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Beyond Brussels: WTO complaints against US duties are similar, but not the same

So far, six World Trade Organization members have lodged complaints challenging President Donald Trump’s assertion that tariffs on steel and aluminium are needed to protect US national security. They are broadly similar, but hardly identical, and some of the differences are quite noteworthy.

 

More members have ganged together in the past to contest US policies – think the Byrd Amendment, against which 11 WTO members filed complaints, and the American steel safeguards that drew eight complaints in 2002. The US lost both those disputes and repealed the illegal laws, but a loss this time around could prompt Washington to walk away from the WTO.

 

Although the six current cases – filed by Canada, China, the EU, India, Mexico and Norway – aren’t identical, they all accuse Washington of breaching core WTO rules. By exempting certain trade partners from the tariffs, they say, the Trump administration has violated the trade body’s most-favored nation principle. They also argue that the US flouted the WTO’s safeguards agreement, which let governments impose temporary duties to protect a specific domestic industry from a sudden rise in imports that could cause serious injury to that industry.

 

The Trump administration, which rolled out the punitive import fees of 25% on steel and 10% on aluminium in March, has already warned that the WTO has no right to mediate complaints against the measures because global trade rules allow members to take “any action” to shield their “essential security interests”. That suggests the US will thumb its nose at any ruling – and there will almost assuredly be a ruling unless Trump withdraws the duties – particularly if the panel decides the tariffs are safeguards rather than a security issue.

 

“The pivotal question will be whether this is indeed a safeguard proceeding in disguise, as the applicants argue, or a ‘security exception’,” a trade lawyer told Borderlex. “To me, this is not clear-cut. Given the current political dynamics, I would not dare to bet on it.”

 

So how do the different complaints differ from each other, and how are they similar? Despite the differences, the cases are likely to be combined, which means the same panel of three judges will probe the complaints but issue separate reports for each dispute.

 

China is first to challenge US tariffs

 

China, the first country to complain, said in its 5 April request for consultations that “selective application by the United States of the additional import duties … including providing exemption[s]” equates to discrimination against Chinese steel and aluminium. “The United States has failed to administer is laws, regulations, decisions and rulings in relation to the measures at issue in a uniform, impartial and reasonable matter,” China says.

 

Furthermore, the measures “constitute safeguard measures in substance”, the Chinese complaint says.

 

India, which followed China’s example five weeks later, makes the same legal arguments for its complaint. Like China, New Delhi says the US measures breach Articles I, II, X, XI, XIX of the 1994 General Agreement on Tariffs and Trade.

 

India also argues that the metals tariffs violate 12 articles – two more than in the Chinese complaint – of the Agreement on Safeguards. Canada, which complained on 1 June, and Mexico, which did the same four days later, say the US broke 13 articles of the safeguards agreement.

 

And Mexico alleges that the tariffs violate Article XXIII of GATT, which refers to a member’s rights if it believes benefits granted under the accord have been nullified or impaired because of “the application by another contracting party of any measure, whether or not it conflicts with the provisions of this agreement”.

 

EU questions legality of Section 232 itself

 

The EU’s complaint, filed on 1 June, highlights the fact that the US exempted Korea, Argentina and Brazil from the steel tariffs after introducing quotas on their exports and excluded both Australia and Argentina from the aluminium levies. “These measures do not accord to the commerce of most other members, including the European Union, treatment no less favourable than that provided for in the appropriate part of the United States’ schedule,” the EU says.

 

Section 232 of the 1962 US law that allows safeguards based on national security violates the agreement establishing the WTO, according to the EU. This part of what is known as the Final Act of the 1986–1994 Uruguay Round of trade negotiations stipulates that “each member shall ensure the conformity of its laws, regulations and administrative procedures with its obligations as provided in the annexed agreements”.

 

The EU’s complaint says that “Section 232 … as repeatedly interpreted by the United States’ administrative and judicial authorities … is ‘as such’ inconsistent with the United States’ obligations and rights set out in the WTO agreement”.

 

This interpretation permits the US “secretary of commerce and president to determine, ostensibly because of an alleged threat to the national security of the United States, that additional import duties or similar measures be imposed because imports of certain products (such as steel or aluminium), in particular quantities and/or at particular prices, cause or threaten injury to domestic commercial production facilities, which are therefore to be protected against competition from imports in order to ensure that they are economically viable”, the EU complaint says.

 

“As such, Section 232, so interpreted, is inconsistent with the balance of obligations and rights set out in the WTO agreement, particularly those set out above, and fails to ensure the conformity of United States laws, regulations and administrative procedures with the United States’ obligations under the WTO Agreement, in a manner that is also inconsistent with Article XVI:4 of the WTO Agreement.

 

In addition, the EU complaint cricitises the unilateral nature of the US tariffs, saying the move “failed to afford the WTO and WTO members having a substantial interest as exporters of the products concerned an opportunity to consult with it in respect of the proposed action”.

 

Like the other complaints, the EU’s argues that metals tariffs are safeguards, which would have required the US to first determine “that such products are being imported into its territory in such increased quantities … to cause or threated to cause serious injury to the domestic industry”.

 

It’s hardly a secret that the main focus of the steel duties is China, which the Trump administration and other governments including the EU have blamed for the global steel glut. But safeguards, in principle, can’t target imports from a particular country. The safeguards agreement does, however, “describe how quotas can be allocated among supplying countries, including in the exceptional circumstance where imports from certain countries have increased disproportionately quickly”, the WTO says.

The big question: what will US do if it loses?

 

It’s probably a safe bet to assume that at least one – and perhaps all – of the five complaints will be sent to a panel for adjudication. The bigger question will be what happens if judges rule against the US.

 

Larry Kudlow, Trump’s top economic adviser, implied last week that Washington may not comply with WTO rulings it doesn’t like and that panel reports wouldn’t determine US policies. And while Trump hasn’t repeated threats he made when campaigning for the presidency to pull out of the WTO, many observers are worried that the US might do just that if the Section 232 tariffs are deemed illegal or if the panel reclassifies them as a safeguard.

 

The US could otherwise simply to ignore such a judgement – something it’s done several times with past panel reports it disliked – and keep the duties in place. After all, countries like Antigua and Barbuda may threaten to strike back when Washington flouts global trade law, but actually taking on a power as big as the US is another story.

 

Larger WTO members have fewer qualms about retaliating, however, and the Section 232 duties have brought out the tiger in some governments. The EU is already moving ahead with ‘rebalancing measures’ against the US, and Canada and Mexico have announced their own retaliatory levies on American goods – all well before any WTO ruling on the issue. Clearly the US isn’t the only government to take trade justice into its own hands.

3 Comments

  1. roderick.abbott@ecipe.org

    I am asking a simpler question: does the WTO allow you to (i) charge tariffs over and above the bound rates you accepted in your Schedule? and (ii) to violate Article I by charging higher duties on imports from some countries while exempting others (as indeed some of the complainants have argued). I do not read Article XXI as providing you with a total carte blanche. If in fact the US do not care that their measures are illegal, ‘the end justifies the means’, then buckle your seatbelts, folks..

  2. Jennifer Freedman

    Seems to me that the US isn’t bothered by the legality/illegality of the measures. But I guess the panel will have to decide. In the meantime, I’m buckled up. 🙂

  3. morten.petersen@eppa.com

    The Trump administration or just Trump will not take particular notice of what WTO says or does not say. Their/His focus is clearly a short list of vested interests and a midterm election where he needs to show his capacity to act on his electoral promises.
    Not much different situation from the 2002 George W. Bush measures on steel that were drawn back 18 months later due to in efficiency i.e. negative impact on US employment and US GDP.
    These measures will be no different and it will be even worse for US industry if the threatened Car & Car-part duties are imposed.
    As for the potential reaction from the Trump administration on the US measures I personally doubt it will have any impact on the measures. Firstly, because I do not believe that these measures will be in place sufficient time for the WTO to come with any conclusions during the measures and secondly because Trump will not follow any ruling of the WTO if it does not go his way.
    The only parties that can change Trumps policies is US industry and US electorate. No non-US forces can make him change his mind.

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