William A. Reinsch December 12, 2022
United States lost two dispute settlement cases—one at the World Trade Organization (WTO) over the Trump administration’s steel and aluminum tariffs, and one in the United States-Mexico-Canada Trade Agreement (USMCA) dispute settlement process over the administration’s interpretation of the automobile rules of origin. (The latter is not officially public yet, but the leak is reliable.) Both these outcomes were expected, at least by outside observers, and they probably will be followed by a third loss with respect to Trump’s China tariffs. The important questions now become how the United States will respond and what the implications of the response are for U.S. standing in the global trading system. So far, the news on both is disappointing.The WTO case concerned the Trump administration’s use of section 232 of the Trade Expansion Act of 1962 to impose tariffs on steel and aluminum imports in order to protect our national security. The Biden administration has maintained and defended the tariffs, which makes it equally complicit. In arguing the case in Geneva, both administrations took the same position—that only the nation in question can define what is essential to its security, and the WTO had no right to second-guess that decision. One could see the decision on this coming because that is exactly the position Russia took in a case brought against it by Ukraine (before the war), and the panel in that case clearly rejected the argument and maintained that it is up to the WTO to decide if a nation’s action was actually essential to its security. (In the Russia case, after rejecting the Russian argument, the panel went on to conclude that Russia’s action was essential to its security and declined to find a violation.)
The USMCA case involved the interpretation of a relatively arcane part of the auto rules of origin related to the treatment of parts that had been imported and incorporated into larger components that were ultimately included in the automobile. Mexico and Canada claimed that the negotiators had agreed on one interpretation, but that Ambassador Robert Lighthizer subsequently decided that the United States would adhere to a different one, raising the question whether the latter was permitted by the text of the agreement.
So far, the United States has responded officially only to the steel and aluminum case, and the Office of the United States Trade Representative (USTR) statement in response is depressing:
The United States strongly rejects the flawed interpretation and conclusions in the World Trade Organization (WTO) Panel reports released today regarding challenges to the United States’ Section 232 measures on steel and aluminum brought by China and others. The United States has held the clear and unequivocal position, for over 70 years, that issues of national security cannot be reviewed in WTO dispute settlement and the WTO has no authority to second-guess the ability of a WTO Member to respond to a wide-range of threats to its security.
This is an incredibly disappointing and shortsighted position for two reasons. First, it seriously undermines the rules-based international trading system which we helped create and have steadfastly defended for nearly 80 years. The United States has benefited enormously from that system and the dispute resolution process that is part of it because of the discipline it has injected into state-to-state trade relations. We now appear to be abandoning that in favor of a “might makes right” position that is no different from arguments that both Russia and China have put forth in other contexts.
Second and particularly disturbing is another sentence in the statement: “The United States will not cede decision-making over its essential security to WTO panels.” This is a dressed-up version of the sovereignty argument that countries trot out every time they get caught violating their commitments. In the United States, this has come predominantly from the far right, which regularly argues that nobody should be allowed to tell the United States what to do, and it now appears to be coming from the far left as well—international agreements should not be allowed to tie our hands. In fact, every international agreement we enter ties our hands—that is the point. We agree to limits on our sovereignty in order to get others to agree to limits on theirs, and the world is more orderly and peaceful as a result. When countries start saying, “Nobody can tell us what to do,” they throw the entire post-World War II governance architecture under the bus and invite other nations to flout the rules as well. When we make it okay to ignore the rules, we end up with the war in Ukraine.
My concern does not relate to the merits of the tariffs. I have spent a good part of my professional career defending the steel industry and protecting it from unfair trade practices, but the end does not justify the means. This response, along with other actions the administration has taken that ignore our WTO obligations, signal abandonment of the rules-based trading system and a return to the law of the jungle. President Biden has said we are better than this, but we certainly were not last week. I hope the trade policy makers at USTR and the White House take that message to heart and pursue a more responsible path.
William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.