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This Week In Trade

WTO-TPP Whiplash; Section 421 Ends; Fast-Track Signals; Farm Bill Hopes

Posted: December 09, 2013

Posted: December 9, 2013

Before the dust had even settled around the newly minted World Trade Organization deal at Bali, Asia-Pacific trade ministers were rushing off to Singapore over the weekend to try and forge some kind of consensus in the Trans-Pacific Partnership (TPP) regional trade talks. The rapid pace in the world of trade policy doesn't appear to be letting up soon either, as officials are set to converge in Washington next week for the third round of the U.S.-EU talks.

The agreement in Bali represents a modest fraction of the overall Doha Round agenda, and comes 20 years after the de facto conclusion of the Uruguay Round that established the WTO. And at this point, few people seem to have clear answers to the key questions arising from the Bali ministerial, such as how hard will it actually be to amend the WTO rules to include the new agreement on trade facilitation, and which members will ultimately opt not to accept it.

Once two-thirds of WTO members have submitted their acceptances, the agreement will go into effect for those members. Non-acceptance would mean the trade facilitation obligations would not apply to a given member country, and a wide level of such rejection could undermine the significance of the deal.

Also unresolved is the question on whether the trade facilitation deal requires congressional approval. In the view of the Obama administration, at least, it does not. Deputy U.S. Trade Representative Michael Punke said in Bali that the agreement can go into effect through administrative action, and Senate Finance Committee Chairman Max Baucus (D-MT) did not mention this issue in his statement on the outcome of the Bali ministerial.

Punke also made the point that the trade facilitation agreement is enforceable under the WTO Dispute Settlement Understanding.

In Singapore, the TPP ministerial appears to have entered a more intense phase as trade ministers meeting from Dec. 7-10 have begun actively negotiating on some of the key outstanding issues. They are doing so bilaterally, and in small groups and are meeting as a plenary.

In the first two days, ministers met on the thorny issue of creating disciplines for state-owned enterprises (SOEs) so that they compete fairly with private firms, as well as on environmental rules, another controversial area. Similarly, ministers held small-group sessions on Dec. 7 on legal issues, electronic commerce, dispute settlement, and the text of the market access chapter.

In the run-up to the ministerial, there was little expectation that officials would produce an agreement on the toughest issues, including SOEs, investment, intellectual property protection, rules of origin, and environment.

Relevant for the TPP is the issue of whether Japan is open to making the kinds of concessions that the U.S. is seeking on its sensitive agricultural products and the automotive sector.  A Dec. 8 meeting between USTR Michael Froman and Yasutoshi Nishimura appeared to do little to advance those discussions.

The apparent stalemate in the bilateral U.S.-Japan talks has led to speculation among some business sources that Japan ultimately may not be part of the TPP agreement when it is first concluded, but will join at a later stage. Nishimura is leading the Japanese delegation to the ministerial meeting in Singapore, in lieu of Akira Amari, the Japanese minister in charge of the TPP, who is undergoing treatment for cancer.

In Washington, South Korea's recently announced interest in joining TPP will be the focus of a panel event on Thursday (Dec. 12) being joined by Acting Deputy USTR Wendy Cutler and Ahn Ho-Young, Seoul's ambassador to the United States. That event is being hosted at the Center for Strategic and International Studies and begins at 10:30 a.m., according to an announcement

U.S. officials and private-sector sources are viewing Korea's interest in the talks as an opportunity to raise a number of outstanding problems related to the implementation of the U.S.-Korea bilateral FTA.

This week marks also a significant change in the U.S.-China trade relationship with the expiration of Section421 of the 1974 Trade Act, which was amended to include a China-specific safeguard negotiated as part of China's accession to the WTO in 2001. Section 421 expires on Wednesday (Dec. 11).

The safeguard brought considerable attention to the White House during President Obama's first term, when Obama upheld an International Trade Commission (ITC) determination that Chinese rubber tires were causing significant injury to the American tire industry. The tire safeguards went into force in late 2009, becoming the first Section 421 petition to make its way past both ITC and the Oval Office.

President George W. Bush went against ITC determinations in four cases involving Chinese pedestal actuators, ductile iron waterworks fillings, steel wire garment hangers and circular-welded non-alloy steel pipes during his administration. The ITC itself also denied safeguards on two Section 421 cases involving brake drums and rotors and uncovered innerspring units in the mid 2000s.

It will be several more years until another key provision negotiated as part of China's WTO accession deal expires. That measure allows China to be treated as a non-market economy (NME) in antidumping cases, and expires in 2016.

Deadlines are also facing lawmakers this week, as the House gets set to break for recess on Dec. 13. Ahead ofthe holidays, the leaders of the farm bill conference have been trying to hammer out a deal but it so far is not clear whether they will be able to do so in time.

That has led to talk of a short-term extension that in order to avoid the so-called “milk cliff” when the current dairy program expires on Dec. 31 – something that would put in place permanent price support measures measures and roughly double the cost of a gallon of milk. Senate Agriculture Committee Chairwoman Debbie Stabenow (D-MI) and others, however, have been resistant to the idea of an extension.

Whether the farm bill comes together will have an impact on trade policy in a number of ways, including in the long-standing dispute with Brazil over agricultural subsidies. The final legislation may also further change the current country-of-origin labeling (COOL) regime for meat challenged at the WTO by Canada and Mexico, and alter catfish inspections in a way that has become controversial among trading partners.

Brazil has warned that it will have to consider retaliation against U.S. exports if there is no solution to the dispute, but has made it clear it prefers not to. If efforts to develop a farm bill falter and the U.S. continues to insist it will no longer make the monthly payments it agreed to make under an interim settlement, Brazil will may feel backed into a corner.

This week will also  put an end to the guessing game over whether the chairmen of the trade committees will introduce a new fast-track bill before the end of this congressional session.  The introduction of a fast-track bill cannot be entirely ruled out, even as House members, including Ways and Means Trade Subcommittee Chairman Devin Nunes (R-CA) said last week it would not happen.

If a bill is introduced, it may be too late to serve as a political signal to the TPP ministerial, but some in Congress or the administration might argue that function was served by two short articles published last week in The New York Times and The Wall Street Journal about how close members are to developing a new fast-track bill.

A bill would also put an end to the question of whether Finance Committee Ranking Member Orrin Hatch (R-UT)  will cosponsor the bill and what that means for reflecting the May 10, 2007 agreement non issues such as intellectual property, labor rights and the environment in its negotiating objectives.

In addition, the Senate Finance Trade Subcommittee is slated to hold a hearing on Dec. 11 on the digital trade agenda. The witnesses have yet to be announced.