Overview
In the days before the State of the Union address, the White House signaled that the president would stress the need for “fair and reciprocal” trade relations in his speech. Many expected specific actions for import relief and demands for the removal of foreign trade barriers to feature prominently. Instead, the president's trade-related remarks were surprisingly limited. He confirmed that going forward, the United States "expect[s] trading relationships to be fair and…reciprocal." He also promised that "we will work to fix bad trade deals and negotiate new ones. And they'll be good ones. But they'll be fair. And we will protect American workers and intellectual property, through strong enforcement of our trade rules."
These vague, high-level remarks stand in sharp contrast to this administration's recent trade enforcement actions, and its concentrated efforts to renegotiate existing trade agreements. The White House released a fact sheet on trade alongside the State of the Union address that was considerably more revealing of the progress made in advancing the president's trade policy activities and objectives. The fact sheet listed various actions to illustrate how the president is "standing up for American interests" by "taking tough enforcement action against countries that break the rules" and "putting the American worker first" by renegotiating trade deals. The president's few sentences on trade and formal adoption of the “fair and reciprocal” slogan in his State of the Union address should therefore not be taken as a sign that the administration's aggressive approach to trade policy and trade enforcement is softening. To the contrary, behind the somewhat softer language of the president’s remarks, the administration is continuing to execute a trade policy agenda that will have a significant effect on US trade relations. This advisory presents a brief recap of the actions the administration has taken recently, and that are likely to come in the months ahead.
Trade Enforcement
The president’s lack of emphasis on US-China trade relations in the State of the Union address is notable given the significant number and high-profile of pending US-China trade disputes. The US Department of Commerce (DOC) has opened over 80 new antidumping and countervailing (AD/CVD) duty investigations since January 2017, about one quarter of which involve imports from China. Virtually all of these resulted from actions filed by US companies, but the administration also “self-initiated” an AD/CVD case against imports of aluminum from China, the first such self-initiated case in decades. Before the WTO, the United States is also defending its continued practice of treating China as a so-called “non-market economy.” The non-market economy methodology in AD investigations allows the DOC to disregard Chinese companies’ actual cost of production data in favor of surrogate value data, which often results in higher antidumping duties on Chinese imports.
Separately, the Office of the US Trade Representative (USTR) is conducting an investigation under Section 301 of the Trade Act of 1974 to probe allegations that China forces US companies to transfer intellectual property and sensitive technologies in exchange for granting investment approvals, to determine if these actions are “unreasonable or discriminatory,” or “burden or restrict US commerce.” The administration’s decision in this case is due in mid-August. In his State of the Union speech, the president's comment that he will use trade rules to protect American intellectual property was likely a reference to this pending action.
The State of the Union speech came in the wake of major administration actions in global trade investigations as well. On January 22, 2018, USTR announced the president’s decision to impose tariffs and quotas on imports of washing machines and solar cells and panels pursuant to Section 201 of the Trade Act of 1974. Before these cases, the United States had not imposed Section 201 safeguard measures in nearly 16 years. With some minor exceptions, these limitations apply to imports from all countries, and will most significantly impact imports from Asia. In fact, South Korea has already taken issue with the determinations and requested WTO consultations on this matter. Taiwan also sought WTO consultations this week with the United States to exchange views on the solar safeguards and discuss potential US trade compensation to Taiwan for the potential adverse impacts of the safeguards on Taiwanese exports.
Finally, this January, the DOC completed investigations under Section 232 of the Trade Expansion Act of 1962 into the national security effects of steel and aluminum imports from all sources. The DOC self-initiated both investigations – rather than waiting for petitions from the domestic industries – in order to fulfill the administration’s stated objectives of self-initiating more trade cases and looking beyond traditional AD/CVD duty investigations to target imports. The DOC has delivered reports in both investigations to the president, who now has up to 90 days to announce what relief, if any, he will impose.
NAFTA
The president’s lack of mention of the North American Free Trade Agreement (NAFTA) was notable given that the United States, Canada, and Mexico just completed a crucial sixth round of talks earlier this week. In this round, parties reported making significant progress on topics such as anti-corruption, customs, and non-tariff barriers, but serious divergences in other areas remain.
The United States has proposed several highly contentious changes to NAFTA, including strict government procurement rules, an opt-out approach to investment arbitration, and the automatic expiration of NAFTA in five years, pending renewal. In addition, one of the most controversial US proposals is to raise the level of regional content required for an automobile to qualify for preferential NAFTA tariff treatment, and further to require that half of the value in NAFTA-qualifying cars be specifically of US origin. In the sixth round of talks, Canada provided a counteroffer that would count the value of research and new technologies (automotive supply chain segments in which the United States dominates) towards regional content. However, USTR Robert Lighthizer strongly rejected this proposal and criticized it as actually being contrary to the United States' goals.
NAFTA negotiators will meet again in late February for the next round of talks. The target deadline for completion of talks is March, but disagreements over dispute settlement, rules of origin, procurement, and the expiration of the agreement itself threaten to push talks into late 2018 or 2019. The new Canadian WTO challenge to the United States' use of trade remedies (and the United States’ sharp criticism of this challenge) could also complicate the outlook for NAFTA talks.
KORUS
In July 2017, President Trump directed USTR Lighthizer to engage in talks on the operation of the Korea-US Free Trade Agreement (KORUS) agreement, with a focus on the "significant trade imbalance" that exists between the two countries. The United States' position is that it is seeking to increase overall trade and negotiate a "permanent solution" to the trade deficit, with a particular focus on the automotive sector. President Trump did not make a specific reference to KORUS in his State of the Union speech, which may be to the benefit of negotiators meeting in Seoul yesterday as the delegations are grappling with "sensitive areas" including trade remedies and investor-state dispute settlement (ISDS).
TPP
President Trump stated at the World Economic Forum that he is open to negotiating a multilateral trade agreement with the 11 other member countries of the former Trans-Pacific Partnership (TPP), so long as it is a "substantially better deal" than the agreement from which he withdrew the United States in January 2017. The president also suggested that he is open to engaging in negotiations for individual bilateral agreements with these countries. The 11 remaining TPP countries recently reached agreement on a “TPP-11” deal (the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP)) and announced their aim to sign the agreement in March 2018. President Trump's promise in the State of the Union to negotiate new, “good” trade agreements is another indication that negotiations with TPP countries – whether on bilateral bases or in the multilateral context – could be on the administration's agenda.
