Trump Acts Against China

While USTR officially has a year to make a determination in the pending Section 301 investigation into Chinese intellectual property theft and forced technology transfer, this deadline is likely to be moved up significantly.  USTR will probably rule that American firms have been harmed by Chinese actions and that these injuries require remedies.  Damages could involve significant tariffs, calculated by considering harm caused cumulatively over the past decade.  President Trump’s State of the Union address on January 30, provides the perfect opportunity to highlight the evolving trade agenda and note recent or upcoming actions, particularly vis-à-vis China.   

Section 301 Investigation: The Expected and The Unexpected So Far

So what happens next?  Under the terms of Section 301, USTR has completed two key items on the checklist.  It will likely issue a damage assessment figure that can be used as the basis for a preliminary calculation of potential sanctions.  These sanctions could be rolled out at any time between now and August 2018, if the US decides that China is making insufficient progress towards satisfactory resolution of the problems identified in the original complaint.

But as the comments and hearing illustrated, it remains unclear at this point what is the likely area or areas where USTR might chose to focus attention.  The comments failed to shed new light on specific challenges in a way that might have made it easier to guess which way the investigation will roll in the future.

Update: The 301 Trade "War" Countdown Has Started With China

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.

Promoting Trade: Congress and the Passage of Trade Promotion Authority (TPA)

As the Trans-Pacific Partnership (TPP) negotiations with the 12 international trading partners nears conclusion after five long years of hard bargaining, the battle for the future of the agreement inside the United States is heating up.  There are two key elements of the fight: Congressional approval of Trade Promotion Authority (TPA) and passage of the implementing legislation necessary to bring it into force in the United States. 

 In the U.S., Congress has the authority to regulate commerce, which includes setting tariffs.  But getting 535 members of Congress to negotiate trade agreements is not practical, so historically the executive branch has handled these tasks.  In the 1970s, this arrangement was formalized.  Members of Congress decided to explicitly give the role of negotiating trade agreements to the White House (subject to a number of specific provisions).

 Under what used to be called “fast track” and is now labeled “Trade Promotion Authority” (TPA), Congress is to be notified of the intention to launch negotiations. Congress is given 90 days to respond.  The United States Trade Representative (USTR) office is also tasked with gathering information about the future direction and important elements for the talks during this time period from a range of key stakeholders including business groups.  After the initial comment period is concluded, USTR is required to keep Congress informed as negotiations continue.  Finally, Congress has promised to vote the entire trade agreement up or down without amendment at the end by a simple majority vote in both chambers. The timeline is shown below.

Source:  Cooper, CRS, January 13, 2014

Ideally prior to the start of new negotiations, USTR would receive TPA from Congress, with the broad parameters and objectives set for any trade agreements to be negotiated during the time covered by the approval.  However, this was not done for the TPP as the latest version of TPA expired in 2007.

The outgoing George W. Bush administration announced its intention to join what became the TPP in September 2008.  The Obama White House decided not to press Congress for renewal of TPA in 2009, but rather started negotiations in March 2010 by following the provisions of TPA “as if” it were active. 

Over all the years of TPP negotiations, the White House did not seriously pursue votes in Congress to support renewal of TPA. But now, as talks enter the closing phase, TPA is necessary to finish the agreement.  Without TPA, Congress can amend the agreement from the opening sentence to the closing word.  As I always joke, without TPA in place, someone in Congress will propose amending an opening line of "The 12 parties of the TPP..." to "The Glorious United States of America and the 11 other parties of the TPP..."

Without TPA, Congress could also allow the agreement to die in committee or tangle ratification in an endless filibuster.  In short, without the provisions of TPA in place prior to the closure of the agreement, the TPP will likely fail to be ratified by Congress.

The first problem for 2015, then, is to secure passage of TPA.  The last time the bill was authorized, in 2002, the votes were very close: approval by 215 to 212 in the House of Representatives and by a margin of 64 to 34 in the Senate. All indications are that a TPA vote may be equally close this time. 

Note that the passage of TPA, however, will not mean smooth sailing for a TPP deal.  In authorizing TPA, many members of Congress want to place strict conditions on elements of a final deal that must be present before they will grant approval.  Most controversial is an ongoing discussion of including legally binding rules to prevent trade agreement members from manipulating their currencies.  (This terrible idea will be the subject of a later post.)

Ideally, TPA will be granted—as it has always been—for a range of trade agreements and not simply given for the TPP.  The United States is simultaneously engaged in multiple negotiations over trade: with the European Union in the Trans-Atlantic Trade and Investment Partnership (TTIP); with nearly two dozen countries on the sidelines of the World Trade Organization (WTO) in the Trade in Services Agreement (TiSA); with 80 countries at the WTO in updating the Information Technology Agreement (ITA); and with more than 160 countries in the WTO in the Doha Development Agenda (DDA).   All will need a version of TPA, at least before any agreement can be implemented and enter into force for the United States.

 The White House has finally begun a whip count operation this week to start the TPA procedures in earnest.  This ought to be backed by forceful pressure from President Obama to get TPA as quickly as possible.  Tonight’s State of the Union address is the best place to begin.

Then the next phase of the battle for TPP—passage of the final agreement—can be joined.