Attacks on Americas Act Reveals Opponents of WTO Tariff Reform Have No Solutions

Attacks on Americas Act Reveals Opponents of WTO Tariff Reform Have No Solutions

CPA has championed the need for the United States to free itself from the Literally America Last shackles of WTO tariff commitments. Most are unaware that every WTO Member, including the United States, has pledged maximum tariff rates applicable to every other WTO member.

Under the WTO system, there’s no single maximum rate, but rather specific maximum rates – known as “bound rates” – itemized across 5,000+ product categories.

These bound rates – promises of a single maximum tariff rate – apply equally to every other WTO Member. The notion itself is crazy. But it’s the reality we’ve subjected ourselves to, and it’s why the WTO ruled that our increased tariffs on China were WTO illegal. Under WTO rules, China is entitled to the same tariff as the other 163 WTO nations.

Thank heavens, the United States no longer cares about WTO rulings.

Bound rates are listed in “Schedules of Concessions” annexed to the General Agreement on Tariffs and Trade (GATT). They have no force of law in the United States, they have had tremendous ‘extra legal’ effect, especially in the halls of Congress, where legislators are routinely intimidated by warnings of “WTO illegality”.

What do we mean when we say ‘Literally America Last’? The United States has given away the most, pledging bound tariff rates that average out at a paltry 3.4%. No other nation has committed so much; all their pledges are weaker, allowing them to WTO-legally charge higher tariffs than we do.

Our 3.4% average maximum tariff commitment neuters the United States ability to secure supply chains and negotiate bilateral trade deals.

This is why the General System of Preferences (GSP), the signature trade and development program for the last fifty years, accounts for less than two percent of imports. Under GSP, the United States unilaterally waives tariffs for 119 ‘developing’ countries. Importers electing the GSP tariff cut, however, have to submit a Certificate of Origin attesting to meeting heightened GSP criteria.

But what’s the point of Congress setting expectations in GSP, when the tariff rate globally is already zero, as is the case on most industrial products. There is zero financial incentive for an importer to give any thought to GSP on most products.

And even where we do have a tariff, it’s typically one or two percent, which is never enough margin to justify moving a supply chain from an industrialized nation to a poorer nation. The savings on certain products may, however, be just enough to justify the importer’s outlay on lobbyists or membership in a trade association that advocates for GSP, which is why this 50-year failure perpetuates.

And it’s not just GSP which suffers from a 3.4% average bound rate. Our FTAs with Colombia, Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, and Peru have all done nothing to entice supply chains from Asia because a couple tariff percentage points aren’t enough to overcome what China offers.

U.S. Senator Bill Cassidy (R-La.) gets the problem. He is serious about ending our reliance on China while moving supply chains back to our hemisphere. To that end, the Senator has introduced his Americas Act, along with Senator Michael Bennet (D-Colo.), and Reps. Adriano Espaillat (D-N.Y.), Maria Elvira Salazar (R-Fla.), Mike Gallagher (R-Wis.).

Section 221 of the Americas Act is titled “Tariff Reciprocity Under GATT”, and it states the obvious: “having the lowest bound duty rates has resulted in unsustainable trade deficits that have become an issue for the national security of the United States.”

You can read more about how Americas Act corrects the 50-year error in trade & development policy here, and why renewing GSP would delight China here.

U.S. Chamber and fellow travelers pounce; prioritize asymmetrical access to US market for importers over claimed preference to ‘free trade’

There was a time, over a century ago, when leading members of the U.S. Chamber of Commerce more likely than not made things here, and were interested in facilitating exports abroad. That was back in the early 1900s, when America was the world’s factory. As labor rights took off in the United States, and multinationals became increasingly concerned about rising costs at home and foreign countries’ inability to pay in U.S. dollars, they moved production offshore. Now, the simple fact is, major multinationals care a lot more about being able to import into America versus exporting from America.

So naturally, concern about lack of reciprocity in WTO bound tariff rates gets snuffed out if there’s even a chance at U.S. tariffs going up to achieve that reciprocity.

To that end, two U.S. Chamber SVPs penned an op-ed claiming that the Americas Act changes to this Literally-America-Last policy “would risk launching a tariff war with many of our closest allies and partners”.

They don’t offer a solution, although they have a section titled “What else can be done?” In this section, they offer up their two top trade priorities, neither of which would do anything to “expand trade” with the Americas. The first is more “trade facilitation” agreements, which is mainly about pushing other countries to adopt our lawless de minimis anarchy. The second is “digital trade”, which at its core is not much more than demanding that countries not insist on their citizens’ data being stored domestically.

But expectations that the U.S. Chamber may provide constructive trade policy advice lay somewhere at the bottom of the Mariana Trench, so importers need a different champion.

And as is typical in these cases, an academic appears with an op-ed to lend some credibility (apparently, Professors can still do that).

Enter Marc Busch, author of an inchoate op-ed titled “The misguided Americas Act won’t help America or its partners”.

Busch uses the same fear mongering as the foundation of his opposition: “Washington would spark economic and political havoc at home and abroad even if it just hinted at the prospect of invoking Article 28.”

‘Article 28’ refers to the GATT’s Article XXVIII, which lays out the GATT process for renegotiating bound tariff rates. You know it’s funny – the US Chamber and free trade ideologues like Bush were all about renegotiating bound rates not too long ago. In 2001, the WTO launched the “Doha Round”, the 9th round of GATT tariff negotiations. The US Chamber was a big supporter, and even pointed out the tariff asymmetry to build support.

For example, in 2005, another US Chamber SVP, in discussing the group’s support for the Doha Round, stressed the point that “At just 12%, the average US agricultural tariff is far lower than the worldwide average of 62%”. So what’s changed? Why are we only worried about retaliation now, but not then? The answer is that free traders were so dominant back then, that it was inconceivable that the United States may raise bound rates to gain leverage. The assumption was that the endless coffers of the United States could be used to bribe other countries to reduce their tariffs.

Well, it didn’t work. In 2006, another US Chamber SVP released a statement on the failure of Doha talks. That statement acknowledged the reason of the failure:

A trade deal can only generate prosperity if it generates trade, but the market openings offered by other key players are just rounding errors. Major actors in the negotiations were demanding the right to exclude upwards of 95% of products from any tariff cuts.

And why wouldn’t they? Major developing countries enjoy 10x higher bound rates, what incentive do they have to lower? They’re getting the milk for free.

Simply put, without a willingness to insist on reciprocity, there was never any chance of success for Doha Round tariff talks.

And now that the politics of trade have changed so drastically, the enthusiasm for talking about GATT/WTO bound rates has disappeared entirely from the discourse. Better people be kept in the dark about this raw deal.

Busch’s confusion continued - does he understand Rules of Origin?

Unlike the Chamber, who dutifully offered up untethered existing member priorities as alternatives to promote hemispheric trade, Bush has no other solutions. Just ‘shut up about GATT’.

He does feel compelled to offer what sounds like informed critiques, however, but it betrays a very thin understanding. He comes across like the student who recalls certain equations or principles in isolation, but has no understanding of the broader subject matter, and so stumbles along from memory repeating certain fragments, hoping he goes unchallenged.

At the beginning, Busch says as follows:

To work, the [Americas Act] would require the U.S. to renegotiate its tariff limits, or “bound” rates, at the World Trade Organization. That’s because [U.S. WTO bound] rates aren’t much higher than USMCA’s zero tariffs and don’t burden exporters with costly rules of origin, which can erase the value of a preferential duty.

The point is that, unless U.S.-bound rates are redone, USMCA’s preferences are probably not worth the candle.

So, yes, this is the whole point. It’s why GSP and our LatAm FTAs have never been material to hemispheric trade. The only eye-raising part of this text is Busch’s derision of rules of origin as “costly” – I’m sorry, what? If you’re a t-shirt maker in Honduras (CAFTA-DR country) and your t-shirts use textiles from the CAFTA-DR countries, then all you do is provide a certificate saying so (a ‘Certificate of Origin’). It’s not costly!

At this point in the op-ed, a seasoned trade policy assumes Busch is one of those CATO-style libertarian-anarchists. These types reject Americas’ Act goal of trying to secure supply chains within our hemisphere as unacceptable state intervention in the global market. For that reason, they deride rules of origin. After all, the rule of origin is only ‘costly’ if you’re using overseas cotton in your Honduras t-shirt and need to switch to a local source to get the tariff waiver. But that’s the whole point!

(Assuming Busch falls in this camp is also logical because he writes the verb reshore, a real word, in scare quotes and with a hyphen.)

But as you proceed in the op-ed, Busch does a 180, and begins praising rules of origin while deriding the bill:

Rules of origin matter because supply chains are complex webs of upstream and downstream firms. In the case of semiconductors, for example, certain inputs travel tens of thousands of miles around the world before final assembly. The bill has no grasp of this complexity.

Now, Busch betrays himself as someone who simply doesn’t understand their own subject matter, and has no coherent view.

Under our GATT shackles, we only have the privilege of deploying rules of origin in preferential FTAs – our bilateral and regional trade agreements that promise zero duties.**

If an importer is content to import something under our standard duty rate (which aligns with our GATT-bound tariff rate), then no certificate of origin is needed. For manufactured goods, all that matters is where the good was ‘substantially transformed’.

For example, our 2.5% GATT-bound rate for cars is limiting the effectiveness of USMCA’s automotive rule of origin. Rather than make the investments to meet the rule of origin criteria, car makers are opting to just pay the 2.5%. This is why the UAW is calling for a hike of our global tariff.

So if you agree that “rules of origin matter because supply chains are complex”, then step one is to have a high tariff on imports that do not provide a Certificate of Origin. Hello!

Busch doesn’t appear to understand this central point, because he proceeds to criticize the bill for discussing textiles rules of origin but not having a semiconductors rule of origin: “But the bill isn’t about semiconductors. It’s about textiles.”

The reason the textiles rule of origin is detailed is because textiles and apparel are the only remaining U.S. manufacturing industry where we haven’t taken our GATT-bound tariffs to zero or near-zero. Our bound rates on textiles average 16 percent, very high compared to our 3.4% overall average! And for that reason, we’ve been able to have a detailed textiles rule of origin (known as Yarn Forward) in NAFTA and CAFTA-DR to incentivize complete supply chains within our region.

The reason we don’t have an equally sophisticated rule of origin for laptops and cell phones is because our GATT bound rates on those products are locked-in at zero percent. There’s no point!

Step one to secure supply chains is to have a high, protective ‘default’ tariff that applies globally. That creates the viability for step two, which is to offer preferential duty-free treatment (e.g., tariff-free) to trusted countries when those products meet heightened, product-specific rules of origin. Merely assembling a car in Mexico with all Chinese parts, or a t-shirt in Honduras with Chinese cotton, should not entitle the importer to duty-free status.

Too often, the simplest concepts are lost on supposed academic experts.

 ** This is starting to change, thanks to President Trump’s launching of a global steel and aluminum tariff via Section 232 action, and President Biden’s continuance of that action. Now, importers of certain aluminum products from all countries will have to “identify the countries where the primary aluminum used in the manufacture of certain imports of aluminum articles are smelted and information necessary to identify the countries where such aluminum articles imports are cast.” This is new and exciting, but only viable with the 25% tariff as a foundation, which the WTO ruled illegal for violating our zero percent bound tariff rates, and which Marc Busch also opposes. So much for “rules of origin matter”.


CPA is the leading national, bipartisan organization exclusively representing domestic producers and workers across many industries and sectors of the U.S. economy.

The latest CPA news and updates, delivered every Friday.


Get the latest in CPA news, industry analysis, opinion, and updates from Team CPA.