International Economic Law and Policy Blog

Biden’s ‘Do as I Say, Not as I Do’ Approach to Trade and Industrial Policy Could Harm America in the Future

On June 15, United States Trade Representative Katherine Tai delivered a major trade policy speech advocating for the development of “resilient supply chains” to promote greater national” and economic security. It is difficult to argue with such a goal; resilient supply chains are obviously beneficial for many U.S. businesses, as well as for consumers and workers. Governments and stakeholders around the world have learned in the past three years, often painfully, that long supply lines are dependent on pandemics, natural disasters, and the discretion of foreign governments, and that they are subject to changing restrictions based on national security. It has become clear that “just-in-time” operating procedures should be replaced with a more prudent “just-in-case” business model. And the policy is strongly supported by manufacturing labor unions, many U.S. companies that are competing with imports,  and their supporters in Congress.

That being said, it will be difficult to implement such objectives without the U.S. broadly if implicitly endorsing other nations’ right to promote their own “resilience” and “national security. ” For many other nations, —including the United States’ major trading partners, this "resilience” approach will be viewed as simply a different way of describing the “buy American, invest American, employ American workers” protectionism that has been the hallmark of trade policies under President Joe Biden and the Donald Trump administration before him. The risk is that legitimate national and economic security concerns could morph into even more protectionist trade and industrial policies, with subsidies and  import and export bans as well as broad local content requirements.

Few in the U.S. would quarrel with the need to reassert American leadership in the development of innovative technologies for sophisticated chips, and, as the global auto market shifts from combustion engine-powered vehicles to electric vehicles, major EV components and batteries. As Tai observed in her speech:

[T]he United States faces new challenges to its economic standing in the world, including unfair competitive pressures from foreign monopolies and firms that are state-owned or state-sponsored, or whose market power is directly supported by foreign governments. We must act now to reverse these dangerous trends, which constrain the growth and dynamism of our economy, impair the creation of high-quality jobs, and threaten America’s economic standing in the world.

Moreover, protectionism in the U.S., and even its opposition by major trading partners, is not a new phenomenon. Pascal Lamy, former director general of the World Trade Organization (WTO), has noted:

In Europe and elsewhere, the adoption by the US Congress of the Inflation Reduction Act (IRA) was a thunderclap because of the protectionist nature of certain provisions allowing subsidies for vehicle electrification which are contrary to international trade law. ... After the Trump presidency and its tariff aberrations, the US under the Biden-Harris administration was expected to respect its multilateral commitments within the WTO. But this naive view ignored the fact that the [U.S.] shift began about 15 years ago, and that it is the product of structural forces whose actions have gradually modified the political balance in favour of trade openness that had prevailed in Washington, not without some lurching, since the 1950s.

Unfortunately, the administration will face many challenges to the effective pursuit of its goals, including the production of goods with domestic content requirements. In the case of EVs, for example, these requirements will increase production costs, making them a driver of domestic inflation, discourage consumer purchases  and make EV producers in the U.S. less competitive with auto producers elsewhere in the world.

The administration’s domestic focus could also weaken the world trading system as it has developed over the past 75 years. After all, the United States has been a strong (and accurate) critic of China’s industrial policies, including its massive, WTO-inconsistent subsidies and the policies stemming from its “Made in China 2025” strategic plan. Through the plan, China openly seeks to establish world dominance in EVs, semiconductors, robotics, information technology, artificial intelligence, and other areas.

Current U.S. practices are different in degree but not in kind. This is particularly true for the EV and chip subsidies recently included in the Chips and Science Act (Chips Act), and the poorly named and drafted Inflation Reduction Act (IRA), much of which also appear inconsistent with WTO rules —although it seems that this is no longer relevant to White House or congressional decision-making. (The U.S., of course, is not alone in having used subsidies in its industrial policies, today or in the past.) Among other things, current U.S. industrial policy makes it much more difficult to castigate flagrantly illegal Chinese subsidies or rules that give preference to domestic, rather than imported, components, with any degree of credibility.

Moreover, as the U.S. moves further in this direction, other WTO members inevitably will imitate our policies and ignore any objections we raise on the grounds that the U.S. acted first. China, of course, is multiple decades ahead of the U.S. in its use of industrial subsidies and other protectionist measures and has learned to ignore WTO rules. More significantly, it seems inevitable that the EV and EV battery subsidies included in the IRA  —which exclude trading partners that lack free trade agreements with the U.S., including the European Union (EU) and Japan —, will encourage retaliation from other countries. The Chip Act subsidies exclude chip production that is not located in the United States. In order to discourage foreign chip producers from moving their production to the U.S. instead of expanding at home, they are likely to enact competing  subsidy programs.

Tai and National Security Advisor Jake Sullivan appear not to realize that when the White House emphasizes the overriding importance of restructuring supply chains for greater U.S. national and economic security, it is effectively forcing many other governments, including major trading partners and close allies such as the EU, South Korea, and Japan, to adopt similar policies to protect their own national and economic security (and their own producers and workers).

As trade expert Simon Lester wisely observed:

[W]here things get difficult is when you add foreign governments to the equation. What if these governments start worrying about ‘resilience’ and ‘economic security’ too? What if they decide to use domestic content requirements that keep U.S. products out? What if they ratchet up their subsidies and put U.S. producers at a disadvantage? What if they take actions that restrict U.S. agriculture exports, or digital services exports, or aircraft exports? If they do, U.S. producers are going to be harmed, and these producers will press the U.S. government to take action.

It is worth noting that the U.S. in recent decades has objected not only to protectionism in China, but also inter alia to the highly protectionist policies of major countries such as Brazil and India. U.S. manufacturing exporters and agricultural producers are both struggling with barriers to market access in dozens of countries. What happens when, for example, such governments as Mexico (as they are today) argue that their “national security” requires prohibiting imports of genetically modified corn in order to protect their food sovereignty?

Anyone knowledgeable about past U.S. trade practices, such as Lamy, would never suggest that past U.S. policies have been devoid of protectionism, given various restrictions on the imports of sugar, tomatoes, shrimp, textiles and clothing, small trucks, steel, and peanuts, among other goods. At the same time, it could be argued that the U.S. has been less protectionist overall than other major developed countries, including Japan, South Korea, and the EU, particularly in recent decades. Meanwhile, it is clear that opening our markets to certain developing countries has caused American job losses, most significantly an estimated 3.7 million to China. Under such circumstances, an increase in U.S. protectionism is probably inevitable, and the best that can be hoped for — given the strong support of many members of Congress and the Senate, as well the current and most recent presidents — is that the policies will be administered with at least a modest level of good judgement. This should include an assessment of the risks for U.S. exporters, workers, and consumers, as well as for stakeholders in other countries.

If the risks become more evident in the medium term, as it seems almost certain they will, it may well be that the U.S. will need to draw back from its more extreme Buy American policies — cloaked in national and economic security — because they are not really achieving the desired goals and are causing problems which may or may not have been anticipated. As Lester posits:

U.S. trade policy is likely to end up where it has always been: Trying to achieve an international balance of protectionism that everyone can live with. The U.S. can try to influence that balance through unilateral measures, but that approach does not have a good track record. Where we inevitably [end] up instead is with a set of international rules — including bilateral, regional, and multilateral trade agreements — to govern things.

My principal concern is that by the time this realization occurs, climate change measures will have been delayed or partially abandoned, the U.S. economy will have been seriously harmed, and the global trading system will have been badly, perhaps irreparably, damaged. The WTO’s rules, including its dispute settlement mechanism, may have become irrelevant to members’ practices, not only for China and the U.S., but also the EU, Brazil, and India, among others. There is also a significant risk that the stricter and exceedingly complex Buy American rules will slow the adoption of EVs and clean power in the U.S., as well as increase their cost. A substantial recovery, even with the support of future U.S. administrations and other major trading nations, may require not years but decades, with adverse impacts for everyone and a decline in living standards worldwide — including the manufacturing workers in the United States that this administration is intent on protecting.

David A. Gantz

Will Clayton Fellow,

Baker Institute for Public Policy,

Mexico Center

June 26, 2023

 

 

Nikki Haley on Chinese Trade and Investment

At AEI today, Republican presidential candidate Nikki Haley gave a speech on the Future of US-China Policy, and in that context said some things about issues related to trade and investment with China.

First up, like many other people these days, she wants to revisit the decision to let China in the WTO:

China became a member of the World Trade Organization in 2001. This proved to be a fateful decision. America brought China into the WTO. Democrats and Republicans supported it. At the time, and for more than a decade after, there was a bipartisan consensus that this was all reward and no risk. Our leaders told us it would bring China into the modern economy and open its huge market to the world. They said it would make China more free, open and democratic, that China would become more like us.

I understand why this dream was appealing. We saw it happen with Japan after World War II. And then again with one Asian country after another. From South Korea to Singapore, they moved into the company of free and open nations. But not China. This American assumption proved disastrously false.

Our thinking neglected the role of communist ideology. The Chinese Communist Party didn't want to be like us. It still doesn't. China grew stronger by taking advantage of our open markets, but it also grew less free.

I found her reference to "for more than a decade after" useful, although not in the way she intended, because actions during that decade may have contributed to the U.S.-China trade problems we see today. If we had spent that decade focusing on China's integration into the world economy rather than getting caught up in the War on Terror, we might be in a better situation today. (Or it might have all come apart even sooner -- who knows! But I suspect it's the former.)

Next, she gives a mixed review of Trump's trade/China policies:

President Donald Trump deserves credit for upending this bipartisan consensus. He made both parties take off their blinders. Despite the divisions in our politics today, both parties are now more clear eyed about the Chinese threat that has been there for a very long time. That's a good thing. But being clear eyed is just not enough. It's not the same as having the right solutions and the necessary determination to protect America. President Trump was almost singularly focused on our trade relationship with China. He was right about [the] trade abuses. It was and still is a critical issue. But Trump did too little about the rest of the Chinese threat.

He did not put us on a stronger military foothold in Asia. He did not stop the flow of American technology and investment into the Chinese military. He did not effectively rally our allies against the Chinese threat. Even the trade deal he signed came up short when China predictably failed to live up to its commitments.

The question I'd like to put to all the presidential candidates is: How well do you think the Section 301 tariffs imposed by Trump (and continued by Biden) are doing to change China's trade practices, and would you suggest any alternatives?

Switching to investment, she says:

China treats our homeland like its personal playground. In recent years, Chinese investors have bought nearly 400,000 acres of land in our country. That's twice the size of New York City. We aren't just talking about any old property. China has bought miles of farms near sensitive military facilities. And China has taken a majority control of agricultural industries. This must end. The line between Chinese investors and the Chinese Communist Party is exceptionally thin. The national security risk is too great. We must prevent China from buying more land and force it to sell what it already has.

400,000 is a big number and sounds like a lot of land! But it's actually very little, both in comparison to what other countries own and in general.

On permanent normal trade relations, other politicians want to revoke it for China as a general matter, but Haley has a narrower suggestion here:

China is also behind the fentanyl crisis that's killing tens of thousands of Americans every year. Chinese companies make nearly all of the precursor chemicals that Mexican cartels turn into fentanyl. China cannot plead innocence here. It knows exactly what it's doing by putting these chemicals into the hands of the cartels. We've tried sanctions, but they're not working. We must ratchet up the pressure. As President I will push Congress to revoke permanent normal trade relations until the flow of fentanyl ends. If China wants to start normal trade again, it will stop killing Americans.

This is not a trade policy point, but I don't understand the fentanyl crisis very well. If China put a stop to selling those precursor chemicals, would people just get them from somewhere else?

Haley then lays out the following trade and security concerns:

That brings me to the second big policy shift. In addition to protecting our homeland, we must protect our economy. I'm a firm believer in economic freedom. But it has long been recognized that not all trade with trading partners is the same. The father of capitalism, Adam Smith, wrote in The Wealth of Nations that Great Britain's interest in preserving naval supremacy was more important than free trade in the maritime sector. Defense, he wrote, is of much more importance than opulence.

The challenge today is that national security is affected by almost every part of our relationship with China. No one understands that better than the Chinese. They have desperately pursued American investment and innovation, precisely to strengthen their military. American companies are banned from selling military hardware and services to China. But they still sell billions of dollars worth of goods to the Chinese market. We must look at these sales through a national security lens. Much of its military application simply slips through the cracks of US law. But Chinese law requires US companies to transfer technology to Chinese companies as part of the price of doing business on Chinese soil. This cannot continue. US businesses must recognize the threats to themselves and to our American security. Beijing's focus on military fusion demands it. China already steals up to $600 billion of American intellectual property every year. Our loss is the Chinese military's gain. Advanced technology is especially important. Right now our federal government keeps a detailed list of the most sensitive technologies that are dangerous to export. But it's not a blacklist. We still let companies send this tech to China. They just have to file the right application. It happens all the time. In 2022, the Biden Administration approved 70% of licenses for export in controlled technology to China. Think about it. We must end the export of sensitive technology to China, full stop.

And relatedly, she also lays out the following technology/investment/security concerns:

And we must keep China away from our biggest breakthroughs and cutting edge companies. We know Beijing wants to beat America in artificial intelligence, quantum computing and a host of other advanced technologies. We also know that American innovation is still the best in the world. The Communist Party knows that too. Their approach is basically, if you can't beat them, then buy them or steal it. We should block any Chinese purchase of an American company specializing in advanced technology. No more exports and no more acquisitions period. For that matter, we should have no more investments that undermine America. China can't buy certain technologies from American companies. But Americans can still invest in Chinese companies developing those same technologies. Talk about a loophole. It's a massive one. By one estimate. US portfolio investment in China rose $800 billion between 2017 and 2020 alone. Not all this money is funding military and technology breakthroughs, but much of it is. China's using our federally invested pensions to leapfrog America. The American people deserve better. I will protect our investors and our national security. No more investments in any company that helps the Chinese military or support the Chinese [Communist] Party, period.

Along the same lines as the speech, Haley said the following in a WSJ piece from yesterday entitled "My Plan to Confront the Chinese Threat":

Chinese investors have bought nearly 400,000 acres of American land, much of it near military bases. I’ll do everything in my power to prevent China from buying any more land and force it to sell what it already owns.

...

• Protect our economy. I’m a firm believer in economic freedom. But I also agree with Adam Smith that defense “is of much more importance than opulence.” National security is affected by almost every part of our relationship with China. Beijing knows it and uses American investment and innovation to strengthen its military.

American companies sell billions of dollars worth of goods in the Chinese market, much of it with military application. China also forces technology transfer and steals up to $600 billion of American intellectual property every year. I will push American businesses to leave China as completely as possible.

Advanced technology is especially important. The U.S. Commerce Department keeps a detailed list of the most sensitive technologies that are dangerous to export, but companies can still send them to China. In 2022 the Biden administration approved 70% of licenses for exporting controlled technology to China. I will end these exports.

Guest Post: WTO Overload: Time to Offload

This is a guest post by Bashar Malkawi, Global Professor of Practice in Law at the University of Arizona

The WTO system by and large is overloaded. Those who are involved in the WTO system frequently seek to extract more from the WTO system than the process can, practically and legally, provide. The boundaries of WTO have always been subject to debate, making the system susceptible to taking on more than it can effectively manage. In the past, there have been perceived threats to national sovereignty and the danger of too much International Trade Organization (an ambitious project which failed to receive adequate support in 1947) and later WTO intervention in markets. The WTO and its dispute settlement mechanism would prove to be too much supranational, creating unhappiness for some Members. Since its establishment, the interests of developing countries were inevitably pitted against those of developed countries at the WTO level. To remedy this situations, exceptions and extended periods of time for fulfilment of obligations, such as for compliance with the time limits for intellectual property reform, were the solutions. This at some point would lead to paralysis as things cannot move effectively, or at best move very slowly, under such conditions. As we have seen in recent years, there has been little enthusiasm for the broader free trade agenda that the WTO encourages, leading to an organization that cannot deal effectively with many current issues such as digital trade or trade in environmental goods.

The GATT 1947 was the beginning of a series of negotiations that ended up with the establishment of the WTO in 1994. Countries held eight rounds of negotiations which led ultimately to the birth of the WTO fifty years later with the successful conclusion of the Uruguay Round negotiations. Over the span of eight rounds, there has been a substantial increase in the number of the participating countries in those rounds, with the current membership numbering 164 nations. Countries shifted from negotiating tariff reductions to negotiating reduction of non-tariff barriers as they are being erected, such as voluntary export restraints or orderly marketing agreements. The GATT/WTO agenda covered traditional GATT subjects such as tariffs, non-tariff barriers, subsidies, and safeguards and then added intellectual property, services, agriculture and trade-related investment measures. Some of these WTO “related” topics are understandable, but there is disagreement to what degree the WTO should keep on adding new subjects to its mandate.

In one of its most impressive successes, the Uruguay Round negotiations creating the WTO provided a unified dispute resolution regime in the Understanding on Rules and Procedures Governing the Settlement of Disputes (DSU). Perhaps, it is fair to say that the dispute settlement mechanism under the WTO is the only rule-based body in the system. The WTO Appellate Body (AB) has been paralyzed since December 2019 and there is no indication that it will be revived in the foreseeable future. Over the years, the AB developed a strong tradition of precedents even though there is no formal requirement of the use of precedent in the DSU. This subjected AB to criticism mainly by the U.S and eventually became a major, but not the only, factor, that led to the blocking the appointment of AB judges. The EU and other countries have agreed on an arrangement, known as the Multiparty Interim Appeal Arbitration Arrangement (“MPIA”). This is clearly at best a temporary fix since most of the Members do not participate. However, there is a deeper problem with the dispute settlement mechanism and WTO itself. Simply, there are too many agreements for which the WTO is given responsibility, not only the covered agreements but including supervision of bilateral and regional trade agreements (with its “related” issues such as labor, environment, corruption, investment etc..), exceptions, parties, and more. It has proved impossible to hold all these issues and parties together and appease everyone, or even carry out the intended oversight (as with free trade agreements and customs unions).

Throughout much of GATT and now WTO history, consensus has been the norm. for decision-making. Consensus ensures that we have a fair number of WTO members who participate in the decision-making process, and decisions and agreements are reached—if they are reached-- after careful discussions. The benefits of collective, consensus decision-making process after careful discussions is appreciated by democracy theory, but it often leads to gridlock, since any of the 164 members can prevent action by dissenting from the consensus. Clearly, there should be use of alternative systems of voting other than consensus. For example, articles XXV (3) and (4) of the WTO Agreement call for one vote per nation and decisions to be taken by majority vote. But those mechanisms are seldom utilized. As a result of adherence consensus, the WTO is often unable to move forward, as well have seen with the defunct Doha Development Round of negotiations. Instead, we see “plurilateral” trade agreements concluded among like-minded Members, or megaregional trade agreements concluded outside the WTO system. If the WTO is to survive as a meaningful entity, WTO members should be willing to go to extraordinary lengths to modify their consensus style of negotiations and agreements in favor of a system that at least in some instances operates by majority or super-majority votes (even though some major members such as China, the United States, India and Brazil are likely to object).

All these issues and others create systemic problems that cannot be sustained over the years. Membership should design the contours of a modified WTO system if they in fact with the WTO to revive. Any reform suggestions must be viewed in light of the burden it places on the system to ensure that the system has the necessary capacity to effectively absorb the reform suggested. There is a need for a radical reform and re-orientation. There is no perfect solution(s), and there will always be disagreements about what, exactly, the WTO is supposed to do. However, returning to the basics of GATT/WTO system and resist any attempt to add new topics and issues to the debate seems a helpful way of thinking. The WTO has core characteristics. Simply put, there are things that the WTO can achieve and there are things that cannot be achieved. An ever-evolving WTO system can create deficiencies. It seems that what the WTO aspires to do, what is written as rules, and practice are not aligned. There is a need to offload some trade “related” issues. Although the WTO system has never existed in a vacuum and interacts with other fields, there is a strong argument that it needs to focus on core WTO issues. Some of these trade “related” issues do no play to WTO strengths. Unless there is a radical shift in the thinking of policymakers, we risk further damaging and perhaps breaking the WTO system, or simply making it irrelevant.

Call for Submissions for the 2023 JIEL Junior Faculty Forum

The Journal of International Economic Law is delighted to announce the third annual JIEL Junior Faculty Forum. The JIEL JFF brings together early career scholars (including junior faculty, visiting assistant professors, PhD candidates, post-doctoral fellows, etc.) working in the field of international economic law. The purpose is to allow scholars to present their work before an audience of peers and experts and receive feedback from senior scholars. In addition, at least one piece will receive an offer of publication to appear in the 27^th volume of the Journal of International Economic Law—the leading publication in the field.

Rules and Format

We welcome applications from early career scholars teaching in law faculties or other schools such as in economics, political science, history or international relations. The Forum invites submissions covering a wide range of international economic law topics – trade, investment, finance, tax, labor, intellectual property, data, and other topics reflective of the broad nature of the field. Scholars who have previously presented at the JIEL JFF are not eligible to apply.

At the JIEL JFF, up to eight successful applicants will present their work; for each paper, a senior scholar will provide a response followed by general discussion by the entire Forum. The intention is to create a process of sustained exchange and feedback that can help to improve the piece.

Interested applicants should submit a brief description of the unpublished/unsubmitted project (up to 800 words) in a Microsoft Word document as well as a CV in PDF by 11:59pm EDT, Friday, July 14, 2023. The Word document description should be single spaced and should not include any identifying information as each submission will be reviewed without attribution.  The file name of the Word document should be the first few words of the title of your abstract.  The application form and upload links are available here: https://forms.gle/TWVBd7BM52BCGSZ96.

Applicants should be prepared to comply with the following schedule following the July 14 deadline:

Selection and Notification by July 31, 2023.

Draft Papers (up to 12,500 words) circulated by September 4, 2023.

Forum held via Zoom on September 15 & 16, 2023.  (The JIEL JFF is held in virtual format.  The panel times are adjusted to accommodate as many time zones as possible.)

For any questions regarding the submission or selection process, please email [email protected].

Editors-in-Chief of JIEL

Professors Kathleen Claussen, Sergio Puig, and Michael Waibel

Ron DeSantis on China Trade

Unfortunately, U.S. election season is upon us, and perhaps it would be useful if I documented the presidential candidates' statements on trade. That's mostly going to feature the Republican presidential hopefuls (and hopelesses, if that's a word!), but if Biden says anything new and interesting I'll mention that too.

Here was leading contender Ron DeSantis being interviewed on Fox News last night:

Kayleigh McEnany:

Some hawkish folks on China, on the right, say we need to decouple from China. Is it your view we need to decouple from China?

Ron DeSantis:

Kalyeigh, we are dependent on China for major parts of our economy. You saw it during COVID. Almost everything we needed came from China. So I think we need to reestablish our economic sovereignty. I think we need to produce more critical items here in the United States. And I think they have a huge amount of leverage over us because of, really, policy choices that have been made over many decades. You know, when China was put into the World Trade Organization and granted most favored nation status almost 25 years ago, we were told by DC elites that this would make China more free, more democratic, and make the world better. In reality, it hollowed out parts of our country. It made China very rich, and what did Xi used that money for? To build up more military capacity. He now has grand ambitions, not just in the Pacific, but even in our own hemisphere, and we see news where China is going to be working with Cuba to establish eavesdropping, maybe a military outpost. That's a huge, huge threat to this country.

So yes, we need to declare independence from China economically, and we need to make sure that we have the ability to project the appropriate strength in the Pacific, to work with our allies to deter China. China understands the language of strength. And I think what Joe Biden has done since his first day in office, he's projected weakness. A lot of bad actors around the world see that and that really whets their appetite to be able to do things that are going to be very harmful for the world.

Kayleigh McEnany:

Would you be willing to use tariffs to get China to the negotiating table?

Ron DeSantis:

Yeah, I would. I think that what you need to do, if you're going to target a particular industry in China like that, you need to make sure we have incentives here in the United States to bring that industry home. It will raise the price of the China product, but we got to make sure it's economical here in the United States. So you need to couple that with tax incentives, tax credits, and even for things that are really important like semiconductors, you know, I would be willing to support government support on that. I typically wouldn't do that because, you know, generally the market does. But I think some of these things are so important for national security, we got to be willing to lean in on that.

My sense of DeSantis is that he was traditionally a free market person, but he has tried to become more of an interventionist populist. On China in general, everyone is trying to out-hawk each other, and DeSantis' statements here on decoupling are not surprising. We don't know what they actually mean in terms of degree, of course. It probably won't be complete decoupling. But just saying "decoupling" -- and throwing in "independence" and "sovereignty" -- is probably the safe play for any Republican candidate.

(As a side note, on the substance of what DeSantis said, as I like to bring up there's an interesting counterfactual of how China's economic integration with the U.S. and the world would have gone if the U.S. hadn't been distracted by the War on Terror.)

And then on tariffs specifically, he sticks with the current establishment view that tariffs get China to the table and government subsidies are needed for "security"-related sectors such as semiconductors. Does any of this work? We're going to do it regardless, and in a few years we can see how it all played out!

Katherine Tai on Colonialism and Industrialization

You don't see much talk about "colonialism" in mainstream U.S. trade policy discussions, so I was excited to see this from U.S. Trade Rep. Katherine Tai in her speech last week:

Whether it is through working with us on the Critical Minerals Agreement, the IPEF, or the APEP, more and more countries are realizing that we need a new model for doing trade to adapt to the challenges presented by the world we are living in.  And we are doing this in cooperation with our allies and partners, not at their expense.
 
We are turning the colonial mindset on its head.  Instead of supply chains designed to extract from developing economies, our approach is to partner together, where we are all co-owners of different parts of supply chains. 
 
This makes perfect sense in terms of de-risking and building resilience.  The key is to offer economies a spot in vertical integration so that developing countries are not perpetually trapped in an exploitative cycle.

In my discussions with foreign counterparts, I have found that, as it turns out, we all aspire to build our economies from the bottom up and the middle out—to provide those at the bottom with a path to the middle, and to build a broad middle class.  We do this by collaborating in ways that allow us to create opportunities and build our middle classes together, rather than pitting them against each other.

In the conversation that followed, there was a bit more discussion of this issue:

Rana Foroohar:

At the same time, you also use the language of turning colonialism on its head by partnering to own parts of a vertically integrated value chain. ... Connect those dots about how what is good for a worker in the US, in the steel industry let's say, might also be good for someone not just in other OECD countries, but in the global south.

Katherine Tai:

... I think the connection then is -- it's been very interesting, my conversations, especially with partners who act as trade and economic ministers in developing countries -- is we are all actually looking for economic development and economic growth, and frankly, industrialization opportunities, and sometimes reindustrialization opportunities. We're not the only ones who have experienced an erosion of industrial capacities. We have a lot of developing country partners who have experienced that or whose aspirations are to industrialize in the first place. That is something that should connect us to each other.

And so to your question then, how does doing something that helps and empowers a steel worker in the United States also empower someone else in say, the global south? I think that that's the vision of, how do we build our middle classes together? I just had this conversation with a counterpart at the Asia Pacific Economic Cooperation trade ministers meeting in Detroit, a colleague from Southeast Asia, from a middle income country, who said, "Our goal should be how we can build our middle classes together." And that really stuck with me because I think that is exactly the thing that we're trying to do. ...

I strongly agree with the anti-"extraction" sentiment behind this initial statement of Tai's: "We are turning the colonial mindset on its head. Instead of supply chains designed to extract from developing economies, our approach is to partner together, where we are all co-owners of different parts of supply chains." If we want developing countries to reach the income and wealth levels of those in the industrialized world (and everyone should want this!), people in the developed world are going to have to accept that developing countries can industrialize too, and can even produce the high value added/high tech products that have traditionally only been made in developed countries. Tai's statements above that are critical of an "extractive" model may suggest that she agrees with this view (although "co-owners of different parts of supply chains" perhaps leaves some wiggle room; if she meant that everyone stays in the same part of the supply chain, but now they are "co-owners," that doesn't get us very far).

However, as things stand now, U.S. trade policy limits the possibilities for imports of manufactured goods from developing countries in a variety of ways, and the Biden administration hasn't changed those policies, or even talked about changing those policies. When developing countries start to move up the value chain and produce more sophisticated manufactured goods, they are immediately accused of some kind of unfair trade practice and there are attempts to keep their products out of the U.S. market. That is a big impediment to their industrialization, especially for countries with smaller home markets.

Why do these policies exist? The lobbying power of corporations and labor unions is a big part of the reason, and the positions of these interest groups are easy to understand in this context: They just don't want competition.

The reasons for the views of politicians and policymakers, by contrast, can be a little harder to discern. Are they just reflecting what interest groups tell them? Or do they have some ideological opposition to industrialization in developing countries? It's hard to figure out the answer, but regardless, there is a widespread view in the United States that manufacturing should be concentrated here, and we should sell our manufactured products to the rest of the world (e.g., here is Elizabeth Warren: "[the United States needs] to supply the world with clean energy products"). Along these same lines, when people talk about bringing back manufacturing from abroad, a significant aspect of that is bringing it back from developing countries (some of that involves China, but the argument isn't China-specific).

Tying all this back to the colonialism discussion, my sense is that this nationalist vision of the structure of international production holds that the U.S. government should be promoting a form of vertical integration in which natural resources are extracted in the global south, and then shipped to the U.S. to be used as inputs in goods manufactured here. This industrial structure is then enforced by tariffs and other trade barriers: If developing countries try to manufacture things themselves, the U.S. will impose tariffs to keep those goods out.

I appreciate Tai's criticism of the extractive model, but I'm not sure what she has in mind instead or how an alternative would be possible under existing laws and policies. To take a concrete example, Chile and Bolivia have a lot of lithium, which is important for making electric vehicle batteries. U.S. policymakers would be very happy to have U.S. companies use that lithium in battery-making in the U.S., but if Chile or Bolivia started making electric vehicle batteries with their lithium, would they be able to sell those batteries in the U.S.? The answer is almost certainly no, as they would face significant protectionist trade restrictions, such as prohibitive anti-dumping duties.

In this way, protectionism helps keep the economic nationalist/colonialist production structure in place. And if we want to move away from that structure, trade liberalization is the best approach. Without trade liberalization, I'm not sure much can be achieved in terms of getting developing countries into a non-extractive/exploitative part of the supply chain.

Is it possible to get to a point where U.S. policy can accept industrial production in developing countries? I think the answer is yes, but it's a long and slow process. For certain products and certain countries, we now accept it to some extent. But there is always a risk of backsliding if there is a U.S. company that is affected. And each new product and new country that enters into the mix is a struggle. 

For centuries, we've had an economic system with a core and a periphery, with most advanced production taking place in the core (which has expanded a bit over the years) and natural resource extraction and more basic production as the focus of the periphery. Trade liberalization has undermined that structure to some extent. but interest groups have been able to use protectionist measures to keep the structure in place. I don't have a sense that this is the moment when things will change, as politics and policy seem to be moving in the direction of reinforcing the existing structure. But Tai did bring it up, so perhaps that can generate some attention and lead to a broader discussion.

Katherine Tai Speech on Resilience and Security

In remarks yesterday that a USTR press release referred to as a "major speech," U.S. Trade Rep. Katherine Tai offered a detailed explanation and defense of the Biden administration's trade policy. There were a number of points I disagreed with, but instead of going line by line as I sometimes do, I'm going to talk about how her speech triggered some thoughts for me on how U.S. trade policy could move forward some time in the future (not necessarily soon, but some day!).

Here's one thing Tai said in the speech:

Today, labor leaders, CEOs, foreign leaders, and the President’s National Security Advisor all agree: our global supply chains, which have been created to maximize short-term efficiency and minimize costs, need to be redesigned for resilience.  
 
Because resilient supply chains are vital for greater national and economic security.
 
By this, we mean production that can more easily and quickly adapt to and recover from crises and disruptions.  It means having more options that run through different regions.

For me, Tai's statements here raise questions about how domestic politics interacts with international relations and what the international trade regime is for.

It's easy to talk about trade policy a certain way when you are focusing only on your own economy. "Resilience" and "economic security" indicate a desire for more domestic production (although some of the people pushing for these things would accept more production in friendly countries as well as domestic production), and there's a certain domestic audience that likes the sound of that. (Of course, sometimes the reality is different than the rhetoric. The recent baby formula crisis is a good example of how excluding most imports and having a domestic oligopoly leaves you in a fragile position rather than a resilient one.)

But where things get difficult is when you add foreign governments to the equation. What if these governments start worrying about "resilience" and "economic security" too? What if they decide to use domestic content requirements that keep U.S. products out? What if they ratchet up their subsidies and put U.S. producers at a disadvantage? What if they take actions that restrict U.S. agriculture exports, or digital services exports, or aircraft exports? If they do, U.S. producers are going to be harmed, and these producers will press the U.S. government to take action.

And that, I think/hope, may be what gets U.S. trade policy back on track. By "on track," I mean that over the years, the international trade regime has mainly been about establishing a mutually agreed set of constraints on protectionism. Recently, under Trump and then Biden, it seems like the U.S. has been trying to reconfigure the balance so as to allow more U.S. protectionism. And at times I've wondered if some of the Trump and Biden administration folks and their allies think protectionism is just good policy all around, and they would even want more of it outside the U.S.

But then you see what happens when other governments impose trade barriers (even non-protectionist ones) of their own: The U.S. pushes back. This suggests that those arguing for "resilience" and "economic security" may not be as wedded to these concepts as they sometimes sound, in the sense that they don't see "resilience" and "economic security" as the main principles on which the international system should be based. Rather, to a great extent, their actions represent the traditional trade policy approach of responding to demands from domestic interest groups to help them compete with foreign producers, in both domestic and foreign markets. This means trying to close the domestic market while pushing to open foreign markets.

With this in mind, I think U.S. trade policy is likely to end up where it has always been: Trying to achieve an international balance of protectionism that everyone can live with. The U.S. can try to influence that balance through unilateral measures, but that approach does not have a good track record. Where we inevitably end up instead is with a set of international rules -- including bilateral, regional, and multilateral trade agreements -- to govern things.

Within those rules, there are questions about the substantive scope of the obligations and the role of dispute settlement. There's plenty of room for argument about both of these elements, and governments just need to find a middle ground.

Specific groups may get upset with the system periodically, and that seems like where we are now in the U.S. But the alternatives have all been tried and there isn't anything better out there. In my view, then, we will eventually end up with minor tweaks to the existing system, but most of it will still be intact. I'm not sure how long it will take us to get there, but Tai's speech -- although I'm pretty sure it was not her intent! -- made me think it is inevitable.

WTO DS Reform Proposals: Sunset Clause, ADR, and Streamlining the Panel Process

Geneva-based reporter Ravi Kanth has another piece about the ongoing WTO dispute settlement reform discussions, offering some detail on three specific proposals:

-- review/sunset clause

-- ADR

-- streamlining the panel process

On review and sunset, Kanth says the following:

The UK introduced the proposal with the interests here pivoting around maintaining the integrity of the system, so the system does not shift from its original purpose.

Apparently, it includes two sets of proposals: (1) a mechanism to review the DSS (dispute settlement system) including reforms in order to monitor it on a systemic basis; and (2) it calls for adjudicative provisions to come to an end by “X” number of years.

Reviews are always useful, so I have no objections there. 

With regard to sunset, however, I have some concerns. Kanth notes that under this provision "the adjudicative provisions of the dispute settlement mechanism would sunset after 'X' years unless members agree by consensus to extend."

I objected to this kind of sunset provision in the USMCA, and I don't think it's a good idea to have a sunset provision in WTO DS either. Requiring consensus in order for the status quo to continue gives a lot of power to governments to create mischief through the ability they would have to shut things down. The mischief-making governments could be the current sunset supporters, the UK and the U.S., but could also be anyone else. For that reason, I think this sort of institutional design is fundamentally flawed.

Kanth notes that this provision was "proposed by the United Kingdom" and "strongly supported by the US." But he also points to strong objections from a lot of other governments, so it's hard to see it going anywhere in its current form.

In terms of the reasons for such a provision, it was said to be for "the ability to undertake a meaningful check on the system." It is true that it's difficult for governments to come up with alternative approaches that provide a check on the system. But it's worth noting that if they feel so strongly that the system has gone in a bad direction, they can always stop participating: They can stop filing complaints, and they can choose not to show up at proceedings where they are the ones complained against (and retaliate against any WTO-authorized retaliation imposed on them). That approach would be less problematic than blocking the use of the system by everyone else. If someone wanted to formalize a "stop participating" approach, they could draft a provision stating that individual Members could officially "opt out" of the system, or specific parts of the system (such as the Appellate Body), after X number of years.

On ADR, Kanth explains that "the facilitator has clubbed two proposals under the headline of 'definition of rules, procedures, and guidelines for ADRs' and 'rules for specific uses of ADRs.'" I don't have much to say about the use of ADR. It doesn't seem like an option governments have been very interested in using in the past, but I'm not sure why that is. If governments want to make more use of it in the future, that would probably be good. My only concern is the lack of transparency that seems inherent in these processes, but if it can help resolve disputes, it may be worth it.

Finally, on streamlining the panel process, Kanth mentions the following possibilities:

(1) the panel establishment at the first DSB meeting; (2) page/word limits for written submissions and time limits for meeting with the panel; (3) a single meeting with the panel; (4) advance written questions in advance of meetings; (5) adherence to time-frames; and (6) power for the panel to invite parties to focus on certain claims or exclude certain claims.

I'm all for this sort of streamlining, and made some similar suggestions here.

Would a U.S. Carbon Border Tax Pressure Other Countries To Reduce Emissions, or Just Lead To Retaliation?

A recent Washington Post article describes a new piece of U.S. legislation that could eventually lead to the imposition of a carbon border tax:

In a rare example of a bipartisan climate policy, momentum is growing on Capitol Hill for a plan to tax imports from China and other countries with looser environmental standards.

Sens. Christopher A. Coons (D-Del.) and Kevin Cramer (R-N.D.) on Wednesday will introduce a bill that would lay the groundwork for America’s first carbon border tax, according to legislative text shared with The Washington Post before its broader release. The senators’ goal is to impose fees on iron, steel and other imports from countries that are not significantly reducing greenhouse gas emissions.

The title and sub-title of the Post piece are as follows:

A bipartisan plan to punish global climate laggards: Tax them

New legislation in Congress would lay the groundwork for tariffs on imports from countries with looser environmental rules

But who are the "global climate laggards"? And which countries have "looser environmental rules"? In Washington, as the Post article makes clear, the view is that these terms refer to countries such as China and India: 

“Using trade to advance American manufacturing — and to disadvantage dirty or high-emissions products — is ultimately the only way we’re going to put effective pressure on China, Russia and India to dramatically reduce their emissions,” Coons said in an interview on Tuesday.

The basic idea seems to be that China, India and others are the laggards, and the U.S. should use its economic power to pressure these countries to reduce their emissions. (I'm ignoring Russia here because trade with Russia was much lower in general than with China and India, and after the Ukraine war sanctions this trade has dropped even further, so they are less important in this context). 

But in China and India, many people would say that cherry-picking a few industrial products where U.S. carbon emissions are lower is not an appropriate way to look at the problem of carbon emissions. Rather, they would argue, when you look at per capita emissions, the U.S., Australia, Canada and others are the real laggards. Any actions to address global emissions through carbon taxes should take that into account.

Some in the U.S. might respond that regardless of what happened over the last couple centuries through today, now the U.S. is taking carbon emissions seriously, through measures such as the Inflation Reduction Act (IRA). However, it's worth noting that one projection that I often see cited for reduced carbon emissions through the IRA is the following: "Our preliminary estimate is that the IRA can cut US net greenhouse gas emissions down to 31% to 44% below 2005 levels in 2030—with a central estimate of 40% below 2005 levels—compared to 24% to 35% under current policy." Even assuming those projections are met -- and these sorts of projections are often wrong, so the reduction in emissions could end up being less -- the U.S. may still have one of the highest per capita carbon emissions. And it's also worth noting this from Elizabeth Kolbert of the New Yorker: "Though it’s been widely reported that, by 2030, [the Inflation Reduction Act] will reduce the U.S.’s emissions by forty per cent compared with their levels in 2005, most of this projected reduction is attributable to other developments, including the fact that many power plants have already switched from coal to lower-emitting natural gas."

Taking these very different views across countries into account, what are the trade policy implications of a U.S. carbon border tax? The article points out that WTO rules are not likely to have an impact here:

Some trade experts have raised concerns that if Congress passes a carbon border tax without its domestic counterpart, it could run afoul of World Trade Organization rules.

Joseph Majkut, director of the Energy Security and Climate Change Program at the Center for Strategic and International Studies, said Democrats already shrugged off these concerns when passing the clean-energy tax credits in the Inflation Reduction Act.

“If concerns about the WTO were high on Congress’s list, that would have been revealed in the [Inflation Reduction Act],” he said.

While it's hard to judge these things without seeing the actual legislation, I'm pretty confident that a carbon border tax that is not tied to a corresponding domestic tax or equivalent measure is going to violate WTO rules and/or not be justified under the exceptions. Of course, as noted in the quote above, perhaps Congress doesn't care about this. (And without the Appellate Body functioning, maybe WTO rules won't have much impact anyway).

However, there are trade implications beyond the impact of WTO rules. WTO rules help to manage trade conflict; without the WTO you have to deal with trade conflict some other way. And there is likely to be trade conflict here. While some in Congress may be hoping that trading partners will simply give in to the pressure of the U.S. carbon border tax and reduce the emissions of their steel and other products, I don't think this is the likely result. Rather, my sense is that if the U.S. adopted a carbon border tax of the sort envisioned above, it would likely be met with retaliatory tariffs (or other forms of retaliation) from China, India and others.

Will the prospect of retaliatory tariffs deter members of Congress from adopting a carbon border tax? I'm not sure, but they should at least be aware that this is a likely result of this type of measure, and consider that as part of their deliberation.

Of course, if the U.S. imposed a carbon tax that applied to both domestic and imported goods, that would be a different story entirely. But it does not seem like that is under consideration.

USTR Goes Old School in USMCA Complaint on Mexican GE Corn Ban

Back in the 1990s, an important area of the trade policy debate was about how WTO rules might interfere with domestic environmental, food safety, and other public policy measures. There were cases such as Shrimp/Turtle, with a number of countries challenging a U.S. environmental measure; and EC - Hormones, with Canada and the U.S. challenging an EC ban on hormone-treated beef. This led to colorful protests at WTO meetings such as the 1999 Ministerial Conference in Seattle, as NGOs pressed for more regulatory autonomy/sovereignty.

That debate still exists to some extent today, but it has been eclipsed by the push in the U.S. for a broader economic nationalism. This push started with Trump but has continued under Biden. I think it's fair to say that the Biden administration has been more worried about the impact of trade liberalization on certain U.S. industries than on getting more market access for U.S. producers through, for example, new tariff-reducing FTAs or Hormones-style legal complaints -- or EC - Biotech-style if you go to the 2000s -- about foreign government import restrictions that are not based on science.

But last week, USTR dusted off the old playbook and filed a complaint against Mexico under the USMCA, challenging a Mexican ban on imports of genetically engineered corn:

Pursuant to Articles 31.2 and 31.4 of the United States-Mexico-Canada Agreement (“USMCA”), the United States requests consultations with Mexico with regard to certain Mexican measures concerning genetically engineered (“GE”) corn and other GE products. These measures appear to be inconsistent with several provisions of the USMCA, including under Chapter 9 (Sanitary and Phytosanitary Measures) and Chapter 2 (National Treatment and Market Access for Goods).

There were claims against three specific measures, one of which was as follows:

2. On February 13, 2023, Mexico issued the Decree Establishing Various Actions Regarding Glyphosate and Genetically Modified Corn (“2023 Corn Decree”). The decree provides for an immediate ban on GE corn for nixtamalization or flour production. This ban on GE corn for nixtamalization or flour production is reflected in the 2023 Corn Decree4 and in Mexico’s legal regime governing the importation and sale of GE products other than for cultivation.5 This measure (the “Tortilla Corn Ban”) appears to be inconsistent with the following provisions of the USMCA:6

a. Article 9.6.3 because Mexico does not base its measure on relevant international standards, guidelines, or recommendations or on an appropriate risk assessment;

b. Article 9.6.6(a) because Mexico does not ensure its measure is applied only to the extent necessary to protect human, animal, or plant life or health;

c. Article 9.6.6(b) because Mexico does not ensure its measure is based on relevant scientific principles, taking into account relevant factors;

d. To the extent Mexico has conducted a risk assessment, Article 9.6.7 because Mexico did not conduct its risk assessment with respect to an SPS regulation in a manner that is documented and provides the other Parties an opportunity to comment;

e. To the extent Mexico has conducted a risk assessment, Article 9.6.8 because Mexico has not ensured that each risk assessment it conducts is appropriate to the circumstances and takes into account relevant guidance of the WTO SPS Committee and relevant international standards, guidelines, and recommendations;

f. Article 9.6.10 because Mexico did not select an SPS measure not more trade restrictive than required to achieve the level of protection that the Party has determined to be appropriate; and

g. Article 2.11 because Mexico adopts or maintains a prohibition or restriction on the importation of a good of another Party.

I feel like this complaint goes against the general thrust of what the Biden administration has been trying to do on trade. So why bring this complaint now?  It may be that pressure from Congress and industry was a big factor. The executive branch is always going to have to make some concessions to these sorts of demands. In addition, while this is a bit speculative, there are several disputes going on with Mexico under the USMCA right now (auto rules of origin, energy), and perhaps USTR saw this as a way to create more negotiating leverage.

If we do get to a panel in this case, it will be interesting to see how heavily it draws on WTO jurisprudence under the SPS Agreement and GATT Article XX. There are a lot of cases to cite to on these issues, and presumably one or both parties will do some citing. The SPS provisions may be slightly different under USMCA than at the WTO, but with regard to the USMCA Article 2.11 claim noted above, I assume Mexico will invoke USMCA Article 32.1, which incorporates GATT Article XX directly.

As a final point, SPS disputes are complicated, often involving consultations with scientific experts. I wonder if a panel in this case will be able to meet the tight USMCA deadlines or instead will ask the parties to agree to an extension.

Security of Steel Capacity – and the Persistence of trade security exceptionalism

In its 2022 WTO Trade Policy Review for the United States (US), China asked the US about its Section 232 tariffs on steel and aluminium. Specifically, China asked about the US steel capacity utilisation rate target of 80% in the Steel Report. China asked the US whether it would now amend its tariffs and trade arrangements or continue them on steel indefinitely. (Question 33, p.80) The US countered that its TPR is retrospective and, therefore, it did not answer the question. China pressed again, stating that the US and China now had the same 80% capacity utilisation rate for the steel industry. (Question 34). The US responded that in 2018, the Department of Commerce (DOC) Steel Report stated that a goal was to increase US capacity utilisation to 80% or greater to enable US steel mills to increase domestic operations. The US otherwise reiterated that the US President retains authority to adjust trade restrictions under section 232 of the Trade Expansion Act of 1962.

As elaborated here, the US appealed the US – Certain Steel and Aluminium Products dispute settlement panel reports and offered Norway and Switzerland the opportunity to bring non-violation complaints or to resolve the matter under Article 5 of the DSU (good offices, conciliation, and mediation). China’s questions in the US TPR raise an interesting afterthought: What is the current US steel capacity utilisation rate? Was the US even justifying its import relief based on essential security anymore? Is there a point where a security justification expires? Can the GATT/WTO legal order accommodate a moving target based on security preparedness?

The American Iron and Steel Institute published data as of June 3, 2023, indicating that domestic raw steel production was 1,754,000 net tons while the capacity utilisation rate was 78.0 per cent. The US International Trade Commission (ITC) Report (2022) on the impact of the Section 232 tariffs showed that the capacity utilisation rate increased from 2017 to 2021, with a rate at a 14-year high in 2021. In 2022, the capacity utilisation rate was 80.5 per cent. Prices of US steel products increased from USD 697 per metric ton to USD 1,855 per ton of hot-rolled steel (an increase of 166.1 per cent). The US ITC cautioned against monocausal arguments that the increase stems from the Section 232 measures, citing the COVID-19 pandemic, AD/CVD orders, surges in energy prices, and Russia’s invasion of Ukraine, among other factors (p.21). Nevertheless, the US ITC developed a model to assess the economic effects of the Section 232 tariffs, observing reduced imports of steel and aluminium products covered by Section 232 tariffs by an estimated 24.0 per cent and 31.1 per cent on average, respectively. The Section 232 tariffs are estimated to have increased the US’s average price of steel and aluminium by 2.4 per cent and 1.6 per cent, respectively. See the USITC Table ES.1.

 

The US ITC also explained how the US steel industry evolved, with two distinct production methods that use different furnaces and raw inputs: traditional, ‘vertically integrated mills’ that use ovens to heat coal into coke, combine the coke with iron ore in a blast furnace to produce pig iron (a raw form of metal), and then melt the pig iron in a basic oxygen furnace to produce liquid steel; and, ‘mini-mills’ that use electric arc furnaces that do not require coke ovens or blast furnaces.

The US ITC stated that, in 2021, 3 companies, which operated integrated steel mills in 11 US locations, produced 29 per cent of domestic steel output. The US ITC further cited that, in 2022, 50 companies which operated 101 mini-mills produced the remaining 71 per cent of domestic steel production. When setting out the rationale for the Section 232 actions, the DOC 2018 Steel Report (at p. 39) explained that mini-mills have ‘lower energy costs’ than the integrated mills, which require a more energy-intensive process.

Returning to the 2018 DOC Steel Report that served as the basis for the Section 232 tariffs, at the time, the US economic competitors (Brazil, SK, Japan, Russia, Germany, and China) relied on integrated mills. Incidentally, the US DOC also listed its top five import sources of steel in 2022; Norway and Switzerland do not make this list.

 

A core motivation for the Section 232 tariffs was to insulate domestic integrated mill capacity to enable the US ‘to support its critical industries and defence needs.’ But the 2018 DOC Steel Report does not reflect (though there are some redacted parts of the report) whether the threat is coming from inside the house - a general shift in the US towards a different production method. I leave it to steel production experts and labour law experts to weigh in on internal competition between these two approaches to steel production.

Returning to the US-Certain Steel and Aluminium Products (DS556) dispute, the dispute settlement panel report does not dwell on these questions of US domestic competition on steel production. In fact, a key finding of the panel report was that the US could not equate a domestic situation to an assessment of an international one. Still, these particular security measures involve questions about domestic innovation and military preparedness. The US may have legitimate security concerns requiring it to take necessary action against other members. Yet, this evidence suggests that a US metric of projecting national defence requirements cannot be the end of the story when invoking essential security at the WTO. Robust, ongoing scrutiny and a transparent mechanism must accompany the notification of security measures such that governments and producers may understand when and what will unwind once the security risks are met - in this case, the domestic industry’s capacity met the DOC requirements.

Norway and Switzerland may desire to bring another costly and time-consuming complaint or entertain mediation. This hypothetical raises further questions about how to process security in today’s geopolitical environment – to see the forest for the trees. Can the WTO foster an effective solution to address how security ebbs and flows in trade policies? What would the US offer Norway or Switzerland in mediation? Would the US entertain retrospective compensation to Norway and Switzerland? Should the US offer more transparency to all Members as to the administrative review of the Section 232 tariffs in 2023? And, perhaps more importantly, how can members manage long-term security planning without upending all trade commitments indefinitely?

This post highlights various complexities arising from the slipperiness of timing in planning security measures, not to mention the intersection with domestic and global reforms regarding economic competition and climate action. Future work investigates a multilateral framework to understand economic security beyond discrete disputes and coalition building.

I want to thank Amy Porges for pointing me to excellent sources on this topic!