Leibowitz on Trade: Tariffs, National Security, Impeachment and So Forth

Looking at the international trade front, which is my beat, I see the Washington chaos affecting passage of USMCA. There are few signs of movement toward passage of the NAFTA 2.0, which would be a significant legislative victory for President Trump and a defeat for unions and the anti-trade left. Keep watching—but don’t expect much to happen on this.

Two major developments on the trade front at the WTO took place last week. First, the United States filed its brief in the WTO dispute settlement actions on Section 232 tariffs on aluminum and steel. Second, a WTO arbitrator authorized tariffs by the U.S. in retaliation for subsidies by the European Union for Airbus in connection with a dispute that has persevered for about 15 years. The authorized level of tariffs, $7.5 billion, is a record for the WTO. The U.S. issued a list of articles from Europe that will be retaliated against, effective on Oct. 18. There are a few industrial products covered by the retaliatory tariffs, but most are foods and beverages, including prominently wine and cheeses.

In the Section 232 dispute, the United States filed its “first written submission” in seven disputes last week. It argued, as it has before, that the WTO agreements do not permit the world body to examine the invocation of “national security.” Under Article XXI(b) of the organic document of global trade, the General Agreement on Tariffs and Trade (‘GATT”), any WTO member has the right to take “any action which it considers necessary for the protection of its essential security interests.” 

Last April, in the first dispute settlement case examining Article XXI(b), a WTO Panel ruled that the invocation of national security was subject to limited review, but not “no review.” The U.S. criticized that earlier ruling, which is directly contrary to the U.S. position. The Panel in April ruled that objective evidence could be examined to see whether the three specific situations justifying invocation of “national security” were relevant, and whether the action taken was reasonably related to the national security situation involved. If that is the proper standard, it is difficult to predict a U.S. victory. 

In the WTO arbitration, the long-running Airbus-Boeing dispute has finally reached the retaliation stage. The $7.5 billion in goods that are authorized to be subject to tariffs of up to 100 percent can be any goods traded between the U.S. and the EU. As is common in such disputes, the goods chosen are designed to restrict trade to facilitate a resolution of the dispute. The Airbus dispute revolves around European subsidies to Airbus, which is principally owned by British, Spanish, French and German aerospace companies with both commercial and defense interests. The goods chosen for retaliation principally concern imports from those four countries. For all those readers who appreciate French wine, the news is not good—25 percent tariffs on wine from France, Spain and Germany (and, for those who appreciate British wine, the UK is covered also). Cheeses from all EU countries are also hit with a 25 percent tariff. The U.S. won this dispute—the EU may receive authorization to retaliate against U.S. exports in a companion dispute alleging subsidies to Boeing. 

These two WTO disputes show the reliance that the United States has placed on the WTO as an institution. At the same time, the U.S. is undermining the WTO. As I’ve reported before, the U.S. is threatening the existence of the Appellate Body by refusing to permit new members of the seven-member body being appointed and questioning its decisions. As the Appellate Body becomes unable to function in resolving disputes, both wins and losses will become impossible as the WTO ceases to be able to make final decisions. 

It is perhaps a leap of faith to expect the WTO to issue impartial rulings in good faith while the U.S. is busy undermining the WTO. The U.S. argument that “national security” is entirely self-judging is an all-or-nothing strategy. High stakes, high risk. As President Trump often says, “We’ll see what happens.” 

Lewis Leibowitz

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