One of the big issues in the U.S.-China trade talks is how to enforce any resulting agreement. The traditional enforcement mechanism in trade agreements is to have a neutral adjudication process, and if a violation is found, the complaining government can get authorization to impose tariffs (in order to induce compliance or to rebalance the situation, depending on your view of things).
But based on press reports about "snapback" tariffs in the U.S.-China talks, and as I think Ambassador Lighthizer confirmed in a hearing with the House Ways and Means Committee today, the Trump administration is moving in a different direction for enforcement. Instead of a neutral adjudication process, the United States would make the determination on whether the agreement has been violated, and could go ahead with tariffs on its own. Here's how Lighthizer put it in an exchange with Chairman Kevin Brady:
Brady: "Will there be an avenue for corrective action if China doesn't live up to its commitments"? (21:33)
Lighthizer: "We have to have the ability to take proportional action unilaterally." (23:30)
Later, he said this in response to Congresswoman Linda Sanchez:
Sanchez: "I'm wondering if you can share with any specificity how you intend any agreements with China to be enforced." (1:33:39)
After describing various meetings that would take place between U.S. and Chinese government officials to monitor compliance issues, Lighthizer said: "The United States would expect to act proportionately but unilaterally to insist on enforcement." (1:35:05)
The regular meetings sound like the various FTA/WTO committees that currently exist (or at least, it sounds like how they should work, although I'm not sure they do), and that all seems fine. But the unilateral enforcement could be a problem. I don't know exactly what the vision is here, and I want to reserve final judgement until I see an actual text, but as I hear it described, this seems like it would internationalize the Section 301 process (under which the U.S. can impose tariffs when it decides other countries are violating trade agreements or otherwise burdening or restricting U.S. trade). This concept of unilateral enforcement would now be formally part of an international agreement.
This raises some questions for me.
First, will China (or any other countries) agree to this? This looks like a very one-sided enforcement mechanism, and I would think countries would be reluctant to sign on to it. One of the big achievements of the WTO was to elevate neutral adjudication and to constrain unilateralism, but Lighthizer's suggestion for the U.S.-China enforcement mechanism seems like it goes in the opposite direction.
Or is it possible this mechanism would go both ways? Would the U.S. make its own commitments under this agreement, and would China also be authorized to impose tariffs unilaterally in response? It's a little hard to imagine the U.S. agreeing to this, but perhaps if the Trump administration really believes in unilateralism (and doesn't expect China to pursue unilateral enforcement), it would accept the formal establishment of unilateral enforcement in both directions?
Second, would unilateral enforcement of this type be effective in addressing trade barriers? Most people in the trade world (including me) think the neutral adjudication process works pretty well, although there is room for improvement (making it faster would help). How would this unilateral approach compare? My best guess as to how this unilateral approach would work in practice is that it would be similar to how Section 301 has worked: If we impose tariffs unilaterally, China (or other countries) will retaliate with their own tariffs.
Why don't countries just cave in to U.S. pressure? As a general matter, I don't think these kinds of unilateral determinations are thought of as being objective. I'm not sure they were ever thought of this way, but after the creation of the WTO and proliferation of neutral adjudication in FTAs, they are thought of as even less legitimate. So, I don't think this unilateral approach would work very well in a U.S-China agreement.
But of course, there's only one way to find out for sure. If China and the U.S. work out an agreement with this kind of enforcement mechanism in it, we'll see how it goes.
