Tariffs and Threats in US Trade Policy: Debunking the Myth of "Global Reset".

• Author: Chaisse, Julien

Table of Contents I.Introduction 240 II. Towards a Reset of Tariffs at the World Trade Organization? 243 A. What Would Be the Scope of the Reset? 244 B. Meaning and History of Discussion in the Unitea States 246 III. Getting the Facts (and the Rules) Right: WTO Tariffs Regulation 251 A. Methods and Approaches to Tariff Reduction 252 B. Legal Framework for Tariff Negotiations and Renegotiations 254 C. Consolidation: Bound and Unbound Tariffs 254 D. Tariff Deconsolidation 257 IV. Understanding the Gap Problem: Bound Tariffs, Applied Tariffs, and Overhang 259 A. Trade Policy Stakes around Overhang 260 B. The Practice of Overhang 261 C. The Overhang Comparative Analysis 263 V. Under the Shadow: Tariffs Preferentialization and Trade Remedies Globalization 272 A. The Impact of Preferential Trade Agreements on Tariffs 272 B. Developing Countries and Enforcement of Trade Agreements: the Increasing Use of Trade Remedies by Developing Countries 275 VI. Conclusion 280 I. INTRODUCTION

In June 2020, the United States put forth its agenda to push for a "reset" of tariffs at the World Trade Organization (WTO). (1) The call for reset was evidenced by US Trade Representative (USTR) Robert Lighthizer testifying to the same, before the US House Ways and Means Committee. (2) To justify the push for the reset, which is part of a broader trend toward unilateral economic policies, (3) it has been argued that the current global economic scenario provided an uneven playing field due to the existence of "very high bound tariff rates," which were detrimentally affecting US interests. (4)

The push for a reset of tariffs at WTO raises fundamental questions on international trade policy. (5) One of the oldest instruments of trade is perhaps the imposition of taxes, both on imports and exports. (6) Taxes served a fiscal function that generated revenue for states and kings while also acting as an interventionist or protectionist tool. (7) The latter function is now utilised to keep the price of imported goods high, so as to insulate cost-inefficient, domestic producers from foreign competition. Even in the WTO era, tariffs continue to be the basic trade policy instrument. While quantitative restrictions are prohibited under the WTO framework, there is no bar on employing tariffs. (8) The member states of the WTO also possess the freedom to raise their tariffs above the limits set forth in the Schedule of Commitments, provided they offer compensation for the same.

Up until the Second World War, tariffs were unilaterally applied by the states and were strictly seen as a domestic policy instrument. (9) The period after the Second World War fostered a new era during the sixties and seventies where states took into accounts exporters' interests while formulating domestic tariff policies. (10) This penetration of strategic considerations into the policy space ensured that the market dominance of domestic players was no longer fully eroded by foreign competitors. Over the last fifty years of multilateral trade policies, there have been many efforts to reduce tariffs across the world. (11) The General Agreement on Tariffs and Trade (GATT) of 1947 was the manifestation of such efforts and has been successful in doing so, especially with respect to industrial goods. However, high tariffs are still prevalent in various sectors including, but not limited to, agriculture, textiles, etc. (12)

The reduction of tariffs has ushered in a new era of trade restrictions that are in fact harder to regulate. (13) The efforts to reduce tariffs have yielded certain externalities, which have added to the complexity of the current system. This is not to say that applications of tariffs or customs administration have ever been easy. (14) The benefits of such systems lie in the legal security and predictability that it affords to traders. Traders, under such a system, would find it easy to anticipate costs of both imports and exports and consequently would be able to gauge the level of potential competitiveness and realized market access.

The Article argues that the tariff reset, even if seemingly in furtherance of US interests, will have a drastic impact on multilateral systems and would adversely impact the propagator as well. In fact, a tariff reset, if successful, would simply push countries to pursue other trade remedies such as anti-dumping duties. Such a potential substitution of tariff instruments by contingency measures will rather cause a paradigm shift in the global trade remedy politics with negative consequences for the United States too. Part II of the Article will explore the proposed reset in detail, focusing on the scope of the reset and the surrounding circumstances in the United States that prompted the push for a reset. Part III will examine the legal framework governing the processes around tariffs, including reduction, negotiation, consolidation, and deconsolidation. Part IV will look at the concept of "overhang" on a comparative scale, using data to build up a tariff profiles of China, the European Union (EU), India, and the United States. Part V will examine the impact of regionalization on tariffs. Finally, based on the discussions, the analysis concludes in Part VI that a tariff reset would result in increased tariffs applied by the United States on its imports and, in turn, potentially tariff overhung therein. The deepening protectionist sentiments in the United States would cause a wave of dissents across developing countries, forcing them to retaliate either through increasing recourse to trade remedy measures or through elevated applied tariffs. In all, the United States' call for a tariff reset may end up introducing more complications in global trade canvas than they are hoping to solve.

2. TOWARDS A RESET OF TARIFFS AT THE WORLD TRADE ORGANIZATION?

   The push for a reset was highlighted around June 17, 2020, when US Trade Representative Robert Lighthizer publicly stated that "outdated tariff determinations are locked in place that no longer reflect members' policy choices and economic conditions... Many countries with large and developed economies maintain very high bound tariff rates, far above those levied by the United States." (15) However, trade policy experts refer to some news reports published as early as February 13, 2020, which stated that the United States was mulling on increasing its ceiling on tariffs (its "bound rates"), in a bid to trigger negotiations with the WTO. (16) Would a reset of tariffs at the WTO be legal under WTO law? In a word, yes. The United States can invoke Article XXVIII of the GATT, (17) which allows a nation to lift its tariff rates above the agreed rates. Under Article XXVIII, the United States can inform the WTO of its intentions, provide three years' worth of statistics as evidence, and encourage countries with substantial trading interests to start negotiations with the United States. However, even if the negotiations do not reach fruition, the United States can still modify its concession unilaterally. If such a step is taken, any contracting party with which the concession was initially negotiated or has a substantial interest, or a principal supplying interest, shall be free (not later than six months after such action) to withdraw substantially equivalent concessions initially negotiated with the applicant contracting party. (18)

   The scope of the reset will be examined in subpart II.A. This will be followed by a discussion of the consistent positions taken by the United States against the existing trade regime and how it led to the call for a reset (II.B).

   1. What Would be the Scope of the Reset?

      The idea of a reset of tariffs putatively applies to a category of measures that qualifies as ordinary tariffs, tariff quotas, or other charges. The reset would not deal with revenues generated through an indirect taxation route and/or from service fees.

      The ordinary tariff is a price-based duty that is applied when a product is imported from another country or jurisdiction. (19) Such a duty termed as a tariff is independent of domestic transactions, which are only subject to a distinct domestic taxation scheme. (20) Ordinary tariffs, depending on implementation patterns, are classified under three categories: ad valorem tariffs, specific tariffs, and mixed tariffs. Tariffs which are imposed as a set percentage of the value of the imported product are known as ad valorem tariffs. (21) Import duties imposed at a flat rate for each unit (e.g., weight, volume) are known as specific tariffs. (22) Mixed or compound tariffs combine the elements of both ad valorem and specific tariffs. (23) WTO members almost exclusively rely on ad valorem duties, which are transparent, facilitate easy comparison of tariff burdens on price competitiveness, and are even sensitive to changes in product price. Tariffs also have the added benefit of clearly revealing international tariff peaks (i.e., tariffs beyond 15 percent ad valorem). (24) With regards to valuation of customs, the situation is a bit more complicated than what is usually the case with specific tariffs. In the agricultural sector, specific and compound duties as well as tariff rate quotas are still used by countries, even for major importers such as the United States and the EU. (25) Specific duties are effective for products of high value, mainly because they would be insulated from price fluctuations due to inflation or even variation in exchange rates. Given the regressive nature of specific duties, WTO members (and, particularly, the developing countries) support tariff consolidation into ad valorem duties, even though specific tariffs are less costly in terms of customs administration. (26) It is also pertinent to apply the same tariff policy framework across the member states, so as to easily compare tariff reduction proposals and to apply various tariff reduction formulae.

      By extension, tariff quotas employ a combination of both quantitative...