role as the reserve currency? Would Trump be OK with that plan? I hope someone presses them on these questions.

Guest Post: Japan Signals a Possible Shift Away from the WTO Dispute Settlement System in Response to U.S. “Reciprocal Tariffs”

This is a guest post from Yoshimichi Ishikawa, Associate Professor, University of Shizuoka, Japan

For decades, Japan has adhered to the principle that trade disputes should be addressed strictly within the WTO dispute settlement framework. This long-standing position may now be facing a turning point.

On April 2, 2025, the United States announced a new “reciprocal tariff” scheme. In response, China swiftly declared its intention to impose retaliatory tariffs, while the EU and Canada signaled they were exploring similar measures. In Japan, recent polls show that 57% of respondents support imposing retaliatory tariffs. Against this backdrop, a noteworthy exchange in Japan’s Diet may signal a legal shift in the country's traditional approach to trade disputes.

During a session of the Financial Affairs Committee of Japan’s House of Representatives on April 4, a member of the ruling party asked Finance Minister Katsunobu Kato whether Japan could legally impose retaliatory tariffs against the United States. Minister Kato replied:

“Speaking generally about our tariff system… given that parts of the WTO’s dispute settlement procedures are currently not functioning, we believe that—while seeking to resolve disputes through the WTO to the extent possible—it is legally possible to impose retaliatory tariffs as stipulated under the Customs Tariff Act.” (emphasis added; original in Japanese, spoken at around 13:20 in this Diet committee video)

This statement is striking. Under Article 6 of Japan’s Customs Tariff Act, the imposition of retaliatory tariffs in response to WTO violations is permitted only after the approval of the WTO Dispute Settlement Body is obtained. This domestic provision reflects Japan’s alignment with Article 23 of the WTO Dispute Settlement Understanding (DSU), which obliges Members to address covered agreement violations exclusively through the WTO dispute settlement system. In line with this approach, Japan has only once implemented retaliatory tariffs—against the United States in 2004 in response to the Byrd Amendment—following WTO authorization.

Given this legal and policy background, Minister Kato’s use of the phrase “to the extent possible” implies that Japan may now consider imposing retaliatory tariffs without prior WTO authorization if its dispute settlement system remains paralyzed. This would mark a notable departure from Japan’s traditional stance, which has emphasized resolving trade disputes within the WTO framework and implicitly excluded the application of countermeasures under general international law (such as those contemplated in the Articles on State Responsibility).

While the Finance Minister’s remarks are significant, Japan cannot actually impose retaliatory tariffs without amending the Customs Tariff Act. In the absence of such reform, the statement risks being seen—as some domestic media have already suggested—as a political message aimed at the United States, rather than a concrete policy move (Kyoto News report, in Japanese).

What will truly matter is whether Japan moves to revise the law in the near future. That would signal not only how seriously it is weighing retaliation against the U.S. reciprocal tariffs, but also whether it is rethinking what has long been interpreted as its position: that WTO violations must be addressed exclusively within the WTO, without recourse to general international law.

It is also worth noting that Prime Minister Shigeru Ishiba has repeatedly downplayed the likelihood of retaliatory tariffs, and that during a phone call on April 8, President Trump and Prime Minister Ishiba agreed to appoint ministers in charge of the issue and to begin tariff negotiations. Thus, the actual imposition of retaliatory tariffs appears unlikely for now. Still, from the standpoint of both negotiation leverage and legal preparedness, it may be strategically important for Japan to revise the relevant provisions of its Customs Tariff Act—potentially by incorporating language such as “to the extent possible,” as suggested by the Finance Minister. Doing so would allow Japan to maintain the legal flexibility to impose retaliatory tariffs even in the absence of prior WTO authorization, particularly in situations where the WTO dispute settlement system is not functioning.

Andrew P. Vance Memorial Writing Competition Call for Papers

This is from the Customs and International Trade Bar Association (CITBA) and Georgetown Law School

 

The Customs and International Trade Bar Association (CITBA) and Georgetown Law School are pleased to announce 2024-2025 Andrew P. Vance Memorial writing Competition. The competition is welcoming papers with an in-depth analysis of a current issue relevant to customs and international trade law. Entrants must be currently enrolled in a J.D. or L.L.M. program at any of the nation’s law schools. Papers must be submitted here by June 2, 2025 at 11:59 p.m. ET.

Submissions should be typewritten, double-spaced on 8 ½ x 11-inch paper. The paper shall not exceed 40 pages in length, including footnotes. Papers must include footnotes, not endnotes. Papers should be in 12pt. Times New Roman font and have one-inch margins (right, left, top, and bottom).  Noncompliance with these requirements may affect evaluation or result in disqualification.  Please include the following on the cover sheet of your paper:

• Full name, address and telephone number
• Law school and year
• Date of submission of paper

Do not include any identifying information in the text of the paper itself.

A committee of practicing attorneys and professors with relevant expertise will judge the papers. The following factors will be considered:

• Legal analysis
• Thoroughness and depth of topic
• Evaluation of judicial precedents, statutes, and regulations
• Writing style
• Form and quality of citations
• Conformity with rules of competition

Two prizes will be awarded by CITBA:

• $1000.00 first prize
• $500.00 second prize

Guest Post: How to (legally) respond to the ‘reciprocal’ tariffs announced by the Trump administration?

This is a guest post from Antoine Comont, Ph.D Candidate at Laval University and the University of Bordeaux

If respecting international law is a virtue that still makes sense to you, the question for each of the countries affected by the tariffs announced yesterday by the administration is how to justify any retaliation.

The first idea would be to use the WTO DSS to request authorization to suspend certain obligations (Article 22 of the DSU). However, given the scale of the customs duties imposed by the United States, the slowness of the procedures could well cause irreparable damage to the economies of the various countries targeted. Added to this is the fact that the WTO's Appellate Body is currently blocked, and the United States could, in particular, allow the proceedings initiated against it in the appeal phase to lapse without any final decision being taken, thus depriving the complaining Members of their right to request suspensions of concessions or other obligations.

The second idea would therefore be to use the dispute settlement procedures provided for in any regional or bilateral agreements that countries may have concluded with the United States. However, you would be particularly limited as to the extent of the obligations you could suspend. On the one hand, you could suspend the concessions you have granted to the United States under your agreement. On the other hand, as the reciprocal tariffs announced by the United States are particularly significant, you could be led to suspend certain concessions that you have granted to the United States under your bilateral agreement, but also the WTO agreements.

The third idea would be to adopt unilateral countermeasures in a bid to avoid lengthy procedures. In either case, the United States could challenge your measures before the WTO's DSB because they nullify or impair certain advantages acquired under Article I and II of the GATT or any other WTO agreement[i]. However, you will not be able to justify your measures because the United States has previously violated its obligations under the WTO agreements. This would be contrary to the DSB's exclusive jurisdiction under Article 23 of the DSU, which prohibits the use of unilateral measures or any measure that has not been expressly authorized by it.

Given the unprecedented scale and violence of the tariffs applied by the United States, is there any way of responding immediately without infringing international law? In general international law, retaliatory measures are certainly unfriendly measures, but they are not incompatible with any international obligation. Conversely, countermeasures are measures incompatible with certain international obligations but justified by the fact that they are a reprisal for a previous violation of international law[ii].

Under WTO law, compensation (mutually agreed) or suspension of obligations granted by the DSB are retaliatory measures and are specifically authorized by Article 22 of the DSU. At the same time, we found that the per se prohibition of countermeasures is the subject of consistent jurisprudence by the DSB. The panel also made the following statement about Section 301:

« Article 23.1 is not concerned only with specific instances of violation. It prescribes a general duty of a dual nature. First, it imposes on all Members to "have recourse to" the multilateral process set out in the DSU when they seek the redress of a WTO inconsistency. In these circumstances, Members have to have recourse to the DSU dispute settlement system to the exclusion of any other system, in particular a system of unilateral enforcement of WTO rights and obligations. This, what one could call "exclusive dispute resolution clause", is an important new element of Members' rights and obligations under the DSU. Second, Article 23.1 also prescribes that Members, when they have recourse to the dispute settlement system in the DSU, have to "abide by" the rules and procedures set out in the DSU. This second obligation under Article 23.1 is of a confirmatory nature: when having recourse to the DSU Members must abide by all DSU rules and procedures. »[iii]

We are therefore also of the opinion that only sanctions authorized by the DSB and expressly provided for in the Memorandum can be implemented. This implies the prohibition of any unilateral sanction or reprisal.

It therefore seems clear that the WTO's dispute settlement rules and procedures are no longer suited to the context of the generalised trade war launched by the US. So let us see what options can still be mobilized to address the needs of WTO Members.

I. Excluded Legal Grounds

A. Self-defence

In public international law, self-defence is grounded in Article 51 of the UN Charter.

Article 51

Nothing in the present Charter shall impair the inherent right of individual or collective self-defence if an armed attack occurs against a Member of the United Nations, until the Security Council has taken measures necessary to maintain international peace and security. Measures taken by Members in the exercise of this right of self-defence shall be immediately reported to the Security Council and shall not in any way affect the authority and responsibility of the Security Council under the present Charter to take at any time such action as it deems necessary in order to maintain or restore international peace and security.

In order to lawfully exercise a right to self-defence under Article 51 of the UN Charter, three criteria must be fulfilled: (1) there must be an armed attack, (2) it must be necessary to use force in the exercise self-defence, and (3) the use of force in self-defence must be proportional.

To date, no court has upheld the invocation of self-defence in response to economic coercive measures. The term ‘armed’ excludes any economic dimension, and while legal scholars remain divided on its scope, no case addressed this matter yet. Historically, the International Court of Justice has consistently interpreted self-defense as having a military connotation, far removed from the economic and commercial reality of U.S. actions so far.

Even if a special group welcomes this argument, the second difficulty with self-defence is that recourse to it would at the same time justify recourse to Article XXI of the GATT by the United States, since this would mean recognizing the existence of serious international tensions.

B. Vienna Convention on the law of treaties, Article 62

Article 62 of the Vienna Convention on the law of treaties is related to the « fundamental change of circumstances ».

Article 62

Fundamental change of circumstances

1. A fundamental change of circumstances which has occurred with regard to those existing at the time of the conclusion of a treaty, and which was not foreseen by the parties, may not be invoked as a ground for terminating or withdrawing from the treaty unless:

(a) the existence of those circumstances constituted an essential basis of the consent of the parties to be bound by the treaty; and

(b) the effect of the change is radically to transform the extent of obligations still to be performed under the treaty.

2. A fundamental change of circumstances may not be invoked as a ground for terminating or withdrawing from a treaty:

(a) if the treaty establishes a boundary; or

(b) if the fundamental change is the result of a breach by the party invoking it either of an obligation under the treaty or of any other international obligation owed to any other party to the treaty.

3. If, under the foregoing paragraphs, a party may invoke a fundamental change of circumstances as a ground for terminating or withdrawing from a treaty it may also invoke the change as a ground for suspending the operation of the treaty.

Regarding the commentaries provided by the ILC on the draft articles on Responsibility of States, it can be considered equivalent to the excuse of necessity (see below)[iv]. Even if it can be argued that US tariffs would fundamentally change the initial circumstances that led to counter-measures, we do not believe it would be appropriate to base the justification for our response on this ground.

On the one hand, recourse to Article 62 of the VCLT marks the premise of the denunciation of the WTO Agreement vis-à-vis the United States, which is certainly not desirable.

On the other hand, even though paragraph 3 authorizes the suspension of an agreement, there are questions[v] as to whether this suspension must imperatively apply to all agreements or whether it can merely be partial.

II. The plea of « necessity » (État de nÉcessitÉ) or the « excuse of necessity »

A. What is the « plea of necessity »

In accordance with the ILC, « the term “necessity” (état de nécessité) is used to denote those exceptional cases where the only way a State can safeguard an essential interest threatened by a grave and imminent peril is, for the time being, not to perform some other international obligation of lesser weight or urgency ».

This is a customary principle of public international law widely established in case law[vi]. Since then, an initiative to codify the state of necessity is contained in article 25 of the ILC's draft articles on State responsibility :

Article 25

Necessity

1. Necessity may not be invoked by a State as a ground for precluding the wrongfulness of an act not in conformity with an international obligation of that State unless the act:

(a) is the only way for the State to safeguard an essential interest against a grave and imminent peril; and

(b) does not seriously impair an essential interest of the State or States towards which the obligation exists, or of the international community as a whole.

2. In any case, necessity may not be invoked by a State as a ground for precluding wrongfulness if:

(a) the international obligation in question excludes the possibility of invoking necessity; or

(b) the State has contributed to the situation of necessity.

Regarding on the level and scope of the tariffs that will be applied by the United States, we can conceive that without government action, the economy of WTO Members would find themselves in a situation of grave and imminent peril (in the meaning of article 25.1 (a)) and that it is ‘necessary’ in their nation's interests to act as quickly as possible without waiting for the DSB to authorize the adoption of sanctions.

B. What is not the « plea of necessity »

It seems to us that it is interesting to specify what a “plea of necessity” is not, insofar as such a justification requires, in our opinion, terminological clarification.

The “plea of necessity” is not a retaliation or countermeasure. Such measures are designed to sanction breaches of international law that have already occurred (in the WTO context, to sanction measures that are incompatible with the WTO agreements). The plea of necessity makes it possible to respond not to measures, but to exceptional circumstances, to a serious and imminent peril facing the economy of WTO Members. In this regard, we believe that it is possible for the government to legally justify its additional tariffs as, regardless of the blatant inconsistency of the US tariffs, it is no longer a matter of adopting a sanction, but of facing up to a grave and imminent peril.

C. The application of the plea of necessity in trade law

Our argument is that the tariffs applied by the US create circumstances that render necessary for other Members to safeguard their essential interests against a grave and imminent peril.

The question is whether or not general principles and customary rules of public international law apply in the specific field of international economic law[vii]. There is no doubt the plea of necessity finds its place in WTO Law.

One of the four conditions of validity of the plea is that necessity may not be invoked by a State as a ground for precluding wrongfulness of an act if the circumvented international obligation excludes the possibility of invoking necessity.

WTO Law does not exclude the possibility of invoking the plea of necessity. But the only dilemma is to determine whether certain provisions of the WTO Agreements (Article XXI, Safeguards Agreement...) constitute a form of lex specialis that would derogate from the general principle, as these provisions are somewhat in the same spirit: temporarily protecting essential interests against the effects of trade.

On that point, we consider the plea of necessity is different from the national security exception found notably in GATT Article XXI and GATS Article XIV bis. The security exception can be invoked by a trading State if its “essential security interests” are at stake. In WTO Law, it is generally left to every Member to define what it considers to be its essential security interests. But, as the panel in Russia-Traffic in Transit (2019) stated:

The discretion of a Member to designate particular concerns as ‘essential security interests’ is limited by its obligation to interpret and apply Article XXI(b)(iii) in good faith[viii].

Article XXI must not be an instrument to circumvent trade obligations. The Panel in the Russia- Transit case insisted that a Member should re-label trade interests in ‘essential security interests’. As Van den Bossche and Zdouc brilliantly summarize:

(…) the further an ‘emergency in international relations’ is removed from armed conflict or a breakdown of law and order, the greater the specificity required in the articulation of the ‘essential security interests’ at issue[ix].

To use the plea of necessity, a State must satisfy the conditions developed by customary international law and codified in Article 25 of the ILC's draft articles on State responsibility. These conditions are different from those set under Article XXI of the GATT and Article XIV bis of the GATS. So we do not consider that the national security exception constitutes a lex specialis vis-à-vis the excuse of necessity. However the situation remain unclear regarding the Safeguards Agreement.

Concluding Remarks and Communication Tools

The plea of necessity appears to us to be the best legal instrument.

It must be emphasized that pleading necessity should not be seen as a response to the measures taken by the United States, but rather to the situation in which the economy would find itself. It would therefore not be a question of taking reprisals or countermeasures against the United States. Here, the high level of the duties applied and their scope, which are, unprecedented in the history of the GATT/WTO, make it necessary for WTO Members to rescue their economies, which are facing a grave and imminent peril.

Moreover, building the political narrative around necessity is fairly straightforward for citizens and policy-makers to understand. This approach also offers a completely new legal argument that has never been argued in WTO law. This approach seems to offer a sufficiently solid political narrative and legal argument to preserve Member's devotion to a rules-based multilateral trading system.

NB : Joost Pauwelyn has also explored other ideas.

 

[i] This is what the United States did concerning the measures taken by Canada in response to the American tariffs on steel and aluminum in 2018. See Canada - Additional Duties on Certain Products from the United States - Request for the establishment of a panel by the United States WT/DS557/2.

[ii] ILC, p128

[iii] US – Section 301 Trade Act, WT/DS152/R para 7.43See also, US – Countervailing measures on certain EC products, WT/DS212/AB/R para 6.37 and EC – Commercial Vessels, WT/DS301/R para 7.198.

[iv] ILC, p 83

[v] Such questions were raised before a WTO Panel to which it didn’t respond, see US – Section 301 Trade Act, WT/DS152/R para 4.74.

[vi] See for instance, Gabcíkovo-Nagymaros Project (see footnote 27 above), pp. 40– 41, paras. 51–52 ; Fisheries Jurisdiction (Spain v. Canada), Jurisdiction of the Court, Judgment, I.C.J. Reports 1998, p. 432 ; Russian Indemnity case UNRIAA, vol. XI (Sales No. 61.V.4), p. 421, at p. 443 (1912)… For a more detailed list of relevant case law, see ICL page 80 et seq.

[vii] Andimariam. Chapter 10

[viii] Para. 7.132

[ix] Van Den Bossche and Zdouc (2022), p. 678

Collective Economic Security

Collective Economic Security

By Mona Paulsen (LSE Law) and Dan Ciuriak (C.D. Howe (Senior Fellow))

With a flurry of pomp and circumstance, the second Trump administration has reset United States trade with its trading partners. Based on U.S. laws that afford wide Executive discretion towards trade actions owing to concerns of unfairness, security interests, and a declared national emergency in the United States, the new Executive Order rewrites trade relationships owing to a “lack of reciprocity” and “disparate tariff rates and non-tariff barriers.”

For good measure, the new reciprocal tariff plan cautions that should any trading partner “retaliate” in response, they would face punishment in the form of an even higher or expanded scope of tariffs. Conversely, should any partner take “sufficiently” “significant steps to remedy” the alleged lack of reciprocity in their trade arrangements, they would see rewards in lower duties or a narrowed scope of existing duties.

Even though this is a dramatic shift in U.S. trade policy – it is only the beginning. Beyond the announcement of the new U.S. tariff policy remains an unspoken discretionary law that appears to be guiding the new tariff rates, namely a law that accords significant discretion to the President. The tariff rate calculations based on trade deficits with a country and then multiplied by 0.5 were necessary to keep the potential 100 per cent tariff implied by the formula (for trade deficits cannot exceed total imports) to 50 per cent. Without mention, this is the legal limit of Section 338 of Tariff Act of 1930, a never-before-used blunt tool which authorises the President to impose tariffs on duties of up to 50 per cent of the value of products, wholly or in part the growth or product of a foreign country, when the President finds that a foreign country imposes, directly or indirectly, “any unreasonable charge, exaction, regulation, or limitation” on, or discriminates, “directly or indirectly, by law or regulation or practice,” against U.S. commerce. It remains to be seen whether the President will invoke this law in the future. However, with this authority, the President could expand restrictions based on findings of discrimination and assessment of what is in the public interest of the United States.

We argue that it is time for governments to look beyond global economic governance strictly on U.S. terms. This new plan seeks to reset all multilateral trade arrangements on a bilateral, quasi-bartered basis. For most U.S. trading partners that had access to preferential schemes – for example, least developed countries in Africa under the AGOA scheme – such preferential access is now gone. The same is true for countries with bilateral free trade agreements with the United States such as Australia and Korea. For Canada and Mexico, preferential rates remain so long as the products are USMCA-compliant. Even with the carveout for USMCA-compliant products, the fact remains that Canadian and Mexican exports to the United States remain at risk of arbitrary tariffs as long as the state of emergence related to fentanyl drug smuggling remains in force. Moreover, there are consequences from trade diversion as third countries apply retaliatory tariffs on the United States. U.S. goods will seek the path of least resistance, and that will be to Canada and Mexico.  The trade war will come to everyone, one way or the other.

What can governments do? Unite.

Small open economies (SOEs) depend on the rules-based trading system for growth and economic security. They are disproportionately vulnerable to economic coercion, divide-and-conquer tactics, and blocking actions to prevent progress on multilateral issues that the large, quasi-closed economies (LQCEs) may be disinclined to support. Moreover, their size difference means their ability to sanction strategic acts of economic coercion/warfare is limited, leaving them to rely on safeguard measures in response.

In a forthcoming paper, we propose that a small open economy caucus (SOEC) be formed within the World Trade Organization (WTO). In that paper, we will explain how the SOEC would preserve WTO rules for their mutual interactions (including acceptance of the alternative appellate system) and would move forward on developing a rules-based approach to harmonise regulatory and administrative approaches to addressing economic security.

But, as a first order of business, once convened, the SOEC must immediately address the reset caused by the United States. The disproportionate, arbitrary actions taken by the United States violate the most fundamental WTO commitment to offer trading partners “most favoured nation” (MFN) treatment, a rule which limits harmful trade diversion. 

In simple terms, the United States wants governments to negotiate separately to strike deals in which it always has the upper hand.  But in fact, WTO membership binds all economies together. Should the United States wish to renegotiate its tariffs, it can do so under WTO rules that provide for a mutual reduction in the value of trade concessions. Under Article XXVIII of the General Agreement on Tariffs and Trade 1994 (GATT), a Member seeking to withdraw tariff concessions must consult with any other Member with a “substantial interest” in such a concession. While it is true that failure to come to agreement in negotiation does not bar a Member from withdrawing concessions, our point is that collective response is inherently a core part of the multilateral trading system. All changes to tariff schedules require a certification procedure that encourages Members to come together to deliberate upon (and voice opposition to) modifications as impacting the overall balance of concessions. Under the WTO scheme, all Members with an interest in such renegotiation have the opportunity to participate because all Members have committed to share in the creation of ‘reciprocal and mutually advantageous arrangements’ – which means that a negotiation with one is a negotiation with all.  This understanding is built into the WTO arrangements to which the United States agreed. And this feature must be safeguarded to preserve the predictability and security of the multilateral trading system.

A corollary of this is that an attack on one is in reality an attack on all. Already, the highly differentiated tariffs imposed unilaterally by the United States imply a significant amount of trade diversion towards the source countries that face only 10% tariffs in the United States. At the same time, a differentiated response internationally to the U.S. tariffs means a significant amount of deflection of U.S. exports towards non-retaliating economies, which could force them in turn to put up safeguards to avoid having their domestic economies flooded by U.S. exports, which as noted will be searching for the path of least resistance.  No economy is isolated – firms have developed complex production networks that cross geographical and digital divides. Members must proceed to coordinate and consider collective economic development objectives in this light.

In short, we argue that, in the interest of preserving the multilateral trading system, a collective response to the U.S. reciprocal tariff is essential and, moreover, consistent with the spirit of the single undertaking that formed the WTO. The SOEC could immediately convene to cooperate on collective action – first as between themselves to address the United States’ actions and then a united front to consult with the United States thereafter. A coordinated response would represent a deviation from MFN, but such a deviation is necessary to limit the damage to global trade – the ambition of the caucus would be to open trade and to act collectively to contribute to a balanced, equitable, and expanding world economy. Should any Member seek to meet this commitment, they would be welcome to join. The SOEC would be breaking MFN to preserve it in the future.

A Few Answers To My Questions about Trump's Reciprocal Tariffs

Last week, I asked a lot of questions related to what we might expect from Trump's "reciprocal tariffs." Now we have a few answers in the Executive Order and a fact sheet from yesterday. Let's go through them.

Which statutes will they use as the basis for the tariffs? Clark Packard and Scott Lincicome of Cato describe the main possibilities here: IEEPA, Section 232, Section 301, Section 338, and Section 122.

They went with IEEPA for these tariffs, but I will note that I heard a lot of talk about Sections 338 and 122 as possibilities here. If the IEEPA tariffs are challenged successfully in court, the administration has these other statutes to fall back on.

When exactly will the tariffs be imposed? IEEPA tariffs can come pretty quickly, while tariffs under certain other statutes could require a longer process (although some tariffs might be imposed under already completed processes). To what extent will the April 2 announcement be used as the basis for a negotiation rather than the immediate imposition of tariffs?

In terms of the timing, this is from the White House fact sheet:

• Using his IEEPA authority, President Trump will impose a 10% tariff on all countries.
  • This will take effect April 5, 2025 at 12:01 a.m. EDT.
• President Trump will impose an individualized reciprocal higher tariff on the countries with which the United States has the largest trade deficits. All other countries will continue to be subject to the original 10% tariff baseline.
  • This will take effect April 9, 2025 at 12:01 a.m. EDT.

The tariffs will happen pretty quickly, and if there's going to be a negotiation, it had better start soon.

What methodology will they use for the calculation of a reciprocal tariff rate to be applied to each trading partner? Coming up with a credible methodology is going to be a big challenge.

See USTR's explanation here for how they got to their tariff numbers. As I said in the question, "[c]oming up with a credible methodology is going to be a big challenge." If what they were trying to do was make U.S. tariffs/non-tariff barriers "reciprocal" with those of foreign countries, I don't think they've achieved that. They describe their approach as a "proxy" methodology, and they never actually carry out a comparison of U.S. tariffs/non-tariff barriers with individual foreign country tariffs/non-tariff barriers to see if there is reciprocity. Maybe if this goes to court they can put together an additional analysis to present, but what they have now seems insufficient.

Will the reciprocal tariffs include a sectoral component? It seems clear that tariffs are coming on autos and various other sectors, but is that part of the reciprocal tariff package, or will it be separate?

I think this is a clear no, with carveouts for specific sectors from these "reciprocal" tariffs, although I've seen some people raise interpretive questions about this part of the EO.

Which countries will be hit the hardest? Treasury Secretary Scott Bessent recently referred to the "Dirty 15," meaning the countries that have the highest tariffs/barriers and large trade imbalances with the U.S.

You can see the EO Annex I list of countries hit with tariffs above 10% here. At the top are Lesotho at 50%, Cambodia at 49%, Laos at 48%, Madagascar at 47%, Vietnam at 46%, and Myanmar at 45%. Not exactly what I was expecting.

Which governments will retaliate and in what amounts? The reaction by other governments will depend on their domestic politics as well as their strategizing about how to get to the best outcome. Will any of the retaliation go beyond tariffs, and do creative things such as weakening intellectual property protections? And will products/services from Elon Musk and other Trump allies be targeted?

The retaliation questions are still open. It's worth noting here that the Trump administration is warning against retaliation:

Sec. 4.  Modification Authority.  ...

(b)  Should any trading partner retaliate against the United States in response to this action through import duties on U.S. exports or other measures, I may further modify the HTSUS to increase or expand in scope the duties imposed under this order to ensure the efficacy of this action. 

But no doubt there's going to be some retaliation. Further U.S. escalation in response to any retaliation could make the economic impact of all this much worse.

Will any countries make concessions in the hopes of being subject to lower U.S. tariffs? If so, how meaningful will these concessions be in terms of actual value to U.S. companies? Will they be designed to look meaningful without actually doing much, or will there be real opportunities for U.S. exporters? 

Some countries may try to offer something up, and the Trump administration seems open to it:

Sec. 4.  Modification Authority.  ...

(c)  Should any trading partner take significant steps to remedy non-reciprocal trade arrangements and align sufficiently with the United States on economic and national security matters, I may further modify the HTSUS to decrease or limit in scope the duties imposed under this order.

Will these concessions be carried out through formal trade deals? If so, what will these deals look like? Will there be an enforcement mechanism? 

Seems possible, but who knows.

Will the reciprocal tariffs get tied in with non-trade issues such as security? For example, will foreign defense spending be brought into the mix? Of course, part of the foreign defense spending issue is trade related, as a lot of foreign defense spending involves buying from U.S. companies. Thus, foreign defense spending could either be brought in as a concession (through buying more U.S. products) or retaliation (through buying less). Also on defense spending, will the U.S. authorize the sale of military technology that it had not previously allowed, as part of broader deals with specific countries? And will certain countries shift away from reliance on U.S. military equipment, due to concerns about the direction of U.S. foreign and trade policy? 

The administration does mention alignment on "national security" in the EO, so security definitely seems tied in here.

Will there be lawsuits in U.S. courts against the reciprocal tariffs? If the calculation methodology looks arbitrary, that could be an important part of any legal challenge.

Lawsuits seems inevitable. As set out in the EO, the Trump administration's claim of a "national emergency" was based on the following:

Large and persistent annual U.S. goods trade deficits have led to the hollowing out of our manufacturing base; inhibited our ability to scale advanced domestic manufacturing capacity; undermined critical supply chains; and rendered our defense-industrial base dependent on foreign adversaries.  Large and persistent annual U.S. goods trade deficits are caused in substantial part by a lack of reciprocity in our bilateral trade relationships.  This situation is evidenced by disparate tariff rates and non-tariff barriers that make it harder for U.S. manufacturers to sell their products in foreign markets.  It is also evidenced by the economic policies of key U.S. trading partners insofar as they suppress domestic wages and consumption, and thereby demand for U.S. exports, while artificially increasing the competitiveness of their goods in global markets.  These conditions have given rise to the national emergency that this order is intended to abate and resolve.

I'm no IEEPA law expert, but I see plenty of arguments people can try here. For one thing, the view that a goods trade deficit constitutes a "national emergency" is a pretty big stretch. And even if it were an emergency, tariffs as the response don't make much sense. To address the overall deficit, you would want to focus on macroeconomic issues such as savings rates or currency levels, and while those are mentioned in the EO, they aren't addressed in a way that could deal with the trade deficit. And if you are worried about trade in manufactured goods in particular, as the administration seems to be, there are plenty of better ways to shift your economy away from services or agriculture or energy and towards manufacturing. It's also worth noting that the fact sheet says "annual U.S. goods trade deficits have led to the hollowing out of our manufacturing base," but there's pretty clearly no cause and effect here. And finally, taking an approach that tries to address trade deficits on a bilateral basis is extremely misguided.

Will the targeted countries file WTO/FTA complaints? Of course, the U.S. can appeal any adverse WTO panel report into the void, but governments may see value in bringing a WTO case for various reasons. And some of the affected countries have FTAs with the U.S., so they have that as an alternative as well.

You would think the answer will be yes, with lots and lots of complaints coming. But we'll see how governments decide to approach this.

Will affected countries step up their efforts to negotiate deeper trade deals with each other?

Possibly, although they may be a bit distracted by having to deal with the U.S. tariffs in the short term.

How will the stock market react? And what will be the broader impact on the U.S. economy? And how will Trump react to the stock market reaction and to the impact on the economy? It feels like the Trump administration has been testing the waters with its tariffs, seeing how the market and the economy react to its initial moves. My best guess is there are limits to what the administration can tolerate in terms of a negative economic reaction, and if things get too bad they may pull back a bit, but we'll see.

The stock market impact could be pretty bad. On the plus side, if you've been waiting for a market dip to get in, this may be your chance! With regard to Trump's reaction, is there some point at which he rethinks these tariffs? I suggested it could happen, but I'm not all that certain about it.

----------------------------------------------------------

There's one other thing I want to address. The EO says:

The post-war international economic system was based upon three incorrect assumptions:  first, that if the United States led the world in liberalizing tariff and non-tariff barriers the rest of the world would follow; second, that such liberalization would ultimately result in more economic convergence and increased domestic consumption among U.S. trading partners converging towards the share in the United States; and third, that as a result, the United States would not accrue large and persistent goods trade deficits. 

I have three points here:

• The Trump administration has not presented evidence that the U.S. leads the world in liberalizing tariff and non-tariff barriers. The U.S. has lots of these barriers, and I'm not sure where it would come out in a serious comparison with other developed countries.
• I'm not sure anyone expected "increased domestic consumption among U.S. trading partners converging towards the share in the United States," and in fact I think many people see U.S. consumption as higher than it probably should be.
• As to any assumptions about the U.S. and goods trade deficits, I think this result was driven in significant part by U.S. policies, which could be adjusted by the U.S. but have not been.

On the point about consumption, the EO also says:

... non-tariff barriers include the domestic economic policies and practices of our trading partners, including currency practices and value-added taxes, and their associated market distortions, that suppress domestic consumption and boost exports to the United States.  This lack of reciprocity is apparent in the fact that the share of consumption to Gross Domestic Product (GDP) in the United States is about 68 percent, but it is much lower in others like Ireland (27 percent), Singapore (31 percent), China (39 percent), South Korea (49 percent), and Germany (50 percent).

I hear complaints from various people about differentials in savings rates across countries, but it's hard to understand their point. The U.S. is always on the high end, yet somehow the people arguing this issue seem to take the view that the U.S. is the normal one and others are "cheating" somehow. It is not clear to me how they come to this conclusion.

Call for Papers: Law and Economic Development

This is from the ASIL International Economic Law interest group:

The University of Hawai'i at Mānoa, William S. Richardson School of Law and the Law and Development Institute are co-hosting a conference in December 2025 in Honolulu, Hawai'i. The conference theme is "Law and Economic Development," and the call for papers is available here. Abstract submissions are due May 1, 2025. 

Guest Post: How to retaliate against looming Trump tariffs

This is a guest post from Simon Schropp (BRG and George Washington University) and Kornel Mahlstein (Sidley Austin LLP)

Eight weeks into the Trump Administration it appears that the “Trump tariffs” on America’s closest allies are not mere posture.  Treasury Secretary Scott Bessent announced on March 18 that the Trump Administration plans to slap extra tariffs on goods imported from about 15 percent of nations with which the United States has run a persistent trade deficit—a group with the catchy moniker “Dirty 15”.  These discriminatory tariffs, billed as “Reciprocal tariffs” by the White House, are expected to come into force on April 2.  While the Trump Administration has not officially released a list of the Dirty 15 yet, political insiders have indicated that it will most certainly include the European Union (EU), next to Australia, Brazil, Canada, China, India, Japan, South Korea, Mexico, Russia, and Vietnam.

The EU appears inclined to retaliate against the looming imposition of the Trump tariffs against its exports, most likely by invoking its new Anti Coercion Instrument.[1]  Practical questions for the EU Commission will then include the following:  (i) what is the most appropriate (set of) countermeasure(s)?; (ii) how should countermeasure(s) be calibrated?; and, (iii) which U.S. imports should be targeted?

If past is prologue, the EU will engage in “tit-for-tat” punishment, i.e., reciprocate with additional tariffs on U.S. goods imports.  One does not have to be an economist to comprehend that blanket retaliation covering all imported U.S. products and sectors is not productive:  There are U.S. imports that the EU desperately needs, and an imposition of additional tariffs may cause more economic self-harm than it causes pain to the United States.  It would thus behoove the EU to devise retaliatory action such that it inflicts the highest pain on the U.S. economy, while at the same time causing the least self-harm to EU welfare.

We apply a sector-by-sector partial equilibrium model co-developed by the authors.[2] The model covers roughly 5,300 sectors (product groups), categorized along the six-digit level of the Harmonized System (HS).  It allows us to simulate, among others, welfare gains and losses experienced by both the U.S. and the EU economies resulting from retaliatory EU tariffs on U.S. imports.  Lacking further detail, we assume that the EU would impose an even 25 percent tariff on U.S. products in all selected sectors.

Three tables below present a sample of our results.  Table 1 contains a list of the 25 sectors in which retaliatory EU tariffs would inflict the highest welfare losses on the United States. Table 2 provides the top-25 ranking of sectors in which EU tariff retaliation would generate the highest welfare gains for the EU through improvement of the EU’s terms of trade (TOT).[3]  And, combining the results of the first two tables, Table 3 presents the top-25 sectors in which the balance of pain inflicted on the U.S. economy and self-harm to the EU is particularly favorable (calculated here as the maximum distance between EU gains and U.S. losses). 

Table 1: Sectors in which EU tariff retaliation generates highest welfare losses to U.S

Sources: UN WITS (latest available bilateral trade-flow data).
Notes: EU tariffs of 25% are assumed; welfare gains/losses are measured as the sum of terms-of-trade gains/losses, efficiency losses from inefficiently low import/export levels, and losses from inefficient resource allocation; for more information on model methodology, see Latipov et al. (2022; 2023).

 

Table 2: Sectors in which EU tariff retaliation generates the highest welfare gains to EU

Sources: UN WITS (latest available bilateral trade-flow data).
Notes: See notes accompanying Table 1.

 

Table 3: Sectors in which the balance of harm to the U.S. economy and self-harm to the EU economy is most favorable

Sources: UN WITS (latest available bilateral trade-flow data).  
Notes: see accompanying notes to Table 1 and 2; “maximum distance” is calculated as the sum of welfare gains to the EU and welfare losses to the United States (in absolute terms).

 

While our cut-off point of 25 product groups is arbitrary, the tables illustrate the considerable potential that smart retaliation in only a few selected industries could unleash:  For example, Table 1 shows that with retaliation in only 25 selected sectors (that, together, are responsible for roughly 46 percent of all U.S. imports), the EU could cause 54 percent of all achievable U.S. welfare losses, while at the same time securing 62 percent of achievable terms-of-trade gains. 

We appreciate that many factors other than Union-wide welfare—such as strategic, political, environmental, or public-health considerations—play into the Commission’s decision whether and how to retaliate in a particular sector or the other.  Our objective here was simply to highlight one economic perspective on tariff retaliation.

The analysis presented above can easily be extended.  For example, one may be interested in lists featuring the bottom-50 industries, i.e., those sectors in which the EU should avoid any retaliation, simply because higher EU retaliation would cause no, or negligible, economic harm to the United States, and/or distressing levels of economic self-harm to the EU.  One could also imagine that the EU would also want to take into consideration tariff pass-through rates (see column (2)) so as to avoid situations in which EU consumers bear an outsized burden of the tariff incidence that retaliation would entail.  Moreover, instead of focusing on welfare measured in absolute dollar/euro values, one may equally consider optimizing percentage changes in welfare (see columns (7) and (9)).  Next, we assumed that the EU levies a 25 percent import tariff on every sector selected for retaliation.  An interesting modeling scenario is one in which the EU imposes “optimal” tariffs, i.e., tariff levels that maximize the EU’s terms-of-trade gains, individually for every selected sector.  Lastly, the same sector-by-sector analysis performed here from the perspective of the EU can now also be executed for any other country on the “Dirty 15” list.

 

[1] The ACI gives the EU a wide range of possible countermeasures against countries engaging in economic coercion, the imposition of additional tariffs being only one of the options.

[2] See Latipov, O.; C. Lau; K. Mahlstein; S. Schropp (2022); “The economic effects of potential EU tariff sanctions on Russia – a sectoral approach”, Intereconomics, Vol. 57(5) pp., 294-305; and Latipov, O.; C. Lau; K. Mahlstein; S. Schropp (2023); “Quantifying the Impact of the Latest US Tariff Sanctions on Russia: A Sectoral Analysis”, Journal of World Trade Vol. 57(1): 55–124.

[3] In some sectors, the EU as importer has a degree of market power vis-à-vis the United States, forcing U.S. exporters to absorb a share of the EU’s tariff incidence by lowering export prices.  This improves the EU’s TOT (i.e., the relative price at which the two economies exchange goods and services), and it does so to the same degree that it worsens the U.S. TOT – constituting a pure net wealth transfer from the United States to the EU.

 

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The opinions expressed in this blog post are those of the author and do not represent the opinions of BRG or Sidley Austin LLP or its other employees and affiliates. The information provided is not intended to and does not render legal, accounting, tax, or other professional advice or services, and no client relationship is established with BRG or Sidley Austin LLP by making any information available in this publication, or from you transmitting an email or other message to us. None of the information contained herein should be used as a substitute for consultation with competent advisors.

The U.S. Argument that GATT Article XX Applies to Non-GATT Goods Agreements (Including the SCM Agreement)

In its first written submission in the U.S. - IRA Tax Credits WTO dispute (DS623), the U.S. makes a number of arguments people might find interesting. First, there's a new invocation of the GATT Article XXI security exception related to the exclusion under the Internal Revenue Code (IRC) Section 30D Clean Vehicle Tax Credit of participation by a "foreign entity of concern" (FEOC) in the supply chain. There's also a GATT Article XX(a) argument that "China’s non-market policies and practices resulting in China’s global dominance of the clean vehicle and renewable energy sectors violate the U.S. public morals against unfair competition, forced labor, theft, and coercion."

But I'm going to focus here on the following U.S. argument related to the application of GATT exceptions to non-GATT goods agreements, with the TRIMS and SCM Agreements being the non-GATT goods agreements at issue:

136. China raises claims under Articles I and III of the GATT 1994, Articles 2.1 and 2.2 of the TRIMs Agreement, and Articles 3.1(b) and 3.2 of the SCM Agreement. It is—or should be—self-evident that WTO Members continue to have the authority under the WTO to take essential security measures and measures under the general exceptions for public policy reasons, such as protecting public morals, protecting life or health, countering use of prison labor, or conserving natural resources – just as they did under the GATT. Because some litigants for obvious reasons have recently controverted this commonsense conclusion,212 for the avoidance of any doubt, the United States sets out the legal and textual basis for the applicability of the essential security and general exceptions to the TRIMs Agreement and SCM Agreement.

137. As discussed in detail in Section VI.A., the ability to invoke exceptions under Articles XX and XXI of the GATT 1994 for claims under the TRIMs and SCM Agreements is clear. The ordinary meaning of the terms of the TRIMs and SCM Agreements—including their numerous explicit textual links to the GATT 1994—establish that exceptions under Articles XX and XXI of the GATT 1994 are available as defenses to TRIMs and SCM Agreement claims.

The U.S. argument that Article XXI applies beyond the GATT did not surprise me, but I hadn't been sure they would also take this view of Article XX. I have been wondering for a while now about USTR's view of the application of Article XX to non-GATT goods agreements, in part with environmental subsidy issues in mind. At one point I said the following in the context of the U.S. arguments in a previous dispute:

... the broader issue of GATT exceptions for non-GATT goods agreements seems of great importance for the likely upcoming debates about how subsidies for environmental purposes are considered under WTO rules. Ideally, governments would sit down and hash out clear rules in this area. Perhaps more realistically, though, the existing rules will have to be applied, and disputes will arise over whether particular measures are consistent with those rules. I can imagine that Article XX will be invoked as a defense in this context, based on the argument that it applies beyond the GATT, and then we will see the issue debated directly.

Well, it looks like now we are going to see it debated!

The U.S. argument that Article XX can be invoked in relation to claims under the SCM Agreement starts on p. 47 of the submission. Here are some key excerpts:

A. THE ORDINARY MEANING OF THE TERMS OF THE TRIMS AND SCM AGREEMENTS ESTABLISH THAT DEFENSES UNDER ARTICLE XX AND XXI OF THE GATT 1994 APPLY TO CLAIMS UNDER THOSE AGREEMENTS

...

2. The SCM Agreement Contains Multiple Provisions of Text Linking the SCM Agreement with the GATT 1994 and the Articles XX and XXI Exceptions

147. The SCM Agreement also includes numerous references to the GATT 1994, thus also establishing that Articles XX and XXI of the GATT 1994 are available as defenses to claims under the SCM Agreement. Perhaps most notably, in Part XI of the SCM Agreement concerning final provisions, Article 32.1 states, “No specific action against a subsidy of another Member can be taken except in accordance with the provisions of GATT 1994, as interpreted by this Agreement”. The Article is accompanied by footnote 56, which states, “This paragraph is not intended to preclude action under other relevant provisions of GATT 1994, where appropriate.”

148. Article 32.1 is an explicit textual link with the GATT exceptions in the SCM Agreement. Specifically, Article 32.1 of the SCM Agreement provides that no action against a subsidy can be taken “except in accordance with the provisions of GATT 1994, as interpreted by this Agreement.” Action taken under Article XX or XXI of the GATT 1994 is “in accordance with the provisions of GATT 1994”, and therefore, is taken pursuant to Article 32.1 of the SCM Agreement. Although Article 32.1 also contains the phrase, “as interpreted by this Agreement,” footnote 56 confirms that the paragraph is not intended to preclude action under other relevant provisions of the GATT 1994 (emphasis added). Therefore, Article 32.1 and footnote 56, read in conjunction, confirm that where an article is not interpreted by the SCM Agreement, the authority to take action under GATT provisions remain unchanged.

...

151. In addition to Article 32.1, the SCM Agreement contains 24 other references to the GATT 1994. These 24 references include numerous statements that SCM Agreement terms should be understood “in the sense of”, “in accordance with”, “as provided for”, “within the meaning of”, or “for the purposes” of GATT 1994 Articles VI and XVI.

...

B. THE STRUCTURE OF THE WTO AGREEMENT AND THE CONTEXT IT PROVIDES ALSO ESTABLISHES THAT THE GENERAL EXCEPTIONS AND THE ESSENTIAL SECURITY EXCEPTION APPLY TO THE MULTILATERAL AGREEMENTS ON TRADE IN GOODS, INCLUDING THE TRIMS AND SCM AGREEMENTS

164. The structure of the WTO Agreement and the context it provides also establish that Articles XX and XXI(b) are defenses to claims under the SCM Agreement. The Marrakesh Agreement is an umbrella, establishing among other things that all of the agreements in its annexes are a single undertaking.216 The core multilateral substantive obligations are contained in Annex 1. In particular, Annex 1A consists of the Multilateral Agreements on Trade in Goods (including the TRIMs and SCM Agreements), Annex 1B consists of the General Agreement on Trade in Services (GATS), and Annex 1C consists of the Agreement on Trade Related Aspects of International Property Rights (TRIPS Agreement).

...

171. Within Annex 1A, the Multilateral Agreements on Trade in Goods, the first agreement listed is the GATT 1994. The GATT 1994 is a successor to the GATT 1947. The GATT 1947, and the slightly modified GATT 1994, contain the public morals and essential security exceptions in their respective equivalent of Articles XX and XXI. The remaining agreements in Annex 1A (including the TRIMs and SCM Agreements) are the product of negotiations in the Uruguay Round, undertaken with the purpose of elaborating upon the disciplines in the GATT 1994 and related matters involving trade in goods.

172. Two possibilities arise from this structure. The first, which the United States submits is the proper interpretation, is that the negotiators understood that the GATT 1947/1994 public morals and essential security exceptions apply to the new agreements on trade in goods contained in Annex 1A. The other possibility is that for some reason, the negotiators believed that those exceptions applied to the fundamental disciplines in the GATT 1994, but not to the elaborations upon those disciplines as set out in the other trade-in-goods agreements. This second interpretation is untenable. 

I have the sense that I'm one of the few people in the field who thinks Article XX should apply beyond the GATT, including to the SCM Agreement. As I put it a while back: "I have been making a lonely case that GATT Article XX should apply to non-GATT goods agreements, based on the logic that the non-GATT goods agreements are all derived from some part of the GATT, so it makes sense that the GATT exceptions should apply. But no one seems convinced." It sounds like USTR agrees with me, at least to some extent, although I do wonder if they would apply their reasoning to all non-GATT goods agreements, including even claims under the SPS and TBT Agreements (their argument in Section VI.B of their submission, partially quoted above, suggests they would, but I see some room for maneuver here if they wanted to take a different position).

The U.S. submission mentions the negotiators, and I'm curious about the negotiating history on this point. I've never come across any discussion of the issue in the Uruguay Round negotiating documents that I've seen. It would be nice if someone were able to dig something up, and in that regard it will be interesting to see what other governments have to say in their third party submissions.

Passing of Steve Charnovitz

I was saddened to hear of the passing this week of the great trade law scholar Steve Charnovitz, a professor at GW law school. The full list of his scholarly works can be found at his personal website. Steve was also one of the founding bloggers here at the IELP blog, and contributed 87 posts over the years. 

In all of his work, Steve was provocative and insightful. I can recall an event at the Cato Institute a few years ago where we all agreed afterwards that he had been the star of the show.

More personally, he was a strong supporter of all my professional efforts over the years, and I owe him a great deal for all the help he provided. I am confident that he did the same for many others as well.

He will be missed by everyone in the trade law and policy community.

Questions about Trump's Reciprocal Tariffs

President Trump and his trade team have been pointing to April 2 as the big day for his reciprocal tariffs. At this point, I have lots of questions, but few answers, about what to expect from all this. Here are some of my questions:

- Which statutes will they use as the basis for the tariffs? Clark Packard and Scott Lincicome of Cato describe the main possibilities here: IEEPA, Section 232, Section 301, Section 338, and Section 122.

- When exactly will the tariffs be imposed? IEEPA tariffs can come pretty quickly, while tariffs under certain other statutes could require a longer process (although some tariffs might be imposed under already completed processes). To what extent will the April 2 announcement be used as the basis for a negotiation rather than the immediate imposition of tariffs?

- What methodology will they use for the calculation of a reciprocal tariff rate to be applied to each trading partner? Coming up with a credible methodology is going to be a big challenge.

- Will the reciprocal tariffs include a sectoral component? It seems clear that tariffs are coming on autos and various other sectors, but is that part of the reciprocal tariff package, or will it be separate?

- Which countries will be hit the hardest? Treasury Secretary Scott Bessent recently referred to the "Dirty 15," meaning the countries that have the highest tariffs/barriers and large trade imbalances with the U.S.

- Which governments will retaliate and in what amounts? The reaction by other governments will depend on their domestic politics as well as their strategizing about how to get to the best outcome. Will any of the retaliation go beyond tariffs, and do creative things such as weakening intellectual property protections? And will products/services from Elon Musk and other Trump allies be targeted?

- Will any countries make concessions in the hopes of being subject to lower U.S. tariffs? If so, how meaningful will these concessions be in terms of actual value to U.S. companies? Will they be designed to look meaningful without actually doing much, or will there be real opportunities for U.S. exporters? 

- Will these concessions be carried out through formal trade deals? If so, what will these deals look like? Will there be an enforcement mechanism? 

- Will the reciprocal tariffs get tied in with non-trade issues such as security? For example, will foreign defense spending be brought into the mix? Of course, part of the foreign defense spending issue is trade related, as a lot of foreign defense spending involves buying from U.S. companies. Thus, foreign defense spending could either be brought in as a concession (through buying more U.S. products) or retaliation (through buying less). Also on defense spending, will the U.S. authorize the sale of military technology that it had not previously allowed, as part of broader deals with specific countries? And will certain countries shift away from reliance on U.S. military equipment, due to concerns about the direction of U.S. foreign and trade policy? 

- Will there be lawsuits in U.S. courts against the reciprocal tariffs? If the calculation methodology looks arbitrary, that could be an important part of any legal challenge.

- Will the targeted countries file WTO/FTA complaints? Of course, the U.S. can appeal any adverse WTO panel report into the void, but governments may see value in bringing a WTO case for various reasons. And some of the affected countries have FTAs with the U.S., so they have that as an alternative as well.

- Will affected countries step up their efforts to negotiate deeper trade deals with each other?

- How will the stock market react? And what will be the broader impact on the U.S. economy? And how will Trump react to the stock market reaction and to the impact on the economy? It feels like the Trump administration has been testing the waters with its tariffs, seeing how the market and the economy react to its initial moves. My best guess is there are limits to what the administration can tolerate in terms of a negative economic reaction, and if things get too bad they may pull back a bit, but we'll see.

WTO Dispute Settlement and Certainty

At the always excellent Georgetown Law International Trade Update last week, there was a "Fireside Chat" between Demetrios Marantis (former Deputy U.S. Trade Rep. and acting U.S. Trade Rep.) and Biden administration Ambassador to the WTO Maria Pagan. They covered a lot of ground, and on WTO dispute settlement, after an initial question and answer, there was this exchange about "certainty" in dispute settlement:

Demetrios Marantis: Maria, ... [d]oes that mean that WTO dispute settlement is essentially dead?

Maria Pagan:  Well, no, I mean, there are disputes that are going on. And one of the things that we have said is, you can have one tier dispute settlement that gives you, that should be able to give members what they need. I hear "you really want certainty." Well, you can have certainty with one tier. Why do you need an appellate body? What's so magical about this?

Certainty can mean a number of different things in this context. One thing it might mean is that you get a final ruling in your dispute as to whether the measure at issue is consistent with the obligations, and it's true that you can get that with a one tier panel system or with a two tier system involving an appellate body (or even a three tier system with something like a Supreme Court of World Trade). That ruling tells you which side wins and which side loses the case.

But another thing certainty could mean is that the clarifications of WTO provisions called for by DSU Article 3.2 provide a clear understanding of the meaning of WTO rules, so that governments understand the obligations/exceptions and how they apply to any measures or actions they might take going forward. Like most things, certainty is a matter of degree, and I think two tiers gives you a lot more of this type of certainty than one tier does.

To illustrate this, let's look at the core principle of non-discrimination. In very general terms with regard to determining the existence of discrimination, some people want to look at effect, some at intent, some at both, and some at other things that can be hard to characterize. Because of this diversity of views, when you have multiple first tier panels looking at this issue, you are inevitably going to end up with conflicting rulings. When that happens, there is a great deal of uncertainty. If one panel says "aim and effect" while another panel says "no aim and effect," what exactly is the obligation and how do you comply with it?

A second tier appeal mechanism can help address this problem, especially if it has institutional elements rather than being an ad hoc mechanism. A single interpretation from one appellate body, rather than multiple competing interpretations from individual panels, provides more certainty.

An appeals mechanism is not going to be perfect in this regard, of course, and the Appellate Body shifted back and forth a bit on its interpretations of non-discrimination over time. But it is better than a situation where you are trying to argue a case, and there are three prior panels saying three different things, and as a result everyone has trouble articulating what the obligation is.

Politicized AD/CVD vs. Neutral WTO Adjudication As a Way To Address Unfair/Non-Market/Protectionist Practices

In this post, I'm going to talk about an assumption that I think is held by many people (in the U.S. and elsewhere): AD/CVDs are a good way to respond to unfair/non-market/protectionist practices in other countries. I'm going to call that assumption into question and suggest that WTO complaints would be a better approach (and yes, to state the obvious, restoring a functioning WTO dispute settlement system is a condition for making this work!).

To start with, let me ask this basic question: What is the purpose of AD/CVDs? I think most supporters of trade remedies would say the primary goal is to "level the playing field" by imposing tariffs on imports. The duties are thought to neutralize the impact of the unfair foreign government/company behavior by taking away the advantage provided by that unfair behavior in the domestic market.

In addition to this primary goal, another possible goal of AD/CVDs is to change foreign government policies. This goal is most obviously present with CVDs, as they counter foreign government subsidies. And it is even possible that it exists in relation to dumping too, if you assume that foreign governments' unfair/non-market/protectionist practices are a cause of dumping, which has been suggested at times. Thus, by imposing a penalty on the unfairly traded goods, AD/CVD supporters may hope to induce policy changes in the foreign country, with the unfair/non-market/protectionist practices removed or modified.

To what extent are people thinking about this second goal when they use AD/CVDs? Is this an important consideration, an afterthought, or something rarely envisioned? I'm not sure, and it probably varies by person. But people should be thinking about it, because a situation in which the unfair/non-market/protectionist practices and the AD/CVDs both continue indefinitely does not seem ideal, so it makes sense to consider what is the best approach to eliminating the practices. 

Turning to the main point of this post, in my view, a problem with AD/CVDs is that they don't do much to stop these practices. AD/CVDs are unilateral determinations that are often seen as protectionist and biased, and therefore they do not, generally speaking, induce any change in policy relating to the underlying subsidies or other practices.

For those who may be skeptical that these measures are perceived in the targeted countries as biased, here is some evidence from a discussion at a recent House Ways and Means trade subcommittee hearing. This was a question from Rep. Adrian Smith (R-NE) for Ambassador Gregg Doud (who is now President and CEO of the National Milk Producers Federation) about some CVDs being imposed on U.S. milk powder by Colombia (starts at about 56:50 of the video):

I'm glad to say that I led a letter last year regarding Colombia's countervailing duty investigation into U.S. milk powder exports. Unfortunately, as you know, the Colombians moved ahead by imposing preliminary tariffs with an announcement on the final ruling expected soon. I'm concerned that Colombia's use of politically motivated countervailing duty investigations across commodities, including dairy and ethanol, will actually have copycat effects in other markets. Ambassador Doud, what actions do you think we should take to push back and certainly send a message that would prevent other markets from trying to make similar moves that again undermine the entire process?

Here is Doud's reply:

Mr. Chairman, we share your concerns and we haven't heard yet what's coming out of Colombia. Completely agree with you that this is 100% political, driving a domestic situation down there in Colombia. We just have to see what they're going to decide to do and whether common sense will prevail in this kind of conversation. But for goodness sakes, we have a free trade agreement with Colombia. This is a situation from an enforcement perspective, I think the US government has been very aggressive, but I think we need to continue to be very aggressive with our trading partners throughout the Western Hemisphere here to help folks understand that you don't solve domestic political issues on the backs of U.S. ag. exports, and that's exactly what's going on.

The point I think people should take from this is that the perception in the U.S. that Colombia's countervailing duty investigation is "political" is exactly the perception that people in other countries have about U.S. AD/CVDs. And as a result of this perception, you don't often see U.S. AD/CVDs changing foreign government policies and practices abroad. 

In contrast to the limitations of AD/CVDs, consider the possibility of a WTO complaint against these policies and practices. In this regard, the SCM Agreement adverse effects provisions have the potential to be more effective than CVDs in addressing subsidies, in several ways:

• Multiple Members can bring the complaint simultaneously, allowing them to pool their resources in formulating the case, and to address the harms of the subsidies to different Members in a coordinated effort.
• Adverse effects cases can look broadly at the impact of the subsidies on competition in third country markets.
• These cases allow for a broader set of remedies than just tariffs on imports.
• AD/CVD cases involve significant legal fees for affected companies (a recent Economist article notes: "Brad Muller of Charlotte Pipe and Foundry, a pipe maker, reckons that his firm and its peers have spent more than $6m over the past few years on antidumping cases and petitions over the evasion of duties.")
• WTO complaints involve neutral adjudication, resulting in a decision that will be perceived as more objective and unbiased.

With regard to dumping, if one of the theories about the causes of dumping is that unfair/non-market/protectionist practices lead to dumping, then those practices can be challenged in WTO dispute settlement. Thus, instead of focusing on anti-dumping complaints, the affected industries could identify the practices in question and convince their government to bring a WTO complaint.

Summing all this up, there is a common assumption in political circles that AD/CVDs are the tough and effective way of addressing unfair/non-market/protectionist practices. In my view, it's worth taking another look at this assumption, thinking about why that may not always be the case, and considering the alternative of WTO disputes to better address the underlying issues.

The USMCA Review (If the USMCA Survives!) Needs To Address the National Security Loophole

I don't know if the USMCA is going to survive all the U.S. tariffs on Canada and Mexico, along with the Canadian and Mexican retaliation. Will the agreement make it to the USMCA review next year? We'll see.

If we do make it though, I see a big problem in the form of the national security exception. Canada and Mexico were among the first targets in President Trump’s use of the International Economic Emergency Powers Act,  a law that gives broad discretion to the president to take actions to address national emergencies. And they are major targets of Section 232 national security investigations as well. Beyond the well-known steel and aluminum Section 232 tariffs, the Trump administration has initiated a Section 232 investigation of timber and lumber imports, which has been the source of a decades-long U.S.-Canada trade battle. It has also initiated one on copper. And Section 232 action on automobile imports is likely coming too (there was an investigation during the first Trump administration, and the current Trump administration could act on it), which would have a significant impact on both Canada and Mexico.

And while Canada and Mexico can file USMCA complaints against Section 232 measures (which the U.S. will defend under the security exception), and they may very well win those complaints (although the USMCA security exception is even broader that the WTO security exceptions), a panel ruling can give them a legal way to retaliate but won't save them from the tariffs.

As a result, Canada and Mexico have little recourse under the USMCA when the U.S. uses Section 232 against them. In each instance, they will be forced to the negotiating table and feel pressure to make new concessions. In these circumstances, USMCA is of much less value to them, and that's bad for the whole North American trading relationship.

Canada and Mexico were aware of the problem of a broad national security exception during the NAFTA renegotiation, and there were some USMCA side letters on this: MX-US Side Letter on 232 Dispute Settlement; MX-US Side Letter on 232 Process; MX-US Side Letter on 232; CA-US Side Letter on 232 Process; Side Letter Text on 232 CA-US Response. But clearly, given what we have seen recently with Section 232 actions, none of this appears to be sufficient. Are there alternatives that would be more effective? I will set out briefly a possibility I came up with. 

Canada and Mexico could ask for a presumption that in any Section 232 investigation, Canadian and Mexican imports would be exempt. The presumption would be rebuttable, so if specific evidence were presented in relation to Canadian and Mexican imports -- beyond the evidence provided for other affected governments -- restrictions on Canadian and Mexican imports could still be imposed. But the default finding would be that Canada and Mexico would be exempt from any Section 232 trade restrictions.

There is no doubt the Trump administration would strongly resist a demand such as this one. However, without something like this in place, Canada and Mexico will likely question the value of the USMCA. If all three parties want to maintain the USMCA -- and it is clear that many politicians and interest groups in the U.S. do, even if Trump and some of his trade officials have doubts about North American free trade -- a compromise along these lines may be necessary as part of the 2026 USMCA review. Without some action to address the problems created by the invocations of national security, the USMCA risks becoming a trade agreement in name only, with the breaches and threats of breaches overwhelming the commitments, and the private sector no longer relying on it as a stabilizing force that supports investment and trade.

(To be clear, everything that has been happening is far from the outcome I would like to see for North American trade relations. This is just one of those posts where I abandon my idealism and try to come up with a compromise that all the parties can live with.)

Will a "Zombie USMCA" Survive the Tariff Onslaught?

With all the tariffs imposed by the Trump administration on Canada and Mexico (under IEEPA already, under Section 232 soon, maybe under Section 301, and various other possibilities as well), and with the Canadian and Mexican tariff retaliation, how much is left of the USMCA? In economic terms, the creation of a virtually tariff-free trading area was the main benefit of NAFTA/USMCA. Without tariff-free North American trading, the agreement's impact is considerably reduced.

Having said that, until the parties formally terminate the agreement, it is still technically in effect, even if they are "observing it in the breach." And while tariffs may be spiraling, there are a number of ways the three countries may still make use of the agreement, including the following:

-- The Chapter 10 binational panel system

-- ISDS complaints (whose scope was limited through the USMCA, but certain claims are still possible)

-- Chapter 31 state-state disputes

-- The rapid response labor mechanism

With binational panels, I'm not sure how important these are given that domestic courts are an option for AD/CVD appeals, but some lawyers like them, so if they are available they will likely be used. They are part of U.S. law (and Canadian and Mexican law as well), so this process could keep functioning even if governments are disregarding the tariff commitments. If a government really wanted to disrupt the binational panel process, it could probably find a way, but it's unclear if anyone will think it's worth going that far.

For ISDS, this is where lawyers make some really good money, so there will likely be cases until the last possible day the remedy is available in the event of a formal termination of the agreement.

On Chapter 31 disputes, because the normal enforcement tool for a successful Chapter 31 complaint is tariffs, and as noted tariffs are already spiraling, I'm not sure how useful the three governments will consider Chapter 31 complaints to be. On the other hand, some complaints are brought to uphold a principle even if they are not likely to have an impact on policy, so we may still see a few of these cases.

Finally, the RRM is a tricky one. It has some strong supporters in the U.S. who want the U.S. government to use it against companies in Mexico. But this is a bilateral tool that relies on cooperation from Mexico. Will Mexico even engage with these issues in circumstances where it is subject to the Trump administration's tariffs? It may be reluctant to do so. If Mexico does not engage, the U.S. could then use that non-engagement to take additional action against companies in Mexico, including starting up a panel process if needed. If the end result of that process is more tariffs, then I'm not sure Mexican companies or the government will feel much pressure to comply, although there are other remedies that could be used as well that might be more convincing (we haven't gotten to that stage in an actual RRM proceeding yet). (For those who were wondering what the Trump administration would do with the ongoing RRM proceedings, also worth noting here is that last week there were updates to the proceeding timetables in the Pirelli and Camino Rojo panels, indicating that the cases will be pursued).

What do all of these issues have in common? They are lawyer-heavy aspects of the agreement! Trade wars may be bad for the economy, but lawyers tend to make out OK during these periods. 

As we limp towards the 2026 USMCA review, and stagger through all the tariffs, it will be interesting to see whether and how the rest of the USMCA holds up. It is possible that the parts of the agreement mentioned above could function as a "zombie USMCA" that keeps going even if the core of it has been killed.

Trump on Reciprocal Tariffs

In last night's address to Congress, Trump said the following about reciprocal tariffs:

Other countries have used tariffs against us for decades, and now it's our turn to start using them against those other countries. On average, the European Union, China, Brazil, India, Mexico and Canada ... and countless other nations charge us tremendously higher tariffs than we charge them. It's very unfair. India charges us auto tariffs higher than 100%. China's average tariff on our products is twice what we charge them. And South Korea's average tariff is four times higher. Think of that, four times higher. ... This is happening by friend and foe. This system is not fair to the United States, and never was. And so on April 2 ... reciprocal tariffs kick in, and whatever they tariff us, other countries, we will tariff them. That's reciprocal, back and forth. Whatever they tax us, we will tax them. If they do non-monetary tariffs to keep us out of their market, then we will do non-monetary barriers to keep them out of our market. It's a lot of that too. They don't even allow us in their market. We will take in trillions and trillions of dollars and create jobs like we have never seen before. I did it with China, and I did it with others, and the Biden administration couldn't do anything about it because it was so much money they couldn't do anything about it. We have been ripped off for decades by nearly every country on Earth, and we will not let that happen any longer.

I had some quick thoughts when Trump first announced his "reciprocal trade and tariffs" plan, and subsequently I put together something longer as a Baker Institute commentary. My main points in that piece are kind of obvious, but sometimes all you can do is state the obvious:

- Unilateral tariffs as a way to push for reciprocity would be an administrative nightmare and economically harmful to the US economy.

- Existing trade agreements establish a balance that previous US administrations wanted. US trade deficits do not mean that these US negotiators signed bad deals, because trade deficits are driven by macroeconomic factors.

- If the US wants to recalibrate the balance in its trade agreement, for example by focusing trade negotiations on lowering foreign tariffs rather than on issues such as intellectual property protection, that would be fine with me.

- Non-tariff barriers are complicated and a set of internationally agreed rules on when these are protectionist (and therefore illegitimate) is the best approach to dealing with them.

- Trade agreements are a good way to promote reciprocal trade liberalization, and were used for decades with great success. I hope U.S. trade policymakers will learn from these past successes (and current failures), and revive the old approach some day.

The piece concludes with the following:

Trump’s reciprocity memo appears to signal a unilateral move to raise U.S. tariffs in response to foreign tariffs and trade barriers. This approach is likely to cause serious problems for U.S. trade policy and for the trading system.

If the Trump administration were to attempt a unilaterally imposed “reciprocal” approach to trade and tariffs, it would come up against many administrative and methodological challenges. Calculating a U.S. tariff to be applied to each trading partner, taking into account both tariffs and other trade barriers in that country, will not be easy and the result is likely to look arbitrary. If the administration tries to match foreign tariffs and barriers on a product by product basis, it will be even more difficult.

In addition, the U.S. tariffs would lead to retaliation by trading partners, further damaging both the U.S. and global economies, and undermining U.S. influence in the process. It would functionally mean the U.S. is no longer participating in the world trading system it helped create, as it would be a flagrant violation of the rules of the WTO and all the FTAs it has signed. With most other countries continuing to uphold the system between each other, the U.S. risks losing influence by remaining on the sidelines. A more effective approach would be to engage and shape the rules from within.

When the dust settles on the current approach, the experience of the past may provide a way forward. After the Smoot-Hawley tariffs caused significant economic harm during the Great Depression, President Franklin D. Roosevelt implemented a U.S. trade policy centered on governments mutually agreeing to lower tariffs through trade agreements. This contributed to growth and prosperity in the U.S. and around the world in the ensuing decades. With recent alternative approaches to U.S. trade policy causing so many economic and political challenges, historical success stories may, at some point, receive a second look and a revival.

Free Speech and Trade Policy

In my last post, I briefly mentioned this point about free speech from Trump's recent memo on "Defending American Companies and Innovators From Overseas Extortion and Unfair Fines and Penalties":

The Secretary of the Treasury, the Secretary of Commerce, and the United States Trade Representative shall investigate whether any act, policy, or practice of any country in the European Union or the United Kingdom has the effect of requiring or incentivizing the use or development of United States companies’ products or services in ways that undermine freedom of speech and political engagement or otherwise moderate content, and recommend appropriate actions to counter such practices under applicable authorities. 

Along the same lines, a White House fact sheet says:

The Administration will review whether any act, policy, or practice in the European Union or United Kingdom incentivizes U.S. companies to develop or use products and technology in ways that undermine free speech or foster censorship.

I'm thinking out loud a bit here, but I have a few reactions.

First, while there are a small number of free speech proponents for whom anything goes with speech, most people have at least some speech they want to see restricted, with the particular speech they find objectionable varying based on where they are on the political spectrum (e.g., flag burning for some, hate speech for others). For the purposes of the Trump administration's efforts noted above, an important point is that different countries have different values related to speech. The U.S. is probably the most protective of speech, with other countries more willing to impose restrictions. I am skeptical that these cultural differences can be reconciled, and I don't think efforts to push back through trade measures such as tariffs will have much success. Prodding the Europeans to be "more like us" on speech policies isn't going to work any more than prodding them to allow hormone-treated beef has worked. I do think it makes sense for the companies affected by these speech regulations to express their views directly to the governments doing the regulating, but U.S. government efforts here will probably fall flat for the most part.

Second, with regard to the general issue of tech companies using content moderation, I think content moderation is generally a good thing and companies should do it and be transparent about what they are doing. Different people want different online experiences, so there is room for experimentation here. There are a few people who want a speech free for all, and there are web sites and apps that provide it. However, most people want to have some restrictions in place, and ideally what we would see in the marketplace is different sites/apps offering different experiences tailored to particular consumer demands. A decentralized system where social networks can connect to each other while offering different content moderation policies may be a good way to achieve this.

Finally, with regard to government regulation of companies' content moderation practices, I worry that while well-intentioned, this might not go well in practice. For one thing, political leadership shifts back and forth over time, so you may get the regulation you want one day, but then after an election takes place you will be horrified by the new regulation. In addition, the regulation might be too restrictive and close off possibilities for content moderation that some people would like to see. On the other hand, perhaps rules simply requiring transparency in relation to content moderation are limited enough that they would remain useful regardless of who was in charge and what they were trying to accomplish. But I would need to look more closely at some specific regulations in this area to come to a firmer conclusion on this point.

How the US Reciprocal Tariff Plan Could Save the WTO

The US plan to impose reciprocal tariffs is a game changer. If you ask The Economist, Trump’s tariffs “really mean chaos for global trade”. We submit that, if managed well, the opposite could be true: a new balance in global trade and the revival of the World Trade Organization (WTO). We understand that the trade dimension is just one part of a broader global discussion. Yet, we consider that trade policy is one of the key bricks needed to rebuild the wall of global cooperation.

So far, Trump tariffs targeted specific countries (China) or products (steel and aluminium). These tariffs were enacted to protect an industry at home, or as leverage to change something abroad. They were temporary, ad hoc.

Tariffs under the proposed US reciprocal tariff plan, on the other hand, will presumably hit all major trading partners and all products.  Because they are expected to be used as a much-needed source of revenue, they are also likely here to stay. The US tariff on, for example, cars would no longer be 2.5% for everyone (except countries with whom the US has a free trade agreement). Instead, the US car tariff would mirror whatever tariff a trading partner imposes on US cars. Today that means 10% for European cars, 15% for Chinese cars and 75% for Indian cars. These variable rates for one and the same product depending on origin would fly in the face of a key principle of the global trading system that has been in place for close to 80 years: the so-called non-discrimination or Most-Favoured Nation (MFN) rule.

Chaos for global trade, and the end of the WTO?  Perhaps, but it does not have to end this way.

Within days of the announcement of the US reciprocal tariff plan, nations scurried to pledge tariff reductions to avoid being hit by President Trump’s reciprocal tariff. Both India and the EU are looking into lowering their tariffs on cars. But there is a wrinkle: unlike the US, the EU remains deeply committed to the WTO. So technically, if the EU reduces its car tariff from 10% to 2.5%, it should grant this benefit not just to US cars but to cars from all WTO members including, for example, Chinese cars. For the EU and most other countries willing to lower their tariffs, this creates a serious free-rider problem. China, in the case at hand, would benefit, without giving anything in return.

What can be done?

Instead of hurried, bilateral discussions between the US and its major trading partners such as the EU, aimed at avoiding the immediate imposition of a US reciprocal tariff, all major trading nations ought to sit around the table and reassess the balance of trade concessions agreed upon most recently--which was more than 30 years ago in the lead up to the creation of the WTO. Though trade concessions were considered to be on balance “reciprocal” in 1994, the world has dramatically changed. Yet, no update or re-adjustment to this balance has happened since.

It is not just President Trump who seeks reciprocity.  The WTO itself was fundamentally built on a reciprocal balance of trade concessions. It was only once all WTO members considered the exchange of trade concessions (including non-tariff concessions such as protecting intellectual property rights and special considerations for developing countries) to be sufficiently reciprocal that MFN obligations kicked in. MFN does not operate in a vacuum. It is preconditioned on reaching a state of rough equivalence in trade concessions, understanding the different economic status of various countries. But once this reciprocity is seriously out of kilter, applying MFN no longer makes sense.

The problem is that many consider the WTO to be hopelessly blocked from reaching a new consensus on even small items, much less a fundamental rebalancing of the terms of trade.

The good news for the WTO and for President Trump is that a procedure already exists that permits a single country to trigger a re-negotiation of current tariff levels. It is Article XXVIII of the General Agreement on Tariffs and Trade (GATT), pursuant to which any WTO member can unilaterally change its tariff commitments, subject to negotiating compensation with those countries that are most affected by the tariff change (in effect, countries representing 10% or more of imports). Although the US has not triggered Article XXVIII, that is exactly what it is doing in practice: telling other nations that it wants to pull back US tariff commitments and replace them with a new balance of concessions.

Instead of purely bilateral discussions with (and retaliation threats against) the US, the EU and other major trading nations should coordinate a broad-based Article XXVIII re-negotiation process. If managed properly, this could, in effect, turn into the biggest tariff negotiation round since the creation of the WTO in 1994, with the potential to create a fairer and more enduring result.

These tariff negotiations will likely differ from those in the past in one key aspect: tariffs could not only go down, but they could also go up (as against all WTO members or only some). Indeed, the US reciprocal tariff plan calls for putting a tariff on imports not just to match the tariffs imposed on US products abroad, but in addition, to add to that tariff the cost of certain non-tariff barriers.  To do this, non-tariff barriers, other forms of discrimination, subsidies and regulations or state interventions that put foreign producers or products at a disadvantage will be “priced” and those prices will translate into tariffs on goods exported to the US. Imposing such “priced-in” tariffs would in most instances lead to the US raising their tariffs, rather than lowering them.

The difficulty for the WTO is that it was created on the assumption that economic models (even that of China) would converge around the Washington Consensus, including its principle of reducing trade restrictions, privatizing state-owned enterprises, and abolishing barriers that restrict competition or foreign direct investment.  Under this model, tariffs should only go one way: down.

We are no longer living in such a world. The reality today is that the political and economic organization of states varies dramatically and that many or most of these differences are here to stay. To enable trade between such differently regulated states, interface mechanisms are needed. One such interface is to put a price on the major differences. Think of the competitiveness impact of certain forms of state intervention or regulation, or the lack thereof, including major differences in social or environmental regulation, competition policy, or even free speech. These are all sensitive topics that a world trade organization should not attempt to iron out. What it should do instead is bring countries around a table to discuss what it would take to have a roughly balanced trade regime (starting with reciprocal tariff levels) that takes these major differences into account. This “tariffication” of the cross-border spill-overs of major divergencies cannot and should not be calculated to precision. Political agreement on an overall, reciprocal balance would suffice. Defusing major divergencies between the US and China, the EU and the US, the EU, the US and India, and others, by putting a “tariff price” on them would also take the sting out of national security exceptions and even trade remedies, which are now being used (often unsuccessfully) to address problems that go beyond what these safety-valve instruments were designed for.

Such a re-set or de facto new “round” of tariff negotiations would take some time. But under the WTO rules, it cannot be blocked by any one country. When Article XXVIII negotiations over a tariff line fail, the country proposing the change can implement it unilaterally. In response, the major exporters of the product concerned can withdraw equivalent concessions. Agreement or no agreement, reciprocity is the rule. The US may, at first, prefer to re-set reciprocity through bilateral negotiations. With time, it may realize, however, that the WTO is ultimately built on the same reciprocity principle and that working within the WTO structure would enhance the value of bilateral deals by multilateralizing and stabilizing them under one roof.

The WTO leadership has a key role to play. The Director-General of the WTO should immediately start consultations with WTO members to mobilize the energies of members with a view to address in an orderly fashion a number of imbalances which have triggered the radical reactions of the new US administration. The EU faces major challenges similar to those that motivated the US to push for a new reciprocity approach. Those imbalances need to be urgently tackled after 30 years of immobilism. It should be agreed that discussions and negotiations amongst members should be finalized within a limited horizon of 6 months. If no agreement is reached, individual WTO members can unilaterally modify their tariffs in line with GATT Article XXVIII.

There are several other very important issues that WTO members need to address, including trade and inclusiveness, the rise of industrial policies and subsidies and improving the deliberative function of the WTO. It would be impossible to practically deal with them during such a short period of time. Yet, a revitalized WTO following a positive outcome on reciprocal tariffs would create the conditions for better international cooperation on these matters too.

If this could materialize, instead of chaos for global trade and the death knell of the WTO, Trump’s reciprocal tariff plan could be a boost for WTO reform and the creation of a new, fairer balance in global trade.

Hervé Jouanjean, former Director-General at the European Commission and Senior Trade Expert at Cassidy Levy Kent (Europe)

Jennifer Hillman, Professor from Practice, Georgetown University Law Center and former US Ambassador, General Counsel at the USTR and Member of the WTO Appellate Body

Joost Pauwelyn, Professor, Geneva Graduate Institute and Partner, Cassidy Levy Kent (Europe)

(This essay was written in the authors’ personal capacities)

The Trump Administration's New Push on Foreign Digital Taxes and Regulations

I have done a number of posts over the years on what U.S. trade officials mean when they talk about foreign digital taxes and regulations "discriminating" against U.S. companies. Are they talking about the intent of the measure or just its effect? On the latter, is a disparate impact on U.S. companies enough to qualify?

The latest Trump administration move on these issues makes my question irrelevant, however, as they go beyond the term "discrimination" in ways that make clear that both intent and effect are covered. A memorandum issued by Trump on Friday states:

Sec. 2.  Policy.  It is the policy of my Administration that where a foreign government, through its tax or regulatory structure, imposes a fine, penalty, tax, or other burden that is discriminatory, disproportionate, or designed to transfer significant funds or intellectual property from American companies to the foreign government or the foreign government’s favored domestic entities, my Administration will act, imposing tariffs and taking such other responsive actions necessary to mitigate the harm to the United States and to repair any resulting imbalance.

In taking such responsive action, my Administration shall consider:
 
     (a)  taxes imposed on United States companies by foreign governments, including those that may discriminate against United States companies;
 
     (b)  regulations imposed on United States companies by foreign governments that could inhibit the growth or intended operation of United States companies;
 
     (c)  any act, policy, or practice of a foreign government that could require a United States company to jeopardize its intellectual property; and
 
     (d)  Any other act, policy, or practice of a foreign government that serves to undermine the global competitiveness of United States companies.  

...

Sec. 3.  Agency Responsibilities.

...

(c) The Secretary of the Treasury, the Secretary of Commerce, and the United States Trade Representative shall jointly identify trade and other regulatory practices by other countries, including, without limitation, those described in section 2 of this memorandum, that discriminate against, disproportionately affect, or otherwise undermine the global competitiveness or intended operation of United States companies, in the digital economy and more generally, and recommend to me appropriate actions to counter such practices under applicable authorities. ...

Under this policy, "discriminatory" is one element to be targeted, but it is not required, as a finding that the measure has a "disproportionate" impact on American companies is enough for the U.S. government to take action. (The memo also includes a category of measures "designed to transfer significant funds or intellectual property from American companies to the foreign government or the foreign government’s favored domestic entities." I'm not totally sure what is covered by this, but it seems like it would be broader than "discriminatory" as well.)

This is a much broader and more aggressive approach than the Biden administration took, as the Biden folks seemed to want to leave plenty of room for regulation (both foreign and domestic) and were seeking to negotiate international rules to address the tax issues. 

With regard to how any Trump administration fight on these issues will be undertaken, unilateral action under Section 301 certainly looks like it is going to play a prominent role. Here is the plan for digital services taxes:

(a)  The United States Trade Representative shall determine, in accordance with applicable law, whether to renew investigations under section 301 of the Trade Act of 1974 (19 U.S.C. 2411) of the DSTs of France, Austria, Italy, Spain, Turkey, and the United Kingdom, which were initiated under my Administration on July 16, 2019, and June 5, 2020.  If the United States Trade Representative determines to renew such investigations, he shall take all appropriate and feasible action in response to those DSTs.

(b)  The United States Trade Representative shall determine, consistent with section 302(b) of the Trade Act of 1974 (19 U.S.C. 2412(b)) (section 302(b)), whether to investigate the DST of any other country that may discriminate against United States companies or burden or restrict United States commerce.  He shall further determine whether to pursue a panel under the United States-Mexico-Canada Agreement on the DST imposed by Canada and whether to investigate Canada’s DST under section 302(b).

While Section 301 will be important, note the mention of the USMCA, pursuant to which the Biden administration had requested consultations with Canada. On that issue, now we will wait and see if the Trump administration decides to ask for a panel.

A White House fact sheet -- which talks about "America's sovereignty over its economy" and "overseas extortion" -- elaborates a bit on all this, and, not surprisingly, points to the Europeans as potential targets of "scrutiny":

Regulations that dictate how American companies interact with consumers in the European Union, like the Digital Markets Act and the Digital Services Act, will face scrutiny from the Administration.

And the memo states that:

The Secretary of the Treasury, the Secretary of Commerce, and the United States Trade Representative shall investigate whether any act, policy, or practice of any country in the European Union or the United Kingdom has the effect of requiring or incentivizing the use or development of United States companies’ products or services in ways that undermine freedom of speech and political engagement or otherwise moderate content, and recommend appropriate actions to counter such practices under applicable authorities. 

I find it interesting to watch the Big Tech-Trump administration dynamic in action. The administration pushes Big Tech hard on a variety of domestic issues, and then fights for them on international issues. In terms of the outcome of this particular international fight, I'm not sure how much they are going to get from the Europeans on these regulatory issues, and they are probably aware of the limitations. It's possible that the fight is mainly designed to prevent the "Brussels Effect" from extending these kinds of regulations to other countries.

The fact sheet also says this: "Rather than position their own companies and workers for success, foreign governments have been taxing the success of America’s companies and workers." One thing I've wondered, given all the recent talk and action about industrial policy, is whether foreign governments will up their efforts to "position their own companies and workers for success" in the tech sector. If they did and were successful, that seems likely to escalate the existing trade tensions.

Finally, stepping back a bit and looking at the bigger trade policy picture, what we are seeing from the Trump administration are (1) broad and varied proposals for U.S. tariffs, along with (2) strong demands for foreign governments to lower their tariffs and remove their taxes and regulations, even where the latter are not intentionally discriminatory. How are the two sides of this equation going to come together? Is there a massive trade war coming, or will there be some kind of grand bargain that mostly keeps the peace? I have no answers at this point.

Lighthizer's Proposal for the Trading System

Former U.S. Trade Representative Robert Lighthizer had a recent NY Times op-ed in which he argues for some big changes to the trading system. He starts off by complaining about other governments' industrial policies:

What brought down the postwar trading order was the rise in many countries of pernicious industrial policies. In this drama, those with continuous, large trade surpluses are the real villains.

China, which recently announced a nearly $1 trillion trade surplus for 2024, has demolished the system. But it is not China alone: Other chronic surplus-trade countries, such as Germany and Vietnam, have also adopted policies across their economies intended to shift resources from their consumers to their manufacturing sector to increase exports.

The innocent parties are countries like the United States and Britain that have consistently run sizable trade deficits. Policies that produce large deficits, even if they include tariffs, are not protectionist. They are the opposite.

With regard to specific industrial policies of concern, he notes the following:

Though tariffs command a lot of attention, they are not the main element of these destabilizing industrial policies. The more effective features are things like government subsidies; market-access limits; rigged health and safety standards; directed banking systems that lend below market rates to manufacturers; labor laws that keep wages down; currency manipulation; predatory tax systems; lack of essential regulation in areas like the environment ...

And then here is the crux of his proposal for a new system that he says would eliminate imbalances:

Countries with democratic governments and mostly free economies should come together and create a new trade regime. This system could enforce balance by having two tiers of tariffs.

One higher level would apply to countries outside the group. These would be nondemocratic countries as well as those that insist on using beggar-thy-neighbor, aggressive industrial policies to run large surpluses. Those tariffs over time would reduce those surpluses.

The countries within the new regime would pay lower tariffs, and they could be adjusted over time to ensure balance. When a country in the group begins to run substantial surpluses, the other countries could increase their tariffs on it. Those new higher tariffs would be reduced when the surpluses were eliminated.

I have a few disagreements with his arguments, including the following.

First, his statement that "[p]olicies that produce large deficits, even if they include tariffs, are not protectionist" is confusing, unless he is using some definition of "protectionism" that I'm not familiar with. There are various ways to define protectionism, but this is a well accepted one: "restriction of imports by means of tariffs and/or NTBs, and thereby intended to insulate domestic producers from competition with imported goods." Under this definition, tariffs imposed to protect domestic industries from foreign competition are protectionist, regardless of the country's trade balance. The fact that a country runs a trade deficit is irrelevant to determining whether it is engaging in some degree of protectionism. (All countries are protectionist to some extent.)

Second, while I, too, worry about industrial policies, it's worth pointing out that the trading system actually provides some pretty good disciplines on these policies. Unfortunately, those disciplines have not been utilized enough. Of course, there are some gray areas in which I'm not totally sure how WTO rules would deal with the issue. For example, while the GATT does have a provision -- Article XV:4 -- that could be applied to currency manipulation, it could use a lot more detail and clarity. But there's only one way to find out: File WTO complaints. Throwing up your hands and declaring defeat before trying doesn't seem like a productive approach. And if the existing rules turn out not to work, the solution is to make proposals to fill any gaps, as has happened with currency manipulation in the USMCA.

Third, in terms of his specific tariff proposal, a big problem with it is that it does not account for the fundamental reasons for imbalances. His proposal tries to use tariffs to create balance, but that approach won't achieve his goal. His own argument illustrates why. In the piece, he points out how high U.S. consumption rates are relative to other countries, naming China, Germany, and Ireland in particular. But then his proposal does not fully address this key issue. He doesn't spell all this out explicitly, but my sense is he thinks that high U.S. consumption rates/low U.S. savings rates are fine and do not need any adjustment, whereas everyone else's low consumption/high savings rates have to change. I don't think that's realistic or workable though. In this regard, I think most people would agree that, for example, Germany is going to continue to save more and consume less than the U.S. When you combine that with U.S. policymakers continuing to insist on the dollar being the world's reserve currency and on adopting policies that promote a strong dollar, you will not end up with trade that is balanced bilaterally between the two countries. Lighthizer's tariffs will protect domestic industries from foreign competition, but they won't eliminate trade deficits, because those deficits are mainly the result of macroeconomic factors (also, new U.S. tariffs could increase the value of the dollar).

Further on this point, Lighthizer says that "[l]ow domestic consumption is largely a result of policy, not the peculiarity of national character." I agree that policy plays a role here (although I think he underestimates the role of culture), and I would point out that if you are an influential American political figure, as I think it's fair to say Lighthizer is, you have an opportunity to influence U.S. policy. In this regard, Lighthizer could advocate for the United States to change its approach to government/private savings, for example by adopting policies to rein in its fiscal debt. I would be very interested to see what that change in policy did to the trade balance. (The fiscal debt is not the only thing that matters for the trade balance, but I think just about everyone agrees that it matters to some extent.)

Some Quick Thoughts on "Reciprocal Trade and Tariffs"

I'm going to flesh this out a bit more later, but I wanted to post something now on today's Trump administration memo on reciprocal trade and tariffs, which involves agency investigations of "the harm to the United States from any non-reciprocal trade arrangements adopted by any trading partners," as well as proposals for remedies. (The Trump administration did a report on similar issues during Trump's first term).

Trump's memo mentions four specific areas to look at in making U.S. trade relations "reciprocal" with its trading partners:

• Tariffs imposed on U.S. products
• Unfair discriminatory, or extraterritorial taxes, including VAT
• Non-tariff barriers or measures and unfair or harmful acts, policies, or practices, including subsidies, and burdensome regulatory requirements
• Exchange rates, wage suppression, and "other mercantilist policies"

There is also a final category of "any other practice" that imposes any unfair limitation on market access or any structural impediment to fair competition with the United States.

Setting U.S. tariffs reciprocally with each trading partner and trying to take into account each of these items sounds like an administrative and methodological nightmare. But putting that aside, let's talk briefly about each one.

Tariffs

• The tariffs imposed by many U.S. trading partners are actually not much higher than those of the U.S., so the scale of any unequal tariffs is probably less than Trump is imagining. Canada and Mexico are part of the USMCA, under which the three countries have eliminated virtually all tariffs on trade between each other. And according to the WTO, the average tariff rates imposed by the EU and Japan are 5.0% and 3.7% respectively, which is not much higher than the U.S. rate of 3.3%.
• At the same time, some developing countries do have significantly higher tariffs. It is worth noting that, in recent decades, U.S. demands in trade negotiations have gotten away from pushing for lower tariffs, and instead have focused on issues such as stronger intellectual property rules and protection of labor rights. If the tariff system is out of balance, with U.S. tariffs higher than those of trading partners, it is at least in part due to the U.S. emphasis on other issues. A shift back towards lowering foreign tariffs as the focus is possible, but it would likely mean giving up some of what the U.S. was able to achieve in these other areas.
• The data used for national tariff comparisons tend to focus on the standard tariffs that are set out in a government's tariff schedule, but there are other kinds of tariffs not included here. One example is anti-dumping tariffs, which are used to counter low priced imports, and can be imposed on specific products after an investigation by government authorities. For example, in 2024, the Biden administration imposed anti-dumping duties of 744.81% on Slovenian mattress imports. When you take into account tariffs of this type, U.S. tariffs don't look as low anymore.

Unfair Taxes

• Part of the focus here is on things like digital services taxes affecting U.S. tech companies, which a White House fact sheet mentions. I'm not a tax expert, but I am aware of the general problems of companies taking advantage of favorable tax treatment in certain countries to lower their tax bills and governments trying to fight back by capturing some tax revenue from companies that generate income in their country. From the outside, this all looks like a mess, and I've never had much hope that international coordination was going to get anywhere. With regard to Trump's proposal to respond to certain taxes with tariffs, I would think that would just lead to retaliation by the targeted countries.
• Concern about foreign VATs is a long-standing issue that Gary Hufbauer has written and talked a lot about over the years. Looked at on its own, the VAT is a non-discriminatory tax. But I think the issue arises because you have a U.S. system that relies heavily on incomes taxes that are not destination adjusted, whereas many other systems rely less on income taxes and more or destination-adjusted VATs. Does that situation lead to trade distortions or unfairness of some sort?

Non-tariff barriers

• Governments have been complaining for decades about how other governments' domestic regulations act as trade barriers, and there is an extensive set of rules in trade agreements that govern the issue. There has been some interesting GATT/WTO litigation about this over the years, sometimes productive and sometimes not in terms of resolving disagreements. Will unilateral tariffs imposed to counteract foreign government regulations be successful in inducing a change in policy? Or will they just lead to retaliation by the foreign government? As with the taxes noted above, my money is on the latter, but we'll see how this plays out.

Exchange Rates

• My view of currency manipulation is that it can be a real problem and it would be nice to have effective international rules to govern it. There are very brief rules on it in GATT Article XV:4, but something more detailed would be useful (some FTAs go a bit further). As with the previous two items though, I'm skeptical that unilateral tariffs imposed as a response will be helpful in addressing this issue.

Tooze vs. Tai on the Political Impact of the Biden Administration's Policies

At a recent conference in Brussels, on a panel entitled "The Battleground for Global Economic Domination: What's Ahead for Europe, as the US and China Fight for Supremacy?", Adam Tooze of Columbia University and former U.S. Trade Rep. Katherine Tai had an exchange on the political impact of the Biden administration's economic policies that I thought people might find interesting. I am providing a partial transcript, but you may want to check out the video as well.

Here is Tooze making the case that in political terms, the Biden administration's economic policies failed (starts at around 1:12:40)

The single thing to say about the Biden administration, in the end, unfortunately, is that in its central political objective, which was to prevent Trump II ... the fundamental reality about everything you've just heard is that, though this is a strategy which sounds great, it failed in its absolutely central mission, which was to prevent a second Trump administration.

...

If the case for the Biden administration was that it was able to rally working class Americans, blue collar Americans, around the Biden administration, the evidence goes against that. In other words, whatever the strategy's intentions were, it didn't work. Right? In terms of class polarization, the electional outcome in last year was every bit as polarized, and the moving apart of the American electorate into a group which is dominated, on the one hand, by college educated folks like ourselves, and on the other hand, blue collar Americans with less education, is more extreme than it was in previous elections. This is not something you can blame the Biden administration for. It's a long running trend. But this well intentioned strategy did not, in its most fundamental outline, succeed.

Tai responded as follows (starts at around 1:29:25)

There's a very moving story, and I believe the story's origin is Irish, and you really have to hear Martin Sheen, our great American actor, tell the story. So he does it, it's on YouTube. Take a look. But I'll do my best rendition, which is, a man dies and he goes to heaven, and he's at the pearly gates, and he's greeted by St Peter. And St Peter looks at him and says, Did you live a good life? And he says, Yes, I believe I was a good person. I tried to do the right thing. And St Peter said, great, great. Now roll up your sleeves. And the man's confused, and he says, Well, okay, why? So he rolls up his sleeves, and St Peter leans over and looks at him and says, well, but where are your scars? And the man says, Well, why I don't have any. And St Peter says, Well, was there nothing worth fighting for? So Adam, I think my response to you on your point of political failure is this. I don't want anybody to leave this room thinking that they have no role in what happened or what's going to happen. Where are your scars, Adam? I can show you mine, ... It was not fun being Biden's US Trade Representative, and I can tell you about the beatings that I have taken here in Brussels and across Europe. Where was Europe these past four years? Our futures are bound together, fortunately or unfortunately, the future is not yet written, and yes, these next years are going to be extremely painful. The last nine days, last eight days, we're on the ninth day, are just the beginning. But I think that the most important part of this conference and this conversation is for everyone here to understand that they have agency and that they are a part of the problem we are facing now. And therefore, each and every one of us is also a part of any solution that there may be in the future.

Their debate here is over whether the Biden administration's economic policies -- and given that Tai was in charge of trade policy, I'm going to focus on that sub-set of economic policies -- worked in a specific political way, that is, to appeal to a particular group of U.S. voters. Given the election result, it seems clear that the policies did not accomplish their ultimate objective. (I'm not totally sure what Tai meant by "where was Europe," and I'd love to hear her elaborate on this point.)

Having said that, let me offer a mildly hot take on this issue, with the caveat that it is purely based on instinct and I claim no particular expertise in political analysis or strategy. With that in mind, here's what I think.

At this moment in U.S. politics, it seems to me that personality plays a big role in presidential elections. I'm not sure policy matters as much as some people think, and to the extent it does, the framing may be more important than the actual policy. For example, if the goal is to put forward a trade policy that is for the middle class, you can frame either free trade or protectionism that way. The key is, can you do the framing in a way that appeals to the people you are trying to convince. 

Applying that view here, my sense of what happened in the last presidential election is that Biden's unpopularity, and Kamala Harris's subsequent loss, were in large part based on Biden's age and unlikability (and belated withdrawal from the race). As to the role of Biden's economic policies, while inflation was clearly a factor in the election, my point is that how the candidate talks about an issue such as inflation is more important than whether inflation exists. And then on trade policy, keep in mind that polling consistently shows that people don't care much about trade policy. As a result, adopting a specific set of trade/industrial policies isn't likely to be a significant factor in winning elections, no matter how you talk about them.

Regardless of whether I'm right about any of that, there is a political reality here that cuts in the other direction. There are many people who believe that policy plays a more important role than I've suggested, and the perception going forward may be that Biden's trade policies failed in political terms. When the Democrats are debating which way to go on trade policy in the future, opponents of Biden's policies are going to be able to point to Biden's approach and say "that failed, let's not do it again." I have no idea how those debates will go, although sticking with my earlier point, I think the outcome mainly depends on who the political players are and how they present their arguments.

Notes from the Jamieson Greer Hearing

Jamieson Greer had his Senate nomination hearing yesterday. Here are a few exchanges that I found to be of interest.

Historical Examples of Successful Universal Tariffs

Senator Ron Wyden (D-OR) asked a great question about the historical record of universal tariffs, which is something that Trump has talked about:

Wyden: I thought I'd start by asking you, can you give us an example ... in the country's history, where there were universal tariff hikes and where somehow the country benefited? Where are the examples that you cite for this Trump approach in American history?

Greer: Senator Wyden, thank you for that question, and I think it's indeed instructive to think about our history with respect to trade policy. As many on this committee likely realize, until about 1913 the United States government was entirely funded, almost entirely funded, from tariff revenues, including during the latter part of the 19th century, when America truly was exploding as an international industrial powerhouse and we had a relatively high tariff rate. At the same time, we saw countries like the United Kingdom lowering their tariff rates and actually falling out of industrial competitiveness. I would say also, you have instances in the past where we have seen what happens when the reverse happens. For example, when we gave China permanent market access to the United States ...

Wyden: What I'm asking about is an example for the idea that the President has made number one on the trade policy list: a universal tariff. I like a tool box. I'm prepared to put a tariff in there, and there are instances where it's valuable. But I'd like to see some kind of lode star here that shows us why we ought to go in the direction the president's going, because I haven't seen one.

Greer: Certainly. Well, when you look at the trade policy memo that the Administration released, they have a part about fair and balanced trade, and a part of that, they discuss what you've mentioned, Senator, which is the possibility of a universal tariff, and it's talked about in the context of our trade deficit, which is over a trillion dollars. And part of the question is, how large of a trade deficit do we want? Because the trade deficit represents in large part manufacturing jobs that have gone overseas and other things like that. And a universal tariff is something that should be studied and considered to see if it can't reverse the direction of that deficit and the offshoring that I don't ...

Wyden: I'll hold the record open. I've asked three times for an example of where there was history that the President's approach, the across the board tariff approach, rather than the targeted one, made sense. We'll keep the record open. Let the record note that I asked it three times and there were no examples.

It will be interesting to see if Greer comes back with anything on this as part of the questions for the record.

I will also note here that additional U.S. tariffs aren't likely to deal with the trade deficit (which Greer brought up), if you consider that to be a problem. If the deficit is a real concern, the Trump administration should look at the macroeconomic causes.

WTO Dispute Settlement vs. Section 301

Senator Bill Cassidy (R-LA) brought up the issue of using WTO dispute settlement for market access:

Cassidy: You have ... expressed skepticism about the need for binding dispute mechanisms at the WTO. But my rice producers and others have won decisions at the WTO on commitments by other countries on agricultural subsidies, and yet they're not enforced. And so are my agricultural people out in the cold? There are disputes that they win, but they now don't even have a dispute, and if they get the dispute it's not enforced. Help my rice producer, how are they going to handle it.

Greer: Senator, I think you're exactly right, and that's part of the reason why I show skepticism sometimes about the WTO, because we win a case, we get a result, and then it's not fixed, or it's fixed on the surface ...

Cassidy: There's two different issues, though. One, you got to win the case, and then you got to enforce it. But the first step is winning the case, and that I said, there's been some progress in. It's a lack of enforcement, which is critical. But that doesn't necessarily throw out winning the case, if you follow what I'm saying.

Greer: Certainly. I mean, listen, if you're trying to get rid of a trade barrier, there are a few ways to do it, right.  You can try to negotiate it, which is, on its face, not always successful if you don't have the leverage behind it. If you have a case, you have some legitimate authority to go to them and say to change it. We also have domestic laws like Section 301 and others that can identify and detect unfair trading practices.

Cassidy: Now those are, 301 and all those are kind of like economic necessity. Are you saying that we would use other mechanisms, abandon, if you will, WTO IDR, to use a bunch of abbreviations, and rely upon existing laws domestically to provide a tariff relief?

Greer: So I think we need to use any tools we have available to get relief so we can have the market access ..

Cassidy: The question is, why would we be tossing a tool out? If we want any tool, but we're tossing out the tool, the IDR, even if there's been faulty commitment, it seems to me like we're taking a tool, and we're getting rid of it, when we just said we want every, any tool that we can. 

Greer: Senator, I think, part of the problem we've had with with the WTO, and this has been, you know, bipartisan, I've seen letters from the chairman and the ranking member talking about how we need to make sure that the WTO doesn't undermine our trade rights and our trade laws. Listen, if we can use the WTO effectively to negotiate rules or to get a good panel result, that's fine, but we need to, to your point, we have to have enforcement. And at the end of the day, what that means is USTR has to go to the country and enforce the law, and sometimes that means imposing tariffs on them. We say trade enforcement, that means tariffs.

I'm glad Cassidy raised this, although I'm not sure the conversation got at the points I was hoping would be discussed. (And I wasn't sure what he meant by "IDR" -- if I even heard that right. Maybe International Dispute Resolution?)

On the substance, a key issue here is this: How effective is WTO dispute settlement for the U.S. in opening foreign markets, as compared to the use of Section 301 as an independent tool? This is a difficult thing to quantify, but my impression is that WTO dispute settlement is somewhat effective in many if not most cases, whereas Section 301 on its own is not very effective at all (using Section 301 to enforce adverse WTO dispute settlement rulings is something different). However, my impression is also that Greer and the Trump administration disagree with that view, and plan to use Section 301 on its own a lot more. As a result, in four years we should have some new data to analyze for this comparison.

Digital Trade and Discrimination against U.S. Companies

Several Republican Senators brought up concerns with foreign digital taxes and regulations, and Greer shared their concerns, so I think the rest of the world better get ready for a U.S. offensive here. Here were the exchanges:

Senator Mike Crapo (R-ID):

Crapo: Let's move to digital trade. We lost ground during the last administration because we turned our back on digital trade rules, including promoting data flows, combating forced technology transfer and promoting non-discrimination. A number of jurisdictions, including the European Union and South Korea, utilized that opportunity to advance measures that target US technology companies with special requirements or taxes while exempting their domestic companies or even Chinese companies. Do you agree that ensuring US technological leadership means that we need to confront these types of measures?

Greer: Yes, Chairman, I strongly believe that we need to do that again. This is an area where the United States is very competitive, and I understand that ... we are having a domestic conversation about how to regulate digital trade and technology companies, etc. And my view is, that is where the conversation should be happening. We should not be outsourcing our regulation to the European Union or Brazil or anyone else, and they can't discriminate against us, and it won't be tolerated.

Senator Todd Young (R-IN):

Young: Mr. Greer, if confirmed, how will you work to prevent the discriminatory treatment of US companies in key global markets and ensure they're competing at a level playing field when it comes to digital trade?

Greer: Senator, in the first Trump administration, we took action under Section 301 to combat discriminatory digital services taxes. I know there are many jurisdictions in the world right now that are doing this and other measures to try to control the business models of our digital champions, and I want to make sure that if anybody's regulating our digital companies, it's going to be us, and they can't discriminate against it. And I think that we need to explore using Section 301, and other measures to make sure that we're able to stay competitive global.

Senator Thom Tillis (R-NC):

Tillis: I would like, with unanimous consent, to submit this commentary from Mr. Greer just recently on the posture that we should have towards South Korea.

...

South Korea, you've very articulately, in your commentary, have identified the threat there, and the way that they're trying to counter unfairly, I believe, our big tech, and high tech in general, businesses, and some in their own country, and silent on China.

I assume the Greer commentary referenced by Tillis is this one.

With regard to all of these digital trade concerns, I'll just mention the issue that I've brought up many times: What does everyone mean by "discrimination"? Is this about the intent of the regulation, or is disparate impact on U.S. companies enough to qualify? These are very different approaches, with a much different effect on regulatory autonomy/sovereignty.

Security Exceptions

Senator Tina Smith (D-MN) was worried about how Trump's recent tariff threats/tariffs might affect negotiations of trade agreements, and Greer cited the essential security exception in response:

Smith: How do you go in and try to negotiate in good faith with potential trading partners when we have a president who appears willing to tear up agreements on a whim, on an issue that might be completely unrelated to trade?

Greer: It's important to remember that when we have trade agreements, they all contain an exception for measures related to essential security. And if dealing with illegal migration of criminals or dealing with fentanyl or issues like that come up, this is very clearly an issue of essential security.

Not that there was much doubt, but this confirms that the Trump administration will take a broad view of invoking the security exceptions in trade agreements.

Values-Based Trade

Senator James Lankford (R-OK) brought up some non-trade issues such as religious liberty:

Lankford: Countries want to trade with the United States, because we produce great products, and our manufacturers are tremendous at what they do, and they put out a good product there, but the whole world wants it. But that also means when you sit down with them and people say, we want to open up a trade agreement, people are going to want to talk about, me and my colleagues are going to talk about, labor agreements and how we're making sure there's not unfair labor practices, what we're doing to be able to make sure that we're not having unfair competition. But we also have standards in there for things like religious liberty and a free press and all those things. So I would just encourage you, you are an ambassador in many ways, on many issues. And when you sit down on trade agreements, you have the ability to be able to sit down to be able to press countries around the world that are oppressing their people on issues like religious liberty, and to say, if you want to trade with us, we want to trade with you. We want to be fair trade, but we also want to see some action in your country as well that begins to balance out our people trading with your people, that we also know that you're respecting things like labor rights or free press or the freedom of religion. So I'd encourage you just to be able to take that action as well, while you're also watching out for American workers.

Greer: Thank you, Senator, we'll be sure to align with the State Department, who is very good on these issues, to make sure that all of our messaging is aligned to encourage the kind of standards and values we would expect.

On this issue, one of the problems I see is that the "standards and values" promoted by the U.S. vary a lot by administration. As a result, what happens is, the U.S. pushes one set of standards and values for four years, and then pushes a very different set for the next four years. My sense is that many U.S. trading partners may be treating this as a short-term exercise that they should pay lip service to until the U.S. administration changes, but I confess I haven't really looked into this deeply.

Trade Promotion Authority

Senator Tillis asked about a variation of using TPA:

Tillis: Given the limitations of executive agreements, they only last for the duration of a president's term, in this case, it would, of course, be four years, and then the necessity of congressional approval for binding market access deals, do you believe USTR would be in a stronger position if Congress provided a clear legislative framework similar to TPA, but tailored for sector specific agreements like those for critical minerals?

Greer: Senator, I want to think about that, because I think that's creative. I think that any trade agreement that the USTR might bring to Congress, ... I want to have full support, right?  I mean, with USMCA, we had 89 Senators vote for it. We had almost 400 folks in the House vote for it. That's the level of support I want. And if Congress thinks that a legislative framework will help with that, I'm happy to talk about what makes sense.

I didn't get the sense that Greer was particularly enthusiastic, but he didn't reject it either, so who knows, maybe this might go somewhere.

Sociological Inquiries into International Law in a Polarized World: Markets, National Security, and Democracy (Utrecht University, November 13-14, 2025)

Call for Papers 

Sociological Inquiries into International Law in a Polarized World: Markets, National Security, and Democracy

The Sixth Workshop on Sociological Inquiries into International Law will be held at Utrecht University on 13–14 November 2025. Participants will explore how sociological perspectives can deepen our understanding of the range of current challenges for the international legal system, their effects within and beyond legal institutions, and the potential responses offered to these challenges.

Background 

We live in an era marked by heightened polarization. International lawyers and actors are increasingly confronted with a wide array of challenges, stemming from populist politics, migration, climate change, supply chain disruptions, economic inequality, disputes over resources, and armed conflicts. In turn, attempts to address these issues are frequently criticized for being inadequate, for serving the interests of a privileged few, or as illustrating the unequal application of legal norms. These demands place significant strain on actors and institutions in the international legal system.

While skepticism about the effectiveness of international law is not new, we suggest that there is something different about the current developments. The quickening turn to a multipolar world, combined with heightened polarization between and within national societies, present two sources of pressure on international legal institutions, and on everyday practices within them.

The point of departure of this workshop is the recognition that international law operates within - and is shaped by - diverse social processes and factors, such as social identity, formal and informal hierarchies, socialization, collective memory, and socio-cognitive frameworks.

Against this backdrop, the Sixth Workshop on Sociological Inquiries into International Law will be held at Utrecht University.

Submissions and topics

We invite submissions employing diverse sociological tools, frameworks, and theories to examine topics including, but not limited to:

• The rise of populism, government responses to popular movements, and threats to democratic practices and the rule of law

• The impact of double standards on the legitimacy of international law and the authority of those enforcing or seeking to reform it

• The role of international courts and tribunals, the politicization of international institutions, and their potential to transform the legal system

• The expansion of sanctions and the increasing use of economic and financial restrictions

• Economic unilateralism aimed at de-risking and protecting national security

• The proliferation of economic nationalism and new industrial policies

• Domestic and international efforts to address climate change and their effects on global trade and development

• Technological advancements, including hybrid warfare, digitalization of products, artificial intelligence, digital surveillance, and emerging international legal regimes 

• Immigration and debates over border control

We encourage submissions on these and related themes focusing on sociological approaches to international law. The workshop will be held in person on 13-14 November 2025, in the Johanna Hudig Gebouw building at the Utrecht University School of Law.

Details for submissions

To apply, please electronically submit an abstract of maximum 300 words and your CV using the following Google form by 31 March 2025. If you have any questions, please contact Alexandra Hofer ([email protected]).

Applicants will be informed of the results of the selection process by 30 April 2025. If selected, we will ask you to submit a discussion paper of no more than 3,000 words by 13 October 2025.

Scholarships

Unfortunately, we cannot cover participants’ expenses related to travel and accommodation.  However, Utrecht University may offer a limited number of scholarships to contribute to the travel and accommodation expenses of selected early career researchers who do not have access to sufficient funding. To apply for a scholarship, please include in your application, in addition to your abstract and CV, a short motivational letter stating why you are not able to cover your travel expenses, how much funding you would need, and how participation in the workshop fits your research plans. 

Timeline

Please take note of the following timeline:

• 31 March 2025: deadline for submission of abstracts and scholarship applications
• By 30 April, applicants will be informed of the results of the selection process
• 13 October: submission of discussion papers (about 3,000 words)
• 13-14 November: in-person workshop

Steering Commitee and organisers

Steering Committee: Alexandra Hofer, Birte Böök and Luca Pasquet (all from Utrecht University School of Law), Sungjoon Cho (Chicago-Kent College of Law), Moshe Hirsch (Hebrew University of Jerusalem), Ron Levi (University of Toronto), and Mikael Rask Madsen (iCourts, University of Copenhagen).

The workshop is organised by Centre for Shared Regulation and Enforcement in Europe (RENFORCE) in cooperation with the newly established Utrecht University Research Platform on Peace Security and Human Rights, the Utrecht Centre for Accountability and Liability Law (UCALL), and the Netherlands Institute of Human Rights (SIM).

Some Questions for Jamieson Greer

Jamieson Greer is Trump's nominee for U.S. Trade Representative, and he will have a Senate confirmation hearing on Thursday, February 6. This is a great opportunity and honor for Jamieson, and along with it comes his own tag on the IELP blog. I hope he appreciates/tolerates this! If his predecessor Katherine Tai's experience is a good indication, this is the first post of many with that tag.

In anticipation of the confirmation hearing, I have come up with some questions for Jamieson. Any Senators participating in the hearing are welcome to adopt these questions as their own. (Given recent events, I can imagine much of the hearing will focus on the IEEPA tariff threats/tariffs related to Canada, Mexico, and China, even though it's not something USTR is responsible for.)

1. In recent years, Section 301 has become a more frequently used tool to address foreign trade barriers. Do you have any data on its track record of achieving market opening? Are there any success stories you can point to?

2. During Biden's four years in office, the U.S. government did not file any WTO complaints. Do you anticipate using the WTO dispute settlement process to address unfair trade practices by U.S. trading partners?

3. What is your view of the WTO dispute settlement reform process that is currently underway? Do you plan to make concrete proposals to help re-establish a functioning system that eliminates the problem of appeals "into the void"?

4. What is the Trump administration's position on ISDS? Will you include ISDS in any future agreements? Will you try to revise it in, or remove it from, current trade and investment agreements?

5. The Biden administration used the USMCA's Rapid Response Mechanism (RRM) for labor rights enforcement extensively. How frequently do you anticipate using the RRM? Will you push for including a similar mechanism in other trade agreements?

6. What tools would you use to encourage China to become more market-oriented (in the sense of, for example, reducing its tariffs and subsidies, as well as ensuring that its SOEs behave in a commercial rather than political manner)?

7. The enforcement mechanism of the U.S.-China Phase One deal states that "The Appeal and any information and matters related to it are confidential and shall not be shared beyond the Bilateral Evaluation and Dispute Resolution Office, absent the agreement of the Parties." Will you push for public disclosure of as much information as possible regarding these appeals?

8. Is Chinese investment in the United States -- for example, a Chinese company building an EV factory -- something the Trump administration would support?

9. Many people have raised concerns about foreign digital regulations and taxes that discriminate against U.S. companies. How would you determine whether such measures are discriminatory? Would you look at the intent/purpose of the measure as part of this assessment, or solely at the impact?

10. Do you see any possibility of the Trump administration negotiating a trade agreement that involves liberalization of tariffs by both the U.S. and a trading partner?

11. If the Trump administration imposes a "global supplemental tariff," as mentioned in the America First Trade Policy memo, what would your approach be to dealing with retaliatory tariffs from U.S. trading partners?

12. In your view, would increasing the private and public savings rates in the U.S. help lower the trade deficit? If so, is increasing savings a policy you think the Trump administration should consider?

13. At the confirmation hearing for Scott Bessent, he mentioned optimal tariff theory. Do you have any views on the practical relevance of this theory? Can you point to any real world "optimal tariffs" that have affected the terms of trade to the benefit of the U.S. economy?

Some Initial Thoughts on Discordia Americana

Why Discordia Americana Is a Poor Replacement for Pax Americana

Steve Charnovitz

3 February 2025

Over the past 75 years, the US role in Inter-American and world affairs has been largely beneficent and has contributed to a great deal of global peace and prosperity. With a handful of very painful exceptions, the US has used its military strength in a fruitful way.  Through its various treaty alliances and support for multilateral organizations, the US has exercised its leadership in a manner to make US prosperity and global economic development go hand in hand.

Unfortunately, in recent years, US foreign policy has become less generous, less cooperative, less effective, less imaginative, and less predictable.  The resources and goodwill toward the US have sometimes been squandered and many opportunities to prevent and solve conflicts have been missed.  Important global goals, such as communicable disease control and environmental protection, have been stymied by lack of US leadership and resources. 

Modern Pax Americana promoted a relatively open US economy to allow the US and other countries to benefit from trade and trade rules.  Trade has always been good for the US, but the failures in US adjustment policies have left many US workers and communities as victims of imports, their voices seemingly not listened to.

President Trump has just imposed trade sanctions in the form of tariffs against Canada, Mexico, and China. Such economic warfare is Discordia Americana because it undermines the US reputation as a dependable, fair-minded, and law-abiding partner.  (Some commentators might not view China as a partner, but that is narrowminded since successful cooperation with China is important for achieving just about every US global goal.) Because of the disproportionately large size of the US economy, the threat and imposition of tariffs on other countries may succeed in bullying those countries to adopt, in the short run, particular policy changes demanded by the US.  But such transactional victories will be ineffectual in the long run because victim countries may adapt through both government policies and market changes to counteract the US leverage. 

Discordia Americana has two prominent features of exporting disruption to other countries and doing so through internal US processes that lack the rule of law. Although ambitious Executive Action by a newly elected US President is hardly anti-democratic, when President Trump takes actions that violate the US Constitution and US laws, that becomes anti-democratic and will make the US government seem more like the maligned dictatorships around the world.