International Economic Law and Policy Blog

Three Forces of the World Trading System

On November 26, the World Trade Organization (WTO) General Council decided to indefinitely postpone the 12^th Ministerial Meeting (MC12), which was scheduled to convene from November 30 to December 3 this year, due to “an outbreak of a particularly transmissible strain of the COVID-19 virus.”  The prospect of the MC12 now appears to be as uncertain as that of the current pandemic.  The bigger question, however, is: Quo Vadis the WTO?  Today, I would like to introduce one way to approach this complex question.  To answer this question, one needs to understand what kinds of forces may exist around the WTO.  Three forces may stand out: political, legal and sociological. 

First, does the WTO exert any significant “political” force of its own?  The answer may be in the negative.  Yes, the General Council did indeed agree to postpone the MC12, yet it hardly evinces the WTO’s own political power.  While the WTO Charter does have detailed provisions on the collective decision-making mechanism, including simple- and supermajority voting, its legal force has been muted due to the lack of political force behind it.  It is this organizational power vacuum that allowed private force, in the name of “veto,” to dismantle the Appellate Body, despite its legally guaranteed place under the DSU.  Private political force has recently dominated trade narratives at the expenses of the WTO’s political power, as seen in the continuing trade war between the United States and China, the EU’s recent campaign for aggressive trade remedies, China’s Belt and Road Initiative (BRI) and the Russia-led Eurasian Economic Union.  These manifestations of private political force, either unilateral or regional, tend to fragment the WTO’s own political power.  Some argue for empowering the WTO, in a political sense, by boldly executing its never-invoked voting procedure, calling some members’ bluff.  Vote or veto, that’s the question!  It is no exaggeration that the future of the WTO’s political power depends on the sequence of these two vowels (e and o).

Second, the WTO’s legal force emerges from its legal texts.  It is an official force that makes the WTO exist.  Based on this force, WTO members pay their dues and fund the WTO Secretariat.  Under this force, various meetings are held and members still sue each other.  Admittedly, the WTO’s legal force is inextricably intertwined with its political and sociological force, as discussed below.

Finally, the WTO enjoys compliance pull not only from its members but also other non-state stakeholders, including businesses and academia.  They take the WTO norm, especially its precedent, for granted, and act upon it in their everyday lives.  It is tantamount to their “language” in the sense that both WTO members and individual economic players may make themselves understood to each other via the WTO norm.  The WTO norm is a form of social knowledge that both WTO members and private businesses are eager to learn, as seen in impressive public-private partnerships in Brazil, India and China.  This sociological force of the WTO exists with or without corresponding political and legal force.  For example, the WTO precedent still enjoys a normative force as WTO members and other stakeholders continue to cite and quote WTO case law, despite that it is mostly not “binding” in a technical legal sense.  Often, the WTO’s sociological force may complement its weak political force.  The WTO Multi-Party Interim Appeal Arrangement (MPIA) is a case in point.  A substantial number of WTO members succeeded in creating a replica of the now defunct Appellate Body as they wished to continue their long-enduring ritual of trade adjudication.  Note that this sociological force has been harnessed by a legal force emanating from DSU art. 25.  Admittedly, how strong, or effective, this sociological force would eventuate remains an empirical question.  Finally, WTO scholars, as they continue to publish books and articles on the WTO norm in trade law and economics journals, retain and pursue what sociologists refer to “symbolic capital.”  Academia plays an essential role in disseminating social knowledge of the WTO norm to a broader audience, including private business and policymakers.  While WTO scholars observe and investigate actions of social actors, such as businesspeople and WTO members, the former can also influence the latter’s behaviors.  This feedback loop (“double hermeneutic”) does not exist in natural science, as a biologist cannot persuade a virus into changing the course of its movement (“single hermeneutic”). 

Indeed, our own IELP blog may contribute to harnessing the WTO’s sociological force.  So, may the Force be with you!

More Hurdles for the "Green Steel Deal"

This is from a CFR blog post by Jennifer Hillman and Alex Tippett on the "green steel deal":

For the proposed U.S.-EU agreement on green steel and aluminum be successful, however, it will have to avoid several potential pitfalls. First, the deal cannot devolve into a stalking horse for protectionist interests. As currently conceived, the deal appears intended to incentivize reforms abroad by promising largely unrestricted access to U.S. and European markets for countries that meet certain standards. The allure of the European and U.S. markets pushes trade partners to make domestic reforms so they can meet those standards, helping to address overcapacity and reduce carbon emissions along the way. This only works, however, if the standards are clear and genuinely achievable while stringent enough to be impactful.

The United States and the European Union will also have to disentangle improper production or export subsidies from subsidies intended to lower carbon emissions. Greening steel and aluminum production is an expensive endeavor and, in most countries, will likely only occur with state aid. That aid, however, is liable be construed as granting an unfair advantage to recipients. U.S. steel producers, for instance, are already beginning to gripe about subsidies intended to help EU steel producers reduce their carbon footprint. Without clear redlines delineating permissible forms of state action, effort to encourage decarbonization could be derailed by finger-pointing over improper subsidization. At the same time, however, overly onerous restrictions on state action could delay the transition away from carbon-intensive production methods. Developing a shared set of standards for appropriate and inappropriate subsidization should be a priority for U.S. and European negotiators.

Finally, any final deal should include some sort of framework for technology sharing, both between Europe and the United States and between the United States and Europe and those countries working to green their own steel and aluminum industries. Enabling green manufacturing techniques to flow smoothly between the United States and Europe while also demanding ever-cleaner production at home would ensure that a U.S.-EU deal also helps reduce domestic emissions. While U.S. and EU steel producers do emit less than their counterparts overseas, a significant portion of that difference is due to the prevalence of electric arc furnaces in the United States and the EU. Electric arc furnaces are cleaner and smaller than the blast furnaces common in China and elsewhere. Rather than using this quirk of the modern steel market to avoid further modernization efforts, however, the United States and Europe should strive to have even cleaner production at home—with the goal of net-zero steel and aluminum production. At the same time, ensuring these green production technologies are readily available beyond Europe and the United States is essential to ensuring a rapid and equitable transition.

When you combine their concerns with the ones I raised here and here, I'm pretty skeptical this initiative is going anywhere. It's not that something like this couldn't be done. You could definitely have some sort of coordinated international effort to reduce carbon emissions in manufacturing. (I don't think manufacturing should be the only focus, but clearly it's an important aspect). Rather, it's that due to the way the effort is being approached as described so far, there are a number of embedded problem that I don't think can be overcome.

(I should  mention that the overall take on this initiative from Jennifer and Alex is more positive than mine is.)

ITC Institutes Investigation on Distributional Effects of Goods and Services Trade and Trade Policy

Back in mid-October, USTR asked the ITC to carry out a two-part investigation of the distributional effects of goods and services trade and trade policy. The ITC just announced that it would undertake this investigation. The Notice of Investigation is here.

There has been a lot of good economic literature on the impact of recent U.S. protectionist measures. For the most part, the ones I've seen weren't designed to look at distributional effects, but I'm sure they could be adapted to do so. 

The ITC's full explanation in its announcement was as follows:

The U.S. International Trade Commission (USITC) is undertaking a two-part investigation that will catalog existing information and develop new research and analysis capabilities to better identify and measure the potential distributional effects of U.S. trade and trade policy on U.S. workers, including by skill, wage and salary level, gender, race/ethnicity, age, and income level, especially as they affect under-represented and under-served communities.

The investigation, Distributional Effects of Trade and Trade Policy on U.S. Workers, was requested by the U.S. Trade Representative (USTR) in a letter received on October 14, 2021.

As requested, the USITC, an independent, nonpartisan, factfinding federal agency, will provide a two-part response to the USTR.

Part 1: Public Report

The USITC will prepare a public report that catalogs information on the distributional effects of trade and trade policy on under-represented and under-served communities.  The report will:

• include information gathered through roundtable discussions among representatives of under-represented and under-served communities that have been identified in the Executive Order 13985, Advancing Racial Equity and Support for Underserved Communities Through the Federal Government, as well as think tanks; academics and researchers; unions; state and local governments; non-federal governmental entities; civil society experts; community-based stakeholders, such as minority-owned businesses; business incubators; Historically Black College and Universities (HBCUs); Hispanic Serving Institutions (HSIs); Tribal Colleges and Universities (TCUs); other minority-serving institutions (MSIs); and local and national civil rights organizations;

• include information gathered through a symposium focused on academic or similar research on the distributional effects of trade and trade policy on under-represented and under-served communities, including results of existing analysis, evaluation of methodologies, the use of public and restricted data in current analysis, identifying gaps in data and/or in the economic literature, and proposed analysis that could be done with restricted data;

• include information gathered through a critical review of the economic literature on the distributional effects of trade and trade policy on under-represented and under-served communities, including among other things, the data limitations raised in these analyses; and

• identify information on effects on U.S. workers by the groups specified, identifying their specific U.S. region, and make recommendations on future research.

The Commission expects to submit its report to the USTR by October 14, 2022.

Part 2: Expansion of USITC research and analysis capabilities

The USITC will expand its research and analysis capabilities so that future probable economic advice includes estimates of the potential distributional effects of trade and trade policy, including goods and services imports, on U.S. workers.

This capacity building will include the further development of models capable of analyzing:

• the potential distributional effects of trade and trade policy, including with respect to goods and services imports, on U.S. workers;

• the effect of expanded market access for U.S. goods and services products abroad on affected U.S. exporting industries; and

• to the extent practicable, the “indirect” effect on U.S. exports of intermediate inputs when final goods receive preferential access to the U.S. market.

Through this capacity building, the USITC will also identify any data limitations that, if removed, could substantially speed the time to complete the analysis or allow for improved analysis.

The USITC will provide a briefing to USTR on the results of its capacity building on these issues during the course of its work. 

Public participation

The USITC expects to hold a public hearing, a series of public roundtables, and a public symposium in connection with the investigation.  Information concerning these events will be announced as details are finalized.  Interested individuals are encouraged to monitor the investigation-specific web page being maintained for the investigation for up-to-date information.

The USITC will also accept written submissions for the record.  Information concerning written submissions will be announced when details are finalized.  Interested individuals are encouraged to monitor the investigation-specific web page being maintained for the investigation for up-to-date information.

Solar Safeguards and Compensation

In keeping an eye on trade disputes in the pipeline, I was recently looking over the USMCA Chapter 31 complaint brought by Canada against the U.S. solar safeguard measures. I haven't read the submissions closely enough to have a view on who is right and who is wrong here, but what did occur to me was that there's a big picture question related to how governments sometimes react to safeguard measures that puzzles me. Perhaps someone more familiar with either safeguard measures or how governments think has some insights.

Let me note at the outset that I support trade liberalization (obviously), but nevertheless I can see the political need for a "safety valve" by which a government lets affected domestic industries ask for temporary tariff protection from foreign competitors. Safeguards seems like the best way to do this. There's no formal allegation of "unfairness," but rather just a request for some temporary protection to help facilitate adjustment to competition with imports.

But safeguards have not worked very well in this regard, at least according to some people. Maybe it's the requirement that safeguards be imposed on a global basis, rather than allowing them to be used in a country-specific way. Or maybe it's the limited period for which they can be imposed. Or maybe it's the requirement that the imposing country offer compensation to affected countries. Or perhaps it's the explicit tie of safeguard measures to adjustment of the domestic industry. Whatever the reason, in practice, anti-dumping may be acting as the safety valve instead of safeguards. In my view, this has led to serious problems for the trading system, as governments push the boundaries of appropriate dumping methodologies and everyone accuses each other of unfair trade.

Those are some pretty big picture points, but let me turn now to a more specific one. In the solar safeguards USMCA case, Canada has challenged various aspects of the U.S. measure. I can see why Canada would bring a complaint under the USMCA as a matter of principle. What I don't understand, though, is why Canada wouldn't demand compensation right away. (And as I understand it, Mexico hasn't done so either). Filing complaints can be useful in some cases, but pushing for compensation seems like it would be a quicker way to get the result you want (rebalancing or modification/withdrawal of the measure). It may be true that the compensation requirement weakens safeguards as a safety valve in general, but the requirement is in there, and in specific cases I would think the affected countries would want to take advantage of it.

In terms of the mechanics of compensation, the Safeguards Agreement sets it out as follows:

Article 8: Level of Concessions and Other Obligations

1. A Member proposing to apply a safeguard measure or seeking an extension of a safeguard measure shall endeavour to maintain a substantially equivalent level of concessions and other obligations to that existing under GATT 1994 between it and the exporting Members which would be affected by such a measure, in accordance with the provisions of paragraph 3 of Article 12. To achieve this objective, the Members concerned may agree on any adequate means of trade compensation for the adverse effects of the measure on their trade.

2. If no agreement is reached within 30 days in the consultations under paragraph 3 of Article 12, then the affected exporting Members shall be free, not later than 90 days after the measure is applied, to suspend, upon the expiration of 30 days from the day on which written notice of such suspension is received by the Council for Trade in Goods, the application of substantially equivalent concessions or other obligations under GATT 1994, to the trade of the Member applying the safeguard measure, the suspension of which the Council for Trade in Goods does not disapprove.

3. The right of suspension referred to in paragraph 2 shall not be exercised for the first three years that a safeguard measure is in effect, provided that the safeguard measure has been taken as a result of an absolute increase in imports and that such a measure conforms to the provisions of this Agreement.

Thus, under the Safeguards Agreement, the procedure is somewhat complicated and you may not even be able to get anything until the measure has been in force for three years.

However, Canada and Mexico also have rights under the NAFTA/USMCA, pursuant to which the rules for compensation are less demanding. Here is NAFTA Article 802.6:

The Party taking an action pursuant to this Article shall provide to the Party or Parties against whose good the action is taken mutually agreed trade liberalizing compensation in the form of concessions having substantially equivalent trade effects or equivalent to the value of the additional duties expected to result from the action. If the Parties concerned are unable to agree on compensation, the Party against whose good the action is taken may take action having trade effects substantially equivalent to the action taken under paragraph 1 or 3.

See also USMCA Article 10.2(6). So under the NAFTA/USMCA rules, there's no need to wait until year 4 for compensation. Canada and Mexico can demand it right away.

The solar safeguards measure went into effect on February 6, 2018, so we are coming up on four years now (and the ITC is hearing arguments relating to an extension of the measure).  And yet, as far as I know, Canada and Mexico have not demanded anything in terms of compensation. That means Canada is litigating under USMCA Chapter 31, but apparently not taking the step of pushing for compensation. (Sometimes these issues fly under the radar, so it's possible there have been conversations that were not reported publicly or that I missed.)

The amounts here are not massive, but they are also not nothing. For the sake of simplicity, just to focus on one of the categories covered by the presidential proclamation, 8541.40.60 (solar cells, whether or not assembled into modules or made up into panels), by my rough calculations based on data from ITC DataWeb, in 2017 Mexico was the 6th leading source of U.S. imports of these products, with about $275 million of imports; and Canada was 10th with about $148 million. By 2020, after the measure had been applied for a couple years, Mexico was down to less than $94 million and Canada was down to around $52 million.

We can argue about the policies, and whether it would be better to loosen up the requirements for safeguards in order to shift people away from anti-dumping, but for the most part the rules are clear: Governments affected by safeguard measures have the right to compensation. So why wouldn't they demand it here?

Webinar on the Appellate Body Crisis

Srikar Mysore Sridhar has organized a webinar on the Appellate Body crisis at Harvard's Kennedy School tomorrow (November 19, 2021 at 10 am EST (4 pm Geneva Time, 8.30 pm IST)). Cherise Valles will be moderating, and Peter Van Den Bossche, Joost Pauwelyn and I will be discussing. I don't expect we will fully resolve the crisis at the webinar, but hopefully it will be a good discussion nonetheless!

The zoom link is here - https://harvard.zoom.us/webinar/register/WN_u078UN5HQqCiF_IYkaipAw

Call for Papers: Workshop on The Political and Legal Theory of International Courts and Tribunals Oslo

From PluriCourts:

The research Centre PluriCourts is planning a multidisciplinary workshop on international courts and tribunals which will take place 20. - 21. June 2022 in Oslo. The workshop will bring together scholars of philosophy, legal theory, and political theory who study regional and international courts and tribunals, and in particular issues surrounding legitimacy and adjudication.

In relation to the workshop, we have an open call for papers with a deadline 1. January. 

More information on the workshop and the call for papers is available on our webpage.  Abstracts can be submitted using this link.

“Resistance Is Futile”: Debunking the Myth of De-Globalization

The World Trade Organization (WTO) released the World Trade Report today. Here are some excerpts:

[E]ven a crisis as devastating and unprecedented as COVID-19 has not resulted in the wholesale unravelling of trade and integration.

 [W]hat became clear over subsequent months was not only how quickly supply chains adapted and new producers emerged, but how the key to greater diversification lay in expanding and facilitating trade with other partners, not restricting or reshoring it.

 According to the WTO’s monitoring reports, a majority of COVID-19-related trade measures recorded since the outbreak of the pandemic were trade-facilitating. Even in the heavily impacted services sector, most COVID-19-related measures were trade-facilitating.

 Developed economies have been able to respond to the COVID-19 crisis with massive fiscal stimuli and far-reaching income support. (…) However, these same shock absorbers and safety nets are simply unavailable to most poorer countries.

 Its core conclusion is that no country is an island in today’s hyper-interconnected world, that global crises require global responses, and that strengthening resilience requires more global trade and economic cooperation, not less.

This is by far the loudest (empirical) riposte to recent inward-looking political narratives along the lines of de-globalization, reshoring and decoupling. Even in the middle of the pandemic, trade has turned out to be a solution, not a problem. Indeed, tariffs have recently been inflationary within the U.S. economy, hurting both domestic manufacturers and consumers.

The WTO report leaves us with two main takeaways. First, this may be another reason why trading nations must reinstate the WTO’s dispute settlement mechanism so as to monitor and discipline oft-destructive domestic trade politics. The WTO may want to proactively coalesce with businesses and the civil society to make this cause heard and accepted more broadly. Second, the world and the WTO must address “development” concerns, not through typical lip services but through actually workable solutions. The Doha “Development” Round still remains unfinished, while more than three quarters of the WTO membership is comprised of developing countries. That’s scandalous!

Australia has published its 1st submission in China - ADD on barley from Australia DS598

To find the submission, go to this page Summary of Australia's involvement in disputes currently before the World Trade Organization | Australian Government Department of Foreign Affairs and Trade (dfat.gov.au)

and scroll down to find this link DS-598 Australia's First Written Submission (dfat.gov.au) in PDF or this link ds598-australias-first-submission.docx (live.com) in Word doc.   

Some Comments on a New Foreign Affairs Piece Discussing Trade and Climate Change

All these recent debates I've had with Tim Meyer and Todd Tucker on trade policy and climate change have me thinking about these issues generally, and I had a few comments on a new piece in Foreign Affairs by political science professor Jessica Green that touches on all this.

In a section entitled "Good Trade Discrimination," the piece starts with this:

WTO reform, too, can shift the momentum of multilateral climate policy. The trade body currently prevents nations from protecting their fledgling renewable industries from foreign competition.

In response, I would say a couple things. First, it's important to recognize that tariffs are permitted under WTO rules (and there are lots of them). Governments negotiate over maximum tariff levels, and make promises not to charge above a certain amount. So, if you want to charge tariffs on, say, solar panels, WTO rules do not prohibit you from doing this. You just have to negotiate for it in the context of the overall balance of commitments that everyone agrees to. (And that's before you even get to all the special trade remedy tariffs on clean energy goods. I wrote about this a few years ago, and these measures continue to proliferate.)

In addition, beyond tariffs being permitted, it overstates things a bit to say the WTO "prevents" governments from doing things. Governments can still do those things, they just may face authorized retaliation if they are found to be doing something in violation of the rules.

So, to sum up: The WTO does not prevent nations from protecting their fledgling renewable industries from foreign competition, although as discussed in the next paragraph, it does have rules about how they can carry out this protection. (And just to state the obvious, I'm not endorsing this sort of protection as matter of policy; I'm just saying it can be done.)

The piece then moves on to local content requirements:

Sustainable energy programs that require the use of local components run afoul of WTO rules. For example, Ontario established a tariff program in 2009 that sought to vastly expand renewable energy capacity in the province while providing jobs through a local procurement requirement. Along with similar programs developed elsewhere, the Ontario policy was brought before the WTO’s dispute settlement system and found to be in violation of the global trade rules. Yet evidence shows that the employment and other economic benefits of “build local” provisions can expand public support for further climate policy. Allowing countries the flexibility to make green investment decisions with these goals in mind can accelerate decarbonization—but only with the reform of the global trading system. 

It is absolutely true that local content requirements of this sort violate WTO rules (e.g., GATT Article III:4 and SCM Agreement Article 3.1(b)). As a matter of policy, however, this is one of those great areas where trade liberalization and fighting climate change can support each other. Regardless of whether including "build local" provisions can expand public support for renewable energy programs, these provisions are a disaster for renewable energy and should be avoided at all costs. If every sub-national entity were trying to promote local production of these products, we would end up with thousands of small, inefficient companies, and we could never make these products in a way that is affordable for the masses. In addition, if you want to protect "fledgling renewable industries from foreign competition," you can, as noted above, do it through tariffs at the national level, which is a more transparent way to do it than burying these provisions in legislation and regulations, and is more efficient than doing it at the sub-national level.

The piece then turns to carbon tariffs:

Some have advocated carbon border tariffs as a useful, WTO-compliant tool to strengthen climate policy. Such a system would permit states that have adopted a carbon price to levy tariffs on imports from nations without an equivalent carbon price. The idea is to create a level playing field where countries are not punished for climate ambition; countries with lax domestic policies must either raise their own carbon prices to match those of their trade partners or face import tariffs. 

This kind of “climate club” came a step closer to reality this summer when the European Union announced its intention to establish a carbon border tariff. Its implementation will be a mammoth regulatory undertaking. With the exception of California’s rules regarding electricity imports, an equivalent policy has never been enacted—and certainly not one on the scale the EU has proposed. A robust system will require strong sector-specific benchmarks to estimate the amount of carbon “contained” in products, as well as a large and competent bureaucratic agency to estimate tariffs and issue allowances.

In the end, the carbon tariff will be only as effective as the policies of the most determined members of this new “club.” Carbon prices must be set high enough that the tariffs they generate will drive other jurisdictions to pursue more ambitious policies. So far, however, carbon prices have remained astonishingly low, and evidence suggests they have produced limited reductions in emissions. In short, until a series of conditions is met, a carbon tariff will be little more than another procedural hurdle in the global supply chain. 

I don't disagree with any of this, although if done correctly, I think of these efforts as more of a non-discriminatory carbon tax, applied to both domestic products and to imports, than as a carbon "tariff." To me, a carbon tax is the most important component of any effort to fight climate change, and taxing only domestic products wouldn't make sense. You need to tax products regardless of their origin.

And then finally, the article has praise for the recent U.S.-EU steel and aluminum sectoral arrangement:

The trade regime can also catalyze significant climate action through the removal of tariffs. On the eve of COP26, the United States and the EU announced what amounts to an international decarbonization policy targeting the steel sector—the first policy of its kind. After a trade dispute during the administration of U.S. President Donald Trump that saw both sides ratchet up import duties, the United States and the EU have each agreed to cut tariffs on the other’s steel and aluminum products, while continuing to apply tariffs to countries that produce “dirtier” steel (such as China). Two of the world’s largest economies are effectively engaging in green trade discrimination, gambling that their combined weight will allow the policy to clear any legal cases brought before the WTO. Importantly, the U.S. steel industry and its union back the measure, demonstrating that trade policy can be a politically popular means of enacting what is effectively climate policy. And there may be more opportunities to wield trade deals in this way. Reaching a similar agreement with China, the world’s largest steel producer, to reduce tariffs contingent on climate action could do even more to advance emission goals.

I talked about this arrangement at length here and here, and for the reasons set out in those posts, I am deeply skeptical that this initiative is going anywhere. I probably don't need to repeat all those arguments here, so let me now just offer a couple comments on the way the argument is articulated above.

First of all, just to state the obvious and so that people won't think I'm endorsing this statement, she writes: "[a]fter a trade dispute during the administration of U.S. President Donald Trump that saw both sides ratchet up import duties, the United States and the EU have each agreed to cut tariffs on the other’s steel and aluminum products." But that is perhaps not the best way to characterize what happened. Rather, what happened was that the Trump administration imposed tariffs on steel and aluminum products from lots of countries based on a national security justification that virtually no one bought, and then the EU and some other countries retaliated with tariffs that applied to a range of products. Through the U.S.-EU arrangement, the U.S. is converting its tariffs to TRQs (hopefully implemented in a way that they won't restrict trade too much) and the EU is removing its retaliatory tariffs. So, this isn't really a tariff "cut," but rather almost sort of, but not fully, going back to the pre-Section 232 tariff status quo.

But putting that aside, it's important to note that at this point, any agreement between the U.S. and EU to cut tariffs on each other's clean steel while imposing tariffs on dirty steel from other places is purely theoretical. We are not there yet, and for the reasons I set out in the linked pieces, I doubt any of this is going to happen. It's not impossible, of course, but the U.S. would need to radically change a number of aspects of both its domestic climate policies and its international trade policies, and that seems unlikely. (For example, it would have to step up its domestic efforts in the fight against climate change, and it would have to rethink its approach to trade remedies, which will get in the way of free trade in clean steel. I don't expect much progress on either.)

In terms of political coalitions, with regard to support from the steel sector, she says: "Importantly, the U.S. steel industry and its union back the measure, demonstrating that trade policy can be a politically popular means of enacting what is effectively climate policy." On this point, what I would say is, for those who are trying to build political coalitions this way, I recommend some very frank and direct conversations with the steel industry and the unions. I have no doubt they support tariffs. They always do, for any reason. But what do they think of decarbonization measures? That's a very different question, and I wouldn't assume they are on board with serious carbon emissions reduction measures. It's definitely worth asking them this, and not just in the abstract, but with reference to specific measures you want them to support.

Next, what she says at the end about China is true but also kind of illustrates why the U.S.-EU sectoral arrangement as it has been described so far is not going to work. She says: "Reaching a similar agreement with China, the world’s largest steel producer, to reduce tariffs contingent on climate action could do even more to advance emission goals." Yes, it could be helpful if this kind of agreement with China were to be negotiated. However, when you take into account that dumping and market-orientation are a part of this arrangement, it becomes clear that there is zero chance the Biden administration is going to reduce tariffs on Chinese steel even if somehow that steel could capture carbon like a peat bog.

Finally, it is worth noting that there is something to her statement that "[t]he trade regime can also catalyze significant climate action through the removal of tariffs." Yes, it can. For example, removing tariffs on clean energy goods through an Environmental Goods Agreement would be very helpful for climate change. But the Biden administration does not seem interested in this, and that's not what the U.S.-EU sectoral arrangement is.

Latest Fisheries Draft Addresses US Concerns on Forced Labor

On November 8, 2021, a revised draft text and explanatory note on the WTO fisheries subsidies negotiations was released by the Chair of the talks, Ambassador Santiago Wills of Colombia. Some changes were simply editorial, others substantive, and some adjustments reflected areas for which more discussion was still needed. Taken as a whole, the updated fisheries text presents a fine balance of compromises, and could get WTO Members closer to finalizing the deal. While there could be significant movement over the next two weeks that could tweak the text further, there is one issue worth highlighting now, particularly as it relates to US concerns—forced labor.

The United States made a proposal in May 2021 to include provisions on forced labor. According to the press release from USTR:

The proposal urges WTO Members to help address this global problem in the ongoing negotiations to curb harmful subsidies to fishing activities that may be associated with the use of forced labor, such as illegal, unreported, and unregulated (IUU) fishing….

The U.S. proposal also calls for WTO Members’ explicit recognition of the forced labor problem and the need to address it, and proposes additional transparency with respect to those vessels or operators that use forced labor.

Some Members considered the proposal to come late in the negotiating process, but with a change in administration in the United States, such an intervention was entirely possible. While the US proposal did not make it into the last versionof the draft text that was released in June 30, 2021, due to the fact that there was little time to substantively discuss it, elements of that proposal now appear in the latest draft.

For those of you who are acquainted with my research on the WTO committees, you have likely guessed that the first provisions I would jump to are those on notification and transparency, currently found in Article 8 of the draft fisheries text. Article 8.2 now includes a transparency requirement for Members to submit notifications of:

(b) [any vessels and operators for which the Member has information that reasonably indicated the use of forced labour, along with relevant information to the extent possible; …]

The Chair’s explanatory note suggests that this is still an issue up for consideration given the “different views” of Members on its inclusion. As Simon has noted earlier, much of the differences reflects disagreement between the United States and China, although other Members certainly have their own opinions on the matter. But this is not an issue that can’t be overcome, especially on transparency. The removal of brackets on Article 8.1 (b) around “to the extent possible” and its repetition in 8.2(b) reflect, in my view, a balance of understanding that this transparency requirement is no more onerous than other notification requirements, and in fact, recognizes the particular challenge of monitoring and notification in the area of fisheries specifically.

Another change to the text that may have useful flow-on effects for addressing forced labor is Article 3.1, which now includes, in brackets, the US proposal:

3.1 No Member shall grant or maintain any subsidy to a vessel or operator⁴ engaged in illegal, unreported and unregulated (IUU) fishing [or fishing related activities in support of such fishing].

As the Chair’s explanatory note details, some Members are opposed to this change because “they said it would be incompatible with the mandate or with the current structure of Article 3 which is based on IUU fishing determinations” but that other Members see this as bringing “Article 3.1 into line with the scope of disciplines in Article 1.1, as well as with other disciplines that apply to both fishing and fishing related activities.” Reading through it, I could see a case to be made for both arguments, but the latter appears to be stronger given that language in Article 1.1 “has been generally acceptable to the Members thus far,” according to the Chair.

The addition to Article 3.1 is useful in that it ensures that vessels that support IUU fishing are also captured in the subsidy prohibition. These could be vessels that supply fuel, crew, provisions to IUU vessels and those that may transship the catch of IUU vessels. As those familiar with RFMOs have explained it to me, this is similar to how RFMOs seek to control IUU fishing, and would therefore be consistent with existing approaches. Of particular consequence may be those vessels that supply crew to fishing vessels, where the crew may be victims of forced labor. We do know that vessels and operators engaged in IUU fishing tend to be more likely to have poor labor standards and also engage in forced labor practices. So while the addition to the text does not directly relate to forced labor, it may still provide important language to help address the issue nevertheless.

If these changes stay in the final deal, this does look to be enough to address US concerns over forced labor in fisheries. Beyond this, there really does not seem to be a need to include additional language, such as a chapeau to Article 3 as detailed in the US proposal, which reads:

Members recognize that the use of forced labor on fishing vessels is often associated with IUU fishing, and therefore that effective disciplines on subsidies to vessels and operators engaged in IUU fishing or fishing related activities in support of such fishing can contribute to Members’ efforts to eradicate forced labor on fishing vessels.

The inclusion and revision of the above two provisions (Articles 8.2(b) and 3.1) is enough to suggest that Members recognize forced labor on fishing vessels as an issue that should be addressed, and any additional language would not likely advance efforts to tackle this problem, or enhance the instruments already offered up in the current draft text. It also risks abandoning the real achievement that could be secured with the current draft. Including language in the preamble on forced labor is equally not necessary, and risks elevating perceptions of imbalance that will make it difficult to conclude the deal. Preambular language is also not required to address disagreements over the mandate, described in the Chair’s note at para. 129 in reference to Article 8.2(b) that “some other Members have expressed opposition on the basis that this issue is outside of the WTO’s competence.”

The US has raised important concerns regarding forced labor, and the fisheries negotiations provide an opportunity to generate an ongoing dialogue on this topic through committee work. As Erik Wijkström has observed in the context of the TBT Committee, this “regular work” can help develop “consensual understandings” and offer a forum for Members to share best practices and raise concerns about actions in an effort to resolve disputes before they arise. The transparency provision that now appears in the draft text could go a long way to embedding discussions on trade-related labor issues at the WTO in the long-run. It also provides an opportunity for WTO Members to submit counternotifications where they may be concerned about the forced labor practices of another Member.

It’s important to keep in mind that this issue is but one of many components that will be part of concluding the fisheries talks. The text must be approached holistically to comprehend the full balance of objectives to be achieved. On special and differential treatment, for instance, there are critical interlinkages that would impact the level of ambition the agreement can achieve (I have a lot more to say on this point, but will save it for more detailed observations I will share later this month). That said, the current draft brings the fisheries deal within reach. But we could risk getting hung up on the smaller points of disagreement—if the United States pushes for more references on forced labor that are not required— and lose sight of the broader goals that can be achieved.

More on the U.S.-EU Section 232 Deal Affecting Carbon Emissions: A Response to the Response by Tim and Todd

Thanks to Tim Meyer and Todd Tucker for taking the time to respond to my questions about how the U.S.-EU Section 232 deal could lower carbon emissions. Not surprisingly, their response raises more questions for me, and I am still skeptical that this new arrangement will lead to lower emissions. I have some very specific questions and comments in this regard in reaction to what they said, and I also have some broader questions that make me wonder whether this approach is at all workable.

First, let me talk about the domestic side of the equation. In my view, the best way to approach the issue of reducing the carbon emissions that result from manufacturing is to first take domestic action to address your own carbon emissions problems, and then come up with an international component that roughly matches the domestic action. What you will end up with, ideally, is something close to a non-discriminatory set of regulatory/tax measures that apply both internally and externally. On this point, Tim and Todd suggest that the U.S. is "contemplating ... subsidies for industrial decarbonization in Build Back Better and the Bipartisan Infrastructure Bill." (Perhaps what they have in mind here is Sec. 30471 of the House Build Back Better Act (see p. 459).) I have some doubts about how much impact this will have on the carbon emissions of the U.S. steel and aluminum industry, but assuming it did, that would be a start. Opening with carbon tariffs is a bad move, in my view, and genuine efforts at domestic improvements are a better approach. So, let's see what happens with reducing U.S. steel/aluminum industry carbon emissions through the Biden administration's infrastructure plans. That could help illuminate whether a carbon tariff plan has a chance to make an impact on emissions. (I should point out that domestic producer subsidies of the sort contemplated here are often problematic, in the sense of leading to trade conflict. Subsidies to purchasers of clean steel/aluminum might be a better way to go).

Second, I'm sorry to have to point to trade remedies again, but if the Biden administration's plans involve subsidies, well then we're back to the sort of problems I raised in my original post. To the extent the U.S. industry is thinking about exporting its new and improved, squeaky clean steel and aluminum, these subsidies could subject it to countervailing duties. Of course, maybe they aren't expecting to export much, in which case it's less of a problem. But if they actually did have the cleanest steel and aluminum, I'm not sure why they wouldn't be trying to market it that way and sell it all around the world.

Third, staying on the trade remedies theme, I really think the fundamental flaw here is the linking together of dumped and dirty products. Tim and Todd say: "the arrangement will result in an ever-expanding wall against dirty, dumped steel and aluminum." But everyone needs to understand (and I think most readers of this blog do) that you can't expect companies to stop dumping. Generally speaking, it's not something they know they are doing. It's not a choice, like, "hey, let's dump our products in this foreign market," and companies won't generally know if they are dumping before some trade remedy agency tells them they are. It's not easy to run an internal calculation of whether your pricing practices will lead to a finding of dumping. (No doubt it can be done, at least to some degree of accuracy, but it would be costly). Rather, for the most part, dumping just involves a set of calculations that, if carried out in a certain way, will lead to a finding that you are dumping. Just about everyone can be found to be dumping under the right methodology. Now, if the issue is with government distortions to markets, that's something you could try to target. (I would very much like to see Tim and Todd push for action against government distortions to markets, and I was excited to see their reference to "market orientation"!) But if you are setting up this new arrangement in such a way as to target both "dumped" and "dirty" products, you may be asking too much. If a foreign producer needs to satisfy both conditions, all their efforts to clean up emissions could be for naught in terms of getting access to the U.S. market. As I said in my original post, if you could set this up in a way that clean steel and aluminum could avoid tariffs regardless of whether there was dumping, then you might be able to create some good incentives to reduce carbon emissions. But I don't think the domestic industry and unions are going to go for that. And in addition, also as mentioned in the original post, while governments could offer domestic incentives for cleaner production, avoiding the carbon tariff only to get slapped with a countervailing duty because of the subsidies would be really annoying. 

Fourth, the response from Tim and Todd makes specific reference to China, and China is clearly one of the keys here. But China's imports of these products are already severely restricted by existing AD/CVDs. I'm not sure this new arrangement will give them much in the way of an incentive to decarbonize production. China's distorted steel sector is a famously difficult problem, and we should definitely think about what actions to take in this regard, but unilateral trade restrictions have been tried to death and don't hold much promise here. Maybe try going to the WTO and invoking some of the expansive WTO-plus accession protocol provisions China agreed to? Worth a shot, in my view.

Turning to the broader questions, I want to make two related points that touch on the credibility of the whole exercise. If I'm in the shoes of India, or Brazil, or South Africa, I might have a negative reaction to all of this for two reasons: 1) It doesn't seem fair to focus so much on industries where U.S. production is relatively clean; and 2) given U.S. per capita carbon emissions, the U.S. isn't really in a position to be telling other countries to clean up.

On the first one, what seems to be happening in the Section 232 deal is that the U.S. is choosing to make steel -- I'm less sure about aluminum in relation to its comparative carbon emissions -- the focus of its carbon emissions plan for industrial manufacturing. However, that's not a neutral and objective choice, picked randomly from a ping pong ball machine. Rather, it seems like a strategic decision to focus on an area where we think we won't have to do as much in terms of cleaning up. I would expect other countries to push back on this. They might say something to the effect of: "Hey, you can't just pick steel because your production does well there. Let's talk about production in a wide range of sectors, and throw in some where your production is dirty and you actually need to do some work."  (This point is connected to a general complaint of mine about trade negotiations, which is that everyone wants the agenda focused on other countries' sins, not their own sins. In my view, this is a big reason why we've had so much trouble getting significant WTO deals finished.) 

On the second one, when you look at comparative figures for per capita carbon emissions, the United States doesn't fare so well. That's something that developing countries who are being told to clean up their production notice. And that takes me back to a point I made above. If I were the Biden administration, I would really focus heavily at the start on reducing domestic carbon emissions. That would add some credibility to efforts to push other countries to reduce their own emissions. The Biden administration is talking a lot about reducing carbon emissions. We'll see how far that goes in practice.

Let me sum up this way. I think there is a way to get to lower carbon emissions in these and other sectors. My main objection is to using "restrict access to their markets for dirty steel and limit access to countries that dump steel in our markets" as the key principle on which the effort is based. Instead of this, I would try to identify the most carbon intense production practices and facilities in these and a number of other key sectors around the world. Then I would try to put together a funding mechanism that helps reduce emissions at the dirtiest ones in a balanced way. In contrast, I think that converting existing tariffs that trading partners thought were unjustified into a new version of the same tariff, with an ostensibly different justification, in order to induce changes in behavior among our trading partners even though it's not at all clear we are particularly virtuous, is the wrong approach and is unlikely to have much success.

Is Weakening the Antidumping Jurisprudence an Essential Condition to Recuperate the WTO?

Former Deputy Director-General Alan Wm. Wolff appears to think so.  In his remarks (“Defining Success for MC12”) delivered at Harvard JFK School on October 29, 2021, Wolff spelled out several candid, and controversial, prescriptions to revive the currently languishing WTO enterprise of both negotiation and dispute resolution.  Here are some relevant excerpts from his remarks:

“An overarching principle is that the WTO is to provide fairness – in line with the founding of the system; part of the answer is to restore trade remedies to their rightful place in the system.”

“The dispute settlement pillar; Quasi-judicial overreach; trade remedies are not to be treated as exceptions to the rules.”

“Re-balancing; Trade remedies are recognized as a necessary price paid for greater openness on average.”

I suspect the enduring popularity of antidumping measures, for either political or intellectual reasons, is here to stay in the contemporary U.S. trade circle.  Jennifer Hillman, former Appellate Body member-turned-academic expressed similar views that demand more deferential standards of review from the Appellate Body, which would undo its current “zeroing” jurisprudence. 

I beg to differ.  Like many scholars, I believe antidumping remedy is fundamentally anti-competitive, catering to the narrowly-defined special interests at the expense of both national and global economic welfare.  Former Federal Reserve Board Chairman Alan Greenspan observed that:

"While these forms of protection have often been imposed under the label of promoting “fair trade,” oftentimes they are just simple guises for inhibiting competition. (…) Contrary to popular notions about antidumping suits, under U.S. and WTO law, it is not required to show evidence of predatory behavior, (…).”

After all, the WTO is an international organization that actively promotes “free trade.”  To what extent should the titular “managed trade” be tolerated in the name of political expediency within a legal organization like the WTO?  Note that it was the European Union that had accepted the Appellate Body’s first-ever anti-zeroing decision (EC – Bed Linen) in 2001.  It then began to challenge the same practice by the U.S. government in the WTO, triggering a series of anti-zeroing case law authored by the Appellate Body.  Isn’t it the “rule of law” that characterizes the merits of the WTO system?  Isn’t it the “rule of law” within the context of the trade organization that disciplines an individual member’s political preferences leading to protectionism?  Do we really want to go back to the old GATT system, which late John Jackson portrayed as “power-oriented”? 

In sum, we must see through what we will have lost before jumping to any solution that might seem obvious in a political sense.

Response from Tim Meyer and Todd Tucker: How Exactly Would the U.S.-EU Section 232 Deal Affect Carbon Emissions?

Guest post from Timothy Meyer (professor of law and the director of international legal studies at Vanderbilt Law School) and Todd N. Tucker (political scientist and director of governance studies at the Roosevelt Institute). Follow them @Tim_L_Meyer and @ToddNTucker.

The United States and the European Union announced a pathbreaking deal this past weekend on trade in steel and aluminum. The deal has two components. First, the United States agreed to lift its 25% tariff on steel imports and 10% tariffs on aluminum imports from the EU, and the EU agrees to stand down on both WTO disputes against the United States as well as retaliatory tariffs. Second, the US and EU agreed to work on a “Carbon-Based Sectoral Arrangement on Steel and Aluminum Trade.” The specific terms of this arrangement will be negotiated over the next two years, but we do know a few things: 1) the parties will “restrict access to their markets for dirty steel and limit access to countries that dump steel,” and 2) the arrangement will be open to third countries to join so long as they meet criteria relating to “market orientation and reducing trade in high carbon-steel and aluminum products.”

Our friend Simon Lester has questioned how this arrangement will reduce carbon emissions. Any answer about the specific mechanics is necessarily preliminary because the US and the EU have given themselves until 2024 to work out the details. Even the legal nature of the deal appears up in the air, with the US and EU referring to it as an “arrangement,” rather than an “agreement” – a choice of verbiage that suggests that the final instrument may be non-binding as a matter of international law. Having said that, we do think the broad strokes of how the arrangement might work are fairly clear.

First, as we have written in our proposed Green Steel Deal, the restrictions on market access for dirty steel should be paired with domestic investments in the US and EU on further greening the sector. Indeed, it is the restrictions on market access for cheap, dirty steel—along with domestic measures that both the US and EU are already contemplating, such as subsidies for industrial decarbonization in Build Back Better and the Bipartisan Infrastructure Bill in the US or the EU’s revisions to its Emissions Trading Scheme as part of its FIT for 55 plan—that will create the space for further investment and innovation in green metal production. Put differently, the US-EU arrangement is a complement to and further supports a series of domestically-focused measures in both jurisdictions. It recognizes that in a globally integrated economy, domestic policy and international trade policy must work hand in hand.

Second, the arrangement creates an incentive for countries to green their sectors in order to join the arrangement and gain market access in the US and EU. The theory here is pretty straightforward. Members of the arrangement will have to meet criteria (to be negotiated) regarding both green production of steel and aluminum and market orientation, in order to address overcapacity. In other words, domestic reform in exchange for market access.

Critically, the arrangement will result in an ever-expanding wall against dirty, dumped steel and aluminum. Remember, parties to the arrangement will impose market access restrictions on dirty, dumped steel, backed by strong rules of origin like that now applicable to imports from the EU to the US. Thus, any new members will not only have to invest in domestic reforms in their country that should lower carbon emissions; they will also reduce carbon emissions by drying up markets for the dirty steel produced in countries like China. Each country that joins thus reduces the incentive for, e.g., China to continue to produce dirty steel by reducing the market for that product. Indeed, we see no reason why countries that are primarily consumers of steel and aluminum might not be induced to join (perhaps if membership is tied to other kinds of benefits) and thus shift consumption from dirty steel to clean steel produced within club members. If those countries do not produce significant amounts of steel or aluminum, there are few costs to adopting green standards. The adoption of those standards in law now could, in turn, set those countries on the path to developing clean metal industries should they ever enter the field.

Moreover, the possibility of particularly severe market access restrictions – such as a ban on the import or sale of dirty steel in US and EU markets – sends one of the strongest signals to China yet that investing in decarbonizing its steel sector could be the key to the industry’s thriving past the decade. There’s no reason a priori to think that China could not or would not do so. As one of us (Tucker) wrote with Bentley Allan on the Washington Post’s Monkey Cage blog earlier this week, China’s vast policy bank apparatus enables it to do industrial conversion much more easily than in the US, that essentially lacks those types of institutions at present. Indeed, the US-EU deal is an example of what David Victor and Chuck Sabel call “penalty defaults that destabilize the status quo and motivate innovation.” This could be the impetus China needs to take its already substantial investments in green hydrogen (a key input to the green steelmaking process) and better systematize them. China currently supplies the majority of the world’s steel: if it wants to keep that position on international markets, or even remain competitive, the conversion starts to make a lot of business and common sense.

Simon worries that this mechanism will not work in practice because existing US and EU trade remedies on steel imports are so high that the additional restriction on imports from non-members of the arrangement won’t be enough incentive to join the club. That, though, is ultimately an empirical question to be answered during the next two years. If during negotiations it appears to the US and EU that 25% and 10% is not high enough, they can set the tariffs higher or choose other kinds of market access restrictions (we proposed banning dirty steel entirely, both domestically and via import, after a sufficient transition period).

Moreover, there is something odd about worrying that countries won’t be willing to take costly steps to remove the existing tariffs on metal imports. Since those tariffs were imposed 3 years ago, countries have complained bitterly about them and a number of countries—including the EU, Canada, Mexico, South Korea, Brazil, and Australia—have tried with varying degrees of success to negotiate their way out from under those tariffs. So the evidence is, actually, that countries will take measures to avoid 25% and 10% tariffs on steel and aluminum, respectively. The US-EU arrangement is just the process of turning that leverage into action. The relative market access advantage of club members over non-club members in club markets is a prize that rational exporters will push their governments to seek out.

Finally, there is a normative and political dimension to all of this. As Lauge Poulsen and Emma Aisbett have written, diplomats like joining things. The US and EU have announced a new in-group that there will be bureaucratic, media, and popular pressure to join – both to be on the right side of history and simply “in the room where it happens.” Not all political systems will be equally responsive to all of these mechanisms, but this dimension of the deal isn’t nothing.

How Exactly Would the U.S.-EU Section 232 Deal Affect Carbon Emissions?

I've seen some talk on Twitter and elsewhere about the "Carbon-Based Sectoral Arrangement on Steel and Aluminum Trade" part of the U.S.-EU Section 232 agreement, as the White House referred to it, with people seeming to suggest that this is a big deal (a "green steel deal") and will lead to lower carbon emissions in the steel and aluminum industry. I've been puzzling over something for a couple days now, and I can't figure out an answer, so let me just put a question out there for Tim Meyer or Todd Tucker or any other supporters of this approach: How exactly will this arrangement lower carbon emissions in the U.S., the EU, or other countries?

The most obvious response is probably that by creating a club of countries who have relatively clean steel and aluminum production, with tariffs imposed on steel and aluminum imports from countries that are not part of the club, you can induce them to clean up their own production in order to get access to the club. I assume the supporters have some variation of this in mind. But if that's the argument, it raises a number of specific questions for me.

First, will there be any efforts to improve U.S. and EU carbon emissions, or is everyone just accepting that the U.S. and EU are clean enough right now and the status quo in these two places is OK and thus the focus will be on pushing others to lower their emissions? (For what it's worth, figuring out emissions by country is a challenge, and there is a lot of variation within countries, but here are some reports on it.)

Second, in terms of the other countries, there are probably a number of countries that are similar in emissions levels to the U.S. and the EU, while other countries do worse. 

For those countries that are at similar levels, my question is, are their emissions fine as is and they can just join the club right now, or will there be efforts to push them lower?

But the key issue here, of course, is the countries with dirtier steel and aluminum production. With respect to those countries, my question is, what are the tools that are going to be used to induce them to lower their emissions? In theory, you could impose a 25% tariff on these products if they are dirty, and remove the tariff when they get clean. But as just about everyone probably knows, trade in these products is already so heavily restricted by existing AD/CVD orders that the imposition and removal of a 25% tariff is not likely to have much of an impact here. Now, what you could do is remove all the tariffs on these products, including the trade remedy tariffs, after their emissions are clean, but it seems unlikely that the steel industry would ever go for that. So, in this high tariff environment, I'm not sure being able to join this new club acts as much of an incentive to clean up emissions.

It's worth noting at this point that this new arrangement is not just about carbon intensity of production, but also about traditional "unfair trade" issues, as the White House fact sheet states: "the United States and European Union will work to restrict access to their markets for dirty steel and limit access to countries that dump steel in our markets, contributing to worldwide over-supply." With the two issues intertwined like this, I'm not sure there is any scope for the arrangement to use the power of the U.S./EU markets to induce lower carbon emissions in our trading partners. As "dumping" is currently defined in domestic law, it's not easy for companies to stop dumping (unless they just stop selling to the market in question), and domestic industries and investigating authorities will use the flexibilities in the law to keep out imports of these products. So just to reiterate what I said above, as long as unfair trade laws are in place, I'm not sure the carbon tariff aspect can offer much of an incentive for changing carbon producing behavior.

With all this in mind, my broad and general question is, how does any of this lead to lower carbon emissions in the steel and aluminum industry? Which countries are going to feel pressured to make changes in their domestic production? China? India? Brazil? South Africa? China is probably out, because there is no way I can see that imports of steel and aluminum from China are going to start flowing into the U.S. and EU any time soon, even if they make their steel and aluminum solely with geothermal power and plant a million new trees. But what about the others? Could they clean up their production so that it produces less emissions and therefore gets easier access to the U.S. market? Putting aside the previous points about trade remedies, in theory they could do this. But it would take some money, and that money probably will have to come from the government, which of course brings the trade remedy issue right back in, because it means that U.S. and EU producers will bring countervailing duty cases against these subsidized imports. Thus, the 25% carbon tariff would simply be exchanged for an uncertain, and quite possibly much higher, countervailing duty.

That's as far as I've gotten with all of this at the moment, but if any of the advocates of this new arrangement who think it's going to bring down carbon emissions can explain how it will do so, I'd love to hear it!

Some Thoughts on the U.S. - EU Section 232 Tariff Agreements

The big trade news over the weekend was a resolution of the U.S. - EU Section 232 tariff disputes. Two key documents are this USTR fact sheet and this EU-US joint statement. The core of the agreement is as follows:

The United States will replace the existing tariffs on EU steel and aluminum products under Section 232 with a TRQ under Section 232.  Under the TRQ arrangement, historically-based volumes of EU steel and aluminum products would enter the U.S. market without the application of Section 232 tariffs to meet the demands of downstream users.

There are a number of other potentially important aspects as well, some of which I'll mention below. Here are a few thoughts I had on these developments so far.

1. Is any of this legal? I have doubts that the new U.S. TRQs are consistent with WTO law, but the original measures were of questionable legality, as was the retaliation, so I'm not sure it's worth getting too worked up over the legal aspects here (although they are certainly interesting as an intellectual exercise).

2. Politics often leads to bad policy. I would have preferred a straightforward repeal of the Section 232 tariffs, but I don't have to deal with the same political constraints the Biden administration does, and I can see how they did the political calculation that pushed them in this direction. I wish they would double-check the math on the calculation, but regardless, they have elections to fight and there are groups whose support they need.

3. How economically harmful will the new TRQs be? In terms of the economic impact of the new arrangement, the precise figures for the TRQs are the key to whether there will still be some lingering restrictiveness under the measures. If you make the in-quota amount for zero tariffs large enough, the measure will not restrict trade much. If, however, the amount is on the lower side, it can trigger various kinds of trade disruption in the implementation. Borderlex reported the figures as 3.3 million tons for steel, plus exclusions worth 1.1 million tons; for aluminum, 18,000 metric tons of unwrought aluminum and 366,000 metric tons of semi-finished wrought aluminum. But I can imagine there will be some uncertainties in how this is implemented (e.g. what are the rules of origin for determining whether something qualifies as EU steel).

4. Similar agreements with other trading partners are on the horizon. Despite any economic or legal concerns I have with the new arrangement, I think it puts us in a better place than we were, and I hope the Biden administration negotiates similar arrangements with other countries. The U.S. fact sheet suggests this might happen: "The United States looks forward to partnering with other trading partners and key stakeholders to address the common global challenge of steel and aluminum excess capacity." (It probably won't happen between the U.S. and China, of course, but imports of Chinese products are so restricted anyway by normal trade remedy measures that I'm not sure it would make much difference).

5. "Working with allies" is happening. I think the Biden administration is doing a pretty good job on "working with allies." With regard to the EU, we now have Boeing-Airbus and Section 232 tariffs out of the way to some extent, and the new Trade and Technology Council providing an opportunity for productive conversations.

6. The WTO panels can stop their work. It's great that the EU-US WTO disputes related to the Section 232 tariffs and the retaliation have been suspended. I've been skeptical that WTO disputes are productive in situations where one party is invoking national security.

Also, there is an interesting agreement to use DSU Article 25 if they to pick up these disputes again at some point.

7. Is there much hope for the carbon initiative? The U.S. press release has this statement from Ambassador Tai: "The first ever carbon-based arrangement on steel and aluminum trade contemplated by the agreements would create greater incentives for reducing carbon intensity across modes of production of steel and aluminum made by American and European companies." A White House fact sheet on this issue is here, and says:

Together, the United States and European Union will work to restrict access to their markets for dirty steel and limit access to countries that dump steel in our markets, contributing to worldwide over-supply. This arrangement will be open to any interested country that wishes to join and meets criteria for restoring market orientation and reducing trade in high-carbon steel and aluminum products.

I feel like the Biden administration and other folks on the left are going to have a lot more trouble than they think with getting U.S. industry on board with their decarbonization goals. The industry will always support restricting access to the U.S. market, of course, but I'm not sure how excited they -- some producers in particular -- will be about reducing carbon intensity as a general matter. As a result, I'm not convinced this cooperation is going anywhere in the short-term (beyond measures such as tariffs on Chinese steel due to its carbon intensity, but we already have tariffs on Chinese steel). The industry may just play along, while also watching the political calendar to see whether this might all go away at some point.