Last week, in the press release for its 2024 National Trade Estimate Report on Foreign Trade Barriers, USTR said that over the years, the identification of trade barriers in this annual report has strayed from the original purpose of the statute, and that in the 2024 report it was going to narrow the scope of the barriers it was targeting:
The NTE Report has received unprecedented attention this year because we are taking steps to return it to its stated statutory purpose. We respect that each government—including our own—has the sovereign right to govern in the public interest and to regulate for legitimate public policy reasons. Over the years, the NTE Report expanded from its statutory purpose to include measures without regard to whether they may be valid exercises of sovereign policy authority. Examples include efforts by South Africa to render its economy more equitable in the post-Apartheid era; import licensing requirements for narcotics and explosives; and restrictions on imports of endangered species. By carefully editing and returning the NTE Report to the statute’s intent, USTR is making it a more useful document that enumerates significant trade barriers that could be addressed to expand market opportunities and help our economy grow.
In February, Katherine Tai had said something along these lines at a CFR event:
I think that there is an important space that we need to leave for other countries and other partners to be regulating legitimately in the public interest ...
I have a few thoughts here.
First, I'm sympathetic to what I think is their general point: "Trade barrier" is a vague term, and a broad interpretation can intrude too much into domestic sovereignty/policymaking/regulatory space. In USTR's view, not all foreign government measures that affect U.S. trade should be challenged as trade barriers, either through formal trade complaints or unilateral measures. Instead, when identifying foreign measures of concern, they will try to strike an appropriate balance between addressing trade concerns and interfering with policymaking.
My own view is that the right balance, taking into account both politics and economics, between trade and other public policies can be achieved with a focus on whether a measure is protectionist (identified using a combination of intent and effect). USTR's language perhaps get at this idea with the reference to legitimate public policy regulation and governing in the public interest. If a policy is said to be "legitimate" and in the "public interest," that could be taken to suggest it has a non-protectionist purpose. But USTR didn't say that explicitly, instead focusing at the end on whether trade barriers are "significant." How do we measure a trade barrier's "significance" though? That can be tricky, both qualitatively and quantitatively.
The examples of overreach that USTR provides seem, on their face, to be non-protectionist measures (although every measure could have a protectionist component, of course), and based on those examples if feels as though they are going in the same direction I am. In terms of how to get there, it may be that they are thinking of some sort of flexible balancing test, in which the the importance of the policies pursued is weighed against the impact on trade. To me, that seems a bit uncertain and non-transparent, as balancing sovereignty with trade effects is an exercise with a lot of inherent discretion in it. For example, it's not clear how USTR did the weighing and balancing as it reached its controversial decision not to include the EU's Digital Markets Act in the 2024 NTE report, after it had been included in 2023. Whoever is in charge of trade policy at a given moment will have some discretion in their decision on what is included, and approaches will vary.
Speaking of whoever is in charge, another issue is whether this approach would carry over to a future administration. My guess is that it probably would not be used in a second Trump administration. Bob Lighthizer might not be U.S. Trade Representative again in such an administration, but I suspect his influence will still be felt, and I think he would go in a different direction. As to a second Biden term, whether this approach carries on may depend on whether Tai will stick around for another term, and if not who will take over as U.S. Trade Representative.
And finally, I had some questions about the purpose/intent of the statute under which USTR provides this report, which the USTR press release says we have strayed from: What exactly was the intent of the drafters? And what role should their intent play in current considerations? Can the meaning of the statute evolve? Maybe the current Congress should try to clarify what it thinks USTR should be doing with this report.
ADDED:
A blog reader points me to a Politico article that changes how I think about the new USTR approach:
Local content subsidies: In another notable change, USTR’s latest request for comments no longer asked commenters to provide examples of foreign “local content subsidies … contingent on the purchase or use of domestic rather than imported goods.”
The U.S. trade official demurred when asked if that was because the United States is now making heavy use of such subsidies under the Inflation Reduction Act, especially for electric vehicles and clean energy production as China pointed out in a case it filed this week at the World Trade Organization.
“We know that in our conversations with other countries, they are struggling to figure out how to make sure that their industries can be competitive in the face of extensive nonmarket policies and practices, especially from [China],” the official said. “We think that local content requirements might be the only way to create that incentive since a lot of the PRC strategy is price undercutting and market economies struggle to compete with that.”
Local content requirements/incentives are protectionist, so they should definitely be included in a list of foreign trade barriers. Even under the USTR balancing test, these are significant trade barriers that have little connection to non-protectionist public policies or the public interest. If these measures, which violate both GATT Article III:4 and SCM Agreement Article 3.1(b), are not included on the list, I'm not sure there is much point to the list. (Also, rather than try to copy China's practices, it would be better to challenge them at the WTO.)
