Restoring Faith in Global Trade

Restoring Faith in Global Trade
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These are tough times for those who believe that steadily lowering trade barriers can be a multilateral path to greater freedom, prosperity and international security. President Trump unilaterally withdrew the United States from the Trans Pacific Partnership his first week in office. He has since forced a renegotiation of the United States-Korea Free Trade Agreement and may withdraw the United States from the North American Free Trade Agreement.

As U.S. trade policy is debated, it’s useful to remember that signing and maintaining trade agreements only matters if the terms of those agreements are upheld. The public standing of trade agreements, and their economic impact, hinges on ensuring that agreements are not merely paper promises. Effective enforcement must be real and visible.

The United States has 14 trade agreements with 20 countries that comprise 34 percent of global GDP. Every U.S. trade agreement since 1989 has included dispute settlement procedures. Two examples are the Investor-State Dispute Settlement process, an international arbitration procedure to find a remedy when foreign governments discriminate against international firms, and the similar State-State Dispute Settlement process to resolve disagreements over the interpretation and implementation of trade agreement provisions. More broadly, the World Trade Organization’s (WTO) dispute settlement system has protected the rights of more than 160 member-nations for over 30 years. These systems enable individuals or countries to address their concerns as well as provide participants with needed security in a rules-based international trade regime.

Unilateral enforcement mechanisms are also available. U.S. businesses can petition the U.S. International Trade Commission (USITC) to perform anti-dumping and countervailing duty investigations if they believe competing foreign products are priced below fair market value. Another option for U.S. businesses is to appeal to USITC “safeguard investigations.” If USITC finds that a recent surge in imports of a particular product has significantly harmed a domestic industry, it can recommend to the president that temporary import restrictions be put in place.

Raising the issue of enforcement, especially the capacity for unilateral action, feeds fears that “enforcement” will simply be protectionism in another guise. As an example of this hidden protectionism, critics might point to President Bush’s 2002 decision to impose steel tariffs after a safeguard investigation. The WTO ruled soon after that the United States had violated the terms of the General Agreement on Tariffs and Trade, and these tariffs were withdrawn in 2003. More recently, some have expressed concern that the Trump Administration’s protectionist tendencies may lead it to undermine the WTO’s dispute settlement system.

A recent case suggests, however, that these enforcement mechanisms may work to buttress trade agreements. Whirlpool petitioned for a safeguard investigation into imports of residential washing machines. Whirlpool did not immediately appeal for a broad protectionist wall against washing machine imports. Instead, it first petitioned for antidumping duties against Samsung and LG for specific actions by the South Korean producers. The USITC found in Whirlpool’s favor twice, but those competitors chose to evade the remedies by moving production to China, Vietnam, and Thailand. The safeguard petition works to stop the global hopscotching and enforce level trade. The USITC sided with Whirlpool again in October and recommended tariffs of up to 50 percent on certain residential washing machine imports.

Clearly, any potential import restrictions should be weighed against the risk of legal challenges and potential impact on U.S. consumers. But we have reached a crucial juncture for the future of U.S. trade agreements and the strategic and economic benefits that flow from them. It is important to fight the forces of pure protectionism, but not at the expense of fairly enforcing those agreements that are already in place.

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