* Raimondo-Tai talk-talk team does Tokyo.
* US thinks WTO’s pro-EU ruling on olives is the pits.
* Bipartisan USCC issues to Congress its hardline annual report on China.
* The WTO’s annual report emphasizes that the highly connected global economy “has made the world more vulnerable to shocks… but also more resilient to them when they strike.”
* Biden hosts a not so friendly “Three Amigos” meeting with Canada’s Trudeau and Mexico’s Lopez Obrador, both of whom complain that Build Back Better’s tax credit for electric vehicles assembled by union workers using U.S.-built batteries violates the USMCA and will damage the highly integrated supply chains of an industry critical to all three countries’ economies.
The November 22nd, 2021 trade report with L.C.
USTR Katherine Tai and Commerce Secretary Gina Raimondo were in Asia this week, both trips starting in Tokyo on November 15th. The trips were part of the Biden administration’s fervent effort to show that it wishes to re-engage economically with Asia while not re-engaging in the way Asian allies and US business would prefer – with actual trade agreements, in particular by the US joining the CPTPP. This week’s high-level meetings for which all involved had ample time to prepare did not lead to new commitments or specific agreements, just plans to talk more.
Raimondo, in the course of her globe-trotting logorrhea tour, raised a new term – “friend-shoring” – to describe how the US might support its supply chains not just by encouraging manufacturing to relocate to the US but also to other allied countries. “We’re talking about on-shoring but we’re also talking about friend-shoring,” she said. “We want to work with our allies and friend-shore.” Of course, the argument that supply chains are secure when they are within allied countries completely undercuts the argument for maintaining Section 232 tariffs on friends and alliance partners like Japan. Raimondo didn’t address this irony.
No progress on Section 232 tariff relief for Japan, Pacific agreements
It had been hoped that last week’s trip by Tai and Raimondo would result in a settlement of the Section 232 tariffs imposed on Japan. Many thought this would come quickly after the US-EU agreement. No, all that the two accomplished was an agreement to begin talks. In Tai and Raimondo, the US doesn’t have trade reps so much as yentas with frequent-flyer accounts.
China on the move
Meanwhile, China is moving to fill the void left by the US retreat from the TPP. The RCEP, of which China is the leading country, is about to be implemented, and Beijing is seriously looking into joining the CPTPP and the DEPA (Digital Economic Partnership Agreement) now comprising Singapore, New Zealand, and Chile.
Raimondo tried to muddy the US failure to offer what the Asians wanted by portraying traditional free trade agreements (FTAs) as somehow outdated, while the issues the US is pushing represent the future. But if China succeeds in becoming the hub of Pacific trade through an expansion of “traditional” FTAs, the US will find itself left with just the crumbs.
Canada not so foolish
Canada, however, is planning to feast deeply on the benefits of Pacific trade. Its government announced on November 16th that the trade ministers of Canada and ASEAN economic ministers met (virtually) and “agreed to proceed with negotiations toward a comprehensive Free Trade Agreement, marking an historic milestone in the Canada-ASEAN relationship.” They issued a joint statement “highlighting the potential for an FTA to help diversify supply chains, increase trade and investment, and reinforce Canada and ASEAN’s shared commitment to open markets and rules-based trade.” The announcement said that “Canadians expressed a high level of support for an FTA with ASEAN during public consultations,” and Ottawa’s negotiating objectives will be tabled [started] with Parliament before the launch of formal negotiations. While many ASEAN countries along with Canada are in the CPTPP, ASEAN has actively sought separate FTAs with other trading partners.
WTO largely sides with EU regarding US duties on Spanish olives
The US largely lost a mixed ruling by a WTO dispute settlement panel that heard the EU complaint against US antidumping and countervailing duties on Spanish ripe olives. This is an important case — a high-profile loss for the US and another case where the WTO ruled against US anti-dumping, countervailing duties (AD/CVDs). A string of such rulings is largely responsible for US anger at the WTO and its dispute settlement system.
The EU claimed the duties violated the WTO Agreement on Subsidies & Countervailing Measures, the WTO Anti-Dumping Agreement, and the GATT 1994. The panel agreed that the US countervailing duties were WTO-illegal but said the antidumping duties were not WTO-inconsistent. The US is likely to appeal – it strongly contested the EU’s case – but the duties were resented in Europe. If the US files an appeal “into the void,” which would allow the duties to continue indefinitely while the Appellate Body remains non-functioning, this would raise trade tensions with Europe at a time when the White House is seeking to lower them.
Some subsidies are WTO-illegal, others not
The panel determined that the US had correctly found the olives to be dumped in the US but faulted the US finding that they were unfairly subsidized – which was the issue that Brussels considered most important. The panel agreed with the EU that its Common Agricultural Policy, because it benefited many crops beyond olives, was not a “specific subsidy” — the only kind of subsidy that can be countervailed under WTO rules.
Therefore, US rules that allow the Commerce Department to treat all subsidies that benefit an exporter as WTO violations, even if they apply broadly rather than specifically, are not consistent with WTO rules. But the US is not without reason in protesting the EU’s subsidies even if, by their sector-wide nature, they conform to WTO rules. The EU’s Common Agricultural Policy (CAP), which provides the framework for the subsidies, is one of the world’s most notorious protectionist schemes, and doubtless causes even more harm to European consumers and taxpayers than it does to the EU’s trade partners. The US, however, is also a recidivist practitioner of agricultural subsidies. Both the US and EU should drop all agricultural subsidies, but the political will to do so has never been there.
USCC: Facing a more aggressive, coercive, triumphalist, and militarily rising China
The US-China Economic & Security Review Commission (USCC) released its annual report to Congress – the “2021 Report to Congress of the US-China Economic and Security Review Commission” – on November 17th. As usual, the report is hardline and reflects views strongly held within both political parties.
The USCC wants the US to take more aggressive steps to disentangle the US economy from China, and it wants the US better prepared to match China militarily in the region, including in defense of Taiwan.
Too much US investment money going into China?
The USCC is a bipartisan panel set up by Congress in 2000 when China joined the WTO. It is tasked with investigating, reporting, and making recommendations to Congress on the national security implications of US economic ties to China and the effect of Chinese actions on US security interests. It has 12 members, mainly China experts, six appointed by the congressional leadership of each party. It holds hearings and takes public comments, also consulting with administration officials, foreign diplomatic and military officials, and other experts in preparation for the report, and for smaller reports on specific issues it may release during the year. Under all administrations, the panel has taken a hard line, supported by China hawks in both parties, calling for strong actions to curb Chinese abuses and protect the US economy.
The report notes that US investment in China’s financial markets has been increasing and calls for tougher restrictions on US investment in China and all US capital flows to China. This includes creating a mechanism to scrutinize, with authority to block, US outbound investments. The USCC also wants stricter enforcement of US export controls and scrutiny of Chinese-controlled shell companies that hide Beijing’s investment in security-sensitive Western firms.
A controversial Build Back Better EV provision opposed by both Mexico and Canada
President Biden hosted Mexican President Andres Manuel Lopez Obrador and Canadian Prime Minister Justin Trudeau at the White House on November 18th for the North American Summit. The event, called in the past the “Three Amigos Summit”, hasn’t been held since 2016. Biden also held separate bilateral meetings with each leader. But though he took a few questions before his meetings, he didn’t hold the joint press conference with visiting leaders that is now usually expected.
In the various remarks to the press around the meetings, the only USMCA issue that was directly addressed was the controversy over proposed US subsidies and domestic-content requirements for electric vehicles. This was provoked by a reporter’s question “about your tax incentives for electric vehicles that would be assembled in the US? The Canadian government says that would be a violation” of the USMCA. “Are you going to consider a carveout for Canada, given the fact that our industries are so integrated?”
Biden responded, “We’re going to talk about that” (that is, in his about-to-start bilateral meeting with Trudeau). Although the question on EVs came from a Canadian reporter, before the summit it was reported that Mexico’s AMLO intended to raise the issue with Biden – along with the issue of the differing interpretation of the auto rules-of-origin that divides the US from the other two countries.
WTO issues World Trade Report 2021. One surprise: little re-shoring so far
The WTO issued some trade reports this week, in line with one of its three functions (negotiation of agreements, dispute settlement, and monitoring and reporting on global trade). All reported on or stressed pressures on the global trading system and the importance of resilience in the face of increasing risks.
On November 16th the WTO released its World Trade Report 2021. According to the WTO, “The report conveys three main messages: first, today’s hyper-connected global economy… has made the world more vulnerable to shocks… but also more resilient to them when they strike. Second, policies which aim to increase economic resilience by unwinding trade integration – for example, by re-shoring production and promoting self-sufficiency – can often have the opposite effect…. And third, strengthening economic resilience will require more global cooperation, both regionally and multilaterally.”
Importantly, the report finds that “There has been no generalized re-shoring of production in response to the pandemic.” The report “breaks new ground by providing analysis on GVCs [global value chains] beyond manufactured goods, detailing how value added in GVCs is increasingly generated through intangible products, such as services and intellectual property.” Also, “Among the recent trends in GVCs highlighted by the report is the growing contribution of developing countries, particularly Asian economies, which have dramatically increased their share of GVC trade.”
L.C. reports on trade matters for business as well as Founders Broadsheet.
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