Weekly trade report for Jan. 8-14, 2018
Canada has filed a new World Trade Organization (WTO) complaint against the US that is stunning in its scope. It targets in detail the way the US implements its unfair-trade laws, enumerating many practices that are at the core of US trade-remedy measures but that allegedly breach WTO rules.
Not complaining about a specific antidumping or countervailing duty case but referencing one hundred twenty-two US antidumping (AD)/countervailing duties (CVD) imposed on countries from across the globe, it appears, as one analyst put fit, “almost like Canada is fighting this on behalf of the international community.” A US Council on Foreign Relations analyst warned, “Canada has just detonated a bomb” under NAFTA and the global trading system.
Curiously, Canadian officials said that the complaint has a more specific target – aimed at the US AD/CVD duties on softwood lumber, against which Ottawa has separately filed WTO and North American Free Trade Association (NAFTA) complaints. It will be interesting to see how many, and which, other WTO members request third-party rights to participate in the case.
US methodology in unfair trade cases has long been the target of WTO complaints – cases largely though not always lost by the US. But these were brought by trading partners regarding specific cases in which the US imposed duties, and usually targeted somewhat narrow practices such as zeroing, on which the US loses at the WTO.
The new Canadian complaint is so far-reaching, covering so many practices, that it is likely it would result in a mixed ruling, if it is taken all the way through dispute settlement. In that case, both countries may well appeal. Because of the complexity, this will take a long time to resolve.
Rather than aiming to take the case all the way, however, Foreign Minister Chrystia Freeland told reporters that the complaint was a response to the “unfair and unwarranted” US duties on softwood lumber. She added that it is part of “broader litigation” to defend jobs in the forestry sector. Canada already has filed a specific WTO case as well as a NAFTA case against the lumber duties.
In the meantime, the complaint will provoke anger in the US. There is bipartisan support for defending tough US trade-remedy laws, and there is strong support among domestic industries that regularly use these laws, led by steel, aluminum, and chemicals, but involving many others including agriculture.
So one might ask why Ottawa chose to undertake such a provocative action now, just at the edge of what is seen as a make-or-break NAFTA renegotiation round and when the US attitude toward the WTO is already negative? Presumably Ottawa believes it has a winning case and wants to rein in Washington’s use of trade remedies that have been pounding Canada beyond just lumber – on aircraft and, just this week, paper. All these have angered Canadians. While the lumber duties may be the direct provocation, this is a blanket approach which Ottawa didn’t try in the past, when it successfully complained to both the WTO and NAFTA about previous lumber duties.
Canada has long tussled with the US over its AD/CVD regime. Canadian exports, including such key ones as lumber and wood products (such as paper), have long been hammered by US unfair-trade duties. One of Ottawa’s main goals in the original NAFTA negotiations was to escape from them. The US refused to weaken its laws or how they apply to Canada but did accept as a compromise the creation of NAFTA’s Chapter 19 review mechanism to which duties could be appealed. They sometimes were appealed, and Canada often prevailed there – leading to the current US demand to abolish Chapter 19 that neither Canada nor Mexico say they will accept.
Beyond the questionable timing for NAFTA, it may be especially bad timing for the WTO. US criticism of the dispute settlement process is that panels — in particular, the Appellate Body — make decisions based on interpretations of WTO agreements that impose obligations that go beyond what was actually committed to in those agreements. The US has made this charge against rulings that declared US AD/CVD methodologies WTO-illegal. If a panel rules against the US here, it would enormously intensify this US objection to the WTO. Washington believes its trade laws and practices follow the letter of the WTO agreements. The Canadian filing comes as the US is already on-edge over the comingWTO panel investigation of China’s complaint against the US for refusing to grant it market-economy status.
US Trade Representative (USTR) Lighthizer released a statement indicating US alarm and annoyance at the Canadian move: “Canada’s new request for consultations at the WTO is a broad and ill-advised attack on the US trade-remedies system [which ensures] that trade is fair — by counteracting dumping or subsidies that are [injurious]…. Canada’s claims are unfounded and could only lower US confidence that Canada is committed to mutually beneficial trade. Canada is acting against its own workers’ and businesses’ interests. Even if Canada succeeded on these groundless claims, other countries would primarily benefit, not Canada. For example, if the US removed the orders listed in Canada’s complaint, the flood of imports from China and other countries would negatively impact billions of dollars in Canadian exports to the US, including nearly $9 billion in exports of steel and aluminum products and more than $2.5 billion in exports of wood and paper products. Canada’s claims threaten the ability of all countries to defend their workers against unfair trade. Canada’s complaint is bad for Canada.”
The threat raised by Lighthizer of a “flood of imports from China” if AD/CVD duties aren’t imposed strikes an odd note since just that threat would be greatly intensified by an abandonment of NAFTA, which the US government regularly talks of doing. (Without NAFTA, Canada’s exports would be less competitive against China’s in the US market.)
The Canadian move comes a month after announcement of a new effort that brings the possibility of the US working with and through the WTO in behalf of some Trump Administration priorities — in particular, to rein in Chinese trade abuses and excess production. The US-Japan-EU trilateral initiative announced during the WTO’s Ministerial Conference is aimed at getting Washington to work cooperatively with its allies primarily within the WTO. The Canadian move may not mesh well with this effort if Washington is put on the defensive over its use of trade remedies that have long had China as a key target, if the perception is reinforced that the WTO is uncongenial to domestic US laws and procedures.
Steel report delivered, now awaiting President’s decision
The Commerce Department delivered to the President on January 11th its Section 232 report on the possible national security threat posed by steel imports and what it recommends the President do (if anything) to counter the threat. The report has not been made public. The statute allows Commerce to delay publication at least until the President has made his decision.
A week later, the same was done for aluminum imports. That report is due January 22nd. President Trump has 90 days from receipt of the report to announce what actions he will take.
Early on, the Commerce Department and White House intended to expedite the report, as requested, and even publicly indicated it would be completed by the end of last June. But the effort quickly ran into problems like those challenging other moves toward protectionism: warnings from downstream industries that steel import restrictions would be a severe blow to their competitiveness, threats of foreign retaliation, disruption of relations with US allies, and possible copy-cat actions by other countries — cutting off US exports on national security grounds and undermining the WTO.
The downstream industries’ concerns are supported by the basic facts. According to a new report from the R Street Institute, US steel mills employ 140,000 workers, but steel-consuming industries employ 6.5 million workers and account for about 30 times more GDP. “Steel protectionism would harm the domestic economy, jeopardize the rules-based trading system and needlessly provoke allies,” warned the report’s author, indicating the difficult terrain the President must navigate in making his decision. The fact that action under 232 can’t even be directly aimed at China would also suggest there is less political mileage for aggressive 232 actions – yet recent reports suggest such actions are very much on the President’s mind.
Moreover, the delay in the results has upset the steel (and aluminum) industries. Facing possible future restrictions, steel users have stepped up imports substantially, harming domestic producers who will be furious if the effort doesn’t at least lead to future import restraints. They are lobbying hard for tough action.
There are reports that the domestic steel industry is pushing for broad measures to block imports, in contrast to aluminum, where industry reportedly prefers more targeted actions.
Faced with the possibility of imminent protectionist actions and with Korea also expected to be caught up in both US solar and washer safeguard actions, Deputy Trade Minister Kang Sung-chun came to Washington this week to meet with Commerce officials. He reportedly explained that Korea would respond with a WTO complaint to the expected 232 actions.
So the President must take into account not only the impact on relations with important allies: he also must factor in how China would respond. China will be touted as the main target of US action, despite the low level of US imports of Chinese steel. Beijing has made clear it will punish US exporters and companies operating in China. China is now such a huge market for US investments and exports — accounting for over 20% of sales at many US-based multinationals – that this threat has alarmed many in the US private sector, who are not supportive of strong new restrictions on China trade. Chinese officials, in meetings with US government and business representatives, warned the US not to take strong actions or it would face retaliation. “We have contingency plans in place,” a Chinese official told them, indicating it might involve retaliation against sensitive US targets such as soybeans.
Former USTR Robert Zoellick issued blunt criticisms of Administration policy in a January 7th Wall Street Journal op-ed. He warned against imposing heavy-handed measures through the upcoming trade decisions such as in the 232 cases which, he said, would “signal… a strategy of economic defeatism” and retreat. He added, “No country now wants to do a bilateral deal with [the Trump Administration] because he demands managed trade, not fair competition. He wants excuses to raise barriers, not rules to boost trade.”
All of which suggests that whatever the President decides to do, his best option would be to act through the existing institutions of the WTO and NAFTA rather than trying to go it alone. That would likely leave it alone — with reduced trade, stock market decline, and significant unemployment. With the dollar down against major foreign currencies (which will boost exports) and a helpful new tax law just gone into effect, the US may not need the protectionist measures anyway.
Click here to go to yesterday’s Founders Broadsheet (“Sunday (1-14-2018) Principles of a good immigration policy outlined: guest workers, merit-based entry, not restrictionist”)