International Economic Law and Policy Blog

Katherine Tai on the ITO Charter

At an Atlantic Council event yesterday, U.S. Trade Rep. Katherine Tai talked about the ITO charter and some policy issues that did not make it into the international economic system at that time:

Tai: The original vision for trade in the Bretton Woods institutions went above and beyond the General Agreement on Tariffs and Trade, the GATT, which is what ended up making it across the finish line. The original vision to pair with the World Bank and the IMF was an international trade organization, the ITO charter, that had tariff pieces that were coupled with enforceable and meaningful worker standards based on a goal of full employment for all members, environmental equities, and also anti-monopoly provisions, to address the fact that it's not just the private sector companies that can behave as monopolies and distort economic opportunity, but entire countries. ...

...

Question: ... Talk about what role trade plays in this contest of democracy and autocracy.

Tai: Here's where I'll get into a bit of diagnosis in terms of where our successes have come up short. And I think that what I would do is go back to that original vision for the ITO charter, understand that it was more than just the GATT. And imagine what would have happened if the ITO charter had made it across the finish line. Now, one historical note, the ITO charter in full didn't succeed, and it was one Senator Taft, who really put the spoke in the wheel, and it was the same Senator Taft who had rolled back a lot of the New Deal worker protections that FDR had put into place. Now what was left on the cutting room floor, the enforceable, meaningful labor standards, the environmental standards, and then also the anti-monopoly rules. So instead what you ended up with was a tariff program and a program of trade liberalization standing on its own without the safeguards addressing the interests of working people, of the planet, and of ensuring a healthy and vital amount of economic opportunity that could happen within economies and between economies.

I'm not sure what she has in mind for environmental provisions that were in the ITO charter but not the GATT, but putting that aside, it's interesting how broad a view of global governance this is. Having binding and enforceable international rules on labor, the environment, and antitrust that apply to the U.S. would be a big deal. We have some rules in these areas to a limited extent today, but they don't have much impact on U.S. policy (e.g. right to work laws), and that's by design. I have serious doubts that the U.S. government would ever agree to a set of international rules that intruded into its sovereignty/policy space in a significant way on these issues. The U.S. did agree to such rules on trade issues that focus on protectionism, but doing something similar on labor, the environment, and antitrust would be asking a lot more. 

A related issue is that the U.S. government changes its view on issues such as these over time as governance shifts back and forth between the parties. As we alternate between Democrats and Republicans running things, which we will continue to do, I'm not sure it is possible to find a set of international rules on these issues that both parties could support.

Katherine Tai on Digital Trade Rules

Here's something U.S. Trade Rep. Katherine Tai said, at an Atlantic Council event yesterday, about pulling back on the formulation of international digital trade rules:

Isn't it time for us to hit pause on this, come back, reconnect with all of the other policy silos, break them down, talk to our Congress, talk to our industry, the bigs and also the littles, the companies and also the workers, the platforms and also the creative content producers, and try to get our arms around what is actually happening here and what is in the public interest, because that is not the question that has informed the proposals that we've developed over time. So what I would say is, for all of those who are yearning for a leadership from the executive branch and USTR to tell everybody else what the answer is, my argument is the real leadership is in stepping back and saying, this is not an answer that is going to come from USTR alone. And that if that's what you're looking for, a USTR-led answer to how we should be regulating tech and data, that is not going to be the right answer. This is, again, a project for our collective wisdom, and it's only once we've achieved that wisdom, first here in the United States, and then with our trading partners, are we actually going to be assured of any kind of success that the world order we're creating that has rules for digital trade and technology is going to support economic opportunity for working people and democracy.

Let me offer two thoughts on this.

First, I do think the Biden administration needs to come up with a position on digital trade policies, including data flows obligations and exceptions, that can be put forward in international discussions. Most other governments have a position; it should be possible for the U.S. to have one too. There is lots of scope for playing around with language to develop a balance that everyone can live with, so maybe all the agencies with an interest in this should put forward their proposal, argue it out, talk it over with people in Congress, and then have someone in the White House make the final call.

Second, in terms of who exactly should take the lead on this, I think I agree with Tai, if I understand her correctly, that USTR may not be the best positioned to lead on this policy. In this regard, I have been wondering recently if we need a dedicated tech agency or office to lead on matters like this. I don't have strong feelings about where exactly in the federal government this tech expertise should be located, but it seems like it might be a good idea to have this sort of thing somewhere.

Katherine Tai on Bob Lighthizer

This is from an exchange with U.S. Trade Representative Katherine Tai at an Atlantic Council event today (starts around 48:30):

Q: Ambassador, I wondered if you could tell us where your views overlap with those of Bob Lighthizer and where your views differ.

Tai: ... Where our views are similar, and where I find an alliance with Bob, is a commitment to the fact that we have to change our approach to trade, that the world is significantly different, and that the benefits here in the United States are not inclusive enough. Those are my words, and that's in my very much ... Democratic vocabulary. But I think that one of the really important and not foregone conclusions in the trade community internationally is that we do need to change. From my perspective, it's that we need to evolve the way we do trade. And you can't do that by yourself. You have to build that collective and that community to do it together. And I think that basing that community on a community of democracies is really important. In terms of where our views are different, I hope that that's obvious, and if it's not, I would definitely take some feedback on how I can make that more obvious.

Q: You want to throw out one example where it's different? Maybe deal with China, where do you think you're the same or different on China?

Tai: On China, I think we share a lot of the same diagnoses. I think one of the ways where Bob and I are most obviously different, again, is in rhetoric. Although, you know, Bob inside the room versus Bob outside the room can be different, just like for all of us. But you know, I think that one aspect of the Biden administration's approach, and this very much reflects President Biden's just innate internationalism, is this point of view that you have to build partnerships.

Normally I have some commentary on things Katherine Tai said (and I will have comments on other things she said at the event!), but here I just wanted to highlight the exchange because I thought people might find it interesting.

U.S. Subsidies vs. Chinese Subsidies / Good vs. Bad Subsidies

At a press briefing with Ambassador Tai on the announcement that the Biden administration would maintain the Section 301 tariffs on China and add tariffs on a few additional products, a reporter asked the following question regarding U.S. vs. Chinese electric vehicle subsidies:

The U.S. government is subsidizing the EV industry here pretty significantly.  How is that different from what the Chinese government is doing?

Tai responded as follows:

So, if you take a look at the Chinese economic model, what you see is a system of state support that is built to dominate and take over entire industries.  So, this is what I mean by, “We’ve seen the pattern” — steel and aluminum, solar panels, batteries, EVs. 

Today, China’s production capacity in steel is 55 percent of world capacity — that’s in one country; aluminum, 60 percent; EVs, 60 percent; solar, 80 percent; and in certain critical minerals, 85 to 95 percent.  So, those are subsidies with an aim to cornering the world market and achieving dominance and creating dependency. 

The types of support that we’re talking about here are defensive in nature.  They’re about creating the space to compete, the space to thrive, the space to survive the kind of onslaught that we are seeing across the board.

A lot of people have been trying to figure out how to distinguish good subsidies from bad subsidies. Is there something in what Tai said that can help provide the basis for doing so? Here are a couple possibilities:

• Maybe it's the intent that matters: Subsidies are a problem if they are "built to dominate and take over entire industries" or if they are provided "with an aim to cornering the world market and achieving dominance and creating dependency."
• Maybe it's the level of global capacity that is the problem (e.g. "steel is 55 percent of world capacity"): If it gets too high, that's a concern. On this point, here's something Jennifer Hillman and Chad Bown wrote a while back:

Because prohibited subsidies have both a clearer and faster remedy than merely actionable subsidies, expanding their list could add teeth to the ASCM. Currently, ASCM Article 3 limits prohibited subsidies to export subsidies or subsidies contingent on the use of domestic products over imports. If certain subsidies that are considered more trade distortive, such as those leading to substantial global overcapacity, could be defined and added to Article 3, it would strengthen the ASCM.

•  Maybe if they are "defensive in nature" it's OK, i.e., if they are provided in response to other governments' subsidies.

Could these factors be used in evaluating whether subsidies are good or bad? I've also heard people suggest that the real problem is "pervasive" subsides, so maybe the amount of subsidies should be considered as well. It would be interesting to see WTO Members discuss all this. 

At the same time, I would note that the existing SCM Agreement "adverse effects" rules -- along with the narrower prohibited subsidies rules of course -- might also be a good way to distinguish between good and bad subsidies. These rules provide a remedy based on the effect that subsidies have on foreign competitors. In a sense, the rules give Members a way to play defense when they are harmed by another government's subsidies.

If the goal here is to discipline subsidies, maybe it's worth using the WTO's adverse effects rules more. We can then see if there are still gaps that need to be filled in with additional rules.

It may take a while, but ultimately I think we will need to settle on some international rules in this area that everyone can live with. Otherwise the negative economic impact of unilateral trade retaliation and subsidy races is going to keep growing and become a serious problem.

Katherine Tai on Negotiating at the WTO

Here's an exchange between Rep. Don Beyer (D-VA) and U.S. Trade Rep. Katherine Tai at a House Ways and Means Committee hearing in mid-April:

Beyer: I, with a number of my colleagues here, visited the WTO a couple of years ago, in the midst of all the ongoing multi-decade fights over the Appellate Body. You mentioned that you made more progress in the last year than in the previous 20 years. And I was fascinated by noting that it was a shift in emphasis from leading negotiations based on positions to being asked to identify and share the interest that they want served. Could you explain what that means in English?

Tai: Thank you so much, Mr. Beyer, for tracking this very closely because this is one of the areas that is so important to us. Myself personally, having litigated at the WTO, appreciate how many challenges we have with the dispute settlement system, but also, I remain very, very committed to a vision for having a dispute settlement system that's effective, that can be accessed by everyone at the WTO, and not just a small handful of the WTO Members.

The interest based approach to negotiations at the WTO: We really endorsed this idea from the beginning because we know we have very, very deep extensive concerns with how the Appellate Body was operating before and other aspects of the dispute settlement system. And that if we were to approach these negotiations on dispute settlement reform in the traditional Geneva-based way, where you have to think through what your ideal outcome is, and kind of what you can live with, and then from there, because it's a paper based exercise, you're incentivized then to dial up every single one of your proposals to 150 or 200 just to be able to survive a negotiation process that involves almost 200 other participants. That for us looked like it was going to be a very, very long, tortured and unsuccessful road to move forward. Because we are genuinely in good faith interested in a reform project.

What we really endorsed and got behind was an approach at the WTO to identify not what your position is, which creates that dynamic of dialing up 150 this way, dialing back 150 this way, and then fighting your way to the middle, but to encourage a conversation that was inclusive, that started not with the question of what's your position, but starts with the question of what is the interest that you want as a WTO Member served by a dispute settlement system. And as a result of that approach to the negotiations, we were collectively able to make more progress in one year than in the 20 years before of dispute settlement understanding reform that was run along a positional basis. So I think the most critical question in terms of dispute settlement reform going forward is how do we continue this work? My negotiators and my legal advisors in Geneva have told me that this is the one negotiation area in an institution that is showing a lot of age and brittleness, that is dynamic, where negotiators come and they're actually talking to each other and listening to each other rather than just reading points at each other. So it's tremendously consequential. We're very invested in this process.

I know this is going to sound naive and a bit off the wall, and will demonstrate to the world that I've never been a trade negotiator, but what if instead of dialing things up to 150, governments just proposed sensible things that they believed in, and put forwarded strong defenses of those things? Maybe this is just crazy enough to work!

In terms of how the interest based negotiations on WTO dispute settlement have gone, I feel like this situation is a bit unique, because there is an underlying disagreement about the Appellate Body that brought everyone to the table. These circumstances have made governments willing to talk constructively about a lot of dispute settlement related issues. But have they made progress on the big issue here, which is dealing with the Appellate Body crisis so as to eliminate appeals into the void? It is not clear to me whether they have, so I'm going to reserve judgement on whether this new approach works until we see how things play out with fixing that.

Katherine Tai on WTO Complaints against China

U.S. Trade Rep. Katherine Tai had a couple exchanges at last week's Senate Finance Committee hearing in which she suggested that WTO complaints against China had not been effective, and for that reason the Biden administration had moved away from filing these complaints. I disagree with her on the effectiveness of these WTO complaints. I'll first set out the Senate exchanges, then I'll comment on the issue in more detail.

Here's an exchange between Tai and Senator John Cornyn (R-TX) (1:08:10):

Cornyn: Has the administration taken any enforcement actions against China?

Tai: The administration absolutely has moved forward with an aggressive set of policies against China across the administration.

Cornyn: Have you taken any enforcement actions?

Tai: I suppose it depends on what you mean by enforcement actions.

Cornyn: I mean enforcement actions.

Tai: With respect to export controls on semiconductors, ... you've seen enforcement there.

Cornyn: I'm not just talking about talk, I'm talking about actual enforcement actions against China.

Tai: I think that those actions have certainly moved markets.

...

Cornyn:  [China is] accessing the World Trade Organization seeking to dispute provisions of the Inflation Reduction Act. Meanwhile, China continues to subsidize and prefer their products by spending a lot of money, making it much harder for American businesses to compete. Has the administration taken any sort of enforcement actions against China at the World Trade Organization or anywhere else to go after them? They are taking advantage of that access to the World Trade Organization against us. But are we doing it against them?

Tai: We have in the past taken lots of actions against China at the WTO.

Cornyn: When was the last time you did it?

Tai: Well, let me put it this way. Let me answer your original question.

Cornyn: When did you do it?

Tai: Well, it's been ineffective, Senator Cornyn, which is why we no longer do the things that aren't effective. We are focused on being effective. ... We initiated an enforcement action today under Section 301 on Chinese non-market policies and practices affecting the maritime industry and shipbuilding industries. So yes, we have, this morning.

And here's an exchange between Tai and Senator Marsha Blackburn (R-TN) (1:38:59):

Blackburn: I want to talk to you about enforcement actions against China, because I hear a lot about this in Tennessee. Theft of intellectual property, the genocide, the crimes against the Uyghurs, what all is happening in Xinjiang, the military aggression against Taiwan, and of course, you've got TikTok, and what we're seeing there. So I know you've just announced the 301 on shipbuilding. What other enforcement actions have you taken against China?

...

Tai: Every single day what we do, whether it's directly vis-a-vis China, or it's work that we are doing with other partners and allies ...

Blackburn: OK, but no new cases against China at the WTO on your watch.

Tai: I mean, cases against China at the WTO have not netted us structural change in China.

Blackburn: Okay, so you're not going after them, and you failed to use the dispute settlement mechanisms under the Phase One agreement, correct?

Tai: The Phase One agreement enforcement, we absolutely are advancing in terms of raising the issues with China. We have done that. Right now, I think probably the most important aspect of China enforcement, set aside the 301 that we just started today on shipbuilding, comes to the review of the existing tariffs and how we can make them more effective and strategic.

With regard to the effectiveness of WTO complaints against China, I looked at this in a paper with Jim Bacchus and Huan Zhu a few years ago, and our conclusion was that the evidence points to WTO complaints against China being pretty effective at inducing changes to China's practices and policies (about as effective as complaints against the U.S. or the EU anyway -- no one is perfect here). Weihuan Zhou has also looked at this issue, and he reached a similar conclusion. (By contrast, from what I can tell, unilateral approaches that some people appear to believe will induce change in China, such as Section 301 or AD/CVD, have not had much impact on China's practices and policies.)

When I point to these conclusions on the effectiveness of WTO dispute settlement, some people try to push back in very general terms, but they never offer anything concrete. They have an impression or a sense that the WTO complaints were ineffective, but no specific contradictory details on the overall results. Of course, they may point to a particular case that didn't get a good outcome, but there are cases like that in relation to the U.S. and the EU as well. What I'm talking about here is the broad impact across all the cases. It's true that you don't always get something, but you often do. If someone thinks they have evidence that contradicts me on this overall impact, please feel free to offer it!

In terms of getting "structural change" in China through WTO dispute settlement, here I would say that someone would need to bring a structural changes-type complaint -- e.g., a complaint invoking para. 46 of China's working party report -- in order to get that kind of change.

It's also worth noting here that the Biden administration's lack of WTO enforcement is not just about China, as the U.S. hasn't brought any WTO complaints against anyone under the Biden administration. Obviously, the U.S. blockage of Appellate Body appointments plays a role in this, and the absence of recent U.S. complaints is, at least in part, tied to that. But there are a range of compromises that could satisfy the U.S. concerns about the Appellate Body (or it could join the MPIA) if it wanted to use WTO dispute settlement.

And finally, on enforcement of the Phase One agreement, I have not come across any public information on how this enforcement mechanism has been used. As I've written, the Phase One enforcement mechanism is not likely to be effective at inducing policy change, because it just internationalizes Section 301 tariffs. Nevertheless, it would be interesting to hear the details of what USTR has been doing with this mechanism. I'd like to see more in depth questioning from members of Congress on this point in order to get USTR to disclose more information.

Katherine Tai on Trade Policy Pitting Americans against Americans

At a House Ways and Means Committee hearing last week, U.S. Trade Representative Katherine Tai said a couple times that she wanted "to stop pitting Americans against Americans" in U.S. trade policy: 

• "Trade should work for all Americans. Our goal is to stop pitting Americans against each other in our trade policy."
• "... our approach is built on the basic principle that we should not be pitting Americans against Americans and American sectors against American sectors."
• "... we need to do trade in a way that stops pitting Americans against other Americans. One of the things about the traditional free trade agreement is that it has done very, very well for American ag[riculture], especially big ag[riculture]. But it's actually not done well for our heavy industries or industrial workers and that's created this pitting of Americans against each other."

The first two statements are more general, but the last one gets a bit specific, arguing that agricultural and industrial workers have been pitted against each other through trade agreements.

As I see it, there are tradeoffs inherent in all trade policy choices, including both domestic measures and international agreements. If we impose tariffs on imported steel, for example, a small number of corporations and their employees benefit considerably due to reduced competition and higher prices/profits, while a large number of people feel a smaller negative impact from the higher prices, retaliation by other countries, etc. Most economists would say that aggregate economic welfare is reduced through these policies, and some people lose jobs due to the overall negative impact on the economy.

In this way, trade policy choices always "pit Americans against other Americans." You can make different choices, but you can't avoid making a choice that helps some and harms others.

The agriculture vs. industry tradeoff is an interesting one. For whatever reason, U.S. economic policy has long promoted agriculture production and exports. It has done the same for certain industrial sectors (e.g. large civil aircraft), but not others. Is there some alternative version of U.S. economic policy where U.S. steel and autos, for example, were promoted as export-oriented industries? I feel like this is unlikely given certain natural advantages and long-standing domestic policies of the U.S., and corresponding disadvantages and policies of particular other countries, but I'd have to give this some more thought.

It's also worth noting that politicians and policymakers have a choice as to how to approach these tradeoffs, and while the approaches vary over time, political factors almost always plays a crucial role here (politicians and policymakers are looking to reward certain groups in order to reap a political benefit). Regardless of how the choice is made, however, I'm not sure I see a way to avoid the tradeoffs. It would be nice if the overall economic well-being of the country played a bigger role in the decision-making, but I suspect that politics will continue to be the driving force.

Senator Whitehouse and Ambassador Tai Talk About Getting Rid of ISDS

Here's an exchange between Senator Sheldon Whitehouse (D-RI) and U.S. Trade Rep. Katherine Tai at a Senate Finance Committee hearing today (2:32:00):

Whitehouse:

The other thing I wanted to talk with you about is the loathsome ISDS process. We are not putting ISDS provisions into any new treaties, but they exist as hangovers from past treaties. I'm told that it's actually possible to remove ISDS from existing free trade and bilateral investment agreements and that you are looking at the best way to go about doing that. Can you give me a progress report on that? ... The quicker we can get rid of that, as a vehicle for putting private interest over public interest, and putting size and weight over virtue, the better off we will be, and I'd ask for your thoughts on how we can remove ISDS from those existing agreements and treaties. 

Tai:

Well, I think we have a number of tools with respect to ISDS that, whether they're in bilateral investment treaties, or standalone, or they are incorporated into FTAs, we're looking at this question actively right now with respect to existing ISDS provisions ...

Whitehouse: So you have no report on ... ?

Tai: ... how they can be improved. Again, this is one of those things where we're very, very interested in the views of members of Congress, especially those who sit on the Judiciary Committee and are lawyers.

Whitehouse:

The US was responsible for pushing a lot of this ISDS nonsense into those treaties in the first place, correct? 

Tai:

I think that's absolutely correct.

Whitehouse:

Well, godspeed. Stay in touch with us on the conclusions that you draw. I would add to my [Question for the Record] for any further information you have on this [that] might be useful to me and my team as we look to try to rid our trade agreements of this really noxious agreement.

I think of ISDS as more misguided than loathsome, but putting that aside, I was intrigued to hear that USTR is actively thinking about how to get ISDS out of existing trade agreements and investment treaties. What is the likelihood of anything happening here? What does the State Department, which has a big role to play on ISDS, think of all this?

ADDED:

A friend of mine argued that I was misinterpreting Tai, who only said she was considering improvements to ISDS, and did not mention removal herself. I emailed the USTR press office for clarification, and they replied as follows:

President Biden has made it clear that he does not support the inclusion of ISDS in new trade agreements. When Ambassador Tai has been asked by Members of Congress about removing ISDS from existing trade agreements, she has let them know she would like to work with them to identify the best path forward, respecting the role of Congress in such matters.

Katherine Tai on Online Business Models and Digital Regulation

U.S. Trade Rep. Katherine Tai spoke recently at a SeedAI event and had some interesting things to say about both online business models and digital trade regulation. 

I'll start with a quote that reflects what she has said many times about sorting out domestic digital regulation before the U.S. negotiates these issues internationally:

It is my strong feeling as the trade representative that we have to exercise, and certainly from the trade perspective, an amount of executive restraint to let our legislators, our policymakers, to let our democracy decide what are the American values that are going to prevail in this moment of technology evolution that's defining not just how our economy works, but how our very society is going to evolve. At this point in time, trade needs to know its place. And that's not to say we should sit on our hands and watch the world go by. That means that we need to be actively engaging with all of the other policymakers, plugging ourselves in, listening, communicating with debates domestically, to be able to position ourselves for success.

I see her point here, but on the other hand, other governments are negotiating these issues internationally, and it seems like it would be valuable for the U.S. to be part of those conversations. It may be a while before U.S. policymakers resolve these issues domestically (and honestly, that may never happen!), and in the meantime I would think that whatever administration is in power would want to try to shape the international conversation.

Next up, she raises something that is near and dear to my heart, which is how to build online business models that work for both companies and consumers:

The issue of the business models of our technology companies, of the distributors and platforms and hosts for content creation and content distribution is, I think, creating some real questions around what interests this business model is serving. So, a business model oriented towards clicks, a business model based on what is now popularly understood and discussed as surveillance capitalism, is all about a business model that is generating profit based on data, the movement of data, the aggregation of data and what you do with people's data. I think that what is really interesting for me is to see how that business model is coming into contact and conflict with the business model of traditional media. And I'll just share with you, from our parochial vantage point of being USTR, recently just a week and a half ago, we were in Abu Dhabi for the 13th Ministerial Conference of the World Trade Organization. And we wanted to stay in good contact with the beat reporters who were going to Abu Dhabi with us, and as we were reaching out to the different outlets we were discovering so many of our beat reporters who have been laid off just in the past couple months, who were not available to come with us, and reading about what's happening at the LA Times, The Washington Post, The Wall Street Journal. There is a moment of comeuppance for the traditional media business model. So why am I tracking all of this? Because this relates directly to the impacts from what we might negotiate right now or what we need to negotiate in the future.

As someone who runs two online businesses, let me say that a model based on selling users' data is not something I would want to be a part of. You can't avoid collecting some data, in order to give users access, provide them with usage stats that they want, etc. But I'm not comfortable with selling data for profit, and I wish there were less of that generally on the internet. I understand that this model gives a lot of people access to information for which they don't have to make any direct payment, so there is value in it, but nevertheless I would like to see more companies explore approaches that avoid reliance on selling data. I appreciate Tai's comments on this issue, and it might be useful if there were a tech specialist of some sort in the Biden administration (or a future administration) who would focus on this issue and promote this message. I don't think they necessarily have to regulate here, but they can use the bully pulpit to get the message out.

Speaking of regulation, there was this question from the audience about the EU's Digital Markets Act:

Small businesses, as you're mentioning, in the app economy, they depend on tech platforms for several things, including access to a global market. In 2023 there was a report of foreign trade barriers and USTR identified the DMA, which took effect last week, as a potential barrier. There are some potential concerns about how the DMA could degrade platform services that a lot of small businesses in the US, small tech companies, depend on, including privacy and security. But I was just wondering as you prepare for the upcoming TTC meetings, if you intend to raise some of these concerns with European counterparts?

And here was Tai's response:

It's true that this was in the 2023 report as a potential barrier. And that does reflect our traditional approach to trade, which is to look at regulatory activities from other countries and just see how they might impact American company interests. I think that the DMA is a really, really good example of the cusp of change, and the cusp of increased nuance that we're bringing, especially to digital economy issues. When we're talking about the platforms, yes, I know a lot of small businesses have told me that the platforms are creating the entry point for them to connect with the global economy. And that's a wonderful thing. That's something that we should celebrate, because it is about opening up more opportunities, especially for the small and the medium companies. Here's the issue. Shouldn't we have more platforms then? Right? Shouldn't we have more opportunities like that? And I think the DMA's approach is to look at some of these platforms and to look at their role as what they call gatekeepers.

But as we're connecting the trade conversation with the competition and anti-monopoly conversation, the other way I might frame that is, some of these platforms serving as the holders of choke points, right? Being a platform like that, yes, when you're operating in the best possible terms, you're creating opportunities. But when there aren't enough of those types of platforms, what that means is those platforms have a lot of power to determine when and how those opportunities can be accessed by the smalls and the mediums. So that's an aspect of our trade policy that is in formation right now, which is to not rely on our old instincts of, well, what's the nationality of your company, and whose side I should be fighting on. Right now, the question that we're looking at is, what's the pro-democracy, pro-competition, pro-worker angle, and it is shifting the conversation that we're having.

I appreciate what the EU is trying to achieve here, but I'm not sure how helpful the DMA will be. My sense is that the EU's GDPR led to a lot of commercial and non-commercial sites forcing you to select your cookie setting every time you go to the site, and in my view that has been a huge negative. Will the DMA be any better at providing people with a good experience on the internet and on apps? We'll see how things play out. I tend to think improvements here are mostly up to us as consumers. If most people are willing to spend their time on "free" platforms, giving companies their data so they can sell it for profit, well, that's what the digital landscape will look like. Alternatively, we could put in the effort to do things like follow websites using their RSS feeds, switch to the emerging federated social media platforms, and pay for the services of companies that do not base their business model on selling user data. (And yes, I have a financial interest in people taking this approach, but beyond that I think it would make for a better online world!)

Katherine Tai on USMCA Dispute Settlement and the USMCA Six Year Review

At a Brookings event yesterday, Josh Meltzer of Brookings had some interesting exchanges with U.S. Trade Rep. Katherine Tai on USMCA dispute settlement and the USMCA six year review. Here's the one on dispute settlement:

Meltzer: What I'd like to do is ask you a question about how you see [USMCA] dispute settlement, at the state-to-state level, working at the moment, anything you might want to say about any of the specific disputes as well?

Tai: Sure. So I want to really reinforce something for folks in terms of understanding the trade agreement. An enforcement mechanism is important ... for making real the commitments and the obligations and responsibilities, right. But you have to understand that in a trade agreement, it is essentially a contract between sovereigns. And so a dispute settlement system within a trade agreement has to balance the rendering of a decision and conclusions from a legal process with the fact of the sovereignty that's retained by the parties to the agreement. And so whether it's in the USMCA, any of our other trade agreements, or at the WTO, the dispute settlement process is something that gives you a right at the end to take away something from your trading partner. It's not supposed to be a punishment, although you can see it as a punishment. But the theory behind the way we do dispute settlement in trade agreements between sovereigns is, your right to suspend a concession, to take back something that you had promised under the trade agreement, is intended to be an inducement to finding a solution, compliance or an accommodation. Whatever is going to work at the political level between the sovereigns, right. So it is never meant to be something that you can shove down the throat of the other side because that's just not the way that international agreements between sovereign countries work.

So under the NAFTA, I think that there were four cases that were brought until we collectively broke the system. So it was important in the USMCA to revive a functioning dispute settlement system. But when you get to the end of the system, and we see this in the examples that you've given, at the end, the question is always going to be, do you have enough, have you changed the leverage composition, to get to the political solution that you need. And in the case of dairy, the answer is no. That despite two cases that we have brought, and the expectation under the agreement that American dairy farmers and producers would have more access to the Canadian market, we still do not have that access. And frankly we're not the only ones. It turns out that Canada has been sued under the CPTPP by New Zealand around the same set of policies with the same result.

So there what I would say is we have a political conundrum. Despite the best efforts of our dispute settlement system, we've still not been able to crack the political nut there. That is something for us to continue to work on and think through. How do we address that concern that we have with Canada?

So I want to put the dispute settlement system into that context. It is really important to have those systems be able to work but we also have to understand what we're trying to accomplish.

In the auto rules context, I want to pick up a couple additional historical contextual data points. Recall that the USMCA, the NAFTA was renegotiated into the USMCA, and I think that the three parties concluded the first iteration of USMCA at the end of 2018. Then came the second renegotiation of the USMCA that was driven by the Trump administration needing to get it through the Congress, and that Trump administration-congressional Democrat renegotiation of the USMCA. That happened over the course of 2019. The House voted on a broad bipartisan basis. 385 members voting for it happened on I believe is December 19 of 2019. It passed through the Senate at the end of January in 2020. I give you these dates because what I want to emphasize is, by the time that USMCA enters into force, it is July 1 of 2020 and the pandemic has happened. And that was the first indication we had that the world that we had renegotiated the USMCA for was in the process of fundamentally changing again. In the meantime, since July 1 of 2022, today, March of 2024, the other aspect of what we've seen is an acceleration in countries', including US, Canada and Mexico, motivation to act on the climate crisis and the urgency around counterbalancing the market's failure to activate the kinds of clean energy technology boosts that we're going to need to respond to the climate crisis. ... the pandemic and I would say the Clean Energy Transition necessities have fundamentally changed the equation around multiple aspects of this trade relationship, but with a special focus on autos.

So I think that the conversation within the USMCA on autos has to be something larger than what has happened in this dispute. This dispute is important, those rules of origin and our lack of agreement on what those rules of origin mean, is an important component. But with an eye towards 2026, ... the third challenge is the Chinese overcapacity challenge on EVs. How are we as these three countries going to reassert our interest in each other's success, reassert our stakes in this supply chain to to keep pace with the changes and the pressures that are affecting all three of us at the same time.

So the dispute settlement system, an incredibly important component, but I want to put it in the context of leading us to a political solution, and then that political solution needing to address the changes that are happening even as we speak to our most modernized and most updated trade arrangement.

At the beginning of her response, I think Tai offers a good explanation of the political realities of how trade dispute settlement works. Some U.S. critics of trade agreements seem to think that rulings by WTO panels and the Appellate Body, and by FTA panels, can "strike down" U.S. laws and in that way they undermine U.S. sovereignty. Tai's explanation shows that this is not the case (to be clear, I'm not saying she was trying to rebut that argument, but I think she does so in a helpful way). There are political realities here, which is why the EU still bans hormone-treated beef.

With regard to more recent realities, in the dairy case, the U.S. won the first complaint it brought, but has not followed up with a suspension of benefits to induce compliance. It later brought another complaint, but the panel hearing that complaint found no violation. With regard to New Zealand's CPTPP case, the panel found a violation, and we will find out soon how hard New Zealand wants to press Canada for compliance, and what strategy it chooses to do so.

As for the future of the autos dispute, I think that depends a lot on who wins the U.S. presidential election. If it's Trump, I think it's safe to assume that clean energy and EVs will be much less of a concern in U.S. policy, and the more traditional concerns about auto rules of origin will take precedence again.

Here was the second exchange, focusing on the USMCA review process:

Meltzer: I want to pick up, you mentioned the review in 2026. Obviously, we've framed the report thinking about the review in 2026. There's going to be elections here, in Canada, [and] in Mexico as well between now and then. But to the extent that you've given this thought, how do you see the joint review mechanism? What would you think it should be trying to accomplish? How do you think about the importance of renewing USMCA?

Tai: This review mechanism when it was first proposed was tremendously controversial. So the amount of time it took for you to explain how the mechanism works is a reflection of a compromise that had to be reached in order to land a review mechanism at all. I think that the first iteration of this proposal was at the five year mark, you come together, you either pledge, this is working, we're going to continue, or the agreement stops. And so this very complex, it happens at the six year mark, if you don't have agreement, you have 10 years for it to peter out, if it renews it's another X number of years. It's a negotiated outcome. But I think the most important piece is, as you rightly focused on, it is an inflection point for essentially a reevaluation of how the agreement is working.

I think that the disputes and the disputes outcomes need to be a part of this, to the extent that we're not able to resolve the disputes using the dispute settlement system itself only.

The other piece of it is going to have to be, how has the world changed since the pandemic? [How] is the clean tech revolution and the climate crisis affecting this arrangement between the three countries? And then also the China piece cannot be ... overstated ... . It is going to be, and it already is, a really important element of tension and concern that is coming up in this very intimate trade relationship that we have between three countries. We are now contending with the fact that there are other players that are every day impacting how we relate to each other and how we compete globally.

So there's a lot for us to work on working towards 2026, and it's the type of thing where we can't just wake up on January 1, 2026, and say, well, now what are we doing, which is why I think that this series of reports that you are putting out, this conversation that I am participating in, that you are hosting, is so incredibly important. We have to be tracking everything along the way so that we're prepared for that moment.

One question that you posed, which was how do we take up this review in 2026 without fundamentally destabilizing the relationship? I think that that's absolutely valid and important, but I do also want to caution, you do not want that review to happen in a way that all three parties come to the conversation too comfortable. The whole point is to maintain a certain level of discomfort, which may involve a certain level of uncertainty, to keep the parties motivated to do the really hard thing, which is to continue to reevaluate our trade policies and our programs to ensure that they're really responding to the changes that are happening around us. These changes, they are on multiple levels. They're happening really, really fast. And if we don't stay motivated to respond, then we are going to lose. And so that review mechanism is important. It is important for us to come to that conversation responsibly. But we also have to be honest, and we also have to understand that that discomfort is actually a feature, not a bug.

I don't have high hopes for this review, given the nature and structure of the process. On the U.S. side, I think we will see some heavy lobbying by interest groups, and then that lobbying will get mixed in with the ideology of whoever is president at that point. What will come out is some U.S. demands, and no doubt some of these demands will make Canada and Mexico uncomfortable. Perhaps Canada and Mexico will put forward demands that make the U.S. uncomfortable too. To me, this does not seem like a great way to make trade policy, but it's where we ended up and we'll see how it goes. Will there be significant changes to the text? Will the parties find resolutions to some existing disputes? Will China, as Tai hints at, become the biggest issue to deal with here? (For what it's worth, my main suggestion for the review is to rethink the review process!)

Katherine Tai on Digital Trade

At a CFR event last week, U.S. Trade Rep. Katherine Tai said some things about digital trade. Normally for these things, I provide a quote and then react to it afterwards, but the quotes here are so long that I'm going to put my thoughts up front. See below for the full quotes.

First, on the issue of whether foreign digital policies and regulations discriminate against U.S. tech companies, Tai has discussed this before. My sense is that she wants to craft any rules carefully so that they take into account intent in an appropriate way, and don't just catch any situation where there is a disparate impact ("we have to really be cognizant that measures that may look like they have a discriminatory effect may or may not be advanced with a discriminatory intent").

Second, I agree with her that this is an area where it would be best to sort out the domestic regulation first, and it may not make sense to have trade people taking the lead here (I feel this way about issues such as IP and labor too!). However, it's not clear how long it will take to sort out the domestic regulation, so we may have to move into international rules before we are totally ready. One way to mitigate the potential problems with doing this is to make sure we take into account previous experience with the GATT/WTO (e.g., the non-discrimination rules and exceptions there) so as to get the balance just right, and also perhaps don't make things subject to dispute settlement right away. (My specific suggestions in this regard on a few key provisions are here.)

Third, my understanding based on various conversations and reporting is that the Biden administration is struggling to formulate a position on the specific text for any international rules in this area. It would be nice if they could work this out internally and put something out there for public consumption, in the context of the WTO, the IPEF, or any other potential trade arrangement. Again, I have my suggestions, but there are a range of possibilities, and I think it would be helpful to have an official administration position to discuss and debate. I can imagine this will be a challenge to achieve though, and it remains to be seen whether they can make any progress.

Finally, just to offer a hot take on big tech platforms and potential regulation, my feeling is that a lot of the tech companies' practices are bad, but that many of the legislative and regulatory proposals out there will not help much and could even make things worse. That's not to say there should be no regulation in this area, but it's mostly up to us to build a better internet, either by (1) creating, if you know how, apps and websites that avoid the bad practices in common use today, or (2) as a consumer, by staying away from the bad places (as hard as that can be sometimes, especially when so many other people are there!).

And now here are the quotes:

Mike Froman:

... and that brings you to digital issues, data issues and things of that sort. For a long time, the US had a position around free flow of data across borders, not taxing digital products across borders. There's been a recent change in that, both at the WTO and in APEC. How much of this is concern that something might happen in the trade field that would constrain either the ability of Congress to legislate privacy or antitrust concerns regarding our large digital platforms? Or the antitrust authorities themselves, the Department of Justice, the FTC, from taking the actions that they want to take with regard to competitiveness? What does it mean, given the fact that the US economy is probably, certainly the leader in all things digital, what does it mean for us to move away from defending these principles that have been so core to what we've tried to do before?

Tai:

This is a great question. I really love it. And I just want to acknowledge that you have always been really a generous source of advice and guidance to me, from when I worked for you, when you were USTR over time. And we had a conversation during the transition in your previous job where you raised for me the importance of these digital trade issues. And it's obvious, this economy that we live in, and I know I'm looking at myself on a screen right here where you know, I'm being transmitted out to lots of people over the digital infrastructure. Our entire lives, and certainly our economy, have become a digital one, right? So what does that mean for trade? If the challenge for us in this time period in our collective history is to ensure that we are responsive and more reflective of reality, what does that mean for what we have called digital trade?

And so I'll just take this opportunity to tell a little bit of a story that I hope and think that will be relatable for so many people in the room and online. When we started on these digital provisions in our trade practice, I think that the first FTA that had a chapter that dealt with, started dealing with these issues, was Singapore. And we're about to celebrate 20 years of the Singapore FTA this year, so early 2000s that we're negotiating this. It's called the E-commerce chapter, and it's the E-commerce chapter in several iterations of FTAs going forward, right. And I think that that makes sense if you think about what the digital economy looked like in the early 2000s. It really was about e-commerce. I mean, Amazon was still a start up. It was still in early stages, where Amazon I think was still mostly selling books in the late 90s and early 2000s. So when we thought about that that way, and thought, how does that intersect with trade and the types of things that we negotiate, I think that we rightly, appropriately at the time, thought about e-commerce digital trade provisions as largely facilitative provisions. The flow of data was there and we wanted to safeguard the flow of data to facilitate traditional trade transactions -- the movement of goods across borders. The analogy to services we used also in digital, but we thought about it in fairly traditional terms as a trade facilitation modality.

That makes perfect sense. But if you fast forward to where we are today, in 2024, one of the things that you realize is that the flow of data, the decisions around where data needs to be stored, how it needs to be handled, takes on much, much different dimensions, because over this period of time, in fact in the digital economy, the data is no longer just about facilitating traditional types of transactions. The data has become the commodity in and of itself. The data is now what has value. And the ability to accumulate that data, and for vast amounts of data then to be combined with computing power to create things like generative AI and large language models, it starts to give you a sense, just as a normal trade negotiator, that there are much much bigger equities at stake than what we might be doing in our trade negotiations. It's not just about facilitating trade. It's actually appreciating that the questions that are called around how we regulate data, and how we regulate the companies that accumulate, harvest and trade in this data, is something that we need to resolve and advance before we can thoughtfully and responsibly engage in trade negotiations to figure out what the limits are in terms of what we should be doing and what the goals are, of what we should be doing with our trading partners.

And I think one other data point for all of you is on the digital side, I will just admit, I come out of a very traditional trade background, trade in goods. I cut my teeth at USTR, back when you were USTR, litigating a case on export restraints on raw materials, right. Those are the critical minerals and things that come out of the ground. This digital conversation is one where I am learning alongside everybody else and alongside all of our policymakers as well. As we peel back the onion in thinking about data, data is something that you are generating, I'm generating. When I have my Fitbit on I am generating data 24/7. That's data that I have created, that somebody else possesses, and someone else is monetizing and trading and manipulating, right. If you look at sort of the reality of data brokers, the people who grab this data that's all out there, and then sell it, including moving it across borders, I think what you will learn is sort of hair raising in terms of what underlies the digital economy and our digital existences and just thinking about what the rules should be for how that data is handled, who has rights to that data, and then the international components around trade and prosperity but also trade and national security.

Froman:

The only thing I'd say is that I think the issue of data has gone way beyond trade in goods for some time. Services, among other things, have been largely dependent on data. Now manufacturing also depends on data, 3 million lines of code in a car, things of that sort. And so how you make sure you deal with the legitimate concerns that you just raised about national security, the selling of data, personal data in particular, without actually diminishing the capacity of US companies and workers to be competitive in an increasingly digital economy.

Tai:

So this gives me an opportunity to talk about what we did at the WTO, which I think you know created a lot of furor and fireworks. For all of you who have been involved in trade negotiations, WTO negotiations, you know that it is traditionally a text based exercise, and that everybody goes in flexing their muscles, and so you're always going in and dialing your text to kind of the extreme, knowing that what comes out through the negotiations is going to be somewhere in the middle depending on where it's gonna land, if it can land.

With that said, what we did in, I think it was October of last year, was go to these three or four provisions -- one on data flows, one on data localization storage, and one on source code -- and say, the United States is -- and this is trade language, right? This is WTO lingo -- we are withdrawing our attributions. So in that text, where after every provision you have in parentheses all of the countries or WTO economies that have said, this is where we're putting our chips, we took the US out of the parentheses in those three provisions, and what we said at the time was, it is so that we can reconsider our positions on these three very important issues, and that we can come back with better considered, better informed and better related to current domestic and international debates positions, right.

So, in terms of what we've done, we've not actually taken anything away from anyone. This world is still operating the way it has always. We're always looking out for the equities of the American economy, our stakeholders, our companies and also our workers, and our small businesses, our entrepreneurs, our farmers, our ranchers, etc. But it is actually a very deliberate action that we have taken to allow for deliberative engagement on those issues that will reflect better where we are.

I will say this. If you look around the world and some of our closest trading partners, you begin to appreciate how our systems are different. And then that means that we have different superpowers that we bring to our engagements around the world. If you look at the Europeans, I think that despite being a very complex institution, that the European superpower, one of them, is regulation. That they are able to seize the attention of the rest of the world through their ability to coalesce 27 member states around regulations and extraterritorial regulatory reach.

If you look at our system, it is, you could call it a superpower, our superpower is not regulating, and in the area of technology, especially where technology is creating this digital existence, it is an area where we know that we have to take steps forward and whether it's through the competition enforcement, whether it's through legislating on privacy, on the responsibility of stakeholders in the world of technology, how technology interacts with our democratic institutions, that it is actually really, really important for us to be connected as USTR to the rest of the conversation within the administration, in Congress, and beyond to ensure that what we're doing at the WTO (1) makes sense, (2) is consistent and coherent with everything else that we're doing, and (3) ultimately is constructive to bringing about a world that respects freedoms, that yes, that promotes economic vitality, but also isn't blind to the implications of what we're doing on all these other aspects of the interaction of government and the economy.

...

Itai Greenberg:

... I was ... formerly the lead international tax official at Treasury in the first couple of years of this administration. I thought you made insightful points about how data has value and there are companies that are harvesting this data and that we need to figure out how we're going to regulate data accumulation as a result. But that same language, exact language is often used by some of our trading partners as a justification for tax based rules that are limited in application to a very small list of companies, companies that meet very high national and global revenue thresholds for example. That ring fencing approach ends up defining a small group of companies that are exclusively, or almost exclusively, US headquartered. And I wonder what you'd say about that? Do we continue to have a non-discrimination concern? Could you say a little more about how you think the data value conversation should move forward multilaterally, bringing together the trade stuff and the tax stuff?

Tai:

... So, yes, non-discrimination is one of the pillars on which our multilateral trading system is based. And so that is something that we are always going to be looking at. The other piece of the puzzle though is, when you look at -- and so, we're talking about data and technology -- when you look at the big tech players, they are almost all quote "our companies," right? And 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 and not to be protecting their own market, when looking at the biggest companies in the world that happen to be American companies.

Side note, a question that I've been asking, and I think that my tax colleagues are important to answering this question, what is an American company? If you talk about being headquartered here in the US, are they all headquartered here, if we're talking about the companies that I think we're talking about? Because from a tax perspective, and again, I'm not a tax person ... how many of our big tech companies are actually, for tax purposes, headquartered in other places, and actually paying taxes there as opposed to paying taxes here? So if that's the definition of an American company, I'll have to ask you and others how many of these American companies are actually really American companies and how does that inform the discrimination conversation.

But what I do really want to enforce is that we are looking at this issue of data and value. We have so many unanswered questions. And ... this is a little bit aside from the question you've asked, but I think I have a bit of a segue here. I'm often asked if what we did in terms of withdrawing attributions and reserving the space to come back to the WTO with updated US positions in the WTO conversation is a somehow, some kind of a surrender to other approaches to the digital economy, in particular, if it's a surrender to the Chinese approach to digital regulation and control. This gives me an opportunity to say this, which is, from everything that we know with respect to data flows in China, that the PRC's approach is one that is really informed by control, especially by the government, and possession. So that what we see in terms of how the worldwide digital economy works, we know that the PRC is going to be looking for a lot of room to restrict data flows, to have the government tell companies where data can flow, where it can reside, that it must be localized within their borders. And what we know is data flows into China, it doesn't flow back out, and that all of that data, eventually, will either be in the possession of or be accessible to the state.

And we know that when we look at that model, it really doesn't reflect our values. And that that is not what we want. And I think that we have actually a lot of consistency with many of our trading partners that that's not the system that we want.

On the flip side, when we take a look at ourselves and where we are right now, what I would observe is we have a system that has very little regulation. In fact, I've been told by my friends on the hill, whichever part of the political spectrum they might sit on, that an American has no privacy rights to their data here in the United States. And that just doesn't feel right. And that's something that they are trying to do something about.

But that in our system, all of the data that is created by all of us is captured and accessed by, not the state, but a small set of extremely powerful, extremely rich companies. And that suggests to me that we're way on the other side of the spectrum where a lot of our closest partners are looking at us, and in fact even our own policymakers are looking at where we are, and saying that isn't the right balance either. That what we need to do is figure out, from a tax perspective, but also more broadly from a regulatory perspective, what is the place, where is the United States, what is our approach? And that's not to say that trade doesn't have a place in this conversation. But what I would suggest is that if we're only leading this conversation using trade and trade negotiations, that is very much the tail wagging the dog, that there are much, much bigger issues for our policy decision making and debate to resolve and address first. And it's not all about the trade rules.

Katherine Tai on Tariffs (Again)

At a CFR event on Monday, U.S. Trade Rep. Katherine Tai said some things about tariffs. I know, I just did a blog post about Katherine Tai talking about tariffs! But she said some more things, and I have more to say in response. There were two sets of questions and answers on this issue, as follows:

Jennifer Hillman:

I'm wanting to turn a little bit to the sort of political context of trade policy. And I'm thinking about a study that just came out by MIT economist David Autor, who was the author of the very famous China shock paper about the damage that China's imports did to the US economy. And their recent study finds four things. One is that the Trump tariffs on 301 and 232 did not do any good for the US economy in the heartland. Secondly, [it] did not bring back any jobs into the protected sector. Thirdly, that the retaliation tariffs from China actually did cause a significant negative harm, especially on the farmers. And fourthly, and this is the one I'm really wanting you to comment on, that what the tariffs did do is increase the political support for Trump and for the Republican Party. Now the Biden administration has kept all those tariffs in place. And so I'm just wondering where that leaves room for any maneuvering in terms of the political context in which we find ourselves with respect to trade policy generally, or these tariffs in specific.

Tai:

Well, so Jennifer, I'm not surprised that you've asked those questions. And I'm not surprised that the questions, and maybe even that study, is so focused on the tariffs. Something that I just want to be really open about, I think that reducing trade policy and US trade policy down to a conversation about tariffs is really unfair, and I think ultimately not conducive to a really robust appreciation for what trade policy is. In many ways, it's a red herring. And you're right, I think that there is something political about it, but I don't think it's a D versus R, R versus D politics. I think it's a political red herring that is continually fostered by kind of the traditional trade approach versus the need to evolve into a new trade approach.

And so let me say a little bit more about that. What is really important to appreciate about tariffs is that they're a tool. They're a tool that can be used in constructive ways. They're a tool, at least for us in trade remedies -- I know this is very much your background, dumping and countervail, safeguards -- they are a playing field leveling tool, they are a tool for remedying unfair trade. I actually kind of like the way the Europeans describe these types of tools, dumping, countervail, they call them trade defense instruments. So within the world of the WTO, and what is blessed by WTO, are trade remedies and trade defense and the use of tariffs to counterbalance unfair trade like dumping and illegal subsidization.

What I also want to reflect is that trade policy and economic policy isn't just tariffs. And this is something I want to distinguish on behalf of the Biden administration, because we are focused on reinvigorating the American middle class and the American economy, ensuring that there is more opportunity in our economy that we can address the increasing sense of economic insecurity that Americans, especially younger Americans, have been feeling over the past 10-20 years, right. And that what we have done is to deploy a set of tools.

You are right that we have kept a lot of the tariffs, because we see strategic value in those tariffs in this exercise of building out the middle class and reinvigorating American manufacturing and the American economy. But we haven't stopped there, right? Trade and tariffs are not the only tool you will need to accomplish those goals. I want to highlight one of the pillars of the Biden economic approach, which is the investments. Starting with infrastructure, going to Chips and Science, and the Inflation Reduction Act, and the clean technology investments and incentives that President Biden has effectuated against many people's expectations in just the past three years. And so from our perspective, if the economy doesn't, as it operates, make a distinction between all these different disciplines and silos that we've created in the way we approach it, then our approach needs to break down those silos and it needs to take the tariffs as a tool, the investments as another tool, to help reinforce policies that support and empower our workers and to encourage our partners to be supporting and empowering their workers, and then also promoting economic vitality opportunities through the enforcement of our competition laws, that when taken together, you can see what we're trying to accomplish. And when taken together, I would welcome anyone to do a study and look at all of these working in concert and how they have made changes to the US economy. And I think at this point, President Biden has created close to a million new manufacturing jobs. You have to be looking at all these policy vectors as combined, but picking and choosing them, I think, really does trade policy, as part of the economic policy family, a significant injustice.

...

Kellie Meiman:

I know that trade goes far beyond tariffs, but I'm going to return to tariffs for one second, because one of the elephants in the room are proposals in the context of our electoral campaign, but not even just here, globally, that would be not trade defense or trade remedies, but kind of a blanket unilateral increase of tariffs. And just given everything that you and Ambassador Froman were talking about with the weaknesses of the global trading system, etc., what do you see as being, when that feels so attractive politically, right, to say, but when the inflationary impact on consumers but on our services sector or on our manufacturing, and frankly, just the retaliation risk, as far as what other countries would do to US exports, is so real, how do you think that this threat here and among our trading partners might be addressed?

Tai:

So I think you described it as an elephant in the room. But I think that it's actually a particular person that you're talking about, right? So I guess what I would say is this. Everybody just take a breath. When tariffs come up, I don't know, just really channel your trade nerd self and recognize that tariffs are a tool. That they can be, they can be emotional, and they can be hyperdramatic, and we've seen them used in that way in the past. But whether it's coming from us or from others in our national debate, take the time, use your great expertise, interrogate what is being proposed, and ask what would this action be done for? What is the objective? It's a little bit like the flip side of trade liberalization for trade liberalization's sake. Let's ask, what larger purposes liberalization might serve and how we can use liberalization as a tool to accomplish those goals. For me, it's at this point, in everything that we've seen in the world economy, it's in that conversation, how does trade liberalization and other tools, how can they be harnessed to promote sustainability, resilience, and more inclusive economic outcomes. On the tariff side, I would say let's take the same approach, which is to say tariffs shouldn't be applied just for tariffs sake, right. But ask that secondary question, which is, what is the goal that you're trying to accomplish with those tariffs and whether or not you can articulate a coherent, a strategic approach. And I think from my perspective, again, I'll just bring it back to the way that we have approached the issue of tariffs and trade policy, has been to contextualize it around the overall goal of building out the middle class, reinvigorating America's economy, and how we can work with our partners on a constructive vision for how we do all this together.

Let me offer a few points here in response, many of which have the same theme: What does the evidence tell us about tariffs?

First, I don't know how to determine exactly what percentage of trade policy tariffs make up, but it's a significant portion. They are not the only thing, but they are at the center. And as a core trade policy issue, we really need to have a good understanding of their impact on the economy and on international relations.

Second, to me, the emotion around tariffs is mostly based on some people's feelings that they "work," in some sense. An example of this thinking is, the U.S. had tariffs in the 19th century, and the U.S. industrialized in the 19th century, so according to some people, tariffs must have "worked." But people who have studied the issue know the history is a lot more complicated, and I think what we need is a more empirical, evidenced-based approach to tariff questions. 

Third, along the same lines, I like this framing for thinking about the use of tariffs: "what is the goal that you're trying to accomplish with those tariffs, and whether or not you can articulate a coherent, a strategic approach?" Something I would like to hear more about from Tai, or anyone else in the administration, is how exactly they think the various tariffs they are imposing accomplish the strategic approach they are pursuing. Here are a couple examples: How does the dumping that anti-dumping tariffs are supposed to be countering compare to what we do in antitrust law? Are the Section 301 tariffs changing China's trade practices? Are the Section 232 tariffs enhancing U.S. national security? I know what the assumptions are on these issues, but walk us through the reasoning so that we can interrogate the logic and evidence.

Fourth, I was also intrigued by this explanation: "the way that we have approached the issue of tariffs and trade policy has been to contextualize it around the overall goal of building out the middle class, reinvigorating America's economy and how we can work with our partners on a constructive vision for how we do all this together." Do tariffs build out the U.S. middle class? Do they reinvigorate America's economy? Do they help us work with our partners? The evidence from economists who study this mostly indicates that the answer to all of these questions is "no." The Autor et al. study mentioned by Jennifer Hillman found: "So far, the trade-war has not provided economic help to the US heartland: import tariffs on foreign goods neither raised nor lowered US employment in newly-protected sectors; retaliatory tariffs had clear negative employment impacts, primarily in agriculture; and these harms were only partly mitigated by compensatory US agricultural subsidies."

But of course, it's always worth gathering more evidence, and there has been a lot of recent new practice with tariffs, so it's worth further study. As I suggested here, maybe ask the ITC to take a look? Along these lines, Tai said this: "I would welcome anyone to do a study and look at all of these working in concert and how they have made changes to the US economy. And I think at this point, President Biden has created close to a million new manufacturing jobs. You have to be looking at all these policy vectors as combined, but picking and choosing them, I think really does trade policy, as part of the economic policy family, a significant injustice." I would welcome that kind of study as well! But I think you can separate out the tariffs from the other parts, and evaluate the tariffs' impact on the economy. Even if you think the Biden administration's overall economic policies are a success, that doesn't mean the tariffs are making a positive contribution.

Finally, do tariffs actually work politically? As I've said on this blog before, Trump made heavy use of tariffs when he was in office, Biden was very critical of that during the 2020 campaign ... and Trump lost and Biden won! So maybe tariffs aren't that much of a political success story after all. I don't mean to suggest that you can't sway a few voters with tariffs that help specific corporations and industries. As the Autor et al. study put it: "Residents of regions more exposed to import tariffs became less likely to identify as Democrats, more likely to vote to reelect Donald Trump in 2020, and more likely to elect Republicans to Congress." I'd want to look closely at those voters and see if there were other reasons for the switch, but even beyond that, perhaps there are also harder to measure effects on other voters and that is part of why Trump lost?

(OK, one final, final thing. I don't think there has been "trade liberalization for trade liberalization's sake." Rather, people believe trade liberalization is good for the economy, especially the lower- and middle-classes who benefit most from more competition and lower prices, and that's why they pursue it.)

Katherine Tai on China and Tariffs

I have one final post on U.S. Trade Rep. Katherine Tai's event at the University of Chicago last week, addressing issues related to China and tariffs. First up, there was this exchange about China:

Q: Some people, even Trump haters, will give him some credit for beginning to tackle the issue of what we do about China. I think you described it as a switch to a different paradigm, of unilateral US pressure to try to change Beijing's practices. What do you think the Trump administration got right and what do you think they got wrong?

Tai: So I think that it's become a commonly accepted part of the policy conversation that the Trump administration, including my predecessor, Bob Lighthizer, who is very smart, really put their finger on a diagnosis, that there's something significantly out of whack and out of balance in the US trade relationship with China. And I think that there's a lot of focus from the Trump administration on the trade balance. I think that the trade balance is not everything. It is an important indicator, and I think it does show that out of balance nature of our trading relationship. So I think that that's a really important thing, even through all of the emotion and drama of politics, to have a sobriety about diagnoses, so that you can have a serious and smart and strategic assessment of prescriptions for addressing the problem and the challenges.

Did Trump "begin to tackle the issue of what we do about China"? Or did his "unilateral US pressure" approach move us away from tackling the issue of what we do about China? I'm inclined towards the latter characterization, because, as far as I can tell, the unilateral approach of the Trump administration has failed to change China's non-market policies and practices. There were other approaches that could have worked better, but the Trump administration didn't take them.

As to the trade balance, I would go further than Tai in criticizing the emphasis on this metric. The causes of the U.S. trade deficit are more about macroeconomic policies than trade policies, and people's mistaken focus on the trade balance leads to a lot of bad policy outcomes. To be clear, from what I can tell based on an examination of actual trade policies, it is true that China is more protectionist than the U.S. But the trade balance isn't the best place to look when you are trying to make comparisons about how protectionist countries are.

Turning to tariffs, there was this exchange:

Tai: But in terms of the competition and rivalry, and the need to bring better balance to the relationship, tariffs are a tool. I know there's a lot of drama and emotion around tariffs too, but take it from your Trade Representative, tariffs are a tool. And objectively, we have relied on tariffs for a long time as a playing field leveler, as a remedy for unfair trade. In that sense, tariffs are a really important tool of defense. It's a defensive tool. You're trying to use the tariffs to counterbalance the advantages that have come from unfair trading practices. ...

Q: So I've heard what you've said about tariffs and at the risk of pressing an issue that you consider unimportant, how useful a tool are they defensively? Even if they are a defensive tool, are they a useful defensive tool or are they a not useful defensive tool?

Tai: It's all about how you use them. And if you use them smartly, if you use them with the goal in mind of addressing unfairness to level[] the playing field, then they're absolutely useful.

There are lots of tariffs out there these days, and it may be worth breaking them down into the following primary categories:

• Ordinary tariffs in the tariff schedule.
• AD/CV tariffs that are supposed to deal with specific kinds of unfair trade, although I'm not sure how well calibrated they are to doing that.
• Safeguard tariffs that address fairly traded products, although sometimes politicians' press releases blur the distinction between unfair and fair trade in this context.
• Section 301 tariffs that deal with a broad range of allegations about unfair trade practices that keep U.S. goods out of foreign markets. (But are they effective at generating changes to these foreign practices? I don't think the track record is that great.)
• Section 232 tariffs, which operate similarly to safeguard tariffs but are ostensibly centered on security issues.

With this in mind, I have some questions: Which of these tariffs are about "leveling the playing field," and which have other purposes? Are some of these tariffs intended to change practices abroad, and do they accomplish that? Don't some tariffs have an "offensive" motivation, for example to encourage the development of a domestic industry, and do they accomplish that? How do any of their accomplishments compare to the economic costs they impose on U.S. consumers and businesses? And do tariffs have additional negative consequences by fostering political dysfunction?

What I would like to see is a study (maybe by the International Trade Commission?) of how useful tariffs have been for achieving their various purposes, and also taking into account any downsides. Tariffs may be a tool, but how well does that tool work? For decades now, people have been scrutinizing trade agreements and trade liberalization. But I think that has distracted everyone from one of the main problems that trade agreements were trying to address, which is the negative impact of tariffs on the economy and on good relations with other countries.

Katherine Tai on Trade and Peace

Here's another item from the Katherine Tai event at the University of Chicago last week:

Q: So let's go back to that comment you made about McDonald's, and that old theory that if there were a McDonald's in two countries, they would never go to war. How much does what's happened between Russia and Ukraine upend accepted wisdom about trade making the world more safe?

Tai: I think that it's really important in terms of causing all of us to take another look at the assumptions that we've made. I think we can debate this, because I know that there are lots of smart people here and that I was told, the University of Chicago is about theory and concepts. You know, whether peace is necessary for prosperity, or prosperity is necessary for peace. And I think between those two, my gut is that peace is probably more necessary for prosperity than prosperity is for peace. And it turns out that just trading a lot with each other and having a lot of economic dependencies, I don't think is enough to guarantee peace. And again, remember I'm not trained as an economist. I'm also not trained as a foreign policy expert either, right. But my issue area exists at the intersection of these two very powerful disciplines. But from what I perceive, Vladimir Putin's decision to invade Ukraine was not an economic decision. And so, in many ways then, that decision was made despite the economics and the economic repercussions, many of which were entirely predictable in terms of the impacts on energy markets and food security.

To me, recent criticism of the "trade promotes peace" idea has been off the mark. The argument was never that "trade guarantees peace" or "trade prevents all war." Rather, the "accepted wisdom" has always been that trade contributes to peaceful relations. In the remarks quoted above, Tai specifically criticizes the "trade guarantees peace" position, so I think at this point maybe we can just all agree that "trade promotes peace but does not guarantee it." As I said, I think this is what everyone agreed on before, but anyway let's now make it official. (Unless someone wants to push back and argue that economic nationalism promotes peace better than trade does, in which case have at it in the comments!)

Katherine Tai on the GE Corn USMCA Dispute

Following up on my last post, here's another quote from U.S. Trade Rep. Katherine Tai speaking at the University of Chicago yesterday, this one in response to a question on the GE Corn USMCA dispute:

Q: Your office is bringing an international trade complaint against Mexico under the USMCA for regulating the sale of genetically engineered corn. My question is, don't your actions interfere with Mexico's right to regulate? And as long as Mexico isn't discriminating against US corn, why can't it regulate how it wants?

Tai: This is another good trade basics question. So, your question demonstrates that you appreciate that the fundamental principle underlying our trade rules is non-discrimination. So non-discrimination as between your goods and imported goods, goods from another country, and non-discrimination as between goods from one country and another country. Our trade agreements have actually become much, much more complex and far reaching. And they're not without controversy. So let me just start with that.

But in terms of the trade complaint that we've brought against Mexico, it's not actually based on a discrimination complaint. The complaint is that Mexico's regulations are not based on science. And so the question that's presented in Mexico's decree is, in regulating against the import of genetically modified white corn that goes into human consumption, what is the justification for Mexico making this decree? Is there a scientific reason? Can Mexico show that there is something somehow unsafe about this corn vis-a-vis yellow corn, for example, that comes in for animal feed? And I think that's at the center of the dispute, but it does really highlight the extent to which trade agreements go beyond some of our basic principles and encompass additional principles that have consequences on the right to regulate.

Q: In Mexico, they've been cultivating corn for hundreds, if not thousands, of years. And it's very important culturally to the cuisine, and just in general. Is a cultural justification not enough to justify the regulation?

Tai: So because it's a trade agreement, and this is where I can say -- I'm not an economist, but I am a lawyer -- you look at the commitments that Mexico signed up for in the agreement. And they were: we promise not to regulate arbitrarily; we promise to regulate within these parameters. One is that when it comes to food safety, that what we do will be based on standards, international standards, and it will be based on science. Our trade agreements do recognize that trade is not the end all be all. And there are exceptions written in that recognize that there are, and there can be, larger legitimate public interest and regulatory governmental prerogatives that would justify deviating from your trade commitments. I think that on that basis, the question around culture is on Mexico to advance as a defense.

I feel like if you read between the lines here, maybe, just maybe, she's not totally convinced that international trade rules requiring that food safety measures be based on science are a great idea, and perhaps they even go too far ("not without controversy" and "go beyond some of our basic principles and encompass additional principles that have consequences on the right to regulate"). But obviously she would have difficulty saying that in her current position, and maybe I'm reading too much into this. Some day after she's no longer in office, perhaps I'll get a chance to ask her about it.

Katherine Tai on Trade and Antitrust

U.S. Trade Representative Katherine Tai spoke today at a conference on "Antitrust, Regulation and the Next World Order." She had the following to say about the connection between trade policy and antitrust policy:

A lot of the change vectors that we are grappling with in trade are actually also things that you are grappling with ... in antitrust, so I'll just highlight a couple of them. One of them is ... the fact that the trade paradigm for the last many, many decades, this globalization free trade paradigm, was built on a kind of an idolization, certainly a fixation, on maximizing efficiency. That efficiency, liberalisation of trade, became the end in itself, not a means to accomplishing another end. And so I think that that's something that we have very much in common with antitrust.

That also meant that as we thought about people in our economy, as we thought about justifying our trade policies and our trade liberalisation, the one benefit that we hung our hat on was the benefit of efficiency, which is lower prices, low prices. And one of the results of that, is we've seen a version of globalization that perpetuates a race to the bottom, the cutting of costs, the exploiting of people and planet.

So, as I've learned more about antitrust, it is an issue around detaching yourself from the consumer welfare standard, to bringing in other factors and goals, and from our perspective, that is about thinking of the human being in the economy that you're trying to benefit as not just a consumer. It turns out that in order to consume, you also need a job. You need to earn a wage. Every consumer is also a worker. If we're only pursuing policies to benefit people as consumers, and those policies are actually impoverishing those people as workers, the entire system doesn't work and in many ways explains why we are where we are right now.

The injection of the public interest standard in antitrust ... is also an enormous theme and what we're trying to do in trade, which is to break ourselves out of the assumption and the proxy that what is good for the biggest corporate stakeholders in our system equals what is good for America and Americans. I think for a long time we've pursued this assumption that well, these are iconic American companies. They are brand names that we're very proud of. Therefore, anything that is good for them will be good for us. That benefiting the companies will create that trickle down benefit to the company's workers and the communities where those workers live. And we've seen over time, that just isn't happening. It just isn't happening. So in this pursuit of evolution and progress in terms of our trade policies, I've discovered that we are in fact connected to our antitrust cousins. And in many ways we are trying to accomplish the same goals using different sets of tools.

It won't surprise people to hear that I see the trade/antitrust relationship very differently. I would start things off with this point. One of the best arguments against protectionism, in my view, is that protectionism limits competition and, as a consequence, raises prices and harms consumers. Thus, putting constraints on protectionism, either at the domestic or international level, helps promote competition, which antitrust is also intended do. I think that people who argue for protectionism, but say they support competitive markets, need to grapple with this.

Tai also makes a point about policies that are based on corporate benefits that may or may not trickle down to workers. As I see it, however, the argument for trickle down comes from a different direction. In this regard, a key argument for protectionism is that it helps specific corporations -- again, by limiting competition -- and the benefits will trickle down to their workers. That may happen to some extent, at least in the short term, but these corporate benefits come at the expense of all the people outside the corporation, and the expense to others outweighs the benefits to the well-connected companies who lobby for protection from competitors.

Finally, just to note a point that has come up before in Tai's remarks, I don't think trade liberalization has ever been an end in itself. Rather, it is a means to accomplishing an end, which is increased and more broadly shared wealth. If they want to, people can argue that it doesn't do that, but I think it's pretty clear that's the goal. And related to that, the argument for trade liberalization is that it provides more and better jobs than under a protectionist and anti-competitive economic policy.

Tai also said this:

If you take it all the way back to the very elegant and simple, maybe too simple, theory on which this free trade dream was built, David Ricardo's paradigm of, two jurisdictions, they both have diversified production, and then for efficiency sake, ... each one should focus on what they are best at and then trade, right. It's elegant, and it's very, very attractive. But we see that it doesn't really translate into the real world for lots of reasons that we could get into. But it occurred to me ... that part of that paradigm is that each country should become a monopoly. It should concentrate on the thing that it does well, and I think that therein lies a fundamental challenge with that vision and where it is running up against problems in the real world.

I'm not sure it makes sense to think of a country as a monopoly in this context. Ricardo was not envisioning each country having a single company making the more efficiently produced product. In addition, in terms of how things work in the real world, if you are going to take a counter-Ricardian view, you will have some serious issues to confront. For example, should each of the approximately 200 countries around the world use protectionism so that they all produce all of the products that their consumers need? I don't see that working very well, so if that is not, in fact, the vision, critics of Ricardo's theory probably need to spell out how they see this playing out in the real world.

Katherine Tai on Trade Enforcement

Last week, U.S. Trade Rep. Katherine Tai spoke at the Aspen Security Forum and had the following things to say about U.S. enforcement of trade agreements:

In terms of trade enforcement, in order for our trade agreements, and our trade arrangements, to have integrity, we have to hold our partners accountable for the promises that they have made to us and to our stakeholders and to their stakeholders too. So we take the enforcement agenda extremely seriously. It is a very high priority.

A couple aspects of this I want to highlight. One is with respect to the USMCA, which is the renewed NAFTA. Now that renegotiation caught a lot of headlines while it was being renegotiated, and it's really a very, very interesting articulation of the basis for a modern new US trade policy.

One of the most important aspects of the USMCA in terms of what it does that the NAFTA didn't do, it has much stronger labor and environmental standards. It has stronger enforcement mechanisms. And it has, in particular, a labor specific enforcement mechanism that we call the rapid response mechanism for short. This is a mechanism that allows the United States and Mexico to work together to reach and pierce the veil of state to state interaction to focus on specific facilities within Mexico that are not respecting Mexico's laws on labor justice or the USMCA's rules. And we have activated this mechanism, I think the current count is 16 times, 14 times at the behest of petitioners, twice on our own initiative.

And in every one of those cases that we have seen through to the end, we have won rights. We have won real benefits for workers in Mexico. Why this matters: democracy and the democratization of economic opportunity. When Mexican workers have the ability, as they should under their own law, to advocate for themselves for better working conditions and higher wages, we are evening the playing field for American workers and we think it is not an accident that right now about 90% of the cases that we have brought have been in the auto sector.

I'll give you one specific example. Early on in the first year, one of the first three cases that we brought was related to a GM facility in Silao Mexico. As a result of our work on that, in partnership with the Mexican government, the workers at that facility were able to win a new vote for a union. They voted in a truly independent union to represent them. They voted on a collective bargaining agreement that that union negotiated for them, that they saw before they voted to approve it, and they won better benefits. They won the first wage increase that they had had in years, a 10% wage increase, and in the second year, that went up another 10%.

These are real wins. But the most significant part of this, which I want more people to know about is, what we are doing in the USMCA is relevant to everybody who is interested in trade because we have flipped the narrative, the strong criticism of US trade policy on its head. For the first time ever, we are offering workers a mechanism for their own advocacy and empowerment through a trade agreement. Without this trade agreement, they wouldn't have this mechanism. And I think that this is one of the cornerstones of what we call the worker centered trade policy, which is to drive a trade policy that more Americans feel like is going to champion their interests.

On the other hand, we're also doing a lot for our farmers, as we always have. And within the USMCA context, without leaving that agreement, I'll say that we've taken very seriously our corn producers' concerns around the Mexican decree that will impact our trading relationship. And we initiated a dispute settlement case in the middle of this year. And we are litigating it out right now

I have a couple reactions here.

First, the rapid response labor mechanism is part of a trade agreement, but does it have to be? Why not have this be an international labor agreement negotiated and primarily enforced by labor departments? I understand the politics of how trade policy-adjacent issues such as intellectual property or labor rights made their way into trade agreements, but I think there is still room for thinking about the appropriate scope of trade policy and where IP, labor and other issues best fit into domestic and international governance.

Second, as to trade enforcement, Tai mentions one USMCA dispute going on right now, but what about the WTO? Here's a table of WTO complaints (i.e. consultations requests) filed by the United States by year:

Year	Number of Complaints Filed
2019	1
2018	8
2017	3
2016	3
2015	2
2014	1
2013	3
2012	5
2011	1
2010	4
2009	2
2008	3
2007	4
2006	3
2005	1
2004	4
2003	3
2002	4
2001	1
2000	8
1999	10
1998	10
1997	17
1996	17
1995	6

I didn't forget to add the data after 2019; there were just no complaints filed by the U.S. in these years. It's probably obvious to this blog's readers that the U.S. blockage of Appellate Body appointments plays a role here, and the absence of recent U.S. complaints is, at least in part, tied to that. But I've always thought there were a range of compromises that could satisfy the U.S. concerns about the Appellate Body, and if the U.S. wants to enforce the WTO agreements in relation to the foreign trade barriers it has identified to the same extent other governments -- such as those signing on to the MPIA -- are able to, it would be good to embrace the possible solutions. Raising these issues in WTO committees can be helpful in a few cases, but sometimes you need to invoke formal dispute settlement to have an impact.

And what about China? The WTO is the best place to go for trade enforcement against China (broad obligations, formal adjudication mechanism), but if the U.S. doesn't want to enforce obligations at the WTO right now, there is also the Phase One deal. That agreement doesn't have an adjudication system, so I don't think it will be very effective, but it does at least have a mechanism to raise complaints. As far as I can tell based on public information, this mechanism has not been used, but it would be nice to hear more from USTR about any enforcement activity taking place under this agreement.

Trade lawyer Devon Whittle had additional comments on Tai's remarks here.

Katherine Tai on Industrial Policy, the Global Steel and Aluminum Arrangement, and EU Digital Regulation

Last week, U.S. Trade Rep. Katherine Tai spoke at the Center for American Progress. You can watch the whole event here. As I try to do whenever I have time and she says something in the Q & A that intrigues me, I'm going to quote a few things she said and comment on them. The three topics from this event that I'm commenting on are: industrial policy, the global steel and aluminum arrangement, and EU digital regulation

First up is industrial policy. Here's what she said:

Question:

I want to start if I can with the 30,000 foot elevation of what this new industrial policy means. We know that this administration across the board, from the president, all the cabinet agencies, have worked furiously to actualize this historic commitment to renew ... industrial policy in the country, that has reinvigorated industries across the board, and has made a significant contribution to the states that you mentioned before that have been hollowed out. Can you kind of ground us in what that means for ensuing 21st century trade policy through your vision? ...

Tai:

That's a great question and a really important foundation and foundational place to start from. You know, I think one of the really important aspects of what we're doing now is that nothing ... in what we're doing is really a traditional approach. And I think that it's really important to recognize this, because I think that it gets lost in the conversation sometimes, that if it's not the thing that you've been doing over and over again, then ... what could you possibly be doing? But if you just look at the world around us, from the economy, to geopolitics, to supply chains, and sort of the clockwork of ... how we are interconnected to each other across all areas, you just see significant amount of change that's happening. And so from our perspective, in order to be responsible, and responsive, the trade policies that we pursue have to reflect the changes. And, moreover, it's not just change for change sake, but that we're pursuing a really positive affirmative vision for the kind of economy that we want to have, for the kind of economy that we want to lead in partnering with the rest of the world, to push towards a version of America, America in the world, and the rest of the world that is bright, where you can see a long future ahead of you, and that you see a sustainable path. And one where we feel like opportunities are rife, and that they're not shallow.

So bringing that back to where we are now, one is the recognition that there's change all around us, and we have to respond. We have to be positive about where we're driving towards. The other is to recognize that we're not writing on a blank slate, that the current economy that we have reflects decades of trade policies, but also economic policies, that have led us to a certain set of outcomes. So if you look at overall US GDP, we are still the largest economy in the world, we are extremely vibrant. But you also have to recognize that sectorally there's a significant unevenness. And while parts of our economy are incredibly strong, powerful, growing rapidly, that other parts of our economy are eroded from maybe where we have been in the past, but also where we would like to be. And certainly in terms of our industrial capacity, we do still make things here, don't get me wrong. But I think that we have a recognition that unless we start to do things differently, we will continue to see this trend of erosion in areas that we cannot afford to have erosion. And I think that goes to this focus on a reinvigoration of the American economy, of American manufacturing, this embrace of what I will call a very unique type of American industrial policy.

And I'm really glad you have asked me about this because I think that in the trade community for a very long time industrial policy was something that you used to, to accuse people of doing a bad thing. Industrial policy was a bad thing. And I think that, the traditional way we have talked about and thought about industrial policy is it's a thing that you did for yourself, to enrich yourself, to empower yourself at the expense of others. I think that the major change that we're introducing into this conversation is yes, there are things that we need to do for ourselves. There is a correction that we have to accomplish through reshoring for instance, bringing back online a critical level of manufacturing activity, for example, but at the same time, we are interconnected with the rest of the world, that this is in a way, part of what we are aiming for, but we want to be interconnected in a way that is positive. And so from a trade policy perspective, the question is, can you pursue industrial policy in a way where you can do it in a complementary fashion with other economies? So whether that's through supply chains, through coordinating defenses against unfair policies, we are looking for better ways of acknowledging the challenges that we have encountered to ensure that we can safeguard the the freedoms that we so value in our economic market based situation.

Is current U.S. industrial policy as Tai describes it different from what came before? She seems to distinguish between two types of industrial policy: (1) reshoring for ourselves, and (2) coordination of certain policies with others. 

On the reshoring, if I understand her correctly, I think she would accept that this part of current U.S. industrial policy is the same as what came before. Using protectionism and industrial policy to keep more manufacturing in the U.S. in the hopes of enriching ourselves at the expense of others has been a standard feature of U.S. trade policy for decades. As with anything, you can ratchet it up of course, but this isn't something new.

On the coordination point, based on things she has said in the past, the supply chain coordination that is under consideration now seems to mean, at least in part, that developing countries will supply natural resources for manufacturing to be done in the U.S. To me, that seems more like a traditional approach to industrial policy than something new.

And on unfair trade defenses, these have been heavily used for a long time. Is the coordination something new? I'm not sure. Perhaps someone who has worked on trade remedies might have a better sense. Regardless, given the level of recent usage of trade remedies around the world, I have doubts that efforts to coordinate trade remedies will have a noticeable impact. They already have a significant effect on trade, even though they don't get much coverage in the media and people outside the trade policy field don't understand them very well.

Next was the global steel and aluminum arrangement:

Question:

I wanted to ask about the global arrangement on steel. You said I'm hoping, or I'm expecting, to be able to share progress in the next weeks. Do you think it's possible that there'll have to be a partial solution at this point, and then a commitment to continue to work on the full ambition of both countering the non-market production and the green production and how that interplays with trade?

Tai:

So let me take a step back on what we're trying to do with the US - EU global arrangement. I talked about it in my remarks. But I also want to acknowledge how fundamentally paradigm shifting the vision is that we are pursuing, and actually how difficult a task it is that we have set out to accomplish with the Europeans. It really is a paradigm flip, right, from race to the bottom to race to the top, US and the EU coming together, putting our market forces together to drive, through trade, cleaner production, cleaner trade, in these carbon intensive industries, but then also to defend against non-market excess capacity, and then to drive incentives for fair trade and fair production. So it's a really big remit that we have.

The second thing I'll just talk about is that it's really a very technically challenging thing that we are proposing to do, although on that I will say that there are probably as many if not more trade lawyers in Brussels as there are in Washington. So if there are two partners that could come together to solve a really difficult task, it should be the two of us.

The third thing that I'll note is, I think that what we are asking the EU to do on this, I feel confident that they are committed to doing it and they recognize the need to do it. But I think that on some level it is also very, very difficult for Brussels on an emotional level. Because what we are doing is quite different. And as I note all the time, change is really hard. And on this I've also had the opportunity to reflect with my team on the record of US-EU trade negotiations and engagements. And I think that despite our best efforts, that our record has been, I would say sometimes we seem like star crossed lovers. It seems like we should be able to get the thing across the line and, maybe the most obvious recent point is on the Transatlantic Trade and Investment Partnership (TTIP), that despite the high level political commitment, that that was something that ultimately we weren't able to get across the line. So from my perspective, you never give up. Trade and economic collaboration is something you necessarily have to do with your partners. So this is a long way of saying, let's see, hang with us for I guess we've got exactly three weeks to get to our deadline. And I think that I will just say, as of right now, as hard a task as this has been, I'm extremely proud of our US negotiators. And I will say that we remain extremely committed to our partners and working with them.

On the issue of the EU state of mind, I would say the EU folks are mostly detached and analytical about all this, as evidenced by this quote from the FT:

The EU is planning to announce anti-subsidy investigations against Chinese steelmakers at a summit with the US this month as they further develop a common front against Beijing.

Brussels had agreed to join Washington’s efforts to shield industries from cheap competition, two officials with knowledge of the move told the Financial Times. Washington had asked Brussels to move against Chinese steel producers in return for avoiding the reimposition of tariffs on EU steel imposed by president Donald Trump in 2018, the officials said.

...

The EU officials said they understood the need for president Joe Biden to protect steelworker jobs in swing states such as Pennsylvania and Ohio to prevent Trump winning an election rematch next year.

We'll have to wait and see how the political calculations turn out of course. Ohio seems like a stretch for any Democratic presidential candidate these days, and Pennsylvania is looking tougher than I expected it to be for Biden.

More generally, on the issue of taking joint action with the EU to address carbon emissions and Chinese non-market practices, I think there are things that can be done on both, although I'm not sure what I've seen so far in the leaks about the global steel and aluminum arrangement will achieve much. On the non-market practices issue, based on the reporting so far, the arrangement will involve a club that excludes non-market economies, and therefore excludes China. Then the idea seems to be that the US will impose tariffs on non-club members in a way that will almost certainly violate WTO rules, and the EU will try to impose tariffs on them consistently with WTO rules by using AD/CVDs. But regardless of the WTO-consistency of the measures, these types of unilateral actions seem, based on past experience anyway, unlikely to change China's policies and practices. I think the better way to do that would be through WTO complaints (such as a complaint focusing on the behavior of China's state-owned enterprises). I've heard people offer up explanations for why those cases haven't been brought, but the explanations don't seem convincing to me as a matter of strategy.

Finally, there was something about digital trade:

Question:

There's a question from Robert Kuttner from the American Prospect about pressure coming from big tech companies in the US to define the European Union's pro-consumer regulations as trade discrimination. He asked, do you have a position on this and might we expect some news about this any time soon?

Tai:

Let me just start out by stating a couple of facts. One is that the European Union has an incredible superpower as a political entity, and they're very good at regulating, in this sense, that they're able to get regulations going through very, very complex processes. You know, I think that my partners in Brussels have some of the hardest jobs in terms of navigating between 27 member states, but their regulations often have extraterritorial reach that cause all of us to sit up and have to respond.

On their regulations in the digital arena, I recognize, and this is through a lot of engagement with our partners in Brussels, that they are very, very concerned about the rights of European citizens with respect to privacy, for instance, the opportunity and the economic vibrancy in this arena of the economy to allow for opportunities for new entrants, and for new entrants to grow, startups to grow into small and medium sized, and to compete with the very largest.

I also recognize that in terms of this industry, the largest players, and they're really large, are almost all American companies. And so I think that ... that's where the tension comes up, which is in the trade policy conversation, our guiding disciplines are around discrimination. Are you treating foreign companies the same way you're treating your own? Are you treating this foreign company the same way that you are treating that foreign company? Right? That's the traditional trade conversation. I think that as it then crosses over into regulatory efforts that impact these big technology companies, we have to really be cognizant that measures that may look like they have a discriminatory effect may or may not be advanced with a discriminatory intent. And so I think from a trade perspective, that is the additional nuance that we have to bring to our engagement with our partners around their intentions, and then also around the impacts.

Last thing I'll say on this as well is, in this area, and I'll bring it back to climate as well, in these two areas, digital and also climate, what we are able to do in trade negotiations and trade policy is limited by where the American policy consensus is represented. And I want to really put a fine point, and this is truly out of deference and respect, on the US Congress, that in areas where the US Congress continues to debate and has not settled regulatory questions, in digital and also on climate, that there is going to be a limit to what we can do in trade in the international sphere. So I know that my partners in Congress love having us lead in all things, especially in trade. And I would just say that, in some areas, that we cannot lead until Congress speaks and acts. And I would just say on digital and on climate, those are two incredibly important areas where we cannot afford to sit on the sidelines, where I will be very, very eager to work with our Congress.

She's definitely right about the last point. When there isn't a clear U.S. domestic policy, as there is not on digital, how is the U.S. supposed to create and shape international consensus and agreements?

Finally, I may be reading too much into this, but I found it noteworthy to hear the way she talked about the issue of digital trade and discrimination. It came across to me as though she is getting pressure from Congress and interest groups to pursue this with the Europeans, but she doesn't feel like this is necessarily the right priority for U.S. trade policy. To some extent, she is trying to arbitrate between the big tech companies/Congress, on the one hand, and the Europeans on the other, to get them all to recognize the nuances of discriminatory effect and intent (which I agree that everyone should do!) and how they apply here. But again, maybe I'm reading too much into her language and tone.

Katherine Tai on Rising Inequality, Competition, and Environmental Leadership

U.S. Trade Rep. Katherine Tai spoke at an event at the University of North Carolina last week. I thought her remarks offered some of the most clear and emphatic explanations of her philosophy on U.S. trade policy and trade politics. I suppose she has said all these things before, but somehow it just seemed to me that at this event she articulated it with particular clarity and passion. She covered a lot of ground, and I'm just going to pick out a few points to comment on, with two areas of disagreement and one area of agreement.

First up, she offers the following critique of the traditional U.S. approach to trade agreements:

For too long, our policies prioritized aggressive liberalization and tariff elimination. This approach did have benefits. We saw increases in economic activity and historic reductions in poverty in some regions. But the focus on maximizing efficiency also had significant costs and side effects: rising inequality and wealth concentration; good jobs lost overseas, decimating manufacturing communities.

I agree that efficiency was an important factor motivating U.S. trade negotiators, but there are plenty of exceptions. Was IP protection focused on maximizing efficiency? Arguably it often does the opposite. And how about carveouts for U.S. agriculture subsidies? Overall, I would say U.S. trade policy prior to Trump becoming president pursued a wide range of objectives, and efficiency was one of a number of things in a broad mix.

As to the issue of "rising inequality and wealth concentration," trade critics like to argue that free trade leads to this outcome, but it's worth noting that the view from the free trade side is that one of the harms of protectionism is that it contributes to, yes, inequality and wealth concentration. Obviously, one critique of protectionism is that it reduces overall economic welfare, but in addition to that, it also channels financial benefits to specific companies and industries, which, I would say, can contribute to greater inequality and wealth concentration. (In my view, one thing that has been missing from the Biden administration's analysis of past U.S. trade policy is taking a hard look at protectionism with this in mind.)

Here's another point from Tai:

A lot of people think that [a] traditional FTA is a gift that you bestow upon a partner. And ... it means that you're going to tie your economies together, and it's going to be this really great relationship. And very few people actually understand how the rules work. And then ... what happens is, the goal of a trade agreement, the way that we have traditionally negotiated them, is to take down all tariffs between your two countries. Which means really exposing your economies to each other.

It's worth noting here that most FTAs don't actually get rid of all ordinary tariffs; and with a handful of exceptions, trade remedy tariffs can still be imposed even where a trade agreement is in place. But putting that aside, yes, it's certainly true that trade agreements reduce tariffs. One of the main benefits of doing tariff reductions is that this increases competition in the marketplace ("exposing your economies to each other"). When governments protect their domestic industries from foreign competition, by contrast, they contribute to the emergence of domestic monopolies and oligopolies. So, at a time when there is an active effort by the Biden administration to, as they see it, make U.S. markets more competitive, I think trade liberalization could be a key part of this. Domestic industries lobby hard to avoid this competition, but society is better off as a whole if more competition exists. (Interestingly, Tai was just appointed to the White House Competition Council. The USTR press release notes that "[i]n July 2021, President Biden signed an Executive Order on Promoting Competition in the American Economy, which created the Competition Council and instructed federal agencies to identify ways to promote competition in all aspects of the U.S. economy." Trade liberalization would be a great way to achieve this.)

Having done my usual criticizing of things Tai said, let me express support for one point she made:

I just want to say one more thing on climate and trade. I think that, especially with my partners in Congress, they really like to talk about, and the foreign policy establishment, they like to talk about American leadership, right? And America needs to lead and ... we shouldn't fall behind in the competition. One of the issues is, and I want to be really honest about this, on climate, on climate and trade, I can't lead. I can't lead because America doesn't have a broad base of bipartisan support around climate policy. And until we do, I don't have the tools to engage with the other countries that we need to, to work on solutions. And I think that goes also a bit for digital in terms of privacy policy, in terms of liability policy. Until the United States is able to articulate our own policies in this area, I got nothing to bring to the table in the international conversation, because I'm just a trade negotiator. If I do something through our trade policies that either forces domestic action at home, or that makes our domestic political actors feel like I'm tying their hands, that's the end of our trade policy, and that's the end of my job.

I think her statements are particularly relevant on climate policy. I'm not sure what will have to happen for various actors in the U.S. government to take climate change more seriously. At the moment, the economic nationalist right is pushing for policies that would increase carbon emissions, e.g., this: "The [J.D. Vance] bill also aims to create the first 'America First Vehicle Credit' for cars powered by fossil fuel and that are American-made." In this context, I think that criticism of trade policy officials on this issue is an unhelpful distraction.

Katherine Tai on Chinese Non-Market Practices and WTO Dispute Settlement Reform

At a CSIS event today with U.S. Trade Rep. Katherine Tai and WTO DG Dr. Ngozi Okonjo-Iweala, entitled "Why the Developing World and All of Us Need Trade and the WTO," Tai spoke about a number of issues related to the WTO. I'm going to focus here on two: (1) China's non-market practices and (2) WTO dispute settlement reform.

Non-Market Practices

Here's what Tai said about non-market practices in her prepared remarks:

Our next priority is continuing to rebuild the WTO’s ability to negotiate new rules for the new challenges that we face. 
 
This won’t be easy or comfortable.  But it is necessary to create the rules and mechanisms we need for the times through diplomacy and negotiation between Members, not through litigation between their hired guns. 
 
Let me explain what I mean.  For example, consider the massive global economic disruptions from non-market policies and practices that are contrary to the basic rules and norms that we all agreed to. 
 
Things like industrial targeting or discriminatory interventionist activities of state-owned enterprises.  This is how certain Members are continuing to skew the playing field, strategically and systematically. 
 
They seek to dominate key industrial sectors, promote national champions and discriminate against foreign competitors, massively subsidize key sectors, and manipulate cost structures. 
 
And as they become dominant suppliers for many important goods and technologies, they create supply chain concentrations and vulnerabilities—which in turn become levers for economic coercion. 
 
These practices are unfair and disadvantage workers in developing and developed countries alike, the very people the system should empower and lift up.  So, we need to have real conversations about how the WTO can address these issues.

During the discussion that followed, the moderator asked Tai this question: "You talked about, I heard in your remarks, you want to rebuild the ability for the WTO to address non market policies and practices. Could you say a little bit more about this?" Tai responded as follows:

I think that there needs to be a recognition when we are taking on, actually all of our efforts in trade right now, to understand what the current global economic situation is. And I think that if you've not been paying very close attention, I think that there generally can be an assumption that, well, there's a lot of trade going on, that therefore the system must be working the way that we envisioned it. And it must be very fair and even and free. But in fact, that's not the case. I really appreciated Dr. Ngozi's recitation of the history. I think that there's probably more of this that we need to do in terms of looking at what has happened in the trading system in the last 25-30 years. The entire global economy is different, just if you go through the numbers and you look at GDP around the world. But the balance of wealth is different as well. There are more members in the WTO today than there were when it was done in 95. And then the members themselves have gone through quite a bit of evolution. The United States economy today is very different from what it was in 95.

Similarly, let's take non market practices. We are talking about China. The Chinese economy is very, very different today than it was in 1995. And I think it's a mixed picture. There's some incredible poverty elimination, but the externalities and the impacts of these Chinese economic policies on the rest of the world, including on our economy, including on the pressures and the norms of the WTO, are things that we need to be looking at. And I think that a large part of this reform agenda is about actually committing and investing our energy, to be honest with each other, to look at the facts honestly, to come to the conversation with an open mind. And then to actually grapple with, how do we restore those foundational principles and values, which ... we still very much stand by in terms of the international rules based order, an order that is based on rules and law rather than might and power. But I think that where we are today, we've actually deviated quite a bit from what we were trying to build. And it's understanding that delta and having the conversations about it that is actually going to lead us to a constructive process around that.

In reaction, I want to point to paragraph 46 of China's Accession Working Party Report, which states:

46. The representative of China further confirmed that China would ensure that all state-owned and state-invested enterprises would make purchases and sales based solely on commercial considerations, e.g., price, quality, marketability and availability, and that the enterprises of other WTO Members would have an adequate opportunity to compete for sales to and purchases from these enterprises on non-discriminatory terms and conditions. In addition, the Government of China would not influence, directly or indirectly, commercial decisions on the part of state-owned or state-invested enterprises, including on the quantity, value or country of origin of any goods purchased or sold, except in a manner consistent with the WTO Agreement. The Working Party took note of these commitments.

If I were drafting a WTO provision on these issues that had general principles to be applied to all, I would probably do it differently than it was done in paragraph 46. But in the context of a specific provision that applies only to China, I think it was done pretty well. Of course, to see how it actually works in practice, somebody would have to test it out in a complaint against China, and I'm not sure why that hasn't happened yet. The U.S. could do this, but so could the EU or Canada or someone else, or a whole group could do it together. While new rules in this area could be useful, I think it's a mistake to ignore the existing rules that were designed specifically for the Chinese non-market practices problem, or at least one aspect of that problem.

Dispute Settlement

Here's what Tai said about dispute settlement in her prepared remarks:

Finally, I want to highlight dispute settlement reform. 
 
The goal here is not restoring the Appellate Body or going back to the way things used to be.  It is about providing confidence that the system is fair.  And revitalizing the agency of Members to settle their disputes. 
 
The system was meant to facilitate mutually agreed solutions between Members.  But over time, it has become synonymous with litigation—costly and drawn out, and often only accessible to Members who have the resources to foot the bill. 
 
The system has also suffered from a lack of restraint.  The Appellate Body systematically overreached to usurp the role of Members themselves to negotiate and create new rules.  And in so doing, it undermined the ability of all Members to defend their workers from harmful non-market policies.
 
For the last year, we’ve been actively participating in innovative and constructive discussions with WTO Members of all sizes—including developing country Members—to hear their concerns and solutions for a better system. 
 
We are thinking creatively and have come forward with concrete ideas that could promote fairness for all Members.  For example: 

• We should make practical and appropriate alternatives to litigation—like good offices, conciliation, and mediation—real options for the entire WTO membership.

• We should ensure that dispute panels address only what is necessary to resolve the disputes and resist the urge to pontificate.  And any corrections to reports or decisions must be limited to addressing egregious mistakes.

• We should end judicial overreaching and restore policy space so that Members can regulate and find solutions to their pressing needs, such as tackling the climate crisis or defending their workers’ interests from non-market policies. 

And we urgently need to correct WTO panel reports that have asserted that the WTO may second-guess Members’ legitimate national security judgements, something none of us ever intended.  This calls into question foundational principles of how far-reaching trade rules should be. 

She was then asked two questions about this issue during the discussion. The first question was: "What should the WTO dispute settlement system look like?" Tai responded as follows:

So let me say a little bit more about the process that is happening in Geneva. So we've described it in turn as an informal process, but I feel like that takes away from the importance of the process. So I don't really like that description. It's a, perhaps we can describe it as an organic process. We tried describing it as bottom up, but then you know, it's member driven and we said well, but you know, the members aren't at the bottom of this organization. So bottom up doesn't seem like quite the right term either.

I guess what I would say is, it's a pragmatic, organic and a constructive process that we are participating in, that we are supporting. ... We are asking, and we ourselves are asking of ourselves, for members to come to the table and to advance what we're calling an interests based negotiation and discussion. And that's as opposed to a position based or an end result based negotiation.

And I want to call attention to this process also because I think that this is a really important experiment and innovation that we are trying at the WTO. Usually what happens at the WTO, and we lived this at MC12, you show up, you've got all of these papers. They're all negotiating positions that have been put down. Imagine you've got 164 of them, and then you have to arrive at some kind of an agreed solution. And everybody's smart. And so they're all gaming, if this thing is what I'm aiming for, and what I can live with, and actually what I think is pretty good, in order to get that I'm gonna have to dial it all up by 100 and put that on the table and hope that survives the negotiation with 163 other members, right? When it's not positional, it's a very uncreative, a very constipated process. We don't think that we can afford to do that. And so that's the process, that's the kind of process that we're advancing, which is an interests based conversation.

So that's a long way of answering your question, which is to say, I don't have for you a picture that I can paint that this is the endpoint that I want to get to. Instead, what I'm endorsing is a process that is inclusive, so that when we get to the end of it, all of us, the US included, but our developing country partners, the big ones, the small ones, the frequent users, the members of the WTO who have never used the system, can look at the result and see their interests reflected in it.

The second question came from Gabe Cabañas of CFR, who asked:

Quick question for Ambassador Tai, prior to your time [at USTR], you had worked on the trade agreement within North America, USMCA. And I was just curious, looking at how the United States is using USMCA, specifically Chapter 31 for state to state dispute resolution systems, do you see this as, from the US perspective, as a potential model for dispute settlement within the WTO ... or even looking at other trade agreements within the world itself?

Tai responded as follows:

So Chapter 31, which is ... the formal dispute settlement procedures in USMCA, could they be a model for a revived WTO or reinvigorated WTO dispute settlement system? You know, you've hit on a really interesting aspect of the conversation that I think only the geekiest of the geeky lawyers ... will know but yes, we are using the USMCA dispute settlement procedures. Did you know that in all of our FTA dispute settlement chapters, there is no second tier? That we're able to resolve our disputes just with one tier? Now, I say that in a bit of a cheeky way knowing how attached the rest of the WTO membership is to that second tier, but you know, I just wanted to say I think that, let's think about what the purpose of dispute settlement is, right? It's right there in the name, you're helping the parties to the agreement resolve something between them that is creating friction and is creating a disagreement. And ultimately, because we are sovereign parties, what these mechanisms should be doing is helping to move us to the point where there is political will to address the problem.

And so in that sense, then, a dispute settlement system could look almost any way. I think it is really key to make sure that the form of dispute settlement fits the fuss and the relationship. And so we're very open, again, I don't have a specific template that I'm trying to impose on the conversation at the WTO, but I really want to endorse what Dr. Ngozi also mentioned which is, dispute settlement is still ongoing at the WTO. We are still getting sued, quite a bit. And our lawyers are still working long, long hours defending the United States and also looking at how we can use this system to help us motivate our partners to address our concerns. And that, at the end of the day, is what we need to have.

I can see the argument that, as a general matter, negotiations may struggle when too many countries present position papers, and each one is trying to game the negotiations to get to a desired outcome. But the negotiation on the WTO dispute settlement impasse right now is a bit unique, in that only the U.S. was so upset with the functioning of the system that it blocked appointments to the Appellate Body, which is the direct cause of the impasse. In these circumstances, I'm not sure how progress can be made until other WTO Members understand what exactly the U.S. wants, so these Members can decide whether they can live with the U.S. demands. Thus, I think we may need a concrete U.S. proposal here before we can get to a conclusion.

Would U.S. Dirty Steel Tariffs Be WTO-"Kosher"?

At the Atlantic Council's Transatlantic Forum on GeoEconomics event today, economics correspondent Stephanie Flanders asked U.S. Trade Rep. Katherine Tai about possible unilateral U.S. tariffs on dirty steel:

I think the issue has been for the EU, and I think Vice President Dombrovskis has made it clear, is that what you were looking for seems to go against WTO rules because you have been discriminating against a certain number of countries and you don't have a similar mechanism that the EU has for how it applies to its own companies. So I think this gets us to one of the discussions that we've had all through the day, there's a sort of disquiet in Europe with a US policy which seems to undermine the concept of a global rule based order. There's even a feeling that you can't do all the things that you're talking about within the WTO or even within the spirit of the WTO. Is that fair?

Tai responded as follows:

I appreciate the opportunity to explain the US point of view because I know that Brussels has been very effective in transmitting its side of the story. ... What I want to really emphasize is, I really bristle at this narrative that the United States would put forward a proposal that is WTO-inconsistent, because that calls into question ... our good faith as a WTO member. Let me put it this way, because I think that ... many people talk about the WTO, [but] not a lot of people have been to the WTO or participated at the WTO or represented their governments at the WTO.

The fact of the matter is that there is no WTO rabbi who sits and pronounces whether or not a measure that's being advanced by a WTO member is kosher or not. I think that when we put forward measures, we all try to ensure that we are working within the rules based order. In fact, I know that the Europeans are very, very proud of their carbon border adjustment mechanism and that it is a culmination of a lot of European based work and compromise in negotiations. But I also want to acknowledge and recognize that Europe's confidence that the CBAM is WTO consistent is indicative of the work that Europe has put in to design the system and Europe's confidence in terms of how it will defend the CBAM if challenged at the WTO, and we all know that there are members of the WTO right now who are looking at preparing to challenge the CBAM and the WTO. So whether or not you feel confident about the work you've done to design your system, [that] doesn't mean that it's not going to be challenged or you wouldn't have to defend it.

And so, I give you that background because I want to emphasize and make clear that the proposals that we have on the table and shared with Brussels are ones that we also we have designed to withstand WTO scrutiny, that we have our reasons for believing that we have abided by the WTO rules.

At the end of the day, in our negotiations, it became very clear that our levels of tolerance or our comfort level with different types of defenses are different on a Washington and Brussels basis. And that's very natural. We have adapted in the negotiations, as you must in negotiations, to try to come towards Europe in terms of its WTO argumentation and defense comfort.

On the EU CBAM, my take has always been that if you implement a CBAM in conjunction with equivalent domestic measures, it can be done consistently with WTO rules (or justified under an exception), although whether it actually will be consistent with the rules depends on the specifics of the implementation. In practice, the way this may play out is that the EU will adopt a measure, it will then be challenged successfully in a WTO complaint, and then the EU will modify it in a way that makes it consistent.

With regard to U.S. tariffs on dirty steel, while it is good to hear that the U.S. is trying to do this consistently with WTO rules, I'm not sure I see how it could be done consistently (or how it could be justified under an exception), and I'd want to hear more from Tai or someone at USTR on the specifics. Of course, it's easy to think of possible arguments that could be made, such as a defense under GATT Article XX(g). It's just hard, based on what we currently know about the potential measures, to imagine those arguments succeeding, although it would be great if we could hear more details about the current shape of the measures that are being discussed in the negotiations. I feel like Tai's explanations above perhaps suggests a "tolerance" for arguments that many people would reject, but maybe I'm reading too much into that.

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.

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.

“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.  

 

 

 

Protectionism, Competition, and Corporate Power

Here's something U.S. Trade Rep. Katherine Tai said in a recent interview with PBS:

In trade policy, it's something very interesting, and I've seen this happen in competition policy, where the anti-monopoly folks, antitrust people are working. We see in both of these areas, two centers that are forming. So you know, in our politics usually there's a center and then there are the fringes. And in trade, for instance, ... the traditional center has been ... free trade Republicans and the pro-business ... New Democrats. What we see is that the progressives on the left and the populists on the right are meeting in a new center, one that is pro-worker and pro-competition, that is trying to take on the oversized corporate power, looking to rebalance ... the equities within our system.

In reaction to this, I want to talk a bit about competition and corporate power. Tai suggests here that left wing progressives and right wing populists are "pro-competition" (also "pro-worker," but I'll leave that issue for a future blog post) and trying to take on "oversized corporate power." I have doubts about this, and I see the impact of the policy preferences of these groups as more about restricting competition and supporting corporate power.

Just briefly on antitrust first, I'm not an antitrust expert, but I will note that sometimes when one company's practices are being scrutinized by the government, another company is pushing for the government scrutiny of its competitor. Antitrust policy certainly may be pro-competitive, but it can be a difficult question as to what kinds of behavior to target in order to promote competition, and sometimes these processes are abused and end up helping one competitor at the expense of another. But again, I'm not an antitrust expert, and I'm really not sure how to draw the lines here, so let me put antitrust aside and focus on competition and corporate power as it relates to trade policy.

Are progressives and populists trying to promote more competition and take on corporate power through their preferred trade policies? Even if more competition and limits on corporate power are the actual goals of progressives and populists, the protectionist policies they tend to support will limit competition rather than promote it, and will help some very powerful corporations. 

On competition, while most policies have a complex and varied set of effects, and you have to look at all of these effects to make a judgment, there is clearly an inherent anti-competitive impact from restricting imports: Tariffs and regulatory protectionism help domestic companies by limiting the competition they face from foreign companies. 

Now, as I said, nothing is ever that straightforward, and there are a number of competitiveness aspects to trade policy. For example, it may be that there is anti-competitive behavior among the foreign companies in question, and therefore allowing imports could actually undermine competition to some extent. That would be a hard issue to evaluate, but it's certainly worth trying. Some people might argue that this is what anti-dumping is supposed to do, but I think there is general agreement that it does not do this in practice. Thus, while in theory restricting imports could, in some very narrow circumstances, promote competition, in practice it generally does not.

Turning now to corporate power, I think it's also worth talking about who supports protectionist trade barriers. While there are a few think tankers, academics, etc. whose thinking on the issue has led them to conclude that protectionism is good for the domestic economy, in terms of political influence, the most important players in the fight for protectionism are big corporations and other interest groups. The history of trade policy is largely about competing interest groups fighting over the direction of that policy, with domestic corporations who focus on the home market and compete with imports for that market being a key player. There are a lot of corporations out there, and they have differing interests, but there are a fair number of them who push for protectionism in order to limit competition from foreign companies, and these corporations are a primary reason that so much protectionism still exists. They are joined in their effort by unions and other groups, but I would say these corporations are the driving force, and restricting competition is their main motivation.

So, I'm skeptical that these progressives and populists are pro-competition and trying to limit corporate power. Some of them might think they are, and some of them may genuinely want to see more competition and to limit corporate power. It's difficult to evaluate someone's subjective intent (as we know from WTO case law!). But generally speaking, the protectionist trade policies they support take us in the opposition direction, as these policies tend to limit competition and make certain corporations more profitable and powerful as a result.

Finally, while I was focusing above on import restrictions, subsidies can have the same effect. When we talk about industrial policy these days, it is often about subsidies. Again, while policies have multiple effects, many of the subsidies that are being offered through recent legislation related to clean energy and national security have significant benefits for large corporations. For example, the requirements and processes for getting these subsidies are so complex that it may be difficult for smaller startups to qualify, and in that way the subsidies impose barriers on new entrants and benefit established incumbents. 

Katherine Tai on Protectionism, Free Trade, and Industrial Policy

At a recent press conference, U.S. Trade Rep. Katherine Tai offered a few thoughts on U.S. industrial policy. 

First, in response to a question about how she would evaluate the criticism that the Inflation Reduction Act constitutes protectionism, Tai said the following (39:35 of the video):

I generally don't like to use the term protectionism because I think it creates a false dichotomy, that there are certain things are protectionist, and then I think, on the other side, it's free trade. ... So that assumes that there are only these two categories -- something that is protectionist and something that is free trade.

In fact, if you look at the policies around the world, I think it is a much more of a spectrum. If you look at the Inflation Reduction Act, it does have and reflect a much more open embrace by the United States today of the idea of an industrial policy. But it reflects also a very specific American approach to industrial policy, which is not a planned economy, but how you can use more tools to create the incentives in the marketplace to create the outcomes that you want. And in the case of the Inflation Reduction Act, more innovation and adaptation to clean energy technologies.

In the traditional conversation around industrial policy, it has been closely associated with this concept of protectionism, that you only advance industrial policy to benefit yourself. I think that even if you're looking at the electric vehicle provisions in the Inflation Reduction Act, you see baked into it this acknowledgement that it is not just for the United States, that ... it reflects a recognition that there are supply chains that involve the collaboration of multiple countries and economies. And so that's why we have negotiated the critical minerals agreement with Japan to bring in parts of the Japanese electric vehicle battery supply chain into these benefits. And ultimately what I really want to drive home is, the reason why this is not, as you describe it, all for us is that we recognize that in order to realize that clean energy future that I think all of us want, it is something that we are going to need to do with others.

Later, Tai was asked this question (49:06 of the video):

[This question is] about the new global order and basically the outcome you want by the new kind of ... industrial policy in the United States. Looking at it from a European and some Asian perspective, it seems, yes, there is a will to redefine industrial policy. There's a will to redefine supply chains, but with a very US-centered, very West-centered direction. There are complaints especially on the semiconductor side that the IRA, if you want to get some subsidies, ... it restricts companies' investment in other countries, for example. So how do you deal with these issues with ... your strong partners that you want that are investing billions of dollars in the United States, and that are now facing restrictions on their own business? And I also have to think whether they want to apply ... for subsidies or not.

Tai responded as follows:

So I tried to get at this in my earlier answer, but this gives me an opportunity to be more clear, and I've spoken about this quite a bit recently, which is, our vision for an industrial policy is really ... a corrective measure. It does reflect that there's a correction that needs to be made, for instance, in clean energy technology, that there needs to be an infusion of energy, if you will, incentive to create the innovations that are going to be required. But in other areas, we as the United States have experienced deindustrialization over the past decades in several areas. You will also see some of our policies go to that correction of reinvigorating in certain areas.

What I would say is this, in very clear terms. Our industrial policy is one that has to work with trade policy. So our vision is for an industrial policy that is collaborative, that can be complementary, where we can be talking to each other about the kinds of investments that need to be made, and how we can ensure that we're de-conflicting. We're not all trying to reinvent the wheel at the same time. And this is something that's quite relevant in the conversations between the US and the EU, for instance, where we both have our own Chips Acts. And I guess I will not resist the temptation to say that for many of the countries who have practiced industrial policies in the past, and even in the present, that complementary piece, that piece that works with trade policy is not always present there. And so I do want to draw attention to the fact that as we correct for imbalances, places where markets have fallen down, we are doing it with a vision that the world and our partners have to come with us.

Tai referred to a "spectrum," and I'm going to focus on that concept here.

Let's start with the terms "protectionism" and "free trade." As I've said several times before, in my view, protectionism and free trade are two of the clearest and most useful terms in the trade discourse. Many other terms are vague, but these two have a widely understood meaning, although of course there are debates about certain aspects, especially for "free trade." As a result, I try to push back against any push back against using these terms (if you can follow that!). Having said that, I agree with Tai that there is a spectrum here. There are degrees of protectionism and degrees of free trade, and for practical purposes, the policy question is where we want to fall on the spectrum.

Turning now to industrial policy, Tai says that the IRA "reflects also a very specific American approach to industrial policy, which is not a planned economy." I agree that the U.S. does not have a planned economy. However, keeping with the idea of having a spectrum of policy, I think the IRA shifts the U.S. a bit on the spectrum in the direction of a planned economy. As Tai puts it, "you can use more tools to create the incentives in the marketplace to create the outcomes that you want." Well, that involves some planning, even if only a limited amount.

Also on industrial policy, Tai offers a contrast between a U.S. industrial policy that focuses on the U.S., on the one hand, and a U.S. industrial policy that works with (at least some) others, on the other hand. Here I would say that recent U.S. industrial policy legislation such as the IRA also represents a point on a spectrum. In this regard, it's worth noting that Congress perhaps intended a more U.S.-focused industrial policy, whereas the Biden administration -- for example with its interpretation of "free trade agreement" to include special agreements on critical minerals that don't free much trade -- is shifting the policy along the spectrum towards an industrial policy that takes into account our relationships with allies, so there is now a bit more working with others. I would note here that an even more collaborative industrial policy would work with allies in drawing up the policy, rather than trying to adjust the policy to respond to their concerns after the fact. I would also note that the idea of working with some countries but not others limits the degree to which the policy is "collaborative" and "complementary."

Katherine Tai on Interpreting the Essential Security Exception

Yesterday, Ambassador Katherine Tai gave the Wenger Lecture at American University's Washington College of Law. She took some audience questions afterwards, and I used the opportunity to ask her about the U.S. position on the essential security exception at the WTO. I realized there is only so much she can say publicly about issues such as this one, and I tried as hard as I could in the few seconds after I decided to ask the question to come up with a way to phrase it so that she might actually be able to answer it. Here's what I came up with:

I had a question about the national security exception at the WTO. So there have been two recent WTO panel rulings that US measures were not justified under the national security exception. You expressed some displeasure with those rulings. And as I understand it, the US is going to propose an authoritative interpretation -- I think that's been said [publicly] -- of GATT Article XXI. And I don't mean to press you too far, I know you can't tell me everything I'd want to know, but I was wondering if you could talk a little bit about when a proposal might be forthcoming here, if it hasn't already happened in Geneva, and maybe just the broad outlines of what the US proposal, what the US thinking is about what the appropriate interpretation of GATT Article XXI.

She started her answer this way:

Simon, I feel like your question is a bit of a trojan horse in referring people to your blog. ... I hope your traffic increases exponentially because of this engagement.

Busted! I've blogged about her remarks enough by now that she was well aware that whatever she said was going to end up on the blog. My Katherine Tai tag has a lot of posts in it! Her comment got a good laugh, by the way.

(For the record, I no longer have a good way to track blog traffic. There used to be a free service that did this, but it went out of business a few years ago. So unless there's so much web traffic that the site crashes, I probably won't notice anything.)

Turning to the substance, here's what she said:

To your question about when, I might pass your question on to our WTO Ambassador, Ambassador Maria Pagan. She's on the ground in Geneva ... . 

In terms of what, I think that you will see, although I have seen your blog as well, and I know that you are very familiar with how we think about this, how we have argued it, and frankly, our position on the essential security exception has been very, very consistent over ... almost 80 years of our participation in the GATT and the WTO.

I guess what I would say, to elaborate a little bit more, is, back in those early days of [the GATT] being a community of countries and economies with many, many shared values, I actually think that our interpretation was the interpretation shared by GATT members. And that over time -- and I think this goes to some of our concerns about the WTO dispute settlement system, and how the WTO evolved -- we are deeply uncomfortable with the World Trade Organization ... reaching so far into sovereign decisions that we make that relate to essential security, national security. And this is a conversation that I would have with Secretary Blinken, which is, do you want me representing all of your decision-making at a hearing in Geneva to try to justify the judgments that have been made here around essential security. ...

I think that there is a real concern around the credibility of ... the WTO when it strays so far outside of the trade lane. We have worked very, very hard over many years to keep trade and economics separate from national security. And I think that in many ways you want to ensure that those lines don't get crossed in a way that undermines the missions and, frankly, the opportunities that there still are for an institution like the WTO. ...

I'm very interested to see the proposed Article XXI interpretation the U.S. comes up with. I think I have a sense of the general U.S. position here (essential security exceptions are self-judging, and parties should bring non-violation nullification or impairment claims against measures for which essential security is invoked), but how exactly will the U.S. word its proposed interpretation? How do you articulate all this in an interpretation of the existing text? And with regard to the non-violation remedy, as I've said before, I'm skeptical that it can, in its current form, provide an effective remedy here. What I'm interested in, then, is whether the U.S. just relies on existing WTO jurisprudence on the non-violation remedy, or instead whether it articulates a different approach that might offer a more effective remedy.

Katherine Tai on "Traditional Fully Liberalizing Trade Agreements" and Non-Market Policies and Practices

Here's an exchange between Rep. Darin LaHood (R-IL) and Ambassador Katherine Tai at a House Ways and Means Committee hearing (2:10:46 of the video) on Friday, March 24:

Rep. LaHood:

Ambassador Tai, great to have you here and thanks for being with us. As you know, Ambassador Tai, trade policy is incredibly important to me and my district and my constituents. I represent a heavy agricultural district and a manufacturing district whose jobs and economic successes rely on market access around the world and opportunities to send our great American products all across the globe. Knowing that, I don't think it should be a surprise to anyone here that I've been incredibly frustrated that another year has passed without kind of a proactive substantive policy on trade and progress on enforceable trade agreements from the Biden administration.

I know you, Ambassador Tai, were in the Senate yesterday, or maybe the day before, before the Senate Finance Committee, and I know there was frustration over there. There was a Politico article yesterday that said, "Ambassador Tai plays defense as Senate rips into trade agenda." In that article, it says Senators on both sides of the aisle criticized Ambassador Tai for not initiating trade agreements with foreign partners, opting instead for frameworks that lack the same market access provisions and enforcement mechanisms as traditional pacts. And you know, we've talked about this a little bit before Ambassador Tai, but as we sit here today, two years into this job, we don't have an FTA with the UK. We don't have a free trade agreement with Kenya. We don't have an FTA with Taiwan. We have no request to Congress for TPA. We continually allow China to take advantage of our IP at the WTO, and we have this issue with allowing Europe to set the playing field on digital to the disadvantage of US businesses and workers.

So those are just a few things that I think express my collective frustration and others, and as a member of the trade subcommittee, and I'm also a member of the new Select Committee on China, which has raised awareness in a bipartisan way that what we see every day in the Indo Pacific region is the growing threats of China. And considering that, having really an insufficient trade engagement in that region, I believe is unacceptable. And I know you mentioned IPEF, and as I look at IPEF today, I believe the framework is actually getting weaker. Just take the digital pillar as an example. USTR has chosen to engage in a framework that lacks tangible policy and avoids Congressional consultation or approval. And I'm open to hearing your views on that. And I worry that we are not countering or providing a strong enough alternative to the growing pressure of non-market economies. Instead of increasing US leadership in the Indo Pacific region, countering China's influence and leaning in on opportunities like digital trade to set global rules and standards that would put countries like China at a disadvantage, we are missing an opportunity to use trade as an offensive tool.

And so I mentioned those things again, as we look at every conversation as part of the Select Committee on China, when we talk to our like-minded allies in the Indo Pacific region, whether it's Japan, whether it's South Korea, whether it's Australia, is they're craving our leadership economically. And I just, I guess, express my frustration and my concerns about two years in and we've not made any progress on these things. So with that, I'd love to hear your your specific ideas or comments on IPEF, and whether it [provides] real economic and substantive alternatives to China's pressure in the Indo Pacific region.

Here was (part of) Tai's response:

It's good to see you, Mr. LaHood. And let me let me say a couple things before I get to your specific question on IPEF. I hear your frustrations. And I think that in your frustrations, I'd like to make two points.

One is, you are seeing a key part of our trade agenda, which is that it is not the traditional trade agenda. And that is out of a recognition that a lot of the challenges that we are facing today, whether it is supply chain challenges, whether it is the challenges that we are facing from non-market economy practices, like those from the PRC, to Russia's invasion of Ukraine, that a lot of these have roots in a traditional trade approach that have brought us to where we are today.

So yes, we are not pursuing traditional fully liberalizing trade agreements, because we see those as part of the problem that we are trying to correct for. So your frustrations are affirming that yes, we are not pursuing the traditional trade agenda.

But what I would like to point out to you, and I'd be delighted to spend more time with you as well, is to have you see those things that we are doing that we are putting forward a trade agenda to try to correct for exactly some of those challenges that you have highlighted, especially with respect to non-market economic policies and practices that have really made the playing field extremely tilted, and that we're going to have to adapt to respond to for as long as those practices are there.

I have a couple thoughts here in reaction.

First, let me start off with the nitpicky, as I often do. Tai said "a lot of the challenges that we are facing today, whether it is supply chain challenges, whether it is the challenges that we are facing from non-market economy practices, like those from the PRC, to Russia's invasion of Ukraine, ... have roots in a traditional trade approach that have brought us to where we are today." When I first read this, I was puzzled by how the prior U.S. trade approach could have led to Russia's invasion of Ukraine. But then I remembered that Tai has brought up Russia before, stating the point about Russia in a different way:

The other aspect of this is, the assumption that countries that trade with each other do not go to war with each other. Nothing could be clearer than Russia's invasion of Ukraine, that that was not a market based, economically rational decision. And that even countries that trade together -- and this has probably always been the case, go back to World War I and further -- even countries that rely on each other for their prosperity are at some points motivated to ignore all of that and nevertheless to go to war. Russia's invasion, Vladimir Putin's decision to invade Ukraine, shrank the pie for Russia, shrank the pie for Ukraine. And I think that not being a business economist like the rest of you, I feel pretty confident in saying that that decision is shrinking the pie for everyone.

And also this:

The ... second set of disruptions around COVID, the pandemic and our supply chain disruptions. And the third set are more recent, and Russia's invasion of Ukraine, which according to our earlier theory about more trade leads to more peace and prosperity is something that simply should not have happened. One WTO member, on this basis, on this theory, should never have been incentivized to aggressively act out and invade another WTO Member.

As I understand it, she was saying in these previous quotes that Russia joining the WTO did not prevent war. My reaction to that point was that expecting WTO accession to prevent any and all war between WTO Members is more than can be hoped for from the WTO, although as a general matter I do think good trade relations reduces the risk of war.

Second, I'm not sure how many "traditional fully liberalizing trade agreements" the U.S. has entered into. NAFTA/USMCA comes the closest to being "fully liberalizing," I think, but even that had exceptions from the basic anti-protectionism goals (e.g., there were some TRQs, anti-dumping duties were still allowed and used regularly, and USMCA tightened rules of origin for autos), and it also has non-liberalizing provisions such as strong IP protection, labor rights, etc. Turning to the WTO, there is still so much more liberalizing to do that I think it's hard to characterize it as a "fully liberalizing" trade agreement. But regardless of whether too much "defensive" liberalization caused problems in the U.S. economy, what I see from U.S. trade policy over the past couple decades is that U.S. "offensive" demands for trade liberalization from our trading partners kept falling as a priority. Instead of a focus on liberalization, other policies -- IP protection, ISDS, labor rights, and the environment, among others -- were elevated to become major emphases in U.S. trade negotiations. We can only ask for so much, and if we are asking for these things, it means we are asking for less liberalization (or as LaHood put it, "market access around the world and opportunities to send our great American products all across the globe"). What this leaves me wondering is, how would things have gone if the U.S. had focused its demands on getting our trading partners to liberalize more? What kinds of new economic opportunities would we have had for U.S. producers if high tariffs and protectionist regulations by foreign governments had been more of a priority? And what impact would it have had on the attitudes of U.S. politicians towards trade if a wider range of U.S. businesses were significant exporters?

And third, with regard to non-market economic policies and practices, focusing on China's policies and practices, I think it would be useful to examine the options here as to what could have been done then and what could be done now.

As to what could have been done then, it's certainly true that the U.S. could have decided not to support China's WTO accession. But I'm not sure that would have put import-competing U.S. producers in much better of a position, for several (admittedly speculative) reasons: 1) China's economic rise started long before WTO accession was completed and would likely have continued even without WTO accession; 2) other countries would likely have signed bilateral or regional trade deals with China if China had not been admitted into the WTO; and 3) the biggest impact of China not joining the WTO is that its economy would have been much more closed to foreign products and services. I can easily imagine that if the U.S. had blocked China from joining the WTO, there would have been widespread criticism today about how that decision caused major disruptions to the U.S. economy as there was no effective way to combat Chinese non-market policies and practices.

As to what could be done now, based on the evidence I've seen, my sense is that when it comes to China in particular, but more broadly as well, unilateral measures such as AD/CVD or Section 301 aren't going to induce many changes to a government's non-market policies and practices. (If someone has evidence to the contrary, I'd love to see it). Why don't these work? A big factor is that trading partners look at these as protectionist measures that do not reflect a good faith pursuit of a change to their practices, with U.S. industries just looking for new reasons to keep their foreign competitors out of the market.

So on this issue, I'm not sure that anything the Biden administration is doing -- continuing the Section 301 tariffs and traditional AD/CVD practices, but also talking with allies about things like a possible global steel and aluminum deal or anything related to the IPEF -- will have much of an impact on China's non-market policies and practices. If someone thinks they will, feel free to walk me through how that has worked or would work, but I'm skeptical.

By contrast, what I think would work best on China's non-market policies and practices is a series of WTO complaints (assuming that the WTO dispute settlement system is restored), relying on the many and varied WTO obligations that address non-market practices. The U.S. (and others, but my understanding is that it was mainly the U.S.) negotiated some broad and unique obligations that apply to China. I think it's worth trying to enforce them. Will that change every problematic Chinese policy or practice? Definitely not. But even where it does not, it can lead to a multilateral endorsement of rebalancing that will avoid damaging trade wars and perhaps lay the foundation for long-term changes in certain Chinese policies and practices.

The Latest from Katherine Tai on WTO Dispute Settlement Reform

Here are some exchanges from a House Ways & Means Committee hearing last week between members of Congress and U.S. Trade Rep. Katherine Tai about the state of WTO dispute settlement reform. Are there any definitive answers in here as to where things are going and when they will get there? Perhaps not! Nevertheless, people may want to scrutinize her words closely to see if they can learn anything.

Rep. Schweikert:

The constant conversation you and I've had is, the speed, the efficiency, the fairness of the adjudication process, WTO dispute resolution. Tell me where we're at.

Tai:

I'm delighted, Mr. Schweikert, and I know that you do like the technical aspects of all that we do. And that's demonstrated by your question about the WTO. Let me talk about the dispute settlement system at the WTO first, put it in the context that the dispute settlement system doesn't exist in a vacuum, that it is part of the larger WTO institution that we value very, very much for what it stands for, for how it brings together 164 economies in the world and provides us with a forum for dealing with each other and being able to communicate with each other and to resolve the disputes that we have when they come up. So the reform of the WTO dispute settlement system is tied to the consensus at the WTO that the entire WTO ought to be reformed to reflect the economy that we're living in today. And also to be able to keep up with the changes in our economy since the WTO was established almost 30 years ago. So on WTO reform, probably, because I also want to make very clear, the United States and our team at the mission to the WTO in Geneva is engaging across the board. We have a special responsibility in dispute settlement, but we are engaging at the committee level. We are bringing written proposals every meeting. We're also leaning in on how to make this a more functional negotiating forum

...

On dispute settlement, what we are doing is, we are seeking a system that is singularly focused on helping two parties resolve a trade dispute. To be a dispute settlement system, as the system was intended. Dispute settlement has evolved into an avenue for judicial rulemaking. It has become synonymous with litigation, very expensive and time consuming litigation, ... , and it allows countries to seek through litigation what they could not accomplish by negotiation. So the results have significantly damaged US interests through an interpretation that, for example, shields China's non market practices and undermines our ability to defend US workers and businesses. You may also be aware of the recent national security decisions that have come out of the WTO system that are deeply concerning to us and to our national security sovereignty. We are engaging on a reform process that requires 164 economies and members of the WTO to agree and this is not about us dictating the terms, it is about us being very honest about what our interests are, what we need the dispute settlement system to do for us, but also to craft a renewed and better dispute settlement system with our partners at the WTO.

...

Rep. Beyer:

I really also appreciate your commitment to the WTO and the belief that it can be a real force for good. And without the WTO its a state of nature. And the work he did in the last ministerial meeting, crucial wins on fisheries and COVID-19 vaccines, illustrates that despite the challenges, the WTO actually can work under the right conditions. To that end, a little concern we're sending mixed messages on our support for the WTO and our commitment to abide by its decisions and rules, even if we don't like the outcome of individual cases. I know you've worked hard on reform. Could you update us on your progress in this area?

Tai:

I'd be delighted to. In fact, we're doing so much work on reform, it is a little frustrating for me that not more people know about it, because the issues can get technical and all of this is happening in Geneva which is far away from Washington, DC. I know how much you care about it. Whether it's on the committee processes, whether it's on the negotiation function, or dispute settlement, my team shows up to every meeting with new ideas. Our motto is to reform by doing and to put ourselves out there as a model for reform, to not just talk about it, but to behave in the way that we would like for members to behave, which is to be very, very engaged with the WTO and see it as being there to serve our interests and our needs. And not something that we go on autopilot about and and forget about. So on dispute settlement, we are on phase three of work in terms of driving an interest based negotiation conversation, an inclusive process that brings in all of the WTO members, with the goal in mind that for real reform and change to happen at the WTO, we can't dictate that change. It's got to be negotiated and accepted by everyone. That's just an example. But I would be delighted to facilitate a follow up for you and any others on the committee to learn more about what we're doing.

...

Rep. Moore:

With regards to the WTO arbitration dispute, now there's serious national national security implications here. I've taken note of a series of these concerning developments from the WTO related to our national security by the challenge by China to the US export controls on semiconductors and multiple other WTO rulings against the United States. The WTO has no authority in matters of national security, and members on this committee stand firmly behind USTR's rejection of their flawed conclusions. Could you update the Committee on just any any more context on how you're thinking about this and other disputes related to national security?

Tai:

Certainly, I think this gets to an area where I think Congressman Beyer mentioned a little bit, feeling like I've sent mixed messages. Look, you can be strong on this principle that national security decisions taken by governments in their sovereign authority shouldn't be subject to WTO panels, picking them apart from a trade perspective, and at the same time be for the reform of the WTO including its dispute settlement system. So again, you know, I want to credit my WTO Ambassador Ambassador Maria Pagan for carrying the flag, being very strong on our position with respect to where the WTO and its jurisdiction should properly be, while leaning into a reform program on how to make the WTO work better for us, certainly, and for all of its membership.