Tariff disputes reach the WTO sooner than expected?

The tariff war has reached the multilateral trade body - the World Trade Organization. 

Canada and China have chosen the dispute settlement route for the moment to take on the issue of tariffs imposed by the United States. Requesting consultation is the first stage of the dispute settlement procedure.

What are Canada's main grounds in the request for consultations relating to violations of GATT (they had a Trade Facilitation Agreement violation argument too):

1. The US has imposed an ad valorem duty of 25% on non-energy goods from Canada and 10% on energy goods. These are tariffs in addition to what the US imposes according to its tariff schedule under the GATT commitments. This fails the MFN test.

2.  The treatment to Canadian goods are less favourable than what the US GATT commitments are.

3. They are in excess of the bound rates that the US committed at the WTO

And here are China's main grounds for seeking consultation:

1. The 10% additional tariff on all goods from China fails the MFN test.

2. It is in excess of the bound rates of the US committed at the WTO.

3. They are protectionist and discriminatory.

Will the national security exception under Article XII GATT come to the rescue as the measures are allegedly related to the national emergency of "alleged influx of synthetic opioids into the United States"? 

What is teh security exception?

Article XXI 

Security Exceptions 

Nothing in this Agreement shall be construed 

(a) to require any contracting party to furnish any information the disclosure of which it considers contrary to its essential security interests; or 

(b) to prevent any contracting party from taking any action which it considers necessary for the protection of its essential security interests 

(i) relating to fissionable materials or the materials from which they are derived; 

(ii) relating to the traffic in arms, ammunition and implements of war and to such traffic in other goods and materials as is carried on directly or indirectly for the purpose of supplying a military establishment;

 (iii) taken in time of war or other emergency in international relations; or 

(c) to prevent any contracting party from taking any action in pursuance of its obligations under the United Nations Charter for the maintenance of international peace and security.

Is a "self-judging" exception going to be tested again in the panel? Will it be an appeal in the void again later? I had blogged about the self-judging nature of the exception here.

Latest reports on the dispute are here and here.

How does one interpret the law - text based or more purposefully?

This blog rarely goess of track. It sticks to international economic law and policy, trade law, investment law, WTO, trade agreements - you get the flow.

Going off track today - could not resist putting this book review up there for everyone. A brilliant book review of United States Justice Stephen Breyer's book "Reading the Constitution: Why I Chose Pragmatism, Not Textualism" by Kevin Newshom and Alana Frederik in Harvard Law Review post here.

The eternal question is about how judges should interpret the Constitution or statute. Should it be a more formal, textual approach that sticks to the letter or text of the law or should it be a more pragmatic, purpose oriented approach that looks, inter alia, on the purpose and outcome of the interpretation. 

A fascinating conversation ensues in the review and the reviewers tend to disagree with the pragmatic approach put forth by Justice Breyer while prefering the formal, textual approach. The role of the Courts in a separation of powers context is to interpret the law as IT is and not as it SHOULD be. It leads to more certainty and respects the rule of law, avoids discretion and subjectivity and allows toe Courts to do what the judiciary are supposed to do rather than take on the role of the legislature or executive. If the law is leading to unintended consequences, amendment is the answer, not creative interpretations.

This principle is applicable as much to the Constitution of the United States as it is to India or any other written constitution. It also applies to domestic laws as well as international economic law.

Got me thinking on the Vienna Convention on the Law of Treaties (VCLT). How do we interpret international treaties. Article 31 and 32 provide some light:

Article 31

General rule of interpretation 

1. A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose. 

2. The context for the purpose of the interpretation of a treaty shall comprise, in addition to the text, including its preamble and annexes: 

(a) any agreement relating to the treaty which was made between all the parties in connection with the conclusion of the treaty; 

(b) any instrument which was made by one or more parties in connection with the conclusion of the treaty and accepted by the other parties as an instrument related to the treaty. 

3. There shall be taken into account, together with the context: 

(a) any subsequent agreement between the parties regarding the interpretation of the treaty or the application of its provisions;

 (b) any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation; 

(c) any relevant rules of international law applicable in the relations between the parties. 

4. A special meaning shall be given to a term if it is established that the parties so intended. 

Article 32 

Supplementary means of interpretation 

Recourse may be had to supplementary means of interpretation, including the preparatory work of the treaty and the circumstances of its conclusion, in order to confirm the meaning resulting from the application of article 31, or to determine the meaning when the interpretation according to article 31: 

(a) leaves the meaning ambiguous or obscure; or 

(b) leads to a result which is manifestly absurd or unreasonable.

What does this indicate - a formalist approach? A pragmatic approach? or a bit of both? When does one determine that the result is a manifestly absurd one?

A fascinating journey into interpretation of statutes - if I recall right, it was one of my favourite courses in Law School. Wonder why?

And, by the way, I got this blogpost back to international economic law and treaty interpretation! Some habits die hard.

My next post will be textualism and pragmatism in the Appellate Body, perhaps?

Free and Fair Trade - The case made out for the two

How should trade policy be? What should be its focus and what should be its limits? Where does one intervene and where does one back off in trade policy? What should an approach in international trade policy be vis a vis partners or adversaries? What should form part of the trade agreement bucket? Deep trade agreements or bare minimum market access? How should one engage with the multilateral trading system - streghtne it or break away?

Trade negotiators often face such quinessential questions of existence. How does one protect national interest without disrupting free trade? How does one protect domestic industry, consumers and agricultursist without being restrictive? How does one build the economy on the principles of free trade and enterprise?

If one wants to understand some of these naunces - 2 must read pieces from Project 2025

1. The Case For Free Trade by Kent Lassman

Some key takeaways from this one - have humility that trade policy is not a magic wand that will solve all problems. Trade policy should be exactly that - involving trade and non-trade issues (labour, climate change, gender, intellectual property) should not find a place in trade agreements. This is an interesting take:

Trade-unrelated provisions are routinely hijacked by progressives and rent-seekers and dilute otherwise worthwhile trade agreements. They also create additional points of contention that make agreements unnecessarily difficult to pass. A conservative trade policy should limit trade-unrelated provisions in trade agreements.The WTO should be revived or atleast replaced by an alliance of free trade supporters. Believe in entrepreneurship and free trade.

2. The Case For Fair Trade by Peter Navaro

Keytakeaways from this one - The WTO's MFN principle institutionalises non-reciprocal tariffs and it needs to be addressed. The danger of excessive trade deficits and how they endanger national and economic security. China's dominance in the global trading system due to Satte support needs to be checked. And, yes, the importance of having the right personnel in the right job. I found importance placed on finding the right person for the job as extremely revealing.

In thinking about the personnel positions that are most essential to effective implementation of trade policy, the most obvious position to get exactly right is that of the United States Trade Representative. The USTR is at least putatively the top offcial on trade policy, and it is critical that this position be filled wisely.

Two of the most relevant pieces if one wants to understand the current thinking, approaches and dilemmas in today's chaotic trade policy world.

Reciprocal tariff could revive multilateral trade negotiations say some - unthinkable?

When everyone is talking about the idea of reciprocal tariff blowing a death knell to most-favoured nation principle and multilateral rules, one would expect a fresh narrative from none other than Joost Pauwelyn along with Jennifer Hillman and Hervé Jouanjean. 

In this essay in the IELP blog, they argue that the threat of reciprocal tariffs could be a boon to the multilateral system in the sense that they can re-invigorate the discussion on non-agricultural market access - in other words tariff concession negotiations could be re-ignited at the WTO to address the reciprocity problem.

Instead of purely bilateral discussions with (and retaliation threats against) the US, the EU and other major trading nations should coordinate a broad-based Article XXVIII re-negotiation process. If managed properly, this could, in effect, turn into the biggest tariff negotiation round since the creation of the WTO in 1994, with the potential to create a fairer and more enduring result.

What this essentially means that negotiations to re-work one's tariff concessions could be the unintended fallout of the present gloomy paradigm of reciprocal tariff reductions on a bilateral basis. Or even an alternative to bilateral trade agreements?

Feasible? Acceptable to the rest of the WTO membership? What about the single undertaking? What about linking tariff negotiations to agricultural and services trade negotiations?

Where do we ship this problem to?

The USTR analysis on China's shipbuilding industry, maritime and shipping sectors is an exhaustive account of alleged unfair practices that has given China dominance in this sector.

The USTR report is here.

A critical account of this report is found here which argues that the report does not establish a causal relationship between the growth of China's shipping and maritime industry and the demise of the US businesses.

A more detailed report of the China shipping industry is found in this CSIS study here.

The China response was expected - that the report is not in tune with the WTO rules and is a protectionist move.

The question is what are the policies and practices called "measures" in WTO language that are inconsistent with China's WTO obligations? And if they are inconsistent, is it relevant anymore in a changed world?

A cursory search for an international trade law perspective was found in this old but relevant paper that contextualises the Chinese shipping industry within its WTO obligations post 2000.

Where do we ship this problem to?

Tariffs at Will, a Code of Conduct and abjuring the middle path!

 Some more reasings and reaction on recirporcal tariffs from around the (online) world:

1. Shiro Armstrong and Tom Westland in the REITI websiteargue provocatively that reciprocal tariffs should be met with realiatory tariffs which could be disastrous to world trade. Instead, action on amending intellectual property regimes domestically to make them more aligned to public purpose than private interest should be undertaken.

2. The impact of high tariffs was analysed here in the context of Japan and Jinji Naoto concluded that the impact would not be much for the imports into the US as there would be trade diversion from other countries and the consumers may be the worst hot after all.

3. Alan. Wm Wolff in his inimitable way alludes to what other trading partners do in the face of the changed reality of the challenge to the rules based system by stating that if the WTO needs to survive and be relevant the WTO members should come with a World Trading System (WTS) Code of Conduct System 2025 which has signatories agree to everything from abiding by the rule based trading system to ending the non-participant veto in case of plurilaterals that achieve a critical mass. I found his statement "Tariffs at will is the opposite of tariffs contractually bound." particularly relevant in the context of WTO rules.

4. The impact on India of the tariff threats is analysed here by Harsh V Pant who argues that India would need to rethink on its feet and avoid the "middle path" and take strategic, innovative decisions quickly. So much for wanting to tread the middle path! But wait, isn't acting startegically to protect national interest also treading the middle path?!

5. I have been thinking of this lately - what is the reaction on China to the new tariff proposals. This piece by Antara Ghoshal Singh is a summary yet exhaustive account of the reaction in China to the new paradigm - the key question there is who will bear the brunt of tariffs - the US consumer and economy towards inflation or Chinese manfuacturing companies profit margins.

6. An option that could achieve the outcome of reciprocal tariffs in a better way is entering into trade agreements that would reduce tariffs and barriers as argued by Colin Grabow here.

Question and Answer - More on reciprocal tariffs

 The question answer (FAQs) model is very interesting in EU's response to the idea of recirporcal tariffs. 

What is the current value of EU-US trade and investment?

• Total bilateral trade in goods reached €851 billion in 2023. The EU exported €503 billion of goods to the US market, while importing €347 billion; this resulted in a goods trade surplus of €157 billion for the EU.
• Total bilateral trade in services between the EU and the US was worth €746 billion in 2023. The EU exported €319 billion of services to the US, while importing €427 billion from the US; this resulted in a services trade deficit of €109 billion for the EU.
• The EU and the US are also major investment partners. EU and US firms have €5.3 trillion worth of investment in each other's markets (2022 data).

Does the EU have a trade surplus vis-à-vis the US?

When goods and services are taken into account, the EU has a small surplus with the US of €48 billion; this is the equivalent of just 3% of total EU-US trade (€1.6 trillion). It should also be noted that the EU has a trade deficit with the US when it comes to trade in services, where the US records a surplus of €109 billion. In this sense, our economies complement each other very well.

Is Value-Added Tax a tariff? What is the purpose of the VAT?

Value-Added Tax (VAT) is a consumption tax, similar to sales taxes in the United States, and is used in over 170 countries worldwide. It is applied on a non-discriminatory basis, regardless of where a product is made. Any company selling goods for consumption in the EU—whether foreign or domestic—must pay VAT. EU produced goods pay exactly the same VAT as any imported goods. VAT is not a trade measure, let alone a tariff. It is clearly not a measure applied exclusively to foreign goods like an import tariff.

How does the WTO consider internal taxes like VAT and are they allowed?

The EU's VAT system is fair and non-discriminatory, applying equally to both domestically produced and imported goods. Any company selling goods for consumption in the EU—whether foreign or domestic—must pay VAT. EU produced goods pay exactly the same VAT as any imported goods. As such, VAT is a domestic, non-discriminatory tax, which is allowed by the WTO, GATT Article III, since its creation in 1947.

Does the US charge internal taxes to goods and services?

It is important to note that in both the cases of EU VAT and US sales taxes, the goods produced in the EU and US are treated in exact the same way, in each market, compared to the imported goods from the other party. That is the relevant point of comparison.

What is the current average tariff rate charged by the EU on imports from the US? What is the current average tariff rate charged by the US on imports from the EU?

For technical reasons, there is not one “absolute” figure for the average tariffs on EU-US trade, as this calculation can be done in a variety of ways which produce quite varied results. Nevertheless, considering the actual trade in goods between the EU and US, in practice the average tariff rate on both sides is approximately 1%. In 2023, the US collected approximately €7 billion of tariffs on EU exports, and the EU collected approximately €3 billion on US exports.

Has the EU offered to lower certain tariffs, like car tariffs, for the US?

The EU has the largest network of trade agreements and is engaged with most of its partners in discussions on reducing tariffs as part of broader balanced trade negotiations. The EU is ready to find mutually beneficial solutions with the US on tariffs. No specific offer on reducing tariffs has been made by either side. Any tariff reductions must be mutually beneficial and negotiated within a fair and rules-based framework. The EU remains committed to deepening transatlantic trade relations and addressing tariff concerns through constructive dialogue.

Doesn't the US have a point about an asymmetry in tariffs, such as the EU's 10% tariff on cars compared to the US's 2.5% tariff?

Tariff structures vary between economies, with some EU tariffs higher than those of the US and many others lower. Both the EU and the US have equally low tariffs overall.

While the EU applies a 10% Most Favored Nation (MFN) tariff on cars, it's important to note that the US imposes a 25% tariff on pickup trucks—the largest segment of the US auto market, accounting for about one-third of all vehicle sales. In fact, the best-selling vehicle in the US is a pickup truck, the Ford F-150.

The EU remains open to balanced negotiations that foster a level playing field for both sides.

It alludes to a few of these issues:

1. The role of services trade in the overall mix of the trade deficit. You can have a surplus n merchandise but a deficit in services and vice versa.

2. Taxes, imposed non-discriminatorily, are not protectionist and canot be assumed to be like tariffs impacting imported goods only.

3. The role of trade agreements to resolve tariff issues which are existant on a multilateral basis.

4. A line by line analysis of tariffs do reveal more complexity and paradoxes.

5. Never say no to a balanced negotiation.

Trade deficits and tariffs...

One more on the reciprocal tariff issue from Desmond Lachman in Project Syndicate - trade deficits have nothing to do with tariffs - it is more to do with:

"...Or, as John Maynard Keynes put it, trade deficits are driven by the gap between savings and investment. As long as a country saves less than it invests, it will run a trade deficit, no matter how high its tariff wall may be."

And the counter to that coming in the opening comments of Peter Navarro in his chapter titled "The Case for Fair Trade" where he states:

"... The first challenge is rooted in MFN: the “most favored nation” rule of the World Trade Organization (WTO). According to the MFN rule, WTO members must apply the lowest tariffs that they apply to the products of any one country to the products of every other country.3 However, WTO members can charge higher tariffs if they apply these nonreciprocal tariffs to all countries. 

The practical result has been the systematic exploitation of American farmers, ranchers, manufacturers, and workers through higher tariffs institutionalized by MFN. In turn, this unfair and nonreciprocal trade has resulted in chronic U.S. trade deficits with much of the rest of the world. This systemic trade imbalance serves as a brake and bridle on both GDP growth and real wages in the American economy while encumbering the U.S. with significant foreign debt."

The debate is on. 

Hat tip to Prof.Amitendu Palit for bringing to my notice Peter Navarro's chapter.

 

What an interesting time to study international trade law!

 A flurry of activity on reciprocal tariffs and more than one opinion on it - a summation of the week here:

1. In this NYT piece, Robert E. Lighthizer argues in Want Free Trade? May I Introduce You to the Tariff. that the present world trading system has been largely unfair with US running large trade deficits. he calls for an overhaul and need for bringing in some balance.

2. Kyle Handley responds to this in CATO with A One-Dimensional Focus on Balanced Trade Does Not Support the Case for More Tariffs: A Response to Robert Lighthizer stating that one should not ignore services trade surpluses when focusing on goods trade deficits.

3. Mary E. Lovely notes the consequences of such a trade policy and the winers and losers it can create in Trump Isn’t the Only One to Blame for the Tariff Mess.

4. Douglas A Erwin in ‘Reciprocal’ Tariffs Make No Sense states that reciprocal tariff would make the whole system very complicated to implement and would impact US consumers more.

5. Robin Brooks in What’s Trump’s plan on tariffs? argues that the Plan is targetted more to China and would lead to negotiation with trading partners to cut bring down tariffs.

6. In Donald Trump Wants Reciprocity in Trade: Here’s a Closer Look, Edward Alden and Jennifer Hillman trade the history of reciprocal tariff in the US and argue on thecomplexity of implementation and state that unilateral action to implement it is unadvisable.

and finally, Richard Baldwin in this tweet on X has clarified that "reciprocal" doesn't have to mean "goods by goods" or "line by line". It could be average tariffs too. He argues more about how to achieve reciprocity in the multilateral concept in a juggernaut effect here.

What an interesting time to be studying international economic law and policy. International Trade Law classes have surely become more exciting! Bring it on.

South Centre weighs in

Vahini Naidu of the South Centre weighs in on the reciprocal trade and tariff plan with this piece on calling for south south co-operation to save the multilateral trading system. 

Is there appetite for that?

The article is here.

Everyone is talking about reciprocal tariffs!

If one is following international trade, the issue of reciprocal tariff and its impact on global trade rules, reciprocity, trade ties, rules of the game, dispute settlement is but a natural debate.

The reciprocal trade and tariff plan of the US is here. 

The bottomline - "Under the Plan, my Administration will work strenuously to counter non-reciprocal trading arrangements with trading partners by determining the equivalent of a reciprocal tariff with respect to each foreign trading partner."

Two enlightening pieces on reciprocal tariffs - what they are, how they impact ecnomies and what the WTO has got to do with it  are here:

1. Reciprocal tariffs is viewed as a result of WTO's failings - This Hinrich Foundation article.

2. Reciprocal tariffs could be a gamechanger in how the world views tariffs and how it will affect major economies - This Atlantic Council article spreads it all out with their experts.

The larger issue is how does reciprocal tariffs fit into the current set of global world trade rules and if they don't does it matter any more? has multilateral trade negotiation shifted to bilateral and regional avenues, even to reciprocal deals across sectors, not necessarily trade. What implications does this have for a rules based trading system - can the negotiating function at the multilateral body address the issue of reciprocity and perceived unfairness? What implications does this have on global trade if economies perceive multilateral trade rules as being unfair in differents ectors and chalk out a unilateral path of remdey.

One thing is sure - trade policy, international trade tules and trade negotiation is back at the forefron of foreign policy - albeit in an unconventional way.

Intellectual property rights and enhanced trade

A rather detailed analysis of intellectual property right protection and growth in trade in the context of amendments to the Indian Patent Act in 2002 post the TRIPS agreement and India joining the WTO can be found in this Working paper by the Centre for WTO Studies - Firm-Level Trade Responses to Intellectual Property Reforms - A Quasi-Natural Experiment by Qayoom Khachoo, Ridwan Ah Sheikh and Pritam Banerjee.

Theorizing on intellectual property rights impact on innovation and trade is one thing, doing a firm level analysis with data is quite another.

A law and economics approach to understaning intellectual property rights and innovation.

Numbers...

 And we cross the 8,00,000 barrier....

Some fresh articles on India-US trade relations

For those following India-US trade ties, three articles that may be of interest from the Council on Foreign relations:

1. On digital trade - The Great Disconnect in India's Digital Trade Policy by Kholofelo Kugler

2. On industrial policy - India's Industrial Policies - Rejecting the Old Status Quo and Creating the New by Sarthak Pradhan

3. On multilateralism - How India Disrupts and Navigates the WTO by Inu Manak

A lot to say on them, but for another day perhaps.

Of Senate hearings and trade issues

For those who want to know what the plans of the next United States Trade Representative, Jamieson Greer are - this Senate hearing is a must watch. 

Everything from tariffs, technology giants, digital trade, trade agreements, implementation of trade agreements, US memo on trade, CHINA, relations with Mexico and Canada, trade deficit, WTO, dispute settlement, jobs, losers and winners in international trade, day to day issues of small businesses, intellectual property rights, 

Hat Tip - Simon Lester, IELP blog.

Of value of imports and tariff

 Interesting infograph. Value of imports and tariff.  Courtesy the CSIS website.

More debates on the memo

Some analysis coming in on the America First Trade Policy memo from various sources within the United States:

Brownstein touches upon the various aspects of the memo.

American Action Forum analysis reveals that the present reviews could result in action and increase in revenues over time.

Can tariff be a source of adequate revenue or is it a drop in the ocean? Two infographs for that debate:

Inforgraph #1

(https://www.statista.com/chart/33464/us-government-receipts-in-fy-2023-by-source/)

Infograph #2:

Tariffs are going to be a really important part of the tax-cut discussion.” A 10% tariff is “about $350 to $400 billion in revenue. So you see the beauty of that in the negotiations,” Trump aide Peter Navarro told CNBC on Tuesday.

(https://www.americanactionforum.org/shipment/post-inauguration-edition-presidential-actions-and-trade-reaction/)

Mohawk Global has this piece stresses on the implications for US-China relations.

Richards Jurusik Immigration Law signals it as a decisive step in US policy to protect US interests with a possibility of retaliation, global supply chain disruptions and enforcement challenges.

The memo also re-introduces the much debated "currency manipulation" issue which I have blogged here and here and also written a fairly detailed piece on here.

Project Syndicate has this scathing piece by Stephen S Roach - an interesting point on how much revenue would tariffs give. The point that federal customs revenue (through tariffs) is less than 2 % of overall federal revenue may be relevant to the discussion or not a determining factor depending on which side of the debate you are on.

All in all, a lot to look forward to in trade policy and its impact in global economic interactions! The memo touches on issue ranging from tariffs, currency manipulation, unfair trade practices, revenues, trade deficits - each a subject matter of a book!

On trade policy and more

For those following international trade policy, how to balance the right to regulate and a globalized world and the intersection of domestic policy and international trade rules, this memo titled "America First Trade Policy" gives us a glimpse into priorities issues and approaches on trade policy.

A lot to discuss on tariffs, national security, international trade agreements and their impact assessment and how one approaches bilateral trade partners.

The IELP blog, as usual, has a much more detailed analysis here.

The right to regulate - a weapon or a shield?

The power of the State vis a vis foreign investors in the context of international investment agreements is a constant source of debate. 

What does this right to regulate entail? Is it unfettered? Does it impact investment? What kind of policy space is given to States? Where is the balance? How much of the right to regulate is necessary and howmuch is excessive? Is there a standard model?

This piece in the Kluwer Arbitration Blog on the first day of the new year explores the right to regulate in the context of the EU-Angola Investment Agreement.

Take a look here.

Lessons: The landscape for rule making is constantly changing and there is a fertile ground for experimentation. Is it a weapon for exploitation or a shield against unfair aggrandisement? Frankly, a lot of that depends on how a provision is utilised. However, there is no doubt that the debate over the mutual interests of States to preserve policy space for public interest vis a vis investor's rights for fair treatment is an eternal one. Which set of provisions provide the right balance is debatable. Where is the middle path, is once again, a matter of conjecture!