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Getting The Deal Through


Gary N Horlick

Law Offices of Gary N Horlick

Thursday 15 August 2019

Not since the 1906 general election in the United Kingdom did a superpower election focus so much on trade as the 2016 US election. The free trade Liberals in 1906 won a huge majority based on a platform of a ‘free breakfast table’ of duty-free wheat (for bread) and sugar (for tea and jam) − compare that to current US quotas on sugar and the EU Common Agricultural Policy − amid fears of steel dumping by the rising disruptive giant economy, the United States.

At the time of writing, the high-level political noise about trade in the US and Europe is overshadowing positive developments at a working level. At the multilateral level, World Trade Organization (WTO) governments, Director General Roberto Azevêdo and the Secretariat worked hard to produce results in December 2015, at least in agriculture (a possible ban on some agricultural export subsidies) and tariffs on electronics goods (ITA II, even including some items for ordinary consumers), at the WTO Ministerial Conference in Nairobi, and made some progress in Buenos Aires in December 2017. The WTO system is still dogged by many of the bad memories from the collapse of the Doha Round in Geneva in 2008, with chillingly familiar references to ‘special safeguard mechanisms’, ‘special products’, ‘special treatment’ and so on. And even with successful efforts on agriculture and tariffs, it leaves behind important work from the Doha agenda to moderate the trade-diverting or protectionist effects of preferential trade agreements (PTAs); agricultural subsidies; anti-dumping measures and other rules (where progress so far has been blocked by the US, its protectionist import-competing industries and their allies in the US Administration and Congress); and much else. That left fishing subsidies as a topic for the December 2017 Ministerial Conference in Buenos Aires, where a little progress was made. A cautious plurilateral negotiation on digital trade has just begun in Geneva.

The most significant regional agreement is the CPTPP, although the Asian mega-regional Regional Comprehensive Economic Partnership (RCEP), including India, China and Japan, could become more significant if it has substantial liberalisation and is completed soon. The CPTPP, which includes 11 countries, collectively representing over 20 per cent of world GDP, went into effect on 30 December 2018. The CPTPP includes some novel attempts to move beyond traditional PTAs, including an initial start on regulatory cooperation, some possibly helpful language encouraging limitations and exceptions on intellectual property necessary for the operation of the internet, and what looks like a functioning dispute settlement system. Its progenitor, the TPP, became a political football in the US elections, with both candidates pledging to reject it. President Trump withdrew the US in January 2017. Chile organised a meeting in March 2017 where the remaining 11 TPP countries decided to explore ways to move forward, leading to signature in late 2017 and ratification by the main countries and entry into force in 2018.

Perhaps more important will be whether other countries join CPTPP, including perhaps Korea, Colombia and Costa Rica, and even the UK after Brexit, and eventually the Philippines, Thailand and possibly even Taiwan and Indonesia, although the last two may be delayed for different reasons. With all those countries in, the TPP would have over 40 per cent of the world’s GDP, once the US joins in a few years’ time.

To that must be added the impact of the current US–EU negotiation. Earlier negotiations of a TTIP started in 2012. The TTIP looked like it could go well beyond any prior PTA in areas such as regulation and regulatory cooperation, and also in terms of major changes in the traditional model of investor–state dispute settlement (ISDS), before the Trump administration killed it in 2017, before beginning more limited talks in 2019. (Trump and Juncker had agreed in 2018 to limit the talks to non-automotive industrial tariffs and limited regulatory cooperation). Like the CPTPP, the completion of US–EU talks could force its near neighbours to try to join, probably including Switzerland, Turkey, Norway, Ukraine and, it seems, the UK after Brexit (all of which would be quite disadvantaged by having to meet US competition in the EU while being at a disadvantage to EU exporters in the US). Added up, the CPTPP with the US joining, plus an EU–US FTA, plus all the countries that would have to join, would exceed 70 per cent of the world’s GDP. That would force China to engage, without the rancor of the current of US–China trade war.

Plurilateral agreements being negotiated within or alongside the WTO most notably include the Trade in Services Agreement (TISA), where significant drafting progress has been made but significant disagreements remain. Perhaps the most notable aspect of TISA is that after it was fiercely denounced when it was launched by the BRICS countries (Brazil, Russia, India, China and South Africa), China more than a year ago asked to join, in effect stating that it was no longer really a BRIC country and preferred to be tied to the economies represented in TISA (and, notably, the then-TPP and TTIP) rather than its fellow BRICS. Other plurilaterals within the WTO include the ongoing attempt to negotiate rules for a digital economy and lower tariffs on environmentally desirable goods. It seems unlikely that President Trump will pursue the latter.

WTO dispute settlement has been active as well. Perhaps the most significant group of cases has involved safety and standards issues. Several important panel and Appellate Body (AB) decisions are due in 2019, including AB decisions in the WTO challenge to Australia’s requirement of plain packaging for cigarettes by the remaining plaintiff governments after Ukraine dropped out (Honduras, the Dominican Republic, Cuba and Indonesia), which Australia won at the panel level; important new compliance cases in the Boeing–Airbus fight; the cases against UAE and the US on ‘national security’ measures; and numerous trade remedy cases – if the AB continues to function.

In effect, the WTO Dispute System Settlement Understanding has created an impressive-looking machine for generating normative judgments (perhaps now sabotaged by the successful US move to ‘fire’ (block reappointment of) AB judges for disagreeing with the US Trade Representative’s views, thus undermining the crucial appearance of independence), while being unable to enforce them against large countries in any commercially meaningful time period. WTO governments certainly perceive that they can get away with this in national trade remedy decisions, as the solar panel wars show. The EU, China, US and India all heavily subsidise solar panel production to get the cost of solar panels to a point of commercial viability − that is, equal to or lower than fossil fuels (a task made more challenging by the recent rise in fossil fuel production). But at the same time, they put up trade barriers to eliminate competition with their local producers (around two-thirds of all EU anti-dumping duties are applied to renewable energy). Even more laughably, Canada, having lost an attempt to defend its local-content regime in Ontario for solar power in the Canada–FIT WTO case, started an anti-dumping proceeding to replace the local content rule. All calculate, quite openly, that they can ‘get away with it’ for three or four years of WTO litigation with no obligation to repay any illegally collected duties − a period long enough in modern business terms to effectively terminate trade, particularly in a fast-moving industry such as solar energy.

This may be only an appetiser for the cage match started in December 2016 − the expiry (or not?) of the 15-year period during which China could be treated as a non-market economy (NME) in anti-dumping cases. Preliminary rounds have included an outpouring of articles by highly ranked lawyers, interventions by parliamentarians (at least in the EU and the US), and a demonstration in Brussels by steelworkers advocating a preferred reading of the text of a WTO protocol of accession (and they knew the text − I was there). It seems likely that the US will continue to treat China as an NME, in effect challenging China to contest that decision in the WTO (why else undermine the AB’s independence?). This must be for political reasons (not only for voters, but to show fealty to the special interests that have captured it), because it is unnecessary − the US and other countries long ago gave up anything but the pretence of objectivity in calculating anti-dumping or countervailing duties for all countries, instead calculating that it can drag out court or WTO litigation for years (and not comply with WTO decisions), even though it means that major US exporters suffer from foreign retaliation. And if that doesn’t work, the US will continue to seek protection for uncompetitive industries by claiming ‘national security’, as it did in 2019 in the WTO for steel and aluminium.

That leaves the EU with the option of nominally complying (by treating China officially as a market economy) while in fact calculating the numbers by using other methodologies, so far upheld by a WTO panel pending appeal. Other countries can perhaps take comfort in the observation that China to date has focused its WTO complaints almost entirely on the US and the EU.

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