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Info Service on WTO and Trade Issues (Jun20/18) Geneva, 18 Jun (D. Ravi Kanth) -United States Trade Representative (USTR) Ambassador Robert Lighthizer has signaled Washington’s intention to fundamentally change the World Trade Organization on grounds that it is a “mess” that needs a “broad reset”. At separate briefings on 17 June to the US House Ways and Means Committee and Senate Finance Committee, the USTR came down heavily on the Appellate Body (AB) and how it treated the US “as the world’s greatest trade abuser.” By repeatedly blocking the selection process for filling six vacancies at the AB, the US made the Appellate Body dysfunctional last year. Since then, Washington announced that it will not implement the AB’s rulings because they were signed by AB members whose terms had already expired. During briefings to the committees, Ambassador Lighthizer suggested that he would be content if the AB is never restored, arguing that the WTO members need to talk about a new dispute settlement system, according to a report in the Washington Trade Daily (WTD) on 18 June. The Appellate Body, said Ambassador Lighthizer, “has often created new obligations out of thin air, preventing the United States from taking action to address unfair trade practices that hurt US workers, and usurping the US government’s accountability to the American people.” “This situation has also greatly undermined the negotiating process at the WTO, as countries now believe they can obtain better outcomes through litigation than through negotiation, especially with the United States,” Ambassador Lighthizer said. The USTR said “he believes the original (GATT) non-binding system that encouraged countries to work out their disputes was better.” [Trade analysts note that in the Uruguay Round negotiations on the Dispute Settlement Understanding (DSU), it was the US that had wanted panel rulings to be adopted automatically; the European Communities agreed to it, but insisted on an appeal process for the panel rulings on issues of law. See SUNS #4580, #4594, #4595 and #8670. SUNS] Referring to the selection process for the new WTO Director-General, Ambassador Lighthizer drew a marker, saying that “he wants to see a DG who supports fundamental reform of the WTO and who is willing to take on China.” Another priority for the US, he said, is to negotiate members’ “outdated” tariff schedules as many countries maintain high bound tariffs. Ambassador Lighthizer said the US will ask countries to bring down their tariffs to comparable US tariff levels. Normally, the reduction of bound tariffs are negotiated through the launch of a new round of trade negotiations at the WTO. After the US secured the Trade Facilitation Agreement in the Doha Development Agenda (DDA) negotiations, Washington almost spiked the DDA negotiations. The USTR reckons that the complex system of tariffs should be wiped away so that all the trade tariffs the US charges its trade partners can be set at the “reciprocal” level that it pays them, according to a report in the New York Times on 17 June. The USTR said that Washington will press ahead with bilateral trade agreements with Britain and Kenya while seeking to “re-balance” its trade relationship with the European Union. The US, said Ambassador Lighthizer, will ask developing countries at the WTO to agree to its two reform proposals. The first proposal by the US calls for differentiation/graduation for availing special and differential treatment by developing countries in the current and future trade negotiations, while the second proposal involves punitive financial measures if countries fail to comply with their notification requirements. As regards the continuation of the Generalized System of Preferences (GSP), which is expected to expire at the end of this year, Ambassador Lighthizer said the GSP program needs changes, complaining that some countries which are receiving benefits from the GSP scheme are not giving the US the same access to their markets that other countries receive. In 1979, the GSP schemes were legitimized through what is called the Enabling Clause that clearly stated that schemes by preference-giving developed countries such as the US must remain “generalized, non-reciprocal, non-discriminatory system of preferences in favour of the developing countries.” The USTR said Washington is willing to restore GSP benefits to India that were terminated last year, if New Delhi agrees to resolve some trade disputes like allowing US apples into its market. But India is not willing to strike a deal yet, said Ambassador Lighthizer. US-CHINA AGREEMENT On a day when President Trump has been accused by his former National Security Advisor John Bolton over his repeated overtures to his Chinese counterpart President Xi Jinping to help him in his re-election bid, the USTR firmly defended the Trump Administration’s phase-one trade deal with China. Ambassador Lighthizer squashed newspaper reports that suggested that China was not complying with the phase-one trade deal. He said Beijing is complying with the agreement, adding that China is actually buying more soybeans and other agricultural items. “They are clearly trying to reach the targets on purchases despite the pandemic. I think they are going to reach the numbers or get awfully close to them,” the USTR said. Further, Beijing has “put scores of structural reforms in place” as required by the trade deal, Ambassador Lighthizer argued. The US wants to negotiate a “phase two” trade agreement with China, although Ambassador Lighthizer offered no time-line for starting the talks. In a similar vein, the US wants to negotiate a phase-two trade agreement with Japan, the USTR said. Commenting on the US-Kenya bilateral trade agreement talks that will begin next month, the USTR said he is aiming for as comprehensive an agreement as possible, but recognizes that as a developing country, Kenya will need more flexibility and longer phase-in periods to comply with the agreement. He said the US-United Kingdom free trade agreement is unlikely to materialize in 2020, adding that some aspects of the bilateral agreement with London cannot be concluded unless the UK completes its agreement with the European Union. As regards the stalled talks for clinching a bilateral trade agreement with the EU, Ambassador Lighthizer said the two sides need to come to an agreement eventually. He suggested that President Trump is willing to use tariffs to get the EU to the negotiating table. On the Covid-19 trade-related measures imposed by Washington, the USTR said he opposes the elimination of tariffs on personal protective equipment that are needed to fight Covid-19. He justified the continuation of maintaining tariffs on Covid-19-related medical devices in order to encourage domestic production of these items. US WALKS OUT FROM TALKS ON DIGITAL SERVICES TAX In another major development on 17 June, the US has chosen to walk out of ongoing talks on a digital services tax at the Paris-based Organization for Economic Cooperation and Development (OECD). Several European countries have announced their intention to impose a digital services tax on American internet behemoths such as Google, Amazon, Facebook, Apple, Microsoft and other computing services. At the end of the day, an international solution is required, the USTR told the lawmakers. “I think there’s clearly room for a negotiated settlement,” he said at a House Ways and Means hearing on the President’s trade agenda. “If you ask me what’s the answer, the answer is we need an international regime that not only focuses on certain sides and certain industries, but where we generally agree how we’re going to tax people internationally.” The USTR had already launched Section 301 investigations against digital services taxes put in place by some European countries that the Administration believes are specifically targeted at US companies. Those investigations ultimately could lead to the imposition of tariffs on countries that have decided to unilaterally impose digital services taxes. When asked by a lawmaker of the House whether the US is triggering off another trade war over the digital tax issue, Ambassador Lighthizer said the Administration must stand up for US companies that are being unfairly targeted by taxes. “I’m not a loophole guy but I don’t want a tax system that unfairly treats American companies,” he stated. Further, the USTR threatened that “the US will put in place tariffs if these countries move forward unilaterally, discriminating against these companies.” Ambassador Lighthizer told the Senate Finance Committee that the Administration had to “show our strength” in the face of unilateral actions by trade partners. Commenting on the US decision to opt out of the digital services tax negotiations at the OECD, Ms Rashmi Banga, an e-commerce expert at UNCTAD, said that “the decision of the Trump administration to suspend international tax negotiations with European countries and retaliate if they move forward with plans to impose internal taxes on digital firms makes the removal of the moratorium on customs duties on electronic transmissions even more important for the developing countries.” “Customs duties,” she told the SUNS, “are a simple and effective policy tool in the hands of the governments to generate revenue as well as regulate imports of digital products like movies, music, video games and printed matter. It can also help countries to regulate the operations of digital firms as they will be able to decide which kind of software and digital technology they want big tech firms to bring duty-free into their countries.”
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