Two Biden administration actions directed against China — the American Innovation and Competition Act — and the blacklisting of the abusive Chinese fishing company, Dalian Ocean Shipping, are contradicted by the administration’s proposed waiver of US pharmaceutical patents, which would be a gift to China;
Switzerland, like the UK before it, has found the EU’s suppression of member nations’ sovereignty a price too high to pay;
The administration has a strong case in its USMCA suit against Canada’s dairy protectionism but a more dubious, USW-supported case, against auto tire imports from four US East Asian allies.
The May 24th to May 30th, 2021 roundup of major trade developments, with L.C.
Senate Majority Leader Chuck Schumer (D-NY) was unable to secure passage of the China-focused legislative package – now called the American Innovation & Competition Act – before both the House and Senate left for the Memorial Day recess. The China package is likely the most bipartisan item that Congress will deal with this year. Both parties strongly support cracking down on Chinese abuses of all kinds – its trade practices, human rights practices, strategic encroachments – and boosting the US capability to compete with China.
While the bill still faces Republican opposition, the opposition is probably not widespread enough to sustain a Republican filibuster. Wisconsin senator Ron Johnson and Kentucky senator Rand Paul (R-KY) complain that the bill is too sprawling and costly. The bill is about 2,000 pages long and represents, according to Paul, a “despicable waste” of money. Florida senator Marco Rubio, by contrast, is giving the Schumer bill his full vocal support.
US proposal against forced labor in Chinese fishing industry
The long-running fisheries talks at the World Trade Organization (WTO) are aimed at reaching agreement to rein in government subsidies to the fishing industry that encourage stock-depleting over-fishing and illegal, unreported, and unregulated (IUU) fishing. The US last week additionally submitted a proposal to the WTO centered on the use of forced labor on fishing boats. China is the main perpetrator of all of these abuses.
Talks have been going on since 2015 and until this year they have made little headway, largely as developing countries led by India want more flexibility to continue subsidizing poor fishing communities. The US Trade Representative’s office has just, in its own words
…submitted a proposal to the WTO bringing attention to the use of forced labor on fishing vessels. The proposal urges WTO Members to help address this global problem in the ongoing negotiations to curb harmful subsidies to fishing activities that may be associated with the use of forced labor, such as IUU fishing. The USTR notes that “forced labor gives fishing vessels who engage in the practice an unfair cost advantage. It also exacerbates overfishing and the depletion of the world’s oceans. Recognizing the link between forced labor and the harmful subsidies that may also go to these vessels is an important step in tackling this pervasive problem.
Meanwhile, the US is taking action against forced labor in the industry unilaterally. On May 28th, Homeland Security Secretary Alejandro Mayorkas and US Customs and Border Protection (CBP) Acting Commissioner Troy Miller announced that they are blacklisting the Chinese company Dalian Ocean Fishing Co. because they have evidence it has used forced labor in its tuna fishing operations. Miller told reporters that workers, mainly from Indonesia, have been subjected to violence, debt bondage, withholding of wages, and other abusive conditions. CBP therefore issued a Withhold Release Order, which bars importers from taking possession of any merchandise from Dalian ships. Human rights groups have previously presented evidence of Dalian abuses.
TRIPS (pharmaceutical patent) waiver
The Biden administration’s contested waiver of intellectual property rights for COVID-19-related vaccines and products won’t come quickly. For a TRIPS waiver to take effect, it must be supported by all WTO members. It is currently opposed by important countries including Japan, Switzerland, the EU, UK, Brazil, and Norway. But even if a waiver wins approval at the WTO, there are significant legal issues that could prevent it from going into effect. Companies could sue governments that try to force them to relinquish trade secrets (including, in the US, under the 5th Amendment’s Takings Clause requiring government compensation for taking assets from private hands). It is unclear how foreign governments could enforce a waiver on companies in other countries. Delays due to court challenges would prevent a waiver being used for many months.
China would be a major beneficiary of a TRIPS waiver, which puts the Biden administration’s support of the waiver in puzzling contradiction to the American Innovation & Competition Act that Senate Majority Leader Schumer is promoting, as well as Chinese forced labor and over-fishing practiced by its fishing industry.
EU-Swiss talks fail, recalling sovereignty complaints that led to Brexit
Negotiations between Switzerland and the EU to expand their free trade arrangement fell apart on May 26th, in a surprising development after many years of negotiation. The Swiss pulled out of talks and refused to sign the Institutional Framework Agreement that would expand areas of cooperation with and access to the single market.
Though the Agreement was completed in 2018, it was not implemented pending the Swiss government’s domestic consultations. Those consultations led it to seek changes in at least three areas – rules governing state aid, EU citizens’ access to the Swiss welfare system as well as freedom of movement, and protection for Swiss wages, which exceed those of the EU. It was the consultation on these issues that just failed, despite the Swiss and European Commission presidents personally meeting recently to try to overcome the divide.
The backdrop is that serious opposition had emerged within Switzerland over EU infringement of national independence and sovereignty. There were also concerns by organized labor that the country’s high wage levels could be eroded by unwelcome immigration. Some commentators noted the similarity of the Swiss complaints – severe EU impositions on member countries’ national sovereignty — to those that prompted the United Kingdom’s exit from the EU.
US files first-ever dispute-panel request under USMCA, vs. Canadian dairy quotas
US Trade Representative Katherine Tai announced on May 25th that the US “has requested and established a dispute settlement panel under the USMCA to review [Canadian] measures… that undermine the ability of American dairy exporters to sell a wide range of products to Canadian consumers.” Accordingly, “The US is challenging Canada’s allocation of dairy tariff-rate quotas (TRQs), specifically the set-aside of a percentage of each dairy TRQ exclusively for Canadian processors,” thereby denying US producers access to the market and prevent them from realizing “the full benefit of the USMCA.”
The case was filed last December under the Trump administration, and the Biden administration had to decide whether to pursue it. Pressure had been building from the US dairy industry and its congressional friends to move the dispute forward with a panel request. This included a recent letter to Tai and Agriculture Secretary Tom Vilsack from a bipartisan group of House members calling on her to request a panel. Since the US’s complaint isn’t really controversial – people believe it makes a good case that Canadian policies are unfair and discriminatory – the decision was made to move ahead now after the two sides were unable to resolve the dispute through consultations.
US dairy industry representatives welcomed the announcement, and so did Ways & Means ranking Republican Rep. Kevin Brady (R-TX), who said that Tai
…is right to use USMCA’s powerful new enforcement mechanism to hold Canada accountable…. Amidst a number of concerning USMCA implementation issues, including in Mexico’s energy and agricultural sectors, we must not hesitate to stand up for the rights of American[s]…. I urge the Administration to fully enforce all aspects of the agreement in order to maintain the strong bipartisan support that it enjoys.
Canadian Trade Minister Mary Ng expressed disappointment at the US panel request. Under USMCA, she said, “Canada agreed to provide some additional market access to the US for dairy while successfully defending our supply management system and dairy industry. We are confident that our policies are in full compliance” and “will vigorously defend our position during the dispute-settlement process.” The Canadian dairy industry supported her comments and said it was confident Ottawa would win the dispute.
Duties on tires
On May 24th, the Commerce Department set anti-dumping duties on passenger vehicle and light truck (PVLT) tires from South Korea, Taiwan, Thailand, and Vietnam. The main party supporting the duties has been the United Steelworkers union (USW). Vietnam is also charged with currency undervaluation.
The USW claims that the shutdown of a Goodyear Tire plant in Alabama and other tire factories was prompted by imports and that some potential shutdowns were averted once the tariffs were put into effect on PVLT tires from China six years ago. But that relief has now been erased by an influx of tires from the four cited countries, the USW argues. Representatives of Sumitomo Rubber North America, however, say that although there is domestic demand for US-made tires, US factories can’t bring enough production online, in part because of the shortage of workers and other impacts of the pandemic — but also because US manufacturers don’t focus on making the smaller passenger tires that are now being imported. The manufacturer’s representatives also point out that the USW previously told reporters that outsourcing to Mexico – not imports from Asia – was a key cause of cutbacks in US tire production.
With production ramping up worldwide and widespread unfilled job openings, one has to ask whether protectionist measures are justified at present — instead of free trade negotiations. An additional issue is the damage that protectionist tariffs cause to productivity. This consideration is raised in a front-page Wall Street Journal article on May 31st which, although headlined “US Manufacturers Blame Tariffs for Swelling Inflation,” ends by quoting a Columbia University economist, saying that “What the markets are predicting, and our data is suggesting, is that the [tariffs] will have negative impacts on productivity…. When you hold down productivity, you’ll have really big impacts down the road on the success of your economy, and prices as well.”
That’s hardly a winning formula for US prosperity and competing with China. But when have politicians been concerned with prosperity “down the road” as opposed to doing something, however ill-advised but popular, right now?
L.C. reports on trade matters for business as well as Founders Broadsheet.
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