Self-Humiliation & Exemption From US Steel Tariffs

♠ Posted by Emmanuel in , at 5/01/2018 12:34:00 PM
VERs and evil feels oh so 1980s.
The self-made deadline of the United States to make permanent 25% tariffs on steel and 10% on aluminum imports has come and gone with no small amount of confusion. That is, we are now in June 2018 with no better indication of who will be permanently hit with what. It's particularly true for EU countries, Canada and Mexico. While this phenomenon--uncertainty created by the Trump administration--is par for the course nowadays, it does create a lot of unease for America's trading partners that does not sit well with them.

What is it Americans are asking for? At the moment, they are offering a choice between [a] limiting the amount of steel exports to the United States and [b] being subject to the aforementioned tariffs if such restraints are not agreed upon. Here is what the Americans have said:
”In all of these negotiations, the administration is focused on quotas that will restrain imports, prevent transshipment, and protect the national security,” the White House said. “These agreements underscore the Trump administration’s successful strategy to reach fair outcomes with allies to protect our national security and address global challenges to the steel and aluminum industries.”
Previously, the United States got the South Koreans to make a concession of reducing steel exports by 30% to gain an exemption. Now, it wants to do "pattern bargaining" with its other trade partners. So, what's the problem here? Well, WTO members--of which all the countries concerned are--should not be forced to make such concessions. What the United States is now asking for is not new. For all intents and purposes, they are "voluntary export restraints" [VERs], a euphemism for the United States "asking" trade partners to self-limit the number of exports they send to the US. Of course, it is coercive in nature because there is an "or else" element in being hit by trade sanctions if not followed. Article 11.1(b) of the WTO's Agreement on Safeguards states:
Furthermore, a Member shall not seek, take or maintain any voluntary export restraints, orderly marketing arrangements or any other similar measures on the export or the import side. These include actions taken by a single Member as well as actions under agreements, arrangements and understandings entered into by two or more Members.
So what you are in effect doing if you agree to what the US wants with regard to steel and aluminum exports is voluntarily giving up your rights under the WTO to kowtow to the US. While this may be fine with some like South Korea for reasons only they know, for others it is an act of self-humiliation. So, it comes as no surprise that those more reluctant to implement these things are the larger trading partners like, say, Japan:
The lack of retaliation threats from Japan, despite anger and frustration at the US president’s decision to target a close ally, reflects confidence that many of the country’s steel exports can win product-by-product exemptions from the tariffs. Japan’s calculated response highlights its determination to keep good relations with Mr Trump and the difficulty of using tariffs as a tool to force trade concessions when so many US industries rely on imports.
The same with the European Union:
European officials have said the U.S. tariffs violate international trading rules, and they have threatened to retaliate with levies on iconic American brands such as Harley Davidson motorcycles and Kentucky bourbon.
“The EU should be fully and permanently exempted from these measures, as they cannot be justified on the grounds of national security,” the European Commission, the 28-nation bloc’s trade authority in Brussels, said in an emailed statement on Tuesday. “The EU has also consistently indicated its willingness to discuss current market access issues of interest to both sides, but has also made clear that, as a longstanding partner and friend of the US, we will not negotiate under threat.”
Who's gotten a pass aside from South Korea? To no one's surprise, they are countries with smaller trading volumes who have presumably agreed to VERs as well:
The administration has reached agreements-in-principle with Argentina, Australia and Brazil, according to the statement, which the White House released late Monday night. The details "will be finalized shortly," the statement added.
We'll know if they did agree to VERs shortly. 

While China and Russia are perceived as security threats of the highest order and would naturally be unable to conform to US national security interests as this issue is being made out to be, it is notable that India and Japan have not managed to obtain exemptions. Ultimately, for countries other than China or Russia, it ultimately boils down to whether you'd want to self-humiliate yourself by abrogating your WTO rights to not be subject to VERs. This point brings us to another fine point on whether these VERs are admissible at the WTO, but I presume that having been bamboozled into agreeing to these VERs that you wouldn't turn to the WTO anyway.