Top EU Negotiator, Former USTR Say China Trade, EU-US Trade and WTO All in Flux
Former U.S. trade representative Bob Zoellick laughed when a webinar moderator asked him how a pro-free-trade consensus can be re-established. Zoellick was on a Carnegie Endowment for International Peace webinar about the future of the global trading system with European Trade Commissioner Phil Hogan June 30. He said those who support free trade have always had a fight, because politics often align with protecting domestic producers from import competition.
“This is always heavy lifting,” he said, and told a story about the formation of the General Agreement on Tariffs and Trade, the precursor to the World Trade Organization. He said that President Harry Truman was considering whether to accept a bill with a 50% wool tariff, which was driving the Australians and British away from the negotiating table. The agriculture secretary at the time advised him that if he vetoed the tariff, he'd lose as many as seven states in the 1948 election. But Truman did veto it, and GATT was born.
Hogan said the WTO is now in crisis, and said that the idea of a global round has to be abandoned for more plurilateral negotiations. “You have to find a way that you don’t have to have consensus with 164 members, else we’re going to continue to have paralysis,” he said.
China is in the e-commerce plurilateral, and some experts are concerned that its negotiators are watering down what can be achieved.
Hogan said the U.S. and the EU were both “a little bit slow” in recognizing how China's industrialization was going to affect their economies. He said the EU belatedly now calls China a “systemic rival.”
“For critical technologies and critical infrastructure, there was a vulnerability creeping into the system,” he said, and that's being addressed in export controls and investment restrictions. But he said the EU never expected the U.S. to confront China on its own. “We’re losing an opportunity to do a lot of things together,” he said. The U.S. has used tariffs to get China to negotiate on thorny issues. The EU is using an investment agreement negotiation to address the same questions of forced technology transfer, industrial subsidies and state-owned enterprises. Hogan called it “very intense.”
Zoellick said the U.S.-China relationship “is in free fall, and we’re not sure where the bottom is.” He said a decoupling in telecommunications is already happening, but he wonders if it's going to spread to medical research and drug development. He also said that the Section 301 tariffs are not going to fix the structural problems. “There’s no holiday from the work of diplomacy, whether trade, or foreign policy,” he said. “Just raising tariffs I don’t think is going to get you where you want to go.”
Economist Megan Greene, the moderator, asked Zoellick if a Biden administration would re-enter the Trans-Pacific Partnership or re-ignite trans-Atlantic trade talks, known as the Transatlantic Trade and Investment Partnership, or TTIP.
Zoellick, who served in Republican administrations, said that protectionists in Congress have traditionally been stronger in the Democratic Party, and that Joe Biden's team includes some with that philosophy. Biden will have a very full plate dealing with the pandemic, tackling racial inequities and global warming, he said, and trade may not be a priority.
“I would hope that they would abandon the ridiculous use of the [Section] 232 national security tariffs,” he said. He said Biden does have strong international ties and is more inclined to international coordination than is the Trump administration.
Hogan added that Europe doesn't “like being accused of being part of the national security problems of the United States,” and also said regarding TTIP, “We’ve been there, done that. I don’t see it being resurrected in any way, no matter what administration in the United States.”
Both Hogan and Zoellick said there should be a role for the WTO in addressing climate change, by helping determine the sort of carbon border adjustment taxes that are acceptable. Biden has said he would like to work on getting one passed if he's elected, and the EU is working on a proposal, too.
Zoellick, who also is a former World Bank president, said, “This issue of the carbon border tax will be a very knotty one, particularly for developing countries.”
An International Trade Today reporter asked the men if they believe a carbon adjustment tax will be strong enough to change import patterns, and if it will solely target carbon-intensive industries like steel, bauxite mining, and aircraft and automobile manufacturing, or whether it will affect apparel, as well.
Zoellick responded, “All those specifics that you listed, which are very important, are still in the ether.” He asked Hogan to weigh in, since Europe is further along in developing the concept.
“I wish I could say we were further along in this debate, I can assure you we are not,” Hogan said, describing it as in its infancy. He said there's a goal to write a proposal next spring. He said a carbon adjustment tax could be broad-based or focused on energy-intensive sectors, “including one that you didn’t mention, cement.”
“But nobody really knows yet how it’s going to work,” he said. “I feel it would be difficult to implement properly unless you have a lot more countries involved than the European Union.”
The two also talked about the Airbus-Boeing subsidies dispute, which Zoellick first litigated 16 years ago. Hogan said the announcement that France and Spain changed the term of their loans to Airbus was “a major breakthrough in terms of trying to resolve this issue,” and Zoellick agreed, saying he thought that addressed many of the issues Boeing initially complained about.
But he said whether Biden could finally settle the case would depend a lot on who he appoints to lead the Office of the U.S. Trade Representative and other key positions. “When you negotiate, you’ve got to give and take -- one side doesn’t come away with everything,” he said.