US weighs higher tariff ceilings in bid for more sway over WTO

US Trade Representative Robert Lighthizer is now mulling over a plan to reset American tariff commitments at the WTO by threatening to increase the tariff ceilings agreed to by previous administrations over decades of negotiations.
US Trade Representative Robert Lighthizer is now mulling over a plan to reset American tariff commitments at the WTO by threatening to increase the tariff ceilings agreed to by previous administrations over decades of negotiations.PHOTO: REUTERS

WASHINGTON (BLOOMBERG) - The US is weighing a plan to increase its longstanding ceiling on tariffs in a move meant to trigger a renegotiation of relationships with fellow World Trade Organisation (WTO) members and step up its assault on the global trading system.

President Donald Trump and senior aides have long complained about the fact that other countries can charge higher tariffs on certain products than the US does.

They cite examples such as steeper European passenger-car duties and Indian motorcycle tariffs as evidence of the way they believe global trading rules are tilted against America.

But in what would be the boldest move yet to attack that perceived problem, US Trade Representative Robert Lighthizer is now mulling over a plan to reset American tariff commitments at the WTO by threatening to increase the tariff ceilings - or bound rates - agreed to by previous administrations over decades of negotiations, according to people familiar with the discussions.

The potential move follows Mr Trump's signing of a partial agreement with China last month that is seen by critics as a major step away from the rules-based order policed by the WTO.

The Trump administration has managed to paralyse the Geneva-based institution's dispute system by blocking the appointment of judges to its appellate body.

The new discussions, though, are part of a broader effort under way inside the administration to look at other ways it could shake up the global system and address their view that its core - the WTO - is rotten.

In a statement, the US Trade Representative's (USTR) office said there are no plans "at this time" to increase the WTO tariff cap.

"The administration has expressed numerous times that we are very troubled that many of our trading partners have tariffs that are much higher than the United States', but there are no plans at this time to raise our bound tariff levels at the WTO," a USTR spokesman said.

But according to people familiar with the discussions, the administration's strategy is to start with a proposal to renegotiate America's WTO tariffs with the expectations that the WTO's other 163 members would not collectively agree to new multilateral terms.

If and when WTO talks fail, the Trump administration would then consider moving forward unilaterally to impose reciprocal tariffs on America's trade partners, the sources told Bloomberg.

 
 
 

Such an approach would be "completely unworkable", said Mr Rufus Yerxa, the president of the Washington-based National Foreign Trade Council.

"You can't have pure reciprocity with each country unless you set out different tariffs for each product," Mr Yerxa told Bloomberg in a phone interview. "That would be a mess. It would undermine predictability for US businesses and make us a global pariah."

The US' average bound rate is now 3.4 per cent, although it can be far higher on individual products, and the Trump administration has used loopholes in global trading rules to impose punitive 25 per cent tariffs on imports of steel and various products from China.

LENGTHY PROCESS

The Trump administration has long said that the US is treated unfairly by other nations because it is bound by higher tariffs and its trading partners are unwilling to lower theirs.

In Davos, Switzerland, last month Mr Trump said he had discussed a "very dramatic" change with WTO director-general Roberto Azevedo.

"We're talking about a whole new structure for the deal or we'll have to do something," Mr Trump said without elaborating.

US concerns over tariff mismatches have been part of the conversation between Mr Lighthizer and Mr Azevedo for some time, according to people familiar with the matter.

Mr Azevedo met Mr Lighthizer again on Tuesday (Feb 11) in Washington in a previously unreported visit, they said.

At 3.4 per cent, the average bound tariff rate charged by the US is among the lowest for major developed countries and has remained virtually unchanged for more than a decade.

By comparison, the average bound rates for India are 51 per cent and Brazil's are 31 per cent.

A renegotiation could help the White House increase its pressure on various nations and trading blocs with whom the US does not have an existing free-trade agreement, like the European Union, the UK, India and Brazil.

Washington is trying to restart stalled negotiations with Brussels aimed at removing industrial tariffs and avoiding an escalation of tensions that has led to threats of tariffs and retaliation.

MODIFYING GATT

While the US president cannot unilaterally change America's bound WTO tariff rates, he does have the authority to trigger a modification of US duties under a provision in the General Agreement on Tariffs and Trade (Gatt).

That kind of negotiation is permitted under WTO rules and is not particularly rare. The UK and the EU are currently reworking their WTO commitments to account for Britain's exit from the European trading bloc.

If the US were to follow WTO protocol, it would notify members that it intends to raise its specific bound tariff rates and encourage any nation with a substantial trading interest to begin negotiations to obtain trade concessions in return.

'IT'S ABSURD'

Various Trump administration officials have repeatedly expressed their desire to obtain more reciprocal access to foreign markets by unilaterally raising America's bound tariff levels.

"Current WTO rules have perversely institutionalised a system of unfair and non-reciprocal tariffs that severely penalises American workers and manufacturers even as non-reciprocal tariffs spike the US trade deficit and act as a drag on growth," said Mr Peter Navarro, the director of the White House Office of Trade and Manufacturing Policy.

Mr Navarro has advocated for legislation that would provide the president with the autonomy to increase tariffs without congressional approval.

"It's absurd that European auto tariffs are four times higher than US auto tariffs," Mr Navarro told Bloomberg in an e-mail reply, when asked to comment about the administration's plans to change the US tariff ceiling at the WTO.

"It's crazy that China and India charge higher tariffs than America charges over 80 per cent of the time."