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Changes to FTAs, WTO Rules Could Follow from Newly Ordered Performance Reviews

Tuesday, May 02, 2017
Sandler, Travis & Rosenberg Trade Report

President Trump has issued an executive order directing new performance reviews of U.S. trade and investment agreements and World Trade Organization rules. These reviews will help guide U.S. trade policy and trade negotiations and could lead to the renegotiation or termination of existing agreements or rules. The order appears to broaden the Trump administration’s offensive against unfair trade practices beyond free trade agreements, which govern U.S. trade relations with 20 trade partners, to the rules of the WTO, which provide the framework for commerce between the U.S. and most of the rest of the world.

Reviews of Existing Agreements and Rules. The order states that many U.S. free trade agreements, investment agreements, and trade relations “have failed, in whole or in part,” to enhance U.S. economic growth, contribute favorably to the U.S. balance of trade, and strengthen the U.S. manufacturing base. The result has been “large and persistent trade deficits, a lack of reciprocal treatment of American goods and investment, the offshoring of factories and jobs, the loss of American intellectual property and reduced technological innovation, downward pressure on wage and income growth, and an impaired tax base.”

As a result, the order directs the Department of Commerce and the Office of the U.S. Trade Representative to conduct comprehensive performance reviews of (a) all bilateral, plurilateral, and multilateral trade agreements and investment agreements to which the U.S. is a party and (b) all trade relations with countries governed by WTO rules with which the U.S. does not have FTAs but with which it runs significant goods trade deficits. 

At the conclusion of these reviews DOC and USTR will issue a report that identifies (1) violations of trade or investment agreements, WTO rules, or preference programs that are harming U.S. workers, manufacturers, farmers, ranchers, intellectual property rights, innovation, or research and development; (2) unfair treatment by trade and investment partners that is causing such harm; and (3) instances where a trade or investment agreement, WTO rule, or preference program has failed with regard to such factors as predicted new jobs created, favorable trade balance effects, expanded market access, lowered trade barriers, or increased U.S. exports.

The report will also propose “lawful and appropriate” actions to remedy or correct any identified deficiencies. Commerce Secretary Wilbur Ross said some of these recommendations will likely be product-based, others may be more country-based, and some will be both. Ross said the intent is to determine what portion of the problems identified above is attributable to the various trade agreements “because those are things we can try to correct.”

Changes to FTAs and WTO Rules. According to the order, it is U.S. policy to “renegotiate or terminate any existing trade agreement, investment agreement, or trade relation that, on net, harms the United States economy, United States businesses, United States intellectual property rights and innovation rate, or the American people.” While the order does not define what may constitute “harm,” administration officials have repeatedly emphasized the negative effects of U.S. trade deficits, and Ross pointed out that the top ten largest U.S. goods trade deficits are with China, Japan, Germany, Mexico, Ireland, Vietnam, Italy, Korea, Malaysia, and India. Only two of these countries, Mexico and Korea, currently have FTAs with the U.S., and administration officials have consistently mentioned these agreements as ones that could be renegotiated or terminated.

U.S. trade relations with the remaining eight countries are governed by WTO rules, and Ross highlighted several problems with the WTO for which the U.S. is “liable to … try to figure out some solutions.” One example is the most-favored-nation rule requiring the U.S. to charge the same tariff on the same item for each WTO member regardless of the amount of their corresponding tariffs on U.S. goods, which is a “significant impediment toward getting to anything like a reciprocal agreement.” Other issues Ross raised with the WTO include its lack of disciplines on non-tariff trade barriers, its failure to deal effectively with intellectual property rights and the digital economy, and a dispute settlement mechanism that “takes a very long time” and is often stacked against U.S. interests. There’s “no question that we need some sort of an arbiter of international trade,” he said, but after 20 years “some structural changes in the organization might be warranted.”

At the same time, Ross held out the prospect that the U.S. could withdraw from existing trade arrangements altogether, noting that if trading partners refuse to negotiate “that doesn’t leave you an awful lot of alternatives.”

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