There is widespread speculation about trade agreements that may be coming in the next 10 days (or soon after), including their form and what they might contain. What should we expect?
The most reliable rumors are that some agreements have been drafted and are likely to be announced by the July 9 deadline. Other countries may get extensions to help them avoid higher tariffs that the president has otherwise promised.
The U.S.-UK Economic Prosperity "Deal"
The press has reported that the United Kingdom was the first beneficiary of this new deal program (pun intended), and that there is now a China deal of some sort as well. Let’s take a closer look at the so-called U.S.-UK Economic Prosperity Deal.
Point 1: The U.S.-UK “deal” is not a trade agreement. In fact, it is not an agreement at all, at least as a matter of law. We all watched as the president signed something on June 16 while the UK prime minister stood by. But, to be clear, there is no written agreement signed by representatives of the two countries. What we have instead is a term sheet (see point 2) and an executive order (see point 3).
Point 2: The U.S.-UK General Terms document published May 8 acts as a term sheet – a document that sets out some principles for future negotiations in a transaction. The document makes clear in its text that “it does not constitute a legally binding agreement”. A few weeks back, I wrote about how the term sheet was noteworthy because (a) term sheets are unusual in the trade world, although they are not unusual in corporate transactions with which the president and several cabinet members are accustomed; and, (b) the term sheet covered a wide variety of non-trade issues. Like we have heard and seen from this administration before, the leadership is interested in some reductions in tariffs and harmonization or removal of non-tariff barriers, but it is also interested in specific purchases, investments, economic and non-economic security, and much more. Consequently, upcoming agreements are likely to cover multiple areas of foreign policy, not all commercial.
Point 3: The president issued an executive order (EO) that the White House has said “implements” the “deal”. The EO states that its actions “are necessary and appropriate to deal with the [April 2 trade deficit] national emergency” and “reduce or eliminate the threats to national security” set out in the 2018 aluminum and steel tariff proclamations and the 2019 auto and auto parts trade-agreement proclamation. It then goes on to set-up a tariff-rate quota on autos and auto parts; eliminate the “reciprocal” and “national security” tariffs for certain aerospace products; and, contemplate a tariff-rate quota for steel and aluminum products. With respect to the steel, aluminum, and autos, one could question whether modifications to the president’s 2018 and 2019 proclamations are permitted six and seven years after the issuance of those proclamations. The EO is just one more in a series of executive branch actions in the last several decades that seek to “implement” international trade action through creative methods.
Just because the UK is in this unusual position, having achieved certain goals through the president’s EO, does not mean that other countries will follow the same path. Indeed, the rumor mill confirms that there are agreement texts for other countries, and they will be signed in typical bilateral fashion. So, let’s turn to what may be coming.
Trade agreements in U.S. law (again)
I recently overheard a colleague describe the forthcoming deals as “not real trade agreements”. Well, what is a “real” trade agreement anyway? We tend to get caught up with free trade agreements (FTAs) as the only acceptable mode of trade agreement.
The U.S. Code refers to “trade agreement” 341 times, but none of those provisions defines the term. Readers will recall back when the Inflation Reduction Act (IRA) was all the rage, there was a debate about the meaning of “free trade agreement” which is also not defined by statute. (Then there was a race to conclude agreements that could qualify as FTAs for the IRA’s purposes.) Of course, Trade Promotion Authority (TPA) legislation -- also known as “fast track” authority legislation -- has long set out the expansive contours of U.S. FTAs. But TPA is really only the legislative conduit for expedited congressional approval and implementation of an FTA.
Much of the debate on trade executive agreements – trade-related agreements concluded by the executive branch alone (or trade mini-deals, if you prefer) -- has been about whether, as a matter of law, Congress ought to have a role in their authorization or approval. The Constitution answers this question clearly since Article I assigns the regulation of commerce with foreign nations and the tariff power to Congress. An agreement that purports to regulate commerce with our trading partners or to impose or lift tariffs falls within congressional ambit. Query what activities count as regulating commerce, and on this point, see my note above about the diversity of content expected in the forthcoming deals. Could the administration negotiate an agreement in which trade seemingly takes a backseat, and then appropriately treat it as an executive agreement? As a further aside, note the potential overlap with arguments in the tariff litigation about the meaning of “regulate … importation or exportation”.
It would be consistent with past practice for the executive branch to argue that economic security, for example, is within the constitutional authority of the president and not Congress. But the mainstream view, as clearly reiterated by Congress, is that, regardless of the form of agreement and regardless of whether an agreement requires changes to U.S. law, Congress must authorize the conclusion of a binding agreement that regulates foreign commerce. The executive branch does not have independent power to enter into a trade-related agreement without that authorization.
To be sure, Congress has delegated its trade-agreement power in certain statutes beyond TPA. For example, Section 301 of the Trade Act of 1974 authorizes the executive branch to enter into an agreement in the context of a Section 301 investigation to eliminate any burden or restriction on U.S. commerce that results from a trading partner’s actions. Section 232 of the Trade Expansion Act of 1962 likewise authorizes the president to negotiate an agreement that limits or restricts certain imports. Section 103(a) of TPA legislation permits the president to enter into certain trade-related agreements and to implement them, but only when that section is in force (the statute sunsets, most recently in 2021).
Simon flagged U.S. Trade Representative (USTR) Jamieson Greer’s response to questions from Senator Ron Wyden on this issue back in May. Ambassador Greer said: “To the extent that the United States does make a commitment in these agreements, I do not foresee that any U.S. law would need to be changed. As such, USTR will negotiate and conclude these agreements as executive agreements.” This statement repeats a common misunderstanding by USTR about its authority to enter into trade agreements on the basis of its organic statute, 19 U.S.C. § 2171, but we need not re-hash that here yet again.
Emergency deals?
If the scope of the forthcoming trade deals exceeds the scope of the Section 232 and Section 301 investigations that the administration has completed, then on what statute could the executive branch appropriately rely as authorization? We have heard that these deals are intended to “resolve the national emergency” as Ambassador Greer told Senator Wyden. Then perhaps the administration thinks that the International Emergency Economic Powers Act (IEEPA) lets the executive branch enter into agreements related to trade. Well, if you thought the administration was on shaky ground with the imposition of tariffs under the IEEPA, you likely think it is also on shaky ground when it enters into trade agreements under the IEEPA too. Does “regulate . . . importation or exportation” include the power to enter into international agreements? That argument may be coming next.
