U.S. takes Appellate Body fight to a new level

With help from Megan Cassella, Jakob Hanke and Gavin Bade

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Quick Fix

— The U.S. is looking to get rid of the last WTO Appellate Body member by accusing her of being on the payroll of the Chinese government.

— European Commission President Ursula von der Leyen said there is momentum toward improving trade relations between the European Union and U.S.

— More than a third of the $8.3 billion spending package for coronavirus will go toward helping states and cities procure supplies for medical professionals.

IT’S FRIDAY, MARCH 6! Welcome to Morning Trade, where your host is thinking twice about handshakes and so are world leaders. Got any stress-free Friday trade tips or new footshake ideas? Let me know: [email protected] or @abehsudi.

Driving the Day

U.S. TAKES APPELLATE BODY FIGHT TO NEW LEVEL: The United States isn’t just content to see the World Trade Organization’s Appellate Body rendered functionless, it wants the last remaining panel member, Zhao Hong of China, to be removed. The new outrage not only escalates the U.S. discontent with the Appellate Body but opens a potential new front in U.S.-China trade tensions.

“This is an unprecedented situation,” the U.S. said in a statement at a meeting of the WTO’s Dispute Settlement Body on Thursday. “This individual cannot be, and is not, a member of the Appellate Body because she is not eligible.”

Chinese government ties: The U.S. argues that Zhao is violating a rule that forbids an Appellate Body member from being affiliated with a government. The U.S. says official Chinese government documents show that she currently serves as vice president and a leader of China’s Ministry of Commerce Academy of International Trade and Economic Cooperation, which it says is funded by China’s government.

The U.S. also indicates that Zhao’s curriculum vitae at the time of her nomination was misleading as it referred to her as the vice president of the Chinese Academy of International Trade and Economic Cooperation. The U.S. brought its concerns to the meeting after sending a letter in January to the chair of the DSB outlining the same complaints.

China’s defense: The Chinese delegation said the U.S. view of Zhao’s appointment is “radical and irresponsible,” according to a Geneva trade official. China said the institute Zhao works for has been registered as an independent entity since 1997. While it does receive government support, the Chinese delegation defended its independence and said Zhao was appointed in full compliance with WTO rules, the official said.

GRAHAM: NO GOING BACK TO THE OLD APPELLATE BODY: Tom Graham, the last U.S. member of the Appellate Body who ended his second and final term in December, said the WTO’s highest dispute panel is not coming back anytime soon or in its current form. U.S. concerns that have been building for decades won’t easily be traded for other issues, he said.

Graham, a former U.S. trade official and trade lawyer, said he as well as other countries and a significant number of WTO staff largely agreed with the U.S. critique that the panel exceeded its mandate. Graham specifically called out how Appellate Body staff influenced case findings grounded on gap-filling precedents so loathed by the U.S.

Advice for the future: Graham said U.S. concerns can be addressed partly by empowering panel members to make decisions without staff influence; preventing appeals from judging whether a lower dispute panel engaged in fact-finding; and agreeing that there can be more than one correct interpretation in a case rather than trying to reach a consensus on every case.

Trade remedy treatment: Trade remedies such as anti-dumping or countervailing duties, which have made up 45 percent of disputes at the WTO, should also be handled separately, he said.

“Trade remedy procedure and creating a belief that trade is fair is politically necessary for maintaining the confidence needed to maintain an open international trading system,” he said.

“That put me increasingly in opposition with the prevailing ethos of the Appellate Body,” he said in a speech in Washington at Georgetown University’s law school.

SHORING UP TRADE SUPPORT IN THE SOUTH: The Trump administration announced that it would hold two field hearings in April to discuss the trade concerns of seasonal produce growers in Florida and Georgia. The hearings in those states will be held by officials from the U.S. Trade Representative’s Office and the Agriculture and Commerce departments.

Tomato growers in Florida have been engaged in a long-standing fight with competitors in Mexico, although an agreement suspended protective tariffs after Mexican growers agreed to certain trade restraints.

The hearings follow a letter U.S. Trade Representative Robert Lighthizer sent to Florida lawmakers in January that said within two months after the USMCA takes effect, the administration will start collecting information on policies that may cause unfair pricing of produce in the U.S. market. Southern growers had pushed for special provisions in the USMCA that would allow them to more easily petition for anti-dumping or countervailing duties, but that was left out of the final deal.

‘MOMENTUM’ IN EU-U.S. TRADE TALKS: Von der Leyen sounded positive about progress toward better trade relations with the U.S. Speaking at an event at Business Europe on Thursday, the EU official said she had a good meeting with President Donald Trump at the World Economic Forum in Davos.

“I believe that there might be a momentum toward improving our relations on a positive footing,” Von der Leyen said. “Of course I’m absolutely aware that any deal that might be worked out needs to be balanced and compliant with WTO rules, and it has to be compliant with the existing European Union mandate.”

DOE: CHINA ENERGY DEALS SAFE FROM CORONAVIRUS: Energy Secretary Dan Brouillette does not expect the coronavirus to affect a $50 billion agreement from China to buy U.S. energy products in the coming years. Brouillette said he believes “the Chinese have every intention of honoring their agreements.” He added that we could see “considerations to coronavirus’ impact on [energy] demand overall” but that today, “there’s no expectation that someone is not going to honor their agreements.”

The secretary made the comments at a press conference with International Energy Agency Executive Director Fatih Birol, who said his organization has “revised [its] global oil demand expectations significantly” due to coronavirus and will release them in a report on Monday. China accounted for 80 percent of the growth in global oil demand last year, Birol said, so the economic slowdown there in response to the virus has had an outsize impact on oil demand expectations.

CONGRESS’ CORONAVIRUS SUPPLEMENTAL TO HELP WITH MEDICAL SUPPLIES: More than a third of the $8.3 billion spending package the Senate passed on Thursday is dedicated to helping states and cities procure the medical supplies health care workers need to combat the outbreak.

The package came through on the same day Vice President Mike Pence, the administration’s coronavirus czar, was in Minnesota to visit 3M, a company that produces N95 respiratory masks. Pence praised the company for ramping up its production of the masks at the outset but acknowledged that products could be in short supply, asking healthy Americans not to buy masks.

“We are ready today, but we want to be ready tomorrow,” Pence told reporters, according to a pool report, when asked about concerns over a mask shortage.

“We’re going to continue to work very closely with you to ensure that now that you’re at full production level here at 3M, that we work with other companies around the country that also create these very same products,” Pence said.

Money for Main Street: The Small Business Administration will also get an infusion from Congress’ spending package, which includes $20 million dedicated to increasing the loans going to businesses affected by the spread of the virus.

Social distancing: The Business Roundtable, which represents large companies, applauded the measure and said a number of its companies “are deploying their expertise, products and services to safeguard public health” and minimize economic impact in the short term.

The BRT also announced Thursday that it’s canceling its upcoming CEO Innovation Summit in Washington, D.C., “out of an abundance of caution.”

International Overnight

— Larry Kudlow says the administration won’t panic over the impact of the coronavirus, Bloomberg reports.

— China’s underreporting of outbreaks may have caused the swine fever epidemic there to rage out of control, Reuters reports.

— A Canadian cabinet official said the country won’t be bullied on Huawei, Bloomberg reports.

— Some economists say the coronavirus is having more of an impact on China than Trump’s trade war, NBC reports.

— The coronavirus could wipe out up to $113 billion in revenue for airlines worldwide this year, The New York Times reports.

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