- The US Trade Representative office releases its Annual Report and Agenda;
- WTO gets off to unpromising start despite efforts of its new Director-General, Ngozi Okonjo-Iweala;
- US Chamber of Commerce criticizes her vaccine proposal;
- Russia intelligence spreads disinformation on Pfizer and Moderna vaccines.
- US may raise Chinese censorship as an unfair trade issue
The March 1-7, 2021 roundup of major trade developments, with L.C.
In a significant sign of movement in the seventeen-year old US-EU World Trade Organization dispute over aircraft subsidies, first the US and UK and then the US and EU agreed to suspend for four months the tariffs they imposed against each other. This is the first sign of the Biden administration making good on its commitment to work with allies. Former US president Donald Trump had more than once complained that in trade matters, the EU was “worse than China.”
The tariffs were authorized by the WTO when the US and then the EU each won its case against Airbus and Boeing subsidies, respectively. But each side has been claiming it has brought its practices into compliance with the WTO rulings, a claim the opposing side rejects. There hadn’t been signs of progress toward a negotiated settlement, even though both sides, along with the companies involved, have been calling for a resolution. Early this year, the UK removed its tariffs on US exports, but the US hadn’t reciprocated until now. The EU 25% tariffs hit $4 billion of US exports; the US 25% and 15% tariffs hit $7.5 billion in EU exports.
A motive for settlement: the threat of new competition
On March 4th, the US Trade Representative office released a “Joint US-UK Statement of Suspension of Large Civilian Aircraft Tariffs.” The next day, it released a “Joint Statement of the EU and US on the Large Civil Aircraft WTO Disputes.” The two announcements were almost identical in content, announcing a four-month suspension of all tariffs, both on aircraft and parts and on other products, and stated the intention to use the coming period to negotiate a new agreement on large civilian aircraft subsidies.
Both statements referenced the “challenges” posed by “new entrants to the civil aviation market from non-market economies, such as China.” It has long been recognized that if the US and EU didn’t arrange a new agreement limiting aircraft subsidies, other governments – led by China but including others such as Russia and Brazil – were gearing up to pour government money into building up their own large aircraft production capabilities.
EU settlement follows Biden conversation with von der Leyen
President Biden met virtually with Ursula von der Leyen, the European Commission president, on March 5th. According to the White House readout, “the leaders agreed to suspend the tariffs related to the… [a]ircraft disputes for four months and to work toward resolving these long running disputes at the WTO.”
There were differences in the readout from Biden’s and von der Leyen’s offices. The White House said they agreed to suspend the aircraft tariffs and spoke of cooperation on other things including Russia and China. Von der Leyen’s readout didn’t mention China but said “We share a strategic outlook on Russia.” It also said she “proposed to set up a ministerial level Trade and Technology Council to address innovation challenges. I see this as the key forum to build our transatlantic technology alliance.” The White House didn’t even mention that they discussed the council proposal.
US-OECD retaliations also on hold
The US-UK statement noted that “The UK ceased applying retaliatory tariffs in the Boeing dispute from 1/1/21 to de-escalate the issue and create space for a negotiated settlement to the Airbus and Boeing disputes.” Prime Minister Boris Johnson, perhaps not knowing the US would announce the same deal with the EU a day later, hailed the suspension agreement as showing “what the UK can do as an independent trading nation. I now look forward to strengthening the UK-US relationship.”
With the recent US decision to fully engage in the OECD-hosted talks to reach agreement on digital services taxes, this removes another threat of escalating tariffs and relieves a major point of trade friction with the EU and the UK, both which have been planning to impose DSTs. If the suspension does turn into a broader agreement to settle the aircraft subsidies matter, then the Section 232 steel and aluminum tariffs will be the remaining major cross-Atlantic trade dispute. Of course, if the Biden administration decides to seek trade agreements with the UK – already in progress – or the EU, then other serious conflicts will arise (agriculture, standards). But it appears the way is being cleared for Washington to cooperate with Brussels on common challenges, e.g., China and WTO reform, without bilateral issues getting in the way.
Biden admin submits Agenda and Annual Report
The Biden administration submitted to Congress on March 1st its Annual Report on trade. It reports on what the US Trade Representative Office has done during the previous year. This is not as difficult as one might suppose for a new administration to produce because most of the USTR specialists who were involved in the past year’s developments remain in place and are the ones who produce the report.
The Agenda, unlike the Annual Report, looks forward rather than backward. It describes what the President intends to do. It is short – five pages this year – as contrasted with the 182 pages of text plus multiple annexes for the Annual Report.
Agenda adheres to Biden domestic commitments
The Agenda is particularly important when a new President takes over since it is the first formal declaration of his trade policy plans and goals. The 2021 version stays close to what the president and his officials have already said about trade policy. The Agenda makes clear that the administration intends to keep a hard line on China, work closely with allies, enforce trade laws and agreements aggressively, use trade policy to further its goals in areas such as labor rights, climate change, and securing supply chains (including re-shoring) and to enhance US competitiveness, including in technology and in agriculture, the latter by gaining foreign market access.
The introduction to the Agenda starts by noting President Biden’s overall priorities: dealing with the pandemic, fostering the recovery, and promoting his “Build Back Better” plan, which “will create millions of good-paying jobs and support America’s working families by tackling four national challenges: building a stronger industrial and innovation base so the future is made in America; building sustainable infrastructure and a clean energy future; building a stronger, caring economy; and, advancing racial equity across the board.” In other words, trade policy is seen as an adjunct to other objectives of the Democratic administration. Expanding and opening trade is not itself a priority.
A nod to exports, not trade expansion
It does acknowledge the importance of trade at least on the export side: “[E]xport-oriented… businesses enjoy greater than average productivity and wages…. [T]rade policy will encourage domestic investment and innovation and increase economic security… including through combating unfair practices by our trading partners.” Translation: expect an industrial policy and a selective use of tariffs and other protectionist measures. But it backs away from Trump-style unilateralism, saying that while it may sometimes be necessary, the administration will “prioritize working on trade enforcement with friends and allies” and “reengage… in international organizations, including the WTO.”
Much talk, no action at WTO General Council meet
The WTO’s new Director-General, Ngozi Okonjo-Iweala, presided at her first WTO General Council meeting, which ran from March 1st to 4th. Little progress was made on important issues. Member countries reportedly used the occasion to repeat long-held positions, so repetitively in fact that the meeting dragged on for an unscheduled extra day. Okonjo-Iweala did, however, lay out her own proposal for enabling poorer-country access to COVID-19 vaccines.
Okonjo-Iweala didn’t mince words regarding the current state of the WTO: “We have to change our approach from debate and rounds of questions to delivering results…. Several trade ministers said to me that if things don’t change, they will no longer attend the Ministerial because it is a waste of their time. I have noticed that more and more of the work and decision making that should be undertaken at the WTO is being done elsewhere because there is an increasing loss of confidence in the ability of the WTO to produce results.” She proposed prioritizing “action on COVID-19” and “completing Fisheries Subsidies negotiations before the middle of the year.” Also, “We must agree the road map for reform of the Dispute Settlement System.”
Contention over vaccines
Regarding the lack of vaccines going to low-income countries, Okonjo-Iweala proposes that pharmaceutical companies immediately work to extend licenses and assistance to companies that could produce their vaccines in and for poor countries. She suggests sidestepping the controversial India/South Africa demand that certain proprietary intellectual property related to vaccine development, design, and manufacture be transferred to them. Although she portrayed her proposal as different from that of India and South Africa, the US Chamber of Commerce said the next day: “Proposals to waive intellectual property rights are misguided and a distraction from the real work of reinforcing supply chains….”
Russian intelligence meanwhile is attempting to cast doubts on the efficacy and safety of Pfizer and Moderna’s vaccines through several publications it controls, the Wall Street Journal reports. This is presumably to benefit Russia’s own Sputnik V vaccine, but it could also have the counter-productive effect of increasing fear of all vaccines, delaying efforts to achieve population-level immunity against Covid-19. Russia’s Putin, like China’s Xi, likely prefers an economically weakened, disease-wracked West to a healthy, thriving one.
Tai raises censorship as trade issue; Raimondo praises tariffs
Regarding Xi’s China, Trade Representative nominee Katherine Tai made one interesting response to questions senators submitted to her in writing during her confirmation hearings, which have only recently been published. In response to a question from Sen. John Cornyn (R-TX), she agreed to treat censorship as a trade barrier that disadvantages US companies operating in China. She will, she said, work with senators to “develop trade policies that treat censorship as a trade barrier.”
More attention-grabbing than Tai’s Q&A was a response given by Commerce Secretary Gina Raimondo on March 4th. Commenting on the Section 232 tariffs, she said, “The data show that those tariffs have been effective.” While this is not a change from previous administration statements, it certainly isn’t a consensus view. The Trump administration’s steel and aluminum tariffs are generally blamed for pushing the manufacturing sector into a recession well before the pandemic and for causing injury to downstream metal product manufacturers who employ as many as 40 times more workers than the steel and aluminum producing companies. The tariffs continue to cause friction with allied trading partners.
L.C. reports on trade matters for business as well as Founders Broadsheet.
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