Will Biden’s Trumpism Be Spanked by the WTO? Ispi reports
US tariffs on steel and aluminum are against WTO rules. On trade, is Biden doing like Trump? Professor Stefano Riela's analysis for Ispi
The 2018 US tariffs on steel and aluminum products are against World Trade Organization (WTO) rules. This was the conclusion reached last December 9 by the panel set up by the WTO's dispute resolution body. Although it is a procedural step relating to a limited number of products, the implications of this decision help to clarify the economic policy of the United States and the possible future for international trade. Let's start with a summary of the facts.
TRUMP DUTIES
In 2018, the Trump administration introduced additional tariffs of 25% and 10% on some steel and aluminum products. As a member of the WTO, the United States had to justify these tariffs and called into question national security, i.e. the need to protect domestic producers of steel and aluminum from market distortions caused by overproduction of the two metals on a global scale.
Some exporting countries, which would have been damaged by this decision, immediately activated the WTO dispute resolution procedure to "invite" the United States to desist. The European Union (EU), for example, has asked the US for anexemption like that obtained by Argentina, Australia, Brazil, South Korea, Canada and Mexico. Despite the intense negotiations between Brussels and Washington, the lack of exemption meant that on 1 June 2018, the date on which the new American tariffs on imports from the EU came into force, the European Commission activated the WTO procedure claiming the illegitimacy of the reasoning given by the United States. Other countries – such as Switzerland, Norway, China, Turkey, India and Russia – had turned to the WTO with objections similar to those of the Commission. However, the US position was clear: only the country concerned can decide when its national security is at risk and the WTO has no power to challenge that decision.
THE USE OF NATIONAL SECURITY
Duties are business as usual for member countries of the WTO and of the agreement that laid the foundations for it, the General Agreement on Tariffs and Trade (GATT). Although contrary to free trade in principle, some tariffs can be a tool to ensure the fairness of international trade. Think of the case of exports favored by excessively low prices (the so-called dumping ) or by public subsidies; in these cases the penalized countries can adopt duties to protect themselves from such practices considered unfair. Furthermore, a country can adopt tariffs if it experiences a significant and unexpected increase in imports such as to put national companies at serious risk. And finally there is the national security exception according to which a country can disregard the commitments made in the WTO – for example by banning imports, exports or increasing duties – when the trade concerns radioactive materials, weapons, ammunition or “in time of war or other emergency in international relations”.
This last exception, daughter of the post-war period in which the negotiations for the GATT concluded in 1947, is quite peculiar. While in cases of dumping , subsidies, increased imports, or trade in specific materials, the country concerned has a clear burden of proof, the definition of "war or other emergency in international relations" is less quantifiable and leaves much discretion to the individual countries as demonstrated by the position of the United States above. For this reason, for nearly seven decades, WTO members have avoided invoking national security whose destructive potential for free trade has been equated by distinguished scholars to a “ Pandora's box ” and a “ black hole ”.
Before the United States, it was Russia that used national security to justify discriminatory behavior against another member of the WTO. In particular , Ukraine had turned to the WTO in 2016 complaining of restrictions by Russia on commercial traffic originating in Ukraine in transit towards Kazakhstan, Kyrgyzstan and other countries. In this case, the WTO body had declared Russia's restrictions legitimate. Since the Russian invasion of Donbass and Crimea in 2014, the emergency in relations between the two countries had become evident.
BIDEN'S DUTIES
While the WTO panel worked on the case, the US Presidency passed to Joe Biden and, on October 31, 2021, the new tenant of the White House reached an agreement with the President of the EU Commission Ursula von der Leyen to eliminate the additional duties. Also because the EU did not wait inertly for the decision of the arbitration panel and on June 22, 2018 it introduced additional duties on some American products to compensate for the damage suffered, the so-called retaliatory duties. The case of the duty on American motorcycles which went from 6% to 31% is interesting. After just three days, on June 25, Harley-Davidson announced its intention to move part of the American production elsewhere to continue selling in the rich European market, thus bypassing the new retaliatory tariffs.
The opening of the United States towards the EU must not give the illusion of a radical change of pace in the post-Trump period. If with the bilateral agreement the EU has eliminated its additional retaliatory duties, the United States has not completely eliminated theirs, removed but only within a certain limit of imports from the EU. Furthermore, the December 9 communiqué of the United States Trade Representative deserves attention, issued a few hours after the WTO panel had declared American tariffs illegal : "The United States firmly rejects the erroneous interpretation and the conclusions of the panel of the WTO published today […]. The United States has maintained the clear and unambiguous position, for more than 70 years, that national security issues cannot be reviewed in WTO dispute resolution and that the WTO has no authority to question a member's ability of the WTO to respond to different types of threats to its security […]”.
CLASH AT THE WTO?
The WTO's dispute resolution body is likely to approve the conclusions of the December 9 panel, reiterating that national security can be invoked but only in expressly provided cases. Like when, according to what was stated by the WTO in the case between Ukraine and Russia, "the interests relating to the fundamental functions of the state are at risk, i.e. the protection of its territory and its population from external threats and the maintenance of the law and domestic public order". Admitted and denied the respect of the criterion of emergency in international relations, it is difficult to imagine that steel or aluminum products from Switzerland or Norway are capable of posing a risk to public order in the United States.
However, the United States can appeal the panel's findings to the Appellate Body. Pending the final verdict, the appeal suspends the legitimacy of any retaliatory duties adopted by the damaged exporting countries. It is a pity that this suspension would last ad libitum as the WTO's appeal body has been paralyzed since 11 December 2019, i.e. since the United States, already during the presidency of Barack Obama , let the number of judges drop below the number established minimum (three): an act of sabotage that has been going on for over twenty years against a body accused by the United States of abusing its power .
FROM WTO MULTILATERALISM TO BILATERALISM
The case raised by the duties on steel and aluminum products will have limited commercial consequences given the limited number of products involved. What has a significant impact is the attitude of the United States towards international trade which, in the transition from Trump to Biden, has changed the aesthetics but little the substance. Attitude confirmed by the Inflation Reduction Act (IRA) of 16 August 2022, a far-reaching federal plan that includes 391 billion dollars (almost a fifth of Italy's GDP) to promote green consumption and investments. For example, American citizens will be able to benefit from a discount of up to $7,500 on the purchase of a new electric car, but on the condition that a large part of the battery is made in the United States or in a country with which a free trade agreement such as Canada and Mexico. Even the EU managed to snatch privileged treatment last December 29, thus being able to access the incentives with its cars even in the absence of a free trade agreement with the USA. However, this does not mean that the incentives provided by the IRA are in violation of the principle of non-discrimination which WTO member countries should comply with (in Italy, for example, it is possible to obtain public incentives even for the purchase of a Tesla ).
The substantial disregard for the rules of the WTO on the part of the United States does not improve the fortunes of a multilateralism that has been in difficulty for years. The case of the exemptions for the additional tariffs on aluminum and steel and the case of the preferential treatment granted for the IRA incentives seem consistent with that friendship invoked by Treasury Secretary Janet Yellen used as a geopolitical compass to create and strengthen bilateral economic relations. However, as demonstrated by the management of transatlantic relations in the field of semiconductors , US friendship seems to be based on power relations destined to create more tension than cooperation between allies; the opposite of what Yellen advocated a few weeks after the Russian invasion of Ukraine on February 24, 2022. It is important that the current beneficiaries of US economic policies do not lose sight of multilateralism as a modus operandi for establishing the rules of international trade rather than settle for an octroyée friendship.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/wto-dazi-trump-biden/ on Sun, 22 Jan 2023 06:25:11 +0000.