Trade Update (June 22)
Lighthizer on Capitol Hill
U.S. Trade Representative (USTR) Robert Lighthizer spent eight hours on Capitol Hill on Wednesday (Jun. 17) and testified in front of both the House Ways and Means and Senate Finance Committees. Lighthizer laid out the administration’s vision on a variety of issues.
Lighthizer made it clear that the U.S. has no interest in a European Union (EU) proposal to negotiate a new international agreement to eliminate tariffs on personal protective equipment (PPE) and other medical goods. “I’m not in favor of reducing tariffs on the things we need. I’m in favor of increasing tariffs on the things we need,” he said. Lighthizer also criticized a 1995 World Trade Organization (WTO) agreement on pharmaceuticals and said it was a questionable deal because it allows countries like China and India to benefit from duty-free access without eliminating their own tariffs on pharmaceuticals. Several Finance Committee members asked for tariff relief for companies producing medical goods to combat COVID-19. Lighthizer said part of the solution needs to be rewarding companies manufacturing products in the U.S.
He also said the Trump administration is looking at ways to address concerns raised by a few U.S. steel and aluminum companies about a surge in imports from Canada and Mexico. Lighthizer said he would act within the May 2019 agreement to address any surges. “It’s something that is of genuine concern to us now that we are looking at it,” he said.
Regarding China, Lighthizer downplayed lawmakers’ concerns that China was behind on agricultural purchases for Phase One. He also emphasized his confidence that the initial trade deal was going smoothly.
Members on both committees emphasized their concerns around USMCA enforcement. Lighthizer vowed to enforce the deal and said he already anticipates issues on labor, biotechnology, intellectual property rights, and possibly energy. He also touted a “rapid-response system” built into the agreement as a way to hold Mexico accountable for labor requirements. “We expect to bring actions as soon as we think there’s a violation,” Lighthizer said.
Additionally, Lighthizer confirmed the Trump administration is stepping away from global talks to reach a deal on digital services taxes. He said the administration is moving ahead with a series of investigations that could result in tariffs on countries primarily in Europe, as well as Asia and South America. However, he also said, “I don’t think what happened at the OECD was the end of a process trying to work out a solution. We still have to do that.”
Both lawmakers and Lighthizer criticized the World Trade Organization (WTO). Lighthizer said decades old commitments have allowed other countries to impose higher tariffs on U.S. goods than the U.S. can impose on their imports. He said members should seek “an alternative dispute settlement process that won’t create jurisprudence (and) that will be fair to the United States.”
He also discussed his skepticism that the U.S. will reach a trade deal with the U.K. before the November election. Both countries are in the middle of second round talks that will continue through the end of next week.
To view CHCG’s coverage of the House Ways and Means Committee, click here.
To view CHCG’s coverage of the Senate Finance Committee, click here.
Digital Services Taxes
On Wednesday (Jun. 17), Lighthizer confirmed the U.S. is no longer participating in the Organization for Economic Cooperation and Development (OECD) negotiations to reach a deal on digital services taxes.
Treasury Secretary Steve Mnuchin sent a letter to his European counterparts and declared the talks were at an “impasse.”
“Attempting to rush such difficult negotiations is a distraction from far more important matters,” Mnuchin wrote in the letter, according to news reports.
“This is a time when governments around the world should focus their attention on dealing with the economic issues resulting from COVID-19,” he added.
Lighthizer said that he believes resolving the issue will involve, “a lot of congressional action.”
After the hearings on Wednesday, French Finance Minister Bruno Le Maire and European Economy Commissioner Paolo Gentiloni threw their support behind EU-wide digital levies.
The standoff is expected to reignite a transatlantic trade dispute that has been in the background for over a year. “This letter is a provocation, a provocation to all OECD partners,” Le Maire told a local radio station in Paris, France.
“There will indeed be, as I have always promised, a digital tax in 2020 in France,” he added.
Trump administration officials have argued digital services taxes are unfair to American companies, and claimed they are illegal under global trade rules. USTR is still taking public comments on new investigations into countries that have passed or are planning to pass digital tax rules. Retaliatory tariffs are not likely before mid-July.
On Wednesday (Jun. 17), the Wall Street Journal reported an excerpt from former National Security Adviser John Bolton’s forthcoming book, which claims President Trump asked Chinese President Xi Jinping for trade concessions that would help his 2020 re-election efforts.
Bolton said President Trump stressed the “importance of farmers and increased Chinese purchases of soybeans and wheat in the electoral outcome.”
Lighthizer said Bolton’s account was unequivocally false.
In other news, President Trump said his administration has not ruled out “a complete decoupling from China,” contradicting Lighthizer’s testimony before Congress only days before.
Decoupling “was a policy option years ago, but I don’t think it’s a policy or reasonable policy option at this point,” Lighthizer told lawmakers. However, Trump renewed his threat to cut commercial ties with China, just as tensions have been rising over Hong Kong and coronavirus.
“It was not Ambassador Lighthizer’s fault (yesterday in Committee) in that perhaps I didn’t make myself clear, but the U.S. certainly does maintain a policy option, under various conditions, of a complete decoupling from China. Thank you!,” Trump said in a tweet.
 Rodriguez, Sabrina & Palmer, Doug. “Lighthizer talks trade deals, tariffs, global tensions on Capitol Hill.” Politico Pro, 17 Jun. 2020. https://link.edgepilot.com/s/3dc5a8b4/0fDKooxS7Uef99YPvS0nFA?u=https://subscriber.politicopro.com/article/2020/06/lighthizer-talks-trade-deals-tariffs-in-hearing-with-lawmakers-1953643
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