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A Questionable Trade Policy Narrative Deserves Meaningful Debate

Daniel J. Ikenson

Trade policy is complex and nuanced, which makes it fertile
ground for spinning narratives. Since the beginning of the Trump
administration, the establishment trade policy narrative has been
shaped considerably by the words and opinions of a Peterson
Institute scholar named Chad Bown. Mr. Bown is an economist and
former college professor, who has studied and written extensively
about U.S. trade laws. He also served on President Obama’s
Council of Economic Advisers.

Since the 2016 election, Mr. Bown—like myself, my Cato
colleagues, and many other trade policy analysts—has taken
exception to the Trump administration’s “America First”
rhetoric, explaining why their diagnoses are wrong and how
operationalizing their protectionist solutions would be bad for the
U.S. economy and America’s standing in the world.

But, somewhere along the way, Bown’s objections to
Trump’s trade views seem to have morphed into a
pseudo-religious mission to scapegoat the president for everything
that is wrong, has ever been wrong, or could possibly go wrong with
U.S. trade policy. Putting Trump at the center of everything that
is aggressive or contentious about U.S. trade policy may feed a
narrative the media grasps and embraces (and Trump likely
welcomes), but it obscures the real source of the problems.

The U.S. trade remedy laws, which predate Trump by a century,
are the problem. How the laws are written; how the regulations are
administered; how the status quo is defended are all at the root of
the problem. But Bown’s narrative implies that once Trump is
gone, U.S. trade policy will reclaim its exalted international
status as a beacon of fairness and humility, treading lightly and
rocking no boats. Please, Chad.

Putting Trump at the
center of everything that is aggressive or contentious about U.S.
trade policy may feed a narrative the media grasps and embraces
(and Trump likely welcomes), but it obscures the real source of the
problems.

Consider this Bown piece, published
yesterday on the Washington Post’s “Monkey
Cage.” Ostensibly, the article is about the Canadian
government’s submission to the World Trade Organization of a
“request for consultations” with the U.S. government
over various U.S. trade law practices that Canada believes violate
U.S. WTO obligations.

There was nothing especially noteworthy about the Canadian
government’s complaint, except that it came at a particularly
testy time in bilateral trade relations—less than two weeks
before the struggling NAFTA negotiations were to resume. The
complaint focuses on several very technical U.S. trade law
procedures having to do with the calculation and application of
duty rates in antidumping and countervailing duty cases, and it
takes aim at the U.S. rules by which domestic industries are found
to be “materially injured” or “threatened”
with material injury (a necessary finding for duties to be imposed)
by dumped or subsidized imports.

Even though the New York Times, citing Bown,
characterized Canada’s case as “sweeping” and
akin to “lobbing a diplomatic grenade at the Trump
administration’s ‘America First’ approach amid an
increasingly embattled trade relationship between the longstanding
North American allies,” the complaint was rather standard,
technical, wonky, boilerplate stuff (except, perhaps, for the
timing). After all, Canada’s complaint was the 536th case
brought to the WTO since 1995 and the 134th launched against the
United States. Violations of the WTO Antidumping Agreement (ADA) or
the WTO Agreement on Subsidies and Countervailing Measures (ASCM)
have been alleged in 140 of the 536 cases. In the 134 cases against
the United States, the ADA and ASCM were cited 92 times. Complaints
are lodged against the United States more than any other member
and, in most cases, U.S. trade remedies practices are being
challenged. So, the case for screaming that this complaint is
evidence of a falling sky is pretty weak.

But Bown considers the case a watershed and an indictment on
Trump:

Canada filed a formal World Trade Organization dispute in
December that seeks to protect billions of dollars of its exports
to America that are suddenly under threat, in part because
of President Trump’s NAFTA renegotiation
(my
emphasis).

That is an odd take, indeed. Which of Canada’s exports are
“suddenly” under threat and why is that threat
partially attributable to Trump? One can only assume Bown means
that, if the NAFTA talks collapse and the United States withdraws,
then Canadian exports will no longer receive preferential tariff
treatment. But how does filing a WTO complaint about U.S. trade
remedy procedures in any way mitigate the potential loss of
preferential access? The trade remedy laws apply to NAFTA and
non-NAFTA members equally.

By all informed accounts, including Canadian Foreign Affairs
Minister Christina Freeland’s, the purpose of Canada’s
bringing the case was to secure some additional leverage in the
ongoing, tangential negotiations with the United States aimed at
reaching an agreement over softwood lumber trade. The Softwood
Lumber Dispute has been a fixture in the bilateral relationship for
over 35 years. During that period, U.S. lumber producers filed a
series of unsuccessful and then successful petitions for relief
under the antidumping and countervailing duty laws. The duty orders
that were put into place were eventually superseded by two
long-standing managed trade agreements, interspersed with a slew of
litigation before U.S. courts, NAFTA panels, and the WTO Dispute
Settlement Body. The U.S. government behaved poorly at various
points under various presidential administrations, including by
refusing to implement NAFTA panel determinations and extorting $1
billion in duties collected that should have been refunded to
importers of Canadian lumber.

The last Softwood Lumber Agreement was borne of that extortion
and was in effect for nine years, ending in 2015. Since then the
two governments have been unable to reach terms for a new
agreement. Those who find merit in managed trade agreements should
note that the Obama administration had plenty of time to strike a
new deal with the Canadians, but agreeable terms were never
reached.

So, in the absence of an agreement, the U.S. industry filed new
antidumping and countervailing duty cases and Canadian exporters
are once again subject to duties under those laws. And Trump had
nothing to do with it.

Bown continues:

Canada mostly wants the threat of new American tariffs on its
exports of lumber, paper, steel pipe and other products to
stop.

Well, sure. Governments generally don’t want their
exporters subject to tariffs in foreign markets. But Canada, the
United States, and all other members of the WTO, unfortunately,
grant governments wide latitude in using their trade remedy laws to
redress dumping or subsidization that is found to be injurious to
domestic industries. So Canada’s complaint will do nothing to
end the threat of American tariffs under these laws. What Bown
doesn’t share is that antidumping and countervailing duty
measures against lumber and paper are already in place and that
five of the six U.S. AD/CVD measures against Canada were initiated
during the Obama administration (the 6thwas brought during the
Reagan administration!).

Bown goes on:

U.S.-Canada trade throughout the NAFTA period has been mostly
harmonious. Canada’s exporters have rarely faced attack under
the sort of American “unfair” trade policies —
anti-dumping and countervailing duties — that Ottawa is
fighting with this formal dispute.

What? This is pure dissembling. What “rarely-faced
attacks” under what “sort of American
‘unfair’ trade policies” is he describing? Bown
seems to be suggesting that the Trump administration is doing
something especially aggressive or nefarious here. But it’s
doing nothing. These are the trade laws and they are on statutory
autopilot. Every single claim in the Canadian complaint, and 167 of
the 188 AD/CVD cases cited in the appendices to support those
claims, concerns U.S. measures that predate Trump. So when Bown
writes that Canada has “rarely faced attack under the sort of
American ‘unfair’ trade policies…that Ottawa is now
fighting with this formal dispute” – a complaint that
identifies these very policies on a case by case basis going back
19 years – one can’t avoid concluding that
he’s spinning a narrative.

More Bown:

As late as 2017, only about 1 percent of Canada’s exports
to the United States were caught up in these policies. But that may
be changing. Pending U.S. tariffs could suddenly shut down billions
of dollars of Canadian exports of products such as lumber, paper
and steel pipe.

Yes, trade remedy actions have a way of squelching bilateral
trade in the targeted products. The U.S. government—and all
other WTO member governments—are afforded a great deal of
deference when it comes to using these laws. The U.S. laws enable a
U.S. agency, which is ideologically committed to protecting
domestic industry at all costs, to act as judge, jury, and
executioner in these cases. The results, which hurt foreign
exporters and U.S. import-consuming industries and consumers, can
be commercially crippling. BUT. THIS. IS. NOTHING. NEW. And,
contrary to a theme Bown has been peddling for more than a year,
this is not a problem created or exacerbated by Trump. The problem
is with the laws and their administration and Bown’s partisan
scapegoating takes the focus away from the appropriate target.

Bown continues:

Until Trump came into office, Ottawa wasn’t particularly
concerned about frequent U.S. abuse of these policies because China
— and not Canada — had been Washington’s primary
target.

I’m sorry, but this is just make believe. First of all,
but for one exception in 35 years, “Washington”
doesn’t target other countries’ exporters under the
trade remedy laws. Domestic industry brings the cases when their
lawyers advise them that there is sufficient evidence to support an
affirmative finding. Presidents don’t get involved. Bown is
heavily vested in the hypothesis that Trump being in the White
House explains the steep increase in AD/CVD cases in 2017. But the
president’s influence over AD/CVD outcomes is limited, as the
Boeing-Bombardier outcome reinforces. Sure, the president or
Commerce Secretary can tell the Enforcement and Compliance division
(DOC’s trade remedy overlords) to push their discretionary
limits to generate the highest possible dumping or countervailing
duty margins, but they don’t need the coaxing. They’re
reliable. They find dumping in 93 percent of cases. Meanwhile,
there is a court system keeping a watchful eye, which has not been
shy about remanding over-zealous decisions and calculations back to
the agencies.

The fact is that the antidumping and countervailing duty laws
were revised in 2015 in legislation passed along with Trade
Promotion Authority. Those changes lowered the evidentiary
thresholds for demonstrating material injury and made it easier for
Commerce to use estimates of prices and costs that are adverse to
the foreign respondents. Those changes are more likely to explain
the spike in cases during 2017.

And there’s more from Bown:

After a lull between 2008 and 2015, Ottawa has brought four new
disputes since 2016 — filing three of these after Trump came
into office. All four challenge the same sort of U.S. unfair trade
actions.

You tell me: Does Bown want his readers to infer that Trump is
the reason for Canada’s WTO complaints? The fact is that each
of the complaints is about U.S. policies and practices that predate
Trump. They are longstanding U.S. practices. They have nothing to
do with Trump specifically. But blaming Trump for all that ails
U.S. trade policy has been Bown’s mission. My interest in
making these points is not to defend Trump, but to draw attention
to the fact that Bown’s tactics make resolution of the real
problem more difficult. The problem is the ease of access to trade
remedy laws designed for a much different economy at a much earlier
stage of development.

Bown has more:

To make its WTO case, Ottawa must show that current U.S.
targeting of Canadian exporters of lumber, paper and steel pipe
products is part of a longer pattern of bad behavior. But because
Canada hasn’t been the target of earlier tariffs, it had to
draw from U.S. actions against other countries, including
China.

Wrong. Canada need not demonstrate any longer patterns of bad
behavior. It needs to demonstrate that U.S. policies, procedures,
rules, laws, or actions are inconsistent with U.S. obligations
under the various WTO agreements referenced in the complaint. It
just so happens that Canada has identified several “as
such” infractions (meaning, essentially, the violations are
endemic—woven into the fabric of U.S. policy). Associating
those longstanding policies with a particular president is a
misguided stretch.

Bown goes on:

NAFTA itself is another reason Canadian companies haven’t
been a major target of these tariffs historically. NAFTA courts can
be used to resolve U.S.-Canada disputes, including a special
provision — known as Chapter 19 — that discourages
especially frivolous claims under unfair trade laws. Ottawa also
recently filed a dispute challenging potential U.S. lumber tariffs
under Chapter 19. Trump has repeatedly threatened to terminate
NAFTA. But even if it remains, the Trump administration has also
prioritized ending these NAFTA legal protections.

I understand the importance of simplifying concepts for an
audience that might be unfamiliar with the topic, but this
explanation of NAFTA Chapter 19 is insufficient and its assertions
are questionable. Under U.S. law, executive branch agencies can be
taken to court over the decisions they render by aggrieved parties.
The U.S. International Trade Commission and the Department of
Commerce are the agencies with jurisdiction over the antidumping
and countervailing duty laws. If the domestic petitioner or a
foreign respondent or another party to an antidumping case believes
that the Commerce Department overstepped its discretion and failed
to administer the law properly, it can file claims at the U.S.
Court of International Trade. This is the channel for adjudicating
matters related to trade remedies.

However, under the terms of NAFTA, as an alternative to the
domestic courts, the parties can choose a Chapter 19 panel to
adjudicate. Essentially, the domestic courts can be cut out of the
appeals process. That raises a lot of legitimate questions about
constitutionality and sovereignty among lawyers and legal scholars,
and the Trump administration’s position in the NAFTA talks is
to get rid of these special panels and restore oversight to the
domestic courts. For reasons not entirely clear to me, the
Canadians want to retain Chapter 19. Presumably, they believe they
get a better outcome from the NAFTA panels than they do from the
courts. There is a perception that the U.S. courts are unfair to
foreign entities in these proceedings, but that is not reflected in
the data we’ve examined at Cato.

A review of the 18 months of data on CIT case decisions through
June 2017 indicates that the court agrees with the plaintiff (the
party challenging the agency’s actions) on 46 percent of the
issues raised. When the plaintiff is the U.S. industry (objecting
to DOC or ITC decisions in the underlying AD or CVD case), the CIT
agrees on 43.2 percent of the issues. When the plaintiff is the
foreign interest (foreign producer or exporter), the CIT agrees on
47.2 percent of the issues.

Those results suggest that foreign industry plaintiffs have a
slightly higher success rate than U.S. industry plaintiffs, which
may reflect the fact that agency discretion is more often exercised
in a way that is adverse to the foreign interests. An examination
(published in a 2006 Cato paper) of the 18-month period between
January 2004 and June 2005 found that the CIT remanded 19 cases to
the Commerce Department with instructions to revisit its decisions
or recalculate its antidumping results. In 14 of those 19 cases,
the recalculated dumping margins were smaller, suggesting a higher
incidence at Commerce of exercising its discretion to the detriment
of the foreign or importing interests, as well as the court doing
its job.

The U.S. courts are not the problem. The problem is with the
laws’ administration at Commerce (and to a lesser extent at
the U.S. International Trade Commission), which is given way too
much discretion for an agency with an overtly protectionist agenda.
Thus, Chapter 19 is a solution in search of a problem.

But Bown suggests that the Trump administration’s
preference for terminating Chapter 19 is an affront to good
judgment and an act of aggression that will be deeply consequential
to Canada. His presumed preference for the status quo may also have
something to do with his curious claim that Chapter 19 deters
“especially frivolous claims” under unfair trade laws.
Say what? Considering that the standard of review accepted by these
panels is supposed to be identical to that of the domestic courts,
there should be no difference between the outcomes reached by the
panels and the courts. If there is, that would seem to bolster the
argument that Chapter 19 is unconstitutional.

Bown mentions Canada’s recent Chapter 19 review
request—perhaps to illustrate that Trump’s plan to
snuff it out would be a real hardship for Canadians. But the fact
is that the United States doesn’t have a great record
complying with NAFTA panel decisions. Neither Commerce nor the ITC
enjoys getting cases remanded to them. When the body doing the
remaining is not a U.S. court, but an international panel, the
agencies drag their feet and invoke sovereignty and
constitutionality claims, knowing those arguments appeal to many
Americans. That’s exactly what happened during the last
round of lumber litigation in 2005, which enabled the Bush
administration to buy enough time to extract $1 billion of
illegally collected duties, which should have been refunded.

Bown has more:

The institutional uncertainty over NAFTA has forced Canada to
turn to the WTO, even though addressing this dispute
“privately” under NAFTA might have less impact on
China’s trade to the U.S. market and thereby alleviate
Lighthizer’s concerns.

This is another head-scratcher. It’s unclear to me how
Canada could have turned to NAFTA, instead of the WTO, for
adjudication of claims concerning U.S. violations of GATT/WTO
commitments. By substituting for domestic courts, Chapter 19 deals
with matters of domestic law, not international agreement. And
NAFTA’s general dispute settlement procedures cannot speak to
whether U.S. practices are GATT/WTO consistent. So, yeah.

Bown goes on:

Canada’s WTO dispute could have outsized repercussions
— for all parties. If Trump decided to end NAFTA and slap
special tariffs on billions of dollars of Canadian exports,
Ottawa’s worst fears would be affirmed.

Chad? What are you talking about? What does anything in this
statement have to do with anything else in this statement? Trump
ending NAFTA is a possibility. Commerce and the ITC affirming
AD/CVD duties on various Canadian exports is (and always has been)
a possibility. But one has nothing to do with the other. And
neither has anything to do with Canada’s WTO dispute. Again,
this seems like subterfuge.

More Bown:

President Trump’s solar and washer tariffs may have now
opened the floodgates of protectionism

Oh, out of the blue comes this assertion. Why? What does it have
to do with rest of the article? Is it just to remind that Trump has
authorized discretionary trade restrictions? Ok. Got it. But if
anything comes through the floodgates, remember that there are
constraints—legal, procedural, economic, and
political—on the president.

Bown concludes:

Canada’s legal act of self-protection chiefly serves to
clarify the costs to this U.S. administration continuing a mostly
antagonistic trade policy toward its northern neighbor. And it may
prove another crack in the already fractious NAFTA
renegotiation.

You’re stretching, man. Really stretching.

Daniel J.
Ikenson
is director of the Cato Institute’s Herbert A. Stiefel
Center for Trade Policy Studies and author of the 2017 policy
analysis: Cybersecurity or Protectionism: Defusing the Most
Volatile Issue in the U.S.-China Relationship
.