US Trade Policy in the Spotlight as Global Economic Uncertainty Looms

19 December 2012

Concerns over the impending US fiscal cliff, questions over the future of US agricultural policy, and what level of engagement Washington will have in multilateral trade negotiations were among the various topics raised yesterday as WTO members began their two-day biennial review of US trade policies.

Under WTO rules, the global trade body conducts a review of the four largest traders - currently the US, EU, Japan, and China - every two years. Smaller traders are reviewed on a less regular basis. In addition to a report issued by the WTO secretariat, the document also includes a report provided by the trader being discussed.

The WTO's previous review of Washington's trade policies was held in 2010, and had praised the US for keeping its trade and investment policies open in spite of the ongoing global economic downturn. At the time, the report had also urged Washington to demonstrate more leadership regarding multilateral liberalisation efforts. (See Bridges Weekly, 7 October 2010)

This year's review, which began on Tuesday, is set to continue this Thursday.

Fiscal cliff fears play in the background

The WTO report issued on 18 December noted improvements in the state of the US economy since the 2010 review. Specifically, merchandise and services trade figures have rebounded, surpassing previous 2008 peak levels.

However, the merchandise trade deficit worsened over that time, given that import growth outpaced export growth - with imports reaching US$2.236 trillion in 2011, compared to the US$1.497 trillion of exports. Services trade, meanwhile, showed a notable surplus in recent years, which the WTO report predicts will increase further.

Despite the US showing overall some signs of recovery, "it will take more time [for the US] to emerge from the downturn and to return to growth and confidence levels seen prior to the crisis," the report added. The housing market and unemployment levels are areas where the US economy remains weak, the WTO noted, and the impact of the EU's own economic struggles on third country markets took a toll on growth in 2012.

In light of the US recovery's fragile nature, the possibility of the US going off the so-called fiscal cliff - and what such a result might mean both for the US' growth prospects, and for its trading partners - was raised by various delegations during the first day of the two-part trade policy review.

The "fiscal cliff" is a series of pencilled-in tax hikes and spending cuts that are set to go into effect on 1 January unless legislators in Washington reach a deal beforehand. Over the past several weeks, the two chambers of the US Congress and the White House have been holding negotiations to clinch a package that would avert the impending measures. However, long-standing differences of opinion between Republicans and Democrats regarding tax policy have slowed down the talks.

Should these differences not be resolved by the end of this year, various WTO members warned on Tuesday, the effects could be damaging not just to the US alone, but the global economic recovery as a whole.

New rounds of quantitative easing instituted by the US Federal Reserve - with the goal of lowering unemployment figures - have also been watched closely by Washington's trading partners over the past few months, given the fear that such monetary policies could have damaging spillover effects on emerging markets. The impact of the resulting currency movements on trade was raised by some delegations, including Brazil and Argentina, in their interventions during the review this week.

Agriculture

The ongoing negotiations in Washington over how to resolve the fiscal cliff dilemma have also left the future of the next Farm Bill - the omnibus legislation that determines the level and composition of US federal agriculture spending - in limbo.

While Congress spent much of the past year wrangling over what the 2012 Farm Bill would ultimately look like, the process is currently stalled. The existing Farm Bill of 2008, meanwhile, expired on 30 September.

Observers note that the fiscal cliff negotiations, however, could potentially change the game entirely for the new US farm legislation, particularly if it is worked into the wider package of spending cuts.

Many delegations that spoke on Tuesday noted that, given the US' role as the world's largest agricultural exporter and the resulting impact of US farm policy on its competitors, they would be watching the Farm Bill process closely.

Some asked for additional information on the next steps of the process, while others raised concerns over the US' current levels of domestic agricultural support - particularly as the secretariat report found no major changes to US agricultural policy since the last report two years ago - as well as the proposals raised in draft versions of the new US legislation.

"On agricultural policy, we would like to register our concerns on instruments currently envisaged in the future Farm Bill, as they would seem to lead to an increase of US trade-distorting support," EU Ambassador to the WTO Angelos Pangratis commented - a worry that was also expressed by other members.

Tariff peaks, trade remedies, and rules of origin under scrutiny

The familiar topics of tariff peaks and trade remedies resurfaced in this week's review, which have been longstanding points of contention between the US and some of its trading partners.

The secretariat report found significant tariff peaks in sectors such as footwear, leather, textiles, and clothing, and in agriculture, where there are many non-ad valorem tariffs, while finding that US tariffs were on average relatively low. Some of the members that spoke on Tuesday noted that these particular tariff peaks can have negative implications for the US' trading partners, notably developing countries.

Regarding the use of trade remedy investigations - a topic that has also drawn attention in earlier reviews - the WTO secretariat report found that the initiation of anti-dumping investigations rose from three to 15 cases in 2011, following just a few initiations the previous year. Both countervailing - or anti-subsidy - duty investigations and anti-dumping duty investigations launched over the past five years, the WTO report found, primarily involved imports from Asian countries, particularly China.

The report also mentioned the US law enacted in March of this year to preserve Washington's ability to apply countervailing duties to non-market economies (NMEs) - a piece of legislation that has prompted China to lodge a complaint against the US at the WTO. (See related article, this issue)

The complexity of the US' rules of origin was another topic addressed in the review, with the WTO report noting that the "proliferation of differing rules of origin, their complexity, and lack of transparency continues to be of concern for some" - an issue that was also raised in several interventions.

Bilateral and regional versus multilateral engagement

The increased involvement of the US in bilateral and regional processes - such as finalising the ratification of trade deals with Colombia, Panama, and South Korea, along with its focus on the negotiations for the proposed Trans-Pacific Partnership Agreement - had some members questioning whether the US is devoting less attention to multilateral talks and more to other efforts.

"Regional and bilateral initiatives obviously have prioritised over multilateral initiatives," Yi Xiaozhun, China's WTO Ambassador, said in his remarks. However, he also welcomed "the encouraging statements of the US recently on their willingness to play a leading role for credible deliverables by [the WTO's next ministerial conference, in December 2013] and on their fair commitment to continue to work for the conclusion of the whole [Doha Round] afterwards."

Others similarly noted that US leadership will be essential in bringing the long-running Doha Round of trade negotiations to a successful conclusion, and encouraged it to continue its efforts to date in this area.

The US, for its part, said in its report to the Trade Policy Review Body that the WTO remains "the multilateral bedrock of US trade policy."

US Ambassador Michael Punke, in his comments on Tuesday, further stressed that point, noting that Washington "is committed to preserving and enhancing the WTO's role as the primary forum for liberalising multilateral trade, developing and enforcing global trade rules, and serving as a bulwark against protectionism."

The US ambassador noted, however, that the global trade body is "an institution at a crossroads," particularly regarding its negotiating function. The past year, therefore, has been useful for learning from prior Doha-related mistakes and creating new opportunities in the process, Punke said, while also providing a "useful reminder" of the non-Doha aspects of the WTO.

"As we noted at the [Trade Negotiations Committee] meeting two weeks ago, Bali is not a deadline [for the Doha talks], but it will be a milestone. The test will be deeds, rather than words," he added.

More information

The full report (WT/TPR/S/275) is available at http://docsonline.wto.org/.

ICTSD reporting.

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