2001: a trade odyssey
Customs modernization, trade disputes, WTO woes ... these are some of the trade issues that will dog the new president on his journey through 2001.
By Matthew T. McGrath -- Logistics Management, 3/1/2001
The traditionally lofty rhetoric of an Inaugural Address is not the ideal place to prospect for clues to a new administration's international trade priorities. This was certainly true of the commencement of George W. Bush's administration, arriving as it did in a blizzard of chads.
As expected, President Bush's inaugural comments were focused almost entirely on healing political divisions left over from the election. But he did appear to address international trade—although in an oblique manner—when he said, "America remains engaged in the world, by history and by choice."
That is probably the simplest way to sum up the trade issues that he and the Congress will face in the coming year. Solutions to some of the problems that accompany globalization will be matters of choice; others will be dictated by events. The more or less bipartisan consensus on issues such as customs modernization, trade facilitation, and export expansion is not likely to change. Frictions with our trading partners over a growing number of disputes, moreover, will have to be addressed in ways that will very likely resemble the Clinton administration's approach. Finally, an economic slowdown in North America will affect the administration's attempts to seek new negotiating authority from Congress and convince trading partners to launch a new round of multilateral talks.
Trade policy will certainly require some attention from the business-minded Mr. Bush. What follows is a brief overview of some of the most important trade issues the new president will confront in his first year in office.
Rising from the Ashes of Seattle
The aborted effort to launch a new multilateral round of negotiations at the World Trade Organization's 1999 ministerial conference in Seattle did more than reveal new trade frictions between the United States and Europe. It also showed that developing countries, which had previously resigned themselves to accepting the largest members' priorities, were finally flexing their muscles. Add to that the growing influence of the labor/environmental protest movement, and the Bush administration will have plenty of challenges to overcome.
The WTO's members would like to start a new round of general negotiations at the end of the year, but it won't be easy. One barrier will be the growing dissatisfaction of WTO members with U.S. antidumping laws, which the United States steadfastly refused to discuss in Seattle.
In November 2000, Congress passed the Byrd Amendment, which established a fund into which antidumping duties are paid for distribution to companies that successfully petition for redress, thus turning the U.S. statute into a form of private relief. Twelve countries have demanded consultations, alleging that the amendment violates the WTO's antidumping code. Unless Congress repeals the amendment soon (which is highly unlikely given the spate of new steel industry antidumping cases in the works), the WTO will rule on it later in the year. This almost guarantees that antidumping rules will be included on the agenda for the new round.
In addition, since the WTO ruled that the U.S. 1916 Antidumping Act violated the international code, the president may seek its repeal. That will no doubt stir some anti-WTO sentiment in Congress, even though the 1916 act has seldom, if ever, been invoked.
Despite those roadblocks to consensus, there is some hope that the next talks will be more successful than the last ones. Over the past year, negotiators have been making steady progress in sketching out points of consensus for the next round. Because specific agricultural subsidy and quota issues were identified in the Uruguay Round Agreements for further discussion this year, the participants already are at the table on one of the more contentious subjects on the agenda.
The United States will have plenty of other WTO-related issues to worry about this year. Although the United States won challenges to European Union (EU) policies on banana quotas and meat treated with growth hormones at the WTO, it had to resort to retaliation when changes in EU policy were not forthcoming.
This year, therefore, the Bush administration will have to decide whether to invoke "carousel" retaliation against the EU, which would involve rotating the list of imports that could be hit with 100-percent penalty duties. To do so will require a delicate balancing act: The administration opposes the use of carousel retaliation but it must satisfy farm states, which last year demanded that the carousel provision be applied against Europe. At the same time, the president must present his own priorities in the Farm Bill, which is up for renewal in 2002. The farm states will want to retain support programs included in that bill, even as they demand that foreign countries cut their agricultural subsidies. Under those circumstances, it may difficult—perhaps impossible—to avoid angering our trading partners.
In addition, there is a very real threat that the EU, supported by a WTO decision condemning U.S. Foreign Sales Corporation tax breaks, will assess $4 billion in retaliatory duties against U.S. products. That threat hangs like a Sword of Damocles over the new administration, which will be loath to disturb it by engaging in retaliation of its own.
An Agreement by Any Other Name
Regardless of whether the WTO members reach agreement on the agenda for a new round, U.S. objectives will be tied to the congressional debate about renewing fast-track negotiating authority for the president. Under this type of authority, trade agreements that are negotiated by the executive branch receive a yea-or-nay vote in Congress, without amendment and within set time limits. This power has always been critical to the president's ability to reach agreements with our trading partners because it offers them the relative assurance that Congress will not slice and dice their deals later.
The new U.S. Trade Representative (USTR), Robert Zoellick, has changed the title from "fast track" to "trade promotion authority," perhaps in recognition that a name can carry powerful symbolism for Congress as well as for the general public. Liberalized trade with China, after all, was approved by Congress only after "most-favored nation treatment" was re-dubbed "permanent normal trade relations." New box, same cereal.
The Bush administration has signaled its intentions to focus first on hemispheric relations and on reinvigorating the long-stalled Free Trade Area of the Americas (FTAA) negotiations at this April's Summit of the Americas in Quebec. At the same time, Congress will debate granting negotiating authority for both multilateral and plurilateral trade agreements. Part of that debate will likely focus on whether to include labor and environmental provisions in such agreements. The Clinton administration had moved incrementally in that direction, and labor unions, environmental organizations, and business groups are already preparing to do battle on that front with the new administration.
While that debate proceeds, the USTR will decide how to implement the U.S.-Jordan Free Trade Agreement—the first to incorporate labor and environmental conditions—and how to complete free-trade negotiations already under way with Singapore and Chile. Congress will probably approve the U.S.-Vietnam Agreement normalizing trade relations, which will be closely watched as the first new trade agreement to be concluded with a non-market economy in some time.
Trade disputes this year will test the United States' commitment not only to the multilateral trading system, but to NAFTA as well. The Bush administration must quickly decide how to comply with a decision issued in December by a NAFTA dispute panel, which required that the border be opened to Mexican trucking companies and that Mexican companies be permitted to invest in U.S. trucking concerns.
Other strains along the southern border in 2001 will include disputes over Mexican barriers to investment in telecommunications and liberalization of U.S. sugar quotas. On the Northern border, meanwhile, disputes are simmering over the wheat trade (primarily the practices of the Canadian Wheat Board) and the March 31 expiration of the softwood lumber agreement, which threatens to erupt into a countervailing duty investigation by the United States.
An ACE in the Hole
Although trade facilitation is not as politically contentious as trade policy issues, promoters of facilitation will nevertheless find themselves battling for funding throughout the year. Last year, Congress finally approved a $130 million first installment for updating U.S. Customs' obsolete and overheated computer system with the new Automated Commercial Environment (ACE). The project is expected to cost $1.5 billion over five years, and Congress will have to fund the program on an annual basis.
Addressing proposals to make U.S. Customs' import procedures account-based rather than transactional (known as the Entry Revision Process, or "ERP") will present a new kind of challenge. The agency and the trading community will negotiate over individual aspects of those proposals this year, while Congress reviews the bigger picture in oversight hearings in the spring.
Among the stickier issues under discussion:
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How final is the liquidation process; i.e., can importers continue to protest customs decisions, and if so, when and for how long?
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Is it possible to fundamentally change the administration of duty drawback, which is transactional in nature, to an account-based system?
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Can standards for customs audits and enforcement actions be modified to reduce the demands of audits and their penal consequences for many importers?
Negotiations over the ERP proposals will likely consume the coming year without resulting in concrete legislative action. Meanwhile, Congress will be trying to become more familiar with the workings of America's oldest revenue-collection agency as a new commissioner (undetermined at this writing) assumes the reins.
Finally, the Bush administration has inherited the problem of what to do about replacing the Harbor Maintenance Tax (HMT), which funds dredging and other port infrastructure improvements. The string of court decisions that invalidated the tax as it applies to exports and the likelihood of a challenge to the import-only assessment by the WTO necessitate a new approach. Past proposals to shift the tax burden from shippers to carriers have failed politically; they probably would have encountered legal obstacles, anyway. The administration could develop a new user-fee approach or simply revert to funding harbor maintenance as a public utility out of general funds.
Either way, the HMT, ACE funding, and a host of other customs- and trade-related measures, controversial as they may be, will probably end up being a tiny subplot in the expected drive to reduce taxes at the dawn of Bush Era II.
Matthew T. McGrath is a partner in the law firm of Barnes, Richardson & Colburn in Washington, D.C., who specializes in customs and international trade law.
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