Lighthizer Tries Again
U.S. Trade Representative Robert Lighthizer is continuing his valiant effort to create an intellectual foundation for the president’s trade policy. His most recent attempt appeared in the Wall Street Journal at the end of last week. This is a useful effort because it reveals how the administration might approach trade if it wins a second term. At the same time, I cannot help but think it is a bit like putting lipstick on the proverbial pig. You can dress it up all you like, but at the end of the day, it’s still a pig.
In contrast to Lighthizer, the president is not known as a deep thinker about policy. His message has been simple: the foreigners have been cheating us for a long time. They’ve gotten away with it because of his weak-willed predecessors. He will fix it and make sure it’s not going to happen anymore.
Ambassador Lighthizer, to his credit, is trying to dignify that by arguing, essentially, that Trump is the true free trader doing battle with the protectionists, primarily in China and the European Union. Let’s look at the arguments in his latest article.
He has two criticisms of the status quo: The World Trade Organization (WTO) dispute resolution system has turned the organization from a negotiating forum into a litigation venue where countries have no incentive to negotiate if they can attain their goals by winning panel decisions; and bilateral trade agreements, particularly the 72 the European Union has negotiated, undermine the most-favored-nation principle and essentially restore the system of colonial preferences that existed before the General Agreement on Tariffs and Trade (GATT).
The first is a case of the post hoc ergo propter hoc fallacy. Just because A happened before B does not mean that A caused B. The successful pre-1994 agreements that the ambassador admires were mostly about tariffs because tariffs were higher and were the most significant trade barriers. Those negotiations succeeded in lowering tariffs, so modern negotiations are more about rules, standards, and other non-tariff barriers, which are much harder to resolve. The WTO’s inability to conclude a major negotiation is a serious problem, but blaming it all on the Appellate Body is too simplistic.
The second criticism is an example of the hypocrisy that is common in the trade business. Ambassador Lighthizer has in the past said that he prefers bilateral agreements because they are easier to negotiate (only one country, usually smaller than us, to push around) and easier to enforce. The president has made the same point. Now it appears these agreements are only bad when the Europeans make them but okay when we make them, as we have underway with Japan, Kenya, and the United Kingdom.
He also offers five solutions for these problems. The first appears to be equalizing tariffs among nations, reflecting the president’s argument that if a country has a higher tariff than ours it is somehow unfair. (This ignores completely the fact that if we lowered a tariff in the past it was because we got something for it in a negotiation. It was not a gift.) This is not a solution to anything. It’s simply a disguised argument for raising our tariffs to the levels of others. That will not help anybody.
The second calls for an end to free trade agreements unless they promote regional economic integration or make their concessions on a most-favored-nation basis—in other words, make them available to everybody, not just the agreement partners. It’s noteworthy that he cites the European Union and the United States-Mexico-Canada Agreement as regional integration agreements but ignores both the Trans-Pacific Partnership and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership on the flimsy grounds that they do not include only contiguous states. Again, hypocrisy rules. A case can be made that all plurilateral agreements divert trade rather than promote it, but arguing that some (those we are in or can’t do anything about) are good and others are bad is not persuasive.
The third proposes limitations on special and differential treatment, especially for large economies—read China and India. The United States has already made a thoughtful proposal on this in the WTO, and it is surprising that he chose not to reference that here, as it is a good idea.
The fourth is a predictable attack on China’s economic practices—he has been right about that from the beginning—but offers no new solutions beyond saying the WTO needs new rules to address them. To its credit, the administration has tried to develop some in consort with the European Union and Japan. So far they have produced a partial answer but have not been able to agree amongst themselves on a complete one.
The final suggestion is to redo the dispute settlement process. Here his comments are noteworthy because he is finally putting forward an actual suggestion after two years of refusing to do so. His proposal is for a single stage of ad hoc panels that would rule on cases as they occurred and whose rulings would apply only to the case in question and have no precedential impact. This sounds very much like the pre-1994 GATT process, although he does say there should be a mechanism for the full WTO to “set aside erroneous panel opinions in exceptional cases.” In the GATT process, a single country could block a panel report, which led to great frustration with the process and ultimately to the reforms in the Uruguay Round. His proposal is not, therefore, a complete return to pre-1994, although it comes close. It is important, however, because it puts something on the table for the first time. Perhaps that will lead to an actual negotiation rather than the parties continuing to talk past each other. If so, that would be a good thing and an unusual, constructive move for the administration.
William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.
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