President-elect Biden

The Incoming Biden Administration and International Trade — Katherine Tai, nominee for U.S. Trade Representative

With the Trump Administration’s term down to less than 40 days, many trading partners are understandably wondering how the incoming Biden Administration will handle the many international trade issues that are pending at the moment. President-elect Biden has indicated his Administration will reengage with allies to address many issues, rejoin the Paris climate agreement and the WHO. On trade, President-elect Biden has indicated the need to work to get past the COVID-19 pandemic and the need to ensure fair trade, noting challenges with China in particular.

On December 10, President-elect Biden announced that he was nominating Katherine Tai to be U.S. Trade Representative. Ms. Tai has a distinguished career, including time at USTR as Chief Counsel for China Trade Enforcement and more recently as Chief Trade Counsel to the U.S. House Ways and Means Committee. President-elect Biden indicated that Ms. Tai was a “trusted trade expert” and had spent her career “leveling the playing field” for business and labor. Ms. Tai has received strong support from both business and labor. President-elect Biden indicated that a key priority in his Administration would be China enforcement and noted Ms. Tai’s deep experience in pursuing enforcement actions against China. President-elect Biden stated that trade is a critical pillar in building the economy back better. And he noted that Ms. Tai would be able to help ensure that trade helped address the challenges from climate change. The information on Ms. Tai from the President-elect’s website is embedded below.

Katherine-Tai-United-States-Trade-Representative-_-President-Elect-Joe-Biden

Ms. Tai’s comments after being introduced by President-elect Biden included a review of her heritage and the following statement about the role of trade in an economy:

“Trade is like any other tool in our domestic or foreign policies. It is not an end in itself. It is a means to create new hope and opportunity for people. And it only succeeds when the humanity and dignity of every American, and of all people, lie at the heart of our approach.”

As noted by the Chairman of the U.S. House and Ways Committee Richard E. Neal (D-MA) in his press release on Ms. Tai’s nomination,

“The U.S.-Mexico-Canada Agreement (USMCA) was a tremendous bipartisan accomplishment that has set a new standard for all future trade deals our nation pursues. That landmark agreement includes strengthened worker and environmental protections, rules to promote Americans’ access to life-saving medicines, and new and enhanced enforcement mechanisms.

“As House Democrats undertook negotiations with the Trump Administration regarding the deal’s implementing legislation last year ,unbeknownst to us, the future USTR nominee was serving at the heart of the process. With smarts, skill, and perseverance, Katherine Tai demonstrated how trade can be used as a force for good that uplifts people and creates opportunity.”

HWMC Press Release, Dec. 11, 2020, FOLLOWING PRESIDENT-ELECT BIDEN’S INTRODUCTION OF KATHERINE TAI AS USTR NOMINEE, NEAL EMPHASIZES OPPORTUNITY TO BUILD ONSUCCESS OF THE USMCA, https://waysandmeans.house.gov/media-center/press-releases/following-president-elect-biden-s-introduction-katherine-tai-ustr.

There have been many press releases from groups supporting Katherine Tai’s nomination from business, labor, environmental groups and others. See, e.g., American Farm Bureau Federation news, December 10, 2020, AFBF Welcomes Nomination of Katherine Tai for U.S. Trade Representative, https://www.fb.org/newsroom/afbf-welcomes-nomination-of-katherine-tai-for-u.s.-trade-representative; Aluminum Association, December 11, 2020, Aluminum Association Congratulates USTR Nominee Katherine Tai, https://www.aluminum.org/news/aluminum-association-congratulates-ustr-nominee-katherine-tai; American Apparel & Footwear Association, December 10, 2020, AAFA Welcomes Nomination of Katherine Tai for USTR, https://www.aafaglobal.org/AAFA/AAFA_News/2020_Press_Releases/AAFA_Welcomes_Nomination_Katherine_Tai_USTR.aspx; Sierra Club, December 10, 2020, Sierra Club Applauds Katherine Tai’s Nomination as U.S. Trade Representative, https://www.sierraclub.org/press-releases/2020/12/sierra-club-applauds-katherine-tai-s-nomination-us-trade-representative; AFL-CIO, December 10, 2020, Biden’s USTR Pick Shows Commitment to America’s Working Families, https://aflcio.org/press/releases/bidens-ustr-pick-shows-commitment-americas-working-families.

Some of the trade issues that will confront the next USTR

The U.S. always has a full trade agenda facing it. That includes ongoing negotiations such as the U.S.-U.K. FTA, U.S.=Kenya FTA, whether negotiations will proceed on other FTAs or talks where there has been a Phase 1 (U.S.-Japan Phase 1) or limited initial agreements (U.S.-Ecuador Agreement, U.S.-Brazil Agreement) and remaining issues with China following the 301 investigation, imposition of tariffs and U.S.-China Phase 1 Agreement. With Trade Promotion Authority (TPA) terminating at the end of June, the Biden Administration will need to decide whether to seek renewed Trade Promotion Authority. If not, focus at USTR will likely be on concluding the U.S.-U.K. agreement by the end of April, the only FTA likely to be concluded within the current TPA’s timeline.

Other negotiating issues include the pending multilateral and plurilateral issues at the WTO (fisheries subsidies and Joint Statement Initiatives like digital trade, MSMEs, etc., and the broader WTO reform needs (Appellate Body, industrial subsidies, improved transparency, trade and environment, and more). The Biden Administration may also want a broader outreach to Pacific Ocean countries (CPTPP countries and others) and could have an interest in achieving the vision of George W.H. Bush’s FTA of the Americas (although Democratic focus on human rights would make such an effort unlikely based on HWMC Democratic response to the initial U.S.-Brazil agreement earlier this year).

On enforcement, the Administration will have work on enforcement issues with major trading partners in the new USMCA (particularly on labor with Mexico but also dairy with Canada).

The China relationship is obviously an important one for the U.S., and there remain a host of concerns and unfinished business in negotiating resolution of the intellectual property issues with China flowing from the 301 investigation, as well as whether to maintain, reduce or eliminate tariffs on Chinese imports imposed after the 301 investigation. One can expect a new Administration will engage on many levels with China. While it is unlikely that the 301 tariffs will be lifted quickly, there could be more robust exclusion procedures at USTR and renewed interest by the U.S. in doing a phase 2 negotiation to resolve the other IP issues. One can expect the reestablishment of more formal high level periodic engagement, and possible pursuit of new disputes at the WTO on issues of concern. As President-elect Biden has said, China enforcement actions are a key priority for his Administration.

With the EU, there are existing major irritants, including the Boeing-Airbus dispute and WTO authorized retaliations, the widespread move in Europe to taxing digital services, and the Section 232 tariffs on steel and aluminum to name just three. While the Trump Administration has started negotiations with the EU on resolving the aircraft dispute, it will remain as an item for hopefully early resolution in the Biden presidency. Similarly, the digital services tax issue has been subject to one 301 investigation (France) with many others ongoing and with OECD talks continuing to find agreement on such taxes. One can expect likely fireworks in 2021 as taxes on digital services start to be imposed at least in one country. Similarly, it is unlikely that the U.S. will dismantle the 232 tariffs on steel and aluminum prior to panel reports on both cases challenging the 232 actions and the U.S. cases challenging the response by a number of trading partners. While there are irritants that need to be addressed, there are also areas of potential opportunity whether bilaterally or multilaterally. Presumably, the U.S. will be looking at steps it can take to advance the objectives of the Paris climate agreement and may find common cause with the EU on various issues. Similarly, the U.S. and EU have many of the same concerns about the ineffectiveness of existing WTO rules to address the distortions flowing from the Chinese system. Greater cooperation there is also needed and likely. While the EU and the Trump Administration had agreed early on to a trade agreement on industrial goods (excluding agriculture and other issues), such an agreement was never going to be acceptable to the U.S. Congress. It is unclear if the Biden Administration will pursue a trade agreement with the EU in the coming years or limit engagement to finding areas of cooperation on new rules and resolving existing friction issues.

Other enforcement issues will center of issues from existing FTAs, from WTO agreements and the ongoing 301 investigations on taxes on digital services other than EU countries (EU addressed above). How much activity will be placed on WTO disputes will depend on whether the U.S. pursues restoration of the Appellate Body (albeit limiting the AB’s role and correcting the problems identified by the U.S. over the last twenty-years and documented by the Trump Administration). There are, of course, a number of pending disputes that the U.S. is a party to at the WTO, including the cases filed by trading partners against the U.S.’s use of Section 232 of the Trade Expansion Act of 1962, as amended to impose tariffs on steel and aluminum imports for national security reasons and the cases brought by the United States against many of those countries who imposed tariffs on U.S. exports usually on the theory that 232 tariffs were safeguard tariffs. Panel resolution of all of these cases is expected in the first quarter of 2021.

While Congress is considering extending and/or modifying the Generalized System of Preference program which expires this month, the Biden Administration is likely to use the GSP eligibility for major participants to ensure statutory criteria for eligibility are met. Thus, the Trump Administration approach will likely be continued but refocused on Democratic concerns particularly if the GSP law is modified as proposed by House Democrats. The U.S. has been pursuing improved bilateral trade relations with India, as an example, and has used GSP eligibility as a lever for engagement. India is unlikely to do a broad trade agreement with the U.S., and it is not expected that the Biden Administration will pursue piecemeal agreements as was done with Japan.

On the World Trade Organization, the Biden Administration will have a potentially full docket but some important issues for early consideration. The first issue where an early action is important is who should be the next Director-General. The Trump Administration has indicated it did not agree to join a consensus on the candidate for the Director-General position who is the candidate with broadest and deepest support, Dr. Ngozi Okonjo-Iweala of Nigeria. Procedures adopted by the General Council in 2002 for selecting Directors-General was followed this year. The Chair of the General Council indicated he was prepared to recommend Dr. Okonjo to the General Council back in early November but has not done so in light of the U.S. position. Both Dr. Okonjo and Minister Yoo of Korea are well qualified candidates. While the Trump Administration may prefer Minister Yoo, in this writer’s view, either candidate will do an excellent job. U.S. refusal to join a consensus is contrary to procedures the U.S. and others agreed to. Because of the U.S. position and the failure of the Korean candidate to withdraw from the process, the WTO continues to operate without a new Director-General. The incoming Biden Administration should communicate with Korea that it intends to indicate the U.S. will join the consensus and then notify the Chair of the General Council. This can and should be done as quickly as possible by the Biden Administration to permit the WTO to get a new Director-General in place early in 2021.

The U.S. has also blocked the start of the process for selecting new Appellate Body members over the last several years because of serious concerns about the operation of the Appellate Body. The Appellate Body currently has no members and ceased being able to hear new appeals after December 10, 2019. During the Trump Administration, the U.S. laid out in great detail the problems of concern and earlier this year released a report on the Appellate Body that summarizes the concerns. While trading partners have been told about U.S. concerns over the last twenty years, there was no serious effort to address U.S. concerns until the operation of the Appellate Body was at risk. The process that was undertaken last year to look at U.S. concerns addressed some but not all issues raised by the U.S. The draft General Council decision prepared by the facilitator, Amb. David Walker of New Zealand,. was found inadequate by the U.S. Restoration of a two stage dispute settlement system remains of key importance to most Members, though not of great concern to the Trump Administration based on recent comments by USTR Robert Lighthizer (reported to have said that nobody cares about the demise of the Appellate Body). See Inside U.S. Trade’s World Trade Online, December 10, 2020, Lighthizer: ‘No one’s really missed’ the Appellate Body, https://insidetrade.com/trade/lighthizer-%E2%80%98no-one%E2%80%99s-really-missed%E2%80%99-appellate-body. The U.S. has been correct in my view in insisting that the problems flagged with the WTO Appellate Body’s operation need to be fixed before the U.S. releases its blockage of appointment of new members. What has been lacking to date has been a specific set of proposals from the U.S. that would address their concerns and rebalance rights and obligations. While it will likely take the Biden Administration time to determine how to proceed on the Appellate Body issue, the U.S. can and should indicate that it will be providing its proposals for reform of the Appellate Body hopefully during the first half of 2020. Key among the needed changes are clarifications of Articles 3.2 and 19.2 of the DSU to make clear that (1) filling gaps, (2) construing silence and (3) selecting one meaning from ambiguous provisions constitutes the creation of rights or obligations contrary to the limits imposed by Art. 3.2 and 19.2 There will also be a need to address past “overreach” situations either by declaring the challenged decisions not valid or by having the issues reexamined by a reconstituted Appellate Body under the clarified provisions of Article 3.2 and 19.2 or through changes to a range of Agreements. In a WITA webinar on Dec. 11, five Geneva-based Ambassadors for Ottawa Group WTO Members addressed a range of issues. WITA, Dec. 11, 2020, Ottawa Group Ambassadors on the WTO, https://www.wita.org/event-videos/ottawa-group-ambassadors-wto/. Canada’s Ambassador to the WTO, H.E. Stephen de Boer, indicated that it would be helpful if the incoming Biden Administration would signal its intent to engage on the Appellate Body issue, realizing that it would take time before the Administration had its team in place, etc.

Other early issues include the modification to the U.S. Annex 1 commitments to the Government Procurement Agreement to address essential medicines and other medical goods and the need for compensation or likely retaliation if the modifications as proposed last month by the Trump Administration go forward.

There are a host of disputes that will be coming out of the panel stage in the first quarter of 2021 in all likelihood that will also require attention. And, of course, the U.S. could work to bring new disputes or be subject to new requests for consultations.

An additional issue needing early attention is the proposed waiver of TRIPS obligations to address the COVID-19 pandemic put forward by India, South Africa and others that the U.S. has opposed on the basis of existing flexibilities within the TRIPS Agreement. But activities will be going on within the TRIPS Council in the first quarter.

The negotiating agenda at the WTO was summarized above. Besides fisheries subsidies (multilateral) and the Joint Statement Initiatives (plurilateral), there are a number of issues from earlier Ministerials that are still looking for resolution. The 12th Ministerial is likely to be held in the summer of 2021 in Kazakhstan and there are hopes for deliverables by then. This will require continued U.S. active engagement in the various fora.

Reform of the WTO (besides the Appellate Body) is an important objective with no clearly defined areas at this point but with many ideas floated by the U.S. and other delegations. The Trump Administration did an effective job of identifying what it considered to be fundamental problems or failures of the existing system including the U.S. view that WTO rules which are premised on market economies don’t adequately address the distortions created by nonmarket economies like China. The Trump Administration believes convergence of economic systems to market oriented ones is the key to a viable WTO. By contrast, China’s desire and belief is that the WTO has no role in addressing different economic systems, such that coexistence of systems is all that is required under a common set of rules. The Trump Administration also has flagged the failure of many Members to provide complete and timely notifications, particularly in areas like subsidies. The U.S. has similarly challenged the notion that special and differential treatment should be available to any Member based on self-selection as a developing country. The U.S. has pointed to the dramatic economic changes for many countries over the 25 years of the WTO’s existence and believes Members should be disqualified from special and differential treatment if they fit certain factual criteria. The U.S. has also raised the problem of tariff bindings not reflecting current economic conditions for many countries and with no tariff reductions occurring by countries with higher tariff rates.

For the Biden Administration, the challenge will be whether it works with other Members to develop additional rules that can address identifiable distortions (e.g., the effort underway with Japan and the EU on reviewing possible changes to the disciplines on industrial subsidies) and find practical solutions to other identified problems or chooses to pursue the larger-picture issues on which movement will be more challenging or impossible.

Not included in the above but obviously of importance to the Biden Administration will be how to advance trade and environment issues of importance to the U.S. and others. The environmental goods agreement discussions which broke down in 2016 is but one example. Fisheries subsidies is a negotiation that has gone on for nineteen years and should have been completed this year. Other environmental issues are being explored. Over the last 25 years, there is a great deal more interest among WTO Members of different economic levels to address the intersection of trade and environment to achieve sustainable development and for some island nations to survive at all. As reviewed in a prior post, the Biden Administration will likely be looking at ways to work with others to advance environmental objectives at the WTO. See November 17, 2020, WTO initiatives on trade and the environment — likely to receive a warm welcome under a Biden Administration, https://currentthoughtsontrade.com/2020/11/17/wto-initiatives-on-trade-and-the-environment-likely-to-receive-a-warm-welcome-under-a-biden-administration/. Short term, just the fishery subsidies negotiations are key to conclude.

While there is certainly more on the USTR plate than what is reviewed above, it should be clear that the incoming Biden Administration and the likely new USTR, Katherine Tai, will have some early important issues confronting them as they look to get past the pandemic and build back better. Here is wishing them well.