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Talking Trade blog

Back to aggressive unilateralism in Washington

Published 02 March 2017

From the mid 1970s through the early 1990s, the United States pursued a trade strategy that was dubbed by Jagdish Bhagwati as “aggressive unilateralism.” Under this set of policies, the United States was accused of acting as judge, jury and executioner.

We are going back to the future with the publication of the National Trade Policy Agenda for 2017.

The US crafted a set of policies with built-in retaliation grouped under section 301, special 301 and, especially, super 301, of US trade law.  Under these rules, the United States decided on its own whether trade partners were practicing “fair” trade.  If not, the US could require unilateral liberalization without any concessions from the United States.

This era, covered very well in an excellent book by Thomas Bayard and Kimberly Elliott, appears to be roaring back to life in Washington today with the publication of the National Policy Agenda for 2017.  It was also the subject of my own dissertation, based on the escalating disputes between the United States and Japan in the late 1980s and early 1990s and near trade-wars of the period as well as similar trade disputes with South Korea.

The United States now appears to be returning to a period of aggressive unilateralism.  This should be deeply worrying for everyone else.

The last time the US went down this path, it was halted by revisions in the global trading system.  At the time, the United States argued that it needed to use unilateral measures to halt unfairness in the trading system because the global system was unable to address the issues.

In response, members of what was then the General Agreement on Tariffs and Trade (GATT), agreed to a set of substantial revisions to the multilateral trading system.  Of prime importance was a set of reforms to the dispute settlement system.

Prior to 1995, the GATT had a dispute system, but it was quite weak.  If a member were found to be out of compliance with the rules, it could basically veto the panel (or judges) report and nothing happened.  This, the Americans argued, was unfair and leading to damage to US commercial interests.  Hence, the United States was justified in creating a domestic system to address these issues.

During the time period from 1975-1994, Bayard and Elliott show the US initiated 84 separate section 301 cases and a handful of super 301 cases.  They were filed mostly against the European Union and Japan and split between manufacturing andagriculture, with a couple in services and intellectual property.

The results of these policies were mixed.  In some cases, the United States got what it wanted.  In others, it did not.  Even when the US appeared to win, however, implementation was not always seen as satisfactory. 

The use of these tools declined in 1995 when the GATT system was reformed with the birth of the WTO.  In particular, the United States successfully received a revised dispute settlement system at the multilateral level designed to ensure that losing parties in a dispute could no longer veto the results.  Indeed, retaliation was built into the system to allow the winning party an opportunity to achieve redress if all other avenues were exhausted.

There was no longer a need for aggressively unilateral tools.  Super 301, for instance, would likely be found illegal under the WTO.  The use of the dispute settlement system at the WTO has been so successful it is referred to as the “crown jewel” of the organization. 

To jump forward more than two decades, the 2017 National Trade Policy Agenda puts the WTO system on notice that the Trump Administration is preparing to unravel this system. 

For context, the document states that US voters “in both major parties rejected US trade policy as formulated over the last generation, and called for a fundamental change in direction.”  Hence, the document claims to be delivering on this mandate for change.

The US will henceforth pursue bilateral negotiations, not multilateral negotiations, and will renegotiate and revise deals when the goals of putting America first are not met [although note that this particular phrase is not used in this document]. 

The critical section of the document for other WTO members and for firms used to operating in a world built on the WTO platform is B1 (p. 3).  It says, in brief, that the US reserves the right to ignore WTO rulings

This is a fundamental shift.  The United States, like every other WTO member, follows WTO rules because it helped craft WTO rules.  The rules were not handed down on tablets from outer space.  They were developed after extensive years of negotiations.  Rules cannot be approved by the WTO without consensus of every single WTO member.  (It is partly why we cannot get new ones approved, or approved easily.)

The document tries to say that the American people were somehow promised (p. 4) that the WTO would never impose rules on US sovereignty.  But this has it backwards—the US itself negotiates the rules at the WTO, which it has to approve with Congress and enshrine in domestic laws.  If the US is out of compliance with the WTO, it is violating its own commitments both at the WTO and at the domestic level to implement WTO rules.

The next section (B2) says the US will strictly enforce laws.  This is the section that puts everyone on notice that aggressive unilateralism is back.  Because the US no longer cares if it is violating WTO laws, it will proceed with whatever unilateral tools it wants to use.  The section highlights many that are likely candidates for revival. 

US trade partners should be reading this section with extra care and attention.  This is a radical departure from past American practice over the previous decades.  These tools are being primed for use—potentially often and on many different targets.

The tools will be used because as B3 indicates (p. 8), the US is on the losing end of a trade war.  So Trump’s administration will do whatever it takes to make up the difference.  The US market should be used as threat—in and of itself—to keep it open or to shut it to foreign firms.

Countries in the specific firing line are China, NAFTA and South Korea.  The TPP countries can look forward to hearing from the White House at some later date about possible bilateral deals, although it is likely that China and NAFTA will take a rather long time to sort out first. 

In short, it says the US has been badly mistreated.  This unfair system has got to stop.  The world must quit free-riding on the Americans.  Aggressive unilateralism is back at USTR and in the White House.

--Update:  The final version of the report, released on the USTR website, made a few very minor adjustments to the text, including the removal of the final sentence from the draft document.  The complete 2016 report can be found here

© The Hinrich Foundation. See our website Terms and conditions for our copyright and reprint policy. All statements of fact and the views, conclusions and recommendations expressed in this publication are the sole responsibility of the author(s).

Dr. Deborah Elms is Head of Trade Policy at the Hinrich Foundation in Singapore.  Prior to joining the Foundation, she was the Executive Director and Founder of the Asian Trade Centre (ATC). She was also President of the Asia Business Trade Association (ABTA) and the Board Director of the Asian Trade Centre Foundation (ATCF).

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