Moving from Missed Opportunities to Actual Harm

On March 29, the Office of the U.S. Trade Representative (USTR) released its annual National Trade Estimate Report on Foreign Trade Barriers, which is required by law to appear before March 31. Usually this report elicits an article or two in the wonky trade publications we all read and the occasional complaint from a specific industry or two that their concerns were not adequately addressed. This year, I think, will be different. USTR has deliberately taken a different approach that is likely to receive widespread criticism from the community of people and companies actually engaged in trade who have to deal with trade barriers daily. It is certainly going to receive criticism in this column. Let’s begin with the basics.

The requirement for this report is contained in Section 181 of the Trade Act of 1974. The relevant part requires USTR to

"identity [sic] and analyze acts, policies, or practices of each foreign country which constitute significant barriers to, or distortions of—(i) United States exports of goods or services (including agricultural commodities; and property protected by trademarks, patents, and copyrights exported or licensed by United States persons), (ii) foreign direct investment by United States persons, especially if such investment has implications for trade in goods or services, and (iii) United States electronic commerce."

That is not all it requires, but it is the key element—USTR is to report on trade practices in foreign countries that “constitute significant barriers to, or distortions of” U.S. exports of goods or services. In its press statement announcing this year’s report, however, USTR laid out a somewhat different set of criteria:

"The NTE Report has received unprecedented attention this year because we are taking steps to return it to its stated statutory purpose. We respect that each government—including our own—has the sovereign right to govern in the public interest and to regulate for legitimate public policy reasons. Over the years, the NTE Report expanded from its statutory purpose to include measures without regard to whether they may be valid exercises of sovereign policy authority. Examples include efforts by South Africa to render its economy more equitable in the post-Apartheid era; import licensing requirements for narcotics and explosives; and restrictions on imports of endangered species. By carefully editing and returning the NTE Report to the statute’s intent, USTR is making it a more useful document that enumerates significant trade barriers that could be addressed to expand market opportunities and help our economy grow."

This is a terrible idea on several levels. First, the “stated statutory purpose” is the first quote above. I can confidently say that none of the people who prepared this report, including Ambassador Tai, were out of grade school in 1974, and they don’t have much credibility in discussing what Congress intended. I was working in Congress at that time, and I’m reasonably confident that the authors’ interests were more prosaic—they simply wanted to identify trade barriers that hurt Americans.

The new criteria ignore whether a policy is a barrier and instead focus on whether the other countries’ policies were undertaken for legitimate public policy reasons and were “valid exercises of sovereign policy authority.” That completely misses the point of the statute. The issue is not whether trade measures were legitimate or valid for the implementing country, but how they affect us. In other words, Section 181 is as much about us as it is about them, meaning barriers that adversely affect Americans should be listed. Whether they are good for the country imposing them is irrelevant to USTR’s mandate. I could understand USTR saying that it would not try to tear down a particular barrier because the United States regarded it as a legitimate public policy, but to deny it’s a barrier and encourage countries to continue it undermines the statute’s intent. It also undermines the trade rules we have spent 75 years building. There is a big difference between saying, “I don’t like what you’ve done, but I’m not going to do anything about it,” and “I’m fine with what you’ve done—keep on doing it.”

This new approach is particularly harmful to the digital sector, which, notably, is specifically mentioned in Section 181. As usual, Jake Colvin at the National Foreign Trade Council said it best:

"Specifically, in failing to call out significant barriers to American e-commerce and digitally-enabled exports, the Biden Administration is wasting an opportunity to stand up for U.S. innovation and inviting discrimination against American companies and workers by our economic competitors. By refusing to catalog local content requirements and other key foreign trade barriers, USTR is also willfully ignoring its congressional mandate to identify ‘significant barriers’ to U.S. exports of goods and services, foreign investment and electronic commerce."

Over the past three years, the Scholl Chair has done a lot of work on digital trade issues, and we are about to publish a policy tracker that help readers stay on top of digital policies in some 30 countries. We are doing this because of the enormous growth in digital trade and digital services over the past two decades and because of the sector’s importance to the U.S. economy. U.S. companies are leaders in this space, and it is in the nation’s interest to maintain and grow that lead globally. Instead, the USTR’s failure to even identify barriers, much less go after them, undermines our companies, hurts our economy, and ignores USTR’s own mission of advancing U.S. trade interests and promoting international trade rules. It appears the agency has moved from simply missing opportunities, as with the Indo-Pacific Economic Framework for Prosperity, to doing actual harm to our economy, which should be cause for all of us to be concerned. 

William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.