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.