US Rejection of Section 232 Tariffs WTO Panel Decision Expected, Experts Say

USTR spokesman Adam Hodge said the U.S. would not remove the Section 232 duties on imported steel and aluminum, and said: "These WTO panel reports only reinforce the need to fundamentally reform the WTO dispute settlement system. The WTO has proven ineffective at stopping severe and persistent non-market excess capacity from the PRC and others that is an existential threat to market-oriented steel and aluminum sectors and a threat to U.S. national security. The WTO now suggests that the United States too must stand idly by. The United States will not cede decision-making over its essential security to WTO panels."

Christine McDaniel, a former senior trade economist on the White House Council of Economic Advisers under President George W. Bush, now a senior research fellow at the Mercatus Center, said: "Just from looking at their actions they’ve made it clear that they’re going to go their own way."

The U.S. did lift the national security tariffs on Canadian and Mexican metals, and replaced them for European exporters with a system of tariff rate quotas. Those quotas, in turn, may be removed if the U.S. and the EU agree to a system of tariffs that would make it less attractive to import steel or aluminum that was made in ways that are more carbon intensive than their domestic industries, or steel and aluminum that was made by countries that overproduce these metals, or are dominated by state-owned enterprises in these sectors.

Simon Lester, a former legal affairs officer at the WTO's Appellate Body Secretariat and now president of China Trade Monitor, said, "I think people are exaggerating the impact of this report -- like this changes something. We knew all along what the Biden administration's position was on this. If they wanted to get rid of these 232 duties they could have done it."

Similarly, Lester said, it was expected that WTO panelists would say that the tariffs were protectionism, not a true reaction to a national security threat, since the U.S. is not at war with any of the countries it levied the duties against.

As far as the tone of the USTR's response, he said, "It was some tough rhetoric. It didn’t strike me as over the top." He added: "He’s got a domestic audience to cater to."

"If Maria Pagan in Geneva is saying harsh things behind the scenes, yeah, then I would worry about it," he said. Pagan is the U.S. head of mission to the WTO.

The U.S. can formally appeal this panel decision, which means that Turkey or Norway would be out of bounds by retaliating over the tariffs, since the case had not played out. (China already retaliated for the tariffs back in 2018). But since the U.S. has prevented new appointments to the appellate body, this is appealing into the void.

Lester said, "Everyone knows the system is struggling to be enforceable," but he doesn't think this result really changes much.

McDaniel said that at this point, the U.S. sees the WTO as a forum for discussions and trying to find common ground, such as on fisheries discipline, but not a place to decide trade disputes.

She said the U.S. was a longtime defender of opening an economy to imports, but now, there's no way for other countries to hold the U.S. to its commitments, unless they are big enough to cause a level of economic pain the U.S. does not want to bear.

"That was one nice thing about the WTO, it put large and small countries on an equal footing," she said.

But Lester said before the appellate body collapsed, the "binding dispute resolution system" was only binding to an extent. Countries always had the opportunity to decide they wanted to continue whatever they did that the WTO disagreed with, and the complaining party could then retaliate.

"I don’t know that this is a radical reordering of the system," he said. Although he is worried that the world is going down a path toward less compliance with WTO principles, "we haven’t seen a radical proliferation of national security" rationales for trade actions.

And, Lester noted, the EU and about 20 other countries, including China, Pakistan, Brazil, Canada and Mexico, have agreed to an interim appeal arbitration arrangement, where they say if they are dissatisfied with a panel decision, they will accept arbitration, rather than appealing into the void. Lester said the first decision will be out in January.

McDaniel said, "It’s a nice way for the EU and others to try to hold the line for now, not throw the whole thing away.

"We’ll have to see how these cases go and how long this is going to take. If that alternative forum can be used effectively for a long enough time, then that could keep continuing."

She said that the U.S. defiance of this panel could convince other delegations in Geneva to try to work more urgently to satisfy U.S. concerns about WTO operations and reach an agreement on how to reform the system.

"Countries have yet to really bare their soul on where they really stand on a lot of these issues," she said, and until that happens, "we’re in a sort of purgatory."

But McDaniel said that just because the conversations in Geneva about reforming the dispute settlement system and other aspects of the WTO are taking years doesn't mean they'll never be concluded. She said it took over a decade for the Uruguay round's chapters to come together.

"This is like one step of many that we’re going to have to walk through as the U.S. and the EU and Japan and Australia and the whole world figures out how to do trade rules now in this brave new world," she said.

Lester was a little more pessimistic, as he said he felt many countries have already suggested reform approaches (see 2103190060). "I think they’ve kind of thrown up their hands at this point," he said of WTO members who want a return to binding dispute resolution.