A mid-August New York Times article framed the debate about trade policy in the Democratic Party’s presidential primary race as one of being ‘tougher than Trump.’ To develop trade policy that chases that meme will play into the hands of the corporate lobbyists for non-tariff measures who are happy if we remain distracted by what IATP has called “Trump’s tariff tantrum.”
Congress should discipline arbitrary and unjustified use of tariff measures, as Ambassador Jennifer Hillman, a former U.S. Trade Representative (USTR) negotiator, proposed in an August 11 Times opinion piece. But even if Congress were to re-assert (presumably in a post-Trump administration) the authority over tariffs that it ceded to the Executive Branch to end what Ambassador Hillman called “Trump’s Trade War Madness,” non-tariff measures of that malign trade policy would remain.
Rules to lock in monopoly and higher pharmaceutical pricing; to prevent easily understood labeling of food and workplace chemicals; to export unauthorized products of agricultural biotechnology; to prevent the cross-border regulation of the digital economy giants—these are just a few provisions of the new North American Free Trade Agreement (NAFTA) that the Trump administration says cannot be renegotiated. Instead, some members of Congress are trying to negotiate with the White House a post-negotiations enforceability of labor standards for some workers in Mexico and some measure to prevent the new NAFTA from locking in higher pharmaceutical pricing (Inside U.S. Trade, August 14, 2019; subscription required).
Indeed, providing “enforceability” is the key to unlocking Democratic congressional support (Inside U.S. Trade, July 31, 2019). A proposed “rapid response mechanism” by Senators Sherrod Brown and Ron Wyden would allow U.S. inspections of Mexican factories and rejection of exports from those factories if U.S. officials determined that new NAFTA labor standards were violated. Mexico’s Ambassador to the United States, Martha Barcena, said Mexico would support such a “rapid response mechanism” only if Mexican inspectors could likewise determine violations in U.S. factories.
It is not hard to imagine that Mexican inspectors could find labor standards violations in meat packing plants, horticulture fields and confined animal feeding operations, whose workforce is largely migrant labor. Under a reciprocal rapid response mechanism, Mexico could also reject exports from standards violating facilities.
The new NAFTA negotiations are governed by a 2017 confidentiality agreement that prohibits document disclosure except among relevant government officials and security cleared trade advisors. A more comprehensive reform, particularly regarding the non-tariff measures, would start by opening the negotiations process to earlier substantial input from Congress.
A partial congressional remedy to the USTR interpretation of Executive Order 13526 on national security classification, which prevents Members of Congress from discussing the content of draft negotiations texts with their constituents, would be to amend the Trade Promotion Authority Act of 2015 (TPA), which must be re-authorized in July 2021. The “trade war madness” is greater than tariff-based, because much of trade policy concerns elaborate non-tariff burdens of proof to show that U.S. regulations to protect consumers and the environment are “necessary” and “least trade restrictive.” In sum, trade negotiations require a more transparent and democratic process to achieve comprehensive reform.
However, 2021 is a political eon away. If negotiations between the USTR and a House of Representatives working group result in compromises that are acceptable to both parties, this autumn, Congress could accept or reject changes to U.S. laws to implement the new NAFTA without amendment to the new NAFTA text itself, as required by the TPA.
There is a massive “grassroots” corporate lobbying effort to pass the new NAFTA by October. U.S. Trade Representative Robert Lighthizer and Secretary of Agriculture Sonny Perdue, among the few high-level Trump administration officials who are not persona non grata for House and Senate Democrats, are lobbying Congress for new NAFTA passage. A lawyer coordinating the lobbying effort said that 70-80 House Democratic votes are needed to pass the new NAFTA, but that securing passage may depend on prior legislative agreements outside of the new NAFTA.
Ambassador Lighthizer has said that approval of the new NAFTA is a “credibility” prerequisite to get China to agree to U.S. terms for trade. Is there any likelihood that Congress will agree with Ambassador Lighthizer that a “memorandum of understanding” he negotiates with China on trade will not require Congressional review and approval even under the TPA’s prohibition on amendments (Inside U.S. Trade, February 27, 2019)? Even if Congress approves the new NAFTA and it agrees with Ambassador Lighthizer’s belief that the largest U.S. bilateral trade agreement needs no vote of Congress, the consensus among many industry groups and policy experts is that the current tariff-based trade war lacks a strategy for resolution.
The Trump administration lurches from one tariff to another, threat of more tariffs, delay of tariffs, and to hundreds of tariff exemptions, ostensibly for U.S. health, safety and national security reasons. Is there a tariff plan that will force China to agree to a major restructuring of its economy and the role of the Communist Party in planning that economy, subject to U.S. enforcement measures? If so, it is not discernable.
In the meantime, China has added to the economic malaise of U.S. farmers and ranchers by instructing its importing companies not to buy any U.S. agricultural goods. Goldman Sachs has advised their investors not to expect a deal with China before the 2020 elections. If that advice is correct, Secretary Perdue will have to ask Congress to replenish the soon to be empty coffers of the USDA’s Commodity Credit Corporation, the source of funding for the trade war related compensation program that paid out $8.5 billion by May 2019, more than half of it to ten percent of farm operation entities.
The Trump administration pays farmers and lauds their patriotism, prerequisites to retain their support for his re-election. However, there is no strategy to change agricultural and trade policy to make farmers and ranchers less dependent on U.S. taxpayers for their survival.
Indeed, there is no strategy that would result in an agreement that would end the Trump administration practice of sacrificing farmers as pawns. A business consultant writing in the Financial Times has recommended that “the west” develop an offensive strategy on technology policy and trade. Elements of the strategy include technology education, immigration policy and cyber-security, as well as trade. The strategy is not just directed at China but at U.S. digital technology giants: “The private sector must grow up. Silicon Valley is fighting the government at every turn but in fact, the two need each other.” It is true that the digital giants are resisting regulation of and taxation on their goods and services. However, both in the new NAFTA and in proposed World Trade Organization (WTO) secretariat hosted e-commerce negotiations, the USTR couldn’t be more supportive of Silicon Valley.
The U.S. would globalize its laissez-faire, no regulation approach to cross-border digital sales and consumer digital surveillance. In July, the USTR threatened France with a WTO trade dispute for enacting a three percent tax on digital economy transactions. The U.S. Federal Trade Commission may investigate Facebook for anti-competitive business practices, but Facebook and other digital giants will likely find a friend in the USTR, which incorporated industry demands in the new NAFTA.
The call to “modernize” trade policy usually focuses on technological changes, rather than on the impact of those changes on the public. The demand for a trade agreement on digital economy services and goods is perhaps the most well-known technologically driven change to trade policy. The new NAFTA would also create an unregulated market in agricultural goods derived from new techniques genetic engineering.
One factor that makes these putative “modernizations” irrelevant to resolving trade policy impasses is their failure to discipline anti-competitive business practices, such as agricultural export dumping. To externalize the energy and other costs of the digital economy and the cost to agricultural resources and communities of maximizing production for trade, regardless of the impact of production practices and investments on climate change, is anti-modern in the extreme. As IATP has written elsewhere, to write rules to foreclose “trade-related” regulation and apply trade rules only to the cross border exchange of environmental goods is the trade policy equivalent of climate change denial.
In December 2018, China and other WTO members proposed in a concept paper that U.S. demands for limits on industrial subsidies for exported goods should be negotiated in a trade-off framework with disciplines on agricultural subsidies. The U.S. rejected that proposal as a distraction from Chinese agreement to U.S. demands on industrial subsidies and the privatization of State-Owned Enterprises.
Rather than reject the proposal, the U.S. could expand the proposed framework to include subsidy and tariff rate quota disciplines on industrial and agricultural exports that result in increased greenhouse gases and loss of ability to adapt to climate change. Instead of suppressing climate change planning and science, the U.S. would notify their trade related climate change planning documents and science to the relevant WTO committees whose members could request more information about trade related climate change policy.
The U.S. could further propose that its national security concerns about technology transfer and dual use technologies be negotiated in the context of a multi-lateral cyber-security agreement. What the U.S. cannot do successfully, is to allege national security concerns, under U.S. trade law, to levy new tariffs on automobiles. Comprehensive trade and investment agreements cannot result from tariff tactics and demanding of U.S. farmers patriotic sacrifices that the Trump administration would never demand of Wall Street.
