International Economic Law and Policy Blog

What to Expect When You’re Expecting a Trade Deal

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.  

The U.S. “Worker-Centered Trade Policy” is helping some workers in Mexico but not in America

This Labor Day post seeks to shed light on the Biden administration’s “worker-centered” trade policy.  It argues that the United States-Mexico-Canada trade agreement (USMCA) misses a critical opportunity to strengthen workers’ rights in America.  The agreement’s provisions exclude protections for the most vulnerable workers in U.S. trade sectors and they erroneously protect employers in the U.S. transportation sector.  This post urges amendments to the USMCA to protect workers – not just their employers – under a worker-centered trade policy.

On August 30, as workers in Europe began to emerge from well-deserved August slumber and workers in America began to look forward to an extra day of rest in celebration of workers’ historic achievements, the Biden administration announced it was seeking a review under the USMCA’s Labor Rapid Response Mechanism (LRRM) concerning the rights of pilots at a Mexico-based airline.  

President Biden claims that workers’ fundamental rights represent the heart, or center, of its domestic and foreign policies.  Although the USMCA is a Trump-negotiated trade agreement, current U.S. Trade Representative Katherine Tai was influential in pushing for the labor provisions in her previous position as chief trade counsel for the House Ways and Means Committee.  The Biden administration’s Office of the U.S. Trade Representative (USTR) has invoked the LLRM numerous times to ensure respect for fundamental collective bargaining and associational rights in private facilities in Mexico.  Recently, it initiated the first formal panel to litigate those rights.  

My work points out myriad ways the administration’s worker-centered trade policy risks undermining rather than fortifying workers’ rights abroad.  It traces how that policy deprives foreign actors of fundamental due process rights in the name of fundamental labor rights and leaves workers vulnerable to retaliation.  On this Labor Day, I shift the focus to workers in the United States.

A well-known story by now, the USMCA resulted from fierce bargaining between the President, his executive office, and a Democrat-controlled Congress.  Somewhat less known is that, at the midnight hour, as pens hovered in Mexico, Canada, and the United States to put to bed an emotional and lengthy NAFTA renegotiations process, the U.S. administration advanced an amendment quietly nestled in the form of a footnote to an Annex.  It has received little attention.

That footnote, in Annex 31-A of the USMCA’s Dispute Settlement Chapter, narrows the scope of applicable U.S. facilities subject to enforcement of collective bargaining and freedom of association rights in the United States.  It reads as follows:

With respect to the United States, a claim can be brought only with respect to an alleged Denial of Rights owed to workers at a covered facility under an enforced order of the National Labor Relations Board.

To the uninitiated, that footnote looks innocuous.  In theory, domestic legal processes should be exhausted before international mechanisms weigh in.  Otherwise, one risks inconsistent findings, fragmentation, and interference with national juridical decisions.  The National Labor Relations Board (NLRB) is the U.S. federal agency that administers federal labor law in private facilities.  Its findings are not self-executing and thus are not legally final unless and until a Court of Appeals enforces them.  Although the expression “enforced order of the National Labor Relations Board” is not defined under U.S. labor statutes, the footnote’s intention to ensure legal finality at the national level before opening the door to international intervention appears relatively straightforward.

Nevertheless, until the powers-that-be delete this footnote, workers in America will lack the same fundamental rights protections that USTR provides workers in Mexico.  Below, I offer three reasons.

1. The footnote leaves millions of workers in trade sectors in the U.S. without hope of labor improvements

As I have pointed out before, the footnote excludes the vast majority – if not all – of the facilities in the United States.  That exclusion leaves millions of workers in the U.S. private sector without hope of economic pressure under the USMCA.

That exclusion is important.  U.S. labor law, as interpreted by the NLRB and courts, has long been the subject of international scrutiny.  The U.S. administration has proven disinterested in, if not immune to, criticisms by the International Labor Organization (ILO).  U.S. representatives at the ILO sometimes respond that the ILO does not understand international labor law as well as do U.S. authorities.  Their position is unsurprising given the U.S. government's longstanding refusal to bend to international law or norms concerning workers’ rights.

Meanwhile, workers at auto facilities and other trade-related sectors in the United States face sub-optimal rights. Their employers fire them for seeking to unionize, threaten them with discharge, and manipulate U.S. labor law to avoid entering into collective bargaining agreements.  Those workers do not benefit from the ILO’s protection.  While the USMCA could have lent economic teeth to the ILO’s reputational sanctions, the Trump administration’s footnote cleverly protected corporate America.  

2. The footnote imposes significant remediation delays

Even workers at facilities that arguably fall under the NLRA cannot benefit under the LRRM.  Recall that a significant objective of the mechanism is that it is rapid.  Rather than wait years for litigation, workers should be able to benefit from immediate injunctions and remedial action.  However, under U.S. labor law, cases may take years to wind through the courts.  Even if Mexico were to bring a case against a facility in the United States, the case must first go before an NLRB administrative law judge, then the NLRB in Washington, D.C., and then to an appeals court.  

Section 10(j) of the NLRA “authorizes the National Labor Relations Board to seek temporary injunctions against employers and unions in federal district courts to stop unfair labor practices while the case is being litigated before administrative law judges and the Board.”  Those cases acknowledge that time is of the essence.  However, they do not produce a Board order for the appeals court to enforce.  Consequently, 10(j) injunctions do not qualify as an “an enforced order of the National Labor Relations Board.”  Even workers facing significant and immediate threats to their fundamental labor rights cannot benefit from protections under the USMCA.

3. Not all workers in the United States fall under the National Labor Relations Act

America’s most vulnerable workers are also her most important.  They labor in our agricultural fields, fix our roofs in scorching summers, clean our houses, and watch our children.  Yet, owing to institutionalized racism that carries into our statutory protections today, agricultural workers, undocumented workers, domestic workers, and day laborers are excluded from the NLRA’s coverage.  Notwithstanding the significant labor and human rights violations in agriculture and other invisibilized sectors, their facilities will never face a court-enforced Board order.  Those violations either directly implicate trade sectors (agriculture) or indirectly benefit trade sectors (childcare).  Excluded when the NLRA’s drafters sought to ensure that racialized minorities could not threaten property owners, those workers are re-excluded and thus re-prejudiced under contemporary trade protections.  Policymakers should take notice of how the USMCA reifies racial inequality in America.

USTR’s most recent, dawn-of-Labor-Day announcement sheds additional light on the USMCA’s inarticulate and improper footnote.  That announcement expresses concern over the bargaining rights of pilots in Mexico’s airline sector.  Under the USMCA’s procedures, those workers may soon benefit from international scrutiny, inspections, and prescriptive plans drawn up by American bureaucrats.

On the other side of the border, however, workers in the airline sector fail to benefit from equal protections.  Under the terms of U.S. labor laws, those workers, too, are excluded from the scope of the NLRA.  A separate law, the Railway Labor Act (RLA), covers them.  Specifically, it covers freight and commuter railroads, airlines, companies directly or indirectly controlled by carriers who perform services related to the transportation of freight or passengers, and the employees of these railroads, airlines, and companies.

Deemed “essential,” workers under the RLA cannot exert their right to engage in a spontaneous work stoppage.  Instead, a different Board, the National Mediation Board (NMB), conducts mediation.  While a Presidential Emergency Board may review the NMB’s decisions, those reviews are discretionary.  In other words, the NMB’s findings do not suffer from the same intermediacy as the NLRB’s decisions.

The ILO has expressed concerns with the RLA’s restrictive approach to bargaining.  It has also found that national laws like the RLA stipulating compulsory dispute settlement interfere with workers’ fundamental right to bargain.  While international labor standards are lenient concerning restrictions on public sector strikes, the ILO clarifies that the government may restrict a strike:

in the case of disputes in the public service involving public servants exercising authority in the name of the State or in essential services in the strict sense of the term, namely those services whose interruption would endanger the life, personal safety or health of the whole or part of the population.

In 2022, railway workers in the United States sought to bargain hard to improve their collective bargaining agreement.  Under the international labor standards above, they should have been able to do so as long as their actions did not endanger “the life, personal safety or health” of the U.S. population.  Although inconvenient, their work stoppage would not have been life threatening.  President Biden faced criticism within the labor community when he intervened and passed a law imposing a contract agreement that the majority of America’s freight rail workers had voted down.  As a result of that agreement, railway workers may benefit from a hefty raise but they lack paid sick days in a compromise they never agreed to and should have been able to protest.   

Airline workers in the United States face a bleaker situation.  They cannot strike despite dwindling crew members and abysmal pay and leave benefits.  Notwithstanding their hostile legal environment, airline workers are staging careful pickets to raise public awareness of America’s abusive airline sector.  Under the RLA, they may not protest their working conditions during work hours; they can only carry out those concerted activities during the hours they should be resting and spending with family.  They cannot rely on the ILO to persuade an otherwise deaf U.S. administration that the RLA deprives them of fundamental labor rights under international law.  And they cannot rely on the USMCA’s LRRM because their employers, by statute, will never be the subject of an NLRB order. 

A Litmus Test?

USTR’s recent invocation of the LRRM in the airline sector offers the Mexican government an opportunity to fight for the equality it (perhaps) unknowingly relinquished during the final hour of the USMCA’s negotiations.  Following USTR’s recent lead, it could invoke the LRRM to protest the freedom of association and collective bargaining violations in U.S.-based airline companies.  The Mexican government has manifold U.S.-based airline companies from which to choose.  

The Biden administration’s worker-centered trade policymakers should take such allegations seriously and collaborate to ensure an equitable solution.  If the USMCA’s torrid labor negotiations (beginning during the TPP negotiations) teach us anything, it is that Congress cares about international standards governing collective bargaining.  After all, it demanded that Mexico adopt radical changes to Mexico’s Constitution and labor laws to protect the rights of workers in Mexico to form and join unions and associate freely.  The ILO, as mentioned, has aired concerns over how U.S. legislation fails to protect those rights in America.  If Congress and the Biden administration refuse to consider the same types of legislative reform in the United States that they demanded in Mexico, their stated intentions to advance a worker-centered trade policy should be critically questioned.

Inu Manak reminds me that the parties will soon revisit the USMCA’s provisions as part of its six-year review.  Given that Mexican negotiators were given little advanced notice or explanation of the USMCA’s restrictive LRRM scope, and given the Biden administration’s efforts to strengthen workers’ bargaining rights at home, this review offers ample opportunity for the parties to make the agreement more equitable.

Workers in America should not have to rely on the Mexican government to champion their rights.  The Biden administration and Congress have promised to protect them.  The USMCA offers U.S. policymakers the opportunity to turn promises into action.  On this Labor Day, let’s hope they seize it.

The New U.S.-Taiwan Trade Agreement and Its Approval

This post is by Kathleen Claussen & Timothy Meyer.  It is cross-posted on Lawfare.

On June 1, the United States and Taiwan signed a new trade deal. The agreement, which spans eight chapters and 75 pages in the English version, creates obligations for both parties to enhance trade facilitation, adopt good regulatory practices, eliminate barriers to trade in services, heighten anti-corruption efforts, and support trade by small and medium enterprises. Although it does not reduce tariffs, it contains binding commitments for both governments designed to reduce barriers to trade and enhance market access in both directions. The Biden administration has announced that this is the first of at least two trade agreements that it intends to negotiate with Taiwan. Upcoming trade deals will address agriculture, state-owned enterprises, and labor and environmental issues—areas that the United States has identified as issues of greatest importance in its trading relationship with Taiwan. 

The Biden administration’s negotiation of this agreement, and Congress’s response, raise four major complications for U.S. trade and foreign policy.

First among the complications created by the U.S.-Taiwan trade agreement is an authority problem: Congress never authorized the executive to enter into (in other words, sign) such an agreement, let alone bring it into force. This is not a new issue. As we outlined in a previous piece on Lawfare, the U.S. Constitution gives Congress the power to regulate commerce with foreign nations. Trade agreements are thus different from other kinds of international agreements. The executive branch has no constitutional authority over foreign commerce and thus can bring trade agreements into force only when authorized by Congress. In most instances, Congress—via successive trade promotion authority (TPA) statutes—also has mandated that it approve any agreement before that agreement can enter into force. Although those statutes grant the executive branch the authority to enter into trade agreements that meet certain conditions, they implicitly or explicitly withhold authorization if those conditions are not met. Despite this long statutory practice agreed by both branches through the legislative process, the Biden administration argues that it can negotiate, enter into, and bring into force trade agreements of many types on the basis of its delegated authority set out in 19 U.S.C. § 2171, which is part of the 1974 Trade Act. But 19 U.S.C. § 2171 merely designates the U.S. Trade Representative (USTR) as the lead office in the executive branch responsible for trade negotiations; nothing about § 2171 gives the USTR the authority to enter into or bring into force trade-related agreements.

Second is a political challenge that intersects with the authority problem. While members of Congress have raised concerns about the administration’s trade executive agreement practice, they have also long sought a trade deal with Taiwan. So, in an effort to support the deal in principle and reassert its authority on trade, the House passed a bipartisan bill on June 21 called the United States-Taiwan Initiative on 21st-Century Trade First Agreement Implementation Act.

This Taiwan Initiative Act makes a couple of key moves. First, it sets out Congress’s approval of the new deal. Even though members maintain that Congress never authorized the USTR to engage in the negotiations or enter into the agreement with Taiwan in the first place, the act would authorize the president to provide for the Taiwan agreement’s entry into force, resolving at least part of the authority problem. It makes entry into force subject to conditions similar to those found in traditional TPA statutes under which U.S. free trade agreements have been concluded.

More innovatively, it also sets out requirements for the USTR’s interaction with Congress regarding any future proposed agreements with Taiwan. In particular, the proposed Taiwan Initiative Act would require the USTR to provide agreement text that it intends to table to Congress before it provides it to Taiwan, and to give Congress an opportunity to review and comment. It would tightly control the timelines for negotiation by effectively constraining the USTR from tabling text before members have completed their review. It would also require the USTR to provide Congress with any text that Taiwan has offered. This language goes beyond what TPA has required. TPA focuses on consultation and obligates the USTR to share documents upon request. The restrictions in the Taiwan Initiative Act undoubtedly complicate the USTR’s negotiating plans in ways that may be ultimately unproductive vis-a-vis the U.S. negotiations with Taiwan, but they nevertheless remain within Congress’s prerogative to regulate commerce. Since the president has no independent constitutional authority in trade as he does in other areas of foreign relations, Congress may assert these restrictions on its designee. 

Taken together, the initial absence of authority to enter into the agreement and the subsequent effort to approve the agreement subject to new prospective restrictions on the executive branch reflect an increase in assertiveness by both the executive and legislative branches. In other areas of foreign relations law, the executive has countered congressional efforts to restrict or limit executive freedom by statute with arguments about the executive branch’s constitutional authority over foreign affairs. But, as we have noted, that constitutional authority does not extend to foreign commerce, which the Constitution places exclusively within Congress’s powers. As a result, there is little doubt that Congress can restrict the executive branch’s ability to negotiate, enter into, or bring into force trade agreements. To be sure, the executive may enjoy more latitude to engage with trading partners in the absence of legislation to the contrary. But once Congress has spoken, the executive is bound to adhere to any rules or restrictions that Congress may make. 

A third issue is how to think about this proposed legislation in the broader conversation about trade agreements. As noted, the act addresses only this deal and future deals with Taiwan. Members have proposed that Congress authorize negotiations for trade agreements with, in addition to Taiwan, the United Kingdom, Kenya, and Ecuador, hoping to urge the administration to enter into free trade agreements with those countries. But the country-specific approach has not taken hold until now, and it did so as a matter of necessity since the Taiwan deal has already been signed. This ex post approach raises questions about the status of other trade executive agreements and whether Congress will seek to treat those in the same way, picking and choosing approvals among them in ways that would make U.S. trading partners quite nervous and that would complicate the legal status of the unapproved agreements even more. Far more likely is that efforts on the Hill will continue to try to scope out clear rules on the USTR’s trade agreement authority for future agreements, including for the Indo-Pacific Economic Framework for Prosperity—the cornerstone of the administration’s present negotiating efforts.

A final problem is a wrinkle in the U.S. treatment of Taiwan. Although this is not the first trade-related agreement between the U.S. and Taiwan—the U.S. has entered into more than two dozen since the 1970s—if the Taiwan Initiative Act were signed into law, it would be, to our knowledge, the first expression of approval by Congress of a new trade deal between the United States and Taiwan in several decades. Under the Taiwan Relations Act and Executive Order 12143, agreements concluded after Jan. 1, 1979, that are intended to create commitments for the United States and for Taiwan are negotiated and signed by their nonprofit organization representatives. Those agreements are transmitted to the Congress, and such agreements have full force and effect under the law of the United States. But to our knowledge, none has received congressional approval (although the Taiwan Relations Act itself approved the continuance of all international agreements then in force between Taiwan and the United States). This enhanced role for Congress thus represents a degree of political blessing that undoubtedly sends a strong statement. Approving this deal is not enough to change the delicate U.S. position on recognition, but it would hold Congress out more than has been customary. 

While the U.S.-Taiwan deal may not require changes to U.S. statutes, it does commit the United States under international law to maintain certain trade laws, among other obligations. Congress no doubt has not just an interest but the constitutional privilege of dictating what those laws ought to be. The new agreement and the Taiwan Initiative Act again bring familiar issues into focus—this time with bipartisan support for greater congressional intervention but in the context of a tense international relationship that the executive has historically closely controlled.

“Nice” Trade Lawmaking: How Congress Talks With The USTR

Readers will likely recall the exchange between Ambassador Tai and Rep. Greg Murphy during the annual trade policy agenda hearing a few weeks back in which Rep. Murphy said he thought Ambassador Tai was "too nice" to be effective as the USTR.  You remember it because it went viral, amassing hundreds of thousands of views and prompting commentaries across many news networks and social media.  While it was one of many challenging exchanges in the hearing, it stood out for its critique of Ambassador Tai's personality, rather than the Administration's policy, even if it was intended to focus on the latter.

One question that has been underexplored is how this sort of exchange about traits compares to prior interactions between members of Congress and USTRs at these hearings.  Wendy Li and I have gathered the data to answer that question.  We've shared some insights over at the Yale Journal of Regulation's Notice & Comment blog if you're curious to learn more.  We argue that this emphasis on the USTR's personality, which arises often over the years, is characteristic of the relatively unique triadic relationship among Congress, the president, and the USTR.  

 

 

 

What is a Free Trade Agreement, Anyway?

This is the second of two posts on trade agreements in the news over the last ten days.

During the holidays, Treasury and the IRS confirmed what many had already been discussing since President Biden signed the Inflation Reduction Act in November: that they might take an expansive definition of “free trade agreement” when determining if the “critical mineral requirement” is met for the new clean vehicle tax credit.  

In their White Paper, Treasury and the IRS track the statutory language and describe the requirement:

… the critical mineral requirement will be met if the percentage of the value of the critical minerals in the vehicle’s battery that were extracted or processed in the United States, or in any country with which the United States has a free trade agreement in effect, or recycled in North America, is equal to or greater than 40 percent for a vehicle that is placed in service in 2023 after the date on which Treasury and the IRS issue proposed guidance.

The White Paper then states:

The term “free trade agreement” is not defined in the Inflation Reduction Act (or in any other statute).  Treasury and the IRS expect to seek comment in the proposed guidance on what criteria should be used to identify free trade agreements for the purposes of the critical minerals requirement and expect to propose that these criteria include whether an agreement reduces or eliminates trade barriers on a preferential basis, commits the parties to refrain from imposing new trade barriers, establishes high-standard disciplines in key areas affecting trade (such as core labor and environmental protections), and/or reduces or eliminates restrictions on exports or commits the parties to refrain from imposing such restrictions, including for the critical minerals contained in electric vehicle batteries.  Treasury and the IRS also expect to propose that the term encompasses, at minimum, the comprehensive trade agreements of the United States with the following countries: Australia, Bahrain, Canada, Chile, Colombia, Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Israel, Jordan, South Korea, Mexico, Morocco, Nicaragua, Oman, Panama, Peru and Singapore.  Further, Treasury and the IRS expect to propose that the Secretary may identify additional free trade agreements for purposes of the critical minerals requirement going forward and will evaluate any newly negotiated agreements for proposed inclusion during the pendency of the rulemaking process or inclusion after finalization of the rulemaking.

Although this was unsurprising – this already came up in various conversations among scholars and among governments in November and early December – some on social media appeared dismayed by what they saw as the diminution of a statutory and household term and a questionable-to-them workaround. 

Readers of this blog will know that, in addition to not being defined in U.S. statute, “free trade agreement” is not used in the GATT.  Rather, GATT Article XXIV refers to “free-trade area”.  (Last year, I asked students in my Law of Trade Agreements class to determine whether the arrangement created by IPEF -- or what we knew of it at the time of the class exam -- was consistent with Article XXIV of the GATT.  This was of course partly a trick question.  And implicit in the question was the issue of whether it mattered….)   

Apart from these rather academic affairs, we all know what we mean when we say “free trade agreement”.  We also know that the Biden Administration is not inclined toward those “comprehensive” agreements, to use the White Paper language.  As with the Administration before it, other forms of trade-related deals are in vogue.  Treasury and IRS go so far as to suggest that “newly negotiated agreements” could be coming.  (Query here under what authority those agreements would be negotiated, but we’ve already had that conversation.)

More may not be needed, however. When it comes to the more than 1200 trade-related agreements that the United States maintains covering over 100 countries, they very often “reduce or eliminate trade barriers”, just not all of them.  Consistent with what Treasury and IRS suggest in their illustrative list, these mini-deals or trade executive agreements could still be considered free trade agreements or at least “free-ing” agreements: they almost always make the exchange of goods and services easier.  The United States has 107 such agreements with Japan and about 60 with the European Union, despite not having a comprehensive trade agreement with either partner.  These agreements cover everything from avocados to zoning.  The set of countries with which the United States has no agreement accomplishing what Treasury and IRS propose is quite small (check out the map).

That said, the matter may not be so easily resolved with members of Congress pushing back and the potential for litigation. 

This is certainly not the first time trade-relevant rules have faced multidirectional challenges on implementation.

The new fisheries import rule followed a somewhat similar path.  (The rule was intended to become effective on January 1 but recently was pushed back another year.)  According to this rule, and generalizing considerably, the only foreign fisheries permitted to export fish and fish products to the United States will be those that the United States has approved.  Approval turns on whether the fishery has sufficient protection in place, in the view of the United States, for marine mammal bycatch.  Over the last several years, trading partners raised significant concern about the details of the rule while environmental groups put pressure on the executive branch to implement the law as Congress intended in the 1972 Marine Mammal Protection Act. The result has been a very long implementation process during which Commerce and USTR have worked hard to avoid ruffling feathers – or scales? – among major fish-exporting partners.

Whether albacore or zirconium, or others that may be coming, these separation-of-trade-law-powers implementation issues are likely to continue.

Mini-Deals: A First Look at the World of Trade Executive Agreements

With the deadlines now having passed for moving the UK and Kenya agreements through the 2015 Trade Promotion Authority (TPA) process, there has been some talk about pursuing instead more “skinny” or “mini”-deals especially given that the prospects of renewing TPA remain in doubt.  Even apart from TPA, additional executive-driven trade deals have been in vogue in U.S. trade law over recent years.  Readers of this blog will be well aware of conversations to negotiate these sorts of deals with Brazil, Japan, India, and China, just to name a few. 

Call these deals what you like – and, to be sure, what they are to be called has been a matter of debate – they all have one major quality in common apart from their governance of foreign commerce: they are not subject to congressional review following their negotiation.  Some of that is by design, but for the lawyers among us, that ought to create some question about their legal authority seeing that not all appear to be the product of a congressional delegation. (We’ve heard ripples of that concern before: recall the Anti-Counterfeiting Trade Agreement debates of a decade ago.)  But I want to pause on that question for a moment to talk more about the details of these trade executive agreements (TEAs).

In 2020 alone, 32 of these trade-related executive agreements entered into force.  You hear about them from time to time from different executive branch agencies.  In fact, the total numbers are staggering: my team and I have catalogued a total of 1228 TEAs (with another 500 or so pending our review) concluded by various executive branch agencies.  Most were negotiated in the last forty or so years (i.e., they are not new) and most are still in force today.  They cover a range of topics.  Some are engagement-building agreements such as the several dozen Trade and Investment Framework Agreements that “provide strategic frameworks and principles for dialogue on trade and investment issues”.  Others go far beyond such expressions of cooperation and include binding commitments such as protections for specific intellectual property rights, changes to regulatory processes for U.S. goods, new requirements for foreign products to enter the U.S. market, and more. 

In a series of forthcoming and recent articles, my team and I have tried (and continue trying) to get to the bottom of what is happening with TEAs – the ways through which they are made (including engagement with Congress or lack thereof), their management and monitoring, their transparency and publication, their functions and utility, their termination or replacement, and much more.  We have sought to create a taxonomy of these TEAs to figure out precisely how the trade world might understand them as compared to the traditional free trade agreement (FTA).  Only a small percentage of TEAs are merely cooperative and even those that do not create robust binding commitments have served as the foundation for later binding arrangements.  They cover the waterfront of topics including customs arrangements, food safety, insurance, tax, and autos, to name a few.  In total, the United States has TEAs with 130 countries.    

Bringing the full landscape of TEAs into focus yields several lessons – some of which will already be familiar to trade practitioners.  The most practical and undernoticed realization is that these TEAs are doing a lot of work in our trade law, especially where FTAs are not possible.  We have more than 100 with Japan and near that number with the EU and with China, but we also have several dozen with existing FTA partners.  In some instances, TEAs build out FTAs, elaborate on them, clarify them, and update them.  They are useful in expanding our trade agreements above and beyond the objectives set out in TPA and in resolving market access dilemmas where there is no FTA upon which to draw.  As former USTR Robert Lighthizer told members of Congress at a 2020 hearing, these deals often solve narrow and immediate problems for U.S. industries, farmers, and ranchers.

Second, TEAs, like some other executive agreements, also have a significant and underestimated regulatory impact.  They substitute for regulations despite that Congress has delegated this task to agencies to do through notice-and-comment rulemaking.  A good example is the way agreements are used to protect foreign distinctive alcoholic beverages in U.S. law.  Although there is a traditional rulemaking process outlined for U.S. protection and recognition of those spirits, TEAs have sometimes taken on that role themselves. The many ways through which TEAs are deployed to identify and protect distinctive foreign alcoholic products in turn creates questions about judicial review and international obligations that require further unearthing, which leads to my next point.

Third, TEAs need to be better conceptualized by scholars and by practitioners, including lawmakers themselves.  These deals are doing valuable work to facilitate to U.S. trade but very little is known about them.  To name just a few puzzles that emerge from the data: Why does the United States make trade law in such small pieces?  What does this mean for their administrative review processes?  What impact do they have on international trade law?  How do we measure their economic force?  And, how are they made part of U.S. law?  Recognizing this data set and the momentous shift they have advanced is only a starting point.  Completing the long list of interdisciplinary analysis that recognition demands comes next.

Fourth, and ironic given their ubiquity, is that TEAs are excessively difficult to track down.  Given trade’s special place in our constitutional framework, these deals don’t always get captured by the usual executive agreement review processes.  Instead, one has to go looking for them in a variety of places such as the USTR Annual Report, Federal Register notices and press releases, subscription services, and in some instances, from foreign governments.  Such a search may yield a list of agreements but not necessarily their texts.  Far more could be done on the government side to make these available for the public and for Congress.  In fact, given the difficulties of locating them, these 1228 may just be the tip of the iceberg.

At the end of the day, we need TEAs to serve at least some of the functions that they presently do and have done.  There are arguments to be made for and against codifying TEAs and adding congressional consultations along the way in at least some instances.  It may be that the increasing constraints in TPA have pushed more executive branch agencies toward TEAs.  Our next trade agreement delegation legislation may not look like the old TPA model given present interests.  Regardless of its central focus or aim, it ought to take these no-longer-skinny deals into account.  I’ll lay out more about what that might look like in a future post.  For now, this much is clear: TEAs are unlikely to disappear anytime soon as they have become critical tools in our trade law toolkit. 

New AU funding system and the WTO

At its July 2016 summit in Kigali, Rwanda, the AU Assembly held a special retreat to consider new proposals intended to ensure that the AU “is financed in a predictable, sustainable, equitable and accountable manner with the full ownership by its Member States”.

The new funding proposal adopted by the Assembly reads as follows:

“To institute and implement a 0.2 percent Levy on all eligible imported goods into the Continent to finance the African Union Operational, Program and Peace Support Operations Budgets starting from the year 2017”. See here: http://www.au.int/en/sites/default/files/decisions/31274-assembly_au_dec_605-620_xxvii_e.pdf (p. 1.)

That is all there is in the Outcome document on this subject.

The origin of the goods on which the levy is to be imposed is clear: by using the language of “imported goods into the Continent”, it excludes goods imported into an African country from other African countries.

However, by qualifying the products on which the levy will be imposed as “all eligible goods”, the Decision (i) clearly suggests that the levy won’t apply to all goods coming into Africa; and (ii) has left to a future date the determination of which of these goods will be subject to the levy, and therefore “eligible”, and which ones won’t be.

Interestingly, the Decision does not provide any guidance on how this classification is to be done – e.g. will it adopt a positive list approach of goods to be “eligible” for the levy (and whatever is not included in the list to be exempted from it) or the other way round (i.e. a negative list approach in which goods not subject to the levy will be listed while all those not so listed will be subjected to the levy)? etc.

Whatever methodology is used, will it be guided by some general principles – e.g. exclude essential goods from the levy (such as food items, medicines, educational equipment, etc.) – or will it be left to each member state to decide? If the latter, will this be negotiated? etc.

Also, when it says “a 0.2 percent Levy”, 0.2 percent of what? Presumably of the import value of the product (e.g. the value determined according to the WTO customs valuation agreement)? What if a country is not a member of the WTO and follows a different methodology?

Then, will this proposal pass the test of WTO compatibility?

To start with the most obvious: what if the same or “like” product comes from another African country? MFN requires that WTO members may not apply tariffs on a product coming from one WTO member and not apply the same tariff on the same or like product when it originates in another WTO member. The only exception to this would be if the whole of Africa forms a free trade area (as the CFTA aims to become) or a customs union or some form of regional economic entity that can be justified as a south-south agreement as per the 1971 GATT Enabling Clause. At this moment, only the CFTA route looks viable; the fact that both the levy and the CFTA are meant to enter into force in 2017 might not be mere coincidence either, but of course I don’t know if this is indeed the case.

Beyond the MFN issue, what if an African country has already undertaken a zero tariff commitment at the WTO – i.e. the bound tariff level for the particular product is set at 0%? Any increase, even to 0.2%, would be in breach of GATT Art. II on schedules of commitments. Countries such as Mauritius that have gone in the Hong Kong direction of establishing a duty-free import regime may have a point here (and this might explain, at least in part, why Mauritius registered its reservations to the above AU Assembly Decision).

Finally, what if an African country has already concluded a bilateral/regional trading arrangement with a non-African country/ies in which it has undertaken to eliminate tariffs on “substantially all trade” as is required by WTO law? Will the introduction of a 0.2 % levy not put that country in breach of its bilateral/regional treaty obligations and, indirectly, of its WTO obligations (because chances are that such a bilateral/regional treaty has been reported to the WTO and justified under one or another of the exceptions mentioned above – GATT XXIV, Enabling Clause, GATS Art. V)? The Euro-Med agreements signed between AU member states in North Africa and the EU or the EPAs signed by some of the other African countries with the EU might easily encounter these challenges.

I suspect there will be many more issues to come here.

The question then is how to overcome any challenges that may come from other WTO members.

I doubt any country would take Africa to court (and, in any case, no case can be brought against Africa yet; it can only be brought against individual AU member states that are also members of the WTO because the AU does not have legal standing before the WTO).

But, if the proposed formula is really good enough for Africa to want to fight for it at the WTO, I think it can do so successfully through a politico-diplomatic route. I am thinking here of a waiver under Art. IX of the Marrakech Agreement as perhaps the most obvious route.

Thoughts welcome.

Shaping the Pacific Alliance

Readers may be interested in a new blog, Shaping the Pacific Alliance, which aims to contribute to discussion about the Pacific Alliance, an integration scheme comprising Chile, Colombia, Mexico and Peru. The blog provides a platform for governmental and intergovernmental communities to engage with civil society, academics and industry in constructive conversations about the future prospects of and challenges facing the Pacific Alliance. The blog is edited by Ana Maria Palacio, a current PhD student at Melbourne Law School, the University of Melbourne, formerly with Colombia’s Ministry of Trade, Industry and Tourism. Her research project will propose a viable legal architecture to support the Pacific Alliance in long term consolidation. pacificallianceblog.com

Financial University Organizes Conference on Russia and the WTO

On 19-20 May 2015, the Financial University of the Russian Federation held its first international conference on the topic of "WTO Law in the Legal System of the Russian Federation: Problems of Application and Teaching."  To my knowledge, this was the first international legal conference held to address the Russian Federation's 2012 accession to the World Trade Organization (WTO) and the current role of the Russian Federation in the WTO.  The Financial University under the Government of the Russian Federation (Finuniversitet) is a leading publicly-funded institution of higher professional education (whose roots go back to the early 20th century).  The conference was supported by a grant from the U.S. Russian Foundation for Economic Advancement and the Rule of Law (USRF).

The conference consisted of over two dozen presentations regarding international trade law and policy and the trade law of the Russian government. 

Among the main lecturers on the first day of the conference were: Jan Bohanes, senior counsel of the Advisory Centre on WTO Law (Geneva), who lectured on constructed normal value in antidumping; Professor Steve Charnovitz of George Washington University Law School (Washington, D.C.) who lectured on the WTO-plus provisions in the Russian WTO accession package; Professor Anatoly Kapustin, Head of the Legal Comparative Research Centre who lectured on Russia and WTO Law; Professor Vasilka Sancin of the University of Ljubljana who lectured on models for an appellate mechanism in investor-state dispute settlement; Anait Smbatyan, Senior Expert at the WTO Expertise Center (Moscow) who lectured on WTO implementation; Eric M. Solovy, partner at Sidley Austin LLP (Washington, DC) who lectured on the obligations of and caselaw under the WTO Agreement on Trade-Related Intellectual Property Rights (TRIPS) and the WTO Agreement Subsidies and Countervailing Measures (SCM).  Excellent additional presentations were made by Mark G. Pomar, President of USRF and by Professor and Deputy Rector Dmitry Sorokin of Finuniversitet.

On the second day of the conference, two parallel workshops were held featuring scientific presentations by leading academics and practitioners from Moscow and other Russian cities.  Several presentations addressed the challenges and opportunities of teaching international economic law to Russian students.  In addition, Professor Alexey N. Ruzhin of the Russian Foreign Trade Academy gave a lecture on the enforcement of international trade and customs law in the Russian economy.

Organizing a major global conference on WTO law is a difficult task and Financial University Associate Professor Igor Shulyatyev is to be commended for planning and carrying out a landmark conference on key policy and technical challenges facing the Russian government in its WTO membership.  In the future, the Financial University should consider building on its success and holding a second annual conference in 2016. 

Colombia FTA Links

I don't have anything particularly insightful to say about the Colombia FTA recently submitted to Congress, so I'll just pass along some links (in no particular order):

George Will: "Under the Andean Trade Preference Act, passed by a Democratic Congress is 1991, the United States imposes tariffs on only 8 percent of imports from Colombia. But more than 90 percent of U.S. exports to Colombia are subjected to tariffs, some as high as 35 percent. The trade agreement would make this "one-way free trade," which now primarily serves Colombia's interests, more mutually beneficial. "

Kevin Gallagher: "The U.S.-Colombia Free Trade deal is one of the most deeply flawed trade pacts in U.S. history. It will hardly make a dent in the U.S. economy, looks to make the Colombian economy worse off and accentuate a labor and environmental crisis in Colombia. The Democratic majority in Congress is right to oppose this agreement and call for a rethinking of U.S. trade policy."

Dani Rodrik: "Virtually all of Colombia's exports enter the United States tariff-free, a  fact that is advertised in the USTR web site to assuage US critics who worry about adverse employment implications in this country.  But of course the same fact suggests Colombia is not getting much out of the proposed FTA either (or at least any more than what it could have gotten on its own)."

Ben Muse: "Congress is supposed to take action on a trade agreement negotiated under the trade promotion authority within 90 days of the date the president submits it.  However the 90 day requirement just lies in the legislature's rules, and a legislature can change the rules it sets for itself. "

Dan Drezner: "The biggest benefit of the FTA with Colombia has little to do with economics and everything to do with our bilateral and regional relationships. Go back to NAFTA. Kevin is right to point out that the agreement's efonomic effects were not terribly large. On the other hand, even skeptics of trade liberalization -- Dani Rorik, Paul Krugman, and Joseph Stiglitz -- supported NAFTA because it locked Mexican economic reforms, promoted political reforms, and cemented a stronger bilateral relaionship. There's no reason to believe that the same effects would not take place with Colombia."

The Economist: "Killing the treaty would be a blow to Colombia and its leader, Álvaro Uribe, a staunch American ally in a region trending in the opposite direction. This week he issued a plea for America to maintain its long tradition of bipartisan policy towards his country and pass a measure that would help Colombia give its people alternatives to drugs and terrorism. If the deal goes down, the benefits of befriending the colossus to the north will seem less dependable across the continent, complicating American diplomacy there. And in America the FTA's death might shatter the long-standing consensus on free trade in Washington by emboldening protectionists."

Jonathan Dingel: "The US-Colombian free trade agreement is not a free trade agreement -- it's a preferential trade agreement. Calling it a PTA instead of an FTA will satisfy both Jagdish Bhagwati and Dean Baker."

And Todd Tucker is live-blogging the fast track debate.

State of Play of U.S. FTAs

I found this table from Washington Trade Daily to be a useful summary of the state of play of U.S. FTAs:

1985	US-Israel FTA	Implemented
1989	US-Canada FTA	Implemented; combined with NAFTA in 1994
1994	North American Free Trade Agreement	Implemented
2001	US-Jordan FTA	Implemented
2004	US-Singapore FTA	Implemented
2005	US-Chile FTA	Implemented
2005	US-Australia FTA	Implemented
2006	US-Morocco FTA	Implemented
	US-Central American-Dominican Republic FTA	Implemented for the Dominican Republic, El Salvador, Guatemala, Honduras and Nicaragua.  Implementation for Costa Rica expected early 2008
	Free Trade Area of the Americas	Negotiations inactive
	US-Southern African Customs Union	Negotiations inactive with South Africa, Namibia, Lesotho, Botswana and Swaziland
	US-Bahrain FTA	Implemented
	US-Thailand FTA	Negotiations inactive
	US-Columbia FTA	Under Congressional review
	US-Peru FTA	Signed into law; implementation expected by mid-2008.
	US-Ecuador FTA	Negotiations inactive
	US-Panama FTA	Under Congressional review
	US-United Arab Emirates FTA	Negotiations inactive
	US-Oman FTA	Signed into law, implementation expected in 2008
	US-Malaysia FTA	Negotiations ongoing
	US-South Korea FTA	Under Congressional review

The EU-ACP EPAs

I've only been following the EU-ACP negotiations from a distance, and there were a number of aspects that I found confusing.  For example, how serious was the talk about an end of year deadline?  A good FT article from today offers thoughts and insights on a lot of the issues, including this one:

But since there is a dearth of case law, no one knows what degree of liberalisation would survive legal challenge. Some regard the EU’s insistence on the end-year deadline rather than, say, extending existing privileges for a temporary period, as aggressive and unjustified brinkmanship. The WTO disputes process takes years, so the spectre of the current agreements being mown down in a hail of hostile litigation on January 1 is unlikely.