This article is an extract from GTDT Trade & Customs 2023. Click here for the full guide.
To date, the major developments in international trade law in 2022 have been driven by:
The war in Ukraine
Wars almost always lead to government interference in trade (the First World War, as an example, ended the first global system of fairly open trade in goods, capital and labour) – and the current war is no exception. The United States, the European Union and others moved relatively quickly (unlike the ‘too little-too-late’ sequence in 2014 in Ukraine) to impose financial sanctions at a level comparable with the destructive sanctions imposed on Iran in 2015. It remains to be seen whether the Russian economy can withstand this pressure beyond the short-term measures taken by the Russian Central Bank. Perhaps more important, medium and short term, are the export controls on sales of technology to Russia. While there will likely be some evasion, will it be enough for the Russian military to match the growing technological gap with the Ukrainian military? Finally, it will be interesting to see if Ukraine’s allies will be able to complete current initiatives to relax or eliminate their import barriers to Ukrainian exports (which logically, should have been eliminated in 2014 if not in 2005–2006) – and add further additional import barriers to imports from Russia (including oil and gas), and the knock-on effects such as the chilling effects of all of the above on shippers, insurers, logistics firms, and on and on.
Even with vaccines and cures becoming increasingly available, any projections are speculation. International trade initially was greatly reduced (by reduction in demand) but then increased overall by the end of 2021. Disturbingly, beggar-thy-neighbour behaviour had already manifested itself, with numerous countries, including both the European Union and the United States initially trying to control exports of food, vaccines, medical equipment or all of those, and the United States and the United Kingdom initially stopped exports of covid vaccines, eventually joined by India, while the European Union maintained exports. Most of this has stopped, but the food security issues still lead to food export bans. The WTO has been a forum for considering whether compulsory licensing or government use of covid vaccine patents should be permitted, to complete some sort of deal for the June 2022 WTO Ministerial Conference. Most importantly, beyond the millions of deaths (many unnecessary) directly and indirectly, the illnesses, and understandable wariness by frontline low paid workers, has contributed to ongoing logistic snags which have created spot shortages worldwide.
The Biden administration
The Biden administration’s domestic priorities – all with significant trade aspects – are:
Throughout the campaign, and reinforced by Joe Biden on 2 December 2020, was the caution that trade agreements will have to wait until steps have been taken to ‘build better’ the US economy. As the Democrats do not have the votes in Congress to enact their economic programme, few trade negotiations have progressed very far in the first year of the Biden administration.
The Biden administration in its first year followed its campaign promise of ‘no new trade agreements until …,’ resulting mainly in parallel agreements with the European Union, the United Kingdom, and Japan to end Trump’s protectionist (and WTO illegal) 25 per cent tariffs on steel and aluminium, and replace them with protectionist tariff-quotas (with the interesting allocation among importers by ‘first come first served’). Additionally, steel environmental agreements-to-agree were negotiated with the European Union and the United Kingdom, based on the success of US steelmakers at busting unions in the United States and getting large subsidies for new mills (eg, US$1.75 billion for Nucor for a new US$4 million mill) with environmental benefits unexpected at the outset.
Perhaps spurred by bipartisan criticism in Congress, the administration announced on 23 May 2022 a new Indo-Pacific Economic Framework which will expressly exclude any increase in market access, to parallel a similar framework with the European Union, the US-EU Trade and Technology Council. More ‘frameworks’ – and possibly concrete results in the areas of digital trade, infrastructure, supply chain resilience, and clean energy – can be hoped for, although ‘negotiations’ has been replaced by ‘consultations’ in the draft documents. It will be interesting to see if this model will produce results that attract countries away from market access agreements on offer from the European Union and other countries.
Meanwhile, the European Union (as of 2022, the third largest global economy after the United States and China) has completed free trade agreements (FTAs) with Japan (the world’s fourth-largest economy) and Vietnam, and a high-level FTA with Mercosur (Argentina, Brazil, Paraguay, Uruguay and Venezuela (suspended) – the world’s sixth-largest economy), an agreement with the United Kingdom (the world’s fourth-largest economy), and an investment agreement with China (the world’s second-largest economy), not yet approved by the European Parliament.
The United States began lagging far behind under President Trump, unsurprising given his stated preference for bilateral trade deals when and with whom the United States chooses – as in times past.
The North American Free Trade Agreement (NAFTA) was replaced by the US–Mexico–Canada Agreement (USMCA), with no significant gains for US business or agriculture, except for a sigh of relief by the US economy that NAFTA had not ended a promised increase in US dairy exports to Canada – from the Trans-Pacific Partnership (TPP) level of 3.25 per cent to the USMCA level of 3.59 per cent, with a concomitant increase in Canadian dairy exports to the United States (but not infant formula, an unexpected political bombshell in the US). The withdrawal of the WTO-illegal section 232 tariffs on steel and aluminium in return for tariff-quotas and the end of the Mexican and Canadian retaliating tariffs which included US$1.4 billion on US dairy exports was also significant. The much-touted increase in US car production under the USMCA is predicted by the US International Trade Commission to lead to a slight reduction of vehicle assembly employment in the United States.
The US–Japan Phase I deal in 2019 included approximately TPP-levels of access to Japan for several important US agricultural exports – but not much else for US exporters and nothing in Brunei, Malaysia, New Zealand, Vietnam or the other TPP countries with which the United States has an FTA.
A wider US–EU trade deal beyond the new Trade and Technology Council is yet to materialise. The Biden administration suspended large WTO-authorised duties on exports in retaliation for Airbus subsidies, in return on the suspension of the EU retaliation for Boeing subsidies (not counting the additional US$17 billion voted for Boeing in the US covid-19 aid package).
The Trump US–China Phase I deal contained some well-negotiated elimination of sanitary and phytosanitary measures or technical barriers to trade barriers to a few US agricultural exports, notably the non-science based (and WTO-inconsistent) bans on US beef and poultry, but the alleged promises of a US$200 billion guaranteed increase of US exports look unlikely in light of the lingering effects of the covid-19 crisis. The Biden administration seems reluctant to end the Trump tariffs on imports on Chinese goods for US manufacturers and consumers, so little change is expected.
During the past five years, the high-level political noise about trade, and then covid, overshadowed the positive developments in the WTO at a working level. At the multilateral level, WTO governments, WTO Director-General Roberto Azevêdo and the WTO Secretariat worked hard to produce results in December 2015, at least in agriculture (with a possible ban on some agricultural export subsidies) and tariffs on electronics goods (Information Technology Agreement II, even including some items for ordinary consumers), at the WTO Ministerial Conference in Nairobi, and made some progress in Buenos Aires in December 2017. The WTO system is still dogged by the collapse of the Doha Round in Geneva in 2008, with chillingly familiar references to ‘special safeguard mechanisms’, ‘special products’, ‘special treatment’ and so on. And even with successful efforts on agriculture and tariffs, it leaves behind important work from the Doha Agenda to moderate the trade-diverting or protectionist effects of preferential trade agreements (PTAs), agricultural subsidies, anti-dumping measures and other rules (where progress so far has been blocked by the United States, its protectionist steel and other import-competing industries and their allies within the US Administration and Congress), and much else. That left fishing subsidies as a topic for the December 2017 Ministerial Conference in Buenos Aires, where a little progress was made with a possible agreement to be reached in 2022 – or 2024? The new WTO Director-General, Dr Ngozi Okonjo-Iweala of Nigeria, will be busy with a Ministerial Conference in late June 2022 amid calls for activity in all those areas while reforming the WTO as a whole.
Plurilateral agreements being negotiated within or alongside the WTO most notably include the Trade in Services Agreement (TISA), where significant drafting progress has been made but significant disagreements remain. Perhaps the most notable aspect of TISA is that following its fierce denouncement after its launch by the BRICS countries (Brazil, Russia, India, China and South Africa), China, a year after the launch, asked to join – in effect stating that it was no longer a BRIC country and preferred to be tied to the economies represented in TISA (and, notably the then-TPP and the Transatlantic Trade and Investment Partnership (TTIP)) rather than its fellow BRICS. Other plurilaterals within the WTO include the ongoing attempt to negotiate rules for a digital economy and lower tariffs on environmentally desirable goods. These could be re-invigorated by the Biden administration working with the European Union, the United Kingdom and countries seeking progress on climate change and on a digital agreement. With little media attention, on 2 December 2022, 67 WTO members (including China, the European Union, the United States and the United Kingdom, and open to all members), agreed on a bindering ‘Reference Paper on Services Domestic Regulation’ to be incorporated into their binding commitments on service market access, focusing on predictability, transparency and effectiveness of domestic regulatory processes. This is important for at least two reasons: (1) regulation is the main obstacle to market access in service sectors, and (2) it marks a major step towards the far-reaching regulatory cooperation sought in the US–EU TTIP negotiations (and already seen in, eg, international corporation in airline safety).
The most significant regional agreement is the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), although the China/Korea/Japan/ASEAN/Australia/New Zealand mega-regional Regional Comprehensive Economic Partnership (RCEP), signed in late 2020, includes substantial liberalisation (among China, Japan and Korea especially). India withdrew in 2019 and China decided to proceed without India. The CPTPP, which includes 11 countries, collectively representing more than 20 per cent of world gross domestic product (GDP), went into effect on 30 December 2018. The CPTPP includes a novel attempt to move beyond traditional PTAs, including an initial start on regulatory cooperation, some possibly helpful language encouraging limitations and exceptions on intellectual property necessary for the operation of the internet, and what looks like a functioning dispute settlement system. After President Trump withdrew the United States from TPP in January 2017, Chile organised a meeting in March 2017 where the remaining 11 TPP countries decided to explore ways to move forward, leading to signature of the renamed the CPTPP in late 2017 and ratification by most members with entry into force in 2018. The African Continental Free Trade Agreement (AfCFTA), signed in 2020, could also become an important collaboration for economic growth.
More important, perhaps, will be whether other countries join the CPTPP, including Korea, Colombia, Costa Rica, South Korea and the United Kingdom (after Brexit), and eventually the Philippines, Thailand and possibly even Taiwan and Indonesia – although the last two may be delayed for different reasons. With all those countries as members, the TPP would have more than 40 per cent of the world’s GDP, once the United States joins in a few years. China has recently begun technical meetings with the CPTPP to possibly join as well.
WTO dispute settlement remained active notwithstanding Trump’s attempt to destroy it by blocking appointments to fill vacancies on the Appellate Body (meaning the losing Member can now appeal panel decisions ‘into the void’). The panel process worked through the pandemic, thanks to rapid and effective adaptation by the Legal Affairs Division of virtual technology for hearings and panel discussion spanning the globe (the author chaired one of these panels). Of interest to lawyers, the ‘alternate Appellate Body’, the Multi-Party Interim Appeal (MPIA) Arbitration Arrangement, seems to be facing its first case, requested 28 April 2022. As this works its way through the system, it could encourage other members to use it. (Members using it agree to be bound by the decisions, as in an arbitration.) MPIA members already include most of the leading WTO complainant and respondent countries, including Brazil, Canada, China, the European Union, Mexico and many more, but notably not the United States. This means that US exporters cannot get their government to complain in WTO disputes about WTO-inconsistent trade barriers. While that did not bother the Trump administration – which would prefer to protect the internationally uncompetitive steel industry (less than one-tenth of 1 per cent of US employment), which had employed for many years Commerce Secretary Wilbur Ross and US Trade Representative (USTR) Robert Lighthizer over large US exporters or domestic producers – it may become an increasing problem for the Biden administration as potential appeals mount. That said, change soon in USTR’s position is unlikely, as a large number of lawyers at USTR (and former USTR lawyers in the rest of the US Executive Branch and Congressional staff) firmly believe in what former WTO Appellate Body member James Bacchus (also a former Democratic Party Member of the US House of Representatives) has called The Big Lie: (1) that appeals from the panels to the Appellate Body were to be rare, and (2) USTR won the zeroing issue in the Uruguay Round and the United States did not have to change its practices. The author was deeply involved in these specific Uruguay Round issues and can confirm that those beliefs are sincerely held by many at USTR and elsewhere in the US government (many of whom were not involved in the Uruguay Round 30 years ago) but both are incorrect: (1) although there was some ‘happy talk’ for public consumption at the end of the Uruguay Round that appeals would be rare, many US lawyers at the time (and our NAFTA partners (Canada and Mexico) pointed out that the United States would always appeal, if only to show it had fought to the end (and delayed); and (2) the very first WTO appeal was by USTR (in the Reformulated Gas case) in a case the United States could not win (because a senior US government official had testified in public to Congress that the US rule had been set to please US industry lobbyists by discriminating against foreign industries). Nevertheless, at least the United States is willing to talk about the dispute settlement issues under Biden so progress on those and other issues (such as whether to expel Russia, which recently announced it will quit) can proceed.
The covid pandemic hit international trade hard in early 2020, but it recovered well, although cargo containers are still scattered around the world. The WTO seems likely to remain the central point in international trade policy, bolstered by the Biden administration’s desire to work with allies – without lowering its ‘[American] Workers First’ focus. New agreements will flourish in parallel, with great interest in the CPTPP, the RCEP, the AfCFTA, the European Union and the new agreements sought by the United Kingdom.