Saturday, April 21, 2018

"Pitching Inside" and the Steel and Aluminum Tariffs

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.

 

https://lawprofessors.typepad.com/inttradelaw/2018/04/pitching-inside-and-the-steel-and-aluminum-tariffs.html

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