Trump Orders Trade Deal Review, Continues NAFTA and South Korea Renegotiation Push

4 May 2017

US President Donald Trump issued an executive order last weekend ordering a review of all trade deals involving the United States, which he said would play a role in keeping “jobs and wealth in our country.”

The executive order, dated 29 April, is entitled “Addressing Trade Agreement Violations and Abuses” and tasks the Secretary of Commerce and the US Trade Representative (USTR) with putting together “performance reviews” of all countries with whom the US has a trade or investment deal.

Furthermore, it requires a review of all WTO members with whom the US is running “significant trade deficits in goods,” even if Washington does not have a separate trade deal with those nations individually. The report would then note any alleged “violations or abuses,” along with instances of “unfair treatment” and cases where those deals have “failed” relative to the benefits they were expected to create.

“Every trade agreement and investment agreement entered into by the United States, and all trade relations and trade preference programmes of the United States, should enhance our economic growth, contribute favourably to our balance of trade, and strengthen the American manufacturing base,” says the executive order on the trade deal review.

“Many United States free trade agreements, investment agreements, and trade relations have failed, in whole or in part, to meet these criteria,” the document continues.

Along with identifying these cases of alleged violations, abuses, or other problems, the report is also meant to feature related recommendations to help resolve such issues. “The findings of the performance reviews required by this order shall help guide United States trade policy and trade negotiations,” the executive order says, without getting into specifics as to what approach Washington would take of such “violations” or other problems are found.

However, the US leader suggested in the signing ceremony that a failure to resolve those problems could later lead to those deals being nullified.

“I’m directing the Secretary of Commerce – Wilbur [Ross], a legend – to identify every violation and abuse of our trade agreements, and to use every available measure under the law to end these abuses against our workers. And if they don’t get cleared up, Wilbur will end the trade agreements,” said Trump on 29 April in Harrisburg, Pennsylvania.

Wilbur Ross is currently serving as the US Secretary of Commerce, while Robert Lighthizer is expected to be confirmed as the USTR soon. While they will head the team developing the report, they are also required to seek inputs from Secretary of State Rex Tillerson, Secretary of the Treasury Steve Mnuchin; Attorney General Jeff Sessions, and the new Director of the Office of Trade and Manufacturing Policy, Peter Navarro.

Trump established that “Office of Trade and Manufacturing Policy” in a separate order, also dated 29 April. According to the order, this new office’s mission would be “to defend and serve American workers and domestic manufacturers while advising the President on policies to increase economic growth, decrease the trade deficit, and strengthen the United States manufacturing and defence industrial bases.”

NAFTA, South Korea

The release of the order capped a tumultuous week on trade in Washington, which saw the US president suggest that he was ready to issue a withdrawal from the North American Free Trade Agreement (NAFTA), a tripartite deal with Canada and Mexico which has governed much of the trade within the region over the last two decades. (See Bridges Weekly, 27 April 2017)

After news leaked last week that Trump was considering a withdrawal, it later emerged that the US leader had changed his mind and would continue to push for a renegotiation instead. The new report on trade deals will include coverage of NAFTA, according to the Secretary of Commerce.

According to the Washington Post, which cited administration officials and the president himself, this change in tactic came partly due to pushback from Agriculture Secretary Sonny Perdue and Commerce Secretary Wilbur Ross, who raised concerns over what a withdrawal notice would mean for US farmers and manufacturers who rely heavily on those countries as either export markets or sources of key inputs for their production processes.

The US leader also discussed the issue with his NAFTA counterparts, who called him to voice their own concerns over the damage that a sudden withdrawal notice could incur.

“I received calls from the President of Mexico and the Prime Minister of Canada asking to renegotiate NAFTA rather than terminate. I agreed subject to the fact that if we do not reach a fair deal for all, we will then terminate NAFTA. Relationships are good – deal very possible!” said Trump in a two-part post on Twitter.

Trump also suggested last week that he might pull the United States out of its five-year-old deal with South Korea, depending on whether Seoul is willing to negotiate an upgrade and if so, on what terms.

The US president claimed that the deal has not sufficiently benefitted the US, telling the Washington Post that the US is “getting destroyed in Korea.”

Just this past month, US Vice President Mike Pence visited Seoul and said that Washington would be interested in renegotiating the accord, while saying that the agreement has also yielded benefits in terms of increasing bilateral trade flows, boosting American services exports, and bringing in more foreign direct investment. (See Bridges Weekly, 27 April 2017)

Ross on the WTO

The new executive order’s language on the Geneva-based World Trade Organization has created waves in some trade circles, particularly in light of some of the points raised by the Secretary of Commerce in comments to Washington reporters.

“As far as I can tell there has never been a systematic evaluation of what has been the impact of the WTO agreements on the country as an integrated whole. So it’s trying to find violations and abuses,” said Ross in a press briefing the day before the order was signed. That claim has been countered by some trade analysts, who have referred to past reports on the effects of trade deals conducted by US government agencies.

Other statements made by the Commerce Secretary have also drawn scrutiny, such as the pace of the WTO’s meetings schedule; the alleged “structural problem” of its dispute settlement mechanism; and the lack of clarity on how the US would proceed after this new report is concluded.

“[The] WTO is a very, very bureaucratic organisation. Their main meetings occur four times a year. Well, when you think about how dynamic trade is and how rapidly it changes, the idea of a leisurely four-times-a-year meeting schedule, it’s really not very consistent with dealing with problems,” said Ross.

While Ross appeared to be referring to the WTO’s General Council, the actual numbers of such meetings do not match his characterisation. Additionally, WTO members have been working to negotiate updates to the organisation’s rules over several years – a very complex process – and the US has been an active player in those efforts.

The WTO’s General Council meets both informally and formally on several occasions throughout the year. For example, last year alone the General Council met for five formal and three informal meetings. Outside of the General Council, the global trade body keeps a busy calendar throughout the year, convening frequent meetings of its various regular bodies and negotiating groups, which deal with specific trade subjects.

While various reporters asked whether the US would consider a WTO withdrawal, Ross did not confirm whether that would be an option. “We haven’t done the study and we haven’t presented the President with all of the alternatives. Certainly, as any multilateral organisation, there’s always the potential for modifying the rules of it,” he said.

ICTSD reporting; “‘I was all set to terminate’: Inside Trump’s sudden shift on NAFTA,” WASHINGTON POST, 27 April 2017; “Trump: ‘We may terminate’ U.S.-South Korea trade agreement,” WASHINGTON POST, 28 April 2017.

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