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Biden administration must settle unwinnable WTO cases over steel and aluminum tariffs

Biden administration must settle unwinnable WTO cases over steel and aluminum tariffs
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The European Union (EU) sees it as the dispute that could spell the “end of a rules-based multilateral trading system.” Boeing-Airbus? No, the EU is talking about its case against U.S. steel and aluminum tariffs, one of seven being argued at the World Trade Organization (WTO). Given delays due to COVID-19, the WTO recently announced it doesn’t expect to rule in these cases, or in the cases the U.S. filed in response, until the latter half of 2021. The Biden administration should use the extra time to negotiate out of this mess. In the seven cases on the defense, the U.S. loses no matter how the WTO rules. In the five cases on the offense, the fight isn’t worth the candle.

Back in 2017, the Trump administration imposed 25 percent tariffs on steel and 10 percent tariffs on aluminum, citing national security under Section 232 of the Trade Expansion Act of 1962. Nine countries challenged these tariffs at the WTO, and retaliated with tariffs of their own. This led the U.S. to bring WTO cases against seven of these countries for illegally retaliating. Canada and Mexico struck deals with the U.S. as part of the U.S.-Mexico-Canada Agreement (USMCA), cutting the total number of cases from 16 to 12. Currently, the United States is the defendant in seven cases and the complainant in five. 

The way Europe sees it, the U.S. used Section 232 as a safeguard measure, but not in the way the WTO prescribes. The EU says the tariffs are thus illegal, and can’t be justified under the WTO’s “national security” exception. In this view, Europe’s retaliatory tariffs make sense as the equivalent of the compensation the U.S. would have otherwise owed, had it fessed up to using a safeguard in the first place.

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The U.S. disagrees. It argues that its national security tariffs are not safeguards, and that they are justified under the WTO’s “national security” exception if the U.S. says they are. In this view, the U.S. does not owe compensation, meaning the EU’s retaliatory tariffs, like those put in place by China, India, Russia and Turkey, are illegal.

Europe is surely right about the national security exception. The U.S. has been testing out its theory as a third party in WTO cases against Russia and Saudi Arabia, but it hasn’t gained any traction. In fact, the rulings in both cases make it clear that the U.S. can’t win. 

The bigger picture, though, is that the U.S. shouldn’t want to win. That’s because a victory would motivate others to broadly define national security to include things like bilateral trade imbalances. If claims of this sort are also not reviewable by the WTO, or even subject to a “good faith” test, as the U.S. said in Q&A with the panel, then markets would shut down overnight to American exports. In sum, the worst thing that could happen to the U.S. would be to win, not lose, the seven Section 232 cases.

The flipside is that it’s also wrong for the EU and the four other countries to take it upon themselves to decide the Section 232 tariffs were really safeguards and take compensation at a level of their choosing. The U.S. makes several references to EU unilateralism but doesn’t raise a legal claim to back it up, perhaps because this narrative might have raised defensive liabilities in this and China’s Section 301 litigation. The EU should be pressed harder on its unilateralism in negotiations. 

More broadly, a Biden trade “reset” will have to start with the EU. Like other U.S. allies, the EU was stunned by Trump’s steel and aluminum tariffs, and his threats to employ Section 232 on their exports of autos. Biden needs to address the future of Section 232 to calm allies, and appease members of congress who have been busy drafting legislation to rein it in.

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The EU “ask” will be WTO reform. It wants the Appellate Body working again. It wants to partner with the U.S. at the WTO to address concerns about China. Ending the 12 cases triggered by Trump’s steel and aluminum tariffs would help signal U.S. resolve to see through WTO reform.

Bad cases make bad case law, and worse. COVID delays at the WTO have handed Biden a little more time to resolve 12 bad cases that the U.S. can’t win, no matter what the rulings are. 

Marc L. Busch is the Karl F. Landegger Professor of International Business Diplomacy at the Walsh School of Foreign Service at Georgetown University, a nonresident senior fellow at the Atlantic Council and host of the podcast TradeCraft.