Expanding US Free Trade Agreements in Pursuit of Clean Energy and Trade Justice
Steve Charnovitz
26 January 2023
In 2022, the United States (US) Congress passed yet another statute (US Public Law 117–169) violating the law of the World Trade Organization (WTO). One provision of that statute has received considerable foreign objections because it conditions new US automobile subsidies on domestic production with an exception provided for countries with which the US enjoys a "free trade agreement." This non-market localization practice is itself a violation of WTO subsidy rules. Moreover, governments without a US free trade agreement, such as Japan and the EU, have rightly complained about the injustice of the US discrimination against them. As I have written, every time the US violates international law, the US implicitly encourages other scofflaw countries to violate international law.
Because the new US subsidies are premised to some extent on a purpose of combatting climate change, the subsidies also contradict one of the core principles of the United Nations Framework Convention on Climate Change (UNFCCC) which declares that "Measures taken to combat climate change, including unilateral ones, should not constitute a means of arbitrary or unjustifiable discrimination or a disguised restriction on international trade" (Art. 3.5). This UNFCCC rule was justified because domestic protectionism and its related inefficiencies is a suboptimal way to control global warming.
Ideally, the US would have free trade agreements with its closest allies including the European Union (EU), the United Kingdom, Japan, Ukraine, Uruguay, New Zealand, and Taiwan. US disinterest in negotiating free trade agreements continues to dampen the US economy and to hamper opportunities for more effective US foreign policy. The Democrat-led US House of Representatives is partly to blame because it stood by idly as the US fast-track trade negotiating authority process expired in July 2021. But most of the blame should go to the successive Obama, Trump, and Biden Administrations which have all failed to launch or complete free trade agreements with new partners.
In response to continuing complaints from the EU and Japan about the discriminatory US electric vehicle (EV) subsidies, US Secretary of the Treasury Janet Yellen has recently pointed to an option of new US trade agreements with Japan and Europe (see Andrew Duehren, "Janet Yellen Expects EV Subsidy Rules to Prompt New Trade Deals," Wall Street Journal, 24 January 2023). Given the high net benefits of free trade and globalization for US companies, workers, and communities, I strongly support the idea of new US trade deals as a solution to the problems caused by the US violation of WTO and UNFCCC law.
Although any WTO-inconsistent provisions in US law should be repealed, in US Public Law 117–169, the conditional subsidy for countries with a "free trade agreement in effect" does provide policy space for the US to negotiate new free trade agreements with nations that produce EVs and their components. Any such free trade agreement, of course, should fulfill the rules in Art. XXIV of the WTO General Agreement on Tariffs and Trade (GATT) which requires that a "free-trade area" meet the condition that certain "duties and other restrictions on commerce" be "eliminated on substantially all of the trade" between the constituent territories.
A comprehensive free trade agreement that truly provides free trade in all goods would meet this requirement. Yet in this era of trade-related economic fear and insecurity, one doubts that any of the parties – the US, EU, or Japan – would be ready to achieve that much mutually-beneficial economic integration. In other words, there is a conundrum that while new WTO-consistent free trade agreements would fulfil the arcane and protectionist provision in US law and address the complaints of the EU and Japan, none of the three countries would seem politically ready to use that solution.
Yet there may another, less scary, solution. GATT Article XXIV:5 also countenances an "interim agreement necessary for the formation of" a free-trade area provided that such agreement "include a plan and schedule" for the formation of a free-trade area "within a reasonable length of time." Given how slowly international trade progress now moves (e.g., the WTO Doha Development Round commenced in 2001 with only a small portion of it achieved by 2022), a "reasonable length of time" might now be many decades long. Thus, the US, the EU, and Japan could commit to a plan that launches negotiations for a free trade agreement with a soft target date of 2050. The net zero carbon emission goals for 2050 could be symmetrically matched with a 2050 goal of zero tariff pollution.
