Artículos de Derecho Aduanero y Comercio Exterior 80... · pilares: La interrupción y uso...

Artículos de Derecho Aduaneroy Comercio Exterior

A Survey of Current U.S. International Trade PolicyMark k. Neville, Jr.

The Internationalization Dilemma: The importance of knowledge when dealing with political and institutional uncertainty

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Generalidades de la verificación de origen y otros temas relacionados con el origen de las mercancías en la regulación aduanera

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Análisis jurisprudencial del control y la administración de las mercancías en el régimen aduanero colombiano

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Régimen Cambiario Colombiano, actualización y pasos a tener en cuenta con operaciones en moneda extranjera

Mariela taMayo de lauschus

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« A Survey of Current U.S. International Trade Policy »

Julio 2019 - ISSN: 0122-0799 - Bogotá, Colombia - pp. 231 - 257

A Survey of Current U.S. International Trade Policy

El estado actual de la política internacional de los Estados Unidos

Um inquérito sobre a política comercial internacional atual dos Estados Unidos

Mark k. Neville, Jr.1

Para citar este artícu lo / To reference this article

Mark K. Neville, Jr. A Survey of Current U.S. International Trade Policy. Revista Instituto Colombiano de Derecho Tributario 80. Julio de 2019. At. 231.

Recibido: 20 de marzo de 2019Aprobado: 16 de abril de 2019

Página inicial: 231Página final: 257

ResumenLa política comercial internacional de la Administración Trump se basa en cuatro pilares: La interrupción y uso agresivo de la autoridad legal para lograr la recipro-cidad, Una corrección de los déficits comerciales, Resolver el problema de China, una amenaza existencial más allá del alcance de la OMC, y La revisión y renego-ciación de acuerdos de libre comercio para el equilibrio comercial.

Para caracterizar la política implementada en una sola frase, se trata de "inte-rrupciones destinadas a forzar la reciprocidad y eliminar los déficits comerciales". La guerra comercial con China; la imposición de aranceles adicionales sobre células solares, grandes máquinas de lavado, acero y aluminio; la inminente retirada de las preferencias comerciales otorgadas bajo el Sistema Generalizado de Preferencias de India y Turquía; la renegociación del Tratado de Libre Comercio de América del Norte (TLCAN); y las críticas hacia la Organización Mundial del Comercio (OMC), fueron acciones impulsadas por esta política esta política.

1 Mark K. Neville, Jr., LL.M. (International Legal Studies), NYU, is Principal of International Trade Counsellors and may be reached at [email protected] or tel. 1-239 631 6875.

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[ 232 ] Revista Instituto Colombiano de Derecho Tributario - Núm. 80 - Año 56

Palabras clave: Balanza Comercial; Acceso al Mercado; Seguridad nacional; Salvaguardas; Solución de controversias de la OMC (Organización Mundial del Comercio); Valoración Aduanera; Precios de Referencia; China; Acuerdo de Libre Comercio; Acuerdo Comercial entre E.E.U.U., México y Canadá (USMCA por sus siglas en inglés); Sección 232; Hecho en China 2025

AbstractThe international trade policy of the Trump Administration is built on four pillars: disruption and aggressive use of statutory authority to achieve reciprocity, a correction of trade deficits, solving the problem of China, an existential threat beyond the reach of the WTO, and review and renegotiation of free trade agree-ments to balance of trade.

To characterize the policy in a single phrase, it is “disruption aimed at forcing reciprocity and eliminating trade deficits.” The China trade war; the imposition of additional tariffs on solar cells, large washing machines, steel and aluminum; the impending withdrawal of trade preferences under the Generalized System of Pref-erences from India and Turkey; the re-negotiation of NAFTA; and the criticisms of the WTO: this policy drove all these actions.

Keywords: Balance of trade, Market access, National security, Safeguards,WTO dispute settlement, Customs valuation, Reference pricing, China, Free trade agreement, USMCA, Section 232, Made in China 2025.

ResumoA Política Internacional da Administração Trump baseia-se em quatro pilares: A interrupção e uso agressivo da autoridade legal para conseguir a reciproci-dade, Uma correção dos déficits comerciais, Resolver o problema da China, uma ameaça existencial para além do alcance da OMC, e A revisão e renegociação de acordos de livre comércio para o equilíbrio comercial.

Para caracterizar a política implementada em uma só frase, trata-se de “inte-rrupções destinadas a forçar a reciprocidade e eliminar os déficits comerciais”. A guerra comercial com a China; a imposição de taxas alfandegárias adicionais sobre células solares, grandes máquinas de lavagem, aço e alumínio; a iminente retirada das preferências comerciais outorgadas sob o Sistema Generalizado de Preferências da Índia e a Turquia; a renegociação do Tratado de Livre Comér-cio da América do Norte (TLCAN); e as críticas para a Organização Mundial do Comercio (OMC), foram ações impulsadas por esta política.

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Palavras-chave: Balança Comercial; Acesso ao Mercado; Segurança nacio-nal; Salvaguardas; Solução de controvérsias da OMC (Organização Mundial do Comércio); Valoração Alfandegária; Preços de Referência; China; Acordo de Livre Comércio; Acordo Comercial entre os Estados Unidos, o México e a Canadá (USMCA por sua abreviatura em inglês); Seção 232; Feito na China 2025

Summary1. The Trump Trade Policy Goals; 1.1. The Trump Trade War with China; 1.2. Disruption at the WTO; 1.3 Dispute Settlement Process; 1.4. Greater Transpar-ency; 1.3. Dispute Settlement Process;1.4. Greater Transparency; 1.5. Customs Valuation; 1.6. Restoring Manufacturing Base; 1.6.1. Stricter Labor and Environ-mental Standards in FTAs; 1.6.2. Safeguards Actions; 1.6.3. Section 232 National Security Actions; 1.6.4. GSP Reviews; 2. Balance of Trade; 3. Conclusion

IntroductionThe past two years of the Trump Administration have wrought the most profound changes in U.S. international trade policy in two generations.2 Although the Havana Charter (1948) never entered into force, we have benefited from what had appeared to be a settled international order, with governance exercised by such bodies as the General Agreement on Tariffs and Trade (GATT) (1947) and the World Trade Organization (WTO) (1994). We can also point to the instruments which have served collectively as the body of trade norms, prominently the GATT (1947 and 1994), the Harmonized Tariff System (1989) and the Customs Valua-tion Agreement (1979). Beyond those defining instruments we must be mindful of the score of other multilateral and plurilateral agreements which govern such diverse topics as Trade Facilitation, Government Procurement, trade remedies, i.e., Subsidies and Countervailing Duties and Antidumping and Trade-Related Aspects of Intellectual Property Rights (TRIPS). Taken altogether, these various agreements comprise the corpus of the accepted “rules of the road” for interna-tional trade.

To be sure, this does not mean to say that all has been static. Indeed, even viewed from afar, the trading system has continuously evolved over the past 70

2 Some of the observations made here appeared initially in an embryonic form in an article that was published just after Donald Trump’s inauguration in January 2017. Neville, U.S. Trade Policy Relaunch: Possible Directions, 28 J. Int’l Tax’n 30 (Feb. 2017). That was written from the perspective of what directions the Trump trade policy should take as much as what initiatives the Trump Administration would probably take. At this juncture, we can see the extent to which policy has followed those predictions, and the discussion has been updated and expanded considerably here.

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years through gradual accretions. To cite but two signal events, the Customs Co-Operation Council based in Brussels evolved from 1952 into the present-day World Customs Organization (WCO) and one of the major trading blocs, the Euro-pean Union, evolved over the past 60-odd years from its original six-member makeup to a continent-wide behemoth of twenty-eight members.

But with a “zoom” lens focus we realize that there have always been major seismic events that have impacted the trade and customs field. Any recital of such identifiable developments will include the numerous “Rounds” of Multinational Tariff Negotiations conducted under the GATT and the WTO; the 1956 Treaty of Rome which set up the European Common Market; the seriatim adoption of those just-cited agreements and others’ the 1993 establishment of the North American Free Trade Agreement (NAFTA); the emergence of the WTO from the GATT in 1994; and the 2001 accession of China to the WTO.

The understanding has long been that the international trading system was responsive to the needs of the participants and would remain in place for that reason. Once they had been identified, any shortcomings would be redressed by the international community coming together in good faith. The expectation was also that any needed institutional changes could and would be effected within the system in order to maintain its responsiveness and to balance the competing interests in play. An example of this inherent responsiveness is the 5-year sched-ule of amendments at the WCO to the Harmonized System for tariff classification.

And then Donald Trump was elected president of the United States.

1. The Trump Trade Policy GoalsThe striking thing about the notion of responsiveness and change being central to the system, of course, is that the changes are expected to occur both within the context of the established order and on an exceptional, as-needed basis.

And that brings us squarely to the first central observation of the Trump trade policy which is that there is a high level of unpredictability and that many of the changes are being made outside the system, or in defiance of the system, and at a fast-and-furious pace. This is of a piece with the general “shake things up” style of President Trump.

The central argument in defense of those disruptive actions is that the inter-national trading system is not homeostatic after all but seriously flawed. You will be able to judge whether the system is balanced and “working” but needs reform.

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The next feature of the trade policy is that, for the most part, the disrup-tive actions appear to be tactical moves calculated to compel negotiation and to achieve the Administration’s strategic goals.3

But that begs the question. What are those goals?

Perhaps the clearest and most concise expression of those strategic goals is contained in a September 2017 speech by the chief U.S. trade official, Robert Lighthizer, the U.S. Trade Representative (USTR), at the Center for Strategic and International Studies (CSIS).4 As enunciated by Amb. Lighthizer, those strategic trade policy goals may be summarized:

1. The US must take action- the years of talking about these problems have not worked, and the US must use all instruments to make it expensive to engage in non-economic behavior and to convince our trading partners to treat our workers, farmers, and ranchers fairly. The US must demand reciprocity at home and international markets. Changes and new approaches are called for.

2. Trade deficits matter and the U.S. must push for equivalence in tariff rates (e.g., automobiles are levied a 2.5% duty in the U.S. but 10% or 25% or more in other markets)

3. China is a specific threat. (a) Its plans and state-sponsored actions to create national champions, to force technology transfer, and to distort markets in China and throughout the world is a threat to the world trading system that is unprecedented and (b) the WTO is not equipped to deal with this problem.

4. All our Free Trade Agreements (FTAs) must be re-evaluated to determine if they are working to our benefit. The basic notion in an FTA is that one grants preferential treatment to a trading partner in return for an approxi-mately equal amount of preferential treatment in their market. The object is to increase efficiency and to create wealth. It is reasonable to ask after a period whether what the US received and what the US paid were roughly equivalent. One measure of that is whether there has been a change in trade deficits. Where the numbers and other factors indicate a disequilibrium, one should renegotiate.

To summarize: Look for disruption to achieve reciprocity; trade deficits matter; China is an existential threat, and the WTO is not up to the task of dealing

3 For an insightful perspective, see Porter, Trump’s Big Trade Opening, Wall St. J., Mar. 15, 2019, at A17, col. 1.

4 Available at https://www.csis.org/analysis/us-trade-policy-priorities-robert-lighthizer-united-states-trade-rep-resentative

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with it; FTAs must be reviewed and possibly re-negotiated. The balance of trade is a recurrent theme.

Disruptive action takes pride of place and perhaps the most disruptive trade action—and I write “perhaps” because there are so many trade actions jostling for that distinction—has been the so-called “trade war” with China.

We should start there.

1.1. The Trump Trade War with China

It would be a serious error for one to dismiss all the Trump actions out of hand as disproportionate or to ignore the justifications for many of its initiatives. While I consider many to be ill-advised, or more appropriately to have been ill-advised in the most literal sense, many other actions are fully justified responses to systemic failings in the established order.

No one, other than the Chinese themselves, of course, has argued that action was not warranted. In truth, the Chinese state-run economy has competed with the U.S., and not just the U.S. but with all others as well, in a zero-sum game for years.

By the start of the Trump Administration in 2017, all those prior years of collective hand wringing over Chinese trade and investment policies had come to naught. Earnest, but wistful all the same, exhortations for China to abide by the spirit of the WTO and to jettison its mercantilist policies, updated to be sure but with a philosophical allegiance to the 17th century, were followed by threats of reprisal from the US, and all were met with vague and empty promises of reform. If anything, China’s economy is more “state-run” and is more of a “Non-Market Economy” than ever.

Be very clear about this, too. The U.S., the EU, and others have not been toothless tigers when it comes to trading relations with China. We could cite to hundreds of cases that have been brought by the U.S., the EU and other trading partners against China’s predatory dumping and subsidy practices. They have not reached many of the other Chinese practices which include rampant counterfeit-ing, industrial espionage, and denial of market access to name a very few from a long list of unfair practices.

To my knowledge, not a single other state has criticized the Trump action or at least has denied or questioned that some response to China’s intransigence was necessary. And that is really saying four things:

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· China has, indeed, engaged in destabilizing trade actions for some years

· Those actions have hurt all of China’s trading partners

· The U.S. and other countries acknowledge the foregoing

· The WTO system has not reined in those actions.

It is of utmost importance to maintain this sense of perspective as you consider the trade policy for China. What is debatable is whether the actions taken have been the most appropriate or were the most likely to attain the desired goals. What is not debatable is that something needed to be done and the Trump Admin-istration is to be lauded for taking that action.

At the time of this writing, in mid-March, the negotiations between the U.S. and China are ongoing, so we cannot tell how they will have played out, but the very fact that negotiations are continuing is itself a sign that this phase of the initia-tive is working.

All of this will serve as an extended lead-in to the actions that the Trump Administration has taken.5 Acting pursuant to the authority granted by Section 301 of the Trade Act of 1974,6 three separate Lists of Chinese products were compiled on a Harmonized System basis by the U.S. Trade Representative. All the prod-ucts imported from China7 that are classified in the Harmonized Tariff Schedule of the United States (HTSUS) tariff provisions on the Lists are the subject of an addi-tional tariff levy by the U.S.

By Presidential Proclamation, products on the first two Lists are levied an additional tariff of 25% while List 3 imposes an extra tariff of 10% on the subject tariff provisions. Taken together, the three Lists account for imports from China with a value of US$ 250 bio. The additional tariff of List 3 was scheduled to be increased to a matching 25% as of January 1, 2019, but that was delayed until March 1 and further delayed pending ongoing negotiations. In addition, there is rumored to be a List 4, which would extend to all or virtually all the other products from China that are not in Lists 1-3 if the trade negotiations break down. This List 4 would impact many consumer products such as clothing or footwear, and the value of the imports affected would reach an additional US$ 267 bio.

5 See Neville, China Trade Sanctions: What to do?, 29 J. Intl Tax’n 26 (Sept. 2018).6 Codified at 19 USC § 2411. See Neville, Section 301, or, How do I Get a Foreign Government to Open its

Borders?, 27 JOIT 37 (Dec. 2016) and 28 JOIT 37 (Jan. 2017).7 To be clear, Macau and Hong Kong products are not subject to the tariffs.

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In reply, China has retaliated against a variety of U.S. products, valued at US$ 113 bio. The trade deficit in goods with China is such that China’s retalia-tion against imports with more tariffs is somewhat limited, i.e., U.S. exports to China are valued at only US$ 130 bio, so there is only an additional US$ 17 bio in exports to China that are susceptible to the levy of additional tariffs.

And what has triggered this? The “Made in China 2025” program8 was the proximate cause, but the trade actions are primarily aimed at redressing the decades’ long wholesale theft or forced transfer of US intellectual property, discriminatory industrial policies and other practices.

News reports show that the Trump plan is working, up to a point. True, China’s exports have slowed 9 and the Chinese are negotiating. But the U.S. tariffs have come at the cost of Chinese retaliation, which hampered U.S. agricultural exports, which in turn prompted a grant of U.S. subsidies to its farmers to alleviate the collateral damage they had suffered. Beyond that, the tariffs have led to a slowing of China’s economy, which hindered U.S. exports and which, in turn, widened the trade deficit.10 The effects of the trade war have had a broader reach, with global trade slowing at the end of 2018.11

I can report that many companies were thrown into a near panic and have sought to lessen their reliance on China as the “contract manufacturer” for the world. They realize that having “all of their eggs in the Chinese basket” is too risky. They are seeking to branch out, looking to Vietnam, the Dominican Republic or other countries. Some are even staying in the U.S. In truth, Chinese manufactur-ing costs have been on the rise, so there had already been some degree of supply chain diversification, but the trade war has accelerated that process.

As noted, the negotiations are still ongoing at the time of this writing. There are reports of significant progress having been made, but the big question is enforceability of any agreement. Even though we have the recent precedent of President Trump leaving the bargaining table in Hanoi after a failure to make prog-ress in the talks with Kim Jong Un of North Korea, there are some who fear that President Trump will accept a weak deal with China and declare success because of his need to show a “victory.” 12 The New York Times editorial board, no fan of

8 This is a state-led industrial policy that seeks to make China dominant in global high-tech manufacturing. See, US Chamber of Commerce, Made in China 2025: Global Ambitions Built on Local Protections, (2017) available at https://www.uschamber.com/sites/default/files/final_made_in_china_2025_report_full.pdf

9 Taplin, China’s Terrible Collapsing Exports, Wall St. J., Mar. 8, 2019, at B12, col. 1.10 Tankersley and Swanson, U.S. Trade Deficit Under President Bulges to Record, N.Y. Times, Mar. 7, 2019,

at A1, col. 6.11 Hannon and Zumbrun, World Trade Slowed at End of 2018, Wall St. J., Feb. 26, 2019, at A18, col. 1.12 Colombian readers are sadly all-too-familiar with such a denouement.

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President Trump, has made that point,13 as has Senator Chuck Schumer (D- NY), also a steadfast opponent of President Trump.

While discussing what the Trump Administration has done to curb Chinese expansionism, we should see a connection with the fourth policy goal, a reap-praisal of the Free Trade Agreement (FTA) program. Here, the Trump Adminis-tration renounced plans for a wide-ranging, multi-country regional FTA with Asia (the Trans-Pacific Partnership, TPP)14 and withdrew from negotiations. President Trump has made it clear that he prefers bilateral FTAs, perhaps believing that the bilateral negotiation forum would be more advantageous when striving for reciprocity.

Based upon all the foregoing, we must conclude that the disavowal of the TPP was a mistake. Abandoning the TPP made no sense from the strategic perspective of containing China. The TPP would have included most of the U.S. trade partners in the region except China, resulting in a strong counterweight to China’s aggres-sive Belt and Road initiative. Further, the remaining countries are pressing ahead with the TPP, re-named the Comprehensive Progressive Trans-Pacific Partner-ship (CPTPP) which will now exclude the U.S. For its part, China has proposed to lead its own regional free trade bloc, which would be inimical to U.S. interests.15

The discussion of trade relations with China leads naturally to a discussion of its plans for the WTO for, as has been noted, the Trump Administration feels that the WTO is incapable of dealing with the challenges raised by China, which necessitated the Section 301 actions, to begin with.

1.2. Disruption at the WTO

The Trump Administration has embarked on some game-changing strategies at the WTO, including changes to the dispute settlement process and seeking greater transparency.

1.3. Dispute Settlement Process

In a move that threatens to derail the WTO dispute settlement process, in 2018 the U.S. blocked the re-appointment of judges to the Appellate Body. That means that

13 N.Y. Times, Will Mr. Trump Trade Away the Future?, Mar. 9, 2019 (Editorial), at 10. 14 In addition, the US withdrew from negotiations for a proposed FTA with the EU. See Neville, Proposed

Transatlantic Trade and Investment Partnership: An FTA with the EU, 24 J. Int’l Tax’n 22 (Sept. 2013).15 Zhou and Zhen, China-led regional trade pact tries to make ground as restyled TPP pushes on without US,

South China Morning Post, Nov. 14, 2017, available online at https://www.scmp.com/news/china/diploma-cy-defence/article/2119911/china-led-regional-trade-pact-tries-make-ground

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now there are only three judges of the allotted complement of seven.16 If anyone of them cannot serve on the review of a panel decision, there will not be the required 3-judge appellate team, and that will halt the appellate process.17

This should have prompted the question, “Why is the U.S. taking this action?” The U.S. has prevailed in most cases in which the U.S. has been a party at the Dispute Settlement Body (DSB). That would suggest that the U.S. would be content with the status quo. However, many U.S. critics have challenged the dispute settlement process as unfair, with the panels and the Appellate Body of the DSB engaged in an activist approach that has strayed beyond their mandate and the terms of the Agreements they are interpreting.18 The U.S. takes the view that the GATT and the other substantive agreements are the end-products of negotia-tions and that the resulting agreements are in the nature of contracts. As such they should be applied as they are written and should not be interpreted in a manner that sees them as evolving and open to looser interpretation.19

For another explanation, we should look at some of those exceptions, i.e., where the U.S. has lost at the DSB. Notable losses are in tax,20 environmental protection21 and, more importantly, trade remedy cases. Many facets of the U.S. antidumping and countervailing duty regimes have been successfully challenged at the Dispute Settlement Body of the WTO by trading partners who alleged that the U.S. regimes are procedurally unfair and violate the Agreements. Examples

16 See https://www.wto.org/english/tratop_e/dispu_e/ab_members_descrp_e.htm. Parenthetically, one of the judges is an American, Thomas Graham.

17 See https://www.reuters.com/article/us-usa-trade-wto/u-s-blocks-wto-judge-reappointment-as-dispute-settlement-crisis-looms-idUSKCN1LC19O

18 For a spirited debate in 2007 between Robert Lighthizer, now the U.S. Trade Representative, and another U.S. trade lawyer, see https://www.cfr.org/article/wto-dispute-settlement-system-fair

19 This emerges very clearly in a dialogue with Ambassador Lighthizer after his CSIS speech, available at https://www.csis.org/analysis/us-trade-policy-priorities-robert-lighthizer-united-states-trade-representa-tive, and also reported in a 2017 blog posting. See https://www.cfr.org/article/wto-dispute-settlement-sys-tem-fair

20 The refund or remission of taxes through the Domestic International Sales Corporation (DISC, the Foreign Sales Corporation (FSC) and the Extraterritorial Income (ETI) programs was the subject of the WTO cases discussed in Neville, The WTO Status of the Proposed U.S. Destination-Based Cash-Flow Tax, 28 J. Int’l Tax’n 25 (Apr. 2017).

21 E.g., “The Gasoline Case,” Appellate Body Report, United States-Standards for Reformulated and Conventional Gasoline, WT/DS2/AB/R, adopted May 20, 1996, DSR 1996:I, 3; Shrimp-Turtle Case, Appel-late Body Report, United States-Import Prohibition of Certain Shrimp Products, WT/DS58/AB/R, adopted Nov. 6, 1998, DSR 1998:VII, 2755. In both instances, the U.S. was able to revise its regulation and bring its import regime into conformity with Art. XX of the GATT.

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include the challenges to the Antidumping Act of 1916,22 bond requirements,23 the “Byrd” Amendment24 and the “zeroing” of dumping margins.25 It may be that the Trump Administration is chafing at the WTO, in part, because the DSB has disap-proved these U.S. practices.

Apart from its concerns about the dispute settlement system, and especially the Appellate Body, the U.S. has also argued for greater transparency.

1.4. Greater Transparency

Admittedly there can be vigorous debate about the dispute settlement process—whether it needs structural reform and, if so, the nature and extent of those reforms. In contrast, the need for greater transparency is beyond cavil.

Many WTO Members have ignored the requirement to file notifications with the WTO of their implementation of various instruments. This may appear to be a pedestrian administrative issue. However, this withholding of the relevant infor-mation has hindered the proper functioning of the WTO. It also contributes to a general disrespect for the WTO and a disdain for the rule of law in a more general sense.

The U.S. has proposed a tightening of these implementation and notification requirements. 26

There is a connection between a lack of transparency and nullification, or impairment of benefits created by substantive Agreement commitments. This

22 The Antidumping Act of 1916, 15 USC § 72, was a hybrid antitrust and antidumping statute that provided for treble damages. See, United States - Anti-Dumping Act of 1916 - Status Report by the United States - Addendum (report of 2004 repeal of the U.S. statute), available at: WT/DS136/14/Add.32 WT/DS162/17/Add.32

23 Appellate Body Report, United States - Customs Bond Directive for Merchandise Subject to Anti-Dump-ing/Countervailing Duties WT/DS345/15, adopted 29 February 2008.

24 Appellate Body Report, United States - Continued Dumping and Subsidy Offset Act of 2000 - Commu-nication from Japan, WT/DS/217/AB/R, adopted 27 Jan. 2003. The so-called “Byrd Amendment” was a statutory provision that allowed the U.S. government to distribute antidumping and countervailing duties collected on imports to be distributed to the domestic U.S. industry petitioners.

25 The “zeroing” methodology, generally speaking, involves treating specific price comparisons which do not show dumping as zero values in the calculation of a weighted average dumping margin. By elimi-nating the negative netting margins the regulation had the practical effect of unfairly inflating dumping margins. See, inter alia, Appellate Body Report, United States - Laws, Regulations and Methodology for Calculating Dumping Margins (Zeroing), WT/DS294/RW, adopted 9 May 2006; Appellate Body Report, United States - Continued Existence and Application of Zeroing Methodology, WT/DS350/18, adopted 19 Feb. 2009; Panel Report, United States - Use of Zeroing in Antidumping Measures Involving Products from Korea, WT/DS402/R, adopted 24 Feb. 2011.

26 The U.S. was joined by Argentina, Australia, Costa Rica, the European Union, Chinese Taipei, and Japan. See, related WTO press release, available at https://www.wto.org/english/news_e/news18_e/good_12nov18_e.htm

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connection shows up most clearly in the context of customs valuation. Article 22.1 of the Customs Valuation Agreement obligates Members to conform their national legislation, defined broadly to include laws, regulations and administrative proce-dures, to the Agreement. Further, according to Art. 22.2 each Member is obligated to inform the WTO Committee on Customs Valuation of any changes to its regime.27

1.5. Customs Valuation

If we start with the fact that most duties are levied on an ad valorem basis and that Value Added Tax (VAT) and other indirect border taxes are likewise assessed on an ad valorem basis, customs valuation plays a major role in revenue collection.

And that is the root of the problem. It is difficult to deviate from established, objective norms on tariff classification and origin only play a vital role when it comes to preferential tariffs. By contrast, it is much easier for countries to renege on tariff commitments and/or to enhance revenue collection with loosened imple-mentations of the customs valuation rules.

One of the biggest threats to the harmony of global trade is the breakdown of the rule of law as the agreed rules, and especially those set by the Customs Valuation Agreement, 28 have ceased to exert a full normative effect on their own. To be clear, signatory countries have been careful not to adopt a brazen “so, sue me” attitude. Instead, the countries will first seek to keep their inconsistent regime hidden by not providing notification, then will delay replies when questioned and, when pressed, will seek to justify their regulatory regime. Still, there have been very recent reports of some countries admitting that their statutory or regulatory programs violate the Customs Valuation Agreement.

Nowhere is this deviation from WTO obligations more evident than the degree to which we have seen an explosion of countries’ resort to “reference pric-ing”29 in derogation of the Customs Valuation Agreement.30 This is a retrogression to the long-defunct Brussels Definition of Value (BDV), whose reliance on “normal

27 See also Art. 12, which calls for publication of national legislation.28 Formally the Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade

1994.29 Neville, Reference Pricing: A Disturbing Trend in Customs Valuation, 25 J. Int’l Tax’n 21 (Dec. 2014).

One factor that has contributed to this trend is the role of the WCO, specifically in the promulgation of the Revenue Package, the WCO’s 2009 response to many developing countries’ [lease for assistance after the 2008 global economic meltdown. It is billed as “the pathway to fair and enhanced revenue collection.” Valuation databases play a prominent role in revenue collection efforts.

30 To be sure, there are other violations as well, such as the forced use of “test values” to justify related party pricing. The Customs Valuation Agreement establishes that test values are to be used only at the initiative of the importer. Art. 1.2 (c).

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values” was discarded officially with the issuance of the Customs Valuation Agree-ment in 1979.31 The BDV is zombie-like in its staying power, however, and it has re-emerged under the guise of “valuation databases.”

The Customs Valuation Agreement prohibits the use of “substitute values” under the guise of a resort to the “test values” (Subsections 1.2 (c) and 1.2 (b), respectively). Further, Subsections of Art. 7.2 prohibit the use of several valuation methods. These include:

· minimum customs values (f), and

· arbitrary and fictitious values (g), as well as

· a value that is based on the higher of two or more values (b) or

· a value that is tied to a selling price in the country of importation (a).

The term that is used most often to refer to any or all the above deviations is “Reference Pricing” although “Indicative Pricing” and “Criterion Pricing” are among the terms that are also employed.

Reference Pricing is prohibited but often makes an appearance by taking the form of a valuation database. In turn, a valuation database may be defined as a “compilation of prices extraneous to the import transaction, often organized on a discrete tariff classification basis.”

Usage of a valuation database is allowed only for a narrowly defined task, despite attempts by some to widen that use.32

The Guidelines issued by the Technical Committee on Customs Valuation of the WCO (TCCV) provides that

[A]pplication of an appropriate risk assessment and management proce-dure enables Customs to exercise this right in a pragmatic manner. Such procedures may use, inter alia, a valuation database.33

The TCCV Guidelines (para. 18) would affirmatively restrict valuation data-base usage when invoked to:

31 Annex I, Convention on the Valuation of Goods for Customs Purposes, December 15, 1950, 171 U.N.T.S. 307 (entered into force July 28, 1953). The term “normal value” is defined as the price which [the imported goods] would fetch at the time when the duty becomes payable on a sale in the open market between buyer and seller independent of each other.

32 We must be mindful that the Customs Valuation Agreement permits Members to satisfy themselves as to the truth and accuracy of any statement, document or declaration presented for customs valuation purposes. Art. 17.

33 TCCV, GUIDELINES ON THE DEVELOPMENT AND USE OF A NATIONAL VALUATION DATABASE AS A RISK ASSESSMENT TOOL (2005) (TCCV Guidelines) (para. 6).

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· Determine the Customs value of imported goods, either as a substitute value or as a mechanism to establish minimum values

· Reject the declared value solely on the basis of a difference between the declared value and the database values

· Disregard the release of goods on sufficient guarantee in order to use a database

· Substitute for other techniques, such as post-importation audits, to assess the truth or accuracy of the declared value.

These restrictions are clear. However, the actual practice in many countries is a continued use of their valuation databases in these impermissible ways, either to provide a substitute or minimum values, which are strictly prohibited by the Customs Valuation Agreement or to hearken back to “normal value” of the BDV, also prohibited. If and when an inquiry is made, the countries invariably state that “of course our valuation databases are for risk assessment (or risk management) only.” 34 This is a vexing problem. One might refer to any of the published Minutes of the WTO’s Committee on Customs Valuation meetings, and the reader sure finds numerous discussions on reference pricing.35 We also note that valuation databases and reference pricing were the twin subjects of an Informal Workshop in October 2014 at the WTO Committee.

To be sure, these assessments are not the fruit of an academic review nor has the topic been confined to Committee discussion at the WTO. There have been several WTO Dispute Settlement cases on Reference Pricing:

· Colombia, WT/DS366R (2009)

· Romania, WT/DS198R (2001)

· Mexico, WT/DS298R (2005)36

The first two cases resulted in the reference pricing programs being struck down, and the last led to a voluntary removal in settlement of the dispute. If the system were working, these cases should function as a body of precedent, leading

34 You should know that the private sector, represented by the International Chamber of Commerce, antici-pated this development and vigorously opposed the publication of the Guidelines at the time.

35 Available on the WTO website at https://docs.wto.org/dol2fe/Pages/FE_Search/FE_S_S006.aspx-?Query=(%20@Symbol=%20g/val/m/*%20)&Language=ENGLISH&Context=FomerScriptedSearch&lan-guageUIChanged=true#

36 Mexico is ever quick to point out that the case did not proceed to a panel report. To which we would reply that Mexico did not prevail, and its regime was not validated. Instead, the case ended when a mutually agreed solution was reached.

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countries on their own initiative to conform their national legislation and to cease the violations.

Anecdotal evidence shows the use of the databases as reference prices in 40 or more countries.37 Many of these have not yet filed notifications of their national legislation.38 Clearly, there is little or no normative effect from these WTO precedents.

Customs valuation practices that deviate from a strict adherence of the Customs Valuation Agreement, especially, may be “below the radar” but pose an equal or higher risk to efforts to alleviate a balance of trade than the more visible and more familiar tariff levels and trade- restrictive measures.

Eradicating this and other abuses is presumably one of the goals of the Trump Administration. The push for greater transparency at the WTO would be a necessary first step in that effort. Gaining public access to the national legisla-tion will expose the violations. This, in turn, will allow other countries, such as the U.S., Canada, and the EU, all of whom have been active at the WTO Committee, to submit questions for further clarification. The ensuing discourse would have the merit of bringing these practices fully into the open.

Of course, you should be asking the question at this point, “Can we really say that the WTO is functioning well if there is such rampant violation of a central feature of WTO trading system?” And we must realize that this would only reveal the violations but would not stop them. That realization raises two follow-up ques-tions: “Is it really the case that each and every identified violation must be sepa-rately challenged at the Dispute Settlement Body? Is there no other way to enforce the Customs Valuation Agreement?”

Stated otherwise, “Can we really say that the Trump Administration is not fully justified in advocating for these WTO reforms?”39

37 One factor that has contributed to this trend is the role of the WCO, specifically in the promulgation of the Revenue Package. This was the WCO’s 2009 response to many developing countries’ pleas for assistance after the 2008 global economic meltdown. It is billed as “the pathway to fair and efficient revenue collec-tion.” Valuation databases have played a prominent role in the Revenue Package and related technical assistance missions, with Members seeking assistance in setting them up. To be sure, the WCO has cautioned that their use should be as a risk indicator only.

38 One reason for this is the fact that some countries actually sell their databases to other developing coun-tries. However, the fundamental reason is that many of these countries see databases as a “quick and easy fix” to revenue collection problems. In fact, post-clearance audits and advance rulings should provide more effective solutions for hard-pressed customs authorities.

39 This focus on aggressive reform at the WTO stands in stark contrast to the continued inattention to the WCO, where the U.S. leadership focus has been largely limited to security matters. This is a mistake and is especially worrisome regarding customs valuation developments. The risks posed by a lack of focus also showed up in the recent activity at the WCO on the topic of the WTO Moratorium on digital downloads which activity was premature due to the open status of that issue at the WTO.

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Let us examine what we may view as the ultimate goal of the policy objec-tives of the Trump presidency—a resurgent manufacturing base--as evidenced by a positive balance of trade in goods.

1.6. Restoring Manufacturing Base

One of the recurring themes of the presidency of Donald Trump is to restore the manufacturing base of the U.S. The U.S. Census Bureau’s Labor Statis-tics showed that U.S. manufacturing jobs for October 2016 were projected to be 12.258 million. The last time we saw this level was in July 1941, when the U.S. population was 132 million, and not the 320 or 330 million it is today.

You may recall the dismissive jibe of Barack Obama that “those jobs are never coming back.” The most recent statistics show that manufacturing jobs in the U.S. have increased every month during the Trump Administration and they were projected at 12.834 million for February 2019.40 Why is this relevant? The answer to that question will serve double duty as the answer to the next question, “How has the Trump Administration gone about this?” Answer: The Trump trade policy agenda is designed to be a means to that end.41

Here the Trump Administration will build on the Obama trade policy which was characterized by some aggressive actions in defending U.S. interests, chief among them the Trade Facilitation and Trade Enforcement Act of 2015 (Trade Act of 2015).42 This demonstrated Congressional resolve to defend U.S. trade and intellectual property rights.43

President Trump makes frequent use of a “free and fair trade” slogan. This is nothing less than a vigorous reprise of the “free but fair trade” rallying cry from the late 1970s and into the 1980s. The target then was Japan, and clearly, it is China today.

The Japanese response then was to defend itself against aggressive trade initiatives by yielding to voluntary restraint agreements and also setting up “trans-plant” production factories here in the U.S. That was especially true in the auto and consumer electronic products sectors, with a number of Japanese auto companies

40 Available at https://data.bls.gov/timeseries/ces300000000141 On this point, we should not overlook the positive impact of the scrapping of many onerous federal regula-

tions nor the effect of tax reforms.42 For more information, see Neville, Trade Facilitation and Trade Enforcement Act of 2015, 27 J. Int’l Tax’n

22 (May 2016).43 Inter alia, there was close attention on preventing the evasion of antidumping and countervailing duties

and on protecting intellectual property rights.

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also entering into joint ventures with U.S. companies as another strategic move. Perhaps we will see a similar relocation effort by Chinese companies, although that is less likely given the nature of those companies, i.e., state-run and not private enterprises and therefore more invested in full employment and sourcing in China. The Trump Administration has resorted to several questionable tactics to drive the re-invigoration of the U.S. manufacturing base. These include the following.

1.6.1. Stricter Labor and Environmental Standards in FTAs

Beyond a heightened commitment to enforcement, the Trump Administration has followed precedent and sought to pressure trading partners to meet environmen-tal and labor standards that are consistent with those costs borne by U.S. manu-facturers.44 Recall the fourth point of the Trump trade policy, reviewing and revising FTAs. The recently negotiated United States-Mexico-Canada Agreement (USMCA), planned to replace the North American Free Trade Agreement (NAFTA), enforces heightened labor and environmental standards.45 It is also noteworthy that the U.S. Trade Representative’s Office regards the origin rules of the USMCA as instrumen-tal in “rebalancing” trade to support the U.S. manufacturing base.46

The USMCA is also noteworthy in its newly circumscribed access to inves-tor/state arbitration under the International Center for the Settlement of Investor Disputes (ICSID). There is no access to the ICSID in the context of U.S./Canadian investments and only limited access in the context of U.S./Mexican investments.

This is a radical departure from the NAFTA47 and at first glance appears to be paradoxical. U.S. investors in NAFTA territories, as well as U.S. governmental entities which have been challenged, have fared well under the ICSID arbitration regime. Why deny access to the ICSID process if these U.S. interests have been well-served by a fair and balanced forum?

44 For an older but still relevant discussion, see U.S. Office of Technology Assessment. 1992. Trade and the environment: Conflicts and opportunities. Report no. OTA-BP-ITE-94. Washington, D.C.: Government Printing Office available at http://www.ciesin.org/docs/008-067/chpt4.html

45 Office of the U.S.Trade Representative, UNITED STATES–MEXICO–CANADA TRADE FACT SHEET Modernizing NAFTA into a 21st Century Trade Agreement (October 2018) available at https://ustr.gov/about-us/policy-offices/press-office/fact-sheets/2018/october/united-states%E2%80%93mexi-co%E2%80%93canada-trade-fa-1

46 Office of the U.S. Trade Representative, UNITED STATES–MEXICO–CANADA TRADE FACT SHEET Rebalancing Trade to Support Manufacturing (October 2018) available at https://ustr.gov/about-us/policy-offices/press-office/fact-sheets/2018/october/united-states%E2%80%93mexico%E2%80%-93canada-trade-fa-

47 Cf. Chapter 11 of the NAFTA with Chapter 14 of USMCA. See, generally, Neville, NAFTA Investor Arbi-trations, 25 J. Int’l Tax’n 23 (Mar. 2014).

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It is precisely because the process has worked so well that this change has been made. All investments carry a certain degree of risk. If a U.S. company considering investing in Canada or Mexico is precluded from gaining any access to the ICSID for the Canadian investment and is only granted limited access for Mexican disputes, presumably, it would have to take its chances in a Canadian or Mexican courtroom to resolve any dispute with the host government. That pros-pect increases the risk factor for the potential U.S. investor. Maybe that U.S. company will stay home instead. If that is the case, perhaps that would lead to more, or would at least preserve existing, U.S. manufacturing jobs.

Parenthetically, I had expected that disputes in trade in goods in the USMCA might be ripe for change.48 Article 2005 of the NAFTA allows discretion to a complaining party to bring the issue forward for resolution under the NAFTA dispute settlement program or resolution under the GATT at the Dispute Settle-ment Body of the WTO if the complained of action could be actionable in either forum. This choice of forum is preserved in Article 31.3 of the USMCA. There are precedents on the intersection of these two routes for dispute resolution under NAFTA: the U.S. food labeling laws were the subject of attack at the WTO by Mexico (dolphin-safe tuna labels)49 and both Canada and Mexico (beef and pork country of origin labels),50 with the U.S. losing in these three cases.

This is an area where deep-rooted U.S. popular support for environmen-tal, wildlife and consumer protection measures are aligned with the interests of U.S. companies who are required to meet the burdens imposed by those U.S. measures. If foreign business interests are permitted to escape those burdens, progressives, conservation animal rights advocates and consumer advocacy groups would all close ranks with U.S. producers and would support a Trump Administration initiative to close out access to the WTO on any of these disputes.

After all, it could be argued, the USMCA, and presumably all other FTAs, creates an exceptional relationship between the parties such that any disputes should be and must be resolved under the auspices of the FTA in the same excep-tional sense, i.e., outside Geneva and only under the aegis of the FTA.

48 Neville, U.S. Trade Policy Relaunch: Possible Directions, 28 J. Int’l Tax’n 30, 33-34 (Feb. 2017).49 Appellate Body Report, United States--Measures Concerning the Importation, Marketing and Sale of

Tuna and Tuna Products, WT/DS/381/AB/RW adopted 13 June 2012. See Neville, WTO Issues Seriously Flawed Panel Report on “Dolphin-Safe” Tuna, 22 J. Int’l Tax’n 19 (Feb. 2012).

50 Appellate Body Report, United States--Certain Country of Origin Labelling (COOL) Requirements, WT/DS384/AB/R and WT/DS386/SB/R adopted23 July 2012.

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1.6.2. Safeguards Actions

Aside from the approaches to be taken in reforming NAFTA and other FTAs, the Trump Administration marked the first anniversary of its first full year in office by announcing two actions under the Safeguards statute.51 This is a trade remedy statute which is intended to provide temporary relief to a U.S. domestic indus-try sector in the form of a “positive adjustment” to import competition. The relief granted is typically in the form of increased tariffs, quotas or tariff-rate quotas.52 It has been used infrequently, for the most part, because of the burden to prove seri-ous injury caused by large surges in import volumes.53

The first Safeguard action was Presidential Proclamation 9693 of January 23, 2018,54 which instituted a tariff-rate quota on various CSPV cells and CSPV Products.55 The second Presidential Proclamation56 followed an ITC investigation, TA-201-76, into the effect of imports on the domestic manufacturers of large resi-dential washing machines. Most of the import volume was from Korea. Tariff-rate quotas lasting three years were announced.57 Certain exemptions were granted. Both of these actions were widely criticized.58

1.6.3. Section 232 National Security Actions

These actions were followed shortly later by two other highly controversial actions which were aimed at re-balancing trade deficits.59 First, there was the March 2018 imposition of additional duties on basic forms of steel (25%) and aluminum (10%)

51 Title XIX of the GATT 1994, WTO Agreement on Safeguards, 19 USC §§ 2251-2254.52 19 USC § 2253(a) (3).53 19 USC §§ 2252 (b) and (c).54 Proclamation 9693 of January 23, 2018, To Facilitate Positive Adjustment to Competition From Imports

of Certain Crystalline Silicon Photovoltaic Cells (Whether or Not Partially or Fully Assembled Into Other Products) and for Other Purposes, 83 Fed. Reg. 3541 (Jan. 25, 2018). The publication of the Summary of the ITC Report is at 82 Fed. Reg. 55393 (Nov. 21, 2017).

55 Interestingly, India also imposed a Safeguard action against solar cells from India and Malaysia (25% tariffs). See, e.g., India’s Supreme Court cancelled the decision to stay the proceedings on safeguard duty on solar imports, Photon.info, Sept. 11, 2018 available online at https://www.photon.info/en/news/indias-supreme-court-cancelled-decision-stay-proceedings-safeguard-duty-solar-imports

56 Proclamation 9694 of January 23, 2018 To Facilitate Positive Adjustment to Competition from Imports of Large Residential Washers, 83 Fed. Reg. 3553 (Jan. 25., 2018).

57 The Summary of the ITC Report was published at 82 Fed. Reg. 58206 (Dec. 8, 2017).58 For example, they resulted not so much in stimulating greater US production but simply in higher prices

under the pricing umbrellas created by the increased tariffs. See Cummins, The price of solar panels just went up—here’s what that means for you, Popular Science, June 8, 2018 available online at https://www.popsci.com/solar-panel-tariff-effects; Perry, Washing machine tariffs started Trump’s trade war. Result? Largest-ever 3-month increase in washing machine prices, Carpe Diem, July 11, 2018 available online at https://www.aei.org/publication/washing-machine-tariffs-started-trumps-trade-war-result-historic-3-month-increase-in-washing-machine-prices/

59 See, e.g., How Are Those Steel Tariffs Working? Wall St. J., Mar. 18, 2019, at A18, col. 1.

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under the authority granted by Section 23260 when the President determines there is a national security threat posed by such imports.61 This prompted furious reac-tions from many trading partners,62 and the actions have been challenged at the WTO.63 Many commentators have questioned whether there is a valid national security rationale to justify these Section 232 actions.64

On May 17, 2019, President Trump announced that he would postpone for six months the taking of any action on the question of the levy of an additional tariff on the imports of automobiles and automotive parts from Europe, Japan and elsewhere due to a national security threat posed by such imports.65 Query, are these examples of the first strategic goal listed above, of the U.S., using “all instruments,” presumably to force equivalence in tariff rates66 or more generally for leverage in negotiations? Are they examples of abuses of those instruments? Are they both?

1.6.4. GSP Reviews

These Section 232 tariffs indirectly led to the second decision, one affecting the Generalized System of Preferences (GSP) program. 67

60 Codified at 19 USC § 1862.61 For a comprehensive background and analysis of the statute and the steel and aluminum actions, see

Congressional Research Service, Section 232 Investigations: Overview and Issues for Congress, Nov. 2018 available at https://fas.org/sgp/crs/misc/R45249.pdf

62 Imports from Canada and Mexico were initially exempted, but that treatment lapsed, perhaps as an incen-tive to push the USMCA negotiations forward. We note that the additional tariff levies remained in place even though those negotiations had been concluded. The belated decision to re-instate the exemptions was announced on May 17, 2019. See Ana Swanson, Trump Lifts Metal Tariffs and Delays Auto Levies, Limiting Global Trade Fight, New York Times (online version), May 17, 2019, at A-1, col. 1, available at https://www.nytimes.com/2019/05/17/us/politics/china-auto-tariffs-donald-trump.html

63 See Neville, U.S. Trade Policy on National Security: Backwards or Upside Down?, 29 J. Int’l Tax’n 26 (Aug. 2018). Generally, the trading partners allege that the actions were really in the nature of GATT 1994 Art. XIX safeguards and that the U.S. has violated the GATT 1994 as well as the Agreement on Safeguards. For clarity, Art. XXI of the GATT 1994 permits actions for essential security interests.

64 For context, see Alford, The Self-Judging WTO Security Exception, 2011 Utah L. Rev. 697 (2011).65 See Swanson article cited in n. 62. For the notice of the Section 232 investigations for these two product

sectors, see Department of Commerce, Notice of Request for Public Comments and Public Hearing on Section 232 National Security Investigation of Imports of Automobiles, Including Cars, SUVs, Vans and Light Trucks, and Automotive Parts, 83 Fed. Reg. 24735 (May 30, 2018). By all accounts, the U.S. industry strongly opposes such a possibility.

66 Of course, we should be mindful of the 25% duty assessed by the U.S. on imports of light trucks under the venerable “Chicken War” tariff regime of 1963. See, Walker, Dispute Settlement: The Chicken War, 58 Am. J. Int. L. No. 3, 671 (1964). For a report of a Trump reference to a “Chicken War”-level tariff resulting from the Section 232 investigation see Wallace, Car Industry Fears Trump Tariffs On Vehicle Imports, Forbes (Feb. 17, 2019) available online at https://www.forbes.com/sites/charleswallace1/2019/02/17/car-indus-try-fears-trump-tariffs-on-vehicle-imports/#5bcec5ec6102

67 For the GSP program generally, see M. Neville (ed.), International Trade Laws of the United States: Statutes and Strategies ¶ 7.08 [1].

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One of the trading partner reactions to the steel and aluminum tariffs was the retaliation by Turkey: additional duties on U.S. product exports to Turkey (includ-ing coal, paper, nuts, whiskey, autos, machinery, and petrochemicals) that had been valued at US$ 1.78 bio in 2017. This prompted an immediate response by the U.S. in opening an investigation into Turkey’s participation as a beneficiary developing country68 in the GSP program. Some US$ 1.66 bio in imports of Turk-ish products were entitled to duty-free entry in 2017.

The focus was on the question of whether Turkey was meeting the GSP eligi-bility criterion that requires a GSP beneficiary country to assure the United States that it will provide equitable and reasonable access to its market.69 The Turkish retaliations were characterized in the Federal Register announcement as, “…a wide array of trade barriers that create serious negative effects on U.S. commerce, including imposing additional duties only on U.S. products, and in some instances, imposing additional duties that exceed the rates set out by Turkey in its World Trade Organization schedule of concessions.”70

The U.S. Trade Representative announced the results of the investigation in March 2019: Turkey and India (which was also under investigation) will both lose their GSP eligibility.71 The current 2018-2019 data from the World Bank (the Inter-national Bank for Reconstruction and Development, IBRD) show that Turkey has a Gross National Income (GNI) per capita income level under the ATLAS method of US$ 10,940, solidly in the upper-middle income group (US$ 3,896-12,055). This is a long way from “high” income status which would lead to mandatory gradua-tion from GSP.72 The Trump Administration will base its action on its discretion-ary authority73 citing in its press release to an “increase in Gross National Income (GNI) per capita, declining poverty rates, and export diversification, by trading partner and by sector, are evidence of Turkey’s higher level of economic develop-ment.” As for the Turkish “increase in GNI” the IBRD data shows a different story—the GNI per capita for Turkey has fallen after a high of US$12,530 in 2013 in every subsequent year.74

68 Office of the U.S. Trade Representative, Generalized System of Preferences (GSP): Notice Regarding the Initiation of Country Practice Review of Turkey, 83 Fed. Reg. 40839 (Aug. 16, 2018).

69 19 USC §2462(c)(4).70 Office of the U.S. Trade Representative, Generalized System of Preferences (GSP): Notice Regarding the

Initiation of Country Practice Review of Turkey, 83 Fed. Reg. 40839 (Aug. 16, 2018).71 The announcement [ Office of the U.S. Trade Representative, United States Will Terminate GSP Designa-

tion of India and Turkey, Mar. 4, 2019] is available online, https://ustr.gov/about-us/policy-offices/press-of-fice/press-releases/2019/march/united-states-will-terminate-gsp. See also Rappeport, Trump to Strip India of Special Tarif Status, Escalating Tensions, N.Y. Times, Mar. 6, 2019, at B6, col. 1.

72 19 USC 2462 (e).73 Granted pursuant to 19 USC §2462 (c).74 https://data.worldbank.org/country/turkey?view=chart

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The issue of the Turkish retaliation for the Section 232 duties may cloud the issue, but the India case is a more straightforward example of a Trump effort at balancing tariff rates and striving for market access for U.S. exports more gener-ally as steps leading to a more favorable balance of trade. The investigation into its continued eligibility began in April 2018, and it was focused on trade barrier issues and differential duty rates, the example of the 100% (later reduced to 50%) duties imposed on Harley-Davidson imports being cited as an example of an “unfair” trade practice. The announcement stated that “India has implemented a wide array of trade barriers that create serious negative effects on United States commerce. Despite intensive engagement, India has failed to take the necessary steps to meet the GSP criterion.”

It is essential to place the Turkey and India GSP cases within their proper perspective, which is that they are but two examples of a comprehensive review of GSP eligibility for all participating countries.75 The reviews began in October 2017, just weeks after the CSIS speech of Amb. Lighthizer. These internal reviews are tied to bilateral trade imbalances, discussed below, and are aimed at “leveling the playing field” and pushing for greater market access, the same themes that mark the Turkish and India cases. You will see the direct connection to the four policy goals set forth above.

If a restored and thriving manufacturing base is the ultimate goal of the stra-tegic policy then, as noted above, a healthy balance of trade is the preferred means of measuring whether that goal has been or is being attained.

2. Balance of TradeAnother statistic that figures prominently in designing Trump trade policy is the balance of trade in goods and services. President Trump consistently aims at restoring the U.S. balance of trade in goods, which is usually in deficit. The goals laid out by Amb. Lighthizer focus on trade deficits in their own right and also in connection with FTAs. All of this is directly tied to the effort to boost the manufac-turing sector in the U.S.

The most recent statistics available show that the Trump policies have not had much effect here, with the U.S. consistently running a trade surplus in services and a trade deficit in goods. For 2018, those figures were US$ 270.2

75 Craymer and Zumbrun, U.S. Takes Trade Fight to Smaller Nations, Wall St. J., Aug. 12, 2018 (available online at https://www.wsj.com/articles/u-s-takes-trade-fight-to-smaller-nations-1534082401

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bio and US$ 891.3 bio, respectively.76 In fact, the trade deficit in goods widened by approximately 12.5% in 2018, which is directly contrary to the Trump Admin-istration trade policy goal.77

3. ConclusionThe Trump Administration is of the mind that the time for talk is past. This is a time for action. And action there has been.

When analyzed in the context of a seminal speech at the CSIS by the U.S. Trade Representative in September 2017, we find a consistency and a continu-ity running through the trade initiatives of the Administration: The Administration is vigorously pursuing new trade policy directions, with an emphasis on rights of foreign market access and on reciprocity. The balance of trade, viewed on a bilat-eral basis, is a key driver in setting these trade initiatives and a key metric in deter-mining degrees of success.

Make no mistake, the actions are intended to be disruptive and if they are unprecedented, then so much the better. The levy of additional tariffs on Chinese products valued at US$ 250 bio was intended to drive China to the bargaining table.

Actions already taken against certain steel and aluminum imports, and possi-bly to be taken on automobiles and automotive parts, are presumably intended to confer leverage in negotiations on reciprocity. Similarly, even the lesser devel-oped countries that are eligible for the trade preferences of the GSP program are now on notice. After the March 2019 announced graduations of Turkey and India from the program, they may be called upon to allow “more fair” market access to exports from the U.S.

As for FTA partnerships, the revisions of the NAFTA should signal that all other FTAs may be subject to the same level of scrutiny and a re-opening of discussions so that they, too, are “more fair,” regardless how much compromise they may represent and how settled they may have appeared to be.

Finally, the WTO has been a target for its activist approach at the Appellate Body of the DSB and for its failure to enforce compliance with the GATT and other

76 Available at https://www.bea.gov/system/files/2019-03/trad1218.pdf. See also, Tankersley and Swanson, U.S. Trade Deficit Under President Bulges to Record, N.Y. Times, Mar. 7, 2019, at A1, col. 6.

77 This is exactly what was predicted by most economists, who noted that a strong U.S. dollar would serve to increase the goods’ trade deficit. Most economists also regard the balance of trade as a poor indicator of the health status of an economy. See Krugman, Trade Balance and the Cities (Wonkish), N.Y. Times, Mar. 24, 2018 available at https://www.nytimes.com/2018/03/24/opinion/trade-and-the-cities-wonkish.html

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agreements. One measure of the latter failing is the widespread use of reference pricing and the gradual return of the BDV in all but name in many countries.

To end with a critical appraisal, we may pose the following queries:

Has the China campaign been successful? It is too early to say. The interim report is that the Administration has earned a passing grade, as the negotiations continue apace. The final grade, however, will be assigned later and only after judging the strength of the agreement and learning whether China is honoring its commitments.

Was the negotiation of the USMCA successful? Some origin rules were tight-ened, but the loss of access to ICSID arbitration is hard to justify.

Has the balance of trade been improved? No, for a variety of reasons. Retal-iation by trading partners crimped U.S. exports while many imports continued to flow despite the tariffs, with the additional cost being absorbed by the import-ers or passed on to consumers. The steel tariffs, especially, led to a diversion of foreign exports to other foreign markets, at the expense of U.S. exports. Some U.S. manufacturers have set up local production in foreign markets, which led to a drop in U.S. manufacturing.

Have the Safeguards actions on solar cells and washing machines stimu-lated domestic manufacturing? No, they simply led to price increases to consum-ers. The price increases are also attributable in part to the tariff hikes on steel and aluminum under the Section 232 action.

Have the market access and reciprocity measures been successful? So far, no. Section 232 tariffs on steel and aluminum and the threat of tariffs on automo-biles and parts, all in the name of national security, have generated resentment and retaliation from many allies and trading partners. In a broader geopolitical sense both India and Turkey are expected to play important roles. India is seen by some as a potential partner and ally to counterbalance China and is embroiled in a tense nuclear-capable standoff with Pakistan. Turkey has been a long-time ally of the U.S., but relations have been at a low ebb for the past several years. Does it make sense to withdraw GSP trade preferences from them?

Has the WTO been reformed? Not yet, but it appears that some of the Trump Administration moves have gained some traction.

Have the “new approaches”/disruptions been worth it? In other words, is taking action under the authority of such trade law statutes as Section 232 or self-initiating GSP reviews in the name of “fairness” justified and worth the risk of

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alienating trading partners or even exploding the international trade system? That is an open question.

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