Time for a Trade Compact

Eighteen months ago, CSIS launched its Commission on Affirming American Leadership. Chaired by Fred Smith, CEO of FedEx, and former U.S. trade representatives Charlene Barshefsky and Bill Brock, its mission has been to figure out what the global economy will look like in 2030 and decide what the United States needs to do between now and then to maintain its leadership position. Since its beginning, the Commission has produced five documents: an initial communiqué that provides an overview of its work, a description of the 2030 economy, and three papers on workforce development, innovation and trade—the three areas that commissioners thought were essential to maintaining American leadership.

The first two documents were released last September and the workforce and innovation papers in October and November. The final paper, on trade, was released today, February 2, and that is the one I want to talk about today.

The Commission concluded that the international trading system is in crisis. Nations are trying to deal with rapidly growing new challenges like non-market economy practices that hurt market economies, digital trade, and climate change, while the steward of the system, the World Trade Organization (WTO) is floundering. Its three basic pillars—negotiation, dispute resolution, and transparency—are broken, largely due to sharp differences between developed and newly emerging economies over the extent of trade liberalization that is appropriate and how its costs and benefits should be distributed. While the Trump administration did not cause these problems, it did little to solve them, and its tactics arguably made them worse.

The system is not beyond repair, and some of the Commission’s recommendations directly address reform, but their fundamental recommendation is for a new approach—a Compact of like-minded non-authoritarian states that will lead the way in addressing the challenges of non-market economies, digital trade, climate, and labor. Here are some of the things Compact members should do:

  • Affirm that market economics, rule of law, transparency, and reciprocity are core principles of a global rules-based trading system in order, and its members should commit to conducting their economic policies on that basis.

  • Launch discussions on countering non-market economy practices, including those that pose a risk to national security.

  • Launch discussions on sectoral issues to drive innovation and growth.
    • Take finished agreements to the WTO and seek to enlarge them.
    • Launch discussions on how trade can help combat climate change.
    • Launch discussions on best practices to mitigate trade’s disruptive impact on workers and on trade’s potential to improve working conditions.

The Compact is intended to be a plurilateral agreement that supplements rather than supplants the WTO. Countries that want to pursue more ambitious rule-making and trade liberalization can do so through the Compact without being held back by the WTO’s requirement for consensus. Compact members can then take their agreements to the WTO and use them as a basis for broader multilateral agreements.

The Commission also has recommendations for WTO reform:

  • Insist on the annual adoption of a General Council statement that reaffirms the WTO’s founding principles, including the centrality of “open, market-oriented policies and commitments” to its membership.

  • Impose penalties on countries that fail to comply with notification and transparency obligations, and provide for technical assistance to assist them in compliance.

  • Lead in the reform of the dispute settlement system, including expedited and injunctive relief, and a reformed appeals system based on the judicial restraint originally contemplated in the Uruguay Round, and provide for greater oversight by WTO members.

  • Continue to advocate for a definition of special and differential treatment in multilateral negotiations that is based on objective criteria rather than self-definition.

And, at the same time, the Commission recognized that countries will continue to engage in unfair trade practices, and the United States needs to make sure it has adequate tools to counteract them. Its assessment was that while tools exist, they are too slow to provide meaningful relief and have not kept up with the increasingly creative means other countries use to circumvent them. To make them more effective, the Commission recommended:

  • Revive a China-specific safeguard to address the threat of injurious imports from China.

  • Accelerate the process for investigating and providing relief to companies threatened with injury from dumping or subsidies.

  • Ensure that actions taken under Sections 232 and 301 meet the statutory requirements, are used only when appropriate, and provide due process for affected stakeholders.

  • Clarify anti-circumvention rules and apply them to section 232 and 301 actions as well as antidumping and countervailing duties.

By focusing on threat of injury, these recommendations enable aggrieved companies to obtain relief more quickly (assuming they meet the statutory standards), and the expanded anti-circumvention provisions enable the government to act more aggressively against foreign companies seeking to evade U.S. laws. 

As noted in the beginning, the Commission’s recommendations are not confined to trade. Building a more agile workforce better able to respond to a rapidly changing economy, restoring our innovation leadership, and protecting our technology from theft are all part of maintaining U.S. leadership over the next decade. The Commission’s work, taken in its entirety, is a blueprint for sustaining the United States’ place in the world, and I encourage all of you to take a look at it.

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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