International Responses to President Biden’s Trade Policy Positions

As the Biden Administration settles into its second month in office some signals have emerged that have offered insights into the potential direction of US trade policy. Key trade officials, including United States Trade Representative (USTR) Katherine Tai and Commerce Secretary Gina Raimondo, have testified before the Senate as part of their confirmation processes.  The testimonies and responses of both nominees, in combination with the recently released USTR “2021 Presidential Trade Policy Agenda” report, have provided an early blueprint of the President Biden Administration’s position on current trade issues -- including USMCA, potential free-trade agreements, US policy towards China, and the climate agenda – and possible new directions. The international community has been watching these early indicators closely in order to gauge the likely track of US trade policy.   Professionals from Steptoe’s trade group who practice in major jurisdictions around the world weigh in with their take on how those jurisdictions are reacting to these early signals from the US. Canada As the US’s leading cross-border trade and investment partner, Canada has been closely following signals emerging from the Biden Administration on international trade, and indeed recently struck a new federal parliamentary committee tasked with examining all aspects of the US-Canada economic relationship. Canada is still recovering from four years of bruising and exhausting efforts to preserve US-Canada economic relations during the Trump Administration, including responding to the US imposition of tariffs on Canadian-origin steel and aluminum on “national security” grounds, and engaging in all-fronts efforts to ensure the adoption of USMCA as a credible successor to the NAFTA.  The US Senate Finance Committee hearing on the nomination of Katherine Tai as the next USTR was therefore an occasion to “take the temperature” of current US trade policy and consider to what extent Canada can breathe more easily, or must remain vigilant, over the next four years. To the extent that Ms. Tai emphasized the importance of, and US commitment to, USMCA, Canadian officials must have breathed a sigh of relief. Moreover, the Biden Administration’s strong policy emphasis on “trade and” the environment, labor, and sustainable development find strong echoes in the policy agenda of Canada’s current Liberal government. Prior to Tai’s confirmation hearing, indeed, Canada had already signaled its willingness to reopen aspects of USMCA to reinforce the Parties’ commitment to the Paris Agreement on climate change (which the US re-joined pursuant to one of President Biden’s first Executive Orders). Canada would also have seen as positive Ms. Tai’s emphasis on multilateralism and “making the WTO work”, after the aggressive bilateralism of the Trump Administration and the emphasis of former USTR Lighthizer on “negotiation” over independent judicialized resolution of international trade disputes.  Canada has been at the forefront of efforts to seek to provide work-arounds to the current WTO Appellate Body stalemate, notably by promoting the alternative voluntary arbitration mechanism pending relaunch of the institution. The fact that Ms. Tai declined to dismiss a potential re-engagement of the US with CPTPP will also have been noted by Canada.  From Canada’s perspective, such re-engagement may present opportunities to remedy some of the less desirable elements of USMCA.  On the other hand, the US’s return to the agreement would undoubtedly come at the cost of restoring many US-driven elements Canada and the other CPTPP members stripped from the agreement, following President Trump’s hasty exit from a deal at the outset of his administration. Where Katherine Tai’s comments likely raised more concern in Canada is in connection with Buy America.  Tai committed to ensuring US trade policy is consistent with the goals of the Made in America Executive Order “while recognizing the strategic and economic importance of our partnerships with Canada and Mexico.”  She also promised a review of US commitments under the WTO Agreement on Government Procurement (GPA). To recall, Canada declined the US’s proposed procurement terms under USMCA as they were GPA-minus.  Now, with President Biden apparently not backing away from nationalist policies in relation to major public procurement, the focus in Canada will be on seeking specific exemptions from Buy America, in particular in areas where Canadian goods and services inputs are deeply integrated into relevant US supply chains and where there are opportunities for mutual benefit to both parties’ producers, on both sides of the border.   This will be particularly important assuming President Biden is able quickly to move forward with his promised infrastructure agenda, which normally would present Canadian businesses with substantial opportunities. Beyond Buy America, Canada is especially focused on energy policy, notably energy transportation and access: to recall, one of President Biden’s first Executive Orders was to suspend permission to the Keystone oil & gas pipeline. This measure likely will lead to the relaunch of the international investment dispute by Keystone’s Canadian owners against the US, shelved since 2016 in light of the Trump Administration’s support for the pipeline. On this issue, Ms. Tai’s remarks provided little insight. Beyond these issues, Canada likely welcomed Tai’s emphasis on finding an effective way forward on China, and the related issue of finding better ways to manage the impact of State-owned enterprises; the promise to work with “trusted partners” to build resilient supply chains; and generally on maintaining trade as a high priority. Overall, the keepers of Canadian international trade policy are adopting an attitude of wary optimism.  On the one hand, they perceive the Biden Administration to be overall a more like-minded, rules-focused partner than its predecessor.  On the other, they realize that some of the genies of economic nationalism and grievance, released and nurtured over the prior four years, will be difficult to get back into the bottle, and likely will continue to mark US trade policy in various ways for years to come.   European Union Reaction in Europe to the hearing of USTR-designate Katherine Tai has been muted, and covered only in the specialized media. It was considered a very cordial hearing with little tension, due in large part to Ambassador designate Tai being well known as a former senior staffer who had played a critical role in the renegotiation of USMCA. It was noted that Tai often referred to how the economic landscape has changed over the last 5-10 years. Additionally, the Trump Administration’s trade policy, and then the pandemic, put the US in a very different place overall, challenging notions about supply chains and highlighting the need for greater resiliency and reshoring of some production capabilities.  Today’s trade policy must challenge old assumptions based on “maximizing efficiency without regard to resilience.”  Europeans understand that the Biden Administration is not seeking a return to the status quo ante in trade terms. Tai’s pledge to re-engage with US allies and multilateral institutions, echoing another core Biden Administration theme to restore the US's place in the international order, was very welcome. She said the US “cannot afford not to be a leader in Geneva and at the WTO.” Enforcement of existing trade agreements was another major theme, especially the USMCA. Chairman Wyden characterized digital service taxes (DSTs) as a “dagger” pointed at the heart of American businesses; Tai acknowledged the concerns and committed to engagement on finding international solutions to the issue. Tai did not shed much light on a specific course of action on difficult issues such as what she will do with the tariffs imposed on European steel and aluminum tariffs under Section 232.  She broadly agreed with Senators that the Airbus/Boeing dispute must be resolved and stressed that she “would very much be interested in figuring out how to land this particular plane because it has been going on for a very long time.” The recent EU-US deal to suspend retaliatory tariffs on a reciprocal basis linked to the Airbus/Boeing dispute is seen as a positive step, as is the agreement reached on agricultural quotas following the UK’s departure from the EU.  Finally, there has been no mention of reviving discussions on a potential US-EU free trade agreement, and likely will not be, given the Biden Administration’s statements about de-prioritizing such negotiations. The hope is that the new administration will be open to resolving irritants and generally trying to lessen some of the tensions which emerged during the last four years. Nobody is expecting a major trade breakthrough. The really big open question is whether the US will seek to resolve the WTO impasse in the run up to the autumn ministerial, given that domestic policies are likely to receive full attention for the moment. In the EU’s view, getting the WTO back to work will be key to trying to address a number of outstanding issues with China and they hope that the US will see things the same way. The recently published EU Trade Policy Review emphasized the need to reinforce the multilateral trade order as a key objective of European policy. The strategy prioritizes a major reform of the World Trade Organization, including global commitments on trade and climate, new rules for digital trade, reinforced rules to tackle competitive distortions, and restoring its system for binding dispute settlement. In short, while some initial signs are positive, EU diplomats and commentators are still left wondering what the precise content of future US trade policy toward the EU will look like.   People’s Republic of China China has largely remained muted in response to the hearing of USTR-designate Katherine Tai and the newly released the President’s Trade Agenda under the Biden Administration.  This is not surprising for several reasons.  First, as a routine practice, China’s official media usually do not comment on speeches from designated foreign officials. In addition, China just begun its annual “Two Sessions” (i.e., the National People's Congress (NPC) and the National Committee of the Chinese People's Political Consultative Conference) on March 4, 2021, which are expected to last until the middle of March. As the deliberations on China’s 14th Five-Year Plan (2021-25) and long-range objectives through 2035 are on the agenda for the Two Sessions this year, all the official media have closely focused on those political and economic issues raised on the agenda and been less responsive to foreign relations. Third, while Katherine Tai and the President’s Trade Agenda unsurprisingly mentioned China in many places, covering such issues as forced IP transfer, state owned enterprises (SOEs), structural changes, forced labor, and the available toolbox to combat China, none of these topics seems new from the Chinese perspective. After the Trump Administration’s dramatic change of US policy on China and direct confrontation with China in virtually all aspects of the relationship over the past four years, there is largely a consensus within China that confrontations between the United States and China will continue under President Biden. In particular, it is worth noting that, shortly after President Biden took office, President Xi Jinping spoke about the possible outbreak of a “new cold war” between the global powers during the virtual Davos forum on January 25, 2021 --- “to build small cliques or start a new Cold War, to reject, threaten or intimidate others... will only push the world into division.”  Prevention of further escalating of tensions with the United States seems to be a more realistic and rational option for China. On March 5, 2021, when questioned about China’s response to Secretary of State Blinken’s recent comment on identifying China as the top geopolitical challenge facing the United States, the spokesman of the Ministry of Foreign Affairs downplayed the response saying that China hopes that the United States will view China-US relations in an objective and rational manner, adopt a pragmatic policy toward China, and make efforts to bring bilateral ties back on the right track. A critical part of the Biden Administration’s policy towards China is to adopt a more strategic and comprehensive trade policy by working with allies, but China seems to have already adopted similar measures through tightening its economic ties with third countries to mitigate the effects. In November 2020, China signed the Regional Comprehensive Economic Partnership (“RCEP”) with 15 Asian-Pacific countries, which is viewed as a significant geopolitical win for China. China is also working to strengthen its ties outside the Asian sphere.  In December 2020, China and the EU signed the EU-China Comprehensive Agreement on Investment. China’s commitment to further open its market to the EU at this point reflects its intention to weaken the Biden Administration’s efforts for closer EU-US cooperation on China.  Moreover, in February 2021, President Xi presided over the China-CEEC (“Central and Eastern European Countries”) Summit and announced a plan to import goods worth more than US$170 billion from the CEEC in the next five years, including doubling the import of agricultural products from the CEEC and increasing agriculture trade volume between China and the CEEC by 50%. Finally, over the past several months, senior Chinese government officials have publicly indicated the country’s interest in joining CPTPP.  This development is noteworthy since the TPP, the processor of CPTTP, was originally framed as a trade counterweight to China.  Technically, there are clear obstacles for China’s entry into CPTPP given the agreement’s much higher standards and inclusion of certain clauses such as SOEs that are sensitive to China.  Further, Canada and Mexico, members of the CPTPP, are also members of USMCA.  Under USMCA, Canada and Mexico are obligated to notify the United States before they formally start an FTA negotiation with a non-market country and shall provide the United States the full text of the agreement for impact assessment 30 days before the date of signature. This means that the United States could directly influence China’s entry into CPTPP through imposing direct pressure on Canada and Mexico throughout the negotiation process, including the right to terminate or replace USMCA pursuant to Article 32.10(5) of USMCA.  Still, China’s expression of interest in CPTPP reflects a desire to expand its economic relationships, in order to develop a sufficient counterweight to the efforts of the US against China’s interests.   Japan There has been no official statement by the Japanese government in response to the early trade positions announced by the Biden Administration.  Currently the National Diet is in session but so far there have been no comments or questions by lawmakers. In the Japanese media, President Biden’s trade policy is viewed as an integral part of the Biden Administration’s overarching “signature” policy, which is to combat the COVID-19 pandemic. The policy is characterized as a mechanism by which President Biden aims to promote innovative industries and create job opportunities. Some Japanese commentators argue that that there are some similarities between President Biden and President Trump.  President Biden is focused on protecting domestic industries with a worker centric trade policy, similar to President Trump.  President Biden is committed to using “all available tools” to take on the range of China’s trade practices which he claims continue to harm US workers and businesses.  Potential use of “all available tools” is noted as a “step further” to actions taken by President Trump, such as banning cotton imports from China’s Xingjian region, citing forced labor.  President Biden’s hawkish stance on China, seen as echoing many of President Trump’s complaints about China’s trade practices, is understood to target US workers who would have voted for President Trump and who believe that many of the manufacturing industries in the US have moved to China as a result of the Obama Administration’s trade policy. Japan is interested in knowing how the Biden Administration will deal with China, but is not necessarily taking the same tough stance.  After being asked how his telephone conversation with President Biden went shortly after he was inaugurated, Prime Minister Suga stated that they discussed regional security issues including China and North Korea, and that Prime Minister Suga conveyed his desire to cooperate with the US to bring about a “free and open Indo-Pacific” region.  Further, a survey of Japanese business, conducted prior to the publication of President Biden’s trade agenda, shows that the corporate sector also “favours a softer approach towards China and would like the Biden Administration to blunt the sharper edges of the Trump hard line”.  Some commentators argue that if President Biden’s focus on relaunching the US economy does not include increased trade cooperation, it could end up further softening Japan’s stance towards China. With regard to the US-Japan Trade Agreement (“USJTA”) and the US-Japan Digital Agreement, the 2020 USTR Annual Report notes that both agreements went into effect on January 1, 2020 and that the US and Japan announced plans for additional negotiations for a phase-two agreement in September 2019.  Through the USJTA, Japan lowered tariffs on US agricultural products whereas the US lowered duties on Japanese vehicles and industrial goods.  President Biden has not yet spoken on whether or when he intends to re-open these negotiations. That being said, Japan is keen to have the US enter the CPTPP.  Recently, Foreign Minister Mogi has commented that he had explained to the US on numerous occasions that re-joining the TPP would be in the interests of the US both economically and strategically.  He added that he understands that because President Biden is prioritizing the fight against COVID-19 and the domestic economy, the US will not rush to re-join the CPTPP.  Some Japanese analysts explain that trade skepticism in the US had existed even before the Trump Administration withdrew from TPP and that the claim that free trade agreements were robbing Americans of jobs resonated with many in the working class.  With an eye to the 2022 mid-term elections, most in Japan view it as premature for the Biden Administration to seek to join CPTPP. It is worth noting that Katherine Tai’s confirmation hearing was widely reported in Japan and that one media outlet headlined it: “Biden’s trade chief pick dodges question on re-joining TPP”. Business leaders in Japan welcome the Biden Administration’s multilateral approach to trade policy.  Hiroaki Nakanishi, chairman of the Japan Business Federation, said in a statement: “We have high hopes for the new US administration as it focuses on international coordination”.  He stated: “I hope the Biden Administration will unite and revive the United States as the world’s number one country”.  Like Prime Minister Mogi, he urged the Japanese government to continue with its efforts to persuade the US to join the CPTPP.   United Kingdom The UK welcomed Katherine Tai’s signals from her nomination hearing regarding renewed US commitment to multilateralism, including openness to “fixing” the WTO.  Given the UK’s new “go-it-alone” stance, as a middle-ranking power cut off from the EU as a result of Brexit, the UK will need to heavily rely on multilateral mechanisms to achieve and maintain an effective international trade environment. The UK also welcomed the US’s renewed commitment to integrating climate change considerations into its international trade agenda, as reflected in Ms. Tai’s remarks.  The current UK government has fixed upon environmental issues as a rallying-point for a UK public deeply divided by four years of debate over Brexit, and will be seeking to exercise leadership in this regard, to demonstrate to its domestic audience the UK’s continued relevance as a policy leader.  The fact that the US is “on board” and rowing in the same direction should make for better progress and greater potential for the UK to declare future “wins” in this space. Having reversed course on China in the past year to better align with US policy, the UK will also have taken note of Ms. Tai’s commitment to developing and executing a “strategic and coherent plan for holding China accountable” to its commitments and “compete with its state-directed economic model” – though likely without ruling out continued work with China in areas of mutual interest. However, the UK will have been playing closest attention to Ms. Tai’s comments in response to queries about the status of the UK-US trade agreement.  Having withdrawn UK goods and services producers from their home EU market, the current pro-Brexit UK government has been anxious to demonstrate “wins” for the newly-“independent” UK, particularly in the form of a UK-US Free Trade Agreement. The UK Government would therefore have been particularly keen to see signs the Biden Administration was committed to fast-tracking these negotiations. Instead, Ms. Tai’s signaling was at best lukewarm: Tai indicated that she would consider the work that has been done thus far before moving forward with negotiations, but did not discuss prospects or timing.  Indeed, the Biden Administration had previously noted that any steps taken by the UK to undermine the Good Friday Agreement, or to renege on the Northern Ireland Protocol agreed to by the UK in connection with Brexit, would jeopardize US commitment to any UK-US deal. Despite this, the UK Government this past week unilaterally announced it would fail to implement the provisions of the Northern Ireland protocol until at least the autumn of 2021. The move has been denounced by the European Union, which has promised to invoke dispute resolution provisions under the EU-UK Trade and Cooperation Agreement (TCA).  The move indeed risks jeopardizing European Parliament approval of the TCA, plunging the UK into a “no deal” scenario with its former EU trading partners.  A “no-deal” scenario would immediately raise the prospect of a hard border in Northern Ireland, in direct contravention of the provisions of the Good Friday Agreement.  Biden Administration signaling suggests this in turn would jeopardize continued progress on UK-US trade talks.