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This Week In Trade

Airbus arbitration decision due this week; USTR holds China hearing

Posted: September 30, 2019

The World Trade Organization is expected this week to authorize the United States to retaliate against the European Union for subsidies that member states provided to Airbus in a dispute initiated 15 years ago.

The Office of the U.S. Trade Representative has estimated that subsidies to Airbus inflict $11 billion worth of damage to the U.S. annually and has published product lists covering roughly $25 billion of European goods that could face 100 percent tariffs.

The case is linked to the EU’s challenge of subsidies that some U.S. states provided to Boeing, a case in which a WTO arbiter is expected to issue a decision in the coming months. This gives the U.S. a window to impose WTO-authorized retaliatory tariffs on the EU before Europe can return the favor. But a new European Commission is expected to take action to respond to any U.S. tariff action -- an issue that is sure to come up during EU Trade Commissioner nominee Phil Hogan’s testimony before European Parliament’s International Trade Committee on Monday.

EU Commission President-elect Ursula von der Leyen has instructed Hogan to consider pursuing changes to European law that would allow the Commission to sanction the U.S. without WTO authorization if the WTO’s Appellate Body does not have enough members to issue rulings. The U.S. has been blocking nominations to the Appellate Body since mid-2017, and the terms of two of the three remaining panelists expire in December. Three Appellate Body members are needed to hear appeals and issue rulings.

The pending paralysis of the Appellate Body could affect the U.S. retaliatory tariffs in the Airbus case. The EU claims that the subsidies contested by the U.S. have been terminated and have requested a second compliance panel. That panel is expected to issue its decision in mid-October. If the panel finds in favor of the EU, the U.S. would have the option of appealing the decision.

According to Article 21.5 of the Dispute Settlement Understanding, a compliance panel would have to issue a ruling within 90 days of a U.S. appeal. But panels and Appellate Body decisions have consistently blown past such deadlines. If the Appellate Body hears the U.S. appeal before the terms of two members expire on Dec. 10, it could issue a ruling after Dec. 10 if both members decide to continue working past the expiration of their terms. Rule 15 of the Appellate Body’s working procedures allows for Appellate Body members to finish work on cases they have been assigned even if their term has expired. The U.S. has objected to Rule 15, claiming that WTO members must authorize the extension of Appellate Body members’ terms.

One of the remaining Appellate Body members last week told Inside U.S. Trade that a factor in whether he retires on Dec. 10 will depend on reforms to the Appellate Body.

If a compliance panel finds EU member states no longer illegally subsidize Airbus, the U.S. would be required to terminate its retaliatory tariffs, subject to appeal.

USTR on Wednesday will hold its annual hearing to assess China’s compliance with WTO rules. The hearing will inform a USTR report due to Congress by the end of the year. Last year’s report, issued in February, said reforms proposed by other WTO members failed to address the threats that China poses to the multilateral system. Last week President Trump used his speech at the United Nations General Assembly to blast China and the WTO, blaming the WTO for allowing China’s rise to a global economic power while abusing trade rules.

A delegation of Chinese officials is expected to travel to Washington, DC, early in October to resume trade negotiations. The delegation is expected be led by Chinese Vice Premier Liu He. The talks will be first since Trump delayed an increase of tariffs on $250 billion worth of Chinese goods from 25 percent to 30 percent. The increase was initially slated for Oct. 1, but Trump delayed it for two weeks at the request of China in honor of its national holiday.

Senate Majority Leader Mitch McConnell (R-KY) and House minority leader Kevin McCarthy (R-CA), in a Monday op-ed in the Wall Street Journal, cited trade tensions with China in arguing that Congress should ratify the U.S.-Mexico-Canada Agreement. The two Republican leaders blamed congressional Democrats and House Speaker Nancy Pelosi (D-CA) for denying the president -- and the American people -- a victory.

“Under pressure from progressives to deny the country any successes during the Trump administration, Speaker Nancy Pelosi has tried to run out the clock on the USMCA,” they wrote. “Leading House Democrats frequently claim to support the deal in the abstract but have spent months finding one excuse after another to delay passing it.”

House Democrats have identified four problematic areas in USMCA: labor, environment, pharmaceuticals and enforcement. Administration officials, including USTR Robert Lighthizer, have largely been complimentary of Pelosi and House Democrats in describing the ongoing negotiations between USTR and the House caucus. But McConnell and McCarthy struck a different tone.

“The administration has worked tirelessly to address these shifting objections,” they said. “It’s time for Mrs. Pelosi’s delay tactics to end. House Democrats need to put the country first and stop blocking this significant victory for the American people.”

McConnell made similar claims on the Senate floor last week.

Staff-level discussions between USTR and House Democrats are expected to continue while Congress is in recess. Last week a Democratic working group appointed by Pelosi responded to counterproposals offered by USTR in the four issue areas. House Ways & Means Chairman Richard Neal (D-MA) said Lighthizer favorably received the working group’s response.

Events

  • The U.S. Chamber of Commerce and Association of American Chambers of Commerce in Latin America and the Caribbean will host a conference on Tuesday on the forecast for the region. El Salvadoran President Nayib Bukele, Jamaican Finance Minister Nigel Clarke and U.S. Under Secretary of State for Economic Growth, Energy and the Environment Keith Krach are slated to participate.
  • Indian Minister of External Affairs Subrahmanyam Jaishankar will take part in a discussion on Indian foreign policy on Tuesday at the Center for Strategic & International Studies. The U.S. and India are negotiating a limited trade deal as India hopes to convince the U.S. to reinstate its Generalized System of Preferences benefits.
  • The Washington International Trade Association on Wednesday will host a discussion on the U.S.-China trade and strategic relationship. Participants are set to include Joe Glauber, senior research fellow at the International Food Policy Institute and former chief economist at the Agriculture Department; Jude Blanchette, the China studies chair at CSIS; Richard Fontaine, CEO of the Center for a New American Security; Patricia Kim, senior policy analyst at the U.S. Institute for Peace; Chad Bown, senior fellow at the Peterson Institute for International Economics; Cinnamon Rogers, executive vice president for public advocacy at CompTIA; and Jonathan Gold, vice president for supply chain and customs policy at the National Retail Federation.
  • On Thursday, the Center for Global Development will host a panel on reforming U.S. trade policy. Chad Bown, Roosevelt Institute fellow Todd Tucker and CGD’s Erin Collinson and Kimberly Ann Elliot will take part. -- Brett Fortnam (bfortnam@iwpnews.com)

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