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This Week In Trade

WTO doomsday date draws nearer as French tax, China tariff decisions loom, USMCA deal dangles

Posted: December 02, 2019

December will be a seminal month for the World Trade Organization, which could soon lose the ability to adjudicate disputes among its membership due to U.S. actions -- and the Trump administration now is reportedly questioning its funding commitment to the system as well.

Meanwhile, the Trump administration and House Democrats could any day announce a deal on the U.S.-Mexico-Canada Agreement that would tee the pact up for congressional approval before the end of the year. U.S. Trade Representative Robert Lighthizer talked with his Mexican and Canadian counterparts last week about tweaks to USMCA. Mexico’s chief trade negotiator Jesús Seade told reporters on Wednesday that he initially found the U.S. proposals to be acceptable, adding that he would have to take a closer look at them. He then traveled to Canada, where he met with Canadian Prime Minister Justin Trudeau on Friday. Trudeau told Seade there was still work to be done on USMCA, according to reports.

Seade has outlined potential provisions that would address USMCA’s dispute settlement chapter.

Lighthizer’s meetings follow extensive discussion between the USTR and House Democrats over USMCA’s labor, environment, enforcement and pharmaceutical provisions. The administration has been waiting for a go-ahead from House Speaker Nancy Pelosi before officially submitting a USMCA implementing bill to Congress. USMCA proponents are holding out hope the deal can be ratified by the end of the year. But time is running out. The administration must submit the implementing bill on a day when the House and Senate are in session; there are only eight such days left in 2019, but the calendar could be extended.

This week the Office of the U.S. Trade Representative will also release a Section 301 report on France’s tax on digital services that could lay the groundwork for retaliatory tariffs. And the administration is rapidly approaching a Dec. 15 deadline for new tariffs on $160 billion worth of Chinese goods, with no phase-one deal with Beijing solidified.

The fate of the WTO

WTO members will resume a Nov. 22 Dispute Settlement Body meeting on Tuesday to discuss the appropriate process for 13 pending appeals that are not expected to be ruled on before the terms of two of the Appellate Body’s three remaining panelists expire on Dec. 10. The U.S. has been blocking Appellate Body reappointments since mid-2017, leaving the seven-member panel with only three members. The Appellate Body cannot rule on appeals with fewer than three members and body’s membership is widely expected to be down to one panelist next week.

New Zealand Ambassador to the WTO and DSB Chair David Walker, at the Nov. 22 DSB meeting, proposed that the DSB vote to allow Appellate Body members whose terms will expire next week to complete pending appeals. There was no agreement on that point at last month’s meeting, leading Walker to suspend it until there was progress on the issue. WTO members were notified last week that the meeting would be resumed on Tuesday.

Appellate Body members have regularly concluded work past the expiration of their term on appeals they have already heard, pursuant to Rule 15 of the DSB’s working procedures. The U.S. has taken issue with the rule, asserting that WTO members never authorized the Appellate Body to extend its mandate.

Rule 15 is only one of the many areas of criticisms of the Appellate Body the U.S. has outlined in DSB meetings over the past two-and-a-half years. Many of the concerns, however, are longstanding and predate the U.S. move to block panelist reappointments. The U.S. believes the Appellate Body has acted in ways that extend beyond its mandate, created obligations for WTO members that had never been agreed to, and ignored requirements to timely rule on cases.

Other WTO members have proposed ideas to address the concerns laid out by the U.S., but to no avail. Rather than engage on proposals, the U.S. has demanded that WTO members first consider why the Appellate Body has strayed from its mandate.

Without a functioning Appellate Body, the DSB will be unable to adopt panel reports if a member of the dispute wishes to appeal. This could mean that disputes will soon be left in a legal limbo -- even if a dispute settlement panel finds that a member has WTO-inconsistent measures, the WTO will be unable to enforce that ruling.

The debate will come to a head in the coming days as WTO members gather for a series of meetings to close out 2019. After the DSB meets Tuesday to discuss the issue of pending appeals, WTO Director-General Roberto Azevêdo will update WTO ambassadors as the chair of the Trade Negotiations Committee. That update will precede next week’s end-of-year General Council meeting, where the U.S.’ Appellate Body blockade is expected to draw the public ire of many WTO members. Inside U.S. Trade’s Hannah Monicken will be in Geneva reporting on what could be one of the most pivotal weeks in WTO history.

Another Section 301 report

USTR said last week that it would issue its report on the trade implications of France's digital services tax, as well as potential remedies. This first Section 301 probe conducted by the Trump administration has been used as justification for tariffs on up to $572 billion worth of Chinese products.

During the agency’s Section 301 hearing on France's tax, in August, business groups urged USTR to seek non-tariff remedies via multilateral channels. The same groups argue that France’s tax unfairly discriminates against U.S. technology companies and could be in violation of WTO rules. The possibility of a WTO rules breach creates an interesting dilemma for the U.S. and its Section 301 process. During a WTO dispute initiated by the EU in the late 1990s, the U.S. agreed not to use Section 301 to unilaterally impose trade remedies in cases involving WTO rules and opted instead to defer to the WTO dispute settlement process. The U.S. has defended its use of Section 301 tariffs against Chinese goods by claiming the allegations in its report cover activities are outside of the WTO’s scope. If USTR finds France’s tax to be in violation of WTO rules, it could be committing itself to using the very dispute settlement process it is helping to dismantle.

France’s minister of state for digital affairs, Cédric O, will be in Washington, DC, this week to “promote French convictions and have discussions with American economic, institutional and academic stakeholders from the digital sector,” according to a French media advisory. According to an itinerary released by the French government, Cédric O will meet with White House Chief Technology Officer Michael Kratsios on Monday and deliver a speech at the U.S. Chamber of Commerce on Tuesday. He will travel to California mid-week to meet with members of the technology community.

China tariffs still pending

The U.S. and China are still in talks to complete a phase-one trade deal, and the Trump administration will soon have to decide whether it wants to implement 15 percent tariffs on $160 billion worth of Chinese goods on Dec. 15. China is demanding that the U.S. not only refrain from issuing those tariffs, but also roll back tariffs that are already in place. President Trump has been loath to agree to those terms.

The U.S.-China relationship was roiled last week when Trump signed into law a bill declaring U.S. support for the pro-democracy protests in Hong Kong, a move that was loudly condemned by Beijing. China responded by imposing sanctions on U.S. non-governmental organizations that have been supporting the Hong Kong protests.

Senate Finance Committee Chairman Chuck Grassley (R-IA) told reporters last week that Beijing had invited USTR Robert Lighthizer and Treasury Secretary Steven Mnuchin to participate in face-to-face talks, but the U.S. principals will only make a trip to China if there is a real chance of an agreement. The U.S. has not yet said whether it will send a trade delegation to China.

Events this week

  • The European Parliament’s International Trade Committee will hold a hearing on Tuesday that will include a panel on whether the WTO’s Appellate Body can be saved. The panel will include EU Commission Director-General for Trade Sabine Weyand, former Appellate Body member Peter Van den Bossche, and Peterson Institute for International Economics senior fellow Chad Bown.
  • The Solar Energy Industries Association will hold a rally on Tuesday to call on the Trump administration to stop tariffs on solar products. The U.S. International Trade Commission will hold a hearing on Thursday to discuss the administration’s Section 201 safeguard measures.
  • The Heritage Foundation on Tuesday will discuss the merits of a U.S.-Switzerland free trade agreement with Swiss Ambassador to the U.S. Jacques Pitteloud. The ambassador will be joined by Patrick Dummler, senior research fellow at Avenir Suisse; Terry Miller, director of the Heritage Center for International Trade and Economics and former deputy assistant secretary of State for economic and global issues; William Reinsch, senior adviser and international business chair at the Center for Strategic and International Studies; and Anthony Kim, research manager and editor of the Index of Economic Freedom.
  • The Atlantic Council will hold a discussion on Tuesday with Finnish Foreign Trade Minister Ville Skinnari about trade and climate policy in the 21st century. David Livingston, the Atlantic Council’s deputy climate and advanced energy director will moderate.
  • CSIS will host its annual ChinaPower conference on Wednesday. Sen. David Perdue (R-GA) will deliver a morning keynote address and Assistant Secretary of State for East Asian and Pacific Affairs David Stilwell will give an afternoon keynote.
  • The Brookings Institution on Friday will hold a panel on “How America gave up on Free markets” featuring Thomas Philippon, professor of finance at New York University; Romain Duval, head of the International Monetary Fund’s research department's structural reforms unit; Heather Boushey, president and CEO of the Washington Center for Equitable Growth; Zia Qureshi, visiting fellow at Brookings; and Homi Kharas, interim vice president and director for the global economy and development at Brookings. -- Brett Fortnam (bfortnam@iwpnews.com)