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– December 18, 2020 –
Dr. Rogowsky is co-program chair and professor of the International Trade and Economic Diplomacy (ITED) program at the Middlebury Institute of International Studies at Monterey. He also teaches as an adjunct or affiliate professor at Georgetown University. Dr. Rogowsky is president of the Institute for Trade and Commercial Diplomacy.
1. How the US and other countries/governments will behave in this new panorama? Should we expect multilateralism back on stage? Strong and bitter adversaries? Or new leadership from new players?
One thing is certain, it is a new panorama opening before us. It is hard to underestimate the change that is likely to take place in the political, economic, in foreign-policy sphere in the United States, and hence across the world, with the transition from Donald Trump to Joe Biden. The Trump presidency was a digression of profound proportions, especially with regard to multilateral relations among Western nations. This digression was most profoundly felt in the trading system. The disruptions were substantial and were in some cases bad and in some cases good. One hopes Joe Biden’s administration will correct the bad and build on the good. One especially hopes Biden will rebuild the strategic multilateralism that was fundamental to the trading system. I anticipate that it will a primary objective of the I Biden Administration, in both trade and national security.
I also hope it will be a high priority of the new administration to restore a healthy WTO. Restoring the WTO raises the question of leadership–first in terms of the necessary leadership to rebuild the multilateral system and restore the WTO, and secondly, the leadership that the restored WTO can bring to trading relations among the Members. One of the important benefits of this restored leadership of the WTO is that the rules-based system diminishes the power of so-called economic or political leaders. The rules and the formal processes of dispute resolution built into the WTO provide the direction, and hence the “leadership” of the global trading system. In times when nations are taking on decidedly more nationalistic stances, notably China, the United States, the UK, and Brazil, among others, we find ourselves at a juncture where we can restore a more cooperative and collaborative community of trading partners or head down a path towards more “realpolitik” in our economic relations in which economic power dictates the relationships. This latter path leads to a world, as Machiavelli described, in which the powerful do as they will, the weak suffer what they must. It is a system that can work; indeed, it has worked for centuries. The question is how will it work and what will it produce. In my view, is a distinctly second-best solution.
2. What is the hardest challenge to be faced by the US President regarding the international trade measures to be adopted?
President Biden will face no shortage of challenges on the international trade front. His first, most important, and most difficult, challenge will be to build a coalition within the United States government to permit a coherent American trade policy and strategic position. The effort to do this will fall across traditional Republican and Democratic battle lines, recognizing that the Republican position on trade mutated since 2016 toward Democrats’ more protectionist positions. Progressive Democrats will push sustainable trade– which in brief can be described as a greater interest in labor rights, environmental issues, climate change, human rights, and stronger domestic control of policy. Biden is echoing Trump with campaign promises to enforce buy America requirements and re-shore manufacturing. And everyone is competing over how tough they can be on China. It will require extremely deft political statecraft to balance these forces. It has never been easy, and it will be especially contentious in Washington over the next few years. It is hard to imagine near-term how to restore the traditional American support for trade liberalization and a rules-based system.
Assuming President Biden can resolve this internal debate, he will then need to take on a long list of external challenges. Among these are US-China relations, ensure that Covid relief is not blocked by unnecessary trade barriers, restore relations with Europe, implementation of the USMCA, US-UK trade relations, US-Japan trade agreements, reentry into the CPTPP, a tumultuous US-India partnership, and pushing forward the Trade in Services Agreement. It is a heavy agenda. And it is difficult at this point to know just how Biden will prioritize these agenda items, or others that may be on his list. Having said that, I have listed them in the order in which I think logic will demand the address them.
3. What will the greatest opportunities and challenges in the US-Brazil relationship and trade deals?
The internal conflict within Washington will have special implications for US-Brazil relations. It is certain that the Bolsonaro and the Biden Administrations will be at odds over the environment, deforestation, labor rights, and human rights, especially as relates to corruption and Covid relief efforts..
The United States in Brazil have a long and rich history of disagreeing on trade matters. The United States has been a leader for the developed world while Brazil is taken a strong leadership position for the developing countries. It is not surprising then that these two countries would be at odds on most issues related to international economics. There has been a warming of the relationship between the Trump and the Bolsonaro Administrations. They have negotiated several agreements intended to strengthen bilateral commercial relationships. Brazil has taken steps to lower trade barriers for certain agricultural products and adopt a tariff rate quota to allow importation of US wheat. Brazil also agreed to adopt “science-based conditions” that could foster imports of U.S. pork. In exchange, the United States agreed to send Food Safety and Inspection Service officials to Brazil to audit the country’s raw beef inspection system to permit more Brazilian beef into the United States. Over the course of this past year, US and Brazil have worked on agreements in customs administration, e-commerce rules, regulatory practices, and anti-corruption measures. Officials have consulted with domestic stakeholders in both countries to expand trade and develop the bilateral economic relationship. While it is hard to tell on what the Biden administration will focus, one can hope that an important agenda item for the new administration will be to continue the constructive commercial dialogue with Brazil.
4. The former administration advocates WTO reform. Do you see the reform as really necessary? Is OMC (WTO) still effective or does it become a politically biased institution?
Reforming the WTO has been a feature of U.S. trade policy since the WTO was formed. More recent efforts for WTO reform began in the George W. Bush administration, were continued in the Obama administration, and have reached the pinnacle in the Trump Administration by virtually shutting down important parts of the WTO. Most notably, Trump has virtually shut down the dispute settlement process by blocking the appointment of Appellate Body judges. Certainly reforms are needed. Consider first the dispute settlement process. U.S. concerns focus on Panels and the Appellate Body determinations that, in the U.S’s view, reach beyond what was agreed to in the Uruguay Round Agreement (URA) that established the WTO. The argument is that this overreach imposes restraints on Nations that go well beyond what was agreed to originally. For example, the excessive demands on economic evidence of injury and foreseeability of that industry to justify Safeguard (or Escape Clause) measures for is a step too far; Beyond what was agreed to in the your way around agreement. There are other examples of overreach. This is not just a U.S. issue, many nations have similar concerns about dispute settlement overreach. The difficult problem is how to repair it in a consensus oriented body with 165 Members ranging from the United States to Papua New Guinea.
In addition, it seems clear that reforms are necessary to handle successfully multilateral trade negotiations. The 20-year life of the Doha Round suggests that a new negotiation model is needed. Perhaps more sectoral focus, like the Information Technology Agreement or the ongoing negotiations on fishing subsidies, or issue focus such as the Trade Facilitation Agreement (TFA) are more appropriate. It is clear that the new Director General coming into the WTO will need to lead a serious re-examination of the WTO business model.
5. Considering the pandemic scenario, this one or the next, what are the most important movements/measures to expect?
The pandemic poses very interesting questions for the trading system, and for US-Brazil relations. Generally speaking, it is encouraging that international trade declined much less than expected. Early projections from the WTO where that trade might fall more than 30 percent. But in fact, the latest figures from the WTO showed that trade declined by less than 10 percent. Good news indeed. This can be attributed, I believe, to the strength of the growing commercial relationships among international business and the rules-based liberalized trading system built over the past 75 years under GATT and now the WTO. It is testimony to the value of that system, and the need to ensure that it continues.
An additional value of the pandemic is the recognition of the value of a vibrant trading system for important items like medical devices, personal protective equipment, pharmaceuticals, the upstream supplies necessary for all these health-related items, and the health services and distribution services. It makes strikingly clear the benefits of a vibrant, open trading system. It is an easy extension then to take the example of this emergency condition and see again the benefits as applied to all other goods, notably food supplies (agricultural trade), e-commerce in digital trade, and educational services. While increasingly recognizing that governments must be attentive to those who lose from trade liberalization, it must be recognized that the benefits from trade are real and foundational to a peaceful planet.
6. China versus the US what is to come?
The question of US-China relations is profoundly complex. It is, as Samuel Huntington described it, a clash of civilizations. It is not too dramatic to describe it as the classic battle of West vs East. One of the positives that can be attributed to Trump is that he solidified a growing tension within the American trade community regarding China. The coercive diplomacy strategy that Trump applied was not well received by the broader American trade community. Nonetheless, it tapped into a deep concern. I believe it is certain that the Biden administration will substantially adjust the tone of Trump’s coercive strategy toward China but retain the essential thrust of the policy. That is, the Biden Administration will need to formulate a new but equally forceful strategy to take on the China challenge. And it only makes sense to do that by building a coalition of other democratic, market-oriented, WTO members who want to sustain and push for the rules-based trading system built over the last 75 years.
It is clear that the trading system that has evolved in the WTO cannot adequately handle a state capitalism like China’s. The original premise that China’s succession to the WTO would inevitably pull it relatively rapidly toward liberal democratic capitalism similar to the other trading partners in the WTO proved false. It has not happened. Indeed, China seems to be moving toward a more nationalistic, authoritarian, and state-controlled economy, which creates a fundamental dilemma for the WTO. This dilemma will have to be addressed. It cannot, however, be addressed singularly by any nation. It must be addressed by a coalition of like-minded nations. Pulling together that coalition requires significant leadership. I believe an important agenda item for the Biden Administration, perhaps its most important international agenda item, will be to build and lead that coalition in the effective economic statecraft necessary to take on China.
7. Is Brazil on the horizon in the new political administration? In what terms?
It is perhaps worth noting that the United States has a trade surplus with Brazil both in goods and services, although they have declined in the past year. In addition, there has been vibrant foreign direct investment into Brazil—increasing by 60% since 2008– which is fundamental to an economic relationship, although it has been volatile and slowed this year. My optimistic view of this relationship is that the Biden Administration works hard to rebuild economic relationships with our most important trading partners, both for its own sake but it also to create an alliance of WTO members to confront the concerns so many countries have with China. I doubt very much that the Biden Administration will spend any time or political capital trying to push for a US-Brazil Free-Trade Agreement. However, given Brazil’s growing and important relationship with China and Brazil’s growing prominence in the economic community, it seems highly logical that the United States will focus more attention on pulling Brazil into the American team. I believe it will do this by actively addressing current commercial issues to foster closer trade relations between the two economies.
While initially strong bonds grew between the Trump and Bolsonaro Administrations, policy differences have emerged over sensitive issues, such as bilateral trade barriers and relations with China, which affect the economic and geopolitical interests of both countries. Those disagreements suggest that the Biden and Bolsonaro Administrations must engage in more extensive consultations and confidence-building measures if they intend to avoid the historic pattern of U.S.-Brazilian relations, in which heightened expectations give way to mutual disappointment and mistrust.
It is certain, as I indicated earlier, that Congress will continue to shape U.S.-Brazilian relations using its legislative and oversight powers. Although there is support in Congress for long-term strategic relations with Brazil, many are reluctant to advance major bilateral commercial or security cooperation initiatives in the near term, given their concerns about perceived erosion of democracy, human rights, and environmental protections under Bolsonaro.
8. The Democratic Party tends to advocate for an expansion of climate change mitigation policies. Will these policies affect Brazil somehow?
I think it is fair to say that the Democratic Party we’ll be at odds with—possibly diametrically opposed to– the Bolsonaro Administration on the climate. In addition to human rights issues, corruption, and populism, the Democratic Party will be especially concerned about Brazil’s environmental policies and policies related to climate change. The 30% increase in fires in the Brazilian Amazon last year and the loss of nearly 4,000 square miles of rainforest is a significant concern to Democrats. While Brazil has taken steps to deal with deforestation there is sufficient research to link the increase to a series of policy reversals that have cut funding for environmental enforcement, reduce the size of protected areas, and relaxed conservation requirements. In addition, market forces such as the growth in Chinese imports of Brazilian beef and soybeans also contribute to deforestation. Practical people in the United States recognize the economic benefits of expanding Brazil’s agricultural space, even many in the Democratic Party. But certainly, Progressives Democrats will exert considerable influence reflecting their concerns about Brazil’s apparently lax view of environmental protection and meeting its Paris Agreement goals.
It is noteworthy that Brazil’s greenhouse gas emissions declined by 12% from 2006 to 2016, keeping Brazil on track to meet its commitments. Regardless, I believe environmental interests in the United States, not prone to compromise, will be a roadblock to Biden’s efforts to rebuild commercial relations with the Bolsonaro Administration. It did not help that Brazil closed the climate change departments within the environment and foreign Ministries and reduced spending on climate change initiatives by 10%. It does not help that the Administration reduced the Amazon Fund or lost funding from other governments like Norway and Germany, which had been donating to conservation and sustainable development efforts. It will take a substantial shift in Brazil’s environmental policies to win back the hearts of Democrats in Washington, and in turn let them support any efforts by the Biden Administration to rebuild trade relations with Brazil.