US trade expert warns Trump tariffs could ‘choke’ WTO remedies process

A former US trade negotiator and chairman of the World Trade organisation’s appeal body has warned of a rising tide of tariff disputes under the new Trump administration.

James Bacchus, writing in the Wall Street Journal, says Donald Trump’s proposed appointments to key trade positions suggest he is serious about his campaign promise to raise tariffs.

US Trade Representative Robert Lighthizer, Commerce Secretary Wilbur Ross and Peter Navarro as the head of a new National Trade Council are all supportive of tariffs and moves to protect US industries.

The Trump transition team says tariffs could be as high as 10% on all imports. Mexico and China, in particular, have been singled out for urgent attention – and much higher tariffs – once the administration is in office.

Already, several major corporations, including Ford Motor Co, have canned proposals to build new plants in Mexico, where labour costs are lower and manufactured products enter the US free of tariffs.

Mr Bacchus, who is also a former member of the US Congress and now chairman of law firm Greenberg Traurig, says the president is surprisingly free to take trade actions without congressional approval.

But he says the real battle will come in Geneva, where the WTO rules on in international trade disputes.

Legal commitments
“Under the WTO treaty, the US is legally bound by the tariff commitments it made on thousands of traded products. These commitments can be renegotiated. But they can’t legally be ignored,” Mr Bacchus says.

An across-the-board 10% tariff would violate America’s WTO commitments on many, if not most, of these traded goods. So too would the 45% duty on all Chinese imports and the 30% duty on all Mexican imports that have been threatened.

Mr Bacchus says the Trump administration, spurred by what it sees as “unfair” trade agreements, might go so far as to pull the US out of the organisation.

“This would unleash weapons of mass economic destruction worldwide. Even if the US didn’t withdraw, a rash of unilateral and other provocative trade actions by the US could trigger tit-for-tat trade responses that caused the global trading system to unravel. The WTO could collapse beneath the burden of ensuing disputes.”

Mr Bacchus says WTO cases brought against any across-the-board tariffs could take three years to resolve and be unsuccessful.

“If [the US] chose not to comply with adverse rulings, the countries bringing cases could be authorised by the WTO to withdraw previously granted trade concessions on a whole host of products. The US could lose billions of dollars trade annually,” Mr Bacchus says.

“Instead of, or in addition to, sweeping additional tariffs on all imports, or on all imports from a few targeted countries, the US could bring a string of new trade remedy cases against alleged trade offenders.

“Some would have merit. Others might not. There are many issues that need to be addressed with China, for instance, including its share of the global overcapacity in steel.”

Non-tariff options
Instead of tariffs, Mr Bacchus says the US could legally impose anti-dumping or “countervailing” duties on subsidised products but these must be consistent with WTO rules.

“The first use of these tightened rules may be in steel. No doubt these revised rules would also be challenged in the WTO and could be found in violation of its rules.”

Mr Bacchus says the main target of any US trade actions would “surely” be China. In 2015, the US recorded a deficit of $US366 billion in its trade with China. But such an onslaught could bring Chinese retaliation.

“The US might target steel, aluminium, mobile phones, computers and toys. In turn, China might target autos, airplanes, soybeans and poultry. China might also employ its antitrust laws and ignore its intellectual-property laws to punish American companies.”

Mr Bacchus says such moves would threaten the WTO dispute settlement process, which is designed to depoliticise trade issues, many of which are generated mainly for domestic political reasons.

“The WTO is already overloaded with cases. Now my successors on the WTO Appellate Body — the organisation’s court of final appeal — would be confronted with a slew of new and politically explosive trade disputes.

“Their independent and impartial judicial role would be more crucial than ever in upholding the international rule of law in trade so carefully crafted over the past seven decades.”