The United States has now moved one step closer to dusting off a Cold War trade relic and applying it to China. In authorizing US Trade Representative (USTR) Robert Lighthizer to investigate whether to self-initiate a Section 301 case against China for alleged unfair trade practices, we have started down a path first traveled in the 1970s and 1980s. This will give rise to a dangerous trend that could rapidly shake the very system of global rules that have worked well for most firms for decades. While there appears to be strong pressure from different quarters to Washington to “do something,” it is not at all clear that many understand the power of 301 to destroy the trading system now.
The start of a piece in yesterday’s TheStreet summarized a common viewpoint on the US withdrawal from the Trans-Pacific Partnership (TPP) trade agreement, when it said: “You can’t lose what you never had…” In fact, you can. It is becoming increasingly obvious that American companies are losing ground. The damage is two-fold—the United States has chosen to sit out from the TPP and it is also not benefiting from the range of trade deals that crisscross Asia, giving preferences to competitors in the region in key markets. Adam Behsudi nicely showed this week in Politico how international trade agreements are directly affecting farmers from one county in Iowa.
Yet, all hope for fair and free trade is not lost. The OECD’s 2017 Employment Outlook Report, released on June 13, 2017, shows support and evidence for steady improvements in employment numbers even in the context of trade. Extended to the long-term view of ten years after the recession, unemployment rates are projected to match pre-recession rates, while the employed share of the working population is said to exceed that of the pre-recession era. Trade does not just destroy jobs. It also creates jobs. Trade works best though when national governments have complimentary policies in place to help support workers. This may include labor market institutions that protect workers’ welfare and builds skills to help them adapt to changing demands. Workers can find better employment opportunities in a competitive landscape coming from the dynamic global economy.
While RCEP is not the TPP, as a Talking Trade post from last year detailed, these are still extremely complicated negotiations. The 16 countries involved have very diverse interests and objectives. All were drafted into this exercise by way of their involvement with ASEAN and each has varying levels of enthusiasm for the integration project. The negotiation agenda is also complicated. This round saw the continuing expansion of the issues under discussion with the movement of both trade remedies and government procurement from “expert group meetings” to the creation of formal working groups tasked with negotiating potential chapter outcomes. RCEP now includes roughly 15 substantive topics that have to be concluded simultaneously with 16 different and diverse parties. Getting to “yes” is going to be tough.
This was the case with AIFTA, in which despite the elimination of tariffs for about four thousand products, sensitive and high growth industries were included under the Sensitive—tariffs to be reduced to 5%--and Exclusion—no elimination of tariffs—lists; both of which largely cover agricultural products. More specifically, at the time of implementation the number of products under the Exclusion/Sensitive lists was higher than the number of tariff lines for ASEAN and world imports into India. These duty concessions signalled an implicit protection against the future engagement or the expansion of agricultural imports. In other words, India essentially put nearly all agricultural items that might have been imported from ASEAN countries into categories that did not receive tariff reductions. Hence, whatever increased import competition Indian agricultural producers have faced from ASEAN competitors in the wake of AIFTA cannot have been the result of duty reductions produced by the FTA itself.