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Donald Trump’s trade negotiator-in-chief, Robert Lighthizer, has openly been in favour of curbing the jurisdiction of supranational courts over his country’s trade policy. In the past weeks, as the US and China seem to be on the verge of a deal to end their tit-tat tariffs war, Mr Lighthizer’s vision of trade agreement enforcement has emerged — and it has a 1980s feel.
Mr Lighthizer, a longtime trade lawyer, has outlined a model where Washington complaints over Chinese compliance with the deal would be negotiated between officials from each side. If the US were to be unhappy with the outcome, it would unilaterally impose sanctions deemed proportionate.
This diplomatic discretionary model is in sharp contrast to the standard quasi-judicial systems in most trade agreements, in which an independent panel of arbiters typically rules on infringements and authorises responses, usually in the form of retaliatory tariffs.
“The US is abandoning the multilateral approach of which they have been one of the main drivers,” said Lourdes Catrain, a partner at Hogan Lovells in Brussels.
The US-China approach represents a return to the days when Mr Lighthizer was a deputy US Trade Representative in the Reagan administration, and American officials bullied Japan into voluntary restraints on steel and car exports to the US.
That approach was abandoned for a reason. It was widely criticised as economically wrong-headed and arbitrary, subjecting trade policy to the vagaries of domestic lobbying and international power relations rather than the rule of law.
When it was created in 1995, the World Trade Organization was given a binding dispute settlement system — ironically enough after pressure from the US — with three-member panels of independent arbiters and an appellate body to review decisions.
This system has succeeded to some extent. Brazil, with an economy a tenth the size of the US, won a famous case over American cotton subsidies, forcing Washington to compensate Brazilian farmers. Brazil also defeated the EU over Brussels’ support programme for European sugar farmers, hastening a fundamental reform.
The US, however, has grown weary. Successive administrations have argued the WTO dispute settlement body has over-reached and ruled against the US by making up law out of thin air. This, US officials say, disadvantages American industries, not incidentally including Mr Lighthizer’s former clients — the beleaguered US steel industry. Mr Trump’s administration is strangling the WTO dispute settlement system by refusing to appoint new judges to its appellate body.
The US approach is forcing the WTO into a dilemma. Last year, the country imposed tariffs on steel and aluminium imports from many trading partners, including allies such as the EU, Canada and Japan, on the contentious grounds that they contravened national security. Several of those partners, including the EU, China and Canada, have brought a case to the WTO, saying that national security is an excuse for protectionist actions.
The US defence will rely on a rarely-tested provision in the WTO rule book allowing trade restrictions on national security grounds. The WTO dispute panel will then face an extremely difficult decision. Either it rules that the US has the inalienable right to decide how it sets trade policy to protect its own citizens, creating a loophole for any member country to follow suit. Or it can declare the tariffs illegal and risk blowing up the system by prompting the US to pull out of the WTO altogether.
Roberto Azevêdo, the WTO’s director-general, has no powers directly to resolve this dispute but is trying to broker a negotiated solution between the parties.
“These are issues that would be best handled at the political level, outside the dispute settlement system,” he told the FT in an interview.
But while that may avoid immediate conflict, it further extends the principle that the US may be able to get more by throwing its weight around in small negotiations than it can in broader deals or in open litigation. A US deal with China, and a negotiated rather than litigated outcome in the WTO, may bring short-term peace. But trade experts warn it may erode the rule of law that has underpinned the global trading system for decades.
Source: Financial Times