Last week, USTR released what it referred to as "Model Negotiating Texts" on a number of issues:
- Competition Model Text
- Inclusive Economy Chapter Model Text
- Non-Market Policies and Practices (NMPPs) Model Text
- Public Enterprise Model Text
- Standards Model Text
There's a lot to take in here, and I'm going to focus on just two things for the moment.
First, in its press release, USTR says:
As this cover note explains, over the past eight years the United States has reevaluated the laissez-faire approach to globalization, and the Biden-Harris Administration has stressed the importance of building the economy from the middle out.
And then in the Cover Note USTR adds the following on this point:
The version of globalization that has prevailed for the past three decades has been laissez-faire in orientation, tracking the broader shift in economic governance toward trusting markets to make optimal sourcing decisions. This approach empowered corporate actors to, for example, put downward pressure on wages, as jurisdictions competed for investment based on providing the lowest possible cost structure. That bred race-to-the-bottom globalization -- and that is the version of globalization that is experiencing backlash around the world.
In the past 8 years, the United States has reevaluated that neo-laissez-faire approach. ...
Everyone has already heard my "actually we were never anywhere close to laissez-faire" complaining, so just refer to my earlier posts for that. What I want to mention here is the reference to "eight years." To me, that suggests the authors of these documents see themselves as more aligned with Trump's views on trade than with what came before. If I'm reading that correctly, it's something I'd like to discuss further with Katherine Tai if I ever get a chance to talk with her.
Second, there are some aspects of the NMPPs text that puzzle me, in particular in terms of how they see the scope of this category and what international constraints they think should apply to it.
The cover note says the following about NMPPs:
Non-Market Policies and Practices (NMPPs): The pandemic exposed the extreme nature of our supply chain dependency on the People’s Republic of China (PRC). The PRC’s supply chain dominance is in part due in significant part to non-market policies and practices that are fundamentally anticompetitive in nature. Government intervention on behalf of Chinese companies is designed to facilitate global dominance across a range of sectors, including steel, aluminum, solar, and electric vehicles. Market-oriented economies, and in particular market-oriented democracies, must work together to tackle these NMPPs as part of a broader effort to
promote more resilient supply chains, reduce dependencies on geopolitical rivals, and mitigate the risks of economic coercion. The model text articulates shared values of market-oriented economies and provides tools, including through cooperative measures, to tackle NMPPs.
The text itself then sets out a number of illustrative examples of NMPPs:
3. The Parties affirm that non-market policies and practices of concern include:
(a) adopting and pursuing a non-market industrial plan that targets a specific industry for domestic or global market dominance by domestic enterprises;
(b) directing or pressuring public enterprises engaged in commercial activities or private enterprises to achieve capacity, production, or export levels or market share targets in accordance with a non-market industrial plan;
(c) creating or maintaining non-market excess capacity in industrial sectors through public enterprises or private enterprises;
(d) directing, pressuring, or otherwise interfering with commercial decision making by public enterprises or private enterprises;
(e) placing public officials or officials of the governing political party in private enterprises to monitor, direct, pressure, or otherwise influence commercial decision making;
(f) deploying subsidies in pursuit of non-market industrial policy objectives, including via policy banks, state-owned commercial banks, and government investment or guidance funds;
(g) promoting and sustaining domestic companies as national champions through financial support and regulatory and other preferences;
(h) providing special preferences and competitive advantages to public enterprises engaged in commercial activities;
(i) directing or allowing public authorities to exercise their authority in a discriminatory manner, including by treating domestic enterprises more favorably than foreign or foreign-invested enterprises;
(j) using selective or arbitrary application or enforcement of competition law to achieve industrial policy objectives;
(k) failing to maintain laws and regulations governing insolvency and bankruptcy, or preventing or otherwise interfering with the restructuring according to those laws and regulations, of insolvent or bankrupt enterprises, including through liquidation, in pursuit of the objectives of an industrial plan;
(l) measures that require or pressure the transfer or disclosure of technology, intellectual property (including trade secrets), or confidential business information such that the transfer or disclosure is not consistent with principles of fair competition, including measures that direct or support the theft of technology, intellectual property (including trade secrets), or confidential business information in furtherance of non-market industrial targeting;
(m) engaging in economic coercion, whether through public authorities, public enterprises engaged in commercial activities, or private enterprises;
(n) directing the judiciary to render decisions that serve industrial policy objectives;
(o) pursuing unique national standards when international standards already exist in order to leverage the economic power of the domestic market to promote or compel the adoption of those standards in global markets;
(p) failing to respect labor rights, including by failing to adopt, maintain, and effectively enforce labor laws that protect those rights, which can artificially lower costs for domestic enterprises;
(q) lack of effective enforcement of environmental laws and regulations, which can artificially lower costs for domestic enterprises;
(r) failing to publish final central level and regional level laws, regulations, and other measures that provide subsidies or other financial support to enterprises;
(s) failing to publish all central level and regional level laws, regulations, and other measures that impact the rights and obligations of persons; and
(t) preventing free access to and sharing of relevant information on which to base commercial decisions.
Clearly, these examples are targeted at China. But some of them are broad enough that I wonder if Biden's economic policies could get caught up here. For instance: "deploying subsidies in pursuit of non-market industrial policy objectives, including via policy banks, state-owned commercial banks, and government investment or guidance funds." Aren't the CHIPS Act subsidies, for example, being deployed in pursuit of non-market industrial policy objectives?
I get the sense that they want to allow NMPPs to some degree, but then set a limit which they cannot go beyond. Perhaps it is something along the lines of, "subsidies are OK if they promote domestic industries, but not if they promote them too much." The practical impact seems to be that they are not opposing non-market policies and practices per se. Rather, they are opposing what they see as excessive non-market policies and practices, and trying to draw a line beyond which something is excessive. But it can be very hard to say where that line should be.