Saturday, April 21, 2018
Last week at Coors Field, Padres pitcher Luis Perdomo landed a fastball on the ribs of Rockies third baseman Nolan Arenado. Arenado charged the mound, Perdomo threw his glove, and the benches cleared.
Perdomo was suspended (along with a teammate and three Rockies) for deliberately throwing at Arenado, according to umpire crew chief Brian Gorman.
Perdomo told reporters he was just pitching inside and lost control. “I’m a sinkerballer, and sometimes you have to be able to throw in to get those ground balls and that’s what I was trying to do.”
Yeah, sure. Look, everyone expected the Padres to throw at Arenado; Rockies pitchers had hit two Padres batters in the previous four innings and another was hit near his head a week earlier. As the brawl erupted, Fox Sports San Diego announcer Don Orsillo said, “You sort of had to figure this may happen – maybe not so much after the Margot last night, but the Renfroe today …” Color commentator Mark Grant chimed in, “You got that right.”
Padres manager Andy Green didn’t exactly deny that the plunking of Arenado was deliberate. Green mentioned the pitches that hit Margot and Renfroe, saying, “… they’re pitching aggressively inside. … Our guys at some point in time are going to take up for each other and we’re going to pitch inside as well.”
Beanball and the Steel and Aluminum Tariffs
The Rockies-Padres feud bears a fair resemblance to what’s going on between the U.S. and China over the recent U.S. tariffs on steel and aluminum.
Throughout March and April, the U.S. launched a series of hardballs, some of which have hit China north of the belt. Here’s the play-by-play:
February 16: Secretary of Commerce Wilbur Ross releases a pair of reports recommending tariffs on steel and aluminum imports under Section 232 of the Trade Expansion Act of 1962.
March 8: President Trump proclaims tariffs of 25 percent on steel and 10 percent on aluminum.
March 22: U.S. Trade Representative Robert Lighthizer releases a report under Section 301 of the Trade Act of 1974 about China’s IP regime, identifying five categories of practices that the report claims harm U.S. industry.
March 23: Steel and aluminum tariffs take effect; United States files a request for consultations challenging China’s IP practices in the WTO.
April 3: President Trump releases a plan to impose a 25 percent tariff on about $50 billion worth of Chinese goods.
“Pitching Aggressively Inside”
Were these actions illegal? In other words, did the U.S. deliberately throw at China?
If the steel and aluminum tariffs are really disguised safeguards or anti-dumping tariffs or some other kind of unilateral trade retaliation, then the answer is yes.
Safeguard measures (one of the most obvious candidates here) are unilateral national remedies permitted, but disciplined, by the WTO Agreements.
GATT Article XIX says that a WTO member may apply special safeguard tariffs in the following circumstances:
If, as a result of unforeseen developments and of the effect of the obligations incurred by a contracting party under this Agreement, including tariff concessions, any product is being imported into the territory of that contracting party in such increased quantities and under such conditions as to cause or threaten serious injury to domestic producers in that territory of like or directly competitive products …
But Article XIX and especially the WTO Agreement on Safeguards provide a rulebook about when and how a WTO member may apply those safeguard measures. Among other things, as the passage above states, there have to be “unforeseen developments,” not just business as usual. There also has to be a showing of causal link between the increased imports and some “serious injury” to domestic producers.
And even if these showings are made, there are certain steps a WTO member is supposed to take before imposing safeguard measures to allow affected exporters to balance the trade relationship, such as providing notice of the measure to the WTO Committee on Safeguards and an opportunity for consultation with WTO members who will be affected by the tariffs.
Many people think the Section 232 tariffs look a lot like safeguards, imposed merely to protect the steel and aluminum industry from foreign competition. For example, President Trump tweeted the day they were announced, “We have to protect & build our Steel and Aluminum Industries ….”
But the Trump Administration didn’t call them safeguards. First, they weren’t imposed under the U.S. law for finding and imposing safeguards, Section 201of the Trade Act of 1974. Second, the United States did not notify them to the WTO Committee on Safeguards.
Instead, President Trump said the tariffs were plain old tariff increases. Now, tariff increases against other WTO members beyond the parties’ negotiated schedules would normally be illegal under GATT Article II, but the United States claims they are justified by GATT Article XXI, the national security exception (cue the ominous music).
The security exception of Article XXI states (in relevant part),
Nothing in this Agreement shall be construed
(b) to prevent any contracting party from taking any action which it considers necessary for the protection of its essential security interests
(iii) taken in time of war or other emergency in international relations
Okay, let’s just say that many people are skeptical that the steel and aluminum tariffs are really “necessary for the protection of … essential security interests” of the United States or that there is any “emergency in international relations” right now.
Awkwardly, one of those people seems to be Secretary of Defense James Mattis. In response to the Section 232 report, Secretary Mattis started with something like the party line: that “imports of foreign steel and aluminum based on unfair trading practices impair the national security.” But in the next sentence, he pointed out that only three percent of domestic steel and aluminum production is used for the defense industry.
Mattis concluded the memo by stating, “[i]t is critical that we reinforce to our key allies that these actions are focused on correcting Chinese overproduction and countering their attempts to circumvent existing antidumping tariffs – not the bilateral U.S. relationship.”
So that’s another possibility – in Mattis’ view, it seems, the steel and aluminum tariffs are neither safeguard measures nor “necessary” or “emergency” security measures, but rather anti-circumvention provisions for existing antidumping duties.
Antidumping duties, like safeguards, are permitted but disciplined under the WTO Agreements. Under GATT Article VI and the WTO Antidumping Agreement, the United States is permitted to impose antidumping duties against foreign products that are being introduced into the United States for less than the “normal value,” or cost of production, if those imports are causing “material injury” to an established industry.
As with safeguards, there are provisions of U.S. law – in Title VII of the Tariff Act of 1930 – that provide for findings of dumping and imposition of antidumping duties. The steel and aluminum tariffs didn’t follow those procedures. And there are requirements that have to be followed under GATT Article VI and the Antidumping Agreement that weren’t followed either.
So a quick recap: The United States says the steel and aluminum measures are WTO-justified national security exceptions to its tariff obligations, but that’s pretty hard to swallow from the look of things. And if the steel and aluminum tariffs are really safeguards or antidumping measures, then the United States isn’t following the rulebook – it’s just hurling fastball after fastball in China’s direction.
China’s Guys Take Up for Each Other
Trade experts were no more surprised than Don Orsillo and Mark Grant when China decided to strike back.
China retaliated against the steel and aluminum tariffs by notifying the WTO Council for Trade in Goods on March 29 that China would impose tariffs in roughly equal value on a variety of U.S. products, including wine, pork products, and aluminum waste.
In its notice, China called the United States out on its supposed “inside” pitches. The notice says,
China takes the view that the above-mentioned measures of the United States are safeguard measures although it's in the name of national security. We believe the measures taken by the United States are not consistent with its obligations under the relevant provisions of the GATT 1994 and Safeguards Agreement.
In other words, the Chinese decided that Trump was deliberately throwing at their heads. And rather than wait for the umpire to call it, they rushed the mound, imposing tariffs of their own.
So maybe the United States’ denial (“sometimes you have to be able to throw in to get those ground balls”) isn’t all that persuasive. Maybe it’s pretty obvious that these are safeguards or antidumping circumvention remedies that should have been imposed under different rules.
But that doesn’t necessarily mean you can charge the pitcher, either. The WTO rules provide procedures for dispute settlement when one member objects to the actions of another. Although China did initiate an action against the United States under those procedures, its notice of retaliatory tariffs suggests that it doesn’t plan to wait around for a decision.
China may have an argument that it was entitled to take matters into its own hands once the United States imposed tariffs that looked suspiciously like improper safeguards or antidumping duties, though that’s unclear (and a subject for another post, though you can find a pretty inside-baseball debate about it here).
What’s clear is that the too many pitches have whizzed by too close to the chin. Now the benches have cleared and the punches are flying.
Thursday, March 29, 2018
It’s MLB Opening Day 2018, and that means it’s time to take stock of America’s favorite pastime: imposing trade sanctions. Between its steel and aluminum tariffs, a WTO complaint and more tariffs against China for IP violations, and the possibility of ending NAFTA, the Trump Administration is playing hardball with longtime trade friends as well as foes. But beanball goes both ways. U.S. trade partners have already begun to retaliate through massive WTO complaints that could hit U.S. industry right in the wallet, while other countries threaten complaints and retaliatory tariffs on U.S. products entering their markets. Here’s an overview of the state of play.
Bob Gibson tops most people’s lists as the most feared pitcher of all time. Gibson was known for never smiling on the mound, and for owning the inside half of the plate. In his autobiography, Gibson said he threw nine pitches: “two different fastballs, two sliders, a curve, a change-up, knockdown, brushback, and hit-batsman.”
During the 2017 season, I predicted here that the Trump Administration’s strong-arm tactics with trade partners might be an invitation to a dangerous game of beanball – the baseball term for the battle that ensues when two team’s pitchers take turns hitting each other’s batters with selectively-placed fastballs.
On December 20, Canada took the bait, answering the United States’ intimidation tactics with a brushback pitch of its own: a lengthy complaint in the WTO challenging six aspects of the United States’ conduct of antidumping and countervailing duty investigations. Canadian Foreign Minister Chrystia Freeland told Reuters that the action was part of Canada’s response to U.S. penalties on Canadian softwood lumber and an attempt to defend Canadian forestry jobs.
South Korea has also joined in the brawl, filing a complaint with the WTO on February 14 that challenged the way the U.S. calculates antidumping duties and countervailing duties.
And now China, in response to Trump’s announcement this week, has threatened $3 billion in retaliatory tariffs as well as a WTO complaint of its own.
What’s making these countries so mad they’re ready to send a warning shot whizzing past the chin of the U.S.? Here’s an overview of the pending legal claims in the Canadian and South Korean WTO complaints.
Canada Gets Mad (No, That’s Not a Joke)
Canada’s request for consultations – the first step in initiating a grievance under WTO procedures – complains that the United States violates various WTO agreements in the way it handles unfair trade remedies.
A little background: The WTO Agreements allow all member states to investigate and penalize practices that were traditionally considered unreasonable manipulations of international trade. But while the WTO Agreements may allow these unilateral sanctions by member states, they also define disciplines on how such investigations will be conducted and sanctions will be administered.
For example, the Antidumping Agreement (“AD Agreement”) allows countries to impose only “definitive” anti-dumping duties, not provisional ones, except in limited circumstances; duties collected must be in the “appropriate amounts”; and duties can remain in effect “only as long as and to the extent necessary” to counteract the injury. The Agreement on Subsidies and Countervailing Measures (“SCM Agreement”) allows countries to impose duties only where there has been a “financial contribution” by a government. Both agreements require that parties be given “ample opportunity” to defend their interests, and a separate agreement, the Understanding on Rules and Procedures Governing the Settlement of Disputes (“DSU”), requires “prompt compliance” with a WTO decision that any provision of the WTO Agreements has been violated.
The Canadian complaint challenges six U.S. practices (and seven individual “measures,” the WTO catch-all term for laws and policies):
- When a U.S. policy for imposing antidumping or countervailing duties is found inconsistent with one of the WTO Agreements, the result may be that the duty collected by U.S. customs authorities exceeded what is legally permitted. Rather than immediately refunding any overage and applying the new, reduced duty to any new product shipments, the U.S. continues to collect and hold duties at the rate originally imposed until any administrative, arbitration, or judicial reviews are completed. Canada claims, among other things, that these policies result in collecting duties that exceed the “appropriate amounts” and do not result in “prompt compliance” with the WTO decision.
- Usually, antidumping and countervailing duties are imposed by the U.S. after the Secretary of Commerce makes a preliminary determination of dumping, but a regulation allows duties to be imposed retroactively up to 90 days earlier where “critical circumstances” exist – sort of a preliminary injunction for antidumping and countervailing duties. Canada claims that this regulation violates restrictions in the AD and SCM Agreements that allow the imposition of preliminary duties only more than sixty days after the initiation of an investigation.
- Countries impose a variety of controls on products being exported from their markets – such as levies, quotas, restraints, and outright bans. Some of these export controls are allowed by the WTO Agreements, some aren’t, but Canada’s complaint is that the United States treats even lawful export controls as “financial contributions” by a government to its domestic industry – an essential element for a finding of a subsidy under Article 1.1 of the SCM Agreement – and relies on them in imposing countervailing duties.
- Canada also challenges the U.S. practice of “zeroing” in finding counteravailable subsidies. According to Canada, the U.S. bases countervailing duty calculations only on instances where the government has provided goods to its industry at less than a set benchmark price and ignores (“zeroes”) instances where the government has provided goods to its industry at prices higher than the benchmark price.
- Another U.S. regulation requires interested parties in an investigation to file certain factual information at least 30 days before Commerce’s preliminary determination of dumping or subsidy. Although the regulations allow the Secretary to accept such information later under “extraordinary circumstances,” Canada alleges that the Secretary never or almost never does so. Canada alleges that these time limits do not allow interested parties the “ample opportunity” to defend themselves that the AD and SCM Agreements require.
- Under the Tariff Act of 1930, the International Trade Commission determines injury from dumped products or products subject to counteravailable subsidies. The Act provides that the ITC will have six Commissioners. The Tariff Act requires that a tie vote on an injury determination be treated as a finding in the affirmative. Canada alleges that this contradicts the obligation of the United States to make an objective determination as to injury from dumping or subsidies.
If these claims sound a little vague – they aren’t. Zeroing has been roundly rejected by the WTO in the antidumping context; although the comparison between antidumping and subsidies is not quite on all fours here, it’s not a flight of fancy either. And the Appellate Body frequently decides cases by giving content to obligations in the agreements that sound vague or even hortatory, such as “appropriate amounts” or “ample opportunity.” The outcome may turn on the panel’s or Appellate Body’s opinion of the commercial reasonableness of the United States measures in context.
The complaint filed by South Korea also alleges that the United States violates WTO disciplines on how antidumping and countervailing duties may be calculated. Specifically, the complaint centers upon the United States’ use of adverse factual inferences when calculating an antidumping duty or countervailing duty.
According to the AD and SCM Agreements, when a party being investigated does not cooperate, “preliminary or final determinations, affirmative or negative, may be made on the basis of the facts available.” (It’s the same language in both agreements, Articles 6.8 and 12.7, respectively.)
Korea challenges Commerce’s use of adverse facts available in several ways. First, Korea alleges that the United States unfairly invoked Articles 6.8 and 12.7 against Korean producers and exporters in six listed investigations, although the complaint alleges no facts to support that claim.
The complaint also claims that the Department of Commerce uses this provision improperly when it invokes it: by failing to give notice of the information it requires; by failing to verify that the information supplied by other parties is accurate; by failing to inform the parties of the essential facts it is considering; by failing to determine individual dumping margins for each producer and export; and by requesting information that’s not in the original application being investigated.
The most sweeping complaint is that Section 502 of the Trade Preferences Extension Act of 2015 allows Commerce to use adverse facts available that are not commercially reasonable because it doesn’t require that those inferences be consistent with any verifiable information that was supplied or by other available and relevant commercial information.
Like the Canadian complaint, the claims in the Korean complaint are not outlandish. The AD and SCM Agreements allow determinations based on “facts available” to give interested parties some incentive to cooperate with the investigation. But the agreements also require that the interested parties have “ample opportunity” to defend themselves, a term that the Appellate Body may flesh out further.
So it looks like Beanball 2018 is definitely on in the trade realm. Stay tuned for the bottom half the inning (i.e., the next post), in which we’ll review the United States’ complaint against China. And remember, as Bob Gibson said, the brushback is just the first pitch thrown to get a hitter’s attention. After that comes the knockdown, “a brushback pitch with an attitude.” If even that fails to gain respect – look out. We could be in for a bench-clearing brawl.
Wednesday, July 5, 2017
In 2016, Bryce Harper decided he would Make Baseball Fun Again. Donald Trump wants to do the same thing in the WTO.
The results may be more similar than Trump realizes.
Baseball has an unwritten rulebook. You can break those rules, but you may pay for it with a fastball to the rib cage.
The WTO has a written rulebook. You can break the rules, but you may pay for it with a hard hit to domestic industries that never saw it coming.
Either way, better to know what you’re getting into before you decide to pump your fist.
Harper, Shaking Things Up in MLB
Before the beginning of last season, the Washington Nationals’ star outfielder complained to an ESPN reporter that “[b]aseball’s tired.” Harper wants to be able to stand and admire his home runs without anyone throwing a fastball at his backside the next time up, and he doesn’t care if a pitcher who strikes him out pumps his fist and stares him down back to the dugout.
He wants to see a little 24-karat magic in baseball (“[e]ndorsements, fashion – it’s something baseball doesn’t see”) and he’s planning to take you there, one coiffed photo shoot at a time.
The slogan Harper borrowed from Donald Trump was printed on hats and T-shirts. The man was on a mission to make himself the marketing equivalent of “Beckham or Ronaldo … Curry and LeBron.”
Breaking the Baseball Code
Trouble is, other baseball players – including some of Harper’s own teammates – seem to like baseball’s century-old code of etiquette more than they like Bryce Harper. In the last week of the 2015 season, Harper had criticized teammate Jonathan Papelbon to reporters for plunking a grandstanding Manny Machado. A few days later, Harper and Papelbon exchanged heated words over a play that ended up with Papelbon grabbing Harper in the Nationals’ dugout while TV cameras rolled.
Again this year, Harper has been in the middle of a headline-grabbing baseball brawl, this time with Giants pitcher Hunter Strickland. On May 29, Strickland planted a fastball on Harper’s right hip, and Harper reacted by charging the mound and throwing his helmet. Benches cleared. Both players were suspended – Harper for three games, Strickland for six.
Most people think Strickland threw at Harper and most people think Strickland was motivated by an old grudge: In the 2014 National League Division Series, Harper homered off of Strickland twice. In one or both games, Harper stood to admire his shot in a way that Strickland didn’t appreciate. In the second one, Harper pumped his fist and stared down Strickland as he rounded the bases. By some accounts, he had some words for Strickland even from the dugout.
Maybe Harper was within his rights to celebrate a game-tying home run in the postseason, including staring down the opposing pitcher. Maybe he was just waiting to see if the ball, hit down the right field line, was going to be fair. Maybe Strickland should be over it because it was three years ago and the Giants went on to win that series and the whole Series that year anyway.
But the fact is that Harper wants to play the game a new way, and Strickland doesn’t. Harper wields a mighty bat but Strickland wields a hard ball that he throws 96 miles per hour in Harper’s general direction. Strickland may have overreacted, but he was playing by an age old baseball rule: If a player plays the game in a way that other players don’t like, those hard balls tend to find their way into those players’ backsides.
Throwing Taunts: Trump’s First Trade Policy Agenda
Harper and Trump have more than just a slogan in common. Like Harper, Trump has promised a similar type of take-no-prisoners, home-team pride in his early statements about the WTO.
During the campaign, when Chuck Todd on Meet the Press asked Trump whether his proposed taxes on firms doing business in Mexico would violate the WTO Agreements, Trump said, “Doesn’t matter. We’ll renegotiate or pull out. These trade deals are a disaster, Chuck. World Trade Organization is a disaster.”
In his 2017 Trade Policy Agenda, the new Trump Administration said, “even if [the WTO] rules against the United States, such a ruling does not automatically lead to a change in U.S. law or practice. Consistent with these important protections and applicable U.S. law, the Trump Administration will aggressively defend American sovereignty over matters of trade policy.”
Breaking the Trade Code
Legally speaking, the Trump Administration’s statement is strictly correct: there is no global sovereign, and nothing the WTO says can directly alter U.S. law nor force the U.S. to alter its own law.
But if he thinks there would be no consequences to staring down the WTO, he needs to read the rulebook.
The dispute resolution provisions of the WTO use market power, not the police power, to keep WTO member states playing by the rules of the game. And that power can be pretty darn persuasive.
Here’s how it works: Let’s say the U.S. passes a law that another WTO member thinks violates the trade agreement. The aggrieved member can seek review of the U.S. law by the WTO. If the WTO ultimately agrees (after a hearing and potentially an appeal), it will “recommend” that the U.S. change its law. It may “suggest” ways that the U.S. “could implement the recommendations.”
Pretty weak stuff, easy to pump your fist at. But here’s where it gets trickier.
The U.S. would have a reasonable period of time to implement the “recommendation.” If it does so, all is forgiven.
But the U.S. may refuse to change its law. Or it may change its law but not enough to conform to the WTO rules. And it may refuse its last chance to avoid a fight, which is to compensate the aggrieved country for the harm it has suffered.
What happens to a country that stares down the WTO as it rounds the bases and shouts at other WTO members from the dugout?
You guessed it. The WTO rules sanction economic beanball.
Beanball, WTO Style
The WTO rules were written by lawyers so they call it “suspension of concessions.” But it’s the same thing. If the U.S. staunchly refuses to take any of the actions (conforming or compensating) that would avoid a fight, then the aggrieved country is authorized to hit the U.S. where it hurts: the pocketbook.
That means the aggrieved country is authorized to levy a tax on products it imports from the U.S. The overall level of tax should be equivalent to the level of harm the aggrieved country suffered from the non-conforming U.S. law.
In other words, 96 miles per hour planted right in the backside of U.S. industry.
In some cases, the taxes don’t even have to be on goods in the same sector. For example, when the United States refused to repeal its cotton subsidies that harmed the Brazilian cotton industry, Brazil didn’t import enough agricultural products from the U.S. to really make the penalty stick. So instead, the WTO authorized Brazil to tax all sorts of consumer and luxury goods coming into Brazil from the U.S.
When producers of those goods got wind that they were about to get plunked, they beat down the door of the U.S. Trade Representative until the U.S. struck a deal: It couldn’t repeal the subsidy without upsetting domestic cotton markets, but it would compensate Brazilian cotton farmers for their loss. Trade brawl averted.
Breaking It Up: The USTR
Will Trump’s advisers rush from the bench and try to break up the fight?
In June, U.S. Trade Representative Robert Lighthizer stated to a meeting of the OECD that “[t]he United States recognizes the importance of international trade systems, including WTO-consistent trade agreements.” The statement said that the U.S. would work with other members to “improve the functioning of the WTO” and to “ensure full and transparent implementation and effective and timely enforcement of the WTO agreements as negotiated.” Lighthizer’s statement also pledged to work for a successful outcome at the WTO ministerial conference in December.
Sounds like he’s trying to play peacemaker. For the sake of U.S. industry’s backside, let’s hope it works.
Wednesday, June 28, 2017
This is a blog about international trade law written by international trade law professors. So it makes sense that the editors of this blog might assume that international trade is, well, pretty cool.
After all, in an October 2016 survey, 86% of foreign policy scholars thought U.S. involvement in the global economy was a good thing. Only 2% thought it was a bad thing.
But that opinion would put us out of step with many Americans. In an April 2016 survey of the general public, only 44% thought U.S. involvement in the global economy was a good thing, while 49% thought it was bad.
And it’s not just a Republican/Democrat thing. Fewer than half of voters of either party have a positive view of U.S. global economic ties – only 37% of Republicans and 49% of Democrats think trade creates new markets and growth.
Nowhere is this opinion more strongly held than in West Virginia. My fellow West Virginians voted for Trump by the second-highest percentage in the country– 68.7%. Exits polls after the 2016 primaries showed that the economy was the top worry for West Virginia voters of both parties. And West Virginians think trade is a big part of the problem: More than two-thirds of Republican voters and more than half of Democratic voters here said that trade was mostly taking jobs away from Americans.
Republicans were somewhat more likely to have an outright negative view, but many Democrats weren’t enthused either: 55% of Republicans and 44% of Democrats thought U.S. involvement in the global economy leads to lower wages and lost jobs.
The Art of Persuasion, Trade Style
So if foreign policy scholars have a different opinion than the majority of Americans, we have two options:
We could keep pounding on our data and hope for a different electoral outcome in 2018 or 2020.
Or we could dig deeper and see whether we might not be missing something important.
I don’t mean to suggest that trade scholars suddenly start arguing that David Ricardo has no clothes. There are strong arguments in favor of free trade that don’t need to be rehearsed here (but if you want, go ahead here or here or even here).
And Trump’s campaign rhetoric and early actions on trade suggest a protectionist policy that many experts may wish to oppose with vigor. Such opposition is not only principled but critical as the Trump Administration continues to suggest a casual attitude toward rule of law, including respect for U.S. trade commitments.
Still, you can take one page from the playbook of Donald Trump: One of the most important principles of the art of persuasion is that people don’t listen to you when you start by telling them why you’re right.
They are more likely to listen when you start by telling them why they’re right.
And West Virginia voters are right about some things that matter in the trade policy debate.
The Un-Kept Promise of Trade Adjustment Assistance
One of the things West Virginia voters are right about is that trade adjustment assistance is a good idea that mostly hasn’t worked.
In a recent study of the effects of China trade shocks, economists David Autor, David Dorn and Gordon H. Hanson concluded that “adjustment in local labor markets is remarkably slow, with wages and labor-force participation rates remaining depressed and unemployment rates remaining elevated for at least a full decade after the China trade shock commences.”
In light of these decade-long shocks, federal benefits for those who have lost jobs due to trade is inadequate: Displaced workers are eligible only for 18 months while in a job re-training program.
Other federal benefits like disability take up some of the slack, but not nearly enough: Autor and colleagues found that workers in the most vulnerable regions lost $549 in annual pay, while total federal benefits for displaced workers increased by only $58.
50th Out of 50 (Again)
Another thing West Virginia voters are right about is that life in West Virginia has got to get a whole lot better if we are going to talk about a just transition to a global economy.
In a 2017 poll by Gallup and Healthways, West Virginians ranked their own well-being 50th out of 50 states.
This was not the usual health survey that West Virginians are familiar with (and tired of) ranking near the bottom of: obesity, diabetes, smoking, high blood pressure, etc., etc. Instead, the Gallup/Healthways survey asked residents of each state to rate their own well-being across five elements:
- Purpose – Do you like what you do each day and feel motivated to achieve your goals?
- Social – Do you have supportive relationships and love in your life?
- Financial – Do you manage your economic life to reduce stress and increase security?
- Community – Do you like where you live, feel safe and have pride in your community?
- Physical – Do you have good health and enough energy to get things done daily?
West Virginians had scores in the lowest quintile in all five categories, and the lowest scores of any state on the purpose, financial, and physical categories.
Certainly, not all of this unhappiness is due to loss of manufacturing jobs, and not all loss of manufacturing jobs is due to trade. But the losses are real, and as Autor and his colleagues showed, trade is sometimes a contributing factor.
Calling a Truce and Finding a Way
Refusal by international relations experts to take these concerns about trade seriously is likely to lead only to further protectionism, with consequences for the national economy that are all too foreseeable to international relations experts.
A wiser approach might be meaningful engagement with Trump voters who are searching for remedies to the loss of their jobs, communities, and well-being. If international relations and trade experts began listening more carefully to those voters, perhaps those voters might also be willing to listen more carefully to us about the economic and political effects of protectionism.
And maybe, by talking to each other instead of at each other, we might come up with some new and better ways to enhance social justice in a globalizing economy.
Wednesday, June 7, 2017
On May 18, Trump informed Congress of his intent to renegotiate NAFTA, triggering a 90-day consultation period with Congress over the negotiations. This formal move is mandated by the trade promotion authority that governs NAFTA. So we’re looking at a new era of U.S.-Mexico trade relations. Should you care?
If you use banks, then yes, you should care a great deal. What happens to Mexico will happen to your money. Here’s why.
In and Out and In Again on NAFTA
Then on April 27, he announced he had decided not to withdraw from the pact “at this time,” although the justification is unclear. Trump said publicly it was out of respect for Canada and Mexico, but other news reports suggest that he may have been more influenced by Secretary of Agriculture Sonny Perdue’s map showing the overlap between agricultural regions and Trump voter regions.
The High Stakes of Mexico Trade on the U.S. Economy
As Trump is no doubt hearing from advisors and legislators, decisions about U.S.-Mexico trade are high stakes. And it will affect you personally, even if you’re not a farmer and don’t live near the border.
We have to backtrack a few steps to see why you and your money should care about this. First, we all know that trade doesn’t flow only one way, and U.S.-Mexico trade is no exception. In the agricultural sector, for example, the Peterson Institute for International Economics reported that U.S. agricultural exports to Mexico increased from $3.6 billion in pre-NAFTA 1993 to $7.9 billion in 2003 (we may get avocados and mangos from them but they get fruit juices, vegetables, and grains and feeds from us). Moreover, U.S. foreign direct investment in the Mexican food industry more than doubled from $2.3 billion in 1993 to $5.7 billion in 2000, mostly in pasta, confectionery, and canned and frozen meats. (Mexican agricultural trade to the U.S. increased by a larger percentage but a smaller total dollar value in roughly the same period, from $2.7 billion in 1993 to $6.3 billion in 2003.) That means there’s a lot of apple juice and feed corn flowing south across the border because of NAFTA.
But it’s not just farmers that Trump has to worry about. Hurting farmers would have ripple effects that Trump cannot afford because of one important fact of political life, and it’s not the farm lobby; it’s farm debt.
Your Money, Working on the Farm
Although agriculture employs only about two percent of the U.S. population, 51 percent of the U.S. land base was used for agricultural purposes as of 2007. And that land is heavily mortgaged: USDA’s Economic Research Service predicted that farm real estate debt will reach a historic high of $240.7 billion in 2017, with a 7.3 percent increase in real estate mortgage loans. ERS says farmland owners are also increasingly using real estate as collateral to secure nonreal estate borrowing. All this means the banks are in deep on the farms.
So if farms struggle, farm mortgage lenders struggle. And when the banking and lending industry gets hit, Congress hears about it in no uncertain terms – either that or our bank accounts do. As one agricultural lobbyist explained to a reporter, “‘We are different from Microsoft or Fannie Mae. … When groups with ag interests come to us we ask, ‘Who are the mortgage bankers in your district?’” If farmers want to get attention on Capitol Hill, they go arm-in-arm with the lenders they are dependent on.
We've seen this at work before; it's one of the main reasons why repeated attempts to phase out farm subsidies have failed. As soon as commodity prices go down, farmers face default and lenders beat down Congressional doors to make sure supports get put back into place. Collin Peterson, former chairman of the House Agriculture Committee, told a reporter, “‘It’s hard to explain to people, but [direct payments to farmers are] built into the whole farming structure now. … It’s the bankers and the landlords and everything else that wants them. You get everybody stirred up if you try to do something. The farm credit people and the local bankers are more vociferous about direct payments than the farmers.”
Factoring in Farm Lending in the NAFTA Negotiations
Mexico’s trade dependence on the U.S. is not one-sided. Without NAFTA, U.S. farmers will lose big, and when they do, many of them will default on mortgages and other debts. Lenders who rely on that income will make sure Congress hears about it. If Senators and Representatives who depend on the support of the banking and lending industry for reelection start hearing drumbeats, Trump’s hard line on NAFTA may have to soften considerably.
Saturday, May 6, 2017
Perhaps one of the most curious developments of the past 100+ days of the Trump administration has been the lack of progress on the trade front. The only campaign promise that has been delivered on is the withdrawal from the Trans-Pacific Partnership (TPP), which to give President Trump credit, was done the next business day after he was sworn into office, on January 23, 2017.
For his hundredth day in office, President Trump was set to announce the US’s withdrawal from NAFTA, a move he soon backtracked from when informed that many of the areas that would be hardest hit were heavily Trump-supporting agricultural areas. It is unclear when and if NAFTA will be renegotiated, although it seems likely that, rather than unilateral withdrawal, the United States will instead attempt to renegotiate the agreement with Canada and Mexico.
The TPP page on the USTR website has finally been updated to reflect the withdrawal (for several months the full text remained, along with praise for the agreement). Despite President Trump’s rhetoric regarding the awfulness of the deal and the need to renegotiate NAFTA, however, the NAFTA page continues to extol the virtues of the current agreement.
That trade has not been a priority is especially clear from the state of the Office of the United States Trade Representative. The USTR Twitter account hasn’t tweeted since October 2016. Robert Lighthizer, Trump’s official nominee, has yet to be confirmed, delayed by the need to obtain a waiver of the rule prohibiting persons who represented a foreign government from serving as US Trade Representative. (Interestingly, a provision in the new budget bill has bypassed the waiver requirement, even though he would not be the first USTR appointee who needed a waiver and it seems clear that his representation of foreign governments in the 1980s and 1990s does not pose any conflict of interest.)
In March 2017, President Trump appointed Stephen Vaughn, a member of his transition team, acting United States Trade Representative. The positions of Deputy Trade Representative and Deputy Trade Representative in Geneva (which deals with the WTO) remain vacant. Given Lighthizer’s bipartisan support, it appears likely that he will be confirmed in the near future, which should pave the way to a more functional USTR.
With trade having been such an important talking point of the election cycle on both sides of the political spectrum, the disregard for trade policy in recent months is indicative of chaos in the administration and the well-documented conflict between Trump’s campaign populism and presidential status-quoism. As my co-blogger, Alison Peck, noted in her post on trade and security in Asia, trade policies are not conducted in a vacuum.
In an interesting twist, with China recently banning the import of North Korea coal and turning back coal shipments in an effort to pressure North Korea into curtailing its nuclear testing, the United States has stepped up as a major coal supplier to China. The United States supplied no coking coal (used for making steel) to China between 2014 and 2016, but supplied 400,000 tons in February 2017. If President Trump is going to make good on his promise to revitalize the American coal industry, this is certainly one way to go about it.
So where does this leave us?
NAFTA is likely to be renegotiated at some point. President Trump has also suggested replacing TPP with bilateral agreements. The irony there is that TPP was largely based on recent US FTAs, with entire chapters containing almost identical language to that found in agreements such as the US-Chile FTA and the US-Korea FTA. This was a US-driven text that would have been great for US business interests (there were plenty of other issues with TPP, but those are outside the scope of this post).
Both Lighthizer and Vaughn are trade law experts and understand the realities of international trade policy. It is hard to imagine them straying far from the existing bilateral FTAs. Since the USTR will be led by pragmatists, once it is ultimately fully staffed, it seems likely that any new bilateral agreements and a potentially renegotiated NAFTA will reflect much that is already existing. Of course, this all remains to be seen, and if support for President Trump were to wane in agricultural regions of the country, the possibility of unilateral withdrawal from NAFTA of course remains on the table.
Thursday, May 4, 2017
On April 18, President Trump signed an Executive Order setting out his “Buy American, Hire American” policy. A month earlier, the Department of Commerce issued a request for comments on requiring a specified minimum domestic content in pipeline construction.
Both of these moves are consistent with Trump’s campaign promises to promote American industry. But both may violate the WTO Agreements and, if successfully challenged, could give rise to trade retaliation by other countries against U.S. industries.
What’s more, those moves are likely to tick off other countries and lead to the imposition of more domestic content requirements of their own. It’s difficult to see how strict enforcement of Buy American laws would offset the costs to U.S. industry if the world descends into a flurry of protectionist procurement legislation.
The National Treatment Principle under the GATT
The DOC’s potential imposition of domestic content requirements on the pipeline construction industry is the more legally thorny of the two. First of all, it’s also not clear whether the domestic content requirements on private contractors are valid. It’s one thing for a government to set guidelines for purchasing by its own agencies (although there are limits there too), and another thing for a government to tell private industry like pipeline construction contractors who they are allowed to do business with. In its comments on the DOC notice, the European Union noted that imposing domestic content requirements on the purchasing decisions of private companies would be “unprecedented” in the trade sphere and “would have serious consequences also with respect to policies with third countries.”
Moreover, domestic content requirements – or legal requirements that producers include a certain amount of domestically-produced raw materials into a final manufactured product – were among the types of restrictions that nations deliberately limited when they entered into free trade and investment agreements in the first place. Domestic content requirements fly in the face of the “National Treatment principle,” one of the pillars of the General Agreement on Tariffs and Trade (one of the many agreements that makes up the WTO Agreements). “National Treatment” is a somewhat confusing name, sounding at first blush perhaps like an endorsement of nationalism in trade relations. National Treatment actually means that a nation may not treat the products of its trading partners differently than the products of its own nation. (Likewise, National Treatment’s ironic sister principle, Most Favored Nation, prohibits favoritism among different foreign countries’ products. Never a dull moment in trade law.)
The National Treatment principle for the GATT is stated in Article III. Entitled “National Treatment on Internal Taxation and Regulation,” Article III, paragraph 4 says,
The products of the territory of any contracting party imported into the territory of any other contracting party shall be accorded treatment no less favourable than that accorded to like products of national origin in respect of all laws, regulations and requirements affecting their internal sale, offering for sale, purchase, transportation distribution or use. …
In other words, all WTO members have a legal obligation not to discriminate against foreign products that are “like products” to those produced in their own country. (Whether two products are “like products” is a fact-based inquiry based on the products’ physical properties, end uses, and consumer tastes and habits as to substitutability.)
The governments of both Canada and the EU made the point in their comments on DOC’s request for information that any minimum domestic content requirements on pipelines would appear to violate the National Treatment principle. Were the U.S. to require that pipeline contractors purchase a minimum amount of domestic steel (or be denied federal permits, presumably), it is almost certain that someone – Canada, the EU, and other countries whose steel industries compete for those contracts – would challenge the regulation before the WTO.
In introducing the President’s trade policy agenda in an annual report by the Office of the United States Trade Representative, USTR suggested that the Trump Administration might not comply with adverse WTO decisions, but that’s questionable and complicated (and a post for another day). Suffice it to say that any persistent failure to respect an unfavorable WTO decision would trigger WTO-sanctioned retaliation against other U.S. products or industries that those industries would surely not take kindly to in the next domestic election cycle. It’s not so easy just to blow off the WTO.
Limiting the "Public Interest" Exemption from Buy American Laws
Does the order change anything? The short answer is maybe.
In the short term, the Executive Order directs federal agencies to strictly comply with Buy American laws already on the books. One thing that might change immediately is contractors’ ability to obtain waivers from the Buy American laws. Right now, the Federal Acquisition Regulations allow waivers when purchasing from a foreign supplier is in the “public interest” because a trade agreements (like the WTO) allows it; where the material is unavailable domestically; or when the domestic supplier’s price is “unreasaonble” based on a prescribed calculation.
The "public interest" exemption is what saves the Buy American statutes from violating National Treatment right now. If agencies are now instructed to apply that exemption strictly, does that mean that they won't grant an exemption even where the Buy American requirement would violate National Treatment?
Opaquely, the order instructs Commerce and the United States Trade Representative to “assess the impacts of all United States free trade agreements and the World Trade Organization Agreement on Government Procurement on the operation of Buy American laws” with 150 days of the signing of the order. It could be that he plans to use this study to be sure that Buy American laws, and the new Executive Order, comply with the United States’ international obligations.
But it would be more consistent with Trump’s rhetoric to use that assessment to decide whether to renegotiate or terminate U.S. commitments that he believes impair U.S. industry. Although Trump seems to have decided against withdrawing from NAFTA for now, it’s unclear what demands he will make to renegotiate both NAFTA and the WTO Agreements and what might make him change his mind and walk away. “Assessing the impacts” of the country’s free trade agreements on domestic sourcing laws might give him a starting point for crafting his positions in renegotiating.
National Treatment in Government Procurement
The WTO Agreement on Government Procurement also incorporates the National Treatment principle of nondiscrimination, although subject to many exceptions. The interaction between Buy American laws and those articulated exceptions will be studied by DOC and USTR.
Only nineteen WTO members, including the U.S. (and the EU on behalf of all its members), are parties to the Agreement on Government Procurement, a “plurilateral” side agreement to the WTO Agreements. That suggests that renegotiation or withdrawal from that Agreement might be more feasible than tampering with any of the 100-plus member multilateral agreements in the WTO. If Trump is unsatisfied with the results of Commerce and USTR’s study about the impacts of the agreement on Buy American laws and wants to identify the low-hanging fruit of renegotiation in the WTO, this might be a place to start.
If Trump decides to go down the road of minimum domestic requirements for construction and tougher Buy American laws in government procurement, hopefully he will consider the potential effects of those policies. First, other countries may follow the lead of the U.S. and implement Buy National policies of their own, cutting off overseas market for U.S. products and services. The European Union emphasized this risk in its comments on the Commerce notice:
Both the US and the EU have in the past been pursuing a clear policy against localization requirements in third countries, including China, India, and Russia. … These potential measures, which would be harmful to US industry, would also make the international fight against third countries’ local content requirements much more difficult.
Second, requiring private industry like the pipeline construction industry to source domestic products even when prices or quality are not competitive could degrade those firms’ competitiveness and potentially lead to the elimination of American jobs. The Associated General Contractors of America made this point in its comments to Commerce. For example, the Executive Order excludes a certain segment of the steel industry from qualifying as “produced in the United States” because the industry’s raw materials (steel slabs) are not commercially available in the U.S. Currently, the industry’s products are still considered to be products of U.S. origin due to waivers of the Buy American laws. The Executive Order, as currently drafted, eliminates that option and makes U.S. slab converters noncompetitive. The AGC said:
If a key aim of the memorandum is to maximize jobs in the U.S. steel industry, we are concerned that it will more likely have the effect of shuttering many U.S. operations spread around the country and replace some of those operations with a consolidated finished steel industry that will be limited both geographically and by ownership.
There’s been recent evidence that Trump can be persuaded to consider the larger impacts that his policies would have on U.S. industry, beyond their stump-speech value. Last week, news reports indicated that Trump was persuaded by some members of his cabinet, especially Secretary of Agriculture Sonny Perdue, not to withdraw from NAFTA. According to the reports, Perdue showed Trump a map of regions that would be hard hit by loss of NAFTA trade, a map that overlapped substantially with one showing strong voter support for Trump. It is likely that a map of the steel industry would as well. The assessments Trump is commissioning may show that this is another case of what he has learned in his first 100 days: things that sound good on the campaign trail don’t always look so good when the legal details are analyzed.