The United States and World Trade: Future Directions
The Council on Foreign Relations hosted a symposium on October 16, 2017, which featured four sessions and brought together distinguished trade leaders and innovative thinkers to address the trade policies of the United States and their international implications in North America and East Asia, as well as the possible effects on the global trade architecture and the World Trade Organization.
This is the first session of the "The United States and World Trade: Future Directions" symposium.
This symposium brings together distinguished trade leaders and innovative thinkers to address the trade policies of the United States and their international implications in North America and East Asia, as well as the possible effects on the global trade architecture and the World Trade Organization.
ALDEN: Great, thank you. Welcome, everybody. My name is Edward Alden. I’m a senior fellow here at the Council on Foreign Relations, and helped organize this symposium, along with my colleague, Miles Kahler. We have got a tremendously exciting day ahead of us, I think, including—you know, just a quick aside. As you know, these things are always scheduled far in advance. And you try to pick the best time when people might be interested. Well, we certainly had no way of knowing it was going to be the four round of NAFTA negotiations, and the one in which the administration was tabling all of its most contentious proposals. So our timing turned out to be far better or worse, I suppose, depending upon your perspective, than we could have hoped.
So we have a great day ahead of us looking at a range of topics that are very much on the agenda in world trade. The first one will look specifically at the NAFTA renegotiation which, as I said, fourth round underway just across the river in Arlington. The second panel is going to look at the critically important question of the U.S.-China trade relationship. The third is going to focus on the growing use of trade laws and trade remedies and what this means for the WTO dispute settlement in particular. And then, of course, our final discussion is going to be with the WTO Director-General Roberto—excuse me. I will try that again. WTO Director-General Roberto Azevedo. And I think, in fact, this is his first public event in Washington since the new administration took office in January. You were reminded that the event’s going to be livestreamed, so this will all be on the record.
We are really meeting here at an extraordinary juncture. I have followed trade negotiations for about 15 years as a reporter and then another 10 years here at a policy analyst at CFR. I covered the original NAFTA negotiations, in fact, as a reporter. And all of the trade negotiations I’ve ever paid attention to started from the same premise, which is how to expand mutual gains for the participating countries. To be sure, there were always lots of bitter fights over the distribution of those gains and which sectors would win and which would lose. But the agreed goal was always to find some mutually acceptable balance of concessions. The NAFTA negotiations started from a wholly different place—I should say, the NAFTA renegotiation.
If you believe, as President Trump does, that the United States has been a loser from its trade agreements, then the purpose of NAFTA renegotiation is not to achieve some new, mutually beneficial balance of concessions. The goal is to rebalance the agreement so it favors the United States more and Mexico and Canada less. And we’ve seen what that means in some of the U.S. proposals, including a 50 percent U.S. content requirement for automobiles that had been tabled over the last week. That approach, obviously, has implications for the U.S.-China relationship, when the Section 301 investigation on technology transfer and other issues start coming to the table. And it clearly has enormous implications for the U.S. relationship with the World Trade Organization which was, in many ways—again, the negotiation I covered was in many ways a U.S. creation.
And then finally, this is the Council on Foreign Relations, all of this may well have broader implications for U.S. foreign policy. I don’t know if anyone saw the Iranian foreign minister last night on “60 Minutes,” but he cited particularly the NAFTA talks and the U.S. withdrawal from the Trans-Pacific Partnership. He said that President Trump’s withdrawal doctrine—and I actually think our friend Richard Haass may have coined that term—but he said the withdrawal doctrine will have severe repercussions. He said, quote, “Now nobody is going to make any concessions to the United States because they know that the next U.S. president will come back and say it wasn’t enough.”
So as I said, we live in extraordinary and uncertain times. And I look forward to a very rich discussion today to help us make better sense of how all this is playing out on the trade front. So I’m going to turn it over to Miles or a few brief comments, and then we’ll launch into our first panel.
KAHLER: Thanks, Ted. When we—I’m Miles Kahler. I’m senior fellow for global governance here at the Council on Foreign Relations.
When we began joining these two trade symposiums at CFR, the first held last September in the middle of the presidential campaign and the second today, the architecture of world trade appeared to be imperfect, but stable. Trade had recovered from its precipitous fall following the Great Recession and the world economy had warded off waves of protectionism that had deepened the economic downturn during the Great Depression in the 1930s. Bilateral trade conflicts among the largest trading powers, the United States, the EU and China, seem to be moderated by a reduction in the mass of external imbalances that have proceeded the Great Recession, and by a perception that China had reduced its contentious management or manipulation—depending on your point of view—of its currency.
It’s hard to remember, but at that time, two years ago when we started this, regional trade initiatives on a large scale were underway. Indeed, many viewed those mega-regionals, the TPP, the Trans-Pacific Partnership, the TTIP, Transatlantic Trade and Investment Partnership, and RCEP in the Pacific as potential threats to the global trade order, centered on the World Trade Organization. At that time, it was the global level that was the most disappointing and—given the stalemate at the Doha development round. But even the WTO could claim a great deal of credit for a robust dispute settlement mechanism and for serving as a backstop against protectionism during the great recession. By the time of last fall’s symposium, these pillars of the trade architecture had been shaken by the vote to leave—in the U.K. to leave the European Union and by the surprising emphasis on trade—probably the greatest emphasis on trade in a presidential election since 1992 by both left and right in the presidential campaign.
And now I think it’s safe to say that each of these pillars of the international trade architecture are shaking. They’ve been called into question by American politics and policy. And as Ted has already pointed out, today’s symposium will examine those challenges and their effects on world trade. And we will go through each dimension of the trade architecture, beginning with the regional, as Ted has mentioned, NAFTA, which is harshly criticized at its start. Many of you will recall Ross Perot in 1992. Has been a target of those who were critical of these trade agreements throughout, but has also been a centerpiece of American regional trade agreements, as well as an anchor in U.S. relations with its neighbors.
Then we will turn to bilateral relations, U.S.-China relations—a bilateral relationship which, once again, is becoming more troubled as leaders on both sides appear to be turning in a more mercantilist direction, a turn that makes negotiating their trade differences much more difficult. And then finally a third panel that Ted will preside over on trade remedies—trade remedies that have been threatened recently by the United States, which have been deployed rarely if ever in recent memory, many of which if they are wielded against our trade partners will run counter to WTO rules governing world trade.
So regional, bilateral, global. Where is U.S. policy heading on these three dimensions? And most important or as important, what will be the response of its trading partners? It’s not all about U.S. trade policy. And what will be the outcome for world trade and the rules that govern it, given what happens in each of these dimensions?
I’d like to thank—many people have contributed to this symposium. I’d like to thank three individuals in particular. Sam Dunderdale, Kyle Evanoff, and Shelton Fitch—three of those very talented young individuals who have come to the CFR. We benefit from their hard work, their intelligence, and their effort. And they played a central role in planning this symposium. And we’d like to thank the International Institutions and Global Governance Program here at the Council, the Center for Geoeconomic Studies, and the Robina Foundation for its support of this symposium.
And now, let’s turn to the first panel on NAFTA renegotiation and our presider, Dolia Estevez.
ESTEVEZ: Well, good morning and thank you all for being here today. And I want to thank also the CFR, the Council on Foreign Relations, for this kind invitation to preside over this very, very timely subject, on NAFTA—this panel on NAFTA.
The fourth round of negotiations will end tomorrow. And it is expected that the three ministers, led by Ambassador Lighthizer, with his two counterparts from Canada and Mexico, will report on where these talks are heading. These talks—this round of talks, the fourth one, has been particularly very difficult. The United States introduced a series of very difficult, tough proposals that Mexico and Canada oppose. So what’s next? Will the negotiators be able to bridge the divides? Will the United States withdraw? And if they do withdraw, what would NAFTA’s future be?
And, well, to get answers, we have an extraordinary panel of experts. And I will make a brief presentation. And then you can find their full biographies in the material you have. So, Michael Froman. He’s a distinguished fellow of the CFR. And as U.S. Trade Representative under President Obama, he negotiated the TPP. Antonio Ortiz-Mena, he’s a senior advisor of the Albright Stonebridge Group and former head of economic affairs at the Embassy of Mexico in Washington. And John Weekes. He’s a senior business advisor at Bennett Jones and former Canadian chief negotiator of the NAFTA negotiator in the first round of negotiations—the real ones. (Laughter.) I’m sorry about that. Yeah. So I’d like to—as I said, the full biographies are in your material.
Now, I’d like to start by asking Michael if he can please assess where the negotiations are today, when the fourth round is about to conclude.
FROMAN: Well, thank you. And thanks for having me.
You know, I think first of all we should start from the position that NAFTA is 23 years old, 24 years old. It is ready for an update. There’s a lot of things that could be improved in it, whether it’s labor, or environment, or a digital economy, or state-owned enterprises, investment regimes. Of course, those are all things we did in TPP, that was put on the shelf the third day of this administration. So I think the question really is, what is it beyond those kinds of updates that the administration will insist on?
As you mentioned, the U.S. administration has now, I believe tabled text in various areas that they had been signaling were going to be priorities. Many of those texts, I imagine, are quite difficult for Mexico or Canada to accept. But this is a negotiation. And I think now the real conversation begins about where is their flexibility on these issues and what could be sold domestically in each of their economies, and how to make sure that the agreement is better at the end than where it started, that you’re not actually restricting trade or erecting new barriers, but dealing with the kinds of issues that the administration has flagged.
So I think it’s at a critical stage. It is ambitious, I think, to try and—given the issues that have just been tabled—to wrap this up very quickly, by the end of the year as was the original expectation. And I think it would be incumbent on Mexico and Canada to be quite clear about where their red lines are, what is worthy of discussion and what isn’t, to see what can be done. Because I think at the end of the day, being an outsider just looking at the administration, it appears they want to see how much they can possibly squeeze out of Mexico or Canada. And if they can’t squeeze enough, they’re quite ready to walk away.
ESTEVEZ: And on that, Antonio, how much can they squeeze out of Mexico? (Laughter.)
ORTIZ-MENA: I think they can try to squeeze a lot, Dolia, but I’m not sure they will be very successful. The Mexican government has stated that it will not accept any reversal. So no going back. No new tariffs. No new quotas. So the Mexican government will show flexibility and, I think, creativity to address, you know, legitimate concerns that have been expressed by the U.S. negotiators, but I don’t believe that they will accept NAFTA at any price. So it would be very dangerous to engage in this brinksmanship tactics.
ESTEVEZ: Will they withdraw? Will Mexico withdraw? Would Mexico withdraw?
ORTIZ-MENA: I don’t know if it would be Mexico to withdraw, but I’m sure that there are some lines that Mexico will draw and will say that we will just not accept this. And then the U.S. will have to decide whether to make its positions more flexible or to withdraw.
ESTEVEZ: John, and out of, I believe, four proposals that the U.S. has tabled, which is the most problematic for Canada, or are all four problematic?
WEEKES: Well, are there only four? (Laughter.) I think—no, they’re all very problematic. And you know, I think in sort of general terms I tell people that in these negotiations the modernization negotiations are really going quite well. Include some of the things Michael was talking about. It’s the renegotiation where the negotiations are in real trouble. And I think that the proposals from the United States are—that I’ve read about; I haven’t seen them because, of course, they’re confidential—seem to me to be so extreme that one really has to ask the question whether President Trump wants to have a NAFTA or is looking for an excuse to get out of it.
ESTEVEZ: And what’s your answer to that?
WEEKES: I don’t know. I have real difficulty getting inside the head of the president and telling you what he—what he thinks. (Laughter.) But I think it’s very clear from a Canadian point of view that Canadians are going to look at these negotiations from the point of view of what—is the outcome better than what we went in with, or worse? And, you know, we don’t—you know, the NAFTA’s been a very valuable agreement. But it wouldn’t be the end of the world if it—if it disappeared. Or maybe it would only disappear for a while. You know, we’re—I’m not sure how far Canada and Mexico should go in adapting our standards of what should be in a trade agreement to what the Trump administration is asking for. You know, how long do you expect Donald Trump to be president of the United States? Do you expect the next administration would have the same policy approach as this one? I think these are some—
ESTEVEZ: Would it be better—Michael, would it be better—
ESTEVEZ: I’m sorry—if they wait for a new administration?
FROMAN: Well, I don’t think that is really an option, because I think certainly the renegotiation of NAFTA is the administration’s top trade priority right now. It’s been absolutely clear. And so there’ll be this effort between now and early next year, perhaps. We’ll see how long Mexico can negotiate given their upcoming election. And then there’ll be a judgment made about whether there is an agreement on the table to be had, or whether it makes more sense—from the administration’s point of view, to withdraw.
I mean, I think John’s point is a very good one. I mean, certainly both Canada and Mexico are highly dependent on the U.S. market in general terms. But their economies have also changed significantly in the last 24 years. And there needs to be real analysis over what the costs of the U.S. withdrawal would be, which—I’m not saying it’ll inconsequential, but it may not—it may not—there may not be as much leverage there as some people think. And I think everyone on all sides of this need to be pretty clear-eyed about what the pros and cons of moving ahead with an agreement that is being laid out now by the administration versus a withdrawal.
ESTEVEZ: And if the U.S. is to withdraw—were to withdraw, do Canada and Mexico, would continue being in NAFTA under—negotiating, trading under the same codes—NAFTA codes?
ORTIZ-MENA: I would say that, you know, Mexico-Canadian relations are at a very high point. That was not the case under the previous Canadian prime minister, Prime Minister Harper. Things were not great because of a visa issue related to Mexico. So Mexico and Canada are at a great point. And I’m sure that they would continue engaging. So that’s not an issue. And both Canada and Mexico are looking to having a trilateral agreement. That’s the basic aim. If that can’t be had, I’m sure that Mexico and Canada would continue to engage.
And to follow up on Michael’s point, I think it would—it is really dangerous that the U.S. has played with such hard tactics against Canada and especially against Mexico, because Mexico does have some options that were not available in 1994. We didn’t have the WTO. Came into existence in 1995. Mexico’s revamping agreements with the European Union, with AFTA, the Pacific Alliance is negotiating with New Zealand and Australia, which as you know are very important ag exporters. So, you know, the whole trade panorama is changing. And I just hope that the U.S. doesn’t push Mexico too far—
ESTEVEZ: What do you mean with—
ORTIZ-MENA: —because that would be a lose-lose proposition for everyone.
ESTEVEZ: Yeah. But what do you mean with very dangerous?
ORTIZ-MENA: That if the U.S. insists on sort of my way or the highway in terms of a number of issues like, you know, restricting trade, depending on the trade balance or the sunset clause, from watering down dispute settlement, then I think Mexico would be better off without the NAFTA. So they should not call Mexico’s bluff. We would all lose.
WEEKES: Well, I think—because we’re on this question—I think, you know, it’s already been talked about a bit, would Canada withdraw, or would Mexico withdraw? Well, I think—you know, I put it the other way. I would strongly recommend that Canada not withdraw from the NAFTA. I think that, you know, Canada should say no to certain proposals and come up constructively with other proposals. We have put a number of proposals on the table in this negotiation. But I think it’s—you know, if we say no and the United States decides there’s not enough in it for them and they walk away, then that’s quite a different situation.
One way it’s different is that the NAFTA would still be there as between Canada and Mexico. And I think—I don’t see any reason why Canada or Mexico would want to walk away from the NAFTA. So it would—it would still be there. We might even take a rather friendly approach as to whether, you know, the United States wanted to join again at some point. We might not insist on too high an entry price. (Laughter.)
FROMAN: I think—I think it’s going to be an interesting dynamic between Canada and Mexico, because at least by one theory if the U.S. were to withdraw from NAFTA, Canada would retain the benefits of the Canadian Free Trade Agreement. They would go back to the CFTA, unless the administration pulls out of both. So Canada has less to lose by a failure of negotiation than Mexico. By now, there—at least in some level—is an appearance of solidarity between Canada and Mexico. There’s, I think, not a trivial chance that that solidarity breaks down at some point and Canada puts itself in a somewhat different position than Mexico.
ESTEVEZ: So, are you saying that if the United States were to withdraw, the big loser would be the United States?
FROMAN: Well, it would be Mexico more than Canada, because Canada would still get the access to the United States through the CFTA.
ESTEVEZ: Mmm hmm. And what about the U.S.?
FROMAN: I think—to Antonio’s point—I think everybody potentially loses. And I don’t—you know, there’s been some recent analysis I just read in the last 24 hours or so about the impact of withdrawal from NAFTA on the United States, losing a quarter of a million jobs in various sectors. And that assumes a gain of some jobs in certain sectors, but a loss, particularly in the service sector, of about a quarter-million jobs. So, you know, there is estimate—I think there probably is more work to be done to estimate exactly what the impact will be, because our economy has changed so dramatically over the last 24 years. Our North American economy has changed so much in terms of its integration.
ESTEVEZ: Now, what can you tell us about this particular fourth round of negotiations? I mean, everybody is saying that they’re the hardest, the toughest, more aggressive proposals. Is this in preparation for Donald Trump to give notice the sixth—the mandatory sixth notice that he is withdrawing? I mean, why is there—why is the U.S. delegation taking such a strong stand on issues that are no-go for Mexico and Canada?
FROMAN: Well, look, I guess I view it slightly differently. I think it’s been useful that finally at this round the U.S. has tabled text in, as I understand it, all the major areas that had been talked about before, because now we can see in concrete terms what it is that the administration seeks. It is a negotiation. I don’t think—I don’t think one should look at the strength of the proposals themselves and draw any particular conclusions. It’s the beginning of a negotiation over these issues. And these things now need to be probed as to how strongly the administration feels about them, where there’s flexibility. What are the priorities? You know, maybe take a step back. What does—what do we think President Trump cares about?
You know, for example, we know he cares about manufacturing above everything else. And within manufacturing, probably autos. There are probably a lot of other proposals on the table that don’t touch manufacturing or autos. Are those priorities for the president or not? How should the parties view those other proposals? And can they focus on trying to give the president the kind of political wins he needs to be able to say yes to an agreement in areas of priority?
ESTEVEZ: Now, these proposals that the U.S. has made, do you think, Antonio, they are negotiation positions? Is there a chance they would become more flexible as the U.S.—as Canada and Mexico say no way, this is not acceptable to us? Or do they really mean it?
ORTIZ-MENA: Yeah, first let me address the cost for the U.S. that you asked Michael. I think that it’s important to focus, yes, on the costs in terms of the auto sector. The Ag sector I think could be adversely affected because Mexico can impose pretty high tariffs on U.S. exports to Mexico for Ag products under the WTO. So the Ag sector I think could be very badly hit.
But two things that I think are even more important. First one, the foregone gains, not only actual losses. So if the U.S. does not engage with Canada and Mexico, I don’t think you can have a competitive economy to export more to reduce its global trade deficit. For example, this proposal in autos I think would be absolutely counterproductive. A more, you know, constructive, realistic approach to autos would make the North American auto industry more productive and the U.S. would be able to export more and deal with the trade deficit, which it is concerned.
And lastly, I think we should not lose the sight that this is a foreign policy issue, especially regarding Mexico. And, yes, there’s trade and tariffs and supply chains. But should, you know, the negotiations fail, I think that could be a big backlash in terms of bilateral Mexico-U.S. cooperation across—
ESTEVEZ: Security cooperation would be affected.
ORTIZ-MENA: —yes, across the board. And I don’t think this is a quid pro quo, like, oh, I’m upset at you. I think this is just a political reality. Mexican public opinion has turned, you know, very radically against, you know, trust in the U.S. or, you know, trust in the U.S. president. So it’s just a political reality regardless of who wins in the next election. So let’s just look at the big picture, foreign policy, and not only trade. A lot is at stake, Dolia.
ESTEVEZ: But on foreign policy, what areas do you think that we would experience a setback bilaterally?
ORTIZ-MENA: I think it would be difficult to maintain, you know, business as usual and intelligence sharing. We have to work together to combat transnational organized crime. Mexico shares a lot of information with the U.S. on AML, anti-money laundering. The U.S. is concerned about, you know, undocumented migrants coming from Central America through Mexico to the U.S., just to use a few examples. Sorry to answer a difference question than the one you asked. Just had to get those points across.
ESTEVEZ: OK. No, that’s good.
You didn’t answer what if—you thought that these proposals that the U.S. has made, there’s room for flexibility.
ORTIZ-MENA: I think that the U.S. is conflating ends and means. I think that the objective is to create more jobs in the U.S., to export more, and to reduce the global trade deficit. And that’s fine and well, and I think NAFTA can help in this regard. But the way they’re going about it I think is counterproductive. I mentioned the rules of origin in autos, including a U.S. content requirement, which is basically unheard of in trade agreements, trying to somehow restrict trade depending on the trade balance. I mean, those should be strategies, not ends. And if the U.S. does not show flexibility, I do not see how an agreement can be reached. And I’m concerned because the U.S.—if somehow Mexico accepts that—and I don’t see how—the U.S. could say we were really tough and renegotiated a great agreement. And if Mexico does not accept, then, you know, the U.S. could say, look, Mexico is very rigid and I’ve been, you know, telling you this is the worst agreement ever for the U.S., and we would—we’ll withdraw and Mexico will be blamed. And I think that’s just not good.
ESTEVEZ: John, the same question for you. Do you think that the United States—there’s room for flexibility in these negotiations, particularly the four proposals that they have just tabled?
WEEKES: Well, I guess we’re going to find out. I find it very hard to read the minds of the people at the other side of the table and say what they’re thinking or not thinking. But if there’s no flexibility, then clearly there isn’t going to be an agreement, so I’ll go that far, and then that puts it back.
And something else that might be useful to say. You know, this is sort in a way dismantling the North American integration experiment if the United States walks away from the NAFTA. You know, one of the things that would happen if the U.S. withdraws from the NAFTA is there’s no longer any cover for the NAFTA duties in terms of the WTO. So those duties at free between the three North American countries would be illegal in WTO terms. So, you know, there’d be a requirement to bring them back up to the WTO rate or putting the Canada-U.S. free trade agreement to one side for a moment.
And, you know, we—I’ve read some interesting article in The Washington Post today about average duty rates. You know, but average—you know, if they had to go back up. But average duty rates only tell you part of the story. They don’t tell you where the high rates are. And I just looked this morning, I thought, for fun on my computer, and I saw that in the WTO bindings of Mexico, for instance, in the transportation equipment sector, the average applied rate is 34 percent and the bound rate is 100 percent. Now, it’s lower than that for automobiles but, you know, these are some of the things you’d be looking at.
If you take finished food products. Canada—this is things like things you can actually put on the table and eat. Canada imports $16 billion a year from the United States, Mexico 8 (billion dollars) of these finished food products. We’re the number one and two customers. In fact, Canada buys more from the United States of these products than all of Asia combined. So, you know, there’s—and when you start looking at putting duties back up in this, maybe it’d be quite good for Canada. You know, some of these factories would have to look at, well, OK, maybe we’ll go back and open a factory now in Canada again, and maybe we’ll benefit from the fact also that since Canada now has free entry to the European Union on the trade agreement that just came into force a couple of weeks ago, you know, maybe this is the changes that make it looks like a rather interesting business proposition, and can sell back into the United States on an MFN duty that is still pretty low, or maybe under free and rates of the old Canada-U.S. free trade agreement. So it’s not quite clear to me how Donald Trump portrays this as a victory for his cause of making it more fair, because if you actually look at the tariff rates that you’d go to under the WTO, it’s clearly less fair, in a sense, than under NAFTA, where the rates are free.
The other thing that would disappear under the WTO are the rules of origin. I mean, the rules of origin have ensured that a certain amount of the content in the North American automobile industry is made in North America. There’d no longer be any requirement for that. And the U.S. rate is only 2.5 percent. That’s not a big impediment compared with trying to require 50 percent of content in the United States or 85 percent in North America.
So I wonder where this strategy leaves, I mean—leads, because the next step—well, clearly we need to do something under the WTO. We’ll renegotiate our 2.5 percent tariff on automobiles under Article 28 of the GATT. That’d be rather expense. Or we withdraw from the WTO, would be another possibility.
ESTEVEZ: Let me go back to the withdrawal scenario, because it’s what’s out there as the fourth rung of the negotiations wind down. What would be the role of Congress? There’s a lot of—obviously—lawmakers who are strongly opposed to withdrawing, and they have expressed themselves. That’s the—does Congress have any role?
FROMAN: Well, that’s being debated right now, because, clearly, the executive has the capacity to trigger the notification and to withdraw from NAFTA. Then the question is, is there implementing legislation that would need to be put in place, I suppose, to go back to or to undo certain things that were done in the implementing legislation of NAFTA. I know there’s a debate right now about what happens if Congress opposes the withdrawal and could they actually stop it from—stop it from happening.
My sense is that a lot could be done by executive action, and Congress has—to be frank, Congress and the business community I think have been relatively quiet and acquiescent up until very recently as the Trump administration—
ESTEVEZ: Why? Why is that?
FROMAN: Well, I think the business community certainly prioritized tax cuts and regulatory relief, and were willing to hold their nose on trade and to a certain degree immigration. And now, only in the last month or so, businesses—the agricultural community got this earlier than anybody else, but only recently has the rest of the business community begun to express alarm about the path that the Trump administration’s on its trade policy, and it’s frankly a bit late. And same with Congress, where congressional leaders have yet to really draw lines and say this is not something that Congress would be willing to support in the president’s agenda.
ESTEVEZ: Can a bill be introduced to stop the withdrawal? Is that a possible scenario?
FROMAN: You know, anything is possible, but I think any executive has the ability in these agreements to withdraw, and that’s written into the agreement, and there’s a process for doing that. I don’t see Congress acting preemptively, necessarily, to do that.
ESTEVEZ: Yeah. So if Trump decides to withdraw, it’s going to be a really uphill battle to reverse that?
FROMAN: I think it would require a lot of action, a lot of consensus in Congress. And that may emerge. But so far, there haven’t been a lot of profiles in courage. (Laughter.)
ESTEVEZ: Mexico has said that they’re hopeful that Trump will not withdraw because there’s very strong—which is contrary, the opposite of what I just heard from Michael. There’s a very strong lobby of U.S. Chamber of Commerce, congressmen from Texas, from Arizona, all these states that would be badly hurt. Is that something that you see as possible, as a feasible scenario that they would stop the withdrawal if they put a lot of pressure, or lobbying? Apparently, there’s thousands now—well, not thousands, but hundreds of lobbyists in Congress.
ORTIZ-MENA: Yes. I’m not completely sure, and I think that the critical interest group will be the agricultural exporters. I was talking right before this meeting. That’s usually agricultural that manages to derail the trade negotiations over subsidies. They’ve become very complicated issues. I’m just thinking about, you know, sugar, tomatoes, and, you know, like, start shaking in terms of Mexico-U.S. relations. (Laughter.) But they could, you know, paradoxically be the saviors because they have a lot at stake in the Canadian and the Mexican market. And it really is a buyer’s market. You know, Mexico could really very easily start buying corn from Argentina, Brazil, with which it’s already updating its trade agreement. So it’s not an idle threat. So I think the ag sector will be critically important.
But in terms of, you know, broader support, I’m not so sure. If you recall during the presidential election, it was only John Kasich that, you know, had something constructive or positive to say about NAFTA. All the other candidates were trashing NAFTA. So I don’t see a lot of Democratic support. I wouldn’t count on it. So—
ESTEVEZ: And, John, do you foresee any political fallout if NAFTA fails the negotiations in Canada?
WEEKES: No, I don’t think so because—
ESTEVEZ: But there’s been mention in Quebec of something about—
WEEKES: Well, I think—you know, I think NAFTA actually is more popular in Canada, according to public opinion polls, than in either of the other two countries. And there’s been—while the opposition in Canada has taken issue with some of the specific positions the government has taken in the negotiations, they’re broadly supportive of the effort to enter a negotiation to modernize NAFTA. So—and I think even the unions and the Socialist Party, our new Democratic Party, are recognizing that while they sort of thought, you know, NAFTA was a very bad thing, when they think about what the alternative is, they’re supporting that. So I think, you know, the only—and yet nobody’s suggesting the government should cave in to all the American demands. So I don’t foresee a lot of political fallout in Canada if the negotiations did not succeed and the United States were to walk away. There’d be fallout, but not political fallout.
FROMAN: You know, it’s interesting. The politics around NAFTA in the U.S. are really quite interesting to watch. And if you look at the polls—and the Pew Foundation, probably the most recent polls, because they’ve been asking this question for some time: President Trump has done something rather remarkable, which is he has brought Democratic support for NAFTA up from 48 percent to 71 percent. (Laughter.)
FROMAN: Something that neither President Obama nor President Clinton were able to do.
ORTIZ-MENA: Do the people in Congress know this yet?
FROMAN: Now that—it doesn’t necessarily translate into, unfortunately, congressional support among Democratic members. Now—and by the way, in the same period of time, support among Republicans declined by about 9 points. So we have been watching this change over some time: trade generally, NAFTA specifically, for some time. It doesn’t necessarily translate into votes in Congress because even if 71 percent of Democrats support NAFTA, the parts of the stakeholders who are most active, most organized, most vociferously against carry a disproportionate amount of weight. And I raise that because it’s unclear to me what the political strategy is for bringing a revised NAFTA back to Congress for approval.
ESTEVEZ: Do you think the Trump administration is negotiating in good faith?
FROMAN: I think—yes, I think they want to see if they can fundamentally reorient NAFTA along the ways that they’ve laid out, that that would be the first, best outcome. If they can’t do that, that then perhaps they withdraw from it. But I think if they succeed in reaching an agreement, if the three countries succeed in reaching an agreement, they’ve committed to bringing it back to Congress for approval. There aren’t a lot of members of Congress who are looking forward to having another vote on NAFTA. (Laughter.) And these trade agreements are extraordinarily difficult—as I see Charlene in the audience here and others. Yeah, trade agreements are extraordinarily difficult to get through Congress. They’re always very close votes. They have traditionally taken the vast majority of Republicans and then a critical mass of Democrats. And they tend to pass by very few votes. This administration has demonstrated a somewhat unique approach to congressional relations and stakeholder management. (Laughter.) And some of the—and we may learn a lot through this administration in terms of how they’re approaching this. But if you’re going to alienate key sectors of the economy and their supporters in Congress, it’s hard to see how you put together the 218 votes in the House and the 51 in the Senate for approval. I hope somebody in the administration is thinking through, if they eliminate the dispute settlements, if they change the rules of origin in a way that Detroit can’t live with, if they make all these various changes, exactly how they’re going to cobble together the votes.
ESTEVEZ: How about the Mexican Congress—or the Senate, actually, no?
ORTIZ-MENA: Yes. You know, we do have a democracy, very noisy, very complicated, and we have Congress. So it’s not only that, you know, negotiators have to agree. The Mexican—in the case of Mexico, it’s only the Senate.
ESTEVEZ: The Senate, yeah.
ORTIZ-MENA: We don’t have to go through both houses, OK? But it’s still difficult. And I would say that it would be very difficult for the Mexican Senate to approve a new NAFTA, especially during a highly politicized environment, which is the Mexican presidential campaign that will be starting in earnest, you know, early next year and take place on July 1st, to explain why they would ratify something that, you know, just for the sake of argument would say has weakened dispute settlement mechanisms, has restricted trade, you know, going back.
ESTEVEZ: Yes, yeah.
ORTIZ-MENA: I don’t think they would be able to sell that.
ESTEVEZ: Would NAFTA favor the current candidate or pre-candidate ahead on the elections—on the polls—better to say—López Obrador?
ORTIZ-MENA: You know, I think there would not be a big political fallout, similarly to what was mentioned about Canada, because if Mexico is seen as caving to U.S. demands, then there would be a big political fallout. If there is a NAFTA sort of derailment of negotiations, I don’t think there would be a political fallout and that any candidate would benefit. That would be an economic disjuncture, but that’s completely different, Dolia.
ESTEVEZ: OK. Let me ask the last question to John before we open it up for our questions from the audience.
If the U.S. is to withdrawal—were to withdraw from NAFTA—in the six-month period, would Canada stay negotiating? Because that’s one of the scenarios that they’ve been mentioning. OK, we’re going to withdraw, but it’s going—we’re going to continue negotiating and—
FROMAN: Give notice of withdrawal.
ESTEVEZ: Yeah, give notice of withdrawal—I’m sorry—give notice of withdrawal and then use the six months to continue negotiating, and this way they send a message that they’re serious about it and U.S. and Canada and Mexico would feel the pressure?
WEEKES: Well, I don’t represent the Canadian government, but I mean, I think it would make sense to continue negotiating because—
ESTEVEZ: With a notice of withdrawal.
WEEKES: Yeah, I mean, but making it clear that certain things were unacceptable. I don’t want to see a situation in which tactically the United States sort of forces Canada to walk away from the table and walk away from the NAFTA. I think it anybody’s going to walk away from the NAFTA, it should be the United States because they’re the ones who are trying to distort what the purpose of the trade agreement was in the first place, or at least that would seem to be the import of their proposal.
ESTEVEZ: How about Mexico. Would they stay after a withdrawal notice?
ORTIZ-MENA: Well, again, I don’t speak for the Mexican government.
WEEKES: Go for it. (Laughter.)
ORTIZ-MENA: But I think it would be very difficult for the Mexican government to keep negotiating, to say with a gun to its head under a threat, especially in a highly politicalized environment. My sense is that the Mexican government will try not to walk away from the negotiations and to, you know, continue through the, you know, seven rounds. There’s talk about extending the time each round lasts. So Mexico will try to stick with it until the end. But I find it hard—
ESTEVEZ: As long as there’s not a withdrawal notice.
ORTIZ-MENA: Yes, as long as there’s not a withdrawal notice. I think it would be politically very difficult to stay at the table with a withdrawal notice.
ESTEVEZ: Michael, what do you think?
FROMAN: Well, I think Antonio is right about that. But given the practice we’ve seen of the administration in other areas, including the Iran agreement, other things, you can see him—them taking a step, whether or not they intend to pull out at the end, but a—the kind of step designed to ratchet up pressure.
OK. The gentleman over there. Please introduce yourself. Thank you.
Q: My name is Larry Bridwell, and I teach MBA students at Pace University in New York.
On the NAFTA, the big, big issue, in my opinion, is that the trade is balanced, generally speaking, except in automobiles, and there’s a $60 billion deficit in Mexico—in Mexico’s favor in the automobile sector. And of course, President Trump got a lot of votes in Ohio and Michigan. And so my question to Mr. Ortiz-Mena is: What is the Mexican government going to do to deal with that $60 billion deficit in automobiles?
ORTIZ-MENA: Should we take several or—
ESTEVEZ: No, no, just one at a time.
ORTIZ-MENA: OK. Well, you know, a couple of items. First, I strongly disagree that focusing on the trade balance is the correct way to assess trade agreements. I think that was tried a couple centuries ago with the mercantilists, and we’ve apparently moved on since. So, first of all, I don’t think that’s the right way to assess it.
Secondly, the auto sector is the most integrated sector in North America. So you have to look at the value added in terms of the trade, and how a lot of auto parts, imports coming to the United States from Mexico has a U.S. component. So, first, don’t agree with looking at it that way. And if you want to, you know, focus on trade flows, I think it’s important to look at intra-industry trade and intra-firm trade to get a clear picture of what the situation is.
Thirdly, the percentage of U.S. value-added in North American autos has been going up. It hasn’t been going down. And lastly—I believe I mentioned this briefly—if the rules of origin were to be increased in the auto sector and to have a U.S. content requirement, I think that most auto companies will simply ignore them and use WTO MFN rules. As it is, a large share of auto trade already takes place in North America under WTO rules, not under NAFTA rules.
And lastly, if for political pressure some auto companies, maybe U.S. auto companies felt compelled to source more in the U.S., this would make autos more expensive for consumers in North America. And North American auto exports, including those from the U.S., would lose share in third markets, which would not exactly help to reduce the U.S. trade deficit.
ORTIZ-MENA: So, you know, those are my thoughts on this issue.
ESTEVEZ: Do you want to say anything?
FROMAN: Well, I’d just say, one, I think every legitimate economist will state that measuring trade policy by the size of the goods deficits, which is all the administration focuses on, is probably not a passing grade in a basic economics class. You know, having said that, it is a widely, strongly held view of the president, his Cabinet.
ESTEVEZ: Where does it come from? I mean, who of his advisers or who—
FROMAN: I won’t pretend to know. Only that the view is—
ESTEVEZ: But someone is feeding him this line.
FROMAN: —only the view that, you know, deficits mean you lose and write a check to other countries, and surpluses mean you win. And they only look at goods. But it is a deeply held view, and I think they will be looking to see what can be done to improve those bilateral balances.
There’s a lot of things outside of trade agreements that affect that and can be used; for example, energy trade, which is not really affected by trade agreements at all. But as Mexico looks to see how it buys energy in the future, you could see—or Japan looks to how it buys energy in the future—you could see two countries like that, with large bilateral trade deficits with us, changing.
The last thing I’d say is, on the rules of origin, the NAFTA rules of origin is problematic on autos. There is a big loophole in it. The 62 ½ percent that is often talked about only apply to a specific list of parts, the tracing list. And it turns out cars have evolved since 1992, and those parts comprise a decrease in the—decreasing share of the value of a car. Now there are 80 million lines of code in certain cars. There were zero electronics in 1992.
So that’s one reason, again, in TPP we tried to fix that by redefining the rules of origin so that, however a car evolves in the future—who knows whether they will have tires in the future, whether there’ll be a flying car. Who knows, right? How every car evolves, it had to maintain a certain high rule of origin. So there is work that can be done to improve the rules of origin. But to Antonio’s point, if you raise it too high or in a counterproductive way, you may find that the companies simply ignore it and it actually has the obverse effect.
ORTIZ-MENA: On that specific point, I think trade in services is also highly disregarded. There’s a sense that if you can kick it, you know, it’s not relevant.
ORTIZ-MENA: And trade in services is very important for Mexico-U.S. trade.
WEEKES: And the U.S. has a very large surplus.
ORTIZ-MENA: And the U.S. has a very large surplus. That’s right.
FROMAN: And four out of five Americans are employed in services.
ORTIZ-MENA: There you go. (Laughs.)
Q: (Inaudible)—of Berkeley Research Group.
For the Canadian and Mexican speakers, if the U.S. withdraws—if the U.S. withdraws, would Canada and Mexico keep the old NAFTA or incorporate some of the significant progress that’s been made in chapters that update the NAFTA? Even with the U.S. participation, there’s quite a lot of progress that has been made underneath the surface of these big debates on rules of origin and agriculture.
WEEKES: Want me to start?
WEEKES: Well, I—again, I don’t speak for the Canadian government; maybe a little premature to be thinking of how we’ll manage our bilateral relationship in the old trilateral agreement if the United States were to withdraw. But, I mean, why not? I mean, you know, some of the modernization improvements that are being made in the negotiations are very useful.
They’re updating the agreement to take account of things that didn’t exist when it was originally negotiated. It would make sense to do that. But, you know, that would have to be weighed against, you know, the simplicity of doing it and how long it would take. It might also make the agreement somewhat more attractive for the United States to think of applying to join again under a different administration.
ORTIZ-MENA: Yes. I think, again—I love these disclaimers; I don’t speak for the Mexican government or the Canadian government either.
WEEKES: Yeah. (Laughs.)
ORTIZ-MENA: But I think it’s likely that Canada and Mexico could revamp it, because a lot of things they’re looking for are the same, like having stronger and more effective, you know, dispute settlement. They’re not looking to eliminating Chapter 19. They’re both speaking about including a gender perspective on a new NAFTA. So that’s significant.
And lastly, I think it’s important to have a flexible NAFTA. A lot of what I hear from the U.S. is about coal and steel, and that reminds me of the beginnings of European integration after World War II. I think they’d rather be thinking about new technological developments, you know, as Michael was saying.
Who knows what an auto would be, you know, 10 or 20 years from now? So the rules of origin that we craft now might be irrelevant. We have to think along those lines.
Q: Irving Williamson, U.S. International Trade Agreement.
Congressman Levin was here about a month ago, and I know it’s important for many other Democrats, the labor provisions in NAFTA, particularly having stronger independent unions and Mexico. And I was wondering if you all want to address this question of worker rights and how that might play out.
ESTEVEZ: Yeah, that’s a good question, particularly on the question of not only workers’ rights, but also the salary, the wages.
ORTIZ-MENA: I guess that’s addressed at me. (Laughter.)
ESTEVEZ: Well, I guess so.
WEEKES: I do want to speak to it as well. So you go first.
ESTEVEZ: OK, yes.
ESTEVEZ: Yeah, because Canada also—
WEEKES: We have a proposal on the table.
ESTEVEZ: Yes. Yes. That’s right.
ORTIZ-MENA: But the U.S. thinks about that proposal. But in terms of labor issues, I think they are very relevant, both politically—I think it’ll be necessary to pass any modernized NAFTA in the U.S.—and also substantively.
But I think that there are three specific issues that are being discussed under labor. The first regards, you know, Mexico and, you know, Canada-U.S. commitments in their own labor laws and international commitments. And that has to do with, you know, union rights, labor rights, et cetera. And I think that a lot of progress can be made in that regard. So I don’t see that as a deal breaker. And there’s something called the TPP where there was a lot of agreement on that issue.
Secondly, there’s the issue of dispute-settlement provisions for labor. In the current NAFTA, that’s part of the labor cooperation agreement with what is frankly a pretty week dispute-settlement provision. And the idea is to bring labor into the thrust of the agreement, to use it under what was supposedly a very strong dispute-settlement mechanism. Now, the U.S. apparently wants to water that down, but let’s put that aside. It's supposed to have a stronger dispute-settlement provision to deal with labor disputes. And I think that can be addressed.
The third issue that I think is more problematic has to do with Mexican wages. Now, I think it is very—politically would be very difficult to have, say, a regional body or someone else that Mexicans themselves address what the right level of wages are. Now, that being said, I think a lot can be done through transparency; for example, by making public how productivity has increased in Mexico and assessing whether wage increases keep pace with productivity increases. This is not sort of something that will, you know, make for a good bumper-sticker thing, but I think that’s a constructive way to deal with the wage issue.
ESTEVEZ: OK. Next question.
WEEKES: Well, I was going to say—
WEEKES: —you know, we put forward a fairly ambitious proposal in the labor chapter. I suspect it was partly because we realized it might embarrass the United States a bit. One of the things we put in it was that there should be an obligation to adhere to the core labor standards in the ILO, of which the United States belongs to less than half; I forget exactly the numbers.
But Canada, on the other hand, has just recently finished ratifying them all. So we’re in a position to be able to say, well, come on, you know, you want strong labor provisions. Why don’t we get on board what the international norm is and put this into a trade agreement with teeth and, you know, force compliance? But that hasn’t gone down very well. (Laughter.)
FROMAN: Well, I think there’s no doubt that we—the U.S. believes that, in fact, we do apply all the ILO principles.
WEEKES: Well, put them in the agreement.
FROMAN: By the way, China has signed on to all the conventions too. So you and China are both key defenders—(laughter)—of workers’ rights. Congratulations. (Laughter.)
WEEKES: We’re negotiating with—we’re negotiating—we may be negotiating a free-trade agreement with China.
FROMAN: That’s perfect.
WEEKES: And we suggest putting that in. But—
FORMAN: It goes to the form-over-substance issue, which is there are the conventions that lots of countries sign onto and then do not implement whatsoever, and there are the principles that we believe that the U.S. does comply with.
But let me—just to go back to Irv’s question, I think having binding and enforceable labor provisions that frankly drop from the ILO—the ILO five labor principles—right to collective bargaining, right to organize, prohibitions on forced labor, child labor, et cetera, acceptable conditions of work, where you talk about wages, hours, workplace regulation—those are all things that, in fact, we got agreed to in TPP.
And I just want to mention that not because I’m a one-note Johnny—maybe I am—but because all this whole discussion about the renegotiation of NAFTA isn’t happening in a vacuum. The TPP 11 countries, the 12 minus the United States, are considering moving forward with TPP and to put in place a lot of those things that we have been talking about here, which could help update NAFTA among the parties that are—the two countries that are parties to NAFTA that are also party to the TPP—the TPP 11.
I think, you know, to go to Congressman Levin’s point, because he played a very critical role in encouraging us down that road, he also highlighted three critical reforms in Mexico that needed to take place having to do with protection contracts, the recuento process, and the conciliation arbitration boards, all of which Mexico on its own committed to and were in the process of implementing when the Trump administration pulled TPP.
So if folks really care about improving workers’ rights in Mexico as a way of leveling the playing field, having real independent unions with real recourse and having a structure that supports that, there is an off-the-shelf mechanism for doing that. And if you really cared about that, you would be supporting it rather than opposing it.
ESTEVEZ: The gentleman here and then you.
Q: Rick Gilmore, GIC Group.
I tend to—we’re an agribusiness company, so I tend to look at things through an agro lens. And my question is—no one’s addressed if we had this extreme—what I would call this extreme scenario of withdrawal notification. No one’s mentioned the bi-elections and the fact that the Midwest is said to have delivered the victory of President Trump.
So what kind of a constraint do you think, in the final analysis, that may be? Because there is uniform—in my view, uniform consensus among the agro groups that withdrawing from NAFTA is a disaster. This is an opportunity for Mike to have another joke, but—(laughter)—I’d be interested in the answer.
ESTEVEZ: Oh, yeah. That’s—
FROMAN: Well, I don’t have a license to practice politics, Rick. (Laughter.) But I think—I think it’s been—I remember seeing—going to see a farm-state senator right after the election. And he said to me 100 percent of my constituents are in favor of TPP—I’m sure he would have said the same thing about NAFTA—and 100 percent of them are in favor of Trump.
And I think the question is, how do the people who supported him, how important is this to their support for him or for others going forward and whether this is the critical factor that they will turn their vote on or turn their support on. And we haven’t seen that yet, I don’t think. And maybe the midterm election will be an opportunity to test that proposition.
ESTEVEZ: The lady here.
Q: Thank you. I’m Mitzi Wertheim with the Naval Postgraduate School, and I never studied economics.
I wonder if, collectively or individually, you could write the equivalent of “Astrophysics for People in a Hurry,” which has been a number one bestseller on the New York Times list. And I could understand it. Is there a way—I mean, you’ve done some wonderful explanations here, but they’re not all tied together. And I think you owe it to the general public to give them an understanding. I mean, your statistics were very enlightening. And a lot of these things are numbers and how people feel about them. So I give you all a challenge, because I think we have a responsibility—
ESTEVEZ: Do you have a specific question?
Q: Well, will you write something that the general public—
Q: —can understand?
ESTEVEZ: I see.
FROMAN: Ted Alden will. (Laughter.)
WEEKES: Michael’s a terrific communicator. (Laughter.)
FROMAN: I think—by the way, I think your point’s a very good one. And it’s so hard—it’s easy to criticize trade on a bumper sticker, and it takes a paragraph to defend it.
FROMAN: And we need to do a better job, all of us who care about this, in not just explaining—it’s not just a communications issue, but there is a communications issue—making it real for people.
Q: Well, and you have to have illustrations.
FROMAN: You know, we can—we can build walls around our economy and make all of the iPhones here in the United States, but they’ll cost two and a half thousand dollars. And your single mother who is using the iPhone between jobs to FaceTime with her kids at home won’t be able to do that. And, you know, that’s just one of several examples.
You know, the way—we are so—we have taken for granted the benefits of trade, the fact that you can clothe your family and buy them their back-to-school supplies on a relatively modest budget, or the fact that we eat grapes 12 months a year. We didn’t when I was a kid, right? You got seasonal food. But now we have international trade in agriculture in a way that gives us much more choice and affordability of the things that we consume every day.
The successive tariff cuts of the various trade agreements over the last 50 years has added about $13,000 to each American family’s income—$13,000. So, you know, there are ways—we have to do a better job of making it relevant to people, because what we saw, I think, in the last election, when you’re trying to sell hope, you know, and the possibility of hope, fear almost always wins.
And so we’ve got to sort of make it clear really what’s at stake in people’s day-to-day lives by moving backwards from where we are today.
ORTIZ-MENA: Can I make—can I make a comment about that?
ORTIZ-MENA: Well, first, you know, it’s become a custom that at every panel where I am I do a plug for the Peterson Institute, so here again. So Chad is there. And I think the Peterson Institute for International Economics does a wonderful job of laying out in simple terms a lot of very complex trade-policy issues. There’s also a wonderful podcast. So those are two sort of off-the-shelf resources.
But a more important point I want to make is that when I was at the head of economic affairs at the Mexican embassy, I tried many times and failed many times to get U.S. companies to explain how their producing in Mexico and Canada and the U.S. benefited their workers in the U.S. and their shareholders in their company, which doesn’t have to be just Wall Street. A lot of 401Ks are, you know, in Fortune 500 companies.
And all these companies said, you know, I can’t do it. I’ll be accused of, you know, outsourcing. My legal counsel won’t do it, and a lot of other very creative excuses. And now we are where we are. And I think that it’s time for a lot of companies to explain, using examples, not statistics, how their supply chain works and why it is in the benefit for U.S. workers for their supply chain to work the way it does.
WEEKES: Let me just add. I mean, I completely agree with, you know, the conversation that your question has stimulated. And I think we haven’t done a good enough job explaining the benefits of trade. That’s true, I think, in all three countries. And it’s been politically uninteresting to do so too.
I mean, if you look, as Michael was saying earlier, you know, Trump wasn’t the first one to run on an anti-free-trade platform. It’s been kind of fashionable to do so, because it’s easier to use the bumper-sticker approach than the paragraph of explaining why it’s good. But there are a lot of really good explanations as to why trade is beneficial, some of which you just heard from Michael. And I think we really need to look at how we get back to that. And this has been a wakeup call on that front.
Q: Thank you.
Q: It calls for a retail strategy—
ESTEVEZ: Who are you?
Q: My name is Wanda Felton. I was formerly with the Export-Import Bank in the Obama administration.
And what Michael just said is so on point. It calls for a retail strategy. And I’m just curious at who’s undertaking that in the DNC—(laughter)—if anyone.
FROMAN: The DNC promoting trade? Is that—(laughter)—let me get back to you on that. (Laughter.) Now, look—
WEEKES: (Inaudible)—according to the polling.
FROMAN: But, you know, but let me take it one step further, because I think it is—it’s always easy to say, oh, we have a communications problem. And I think we do, and we need to take that more seriously. But we also have a substantive issue, which is the concerns that we saw expressed building up to the last election and through the last election about wage stagnation, about income inequality, about a big part of the country feeling like they’re being left behind, that the system isn’t working for them. Those are legitimate issues.
And as a country, as a government, Republican and Democratic, we have not dealt with those issues sufficiently well. We have not really taken on the challenge of how do you prepare people with the skills they need to succeed in a rapidly changing economy? And then how do you help people and communities who are adversely affected, whether it’s by technology or immigration or globalization? And we can’t—we have not yet—
ESTEVEZ: Job loss.
FROMAN: —had a serious conversation about that yet. And the reason why that’s important now is, if you think about the last election, if you saw all the anger expressed, that was in the context of 15 ½ million new jobs, 4 ½ percent unemployment, wages that had gone up 2 ½ percent a year for the previous couple of years.
If any of the estimates about the impact of artificial intelligence and robotics and autonomous vehicles, if they’re even 30 percent right, it’s going to have such a more significant impact on the workforce than anything that we’ve seen in the past related to globalization. And if we don’t get our arms around these other issues, it will have very significant political and social implications.
ESTEVEZ: Well, back there—the gentleman with the glasses.
FROMAN: You should read Ted Alden’s book about this, by the way.
Q: No, just a two-finger on that question. My name is Marty Weiss with the Congressional Research Service.
I think this—your point is well made, but it harkens back to the—kind of to the retail-strategy point, that what is going to drive that conversation if, you know, the money supporting candidates is not coming from the disaffected workers in, you know—in the middle U.S.
FROMAN: But, you know, I actually—this just shows my naivete on politics, but I actually thought, coming out of the last election, when there was such an upswell of concern from people who really felt like they were being left behind, that you would have seen more political action by Republicans, as well as Democrats. I mean, Democrats have always talked about President Obama putting in his budget free community college, all sorts of programs to try and address this, and they never went anywhere with the Congress.
I thought, for the first time perhaps, Republicans too would feel like this is a cohort that we need to address their concerns, and there would be more political impetus around dealing with the issues. But in the last year we have yet to see that.
Q: Thanks. Greg Ip of The Wall Street Journal.
If NAFTA goes away, what impact do you think this might have on bilateral disputes such as countervail, anti-dump, and safeguard?
ORTIZ-MENA: OK. Well, if it goes away—well, supposedly Chapter 19 provides for the establishment of panels to review determinations on those issues would go away. And that means that there would be greater discretion by U.S. authorities to impose AD/CVD duties. That would create a lot of uncertainty, and that would hamper, you know, regional trade and investment flows.
Now, that being said, the Canadian authorities and the Mexican authorities would have the same discretion that the U.S. authorities would have. So U.S. exporters might be having more of a challenge accessing their first- and second-most important markets worldwide.
Sort of astounding about why the U.S. is insisting on the enforcements of agreements—and that has been taking place for years, right? The U.S. has been talking about the enforcement of agreements and about securing access to other markets, and then watering down dispute-settlement provisions. I still can’t get my mind around that.
WEEKES: And, if I could just add to that a bit—and it’s not only in the NAFTA, because in the WTO the United States has been objecting or blocking the process for the appointment of new members to the WTO appellate body, apparently largely out of concern with the way the appellate body has interpreted American obligations under the WTO with respect to anti-dumping and countervailing duties and safeguards; so these same areas.
So it’s not just in the NAFTA that this is now a problem, but also in the WTO. I mean, I think it’s pretty clear that, you know, for quite a period of time people have begun to sort of wonder, is Chapter 19 really important any longer in the NAFTA? Because there hadn’t been much recourse to it for a number of years. Well, the reason there wasn’t much recourse to it was, in important part, because the United States wasn’t initiating many countervailing-duty and anti-dumping investigations or safeguard investigations against Canada, anyway, in the last 10 years.
That’s now changed, and we have a Commerce Department which has made clear they’re going to do a lot of self-initiation too, not just relying on industry to bring forward complaints. And I think you have to say, I mean, whatever you think the merits of the countervailing—Boeing’s complaint against Bombardier’s—the government support for Bombardier—it’s interesting that the—I think Boeing was asking for imposition of provisional duties of something like 60 or 80 percent, and the provisional duties are in the order of 220 percent, which I’m—without looking at any of the facts, suggests to me that there’s something going on here.
OK, on that note, I want to thank you, everybody here, for being here and for your contribution to this discussion. Thank you. (Applause.)
This is the second session of the "The United States and World Trade: Future Directions" symposium.
This symposium brings together distinguished trade leaders and innovative thinkers to address the trade policies of the United States and their international implications in North America and East Asia, as well as the possible effects on the global trade architecture and the World Trade Organization.
YUAN: Well, welcome to the second session of today’s Council on Foreign Relations symposium on “The United States and World Trade: Future Directions.” This session is titled “China and The United States: Governing a Contentious Bilateral Trade and Bilateral Relationship.”
I’m Sharon Yuan. I’m the managing partner and general counsel at the Asia Group, and I have with me today three distinguished panelists. Let me go ahead and start introducing from my right.
Scott Kennedy, who is the deputy director, the Freeman Chair in China Studies and the director of the Project on Chinese Business and Political Economy.
I have Wei Liang, who is the professor from Middlebury Institute of International Studies at Monterey, and she’s the co-editor of China and Global Trade Governance.
And then we have David Dollar, who is the senior fellow for Foreign Policy, Global Economy, and Development and the John L. Thorton China Center at the Brookings Institution. So, thank you.
Thought we would start out today talking a little bit about three areas, and first a little bit about just what’s going on in China. Obviously, we’ve got the 19th Party Congress coming up starting on Wednesday, where, by all accounts, President Xi will emerge stronger than ever, and further solidifying his authority and position. Also, we know that he will deliver his work report, where he will set the agenda for the next five years and his priorities for China.
So maybe with that, if I could turn to David and Scott first, get your thoughts on, you know, what that means for the bilateral relationship, what can we expect going forward as it relates to challenges, reforms for our priorities here in the U.S. and for our companies.
DOLLAR: Great pleasure to be here. As Sharon said, the 19th Party Congress will start on Wednesday. I think it’s a very important event for China and U.S.-China relations. About a week later the new Standing Committee of the Politburo will walk out on stage. It will probably be seven men. There’s never been a woman on the Standing Committee. They might reduce the number. And a lot of uncertainty about what’s going to happen, except the one certainty is Xi Jinping will be number one. He’ll be the party secretary, president of the country.
A lot of uncertainty about the rest of the lineup. A lot of speculation. If they follow succession norms, it will be a fairly balanced Standing Committee with three members from the so-called Communist Youth League Faction and four people, including Xi Jinping, around his own group. But there are rumors that he might run the table, push Li Keqiang out of the way, keep Wang Qishan on and bring him in as premier. We’re not going to go into a lot of detail about this, but a lot of different scenarios.
Interesting question is, it may not matter that much. These so-called factions in China do not really map into policy in any meaningful way. You know, it’s hard to say who the reformists are among these different groups. My own thought is that if we get that relatively balanced Standing Committee, that’s probably the best for reform, because Chinese leaders know what needs to be done. You know, I’m sure we’ll see in the work report a general description of the need to open up the economy more, to rein in the growth of credit, to modernize state enterprises. I think everyone knows what needs to be done. Typically, the work report would not go into the kind of detail that would be useful for us. So I think it really sets the stage, and then it will be critical to see what happens over the next few months. I wouldn’t expect dramatic reform, but there’s been a real stagnation in Chinese reform for a long time. Probably this new leadership will at least move ahead modestly on the reform agenda, and that will definitely create new opportunities for U.S. firms and U.S. workers.
KENNEDY: I agree with everything David said. I’m going to be—take a little more pessimistic attitude. I guess if I was the Chinese leaders or Xi Jinping, I’d be very optimistic, because I think Xi Jinping gives himself a high grade and he’s going to run the table most likely. I’d be very surprised if we get the balanced outcome that David suggests.
And I think, you know, prior to the 18th Party Congress, in 2011, the World Bank and the Chinese think tank issued a report called the “China 2030 Report,” which was essentially a blueprint for economic reform, liberal reform. And then we had the third plenum, and then they decided not to implement any of that stuff. And so the World Bank is now working on another report with the Development Research commission—Center, this think tank in Beijing called—new drivers of growth. It’s supposed to lay out in more detail a liberal reform package, but I don’t think they’ll follow that either.
I think we’re really at the age of—you know, dawn of an era which I would call the closing of opening and reform in China. Not that China is not continuing to engage in economic reforms or engaging in international trade, but they’re doing more so on their own terms: much more state intervention of the economy domestically, and trying to set the terms of trade and investment with the rest of the world rather than integrating on the globe’s terms. I think the basic priorities are probably going to be, number one, financial stability, state-owned enterprise reform, which is going to be about chucking the zombies but making the SOEs that stay much stronger and more powerful domestically and internationally; continue with this high-tech push, times 10, so a lot more money for everything from electric vehicles to robotics. And then I think we’re going to see more attention to rural China and the huge problems that rural China faces. Ninety-eight percent of Chinese in urban China go to high school. Thirty percent of Chinese in rural China go to high school. That’s a huge gap. No country with a gap like that has ever escaped the middle-income trap, so I think that’s going to be part of the package.
YUAN: Just to follow up real quickly on the high-tech focus, how does that play into, or maybe in your opinion, doesn’t play into opening up further?
KENNEDY: Well, certainly globalization has been critical to China’s economic reforms over all, and certainly its drive into high tech, its ability to attract foreign investment that comes with technology and management, its ability to send students abroad to get training, workers, hire them back, or opening R&D: that’s all part of a global process that China has benefited from and needs to continue to do.
On the other hand, China’s goal of moving up the technology ladder using leverage of its market to do so, means that it’s going to set even more difficult terms for multinationals. Foreign investment in China used to be about 15 percent of total investment. It’s now under 3 percent of total investment in China. So, from a structural point of view, the globe has less of a say on influencing China domestically. So I think it’s—we’re going to have to be much smarter. I don’t think this is written in stone. There’s things that diplomats and companies can do. But the challenge of dealing with China across these issues is going to be larger than it’s ever been, because Xi Jinping is on his game, the Communist Party is on their game, and so we have to be up our game as well.
YUAN: Well, speaking of, maybe we can then turn a little bit to our focus here in the United States. The administration’s approach early on was focused on engagement, high-level engagement starting with Mar-a-Lago, the visit of Xi Jinping to the United States, then of course it was the hundred-days action plan and the early harvest, as well as the inaugural meeting of the comprehensive economic dialogue here in the United States, which I think we can talk a little bit about as to whether or not that—how that played out. Then more recently, it’s been more of a confrontational, unilateral approach with the launch of the investigations under the Section 232 into steel and aluminum imports, whether or not those constitute a national security threat, as well as the launch of the Section 301 of the investigation on various Chinese intellectual property practices, including forced technology transfer.
And then now we’ve got coming up the president’s trip to Asia with a two-day stop in China. So what do we think is going to happen there? How’s the administration going to balance the approaches that they’ve taken to date? What do we think the Chinese are going to do in response?
Maybe we’ll start with Wei?
LIANG: Sure. Talking about the U.S.-China bilateral trip relations, especially under the new Trump administration, there are lots of discussions in China like how to respond to it. But starting from the first concern, which is that many, you know, people in China, they feel like they haven’t really seen overarching strategy, so it is really hard to respond in a more systemic way.
And the other thing is the bilateral negotiations, the 100-day plan, we have seen some progress, but those are all very small and specific market opening promises made by China. And I think at this stage, if the current administration continues to stick with the bilateral negotiations, it’s very likely that the U.S. will be able to get more those kind of specific small market opening commitments from China, and those are really the areas that China’s willing to make the concessions.
However, if we think about the structural problems, like the one David and Scott just mentioned, for example, the SOEs, the industrial policies, the government subsidies and the government promotion for the innovations and the lack of the IPR protections, those are really not the areas that can easily be done through the bilateral negotiations, say, before Trump or during President Trump’s visit to China because it’s—it requires a fundamental reform that the Chinese government today doesn’t consider as a priority for their domestic policy.
DOLLAR: I very much agree with the thrust of the idea that the bilateral negotiation is likely to lead to a lot of small measures, what we might call small ball, in a baseball metaphor. And I think that the current administration has shown a preference for bilateral negotiation and bilateral deals. I think, frankly, it was a big mistake to pull out of the Trans-Pacific Partnership. We have a lot of legitimate concerns with China. It’s not going to be easy to deal with them. China is a powerful country over which we have very little leverage. Developing this multilateral approach through the Trans-Pacific Partnership, you know, that was setting standards in IPR, state enterprises, setting the standards for the kind of agreement we’d like to eventually have with China. So I think walking away from that was a big mistake. And as we negotiate bilaterally, you know, China is going to do a few things that it sees in its interest.
I think I’m not quite as pessimistic as Scott. You know, I think they have a mixed strategy. They’ve got some sectors they want to protect and develop, where we’re going to continue to have problems. I think they’re ready to open up some other sectors. So I wouldn’t be surprised if when Trump goes there, Xi Jinping may very well be ready with a couple of measures, which still I would view as small, but would signify opening up some of the closed parts of the economy. Remember, our exports to China are growing at 15 percent per year. So the business community, they have a lot of concerns, but they’re also making money, and they would like to see the relationship improve. They don’t want to see a trade war between the United States and China.
KENNEDY: Yeah, I think just in terms of domestic reforms, Chen Yun, who was a senior Chinese leader in the Mao era and early reform era, had this birdcage theory of reform, which is you allow a little bit of liberalization, but you keep it inside this planned system. And I think Chen Yun, not Mao is probably in Xi Jinping’s right breast pocket of how he’s thinking about things. So we’ll see some small things, but they’re not letting this bird out of the cage, is what I would expect.
You know, prior to the Trump administration I think, you know, we thought that integration was going to work with China, and I think largely it did. And but from Clinton to Bush to Obama, that consistency I think bore a lot of fruit. And I think now we’re looking back, unfairly regretful. But Xi Jinping’s really different, and you need a different approach. And so you’ve got to use the type of dialogue and multilateral engagement that we used before. And you also have to use the leverage that the United States has. China’s got a lot of leverage, but we not ought to forget that the United States does as well. And so that means being willing, if things don’t work out, to potentially use some of these unilateral tools. But we need to do strategically. I think—I’m an all-of-the-above strategy kind of person and, you know, my worry is that we’re going to have—we’re going to use some of these sticks, maybe not before the summit or during this trip, but it’s going to make things more difficult rather than less difficult. And then we’ll long for those long lists that came out of the S&ED where people said these are all small ball, but in fact you had lots and lots of balls that then added up to something.
YUAN: I would agree with that.
KENNEDY: So any case.
YUAN: Well, let me—I mean, let me push all the panelists a little bit on this further. So there’s a question as to whether or not in fact the administration will take this more incremental or small ball approach, as you all characterized it, as they go forward, and in particular, I mean, this message that they’re sending with respect to engagement, doing these bilateral negotiations, and then at the same time taking on these unilateral actions.
What do we—what do you all think will happen going forward if, in fact, even assuming for a second that they choose to pursue this more incremental approach, at the same time do in fact start to use some of these sticks, Scott, as you called it. What do you think is going to be the response? Let’s play this out a little bit.
KENNEDY: Sure. I think if the U.S., based on 301 investigation for example, which gives the president a wide degree of latitude—there’s just about anything that you can do after you go through the steps of the U.S. trade representative, reporting to the president and engaging in five minutes of negotiation with the Chinese, if you decide that you’re going to just go unilateral. I think they could pick some things which are related to IPR, but I think actually probably the more likely thing is to look for other more convenient types of tools that are less likely to run into a WTO challenge, but bigger things, for example, related to investment. I think if we don’t work with our allies, then that’s going to—the Chinese are going to feel more willing and comfortable to retaliate, and then we’re going to have to think of the step after that and the step after that. And I don’t know if we’ve thought that way. You know, are we going to be willing to absorb the cost? Have we communicated with industry enough to get them in so that they will have some buy-in to accept this? So it could look good to Trump’s base in the first effort, but then after a while it may look particularly difficult, and then we’re going to look for some kind of exit strategy.
DOLLAR: So up until recently I’d been assuming rationality would prevail, you know, and that—and I think six months to a year down the road the U.S. is going to face kind of a tough decision about China. I think, you know, the 301 investigation is going to reveal a lot of appalling practices, some of which are WTO-consistent. But, you know, the U.S. is unhappy about a lot of these things. I don’t think China is going to do very much to make the U.S. happy, and so then the U.S. will be faced with choices. Does it really want to do some harsh protectionist measures or does it want to do some small things? Up till recently, I assumed the business community and other stakeholders would push the U.S. to just take small measures. But the earlier discussion today about closing down NAFTA, that was pretty disturbing. You know, I was sitting in the office—in the audience. So I would say let’s keep an eye on that. I mean, if the U.S. withdraws from NAFTA, then that suggests that we’re heading down, you know, a more protectionist road. If on the other hand we get a reasonable compromise on NAFTA, the U.S. economy continues to do fairly well, it’s hard to see why you would pick this fight within China when there are so many other issues that are important.
LIANG: Yeah, I agree, and I really think, you know, the best way is to ask strategically about what the U.S. wants from China. And again, if it’s market access, it’s easier. If it’s about the structural reform, it’s difficult. And Xi Jinping is in a position that—you know, a very good position if he wants to push forward the economic reform agenda, but it’s by no means, like, really on top of his agenda. And also, I think what David just mentioned, that the retreat of the U.S. from the TPP actually released lots of pressure for Xi Jinping domestically, because during the TPP negotiation, lots of policy debate within China which was to really strengthen the RCEP negotiation, and that’s another parallel negotiation in the region of Asia Pacific. And it seems like Chinese negotiators at that—during that period of time when the TPP negotiation was ongoing, the Chinese negotiators were more willing to make the concessions, to push forward the RCEP negotiation. But today that has been, you know, stagnated again. So the lack of the domestic urgency, the lack of the external pressure, I think that will make the future of China’s further market opening more difficult.
YUAN: I agree with the focus on what China’s more likely to be able to do, which is, you know, smaller incremental market accesses compared to the larger structural reform, much of which is really the focus is the 301 investigation and some of these other issues that the administration is focused on. The other area that they have identified, though, is the trade deficit. You hear that across the board, whether it is in the context of China or Korea and the U.S. free trade agreement, even the context of NAFTA and reducing the trade deficit. Have you all thought about that a little bit, in terms of how that could be spun into the conversation a little bit more to produce a more favorable outcome for both sides?
DOLLAR: Well, first, as the first panel discussed, you know, focusing on bilateral merchandise.
YUAN: Yeah, I’m not saying—suggesting that but—(laughs).
DOLLAR: No, I know you—I know you know this, Sharon.
It doesn’t really make sense. So the U.S. does have a large bilateral imbalance with China. If you do the analysis in value-added terms, that cut it about in half. So it’s still—it’s $200 billion in value-added terms. It’s still a relatively large number, but small compared to the U.S. economy and the Chinese economy.
So I think most economists would say, looking at the overall trade balance makes some sense. You know, China’s overall current account surplus has come down below 2 percent of GDP. So it’s hard to see China as part of any global problem of imbalances. The most recent IMF analysis says imbalances are now a problem among rich countries. You know, the U.S. does have a very large deficit. Germany has a very large surplus. Japan has a very large surplus. It’s primarily a problem among rich countries. And it’s a macro issue. So if we care about it, what we need to do is save more, and the easiest way to do that would be to raise taxes. So when we talk about cutting taxes, that’s almost certainly going to increase our overall trade deficit and then probably some part of that will be our bilateral trade deficit with China. So I think—I’m afraid that’s a bad road. And at the moment, right, the trade deficit so far this year is, you know, up over last year, and cutting taxes would frankly exacerbate that.
KENNEDY: I’ll just say another great idea would be to have a recession. (Laughter.) That would certainly slow consumption and stuff from China. So once you get on this track of trying to figure out how to reduce bilateral balances, then you think of a whole lot of crazy, nutty ideas. Sorry for spawning that one. (Laughter.)
But I do think—I mean, I expect, you know, whenever the president has met face-to-face with another leader, it’s always been the positive, lighter side, right? So when the president goes to Asia, he’s more likely to personally want to do that. And so he’s going to go with a large trade mission, right, and he’s going to ink a lot of deals, at least announce a lot of deals which he previously—and those will look like they—and they move the needle a little bit. And of course, if the Chinese wanted to, they could intervene in currency markets and, you know, strengthen the renminbi and, you know, so they could—you know, we could have—versus the dollar, not just against others. So if you wanted to just play games with it, you could do those things. But we’re supposed to want a free, liberal economy, not these managed outcomes.
LIANG: I want to follow up and make two additional points. One is actually what David mentioned. If you look at the bilateral deficit, a more accurate way to capture this, it’s a deficit between the United States and Asia. So China has been deeply integrated into this regional production network. So if we ever want to consider cutting the deficit, we’re going to really do something significantly to touch this regional production network. And of course, that will also affect the economic interests of the U.S. alliance in the region, including Japan, South Korea, and Singapore. So it’s not easy.
And my second point is that actually the Chinese government, especially after the year 2008, has tried very hard to kind of ease the tension between the U.S. and China specifically to the trade deficit, by developing the alternative markets. All the regional efforts, i.e. the One Belt One Road Initiative, one of the main goals actually is really to lead the overcapacity in China to the developing regions in Central Asia, South Asia.
YUAN: Well, this leads us to our third topic that we’d talked about, which is global governance and the role of China and the United States. Obviously, as our speakers have already talked about today, two very different approaches from the two countries. On the U.S. side we have the withdrawal from TPP, as well as raising concerns about our current bilateral trade agreements, as well as the role of the World Trade Organization. On the side of the Chinese, they’re embracing RCEP, as well as the Belt and Road Initiative and the WTO. So I wanted to get—I know both Scott and Wei, you’ve spent quite a bit of time on this. Maybe, Scott, you would like to start first?
KENNEDY: Sure. We collaborated. We actually just had a book that came out from Rutledge called “Global Governance in China: The Dragon’s Learning Curve.” I don’t know how we thought of the word “dragon” to go in, but nevertheless, it seemed like a good idea at the time. (Laughter.) I promise we won’t ever do that again. (Laughter.)
Q: (Off mic.)
KENNEDY: Yes, probably.
But, I mean, China’s—in some areas of global governance actually stubbornly a defender of the status quo, and in other places it’s pushing tweaks and some reforms, in other areas it’s pushing quite strong alternatives to existing rules and some new institutions. So it depends on—its interests vary. It’s—wants more voice. It wants more influence in the say of those rules.
And, you know, when Xi Jinping spoke at Davos in January, the contrast between his speech, the lack of an American presence, and then what was going on in our political system, and as we continue to see, it’s quite divergent. I think China’s punching above its weight. We are punching below our weight, in terms of global governance. And we need to change that.
I think that if we just sort of highlight to me what’s the biggest issue now, it has to do globally with the relationship between trade, technology, and labor. Certainly, as David pointed out, in terms of value-added and who benefits, certainly American companies benefit a lot more than what the bilateral trade balance shows, but those are mainly benefits that accrue to the corporations and management and investors, and there’s big challenges for workers. And the WTO and other institutions haven’t sufficiently addressed that. It’s just seen as a domestic sideline issue that members are supposed to deal with rather than a central part.
And connected to this is Chinese industrial policy. Chinese industrial policy is relatively unconstrained. And as it continues to chug along and move forward, that’s going to put more pressure on the distribution of where products are made. And we can say, yes, we like cheaper solar, we like cheaper wind. But if—and we do have a lot of folks working in renewables now. But the distribution of labor is going to be largely affected, and I think that’s an area where the U.S. needs to work with China and many—and the WTO and others to figure out new rules of the game. I think that’s going to be a critical battleground in the next few years.
LIANG: Yes, I agree. And I just want to share a little bit of Chinese perspective in terms of China’s role in the global trade governance. When China first joined the WTO in 2001, China was very enthusiastic about its membership. And arguably, China has become the largest beneficiary of this—of its WTO membership because today if we look at the trade profile, China has become the largest merchandise trading country in the world, accounting for 12 percent of the world’s total trade in goods. And since then, China has achieved a lot, but also a lot of—you know, at the same time, the problem is that there is a very strong sense of frustration. Like, China has been treated as a second-class member. So the paradox here is the largest trading country in the world has been treated unfairly in the WTO.
And one of the key issues is the nonmarket economy status, which the Chinese negotiators agreed upon its WTO accession that China would be treated as a nonmarket economy for 15 years, and that class should be expired in December 2016. But until today, all the major trading partners of China—U.S., EU, Japan, Canada—have refused to automatically acknowledge China as a market economy. Of course, that will affect directly the antidumping investigation. For example, last year, China—it was a record year for China because in one year, China was targeted by 27 countries for 119, you know, cases, investigations, antidumping investigations. So China cannot wait to get its market economy status so that in the future antidumping investigations China will be treated as a market economy and the China press would be utilized in the investigation.
But indirectly, it also has something to do with the status. After 15 years, China has implemented most of its WTO commitments, but I have to say not all of them. For example, the GTA negotiation China hasn’t finished yet. So the sense of frustration is that, you know, if China cannot play a—cannot be treated fairly in the WTO, then China will have to develop, you know, other alternatives.
DOLLAR: I think open it up to—
KENNEDY: Yeah, I think let’s give people a chance, huh?
YUAN: Well, at this time, let’s go ahead, then, and invite members for questions. If you could please wait for the microphone and limit yourself to one question. And just as a reminder, this is on the record. So—
Q: (Off mic)—Johns Hopkins University.
I wanted to ask the panelists whether they think that China’s WTO accession unequivocally says that the market economy status should be given after 15 years.
And then a real economy question: Do they think that China is a market economy?
MONEY: Sharon, you’re the best person to answer number one. She’s a lawyer, you know? (Laughter.)
YUAN: Dave, why don’t we—why don’t we have you start first?
MONEY: I really prefer to defer to the lawyer.
So what I’ve heard—what I’ve heard from Americans involved in the negotiation is this was part of the U.S.-China agreement. But what I’ve heard from lawyers is there’s nothing written down. So you’re kind of—if that’s true, then you’re kind of left with, you know, do you believe these stories, that this is what the United States committed to, and is it more important to follow through on our word than to recognize China.
To the second part of the question, you know, I think in these trade areas it’s really hard to see China as a market economy at this stage.
YUAN: No, I think to follow up on David’s point, if you take a look at the legal text of the accession protocol and the working party report, there is nothing in there, from my own personal perspective, that would suggest that it was automatically granted to them after a certain period, but rather at that point in time they would be evaluated based on their status.
Other questions. Gentleman in the front.
Q: Thank you. Hello, is this on? Yeah. Stephen Keane (ph).
You’re all talking about trade issues in a very logical way, balancing one trade issue against another. I compliment you for that, but I’m not sure if it’s appropriate in today’s environment. Isn’t really the situation with North Korea and the United States far more important in terms of determining how China and the United States will deal with all the issues you’ve raised?
MONEY: Well, I’ll just start quickly. In my view, the DPRK issue is much more important than these bilateral trade issues between China and the United States. And so if we could get, you know, really excellent cooperation from China in dealing with DPRK, I’d be willing to forget about a lot of these trade issues, to be frank. China’s been a pretty good player recently, reducing trade, but I think their number one priority is not to squeeze Kim Jong Un so hard that that regime collapses. So we don’t have yet what I would consider, you know, really excellent U.S.-Chinese cooperation on DPRK.
KENNEDY: I’d say balance is needed now more than ever, even if it’s not as popular as ever. And just to follow up on what David was saying, I think we’re—you could give China everything, you could transfer all American jobs to China, a hundred percent of solar market, electric vehicle market—you could give them everything—and that doesn’t mean that they’re going to agree with us on everything on North Korea. I think those two for them are basically relatively separate, tactically connected. But strategically, China’s going to do on North Korea what’s in China’s core interests, and maintaining a buffer is more important than denuclearization at this time. And so I think there’s only so far. So I still think that we can take issues that you care most about, David, and push the Chinese on them, if we’re—if we do it in a strategic, coordinated fashion.
LIANG: I agree. Actually, I feel that there’s so much China is willing to do regarding to trade. There’s so much China’s willing to do regarding to the North Korea crisis.
YUAN: The woman in the back.
Q: Hi. Thanks. I’m Ana Swanson with The New York Times.
I wanted to ask, do you think the administration is trying to develop a more unified China strategy? And it seems they are really concerned with structural issues that lead to China flooding the market with various commodities. Is there a trade measure that the U.S. can use that would actually help deal with that?
KENNEDY: Yes, I think the short answer is yes. I think they are trying to develop a strategy. There have been a variety of working groups and committees inside the administration to develop one. And I think that they are also, though, pulled along by events. And because they accepted the Mar-a-Lago meeting in early April, that kind of got in the way of giving them enough time to think coherently without some imminent deadline where they had to, you know, act in a certain way at that time. And so—and they’ve always been playing catchup, and so there’s not enough time now between now and the Trump visit to fully do that and vet things so that once the train has left the station, it’s really hard—been hard for them to catch up.
I do not think that there is any silver bullet. There’s not just one thing that U.S. could do unilaterally that will fix this. Yes, you get the Chinese attention. You’d get it all the way at the top. But you may not get the attention that you like. You might not get the answer that you like. This is going to be a multistage game. We should be working with our allies on this. Just as one little example, two of the three world’s largest electric battery makers are Samsung and LG. The other is Panasonic. This year, Samsung and LG have sold a total of zero electric batteries to China. Why? Because of THAAD and because it also helps Chinese industrial policy. South Korea should be standing right alongside us and want to deal with some of these challenges with China. But because we are talking about withdrawing from KORUS and have the same level of attention to so many different trade issues, it makes it difficult for us to find allies, which is what you need to deal with the challenge the size of China.
Q: How important the role of renminbi internationalization plays in establishing the Chinese global governance, and would that have an impact on U.S. trade deficit since if the RMB appreciate? That might ease the trade deficit with U.S., or does that impact U.S. adversely?
YUAN: But can you also introduce yourself and—
Q: I’m a(n) ITED student in Middlebury Institute of International Studies. I’m a student for Professor Liang.
DOLLAR: Right. So China’s had a campaign to promote the internationalization of their currency, the renminbi, for a number of years, and for a while it seemed to be going pretty quickly. They’ve focused in particular on, you know, getting a certain amount of trade denominated in Chinese yuan and settled in Chinese yuan, and that grew for a while. But I think we know now that that was a period where everyone expected the renminbi to appreciate, and so lots of agents were happy to work in renminbi, and then that world came to an end about two years ago. So China’s share of global payments has actually been declining over the last two years. And it’s very small. It’s something like maybe 2 percent. And the Chinese yuan is not an important investment instrument because they have a closed capital account. So I think it’s a long-term agenda. In my view, the United States should be supportive of a long-term agenda of RMB internationalization because to actually do it, you’d have to strengthen shareholder rights, you’d have to strengthen property rights and adjudication. You’d have to deepen the financial system. You’d have to eventually open up the capital account. You know, these are all long-term institutional changes that I think would be good for China and for the world. You know, I’m named David Dollar, and I’m not really worried about my namesake diminishing in importance, OK? (Laughter.) And we’ve got Sharon Yuan over there. (Laughter.) I promised you we wouldn’t make any yuan-dollar jokes, but, you know, sorry, a question came up from the audience.
YUAN: Just couldn’t help it. Just couldn’t help it.
DOLLAR: So if they pursue that agenda gradually, I don’t see that that creates any problems for the United States. You know, there’s really nothing that they can do in the short run with the exchange rate that’s going to have a big effect, you know, on these imbalances. So I’m happy that that exchange rate issue has kind of receded, because the level of the Chinese exchange rate right now seems appropriate. The IMF thinks it’s not unfairly valued. And as I said, their overall trade surplus is about less than 2 percent of GDP. So it’s kind of hard to argue about their overall situation.
YUAN: Thanks, David.
Q: Rick Gilmore, GIC Group. It’s an agribusiness company. We have an office in Beijing.
My question is, the two largest Chinese investments in the United States were in the agro sector: Smithfield and Syngenta. Although Syngenta is a Swiss company, most of its assets are in the United States. In both instances, and under the Obama administration, the CFIUS mechanism was not invoked—it was invoked, but it was not—it was approved.
What do you as panelists see the role of CFIUS to be in the Trump administration as a lever of any kind in terms of foreign investment? And admittedly, there’s been a shift as far as China’s concerned in terms of its export of foreign—export of capital for foreign direct investment. But apart from that, there’s still strategic assets here, particularly in the sector I know, in agro, that the China investors are very interested in. So I’d be interested to have you address the question of the mechanism of CFIUS and its strategic role so far as you see it being used in the Trump administration. Thank you.
DOLLAR: So I think the CFIUS by statute is supposed to focus pretty narrowly on national security issues involved in mergers and acquisitions. In my own personal judgment, they made the right call on Smithfield and Syngenta because I don’t see it as a threat to U.S. national security that Chinese entities have purchased these assets. Recently, CFIUS stopped an acquisition of a semiconductor firm. That happened both under Obama and now under Trump. So, so far, it seems consistent.
But there are a number of decisions coming along, including Ant Financial buying MoneyGram. I think Scaramucci’s hedge fund, someone’s put in a bid for that. So there are going to be a series of decisions in the next six months or so. My reading is that the normal practice would be to approve these transactions. So we’re going to learn quickly if the Trump administration has a different approach.
You know, my own view is we should stick to statue and focus narrowly on national security. We’re very unhappy that China is coming in and buying a lot of stuff and we can’t go there and buy firms. That’s a real issue. Congress may want to deal with that. You know, I’m on record as saying let’s stop Chinese state enterprises from making acquisitions in the United States. That would require an act of Congress. So I can see dealing with the issue, but I think trying to change CFIUS’ mandate, particularly without congressional action, I think, frankly, that would be illegal.
LIANG: OK, I agree. And I also think that the ongoing—the bilateral investment treaty is also addressing this problem. The problem is that we are really not making any significant progress on the negotiation.
And the issue itself is very important only because starting from last year, China’s outbound foreign investment has already exceeded the inflow of the foreign investments. So lots of Chinese companies followed the government’s strategy to go out and that they want to invest in the developed countries to acquire technology and brand names and market share. And that of course will involve lots of high-tech companies, because it doesn’t make sense for the manufacturing companies to invest in the U.S. now. So then CFIUS plays a role and also has raised great concerns in China when the Chinese companies make the decision should they invest in the U.S. or Canada or Australia.
KENNEDY: There’s a World Trade Organization. There’s no world investment organization. WTO deals with a narrow aspect of investment with regard to forced transfer of technology, when you make a deal, and says that shouldn’t occur. But I think the lack of rules on investment means that in issues related to national security there’s no global standards. It’s each country to their own. And it means for standard vanilla investments that, again, each country is on their own, whatever rules that they want. And I think in both areas there’s lots of pressure domestically to turn up the heat on national security concerns, to expand CFIUS, to cover greenfield investments or very small-scale things that wouldn’t usually raise a red flag. I think people are talking about deemed exports. So Americans who have a lot of high technology, have worked for some company, being hired away by their Chinese competitors, people are—so I think we’re going to continue to see that play out. And that is not just a Trump era issue. That’s something that has been boiling for a while.
On the other side of things, on just standard commercial investment that doesn’t raise national security concerns, because there’s no rules of the road, when China joined the WTO, we were all thinking about trade. We weren’t thinking about China as a source of outbound investment like it is now. And so without any clear rules, that’s why we’ve gravitated to this idea of reciprocity, looking for some source of fairness in the absence of rules. So either we’re going to need to develop rules globally, come up with clear rules bilaterally—and perhaps the BIT is where we eventually end up—but without those, without some clear guidance, these are just going to be political fights one after the other, and we’ll be arguing about whether we should—you know, ham and bacon should be, you know, open to Chinese investment.
YUAN: Thank you.
The gentleman in the front.
Q: Hi, Michael Pillsbury, Hudson Institute.
I’m surprised—I wanted to go back to Scott Kennedy’s initial comment that the World Bank study—joint with China, I thought—2030 is now not going to be implemented. I thought that was quite a wonderful study, especially the color graphics with the 30 megacities, long list of reforms.
There’s a theory I’ve heard recently in Beijing I wanted to give all four of you, including Sharon, a chance to comment on. After Xi Jinping consolidates, basically next week, then the reformers will have their chance, and the new strong powerful Xi Jinping, with his advisers, is—they’re all secret reformers, and they want to go back to the China 2030 list of reforms, and the others the IMF has proposed. Is that not considered politically correct anymore to think about the great dream of after Xi consolidates, he will do all these good things? Is that considered incorrect now?
DOLLAR: OK, so I’ll start with that. So I think many of my Chinese friend would endorse a certain version of that, you know, which is that after this Party Congress there will be some acceleration of reform, you know, more on the macro side: reining in the excessive credit and some fiscal reform.
But Xi Jinping’s vision of state enterprise reform is not our vision of state enterprise reform. It doesn’t seem consistent with that World Bank report. You know, they really—you probably heard this joke: China always talks about reform in openness, but they seem to be aiming for reform without openness, OK, in the next period. So, you know, so I think you could see some acceleration, but not an endorsement of that kind of liberal vision you had in that report.
And I think the problem—the problem with the kind of idea that you threw out, which, you know, the trial balloon you’re testing, is that it’s really hard to see Xi Jinping as the reformer in this. So, what? We think that this faction around Li Keqiang and Wang Yang and others, we think that they weren’t involved in reform? But they have a long personal history of being involved in some reform. So I have trouble seeing the Xi Jinping faction as the reform faction.
And then I also wouldn’t exaggerate the reform credentials of the other side. That’s why, for me, if you get a balanced Standing Committee, you need this vast bureaucracy to implement reform. I think the best outcome is probably a harmonious Standing Committee. If Xi Jinping runs the table, there’s going to be a lot of unhappiness throughout the Chinese bureaucracy. You could get a lot of kind of low-level guerilla action against the kind of reforms that they need to take.
KENNEDY: I would just say, you know, Chinese people don’t have middle names, as you know. But if they did, Xi Jinping’s would be “control,” right? (Laughter.) Every aspect of governance is centered around increasing control. So maybe there’s some secret plan that we don’t know about over the next century that China has to control the world by liberalizing, but I think it’s probably unlikely. Again, he could surprise us. I would say, you know—and I know that some of the reformers and advisers around him who are hoping that that side of him comes out. I think actually he’s already assumed enough power that if he had wanted to be more liberal, he could have done it with facing very little political consequences already. You know, maybe simply, you know, getting his name written in a party constitution and things like that will make him feel, you know, better—and he’s highly risk-averse—and then we’ll be surprised. I just think it’s unlikely.
LIANG: Yeah, I think lots of people—I mean, the reformers in China, they share the same hope, and only because the next stage of the economic reform is kind of long overdue. The last time we saw the significant reform, that was really the far-reaching commitments China made upon its WTO accession. And all the free-trade agreements negotiation China has concluded so far are relatively shallow in terms of the issue areas included, and many of them are not WTO-plus.
So, yes, lots of people are talking about it, especially during the period, the one China created the Shanghai special free-trade zone, and also during the TPP negotiation, like, you know, if the U.S. is doing it in the region, China should do it, too. But now I don’t really see any sense of the urgency that this is something, you know, that has a top priority for Xi Jinping. But I think everyone—I mean, lots of people would be very happy to see that happen.
YUAN: Yeah, I would agree. I mean, I think what David said about reform being very different for President Xi than it is for us, is key; that, you know, maybe they will open further. Maybe they will liberalize. But my sense is that it would probably be to private Chinese companies first before it is to foreign companies.
And as we—as I was actually listening to the panelists, kind of went back to when we first saw the third party—the third plenum, and the decisions, and where the idea that the market would play more of a decisive role and the idea that these contradictions, these inherent contradictions. And that goes to Scott’s point about control, is how do you go about doing that, letting the market play more of a role—any kind of role, decisive or otherwise—and still be able to maintain full control. And so I think that is ultimately going to be more of the challenge going forward is, these much-needed structural reforms that will be critical to China moving out of the middle-income trap and avoiding that, but still nonetheless being able to move forward on the plan that Xi has done in the past five years
Other questions? The gentleman in the red tie.
Q: Thanks. Marty Weiss at CRS.
One of the things that was striking at the Bank and Fund meetings last week was the level of public support and the volume of the support for the Belt and Road Initiative. This is cynical, but what does this say, if anything, about U.S. influence in norm-setting in the region after U.S. withdrawal from TPP? But I guess more specifically on the Belt and Road, what do you see as the kind of key policy issues that—you know, that you’re looking at and, you know, is this current administration engaged on them or prepared to engage?
DOLLAR: Well, I would say China is becoming a bigger and bigger player in the IMF and the World Bank, and so it’s not surprising that the senior technocrats are going to take seriously this Chinese initiative. You know, I think we should take the Belt and Road seriously, but a lot of the press coverage, frankly, has exaggerated what’s happening so far. China seems to be lending about $40 billion per year for infrastructure in other countries, and frankly, it doesn’t have much of a geographic footprint. You know, Africa is getting a lot of the lending, which is good for Africa. Latin America’s getting a lot of the lending. So there doesn’t seem to be a Chinese master plan to fund this. It’s a more kind of in line with China’s economic condition. It’s got quite a bit of excess saving. It’s got unemployed construction companies. It’s putting a lot of those to work in parts of the developing world. If it’s done in the right, you know, environment, I think in countries with reasonably good governance, it’s likely to generate good infrastructure and good results, but they’re also funding countries like Sudan, Venezuela, Angola, Pakistan, and probably you’re not going to get such good results there. This is mostly commercial money, so there is the risk that these countries will start getting into debt distress. But we actually haven’t seen that so far. It’s a relatively recent initiative.
LIANG: Yes, I think that the Belt and Road Initiative, it’s still too new for us to make any kind of serious evaluation. And infrastructure building by no means I think it’s really well-needed in the developing countries. So I think Chinese government really picked something that China is very good at, you know, and also that is well-needed in among the developing countries. So if the Chinese government is going to invest more in the years to come, I think that will be welcomed by the developing world. And also, I think they will work very—and complement really with the World Bank and other regional development banks, because if you look at the current practice, actually the AIB is emphasizing very much, you know, making the lending criteria consistent with the ADB and other regional banks, and supervised by the World Bank.
YUAN: The gentleman in the back.
Q: Hi. Zhenhua Lu, South China Morning Post.
I want to know what would come out of President Trump’s Asia visit, especially in China on economic issues? As we know, the two sides only delivered a(n) initial agreement on 100-day plan, but the Comprehensive Economic Dialogue without no agreement, and press conference is canceled. So, on this background, what would we expect from Xi-Trump summit on economic issues?
And, second, it seems that Section 301 investigation tops the economic agenda of the summit. Isn’t U.S. going to demand China to terminate or eliminate the technology transfer policy or any other kind of demand in terms of intellectual property? Thanks.
KENNEDY: Sure. You know, again, I expect this summit to try to emphasize the positive. I think it’s typical of the president. And, you know, China’s obviously going to roll out the red carpet, and all the way up to the Great Wall—literally—and the president might get some ideas from what he sees about what he might do on out southern broader with that. (Laughter.) And so I would expect a lot of discussion of Texas while he’s in northern Beijing. You never know. He’s—someone’s got to actually give him the real history of the Great Wall—because it wasn’t so great. (Laughter.)
But the—you know, I expect primarily to see deal making, announce deals and investments. The CED, it’s an open question. Does the CED still exist? Will they announce its continuation? I think it’s—yes, what happened July 19th, I think people still aren’t clear where things stand.
I think if there’s one area where there’s some possibility of breakthrough—and I’d welcome anyone else’s input on this—in terms of market opening, it has to do with—and this was discussed at the hearing for the—that they held on 301 last week—with regard to investment caps in China in a variety of different sectors, that the existence of those investment caps, the requirements for joint ventures, create leverage for the Chinese to demand tech transfer, and so not only—so eliminating those, the scope of them, the number of sectors that are covered would not only give greater market access to American and foreign companies to operate how they’d like to. It’d also reduce the pressure to share technology in a coerced manner. And so I don’t see the Chinese eliminating that in one struck with a pen, but I could see potentially in one or two sectors some progress that they might be able to announce and then gradually and put—that is something that they could do—still, again, thinking about the birdcage, one area where there could be some progress, especially in areas where there’s some successful Chinese companies already.
YUAN: Great. Thanks, Scott.
There’s a gentleman all the way in the back.
Q: Hi, it’s Shawn Donnan from The Financial Times.
I just wanted to build on something that you said, David, about China playing a bigger role in the IMF and the World Bank. At the meetings last week, those of us who were there heard President Xi get quoted a lot more than President Trump, which was pretty striking. Also saw the U.S. for the first time kind of lay out a bit of a reform agenda for the IMF and the Bank, and lending by the Bank to middle-income countries.
Just wondering how that bigger presence is going to be manifested, and whether just you share this view that the Trump administration is just going to accelerate that process.
DOLLAR: Right. So I think China’s rise is kind of a natural phenomenon. In some ways, they’re just moving back to the share of the world economy they had 200 years ago, you know? But they are going to continue to increase their share of the world economy. They’re very likely to be the largest economy in the world within 10 years or so. So it’s natural that they’re playing a bigger role in these institutions.
I think they’re frustrated at the pace with which they’re getting more influence in these institutions, and that’s one reason they started AIB, was it was a bit of a hedge. You know, I think it’s actually a positive development, and it’s cooperating well with the World Bank, but it certainly, you know, gives China a little bit of a hedge.
You know, as you say now, it does seem that the Trump administration is kind of picking a fight with China about, you know, how these multilateral banks like the World Bank and, you know, implicitly AIB, though the U.S. is not a member—you know, how they should operate. I think the membership is broadly supportive of the World Bank lending to middle-income countries. You know, it lends at commercial interest rates and makes a profit dealing with middle-income countries. Most of the China program is focused on environmental issues. So it strikes me as kind of an odd fight to pick, to suggest that these institutions should pull back from dealing with middle-income countries. So either you target it at China—which of course is going to make the Chinese unhappy—or you make it more general, you know, but Brazil still borrows from the World Bank, India’s rapidly on its way to being a middle-income country, some of the Southeast Asian countries. So I guess I don’t really support the idea of the World Bank pulling out of middle-income countries when there are a lot of important environmental and social and economic challenges in those countries. So I think the current system where the money is very, very concessional for poor countries and the money is roughly commercial for middle-income countries, I think that system has worked well, and that Chinese would certainly like to see a continuation and an expansion of this kind of system.
YUAN: We’re quickly wrapping up now, so I just wanted to give our panelists any final concluding, very quick remarks before we need.
DOLLAR: I’m done, I’m done.
YUAN: Wei, anything further? No?
KENNEDY: I’m good.
YUAN: Great. Well, thanks to the panelists and to everyone. This concludes session two, and lunch will be right outside. (Applause.) Thank you.
This is the third session of the "The United States and World Trade: Future Directions" symposium.
This symposium brings together distinguished trade leaders and innovative thinkers to address the trade policies of the United States and their international implications in North America and East Asia, as well as the possible effects on the global trade architecture and the World Trade Organization.
ALDEN: Thank you very much. Everyone will be straggling back in from lunch, is my guess. I want to thank everybody for coming. Welcome you to this third—wow, that is really loud. I’m going to move that down just a little bit. Welcome you to this third panel session, which is the discussion on “The United States, Trade Remedies, and the World Trade Organization.”
I am delighted to be joined up here on the stage, on my far right, by Chad Bown. Next to him, Scott Paul. And on my immediate right by Kellie Meiman Hock. Chad is a senior fellow at the Peterson Institute, former senior economist at the Council on Economic Advisors and lead economist for the World Bank. Scott is president of the Alliance for American Manufacturing, co-author of the book “Remaking America”, serves on the board of the National Skills Coalition. You’re on the future of work project now, too, aren’t you, with Carnegie is it, or—the Markle Foundation, right—a topic that came up several times this morning. And Kellie is managing partner and director for Brazil and the southern cone with McLarty Associates, and led negotiations in the region some years ago for USTR. Their full bios are all in your material.
So I was thinking in preparing for this session that a year ago a topic like this—trade remedies and WTO dispute settlement—it would have been kind of a wonkish afterthought to the real topic of a symposium like this. Miles was mentioning the one we did a year ago, which would have been very much how to move forward on trade liberalization, what were the negotiations in the works. But with the Trump administration and I think with developments in some other countries as well, it is obviously a critically important topic today. The real question we face now, I would argue, is not so much how quickly we move forward with trade liberalization but how much and with what consequences liberalization is going to be rolled back. So I think this issue is very much front and center.
Chad, I want to start with you. You played a big role in—when you were at the World Bank in developing global benchmarks for trade remedies cases. And we’re all hearing and reading in the news about the various cases underway, the recent ITC decision on safeguards for solar panels, the Boeing dispute with Bombardier which was mentioned this morning, the AD/CVD duties that have been put in place, the section 232 investigations on steel and aluminum. I mean, is this all business as usual or is a significant departure? And if so, why? How would you assess the current state?
BOWN: So thanks for the opportunity to be here.
So let me say a couple of different things. I think, first, it’s important to put the trade remedy context into the before the Trump administration and then since. So let me start with 30 seconds on before. So, trade remedies, if we think about them historically, is anti-dumping, countervailing duties and, to a lesser extent, safeguards, in other countries at least. The U.S. has not been recently a big user of safeguards. Before the Trump administration, in the United States we had seen a bit of an increase in the use of trade remedies, anti-dumping, countervailing duties, but a real divergence in terms of who it was being applied toward.
So basically, since 2001 for the United States—but really this is true around the world—anti-dumping, countervailing duties have really been an anti-China policy, or a policy, thinking differently, as a way to integrate or deal with the adjustment of China coming online as part of the global economy. As China became a WTO member, everybody had to lower MFN tariffs. They started to resort to anti-dumping CVD to address imports coming in from China.
So by the end of the Obama administration, you have roughly 2 percent of imports from everybody else in the world that’s subject to anti-dumping and countervailing duties. And that’s been going down over time. But against China, it’s been going up sharply. So now by my estimates, it’s about 9 percent of imports from China are sitting under anti-dumping and countervailing duties. Then when the Trump administration comes in, you have to expand the scope of what you mean by trade remedies, because now we do have potential Section 201 cases, these global safeguard cases of solar and washing machines that have been started, but also Section 232, the national security law that has really never been frequently used in the United States. And there’s these steel and aluminum investigations ongoing that could cover tremendous amounts of imports. So I guess the answer to your question, Ted, is it’s complicated, as is all things with the administration and trade policy.
ALDEN: Thanks very much, Chad.
And, Scott, you work with a lot of companies that use the trade remedy laws, that are concerned about some of the trends we’ve seen in recent years. Why do you think we’ve seen this uptick in their use? And what are the companies looking for, in terms of resorting more to trade remedies as a solution for some of the challenge they’ve been facing?
PAUL: It’s a good question. And thank you, Ted, for the opportunity to be on this panel today.
I think trade remedy usage is dependent upon two major factors. First of all, the economics has to support it. So you need to be able to form a case that is credible, that either dumping has occurred, there are measurable subsidies, that these have caused injury. And so you have the economic factor. And then you have the political factor, and how willing will whatever body be willing to provide that type of relief. And interestingly, with respect to China in the Bush administration, I think there was plenty of evidence that you could have used safeguards, but there was no willingness on the part of the Bush administration to do it. And so companies stopped bringing those cases. They were called 421 cases. That law has since—or, that ability has since expired.
And in the Obama administration, I think there was a pretty clear signal sent that, you know, anti-dumping and subsidy cases would be fairly adjudicated. So, you know, if the—if the economics supported it, the industry got behind a case—which is another important factor—you would—you would file them. And now with the Trump administration, I mean, he laid out—and there’s a—kind of a seminal speech he gave on trade in Monessen, Pennsylvania in late June of last year—you can look it up—because it specifies. He said, look, I will use 232, and I will use 301, and I will use 201. And all these sections—he kind of laid it out, that he would be open for business on all of this.
But I think still, just going back to my first point, you have to have the—kind of the economic—you have to be able to make the economic case that there either has been dumping or subsidies or that you’ve had some sort of injury. And it depends, obviously, on the type of case that you’re filing. But clearly there seems to be the political interest in doing this. And so if you think you have a credible case, now’s a good time to consider it.
ALDEN: And I would encourage everybody, if you’re planning to go back and look at that Trump speech in Monessen, it was a singular speech in the campaign. It was by far the most detailed and specific. And it laid out everything he’s been doing so far on trade. The only one he hasn’t done is to label China as a currency manipulator, which he seems to have been—
PAUL: Well, I’d like to clarify that everything he’s said he was going to do, so.
ALDEN: Well, fair enough. He hasn’t done it all yet, yeah. A lot of it is in trade. But it’s quite a speech.
ALDEN: Kellie, how is the—you work a lot in developing countries, in Latin American and other parts of the world. How is or do you think how might the rest of the world respond to this uptick in consideration of restricted measures by the United States?
MEIMAN HOCK: Yeah, I mean, I think that there’s two different things. And one is the rhetoric and the other one is the action. And, you know, to Chad’s point, the cases have been increasing over the years, particularly after the entrance of China into the WTO. What you do have now is perhaps looking at a bit more of a diversity of countries that are being considered for those cases, precisely because more companies are thinking, well, if I have a good case against anyone it’s worth at least researching and filing. So that’s one aspect.
The other one is just the real almost kind of mini-campaign that we’ve been on to take anti-protectionism language out of, you know, G-8 statements, G-20, et cetera. And so that’s something that if you’re a Brazil, you’re an India, and you are also a frequent user of dumping, you know, measures, that you’re going to take notice of that. You know, the irony being that, I mean, you know, at the end of the day, you know, one would at least hopefully argue that the whole idea of trade remedies is not that they’re protectionism, but that they are that safety valve that allows us to enter into trade liberalizing agreements, because we know if there’s a surge we’ve got a way to manage that.
So, you know, by, I would argue, the nervousness of the administration in having that anti-protectionist language in there because there’s a fear that somehow it might constrain the United States in its use of trade remedies, unfortunately is sending a green-light signal to those countries, you know, again, particularly the Brazils, the Indias, South Africas that already were kind of frequent flyers when it came to trade remedies.
ALDEN: Yeah, I mean, Chad, let me press you a little more on this too, on the sort of business as usual versus not normal. We’ve talked about the Bombardier AD/CVD case. And John Weekes mentioned in the panel this morning, you know, Boeing had originally asked for, I think it was, 80 percent in the CVD case. They got 220 percent from the Commerce Department. Again, do you see signals that we are in a very new era in terms of the way some of these—longstanding, to be clear—trade remedy laws are going to be used?
BOWN: Yeah. So I do. And I think you can—or, at least I personally trace this back to late April, really, like right in the lead-up to the hundredth day, when the Trump administration was kind of running around to do a number of things. They self-initiated the two national security investigations on steel and aluminum. We haven’t seen any actions taken here yet, but I agree with Scott, that signals to the world explicitly, hey, if you’re interested in protection, we’re open for business. Come bring your cases forward. Shortly after that, we saw the filing of the two Section 201 cases, the global safeguard cases. This law hadn’t previously been used since 2001, the Bush administration, the major steel safeguard.
And one of the reasons why is because it’s always been up to the president to decide whether or not to grant protection under that law. And so in many prior administrations, even when there was evidence of injury, they didn’t grant protection. Well, President Trump seems to be signaling he’s willing to grant protection, so cases are being brought forward. I think, to my mind, that shifts a bit of the impetus onto the International Trade Commission to actually maybe treat the injury decision a bit more seriously than they have in the past, because they’re not going to be given a free pass this time around with this administration. It looks like this president wants to implement protection.
Then you also see kind of out-of-the-box cases as well, like Bombardier and Boeing, where arguably, hey, sure, there’s likely subsidies there. But the big question is, should this be treated as a CVD case, or is this something that we should be adjudicating in Geneva, dealing with the subsidies directly and not through trade remedies? Everybody subsidies in aircraft, right? So the question is, do we want to go through this tit for tat road, or do we want to try to rein this in through other means? And to me, these are kind of the worrisome signs that things really are different with this administration.
ALDEN: I mean, Chad’s given me a nice segue to WTO, which I do want to go to, but just quickly, Scott, when you—you know, when I talked about the speech, all the things he was going to do, and you looked at me sideways. When you take the example of the 232, he’s initiated but not done it. Well, what’s the impact of that been? I mean, it’s sort of had this paradoxical impact on the steel market, hasn’t it, of announcing something and then not moving forward with it?
PAUL: Yeah, without leaning too heavily into political economy and causes and effects, I mean, I’ll just say that there’s certainly been a correlation. I mean, there’s a 21 percent increase in steel imports. There’s not really another reason why that would have occurred since April. But it was—you know, it kind of models the behavior of countries trying to get in under the wire. And it’s—there are now kind of—you know, there are two steel mills that have announced layoffs in Pennsylvania, one of which produces armor plate, one of the last mills in the United States that would do that. And so it’s had the reverse effect on steel workers than the president has said it would.
And he’s tied it somehow to the effort to pass tax reform. And so I’ve yet to figure that out. I’ve yet to find a Republican who said they would oppose tax reform because of steel duties being imposed. I’ve asked many of them. And no one will admit to it. But it’s had a—it’s had an impact, certainly, in the steel market. But it also raises a question—and I think this is important—is that there—you know, there’s usually a pretty clearly defined process for these to play out. And this has disrupted that. And so it’s obviously sending mixed signals to other countries, but also if you think that this is—if there’s going to be a large political element to this, it might raise some questions whether you’re going to see cases like this or industries bring efforts like this to the administration in the future.
ALDEN: Yeah, I don’t remember whether it was in my conversations with one of you in the lead-up to this, but somebody was telling me that they’re putting solar panels on their house, and they ended up getting a much higher quality solar panel for less money because the U.S. companies have been importing solar panels like crazy, anticipating this new restriction. They actually have a glut right now. So the price on the better ones has fallen. (Laughter.) So these things have strange real-world impacts.
I do want to turn to the WTO now. So, you know, if we think about how these cases sometimes play out—you take the last safeguard initiation, the Bush administration’s tariffs on steel, that ends up going before the WTO. The WTO says, you didn’t follow the process, and the Bush administration removed them. I assume a lot of this stuff will end up at the WTO. But this administration has also signaled that it’s very unhappy with the WTO dispute settlement process, we talked about NAFTA dispute settlement this morning.
Kellie, tell us a little bit about what’s going on in Geneva, the pressure the new administration has been putting on the WTO over the operations, the appellate body, and the whole dispute settlement system.
MEIMAN HOCK: Yeah, well, the appellate body dispute predates Trump, right? I mean, there were—there was first one vacancy, now there’s two, in December there’ll be three vacancies on the appellate body, which is basically when you appeal a case at the dispute settlement board then that’s where it goes. And essentially it’s over this dispute of how are—how’s the appellate body interpreting specifically—that’s where the most controversial cases are—trade remedy cases. The most stark example is the use of zeroing—which, talk about wonky, nerdy stuff—but it basically is, you know, when you’re trying to see how a dumping tariff is going to be set.
You know, basically if exports—if you’re exporting more than you’re importing, or the—excuse me—the difference of the price of your export versus what you’re selling at your domestic, if the export price is actually lower—or, excuse me—actually higher instead of lower—I can’t say it right—then they just call that a zero rather than actually saying, no, you’re actually selling this for more expensive in the United States than selling it for cheaper. Rather than giving you credit for selling that item more expensive in the United States than you are in your domestic market they say, no, we’re going to call that a zero. So that’s zeroing.
You know, so something as kind of weedy as that has basically paralyzed the appellate body at this point. And we expect that it’s just going to, you know, get worse as people, you know, continue to have their terms expire. So you know, that being the case, this is the debate when it comes to the dispute settlement board and the appellate body is what’s their role. I mean, are they crossing the line of actually trying to change what we’ve agreed to in the WTO, or are they indeed doing what they’re supposed to be doing, which is interpreting. Which, again, you know, isn’t just a Trump thing. But if you have that dynamic already before the Trump administration comes in, and then you have an administration that comes in saying that they don’t trust their foreign tribunals and his sort of thing, it obviously exacerbates the situation. And that’s where we find ourselves today.
ALDEN: Scott, did you want to weigh in on that too? Because you’ve been thinking about this a lot, yeah.
PAUL: Yeah, I will. And it’s impacted a number of our member companies adversely, is that—and, first, I think having a rules-based trading system is essential. I also think that the appellate body has extraordinarily overreached. And that’s—you know, and I think that the Obama administration shared some of that point of view as well. They may have expressed it differently, but they shared that point of view. And, you know, you can easily piece together an argument that the U.S. has been—has been, you know, adversely impacted, has been targeted for particularly its applications of trade remedy measures. It’s challenged five times as much as any other member of the WTO. It’s lost 38 out of 45 challenges since 1995 to is application of trade remedy laws—again, way more than any other country that utilizes trade remedy laws.
And there appears to be a bias here. And it’s a real challenge. And until both the WTO institutions, the stakeholders, and this administration comes to grips with it, I think that you’ll see this tension. And I’d like to see the system preserved. I think that, you know, we’ve been able to make a lot of progress by utilizing the WTO to both reduce some barriers overseas. And we’ve got a very good track record in that. But when it comes to defending trade remedy measures, it’s been—there seems to be this bias that’s built in that it’s not well-accounted for in the rules of the WTO.
ALDEN: Chad, do you want to add a comment?
BOWN: Yeah, I mean, so I would disagree with the fact that there’s a—or the idea that there’s a bias. So the basic idea is everybody loses at the WTO, if you’re a respondent. And so the United States, it has lost, basically, all the cases that it’s faced as a respondent on trade remedies. Trade remedy cases are really easy to bring because they’re super transparent. And that’s why lots of companies bring them against us. And we tend to not bring them against other countries because we’re not hit with these kinds of things, for the most part. The other major users of trade remedies—Brazil, India—the trade at stake in those cases are much, much smaller. So for a lot of the companies out there, they don’t bother to pursue those types of cases against the Brazils and Indias out there in the world. But if they would, they would lose too, is the main point. The WTO panel system, the appellate body, is completely even-handed. All the respondents in these cases essentially lose.
So to my mind, the biggest—the bigger question on this challenge with the appellate body and the WTO is do we really want to bring down the system because we have a disagreement about the rules of zeroing? And I, as an economist, look at this idea of zeroing—and we can have a long debate over this but I don’t think it’s worth it—it’s just fuzzy math is essentially what it is. And it’s a question of, well, and the framers of the Uruguay round in ’95, did we agree to allow this—the United States to do this, or did we not? The difficultly under the WTO is there’s no legislative function where, when you have these sorts of disagreements, you can make modest changes to the rules. And so the WTO judges are sort of confronted with the fact that there’s no legislative changes going on. So how do they make rulings on this kind of stuff?
So this is a tension. But to my mind, it affects a very small amount of trade. And I understand it may affect trade in particularly sensitive products and industries in the United States. But this bigger question of do we want to throw the baby out with the bathwater, whatever the expression is, and get rid of the entire functioning dispute settlement system because of it I just find is a bit—is a bit perplexing.
ALDEN: OK, I’m going to ask you each quickly to look into the crystal ball. So in the past, when the United States has lost WTO cases, it has complied—or, it certainly tried very hard to comply. I think the only exception maybe is Brazil cotton, where we paid them off. But for the most part, we’ve tried. I mean, the steel tariffs, the Bush administration removed them. So let’s say, I don’t know, solar or 201 washing machines or 230, or whatever, makes it way to WTO, goes through the process, WTO says sorry you can’t do that, it’s against the rules. What does the Trump administration do?
Kellie, does this administration abide by a WTO decision in one of these cases?
MEIMAN HOCK: That’s one of my biggest fears, is that they won’t and that they’ll take the risk of, well, what’s the other country going to do? Because in many cases the option for the other country is simply to increase tariffs, increase their inflation rate. And having worked a great deal on Brazil cotton, I can tell you, that was the quandary for the Brazilians. They said, well, you know, why in God’s name do we want to increase our tariffs—
ALDEN: This was a case, just quickly, where the United States instead of changing its subsidies in response to a WTO decision decided to effectively pay off Brazilian cotton farmers, right?
MEIMAN HOCK: They’ve—right, they’ve—
ALDEN: Oh, yeah. Sorry. Did both, OK. (Laughs.)
MEIMAN HOCK: Yeah. But at any rate, so that was the quandary that the Brazilians found themselves in. So they were basically saying, you know, to U.S. industry, he’s our retaliation list. Here’s—and, by the way, we can also retaliate against patents. Here are the patents we’re thinking about retaliating against. Please get your Congress to do the right thing, because we really don’t want to do this. And so, you know, that’s widely known, I think, in Washington. So you know, I do fear, given the orientation of the Trump administration, that they would take that risk and know that it’s difficult for the other countries to retaliate, and that they would roll the dice.
The fear that I have in that case, that’s where I think the retaliation fear is real, because, you know, it’s always been the case that, you know, the WTO dispute settlement system—as controversial as it’s been—has been overall a huge win for the United States. We’ve won many more cases than—certainly than we’ve lost. And you know, at that point, we really are putting ourselves in jeopardy.
ALDEN: Scott, same question. Does the Trump administration comply? Should it comply with an adverse ruling, just say hypothetically, on one of these cases?
PAUL: I want to warn the audience, I’ve been wrong about every prediction I’ve made about the future actions of the Trump administration to date. (Laughter.)
MEIMAN HOCK: All of us have. (Laughs.)
PAUL: No, I think—take it with a grain of salt. But I—look, I think that—I think the answer, Ted, is it depends. I think it depends on what the stakes are in the case. And if you—the other thing about safeguard cases in particular is that they do have an expiration to them. And so oftentimes by the time these cases wind its way through the process, the relief is close to expiration or to reconsideration. But it’s—I mean, domestic industry would far prefer to go the anti-dumping countervailing duty route, because you get a longer period of relief there. So it’s—I think it’s depends on what the case is going to be, what the circumstances are going to be at the time, kind of geopolitically, and if they want to tweak the WTO in some way.
BOWN: So I think there’s two kind of separable issues, one of the point of retaliation. And to make the point, let me go back to Scott’s earlier example on the Section 232 and tax reform. To my mind, that’s a clear example of where—the reason why these two things are tied together are explicitly because of the retaliation threat. So if you remember, back to July right before the G-20 Shawn Donnan had a nice piece in the Financial Times basically laying out these are the products the Europeans are going to threaten to retaliate over if the United States does steel and it hits European exports. It’s going to be bourbon from Kentucky, dairy products from Wisconsin, right? McConnell, Ryan, right? So if you want cooperation in the Congress on tax reform, health care reform, infrastructure, all of those items, the administration recognizes, hmm, we need to be worried about this threat of retaliation. So I think that’s one potential concern.
Now, does that happen all the time? I don’t know. It depends on politics. The separate issue, though, of the WTO, are they likely to comply with rulings, I’m not optimistic. And I think there, you know, Ambassador Lighthizer has said it explicitly. At an event at CSIS a couple of weeks ago, he expressed affinity for the old system of dispute settlement under the GATT, you know, the General Agreement on Tariffs and Trade, in which any country could essentially veto it. It was not a rules-based trading system. It did not have this ability to be able to fight off disputes that lead to retaliation in the end. That is his vision, right? In that sort of world you have the United States acting less in a rules-based fashion, and more, potentially, as a potential bully out there. But he signaled that’s what his—that’s what his, you know, approach would preferably be. So I’m not optimistic that they would end up following the rules if faced with an adverse decision.
ALDEN: Yeah, I’m going to go off-script for a last quick question to each of you. One of the questions—I don’t know about you guys—but I get very tired of hearing is reporters who don’t follow trade, not like the wonderful reporters in this room, but who don’t follow trade—(laughter)—who call me up whenever there’s a trade dispute and say: Is this the start of a trade war between the U.S. and X? And I’m always like, no, it’s not the start of a trade war, and here’s why. So I’m going to ask you. I mean, given the conversation here, are we actually in the threat of trade wars? Maybe I’ll throw that to you first, Scott. (Laughter.)
PAUL: Well, and my stock answer is that we’ve been in one for a while with China, and we haven’t been using all the tools available to us. So it’s a—I think it depends on your perspective there, is that we’ve been very exposed to a lot of practices and impacts from import competition through state-led capitalism, that’s had profound impacts on the manufacturing economy of the United States. And so if we start pushing back is that a trade war? I mean, it’s kind of a rhetorical question. It’s, like, it’s well within our rights to do a lot of this. And when a rules-based trading system was set up, they recognized the role for anti-dumping measures and countervailing duty measures.
And so I think the real question is that, yeah, not to kind of overreact every time you see this come up. Or, you know, there Obama administration through countervailing duties have steel tariffs up to 500 percent on some particular companies and some line of steel. And I don’t remember anybody saying: Oh my God, we’ve started a trade war. So it all depends on your perspective. I—look, clearly this administration does have a vastly different posture. And so it is possible. But I think that’s entirely different than asserting rights that you have.
ALDEN: OK, so, Scott, there may be a trade war, but they started it, OK? (Laughter.) Chad.
BOWN: So, I also want to say that I agree with Scott about some of the underlying problems here. And I wouldn’t say that we have been in a trade war with China, but I agree wholeheartedly that we are facing a fundamentally important moment about how we’re dealing with this bilateral relationship with China, in an economy that just works fundamentally differently. And it’s, unfortunately, now playing itself out more broadly because a lot of these new trade remedy cases that we’re seeing, especially in industries like steel, we’ve already stopped most of the imports of steel from China from coming in.
So now we’re having to hit our allies, right. And it’s not because they’re necessarily dumping or doing something unfair in the sense that we’re worried about, but they’re getting squeezed out of third markets. And so they’re now exporting into the United States at really low prices, right? So, yes, it satisfies the criteria of dumping, but it’s not the fundamental underlying problem of overcapacity that is China. So my concern with all of the use of trade remedies is it never addresses the underlying source of the problem, that you would be better sourced at doing, you know, through negotiations, through some sort of bilateral, multilateral approach that we’re right now not seeing. And as we saw in the panel this morning, we’ve yet to really envision a long-term strategy from the Trump administration on dealing with this China issue.
ALDEN: Kellie, how worried are you about something that looks like more aggressive trade conflict than we’ve seen in the recent past?
MEIMAN HOCK: Well, I mean, I think it’s definitely a possibility. I think that the countries that are impacted by not just our trade remedies but—you know, you all talked about it this morning—the possibility of a withdrawal from NAFTA. I mean, you know, I’ll say this: People, our trading partners, are much more prepared—(laughs)—right now than I’ve ever seen them in emerging markets to retaliate if they need to. And typically that’s not the case, because the rhetoric isn’t where it is and, you know, the actions aren’t where they are.
We don’t normally have 232 cases lingering out there. And so, you know, definitely the analysis has been done, you know, which congressional districts can you hit with which products if you need to, you know, with trade actions of our own. And, you know, for the Mexicans’ part, for example, I mean, they’re sitting on—from trucking, ironically, because apparently trucking was a difficult issue over the weekend—but they’re already sitting on $2 billion worth of retaliation that they could enact tomorrow if they wanted to, completely legally. So I think the possibility is real.
ALDEN: Yeah, there was a great, if somewhat frightening, column by Peter Clark, who’s a lawyer in Ottawa whose been following these things forever, saying that when it comes to retaliation, the United States is a target-rich environment. And I think that’s very true. I mean, there are a lot of interests that our trading partners could go after if they were really determined to do so.
OK, I would like to open this up now to our audience for questions. There were other things I didn’t quite get a chance to—we were going to talk about China and non-market economy status, which came up in the previous session. But questions for our panelists here. And if nobody comes quickly out of the box, I am going to ask about China and non-market economy status. Well, nobody—Scott, I’m going to throw this to you to start, which is—you know, it came up in the previous panel.
China was expecting at the end of the last year to be given market economy status, which quickly—and you can correct me if I’m describing this wrong—means they would be treated like every other country under our anti-dumping and countervailing duty laws. Generally means you’re less likely to be hit with very high dumping and CVD margins because of the way the analysis is done. China was expecting this to happen. The U.S. is resisting. The Europeans have resisted in different ways. How do you see that playing out?
PAUL: Well, I think that the U.S. will not grant market economy status for China. There’s a clear test in our laws, a six-part test. If you read it yourself you’ll, I think, come to the same conclusion that I have, that China doesn’t meet any of the six tests. And we’ve been transparent about that. This isn’t a surprise. And this is, again, I think a carryover from the Obama administration. There was, I think, not a lot of conversation about it, but there were signals that were sent that this is kind of what the U.S. position is.
With the EU it’s a little different, because they don’t have a similar test in their law and they have to manage this a little bit differently. But, look, I think this is going to be a test of how interested the U.S. is—this administration is interested in engaging with the WTO. And this—I mean, this is a case that could potentially case that kind of separation and disruption. And so I—you know, the U.S. has postponed a decision through a countervailing duty action on aluminum foil, making a determination on this until the president comes back from Asia. But this could come by the end of the November.
ALDEN: Kellie, did you want to weigh in on this at all?
MEIMAN HOCK: Yeah, definitely. I mean, I think that—you know, if you look at the countries that have named China a market economy, mostly it’s because they needed to, to get their free trade agreements with China. And the impact to those countries of an influx of Chinese imports, I mean, it’s real. So, you know, you just look at that reality and it’s hard to imagine, particularly in the current environment, that the Trump administration would, you know, change in any way.
Even if you look at a country like Brazil, which certainly, you know, during the last two administrations was, you know, flirting pretty heavily with China and talked a lot about giving them market economy status, they never really, you know, ended up pulling the trigger on it at the end of the day. So there’s—you know, if you look at all the parties, third-party players to the EU and the—and the U.S. panel, you know, there’s a decent amount of support there again, in particular by the countries that typically file a lot of remedy cases.
ALDEN: Questions? Sir, here. And please identify yourself.
Q: Larry Bridwell. I teach international business at Pace University in New York.
I’d like to ask a question of the Brazilian expert, how you would view the future relationship between Brazil and the United States in conjunction with their relationship with China.
MEIMAN HOCK: Well, I think that—you know, as I said, during the previous two presidential administration in Brazil there was a real focus on building alliance with China. They kind of tripled down on this BRICS alliance and kind of gave it the old college try. And at the end of the day, realized—at least under the current administration; they’ve got their own political problems in Brazil, to be sure—but that a number of the investment promises, et cetera, that were made by the Chinese really weren’t fulfilled at the end of the day. And so the relationship really has continued to be, you know, certainly close, but also not, you know, a real marriage that in that regard.
And right now, with us hitting the pause button really on our trade policy here in the United States, you know, you’re seeing not just in Brazil but throughout Latin America the Chinese really taking advantage of that. They feel much more present in South America than they have in recent years. Definitely are, you know, spreading investments around, particularly in the infrastructure sector. So I think that, you know, that’s going to be a reality that in the United States we’re going to have to grapple with. That’s not going to go away, you know, if Trump doesn’t win, you know, in three and a half years. I mean, that reality is going to stay.
But, honestly, what’s been interesting is you find—I’m actually leaving for Brussels right after this panel. And you’re seeing the talks between Mercosur, Brazil, and Europe that actually—I mean, this has been forever that the Brazilians are saying, oh, we’re going to get it done. And I’ll say what about ag? And they’ll say, we’re going to get it done. Don’t worry. We’re going to, you know, make an agreement on ag, and I’ll kind of roll my eyes. This is the first time where they’re saying they’re going to deliver something by December. And it’s the first time it’s kind of vaguely credible. They actually might come up with something by December. I don’t know if it’ll include ag, but they’re trying to figure something out.
So that dynamic goes well-beyond Brazil—be it TPP 11, be it, you know, enhanced negotiations with Europe or even China. I think markets throughout the world are trying to hedge their bets in case we end up turning our backs on the world trading system, throwing the baby out with the bathwater, as you’re saying, or we decide to even, you know, triple down on using or overusing remedies. Folks are hedging their bets.
ALDEN: Interesting. Other questions? Yes, sir, at the back there.
Q: My name’s Robert Chamberlain. I’m in the Army.
So we talked on the China panel about how security dynamics were impacting trade with THAAD hitting South Korean exports. And I’m curious, and especially based on your comment about steel, what kind of spillover effects would you anticipate from potential trade conflicts in the security sector and the security manufacturing in particular. Would it be more expensive or more difficult to build systems going forward? Thanks.
ALDEN: Scott, and maybe Chad, do you want to talk a about the Bombardier case a little bit, which is interesting there. Do you want to start, Scott? Yeah.
PAUL: Yeah, I’ll just say briefly, I mean, a lot of military procurement is already subject to a buy-America standard, and so it’s not like we’re—you know, we’re currently importing a lot of steel for defense purposes in the United States. So I—in terms of disrupting that kind of market in particular, I don’t see that—I don’t see that impact. I mean, there are larger questions. And I think this is a fair question, that if the 232 case does reach a review and kind of decision phase, in that there are remedies imposed, what kind of impact that does have.
And I think Chad pointed out that, you know, a lot of major steel importers are, like, the EU, Canada, Mexico, Korea, Japan, you know, in addition to China and how that would play out. And so I think that that’s a—I think that’s a legitimate and really difficult question that the administration is going to have to grapple with in sort of crafting some sort of remedy for this. It’s not—it’s going to take a lot of precision in terms of how it’s done, but I don’t—for our own procurement market, I don’t necessarily see a profound impact if there is a 232 case.
BOWN: I guess the only thing that I would add is another common feature of a number of the trade remedy cases that we’ve seen—steel, aluminum, softwood lumber, solar panels—a lot of these are intermediate inputs for something else, in which—not necessarily on the military procurement side—are going to have downstream effects for other industries out there in the United States that need to buy these things to make their products to be competitive either in the U.S. market or in global markets. And so if we’re imposing tariffs on these things, that’s going to raise costs for all of those using industries and make it more difficult for them to compete. And that, I think, has not been a bigger part of the conversation thus far.
MEIMAN HOCK: Can I add one thing to that, I mean, just having worked on Brazil that is very dedicated, and has been since the ’50s, to industrial policy, I mean, I think that that’s a big piece of the debate that I wish I saw us having here in the United States. And I’ve said this when I talk to folks about increased use of trade remedies, you know, the rules of origin proposal that’s out there on autos for NAFTA. Is, you know, if we decide that we want to have increased local content as a country, you know, OK, but let’s have that debate with all the facts on the table. And let’s understand that in Brazil you pay for a Toyota Corolla what you pay here for an Audi.
They also are completely unable to export. I mean, I worked on a case once where you were able—it was a procurement in Peru. And we could source the product—and I won’t say what it was, but it was a very heavy product made of steel—and we could source it more reasonably out of Italy than out of Brazil. So if we have that national conversation and we decide that that’s where we want to end up as a country, then I think that’s OK. But I don’t hear us having that national conversation.
ALDEN: Good point. Stephen (sp), here in the front row.
Q: Yes. Stephen Keane (sp).
The OECD has a committee that deals with export credit agencies. And then there’s also something called the arrangement on export credit issues. Largely export credit issues have been dealt with out of the OECD, and particularly aircraft. There’s a special agreement on aircraft. And there was a great effort to keep that out of the WTO on the part of the United States and other countries. It’s a deal with concerns of—over Canada, concerns of the Brazilians, concerns related to China. We can see how that the Trump administration is bringing an action against the Canadians over the Bombardier issue. Has the issue of export credits been dealt with effectively? Should it be dealt with, you know, more through the WTO? Should the OECD be doing different things? What would be your ideal way of dealing with these issues?
ALDEN: OK, who wants to tackle export credits?
BOWN: Well, I guess I would say that subsidies, in many respects, are quite fungible, especially in aircraft, right, because we’ve had a hard time defining even what a subsidy is, what the Canadians give as subsides or what the Europeans give as subsidies, launch aid, is very, very different from how we think about subsiding Boeing in the United States, which is spillovers from military contracts, right? So it really has to be a holistic kind of approach if you’re going to deal with this issue fairly. And I think if you’re only going to tackle it through export credits, then a lot of it is going to get missed.
But I think it needs to happen, right? We’ve been struggling with this issue for 30, 40 years. First, it was just the U.S. and the Europeans, then Canada, Brazil. But the major new kid on the bock on this is China. And the more that there’s sort of this bickering within the family, in some sense, you’re leaving out the next major player in this market, which is China. And so I think it needs to be brought together as a bigger multilateral issue, perhaps with the OECD. But I think effectively through the WTO as well.
ALDEN: Yeah. You know, I might take moderator’s prerogative here just because the first two big stories I worked on as a reporter on trade policy when I joined inside U.S. trade were the negotiation—so the rise, negotiation of the OECD export credit arrangements, and the fights over aircraft and the limits on subsidies to aircraft. And, I mean, the OECD arrangement is a really interesting example of a very successful agreement that put real restrictions in place that the countries that were part of it followed in terms of the, you know, degree of subsidy effect that you could do through official export credits.
And it worked very well for about a decade, maybe 15 years. But then the Chinese came on board. They were not party to the arrangement, and you’ve begun to see this erosion. And it’s not very effective at all anymore. And I’m worried that we’re seeing some of the same things going on with respect to WTO rules. Chad mentioned the lack of a legislative function. We have this WTO system that’s now 20-plus years old. It’s got new members—most prominently China, but Russia and others as well. And we haven’t updated the system in this long period of time. And I think unfortunately you do begin to see this degeneration in the ability to enforce rules effectively if you can’t legislate and update arrangements. So the export kind of stuff I’m afraid is sort of a cautionary tale more generally for the rule system.
Other questions out here. Yes, ma’am. Just wait for the microphone here, please.
Q: Hi. I’m Eva Fineyer (ph). I’m a private investor.
So along the lines of agreements, we’ve talked a lot about the Trump administration and countervailing action, but a major—or maybe even the major portion of the argument he made on the campaign was about unfair trade deals. Do you foresee a trade strategy emerging and being implemented, renegotiating on a bilateral basis, or maybe even going back to the old system of trying to negotiate on a multilateral basis? And I’m sure all of you will remember when, you know, the early days of NAFTA and a lot of the bilateral agreements, these were regarded as actually undermining the multilateral system and seen as Balkanizing. And the hope was that somehow you’d make progress on one and then eventually they’d be applied. In my opinion, that really hasn’t emerged. But in any event, do you—do you foresee a bilateral strategy? Do you see the administration as aggressive about implementing one? Or something else?
MEIMAN HOCK: I think they’re pretty clear that they don’t want to do multilateral deals. And if the renegotiation/modernization of NAFTA and how that’s gone thus far is any indication—(laughs)—it’s not clear, you know, what they hope the result of that NAFTA renegotiation might be. I think that came up clearly in the panel that you all did this morning. I think that the rhetoric supporting bilateral deals will likely remain. You know, the reality is, though, until we deal with whatever it is we decide to do with NAFTA and whatever it is that we decide to do with KORUS, with the U.S.-Korea trade agreement, there’s just not going to be a lot of bandwidth in the building, in USTR, Senate Finance, Ways and Means, et cetera, for much more than that. It’s sucking all the oxygen out of the room.
ALDEN: Scott, do you want? Yeah, please.
PAUL: I was just going to say that—you know, I mean, from a year ago, clearly, we’re in a different world, whether it was TPP and possibly TTIP. Sort of there was this broad kind of at least regional expansion, and now it’s about renegotiating NAFTA. I think you can add Korea to that list. I do think—and this is an instinct rather than, you know, based on anything I know for certain, but I do think that this administration will seek out deals with—on a bilateral basis with other countries. Like, Japan, China, how effective or broad those are, I do not know. It’s not going to look like a traditional kind of free trade agreement negotiation. But I—that’s where I see the emphasis as being.
ALDEN: Other questions? John and then we’ll go to you.
Q: It was depressing listening to the panel I was participating in this morning, but I’m finding this one is living up to the same expectation. (Laughter.)
ALDEN: We’re counting on the WTO director-general to raise us all up at the end.
Q: And you’re kind of stuck between this narrow thing about trade remedies, and then these glimpses at the broader picture of what’s happening to U.S. trade policy and its stake in the WTO. I must say—I’m going to say something, and then I’ll ask a question. So I think that this fight over the appellate body, which may have started earlier, is really very serious. We’re down to, is it, four members now, could be three by the end of this—sometime next year we might below three. You need at least three to sit on a case. Already given the workload, it’s extremely overworked. You know, by the time the latest spate of U.S. cases go through the system and China appeals them, it might take—maybe there won’t be appeals any longer. I mean, the system simply will not work without a functioning appellate body.
So my question is, do you think the United States cares about this? And at what point is the business community going to become sufficiently alarmed that their sort of rights under these agreements in foreign countries can’t effectively be enforced by the United States, that they may call for a change in policy?
ALDEN: Do you want to tackle that one, Chad?
BOWN: I think they absolutely should care about it. How we make the case to them that they should care about it, I don’t know. So I’ve spent the last year trying to do it through every means that I know how. But it doesn’t seem to resonate with the administration currently. And, you know, so you try to explain that it’s not even the counts of cases. It’s all the cases that you don’t have to bring because countries for the most part are following the rules out there, right? If all of a sudden we don’t have a functioning dispute settlement system, then countries don’t have to follow the rules. And other countries do stuff that’s a lot worse than what we tend to do in the United States, because what we do in the United States is incredibly transparent and has to go through this democratic process, usually. In other countries, not as much. So I’m very worried.
MEIMAN HOCK: No, I agree. And as far as the private sector, I mean, right now there’s so much going on that, you know, frankly, it’s difficult to know what to focus on. So, you know, do you focus on NAFTA renegotiation? Do you focus on the threat of KORUS withdrawal? Do you focus on the threat to the appellate body? Do you try to get tax reform through? There’s a lot of dynamics out there. And so I that I think what you’re seeing is an adjustment to what seems to be the Trump administration policy of throwing a lot of spaghetti at the wall at the same time, of seeing unpredictability as an advantage. And right now, I think that the private sector’s for the most part getting itself organized around that new reality. But I do share your concern, obviously, and hope that that can be a point of focus sooner rather than later.
ALDEN: Can I ask one variation on this? And, John, maybe you’d like to respond too, from your time in Geneva. If the United States really is pulling back from its commitment to these dispute settlement procedures, can the rest of the world preserve them in some way? Is there—is there a sort of without the U.S. option for maintaining a reasonably stable dispute settlement system? That may be a question without a good answer.
BOWN: I don’t know. I mean, we’re such a big player. I mean, we’ve had episodes of other countries just leaving. You know, I think of Argentina and periods in which they just went off into the corner and we just sort of let them do their thing, and then—now, can do you do that with the United States and have the system still function and everybody else agree to pay by the rules? I don’t know. I’m less optimistic.
ALDEN: John, do you want to—wait for the microphone. I’d just be interested in your thoughts before going on to the next question.
Q: Well, two things, quickly. One is—
ALDEN: Ambassador Weekes was the Canadian ambassador in Geneva. When was that?
Q: From 1995 to ’99, to the WTO. And previously during the Uruguay round also, actually.
ALDEN: OK, great. So right after—(inaudible). Yeah, yeah, yeah.
Q: What was the question again?
ALDEN: The question was, is there a rest of the world option, right? If the U.S. is really, you know, pulling out of these dispute settlement arrangements, can the rest of the world keep them functioning in some ways, without active participation of the U.S.?
Q: I think it’s next to impossible to see the rest of the world making them function without the United States. And of course, it’s not just that by holding up on the appointments the United States is also making the system not function as between the other parties, putting the United States to one side as well. So that’s a serious—the only thing—and this is an absolutely crazy idea. But, you know, who knows we might get crazy ideas, was thinking back to when we actually formed the WTO. Basically, we said we’re going to get rid of the GATT and everybody’s going to join the WTO. Well, maybe we could look at doing the same thing, and say: We’re going to get rid of the WTO and everybody who would like to is free to rejoin it. And maybe the United States won’t.
ALDEN: Interesting. (Laughs.)
MEIMAN HOCK: Don’t give him that idea. (Laughter.)
Q: But I don’t—I don’t know. But obviously nobody wants that to happen. So there really isn’t a good answer here. I would say one thing, though. I think the concern about overreach by the appellate body, that has been reflected in U.S. thinking as you were laying it out, that’s not entirely unique to the United States. I mean, I think there are examples of this in other countries too. You know, so you can make an argument about that. So you can ask the question, well, what ought to be done about that? I don’t think anybody really wants to ask the United States right now: Well, what should we do to fix your concerns? Because we might not like the answer. But I think there’s some scope for some sort of discussion on that.
BOWN: Well, it also means too that the system’s working a little bit if everybody feels a little bit aggrieved because of it, and nobody feels that they’re the ones being singled out. (Laughter.)
MEIMAN HOCK: That’s right. But, you know, the challenge is that a lot of these structures do need modernization. You know, that’s—does NAFTA need to be modernized? Absolutely. I would say, parenthetically, that’s why we did TPP, but OK. But here we are. And does the WTO and appellate body need to be modernized? Absolutely. But in this political moment it’s terrifying where we’d land.
PAUL: Yeah, I just want to—without taking us asunder—to say that, you know, if I were the—I’m speaking to the U.S. business community that primarily focuses on exports and all of that. If I were them, I would desperately want to, instead of persuade the administration, oh, just forget about your concerns, go ahead and participate in restocking the appellate body, it’s like let’s develop a plan with like-minded countries. I mean, if—whether you say it’s a bias or just the facts that folks bring more trade remedy cases against the United States than any other country—I mean, we’re adversely impacted by this. And I think I do make—I think it does make sense to see if there is kind of a coalition of countries that could find a way through this reform, because I—you know, there is a strong belief that there has been overreach. At the same time, you’ve heard it expressed here how incredibly difficult it is to make any changes at the WTO. And so, you know, I don’t think the solution is to withdraw, but it can’t be, well, let’s restock and worry about this later.
ALDEN: Sure. Just one more comment from Ambassador Weekes.
Q: Yes. I must say, for years, since I was ambassador—and so for a long while I’ve been very surprised that no country has ever asked the dispute settlement body to reject a finding of the appellate body. Now, I would require negative consensus to get that adopted. But it certainly would send a different level of signal about the concern involved in that decision. And to the extent that country was able to get a few other players to line up with it and say we support the concerns of, you know, whoever it is, maybe the United States, that would do this, I think it would start to send a signal also to the appellate body. Because the appellate body is not immune to outside thinking about its role. But nobody’s ever done this. And I find it kind of surprising because that technique is available and would carry a much stronger signal that merely standing up after a report is adopted and saying what you don’t like about it.
ALDEN: Sounds like there may be scope here for some constructive alliance building. We’ve got the WTO director-general last, so maybe somebody can ask him the same question.
Irv, you’ve been waiting patiently.
Q: You may be cautious. Irving Williams, U.S. International Trade Commission.
In many respects you’ve already addressed my question. But let me just elaborate on it. To the extent that there’s a lot of the active users of countervailing duty laws have been developing countries and using those against each other, I was just wondering whether or not—and there have been a number of WTO disputes among those countries that have actually gotten resolved. I saw some statistic a couple of years ago about just how many cases had gotten resolved that didn’t involve the U.S. So I was just wondering whether you want to comment on the importance of that going forth, because someone made the comment that if we’re not there it won’t go ahead. And then I guess the question of resolution. You know, usually legislative fixes in the WTO come in the context of a multilateral trade round. And so I guess the question, can we do anything without having a big round?
MEIMAN HOCK: Just one quick comment. Irv, thanks for the question. Is, you know, even if a dumping case is between two developing countries, I think it still can be hard to find a case that doesn’t have some element of U.S. interest, just because our multinationals are so big. And I know myself, personally, I’ve worked on a bunch of dumping cases that would involve a Latin American country and an Asian country, but with U.S. company interest. So, you know, I think that, you know the world is so integrated now and supply chains are so integrated that the actual country of origin of an item isn’t always telling of where the economic interest really lies.
Q: And the briefs are often written in Washington, so we do have an economic interest in these things. (Laughter.)
ALDEN: I guess, Chad, Scott, you want to give us a way out of this? Is there—is there a way forward?
BOWN: Well, I mean, I think what that also speaks to is that, yes, these things happen. But it’s also working within a system, right? And it ends up getting resolved. And I think what the—what the most underappreciated function of the dispute settlement process—and this gets back to Ted’s point about trade wars and us throwing around those terminology quite loosely—is these things never escalated into trade wars, right? These bilateral frictions between countries over product X, you know, stay there. There’s been a handful of cases where retaliation has been authorized, even fewer where it’s actually been implemented. But it doesn’t spill over. We don’t know what the world looks like if we don’t have this WTO thing around, right? And that’s what my big concern is. What rules are we going to live under without that thing to help discipline all the countries out there?
ALDEN: Scott, do you want the last word here?
PAUL: Just to the point of, like, vehicles for change, I think—and this is raising an interesting question that I’m certain will be the subject of a future panel in a year or two. It’s like, when trade promotion authority needs to be authorized, I mean, that’s another vehicle for a lot of these changes to take place in the United States. What that is going to look like. And in this administration, because there’s going to be a lot of—a lot of points of internal conflict. And I think that’s going to be something to look out for as well.
ALDEN: OK. I feel like this was another—maybe in the pattern of all three panels today. We’ve put more problems on the table than we have been able to resolve. We’re at our time. We’ve got a 15-minute coffee break, and then we’ll come back with Roberto Azevêdo, the WTO director-general. Thanks very much to our panelists. (Applause.)
This is the final session of the "The United States and World Trade: Future Directions" symposium.
This symposium brings together distinguished trade leaders and innovative thinkers to address the trade policies of the United States and their international implications in North America and East Asia, as well as the possible effects on the global trade architecture and the World Trade Organization.
FARRELL: Hello. Good afternoon.
We’re bringing it home now, but I am delighted for just a couple minutes to introduce to you Roberto Azevêdo. You’ve seen his bio. He doesn’t need much introduction, but he’s the director-general of the World Trade Organization—the sixth director, in fact—and he’s been there since 2013. As you’ll see in his bio, he’s had a long and distinguished career as a Brazilian diplomat, certainly the Brazil chief trade negotiator in Doha and many other areas. But I’d like to point out that I think his first diplomatic posting was here in D.C. So welcome back, and we’re delighted to hear you. Thank you for joining us.
AZEVÊDO: Well, thank you very much, Diana.
Good afternoon, everybody.
It was indeed my first posting. It sounds like pre-history now, but—(laughter)—yeah, it’s always nice to be back. It’s a pleasure to be with you on this particular occasion. Let me thank the Council itself, on Foreign Relations—hi, John—for the kind invitation.
This symposium has looked at some pretty interesting issues, like the future directions for trade not only in the U.S., but worldwide. And you had a full program, from what I could gather, touching upon a range of pretty big and sometimes tough issues.
So I suppose it’s about the end of today’s proceedings, so I’d like to step back a little bit an offer you the perspective of the WTO, maybe a broader perspective of where we are. And, frankly, given the tenor of the trade debate at present, I suppose it will be understandable if one were to draw some pretty drastic conclusions. It can sometimes feel as if the global trading architecture, which was so painstakingly constructed over the decades—in reaction, by the way, to the greatest crisis of the 20th century—is now on the verge of collapse. And there are indeed some pretty real challenges before us today, and I will come to them shortly. But I think, in analyzing all this, we should try, at least, to retain some balance on what is happening.
Of course, we cannot at all, nor should we, ignore all of the current risks. But actually, the multilateral trading system is actually stronger than it was before and, frankly, more needed than ever. And while we can certainly try to improve it, I have yet to hear any credible alternative to that particular system. So, without it, I think we would be in a world definitely ruled by unilateral actions, which is basically a euphemism for trade wars. And I think we all would be, without exception, worse off than we are now.
But, concentrating on the positives for a moment, I would invite you to take a look back and bring you just to 2013. At that time, the WTO was 18 years old. And it had never delivered, at that point in time, any major multilateral trade deal. In fact, it hadn’t delivered any multilateral trading deal at all, and it was seen as a place that you could not do business in. On the contrary, it was—in fact, it was facing an existential crisis. And I remember the situation quite well. Every speech you heard, every article that you read said that the situation was critical and that we are on the brink.
But by December of that same year—so end of 2013—we started to change all that. In Bali, at our ministerial conference, we delivered the first multilateral deal in the history of the organization. That was a Trade Facilitation Agreement, and this was a deal of huge economic consequence. Full implementation of this agreement could cut trade costs globally by an average of 14.3 percent. Now, what does that mean? That means that this would be a bigger impact than if we eliminated all tariffs that exist in the world today. So that’s how big this agreement is.
And then, two years later, after that breakthrough, we delivered the biggest farm reform in two decades. So that was the decision to abolish all subsidies of exports of agricultural products.
And in addition to that, a group of members agreed on the expansion of the WTO’s Information Technology Agreement. And this deal eliminates tariffs on a range of new-generation IT products, and the trade of those products today is worth about $1.3 trillion per year. That’s more than the whole of the automotive sector altogether, just to give you an idea of how big that it.
Now, members also agreed on a number of other things—to support the integration of least-developed countries, for example, into the trading system. And these deals that we struck in 2013 and 2015, they did not just stay on paper. In fact, we’re seeing them through into reality. This year, we have already seen the entry into force of the Trade Facilitation Agreement; and also the TRIPS Amendment, which is an instrument which eases the access of essential medicines for the poorest countries.
Besides, however, their economic significance—like I said, these are pretty significant deals—I think that these breakthroughs, they achieved more than the sum of their parts. Why is that? Because they showed that 164 members could, in fact, work together in a meaningful way to solve pretty complex problems that they faced. And they also proved that the WTO can deliver—deliver on pretty significant deals.
Now, at a more fundamental level, I think that we saw the value of that trading system in times of crisis. And I recall that—and I will bring you back a bit further, to 1930, where, after the crisis, the protectionist measures that were introduced after the 1930s crisis, they wiped out two-thirds of global trade in just three years. Two-thirds of global trade was wiped out of the face of the Earth.
Now, in the crisis of 2008, which many compare to the 1930s crisis, we did not see the same escalation, precisely because by then governments knew that they were bound by common rules. They held each other to the agreed standards. And more than that, those standards were clear. Now, in the 1930s, you could or could not like what somebody else did, but there were no clear standards. Today, you do. Today, the red lines are clear. When somebody goes beyond the red line, everybody knows, and they will say, look, you went too far. So those things helped to contain the crisis to a much more moderate level of protectionism, and the system is effectively doing what it was intended to do.
Of course, we are still feeling the impact of the crisis. But, after a long period of very sluggish growth, global trade is beginning to pick up. Last month we issued a strong upward revision to our forecast for trade growth in 2017. We are now forecasting trade growth to be around 3.6 percent, in volume terms of course. All our forecasts are in volume terms. And this represents a substantial improvement on the lackluster 1.3 percent increase of 2016, just last year. And it is, therefore, the first year since 2011 that we are likely to see trade expansion above 3 percent.
So this is positive news. And this is, of course, happy, I suppose, outcomes for many. But let me say this: Growth alone is not enough. Just having the economy picking up doesn’t mean that we will get through or that we will turn the chapter on many of the problems that we see ahead of us.
Clearly, expanding trade have brought important benefits, I think, to the economy overall. They have helped to create new opportunities, to create better jobs, lift people out of poverty. However, despite all this, it’s quite clear that many people still feel disconnected from economic progress. And we cannot simply cross our fingers and hope that with renewed growth all these other structural problems will simply melt away. We need to confront these problems head-on.
Trade is often singled out as a disruptive force in labor markets. And while trade does have that kind of effect, technology is actually the major force driving change and disruption in economies everywhere. Automation, digitization, and new managerial techniques, they’re all revolutionizing the global economy. Productivity gains from new technologies are reducing the demand for labor in several sectors, particularly in agriculture and manufacturing. In some economies, including the U.S., eight out of 10 jobs that are lost in manufacturing are due to higher productivity. They are not because of cheaper imports. But, like technology, trade is also essential for progress.
Now, it’s not about rejecting technology. It’s not about rejecting trade. It’s about embracing them and learning to adapt to them.
Now, having made these points, let’s not ignore that the overall benefits of trade or technology are of no consolation for someone who lost his job. So we must ensure that the global economic system is, in fact, more inclusive, and that it ensures that benefits reach more people—hopefully everyone.
An important element in this equation, of course, is domestic policy. So this includes more active labor market policies, education policies, the provision of support for workers.
The Fourth Industrial Revolution, as many call it, is not going to make all our jobs disappear. But it is going to bring huge changes, and we need to adapt. So there is no one-size-fits-all recipe. But success, I think, will hinge on the ability of economies to adjust to the changes.
Turning against trade alone is not going to help it, is not going to solve it. In fact, it may make things worse. I think the multilateral trading system has a constructive role to play right here. We can do more to address these issues, and ensure that the system can continue to evolve and improve.
Of course, this is ultimately in the hands of members. And we know that some, including the U.S., have concerns about some areas of our work, and I am in close contact with the administration on this point. We’ve had further meetings today. We will continue this dialogue. And I want to work with all members to strengthen and improve the trading system. Now, that is why I took the position of director-general, so this is an ongoing effort.
An important milestone for the organization is going to be, of course, our Ministerial Conference in Buenos Aires in December this year. Members are discussing now how to progress on a number of fronts. Agriculture is quite prominent here, with a strong focus on domestic support and issues related to food security in developing countries. Similarly, there is appetite among some members to take action on services regulations. Some members are also looking—not some—all members are looking at ways to limit subsidies which lead to overfishing. They are discussing measures to help developing and least-developed countries to integrate more. There is an increasing interest among some in discussing other issues, such as e-commerce, investment facilitation, and how to help small and medium-sized enterprises to trade.
Now, all these conversations continue to be very constructive and dynamic in Geneva. I think we are seeing more pragmatism. We are seeing more realism/flexibility in these debates than ever, actually.
So, at present, however, there is no obvious answer or solutions to any of those fronts. And, as you know, we will need all WTO members onboard for many of those. So this will be challenging, and we need to keep working. Buenos Aires is a very important milestone for the organization and for global trade. So I hope that we will keep seeking to deliver everything we can by December.
But that will not be the end of the world. This is also very important. What we cannot do by December, we will continue. So I hope that we will leave Buenos Aires with members committed to strengthening the trading system and also with a clear path forward for our future world.
The global system has been and will remain a work in progress. I think it represents the world’s best efforts to keep economic tensions at bay and to ensure that trade supports growth, supports development for everyone. And those efforts have paid off so far. The system is working. Of course, the work of cooperation is tough. It’s difficult. It is painstaking. But it is essential. So there is no other alternative other than to keep at it.
The best thing we can do to secure the future of the global system, trading system, is to redouble the efforts to improve the system, to reform the system. We have come a long way in recent years. And now I think the only thing we need to do is to go further. We must ensure that trade remains an essential means to support peace and inclusive prosperity around the world.
And with these grandiose words, I finish my presentation. (Chuckles.) Thank you. (Applause.)
FARRELL: You know, we spent all of last week running around between the IMF and World Bank meetings, the investor summits. And on the front burner of at least many of the conversations I attended was NAFTA. I think there’s been—and this morning there was a big discussion on NAFTA here at the CFR—I think one of the questions that has not been explored as much—I wonder if you would comment on it—is what are the implications of a—what do you think are the odds that NAFTA will get dissembled in a meaningful way? And if it were to dissemble, what are the implications for the WTO?
AZEVÊDO: Well, let’s start by hoping that it will not.
FARRELL: I agree with that. But help us understand, what’s the worst that can happen?
AZEVÊDO: Yeah. Well, no, I hope that it will not because of the—not only of the economic impact—and I think the participants of the agreement will be better placed to assess what the economic impact will be for each one of them—but also for the systemic implications.
I have been saying—when I took office, people were saying, aren’t you afraid that, you know, regional initiatives are taking over and that these things are going to supplant the WTO? That never scared me. I thought—and I always said that—I think they complement the system. It’s very important to have these initiatives because they are the groundwork, they are the foundations of the WTO itself. It’s very rare that you see, you know, groundbreaking work at the multilateral level. It’s very difficult. It’s 160 countries. So more often than not, what you see is these regional agreements, these regional understandings making the groundbreaking work amongst themselves, you know, those participants amongst themselves. And if that works, if that’s a positive experience, then you’ll see those things coming to the multilateral system. Those same countries are proponents; they suggest that that is taken aboard. And others see that it worked, and then they may be on board.
So I—my concern with NAFTA is not only about the economic implications. It’s also about the systemic notion that regional agreements, liberalizing agreements are not doing their part. I think they are.
FARRELL: So you create I think a very compelling notion that these regional agreements are the basis on which the broader WTO can build. How does it work the other way, though? When these regional agreements unbundle in certain ways, can the WTO keep the front of the things that were premised on those regional agreements? Or does the WTO itself start losing ground?
AZEVÊDO: Well, the WTO provides the foundation, right? So those regional agreements, they test the limits, they test the frontiers of liberalization. And then you bring it to the WTO. And then in the WTO, if they’re accepted, they begin to strengthen the foundation on everything that happens.
That foundation is very important. In fact, most of the trade that is done by most countries is done on WTO turns, not on preferential terms. And it works. It actually works. It’s not like the WTO is a bad deal. It’s not. It’s just that in these regional agreements, you get—particularly in the area of tariffs—you get preferential agreements. So you have usually duty-free access to those markets. That you cannot replace in the WTO. That kind of market access you cannot—you cannot replace. But I think the WTO is a sound foundation if—in case—you see it in Brexit as well—
FARRELL: Holds the line.
AZEVÊDO: Yeah, or anywhere where the regional or that undertaking falls apart for some reason, you also have the WTO rules and bound tariffs to work with. It’s not as good a deal between the participants because then they would have to pay duties that would otherwise not be paid. Some of the harmonization in terms of regulations may fall apart as well because those agreements are not only about tariffs, they’re also about harmonizing the regulatory framework in many different ways. It’s not the same, but the WTO will help to avoid a situation where you have just unilateral actions taking place because that would be—that will be going back to pre-1947. That’s not a good scenario.
FARRELL: All right. Switching gears, the next big topic of conversation—it was reflected in the agenda here—was China. So between the sort of general rhetoric that we hear, the threatened economic sanctions on Chinese banks, the desire of at least this administration to have China change the game on North Korea, how does the WTO see China now in the context of the global system? Are you more optimistic about their stepping into leadership or more pessimistic about the risks that—
AZEVÊDO: No, I don’t think it’s a matter of optimism or pessimism. China changed. That’s a reality. China acceded in 2001. I remember I—and many of you here maybe—participated as negotiators in the Doha Round at that time. And frankly, until 2008 I think you wouldn’t hear from China in the negotiations. They were very subdued. Of course, they were at the time recently acceded members, so they didn’t have much in terms of commitments to make under that status of recently acceded member. But they were not very active in those negotiations. But by 2008 they began to change. They began to be more active, more central in the conversations. Today it’s just impossible to think of any kind of negotiation or conversation at that level without having China as a participant.
Now, I don’t have to tell you how big a trader they are. And you are that big, you create attrition with others. It’s inevitable. But they participate. They participate in the dispute settlement system. As people challenge Chinese measures all the time, they challenge back on others. That’s part of the game. And that works to some extent.
Now, there are areas that are not covered by the WTO. And there are strategic elements to that conversation which are not necessarily WTO-related. And the WTO imposes limitations on both sides. Limitations are never welcome by anyone, but they do exist.
And I think China has been participating in the system and using the system to its benefit like everybody else now.
FARRELL: Were you surprised when China was the sort of flag holder in Davos at the beginning of the year?
FARRELL: You weren’t surprised.
FARRELL: I was surprised. (Chuckles.)
AZEVÊDO: I could have written that speech myself. (Laughter.)
FARRELL: So we’ve talked about NAFTA. We’ve talked about China. But zoom out a little bit and help us for those of us who are here: Do you think this “America first” strategy of the administration is a paradigm shift for the system or mostly sort of rhetorical noise that the WTO will outlive?
FARRELL: No, look, I don’t believe in rhetoric happening in abstract. If the rhetoric is there, it’s because there is some political pressure behind it. Whether that rhetoric translates into action, that’s a different conversation. But clearly, there are tensions. Clearly, there are forces behind that rhetoric. So I think you cannot discount rhetoric as being, you know, just rhetoric, no. I don’t—I think we must be watchful. I think we must be very careful. Listen to that. Understand the concerns, and to the extent possible, try to address them to maintain this kind of collaborative effort internationally. But I don’t—I don’t think that we can just, you know, discount rhetoric as being, you know, a publicity stunt.
FARRELL: Well, at a minimum, we can feel pretty confident that the U.S. is no longer going to provide the kind of leadership on trade generally, maybe at the WTO, that it has traditionally done. What happens next? Who steps in? What’s the alternative to a U.S. major leadership role in that context?
AZEVÊDO: Well, Geneva is a good example. I think the U.S. has been much more subdued than it was before. I think that’s not—I’m not saying anything that surprises anybody in the room.
FARRELL: No. (Chuckles.)
AZEVÊDO: But the work didn’t stop. Delegations are still making proposals. They are still pushing things forward.
In the area, for example, of e-commerce, which the U.S. I understand has an interest in pursuing, we already have more than seven or eight proposals on the table—from different perspectives, of course. But members are acting. They are negotiating. They are dynamically trying to find solutions and move forward.
Of course, the absence of the United States as a—as a leading force is felt. I’m not saying that it doesn’t matter, no. Yes, it does matter. It does matter a big deal that the U.S. is not one of the driving forces of that process. But the system itself did not stop. I think that’s important to note.
FARRELL: Mmm hmm. Mmm hmm.
You alluded to this in your remarks, and of course we have Ted Alden here, who’s been—wrote a book recently on failure to adjust—he talked about—if you reflect back on lessons learned, what did we learn? Were we inattentive to the noise that had been building up for a long time? I think most people around here are very strong pro-trade advocates. What could have been done differently? If you could write the script of the last 15 years as this noise was getting more traction, is this something that the developed world in particular could have done differently in your mind?
AZEVÊDO: You mean in terms of—
FARRELL: Just not—you said there are forces here that are driving this anti-trade rhetoric, this setback from the U.S. leadership position, and not just the U.S. And I think today most people would say that noise was there, and no one was paying attention.
AZEVÊDO: Yeah, it’s been there for a while. Yeah.
AZEVÊDO: No, I think—yes. And, you know, we had the public forum, the WTO public forum, in September last month, in Geneva. And one of the panelists was Paul Krugman. And as an economist, I asked him, I said, look, economists are blamed for pretty much everything. Whenever things go wrong, economists are the first ones to be blamed. You didn’t predict that, you didn’t—you know. And I asked him, doing some soul-searching, did we miss something with the sentiment, this anti-globalization?
And he said, yes, yes, we did. And I think all of us did. We never realized how widespread that was. We thought that that was localized sentiment related to a sector that was not doing as well and that jobs were disappearing in that sector but then the economy would absorb those people in other places and things like that. There was a moment when we thought that those sentiments were related to migration flux happening in some places because of displacement of people due to geopolitical tensions and things like that. We never realized that this was really all connected, that this whole thing was connected. There was a big intense feeling of discomfort—and not necessarily on the part of the poor but on the part of the middle class.
And I think the wake-up call began to come really strongly around the time of Brexit and then the U.S. elections, and after the U.S. elections, other elections in Europe as well. So now it’s something that is quite visible and everybody sees that. But the undercurrent had been there for quite some time. And I think we missed it. I think we did miss at least the dimension.
FARRELL: So now it’s there. What are we going to do about it? What can the developed world do to address these having now gotten the shape that they’ve gotten? And do you think that countries other than the U.S. are doing it? Or what more should they be doing?
AZEVÊDO: Well, the first thing to note is exactly what you said, you know, countries other than the U.S. I don’t think this is a U.S. phenomenon. I think this is a global phenomenon.
And I—you know, I have been in meetings sometimes with decision-makers of the highest level from 50 countries or more sometimes. And some of them were saying, well, this is—this is not really a problem for my country. Big mistake. This is a problem for your country. Maybe you don’t realize it yet, but it is coming. If it’s not there already and you’re just missing it, it is coming because this is a structural change. This is not something that has to do with circumstantial moments of a particular economy.
The productive system is changing. The technology fact is going to be there, and it’s going to be there more and more present every day. It’s so much faster than ever before. And that’s a big difference. Somebody said the other day—I don’t remember who—that when men invented the wheel, somebody lost his job. And that’s quite true. However—and then he said, so don’t bother because this has been happening for ages.
The difference now is the speed. The speed that the technology is taking over the cognitive processes, for example, of the human being is unprecedented. And this is not going to go away. We saw a recent evaluation by—a study by the World Bank that two-thirds of the kids who are entering fundamental school were not working jobs that exist at that point in time. So how do you plan for that? What kind of educational system, when you don’t know what you’re educating people for?
But clearly, we’re not going to solve this overnight. There is no readymade solution, a silver bullet that will, you know, solve all of the problems. I think it will take an effort on several different fronts. I think educational systems have to be more nimble, have to be more adapted to today’s realities where students can go in different directions and professionalize even faster.
Constant retraining and reskilling and upskilling, whatever you want to call it, of the workforce. And it’s not—I saw—I remember that sometime back, the debate was something about trade adjustment or something, so how to adjust the labor force to trade—no, it’s not about trade; this is about the structure of productivity. So it is about technology and the changes in the methodology of—in the methods of production. So the labor force.
And also, frankly, people don’t like to hear that, but even the social security structure will have to adapt to that reality as well. You lose a job when you’re 30, 35, maybe 40 years old, you can retrain and adapt and fit in somewhere else. You lose a job when you’re 50-something, it’s a different—it’s a different proposition altogether. So that system, the social security safety net, whatever it is in your country, will have to be adapted to the—to the—to these new circumstances. And some countries have been doing that already successfully, by the way.
FARRELL: So I have many more questions, but I don’t want to be so selfish. I want to open up the floor. If you would, please, wait for the mic. Introduce yourself so we know who’s speaking. And we’ll take a few questions. And then I have one I’d like to wrap up with.
Are you handing out mics? We’ve got mics here and folks back there, please. I think there’s a gentleman back there who had first hand up, and then we’ll come over here.
Q: Thank you. Jim Berger from Washington Trade Daily.
Mr. Director-General, do you think the WTO can survive a Buenos Aires outcome that would be as modest as the Nairobi outcome?
AZEVÊDO: I think the WTO did pretty well in Nairobi, actually. And as far as modesty of results are concerned, I think the last two ministerials were the most successful ministerial conference that we ever had.
I also think we should not hold the organization hostage of success. So it’s not going to be every single ministerial conference that we’re going to deliver a big outcome. That’s just unrealistic. There will be some ministerial conferences that will be ready for some pretty significant outcomes. There will others that will be more kind of housekeeping kind of ministerial conference, which we had for so many years.
So yeah, I think the ministerial conference of Buenos Aires is an opportunity for great—for some important outcomes. But if we don’t get those outcomes there, it’s—
FARRELL: It’s not make or break.
AZEVÊDO: No, by the way—by all means no.
Q: I’m Glen Fukushima with the Center for American Progress.
Given the fact that many of those who are against trade are those who are losers or consider themselves to be losers, the winners basically don’t get too involved, I think. And given the necessity for the safety net that you talked about, do you—it seems to me that unless each country undertakes those measures to try to mitigate the negative effects of trade, that the opposition is going to continue. Does the WTO itself consider that it’s part of its responsibility to try to propose or set standards or try to create the environment so that the countries can mitigate the negative effects of trade so that the benefits could be more broadly shared? Otherwise, I’m very pessimistic.
AZEVÊDO: I wish the WTO—yeah, I wish the WTO had that kind of power. (Chuckles.) Unfortunately, we don’t.
I think, first of all, trade, like I said in my presentation, it’s about 20 percent of the problem. So fixing the trade side of the equation is not going to solve this problem at all. You still have 80 percent to take care of. So this is not going to be something that you solve with limited policies focused on trade or trade effects. This has to do—this has to do with the bigger macroeconomic problem. You’re talking about structural changes that are happening now. If you don’t realize that, if you don’t make the right diagnosis, you’re going to get the wrong medicine. And the wrong medicine will be closing up to trade or closing up to technologies. Now, making strong infrastructural reforms, particularly in the area of social security, that’s not an appealing prospect for any country or for any political structure. But that’s a reality. That’s a reality.
And the WTO, the best that we can do—and I acknowledged that to the leaders of the G-20 when I met with them in China, in Hangzhou; I said, look, I will not be doing my job if I don’t give you the elements that you need for—to realize that this is a problem because back then—and we’re talking about a year ago, two years ago—there was not a whole lot of recognition that we had a problem. When I put those numbers out there, they were surprised. And they said, where did those numbers come from? And I said, well, those numbers come from everywhere. Just take a look around. It’s just not on the headlines, but they’re there. And said, well, we need to do more. And then Christine Lagarde, Jim Kim, I myself, we did a joint effort to illustrate and educate people about what was happening. And I’m happy to say that that effort is paying off. People are beginning to pay attention. Not enough, though.
FARRELL: We had a—right behind Glen here
Q: Hi. Brett Fortnam with Inside U.S. Trade.
The U.S. has been complaining about the appellate body. And there are two vacancies now, more soon to come. And the EU trade commissioner, Cecilia Malmstrom, just mentioned that the blocking of the appellate body vacancies—the filling of those vacancies—could get up gutting the WTO from the inside or the appellate body from the inside. What does—if this continues, what do you think that this would do without having a fully functioning appellate body? And do you think that this is any type of systemic plan from the U.S.? We’ve seen at least in the NAFTA negotiations proposals for dispute settlement that would weaken state-to-state, investor-state dispute. Is this in your opinion kind of a way to weaken the WTO?
AZEVÊDO: Well, it’s a big question. (Chuckles.) So let me try to focus a little bit.
First of all, if those three vacancies are not filled—so we have two already. The third one will be coming in December. We’ll be three down. So instead of seven, we’ll have four appellate body members. Of course, it will have an impact. Clearly, there will be an impact. It will slow down the process of evaluation and at a system that is already coping with a lot of work. So yes, it will have an impact. I have no doubts about that.
How to fix it is something that we need to continue to talk. And it’s not talking to the U.S. only. We have to talk to all the other members as well. This is not a solution that one country or two or three can solve for everybody else. We have to sit down everybody and see whether there is a solution and what that solution could be to unclog the process.
Now, what that is, I don’t know. I think we’re still in the process of talking to each other and understanding the concerns and figuring out what to do next.
FARRELL: Next question. Back there.
Q: Hi. I’m Juliano Basile. I'm from Valor Econômico, Brazilian financial newspaper.
It was also mentioned this morning the ongoing negotiations between Mercosur and the European Union. So I would like to know what are your perspectives for an agreement after so many years—I mean, decades—of negotiations. And also, as a Brazilian, can you tell us how badly Brazil really needs a trade agreement nowadays?
AZEVÊDO: You have to ask Brazil. (Laughter.)
FARRELL: Wearing a WTO hat. (Laughter.)
AZEVÊDO: What I can tell you is that, look, I myself negotiated that—was part of that negotiating effort when I was undersecretary for economic affairs of the ministry of foreign relations. And at that time I was doing my very best to make it happen because I thought it would be a win for both sides, for the EU and for Mercosur. Unfortunately, we were not ready at that point in time to make the kind of progress that was needed.
I hope that it will happen because as I said before, I think that these economic, this regional integration liberalizing efforts are important, both for systemic—it’s not only about the impact on those countries, on the participants alone. It’s also the systemic impact and the—and the—and the mood that it creates. I think liberalization is contagious as much as protectionism is also contagious. I hope that the more liberalizing efforts you have in place, the better place we are to continue this process.
FARRELL: Great. We have a question up here, please.
Q: Thank you very much. I’m John Weekes, and I was the ambassador once to the WTO. Hello, Mr. Director-General.
AZEVÊDO: I kind of remember that. You look familiar. (Laughter.)
Q: In your opening remarks, one of the things in talking about the ministerial conference, you said you hope the members would come away with a clear sense of the future work program ahead. Would you like to give us—but you didn’t really elaborate much on that. Could you give us a bit of an indication about what elements you think might appear in that work program?
AZEVÊDO: I’m not sure what would be the situation in each of the issues. But what I felt, for example, when we were in Nairobi—and we did have some pretty significant outcomes in Nairobi—but we took pretty much everything o Nairobi. What happened was that we tried to close the deals on all the different areas in Nairobi. What happened is that in some we were successful; in others we were not. And then in the post-Nairobi, the immediate months, what happened was that in the areas where we did not close the deal, we didn’t have a work—we didn’t have a work plan. We didn’t know what to do. There were no next steps.
What I’m inviting members now to do is if you know—and frankly, by now you already know what has a chance to happen and what does not. So if there is something that you are keen to have, if you’re a proponent and you know that this is something that is extremely difficult to get by Buenos Aires, shift mode. And instead of trying to conclude that, try to plan for the next steps, for the future steps because even negotiating a work program for the future, it’s not an easy proposition. It takes weeks, sometimes months to do that. So if you don’t plan for that scenario where you know it’s not going to happen, so get the others and plan for the future, then that’s the worst-case scenario I think for any issue.
And I think it would depend on the call. In some areas I think—for example, e-commerce, that some members are trying to get e-commerce there—it clearly is not going to be a finalized outcome in Buenos Aires. We’re not even close to that. So, well, talk to others—and there are many different perspectives on what do on e-commerce—and plan for the future. What is that you want to do? How do you approach? Do you have a working group? Do you have a series of seminars? What kind of issues would be in this discussion, in this conversation? Are some issues for later, let’s not give a priority? Do we reprioritize the issues? Do we not prioritize the issues? That kind of structure, that kind of decision and planning I think is important. And it will vary from issue to issue. So it’s difficult to tell you right now what it would happen—what would happen in each of the areas. But I hope that we will have a game plan.
FARRELL: Do you have a couple of areas where you think even in this context, some real traction could get done, something that could get closed that would be some measure of success for the ministerial meeting?
AZEVÊDO: I think there are some areas that are more mature than others. I think one clear area that is a clear possibility is fishery subsidies. I think we are I think in a position to hope for an outcome in Buenos Aires. Whether it will happen or not, I don’t know. That’s impossible to predict. But I think we should be in a position to do that. And maybe services regulations. This is something that also advanced. And maybe that’s something that we can get some kind of outcome.
But not many. Most of the other areas are tough. We have public stockholding for food security purposes, which we have a mandate that was from Bali. So that—also, we have a mandate to conclude the negotiations by ministerial—by the ministerial conference. I hope that we can find an outcome there too. There may be others that are closer to conclusion. But there are many, many, many that are not quite there yet.
FARRELL: But you see at least a few that might make it through which you’re optimistic about.
AZEVÊDO: It’s tough to tell. It’s tough to tell. And if I—and if I do try my hand and say this and that, members are going to kill me, so—(laughter)—
FARRELL: We have a question right here. Thank you. And then that one back there.
Q: Thanks. I’m Shaun Donnelly, from the U.S. Council for International Business.
Does investment fit into that? Do you see the WTO doing something in the investment fields? And on what kind of a timeline? Thanks.
AZEVÊDO: There is a conversation on investment facilitation, which is somewhat different from the previous conversation that we had on investment, which was more about investment protection. That part, investment protection, I don’t see a lot of movement now in the WTO. It doesn’t mean that it will never come. It simply means now this is not the focus.
But there is—it’s funny because this was an area that was quiet—nobody was talking about it for a long time. Then all of a sudden some members began to pick it up. It’s not a multilateral conversation, but a group of members who are pushing for this—most of them developing countries, by the way. And it began to get momentum, momentum, momentum. And now it’s going really fast. And this is one of—maybe one of the most promising areas for some kind of outcome in terms of plurilateral conversations. I think multilaterally, it’s going to be tougher. I’m not saying it’s impossible. I’m just saying it’s going to be more difficult. But they’re trying to do it on a multilateral format.
But again, it’s again about investments facilitation. It’s about how to help the investor to set up shop without too much bureaucracy, with transparency, with predictability. And the developing countries are talking about that.
So that may—you may see something in Buenos Aires, whether finalized outcome or some work program for the future, depending on how much progress they make. But it’s looking I would say fairly positive at this point.
FARRELL: We had a question all the way in the back.
Q: Hi. It’s Shawn Donnan from the Financial Times.
Did you get any clarity from Bob Lighthizer today on just what the U.S. wants to stop blocking the new appellate body members? And secondly, a broader, bigger question: You’ve talked about a lot of smaller deliverables today. Should we take that to mean that the age of the big monster round, the Doha Round, is over for the multilateral trading system?
AZEVÊDO: Well, on the first part, I got more clarity on some of the concerns. I think finding solutions is something that we’ll have to continue to talk. I myself offered my perspective. I hope he has more clarity on my perspective as well. And I think we both agree that we need to continue talking about this. And that’s what we would do.
On the second part, about the, as you called it, monster round, I remember when the WTO was created, so I am that old. (Laughter.) And at the time the—people were selling the WTO as the end of the rounds because it was going to be a permanent forum for negotiations. So you didn’t need a round any longer. It is something, a place, where you would be constantly negotiating. It was—I remember, you can quote, a permanent forum for negotiations. That was what the concept of the WTO was all about. But that lasted, what, five years? And then we had already the launching the Doha Round.
I think that to say that the Doha Round is the end of all rounds, I think it’s too-it’s like saying the end of history. I don’t know whether history will ever end. I don’t know whether the rounds will ever disappear or never come back. I don’t know. I think right now there is a still a number of members in the WTO who place hope in the Doha Round. Others don’t. Others feel that we have to re-engineer everything.
What is clear from that conversation is that there seems to be a consensus that those issues that were under the Doha Round, they didn’t disappear. It’s not because the round did not make progress that all of a sudden, all of the problems in agriculture have been solved. No. The problems are still there. I think they still have to find solutions for those issues. How we do it, it’s something that the members are still discussing.
FARRELL: Well, one of the most important tasks of a moderator is to end the session in time. So I know there were a few more questions; I apologize. But I know you have a very busy schedule here in D.C. And we’re so grateful that you could come and join us and share your perspectives. And thank you very much.
AZEVÊDO: Thank you. Thank you all. Thank you very, very much. Thank you. (Applause.)