The Obama Administration has no trade policy and, as institutions have been functioning and trade laws have been interpreted for more than a decade, it can’t. The institutions, laws, and regulations of the United States convey control and formulation of trade policy into private hands. Although the Obama Administration might seek to wrest control of trade policy, it has elected to assign trade no priority. Key political appointments have not been made or have neglected to tap trade expertise; initiatives have not been taken in Congress. The President has followed the law, but has not tried to shape it. He has extolled the virtues of free trade, but he has not tried to achieve it. At most, he has resisted attempts to circumscribe it, as much because of the circumstances as out of any conviction.
Most of the important enterprises in China are state-owned. Although there is much the central government does not control, it commands far more of the Chinese economy than the U.S. government can control of the American economy. China has placed a high priority on trade policy, and pursues its trade objectives vigorously.
Unfortunately, much of Chinese trade policy is reactive, and built on misinterpretations and misunderstandings of the actions of others, especially the United States. Were a full trade war to emerge, it would be more the result of incomprehension than of malice.
The Institutions And Laws Of American Trade Policy
The United States Constitution, Article 1, Section 8, empowers Congress to “collect Taxes, Duties, Imposts and Excises,” and assigns Congress exclusive authority “To regulate Commerce with foreign Nations.” Institutionally, authority over international trade belongs to Congress.
Trade policy is formulated in two congressional subcommittees, in the Ways and Means Committee of the House of Representatives and in the Finance Committee of the Senate. These committees operate as all committees of Congress, brokering competing interests of their members. Their members are there to protect the industries, and the jobs they provide, in their respective states. Although in some instances there may be manufacturers who require inputs from abroad, and in some others constituents may produce for foreign markets, for the most part the members focus on what is produced within their states and for a domestic market. Consequently, these committees are inherently protectionist.
Until implementation of the Sixteenth Amendment to the Constitution in 1916, conferring upon Congress “power to lay and collect taxes on incomes,” the primary source of revenue for the United States was duties on foreign goods. At the same time, Congress created in 1916 the Tariff Commission, which was to reexamine and reorganize the incoherent approach to duties that had been funding the government. Thus, American trade policy was founded constitutionally on the collection of revenues from imports, and U.S. laws into the 1930s promoted the collection of revenues and severe limitations on imports, infamously in the Tariff Act of 1930, known as the Smoot-Hawley Tariff, that many historians consider to have been a significant contributor to global Depression.
Contemporary trade law in the United States largely reflects a reaction against the fallout of Smoot-Hawley, interpreting international agreements that progressively over a sixty year period liberalized trade by reducing tariffs. Not entirely coincidental was the ability of the United States to finance its government operations with an income tax instead of customs duties. Nonetheless, the framework and apparatus of trade liberalization promoted exceptions and special arrangements to satisfy the legislators constitutionally empowered to regulate foreign commerce. Trade remedy laws tightened as tariffs reduced, supporting a common view that foreigners may “cheat” and export to the U.S. dumped and subsidized goods.
There are three principal U.S. agencies dealing with trade policy. The oldest is a cabinet position in the executive branch of government, the Department of Commerce. The task of the Department of Commerce is to implement the laws on trade passed by Congress. Commerce, therefore, theoretically has no authority to formulate or develop trade policy, which is embodied in congressional statutes. But Commerce does write the regulations that elaborate on and implement statutes. It also interprets the statutes and regulations. Through these two powers – writing regulations, interpreting statutes and regulations — Commerce has more to say about trade policy than any other government agency.
The second is the Office of the United States Trade Representative, which is in the Executive Office of the President. USTR, created initially in 1962, negotiates trade agreements and enforces them, usually but not always through dispute resolution at the World Trade Organization. USTR comes closest to articulating and carrying out the interests of the President in trade, but also answers to Congress.
Finally, the United States International Trade Commission grew out of the Tariff Commission that was created in 1916. Congress in 1954 assigned the Tariff Commission responsibility, which had been in the Department of the Treasury, for determining whether dumping (the antidumping law having been passed in 1921) caused a U.S. industry material injury, a prerequisite for imposing duties arising from unfair trade. Commerce gave the ITC the same responsibility for countervailing duty cases in 1979 following the Tokyo Round of trade negotiations and passage of a new Tariff Act. The ITC is an “independent” agency responsible directly to Congress, not to the executive branch.
The trade laws have three main features: specific tariff reductions and rate-setting; treaties and agreements for trade arrangements, including non-tariff barriers and intellectual property; global capital flows have led often to treatment of trade and investment together such that bilateral investment treaties have become a frequent subject of trade negotiations. Treaties and agreements, nonetheless, are mostly for tariffs but also for preferences and dispute resolution; and trade remedies. Tariff reductions and rate-setting typically follow bilateral or multilateral agreements. They are expressions of policy only to the extent that the United States has defined a policy mutually with other countries. Unilateral trade policy, the choices of the United States without requiring agreement with anyone else, is confined to trade remedies.
Trade Remedy Laws Are Public Policy By Default
The central feature of trade remedy laws in the United States is that private parties decide which merchandise, and from which countries, will be subject to trade remedy actions. Formally, the Department of Commerce has discretion to decide whether to initiate an investigation, but Congress has fashioned the law to make investigations almost inevitable upon the presentation of a petition, provided the petitioner satisfies statutory requirements.
Congress has created offices, in both the Department of Commerce and at the International Trade Commission, to assist domestic industries preparing petitions. Before filing, petitioners typically know whether they have satisfied the requirements and whether the petition will be accepted. These offices exist to help and encourage petitioners. Congress wants the executive branch to protect domestic industries. To that extent, there is a policy, developed by Congress, inscribed in the laws and institutions.
The International Trade Commission conducts a preliminary investigation to decide whether full investigations will follow. The thresholds for this decision, however, again set by Congress, is very low. It is unusual to stop an investigation at the preliminary stage because of the statutory criteria. Once an investigation is fully underway, the market for the goods involved is distorted and there are significant trade effects.
It is also difficult for foreign interests to defeat a petition in the final determination, particularly for non-market economies. The Commerce Department has great flexibility to select surrogate values and find that government prices or domestic costs are below market values or world market prices. Some Chinese products have been found not to cause or threaten material injury to a U.S. industry (a prerequisite finding for trade restrictions), but the considerable majority of petitions result in antidumping and countervailing duty orders.
The Administration has nothing to say about which industries will petition, and not much to say about which petitions will lead to antidumping or countervailing duty orders. Congress keeps a close eye on the progress of petitions and often makes sure that Commerce officials adhere to the law. The inherent biases in the law written by Congress favor petitioners.
Congressmen and senators often testify in public hearings before the International Trade Commission on behalf of their constituent industries. Neither congressmen nor senators testify on behalf of importers or foreign producers. Congress funds the Commission.
To the extent that cumulative trade actions against foreign merchandise can be interpreted as a trade policy, it is in the United States a trade policy by default. Private parties, not the government, take most of the decisions, because they decide which industries or products will be challenged, and they choose the allegations. The law, developed by Congress over many years, generally leads to antidumping and countervailing duty orders. As long as petitioners can satisfy the criteria set out by Congress, they can restrict or interfere with trade.
The Contrast Of Trade Remedies With China
Chinese trade law has a “public interest” clause. The Chinese Ministry of Commerce (“MOFCOM”) can decide not to initiate an investigation even when a petition satisfies all legal criteria. The President of the United States has a similar power to prevent the imposition of a trade remedy for policy reasons in intellectual property cases arising under Section 337 of the Tariff Act, but not under provisions of the law for antidumping and countervailing duties.
Chinese officials do use this provision. A petition was filed in the autumn of 2009 seeking antidumping and countervailing duty investigations of wood pulp from Canada. China has a robust paper industry. China does not have, however, abundant commercial forests. It imports wood and other forest products, including substantial quantities of wood pulp. MOFCOM concluded, after an internal inquiry, that it would not be in the public interest to restrict the flow of wood pulp from Canada because, MOFCOM apparently reasoned, it was more important to support the Chinese paper industry than the nascent and inevitably limited wood pulp industry. The investigations, whatever the merits of the petitions may have been, were not initiated.
This option, referring to the public interest, does not exist for American authorities. Hence, China can decide which investigations will be pursued, and which will not. It can choose which industries to protect, and which to leave to market forces even when there may be unfair competition from abroad.
There are also important procedural differences that affect trade remedies as an expression of public policy. In the United States, the filing of a petition is a public event. The International Trade Commission and the Department of Commerce alert the public to a new petition as soon as it is filed, and the Department of Commerce has twenty days from the filing to determine whether to initiate an investigation. In a similar time span, the International Trade Commission must convene a public “staff conference” to hear arguments on whether it is likely, should investigations go forward, that it will find material injury or a threat of material injury. Parties must prepare for the staff conference, so everything about the case except confidential, business proprietary information submitted subject to administrative protective orders is public.
The public process of petitioning and launching investigations guarantees that Congress will insure the initial success of a petition satisfying minimal criteria by enabling congressmen to keep track of all developments. Consequently, the ability of private industry to dictate the public policy is assured.
In China, again by contrast, the filing of a petition is confidential and not made public, although MOFCOM officials are known to leak the existence, and often the details, of petitions to select Chinese law firms. Unlike the twenty day fire drill in the United States to challenge the petition at the Department of Commerce and convene a staff conference at the ITC, MOFCOM has sixty days to decide whether to initiate an investigation. Because the filing of the petition is not public, no one can know with any certainty when (or even whether ) a petition has been filed, and so the running of the sixty day clock is entirely in the hands (and knowledge) of MOFCOM.
The very existence of petitioners is also effectively secret in China. Consequently, if MOFCOM were to self-initiate an investigation, it could do so easily in the name of an industry or companies, especially if they were state-owned. MOFCOM put dates and an association name on the receipt and initiation of a countervailing duty investigation into saloon cars from the United States in November 2009, but specific companies in the association were not identified and many international trade observers speculated that the petition was developed at, by, and for MOFCOM.
It may be that the automobile petition should be taken at face value, filed by an association on behalf of an industry. However, the lack of transparency in the Chinese system invites speculation, which cannot happen in the United States. There has been but one Commerce Department self-initiation in U.S. trade history, against softwood lumber from Canada in 1991 (there is disagreement as to whether an antidumping investigation was self-initiated in 1986 against DRAMs). It is certain, because of the transparency of the process, that there have been no others.
In trade remedies, then, the United States cannot have a public policy, as control of the process and the outcomes is in private hands, dictated by Congress to encourage piecemeal protectionism. In China, by contrast, the government can initiate an investigation in the name of an industry, marrying trade policy to industrial policy to favor certain economic sectors. It can decline to investigate in the public interest. Hence, the government can decide what will be investigated and when, which industries it will protect, and which will be exposed to the market, whether fairly or unfairly. Those choices express public policy.
Trade Negotiations And Public Policy
Most observers equate trade policy with the negotiation of trade agreements. The United States, however, does not enter trade negotiations like any other country. The authority to sign a trade agreement is vested constitutionally in the President (Article 2, Section 2), but the regulation of Commerce is the preserve of Congress. Consequently, the President can sign an agreement, but Congress can change it before it is implemented as U.S. law.
Congress historically has changed treaties and agreements signed by the President, or rejected them outright, most famously refusing to join the League of Nations after World War I. Congress also rejected the original international trade organization, concomitant to the General Agreement on Tariffs and Trade (“GATT”) after World War II. The United States came to be known internationally as an unreliable negotiation partner because countries could not count on the signature of the President as the last word for an agreement. Congress could change the terms, or reject the agreement altogether.
To compensate for this problem, Congress agreed to create “fast track” authority, later called by President George W. Bush “trade promotion authority,” whereby Congress could accept or reject a trade agreement signed by the President, but could not change it. The existence of this authority enabled the United States credibly to negotiate trade agreements.
Today, there are three bilateral trade agreements that President Bush negotiated with trade promotion authority but that he failed to present to Congress for an up or down vote before the authority expired. President Obama has not sought and has not received a restoration of this authority. Consequently, Congress has not elected to vote on these agreements, which have been languishing between two and three years.
Without trade promotion authority, the President cannot credibly negotiate trade agreements. The Doha Round stalled over agricultural subsidies in 2008, before the election of President Obama. Today, however, progress is impossible without the engagement of the United States, and the President cannot engage credibly without authority from Congress that he has not received. Consequently, as to trade negotiations, the United States has no policy, and cannot pursue one, because the President does not have effective authority and Congress has chosen not to act on agreements already signed.
China has none of these problems. Its leaders can negotiate with unlimited confidence that their choices will meet with domestic approval. Their negotiating partners know that whatever Chinese leaders sign will be reliable. China, therefore, can fashion a negotiating trade policy: it can decide with whom it wants to reach agreements, and over what, with respect to both specific merchandise and dispute resolution, but also with respect to intellectual property, joint venturing, bilateral and multilateral arrangements, and whatever else may arise in the domain of international commerce. It can, and does, focus as a country on exchanges and agreements that will bring more natural resources to China, and on broader trade issues as well.
The Staffing Problem
When President Obama was first assembling his Cabinet, he asked Congressman Xavier Bercera about becoming his Trade Representative. Congressman Bercera turned down the offer, saying that he did not believe the President was going to assign international trade a high priority. Eventually, President Obama named the Mayor of Dallas, Texas as his trade representative. Ron Kirk’s instincts, like President Obama’s, favor free trade, based on his experience with the value of NAFTA for Texas and Mexico. But no one pretended when he was named that Ambassador Kirk was a trade expert, and conspicuously senior staffing at USTR was done primarily from the congressional trade subcommittees. As befits the history and character of Congress and trade, Ambassador Kirk’s staff was not populated with committed free traders.
To the extent the President might have wanted to pursue freer global trade through new international agreements, he has neither the authority (no trade promotion authority) nor the staff. Congressman Bercera was right in his assessment, and no trade policy has emerged from the Administration. Without congressional authorization and support, moreover, none is possible.
Arguably the most important position in international trade in the United States is not the more visible Trade Representative, but the Assistant Secretary of Commerce for the Import Administration. The occupant of this position decides in most instances the pursuit of antidumping and countervailing duty investigations, and decides their outcomes. She signs the final determinations with duty rates and with decisions over the countervailability of foreign government programs.
As of June 2010, eighteen months into his Administration, President Obama has not nominated a candidate to fill this politically sensitive policy-making position. The Acting Assistant Secretary is a former Bush Administration official, and the office, therefore, carries over from the Bush years. To the extent a trade policy emerges from the Import Administration of the Commerce Department, the policy was developed by President Bush, not President Obama.
Notwithstanding inclinations toward partisan interpretations that would make Republicans free traders and Democrats protectionists (see Part I of this article), it was President Bush’s Assistant Secretary for the Import Administration who chose to initiate a countervailing duty investigation against non-market economy China and thereby to increase significantly trade restrictions. That decision defined an important element of a trade policy, but conspicuously not of the Administration’s own initiative. Private parties petitioned for countervailing duties against coated free sheet paper from China. The Administration had to decide whether to initiate, or whether to reject the petition. Reactions to private initiatives may constitute cumulatively a trade policy, but by default if not by accident.
Once the judicial process upheld the lawfulness of the countervailing duty investigation in a non-market economy, there was little the Obama Administration could do to change it. Then, too, no Obama official has been named as Assistant Secretary.
The statute governing the ITC requires six commissioners, three from each political party, serving nine-year terms. Nominated by the President, commissioners must be confirmed by the Senate. Often the appointees have served on trade committee staffs in Congress. The confirmation process for them often produces debate over trade policy, but such debates cannot affect policy once appointments have been confirmed. Presidents must make appointments to maintain the partisan balance on the Commission, so cannot necessarily choose a candidate from their own party.
The composition of the Commission often does reflect partisan proclivities, with Republicans more inclined to rely on economic modeling and analysis and Democrats more likely to sympathize with claims of injury. Yet, Democrat Janet Nuzum, as Vice Chair, for example, was far more sensitive to the merits of free trade than some of her Republican colleagues, and Republicans on the current Commission frequently sympathize with domestic industry. Regardless, there is little Congress or the President can do to give the Commission direction because of the nine-year terms, during which the President cannot remove a commissioner.
The United States v. China
The United States pursues trade remedies to the extent, and with reference to particular goods, dictated by private sector initiatives. Occasionally it is possible to articulate a policy, as in accepting petitions alleging countervailable subsidies in non-market economies, but mostly the Administration has little to say and even less that it can do. The Obama Administration has resisted the entreaties of many in Congress to countervail Chinese currency valuation, but Congress could legislate an administrative requirement that would leave the Administration little choice.
Choices typically are few, but there are some. The Bush Administration rejected all safeguard actions against China. The Obama Administration accepted the one safeguard brought before it. It is altogether too easy, however, to misread this difference and the relevant implications. Despite many predictions, no safeguard action has been requested against Chinese merchandise since the case on tires, and the looming expiration of the safeguard provision makes further actions improbable. It would be an exaggeration to claim a policy out of the one case, particularly when paired with the Administration’s persistent position on currency valuation. None of the cases brought to President Bush carried anything like the domestic political implications of the tires case.
The Obama Administration has considered trade policy through tax policy, but essentially because of jobs. Proposals abound to tax heavily the corporate offshoring of jobs, and to expand the uniquely worldwide reach of the U.S. income tax. Such indirect instruments, however, can only hint at a trade policy, and not as a commentary on trade itself.
China seems to see in every trade investigation and in every imposed duty a policy hostile to China. China declared its investigations into chicken parts and automobiles from the United States in November 2009 expressly retaliatory, as if the tires safeguard were deliberately provocative. China read the President’s actions as aimed at China, without acknowledgment of the domestic politics that dominated and constrained his options. Publicly, at least, China also therefore took little note of the nuanced elements of the President’s actions, which were avoiding insult to the head of the National People’s Congress, setting rates that would keep the Chinese industry in business, avoiding excessive publicity for a potentially high-profile action by calibrating an announcement on a weekend. Instead, China decided to make the decision a centerpiece for antagonism, collapsing into the one case an apocalyptic view of U.S. trade policy.
The United States cannot have a coherent trade policy, particularly as to trade remedies. The merchandise in dispute and the allegations to be investigated are all defined by private parties often backed by powerful interest groups capable of delivering or denying votes and campaign resources in a perpetual electoral cycle. Retaliation against imagined trade policies, policies thought to be coherent and deliberate, can have little or no effect in shaping the future. There is no point in China pursuing a retaliatory trade policy because such retaliation cannot change what will happen in trade in the United States. Retaliation would have to anticipate, continuously, the next, most powerful interests seeking trade remedies, an impossible task.
China needs to look more closely at U.S. law and appreciate more presidential constraints where the Constitution delivers all authority over foreign commerce to Congress. It needs to be at the negotiating table when the law calls for negotiation (again, see Trade War?), and it needs to protect its own industries only when facing unfair trade and such protection is in the public interest. A policy based on retaliation, where the recipient of the retaliation (the Administration) cannot react or adjust, is a wasted policy opportunity to no one’s long term advantage.
For the United States, the President could do more to create at least an impression about trade commitments. He could nominate an Assistant Secretary of Commerce. He could ask Congress for trade promotion authority. He could engage seriously the defects in the pending, unratified trade agreements. He could take on the agricultural subsidies that contribute mightily to the deficit, paralyze the Doha Round, and drain the Treasury exceptionally, as in the resolution of the cotton dispute with Brazil by continuing to subsidize the domestic industry and then subsidizing Brazil as well. All these steps together still might not translate into a coherent policy on trade, but they would suggest a President who means what he says when he promises the G-20 to resist protectionism, when he champions an expansion of exports, when he extols the virtues of freedom, whether trading in ideas, or in goods.
当奥巴马总统刚刚组建内阁时，他邀请议员Xavier Bercera担任国际贸易代表。但是Bercera议员婉言拒绝了邀请，指出他不相信总统将把国际贸易视为重点。最后，奥巴马总统任命德州达拉斯市市长柯克（Ron Kirk）为贸易代表。从他对《北美自由贸易协定》的态度来看，柯克和奥巴马总统一样倾向自由贸易。但没有人试图掩盖他并不是贸易专家这一事实，而贸易代表办公室的主要职务也都被曾在国会贸易委员会任职的工作人员所担任。从国会历史及特征来看，柯克大使的主要官员并不支持自由贸易。