U.S. Plans a ‘Broader Reset’ of Its WTO Tariff Commitments

(Bloomberg) -- President Donald Trump’s trade chief, Robert Lighthizer, will tell U.S. lawmakers Wednesday that the time has come to renegotiate America’s fundamental tariff commitment at the World Trade Organization.

“Currently, outdated tariff determinations are locked in place that no longer reflect members’ policy choices and economic conditions,” Lighthizer said in prepared remarks to be delivered to the Senate Finance Committee starting at 3 p.m. in Washington. He’s scheduled to testify earlier in the day to the House Ways and Means Committee.

U.S. Plans a ‘Broader Reset’ of Its WTO Tariff Commitments

“Many countries with large and developed economies maintain very high bound tariff rates, far above those levied by the United States,” the trade representative said. “The United States must ensure that tariffs reflect current economic realities to protect our exporters and workers.”

The election-year gambit could help the White House increase its pressure on various nations and trading blocs with whom the U.S. does not have an existing free-trade agreement, like the European Union, the U.K., India and Brazil.

The development could also roil the WTO, which is struggling for relevance at a time of growing protectionism and facing the prospect of a leadership void when its Director-General Roberto Azevedo steps down in September.

Trump and his senior aides have long complained about the fact that other countries can charge higher tariffs on certain products than the U.S. 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.

U.S. Plans a ‘Broader Reset’ of Its WTO Tariff Commitments

Lighthizer’s plan is to launch a formal renegotiation of American tariff commitments at the WTO by threatening to increase U.S. tariff ceilings -- or bound rates -- agreed to by previous administrations over decades of negotiations, according to people familiar with the discussions. Bloomberg initially reported his plan in February.

The U.S.’s average bound rate is now 3.4%, which is among the lowest for major developed countries and has remained virtually unchanged for more than a decade. By comparison, the average levels for India are 51% and Brazil’s are 31%.

A broad renegotiation of America’s bound tariffs would be the most significant shift in U.S. trade policy over the past quarter century and would have myriad implications for the WTO’s other 163 members.

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

Brexit Talks

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

If the U.S. 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.

The administration’s strategy is to start with a proposal to renegotiate America’s WTO tariffs with the expectations that the WTO’s other 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.

©2020 Bloomberg L.P.

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