US tariffs hit WTO hard

By: | Published: March 22, 2018 3:12 AM

There won’t be any shortage of appropriate domestic laws justifying retaliatory/ inspired trade action by other countries

US tariffs, us tax tariiffs, wto, US Presidential electionsWTO backers had heaved a sigh of relief after the US Presidential elections in November 2016 halted the march of US-led mega trade deals like the TPP and TTIP. (Reuters)

Global trade war is no more a distant prospect after the US presidential proclamations of March 8 on raising tariffs on steel and aluminium products by 25 and 10 per cent respectively. The US might, or might not be a waning global power. But it is still the world’s largest economy. Its economic actions impact the world economy in a way in which those of most other countries hardly do. The tariff hikes are not exceptions. While there are multiple implications for the world economy and individual countries, one of the biggest of these is for the WTO.

The WTO director-general’s frustrations and apprehensions at the US trade actions were evident in his remarks at the recent mini-ministerial in India. For quite a few years now, WTO is being heavily criticised for its failure to get global trade going. Its inability to deliver the Doha Development Agenda has significantly damaged its credibility. Formalisation of the multilateral Trade Facilitation Agreement at the Bali Ministerial was too little for resurrecting the world’s faith in the WTO. Mega trade agreements like the Trans-Pacific Partnership (TPP) were creating trade governance agendas that appeared far modern than the WTO’s work programme dominated by arbitration, tariffs and Special & Differential treatment for poor members.

WTO backers had heaved a sigh of relief after the US Presidential elections in November 2016 halted the march of US-led mega trade deals like the TPP and TTIP (Transatlantic trade and investment partnership). The backlash against globalisation witnessed in the Brexit vote in UK and the US elections made TPP and its ilk scamper for almost non-existent political support. That the TPP would be up and running within 15 months of president Trump pulling the US out of it was unimaginable a year ago. Indeed, the WTO’s sedate inclusive agenda, notwithstanding its painfully slow pace of delivery, seemed more politically acceptable than the bold new generation trade agreements. China’s repeated endorsement of the WTO after donning the mantle of saviour of globalisation also generated hopes of WTO staging a grand recovery.

It was president Trump who gave WTO a fresh lease of life by jettisoning TPP and taking the wind out of the sails of mega trade deals. Ironically, it is he who, through trade-restrictive actions, threatens to wreck the WTO’s core principle of reciprocal trade liberalisation. MFN— Most Favoured Nation—has been the fundamental premise of WTO wherein its members commit to allow each other mutual access to domestic markets unless compelled by specific economic conditions and circumstances. Every WTO member commits to consider the other ‘most favoured’ and does not discriminate between members on market access. The US tariffs strike at this very principle of non-discrimination and reciprocity.

WTO offers members considerable latitude in tackling economic difficulties that might arise from unhindered market access. These include safeguards against surges in imports and action against dumped imports. These are in addition to the institutional processes for settling inter-country disputes. In its twenty plus years of existence, the US tariffs are the first instance of a WTO member citing regular flow of imports as ‘damaging’ for its internal economy and concomitantly national security, and resorting to trade actions. Clearly, it lacks faith in the WTO’s in-built institutional checks and balances that it could have resorted to. The US decision to act unilaterally has set in motion a likely phase of wide-ranging trade retaliations.

The steel and aluminium tariffs set the precedent for similar actions by other actions citing national security as the ground for their actions. National security is non-negotiable. Not even the most articulate exposition of free trade and its virtues can be set off against national security. The WTO recognises this through the Article XXI of the GATT (General Agreement on Tariffs and Trade). The conditions requiring vindication for trade action under Article XXI are rather specific and include traffic in arms and ammunition, fissionable materials and actions taken during war and emergency. The current tariffs can’t be justified on these grounds. But the US, arguably, is prepared to justify the tariffs on the basis of its own domestic laws, particularly Section 232 of the US Trade Expansion Act, over the WTO’s laws extending to trade and national security.

Pandora’s box has been opened with countries encouraged to take a leaf out of the US’s book. What if, India, for example, raises agricultural tariffs further on national security grounds? Following the US, the argument could run as agricultural imports (like steel imports) damaging the prospects of domestic food production and ability of domestic producers to supply food to defence and other key establishments during national emergencies, thereby impairing national security. There won’t be any shortage of appropriate domestic laws justifying trade action under such circumstances, in violation of the WTO’s spirit.

What the US tariffs have done is to turn the clock back on a phase of global trade characterised by the WTO’s multilateral rules-based framework. The stage has been set for open defiance of WTO by members. The world of trade might never be the same again.

Amitendu Palit, Senior research fellow and research lead (trade and economic policy), Institute of South Asian Studies, NUS Mail: isasap@nus.edu.sg Views are personal

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