The Agreement between the United States of America, the United Mexican States, and Canada (USMCA or “Agreement”) requires the USMCA Free Trade Commission, composed of government representatives of each Party, to conduct a joint review of the Agreement on July 1, 2026. In accordance with the Agreement, the United States, Mexico, and Canada met virtually today to discuss the operation of the USMCA. The United States did not agree to renew the USMCA in its current form. As a result, the USMCA is not renewed. The United States will continue to engage with Mexico and Canada to address the Agreement’s shortcomings and our trade deficits with these countries. However, the Agreement remains in force pending resolution of these issues or until the Agreement’s termination. As previously announced, the United States will meet with Mexico the week of July 20 for a third round of bilateral negotiations related to the USMCA joint review.

What does this mean exactly? Let's look at the legal context.

Recall that USMCA Article 34.7 provides in relevant part:

1. This Agreement shall terminate 16 years after the date of its entry into force, unless each Party confirms it wishes to continue this Agreement for a new 16-year term, in accordance with the procedures set forth in paragraphs 2 through 6.

...

3. As part of the Commission’s joint review, each Party shall confirm, in writing, through its head of government, if it wishes to extend the term of this Agreement for another 16-year period. If each Party confirms its desire to extend this Agreement, the term of this Agreement shall be automatically extended for another 16 years and the Commission shall conduct a joint review and consider extension of this Agreement term no later than at the end of the next six-year period.

4. If, as part of a six-year review, a Party does not confirm its wish to extend the term of this Agreement for another 16-year period, the Commission shall meet to conduct a joint review every year for the remainder of the term of this Agreement. If one or more Parties did not confirm their desire to extend this Agreement for another 16-year term at the conclusion of a given joint review, at any time between the conclusion of that review and expiry of this Agreement, the Parties may automatically extend the term of this Agreement for another 16 years by confirming in writing, through their respective head of government, their wish to extend this Agreement for another 16-year period.

Practically speaking, what these provisions say is that as part of the joint review of the USMCA at its 6-year mark (which is today), each government is to "confirm" whether it "wishes"/"desires" to extend the agreement for another 16-year term. If all three governments confirm that they do want to extend, the agreement gets the new 16-year term. If not all governments confirm this, however, the term is not extended at the 6-year mark, but the governments can keep talking and decide "at any time" that they do wish/desire to extend; and until there is such a decision, they will conduct annual reviews (along the lines of the review happening right now), and a decision to extend can be made at those reviews as well. If all three have not confirmed their wish/desire to extend by the end of the 16-year period (i.e. 2036), then the agreement terminates.

The language of Article 34.7 is a bit confusing because a failure to "confirm a wish/desire to extend" at the 6-year mark kind of sounds like a decision to end the agreement, but it actually has a very different impact in practice. As noted, if a party fails to confirm this wish/desire at a given moment, it can still do the confirming later on. Thus, a failure to confirm extension as part of the 6-year review is just a temporary state of affairs that could be reconsidered down the road. (For media folks trying to explain what is happening, I sense that this situation has presented some difficulties in getting a clear explanation out there, and I confess that I'm not sure how clearly I explained things above!)

Given the Trump administration's decision today, where do things stand right now on the future of the USMCA? "Totally up in the air" is probably a good characterization.

What are the chances of this administration deciding to extend on the basis of a negotiated deal at some point in the near future (or before Trump leaves office anyway)? Given that the agreement will continue through 2036 regardless of the administration's decision on the extension, I have doubts that it will rethink its position here and express a wish/desire to extend. There may not be enough near-term economic downside for them to feel compelled to agree to an extension.

An important consideration is likely to be how much Canada and Mexico are willing to concede on trade and non-trade issues. If Canada and Mexico give enough, then perhaps the administration would change its mind and agree to an extension. But I'm skeptical this will happen. Thus, the decision on extension of the USMCA could carry over to a future U.S. administration. (How would a different U.S. administration see this issue? As much as I like to speculate, that one's a little too far off, so let's come back to it later!)

For example, in steel, where the U.S. industry has been weakened over the years by competition from abroad, President Trump famously said, "If you don't have steel, you don't have a country." And then putting that declaration into practice, the U.S. steel industry has been the beneficiary of Section 232 national security tariffs, and national security was invoked in the case of the purchase by Nippon Steel of U.S. Steel.

In the tech sector (including AI), by contrast, the U.S. is currently dominant and therefore downplays concerns about the sovereignty and security of others. As an example, here's a recent post from Jacob Helberg, the Under Secretary of State for Economic Affairs, arguing that by pushing for sovereignty in the digital arena, other countries will be choosing to leave themselves behind, and that they should rely on products from the more advanced U.S. industry instead:

These days, few words flatter a government like “digital sovereignty.” It carries the music of independence, the dignity of self-rule, the promise that a nation holds its own destiny in its hands. So it is no surprise that the expression has been pressed into the service of a fashionable, fast-spreading policy debate.

... a growing number of governments, persuaded that independence requires duplication, are drafting national AI strategies to match [a UN proposal]—each resolved to rebuild, inside its own borders, a stack that already exists somewhere else.

It is a seductive vision. It is also backward and counterproductive.

... Picture the conference—there is always a conference—where forty governments rise in turn to pledge a sovereign cloud, a sovereign model, a national champion of their very own. They will applaud one another’s independence. Then they will go home and pour billions into companies built to do precisely what thirty-nine others are doing, in markets too small to sustain even one of them, chasing margins that thin asymptotically toward nothing the moment the next champion is announced. They will have achieved not so-called “digital sovereignty” but a kind of synchronized mediocrity—a planet of subscale clones, each heroically reconstructing last year’s breakthrough while the breakthrough itself moves on without them.

While others rebuild the present, American firms will be inventing the future. ...

...

The champions of digital sovereignty believe they are arming their nations for the future. In truth they are marching them, in perfect and well-funded formation, into the past. Digital sovereignty was never a wall, and it was never a copy. It was always a frontier—and the only nations that will be digitally sovereign in the age of intelligence are the ones bold enough to keep pushing it outward, into the territory no one has built yet.

As this shows, the "haves" in a particular sector (in this case, the U.S. in AI) tend to take a position that is, in essence, "don't worry about sovereignty, it's not that big a deal, and you will hurt yourself by trying to achieve it."

By contrast, the "have nots" will say something like "actually, we are very worried about sovereignty in this area, in part due to concerns about security." As a reflection of this view, take a look at this conversation between Soumaya Keynes of the FT and UK Minister for AI and Online Safety Kanishka Narayan:

Soumaya Keynes

Yeah, so I suppose there is this narrative that the UK is particularly good at this application layer when it comes to AI. But there’s also a concern about sovereignty. Because, you know, if what we’re doing is using the AI and applying it well, that potentially leaves us vulnerable to another actor whose name rhymes with Shmerica, shutting off our access to the AI stack, the AI supply chain overall, right?

And so, there was obviously this event a few weeks ago that freaked everyone out when the US restricted access to Anthropic’s frontier models, Mythos and Fable, to non-US citizens. How do you think about the kind of vulnerability that the UK faces there?

Kanishka Narayan

Well, I think that the diagnosis has to be that we are not in a terrific position from a strategic leverage point of view. The frontier models are developed either in the United States or slightly behind them by a few months in China. And so Britain does not have companies when it comes to frontier language models, and we don’t have the core chip architecture, the Nvidia chips, as well as the memory and packaging.

...

And so the nature of the problem is very stark, and I think it’s a serious question for the future of our economic and national security. And so what do you do about it? And there are two ways I think about this. Broadly, what you’re trying to do is have ... chips on the table so that you can access others as critical inputs.

And you can do that either by having chips on the table in the AI stack, or you can also think about it as a broader international negotiation bundle. We might not just offer AI things, we might offer other things that are important to, say, the United States or to China to be able to secure access. On AI, what we’re trying to do is effectively say we think it’s really critical we build more leverage, and that’s why we are focused on things that give us leverage.

For the UK (and others), then, there are important sovereignty and security concerns related to AI – mirroring to some extent the current U.S. concerns about steel – that can't be ignored.

A few decades ago, similar concerns led to a push by many countries around the world to promote a domestic steel industry. Will we see something similar now in AI? Will countries ignore the U.S. downplaying of sovereignty on this issue, and adopt interventionist policies that aim to develop a domestic AI sector?

Finally, it's worth emphasizing that the varying positions that governments adopt on sovereignty are tied to the state of specific industries, and are somewhat predictable and understandable as governments try to promote what they see as in their interest for each sector at a given moment. As mentioned at the outset, sovereignty is good and important if you are weak in a particular sector and need to justify protection from foreign competitors, but it can be dismissed if you are the dominant player. It would be interesting to try to press them on these inconsistencies, although I suspect that in most cases you will not get much of an acknowledgement of this.

Butts: And just to be clear about this, because I think it's a really important point, and this is one point we definitely agree on: No matter who is in the White House in 2028, these tariffs are going nowhere. In your view?

Lighthizer: ... nobody here has a grandchild in whose lifetime America is going to be free trade, right? It's just not going to happen.

(I assume Butts meant "after 2028" here).

Obviously, we've never had anything close to free trade before, so it's unlikely to happen after 2028 either. But putting that aside, there's an important question here about what happens to the various recent tariffs after Trump leaves office.

On this question, I would say that there is currently a lot of evidence being gathered on how well these tariffs – what Trump did with tariffs in his first term, the tariffs kept in place and sometimes expanded a bit by Biden, and Trump's tariff surge in the second term – have worked. So far, I don't think they are looking great, either for the specific objectives articulated by the Trump/Biden administrations or the overall impact on the economy, and it seems to me that politicians and policymakers who want to get us back to the more moderate system of protectionism that we had pre-Trump will have a pretty good case to make.

Contracting parties shall not, by exchange action, frustrate* the intent of the provisions of this Agreement, nor, by trade action, the intent of the provisions of the Articles of Agreement of the International Monetary Fund.

The asterisk leads us to a note clarifying the term “frustrate”:

The word “frustrate” is intended to indicate, for example, that infringements of the letter of any Article of this Agreement by exchange action shall not be regarded as a violation of that Article if, in practice, there is no appreciable departure from the intent of the Article. Thus, a contracting party which, as part of its exchange control operated in accordance with the Articles of Agreement of the International Monetary Fund, requires payment to be received for its exports in its own currency or in the currency of one or more members of the International Monetary Fund will not thereby be deemed to contravene Article XI or Article XIII. Another example would be that of a contracting party which specifies on an import licence the country from which the goods may be imported, for the purpose not of introducing any additional element of discrimination in its import licensing system but of enforcing permissible exchange controls.

The point of this post is to encourage thinking about how we read current trade restrictions in the context of rules written in the 1940s, given a different system of fixed exchange rates, in which a balance-of-payments deficit meant something else. 

The architects of the ITO/GATT discussed the need for close institutional coordination, as quotas and exchange controls both restricted trade. Therefore, there was a desire to prevent circumvention of the prohibition on the use of quotas by employing exchange controls. The drafters foresaw a cooperative relationship between the ITO and the IMF, which is why the provision addresses the frustration of the intent of the rules governing quantitative restrictions and the intent of the IMF’s Articles of Agreement (entered into force December 27, 1945). Imagining a close partnership between the agencies, the ITO would consult the Fund on financial matters, and ITO Members could seek permission from the Fund to impose exchange controls (as set out in Article XV:9). A concern about the United States voting power in the IMF, owing to the Fund’s weighted voting system, did not go by unnoticed.

The Interim Commission for the ITO outlined a future institutional relationship in a draft 1948 agreement concerning the relations between the ITO and the IMF. The institutions would coordinate on ‘rules governing the conversion by Members of currencies of countries which maintain multiple rates of exchange’, consistent with the IMF’s articles or a special exchange agreement.

Per the 1948 interim arrangement, the IMF would coordinate reports required under Article XIV of the Articles of Agreement, which governed the ‘transitional period’ following the war. In this context, where governments had to ‘adapt to changing circumstances’ members would need to impose restrictions on payments and transfers. In the interest of returning to ‘commercial and financial arrangements with other Fund members’ and the ‘maintenance of exchange stability’ with them, governments were to withdraw exchange restrictions ‘as soon as they are satisfied that they will be able, in the absence of such restrictions, to settle their balance of payments in a manner which will not unduly encumber their access to the resources of the Fund’ (article XIV(2)). As Roessler explained, the function of Article XIV, lacking a definition for ‘transitional’, empowered Fund members to ‘determine [for] themselves when their economic conditions permit currency convertibility.’

Sub-paragraph (4) of Article XIV of the IMF Articles of Agreement (AoA) confirms the IMF’s role concerning exchange restrictions. Though governments could determine for themselves the necessity of restrictions in transitional periods, the IMF could ‘if it deems such action necessary in exceptional circumstances, make representations to any member that conditions are favorable for the withdrawal of any particular restriction, or for the general abandonment of restrictions, inconsistent with the provisions of any other article of this Agreement.’ Fund members would have time to reply and the Fund could then determine whether a member’s decision to maintain restrictions are then ‘inconsistent with the purposes of the Fund.’ If so, the Member would be subject to AoA Article XV(2)(a) – which empowered the Fund to ‘declare the member ineligible to use the resources of the Fund’ on the basis it has failed to fulfil its IMF obligations. If this failure to meet IMF obligations persisted, the IMF member would be ‘required to withdraw from membership in the Fund by a decision of the Board of Governors carried by a majority.’

The IMF thus had oversight over governments’ exchange actions. With a formal agreement between the ITO and the IMF, stronger coordination could have been built into the GATT’s architecture. Instead, the GATT lacked a formalised process for linking up on exchange matters affecting trade. Roessler described the original relationship as asymmetrical, with GATT consultation procedures set out in informal arrangements, made through exchanges of letters between the Chairman of the GATT Contracting Parties and the Fund’s Managing Director. For Roessler, the inability to formalise the necessary coordination meant that neither body could govern exchange actions ‘speedily, discreetly, and authoritatively’ (645). The GATT would have to depend on IMF coordination, for it operated under a different compliance structure.  

One relevant example of that coordination occurred in 1971, concerning the United States’ temporary import surcharges announced by President Nixon. Before the GATT Council, the United States argued that its balance-of-payments (BoP) deficits had created, over a decade, ‘severe’ and ‘persistent’ distortions, combined with ‘eroded’ reserves and a trade deficit, had ‘jolted’ the United States into action. The 10 per cent import tariff rate increase was applied on an MFN basis and would be a temporary measure within a broader programme. The United States took the position that it was ‘entitled under Article XII to apply quantitative restrictions’ but had chosen instead to apply higher tariff rates, ‘which were less damaging to world trade.’

Upon review, the IMF found that ‘in the absence of other appropriate action, and in the present circumstances, the import surcharge can be regarded as being within the bounds of what is necessary.’ When asked, the IMF representative could not offer any alternative measures to improve the United States’ BoP. 

By contrast, the GATT Working Party concluded the trade restrictions were ‘inappropriate given the nature of the United States balance-of-payments situation’ and the ‘undue burden’ placed on other Contracting Parties. Members of the Working Party urged consideration of the ‘full findings’ of the IMF, noting that movements of capital funds of multinational corporations ‘played an important role’ in the United States BoP situation – and the fact that foreign direct investment came with the substitution of US exports with manufacturing facilities abroad. Seeing ‘massive outflow of short term capital’ as ‘the most important and immediate cause’ of the US BoP deficit, import restrictions were just the wrong medicine for the US’s ills. These Working Party Members found that import restrictions were ‘counterproductive in relation to the objective of fostering price stability and increasing export and industrial competitiveness, apart from being damaging to the interest of other contracting parties and undermining the world trading system.’ The Working Party ‘urged’ the United States to continuously review its circumstances and remove the import surcharge ‘within a short time.’

With this brief history in mind, how might it colour a contemporary interpretation of GATT Article XV? In practice, the GATT Council would validate surcharges that complied with IMF recommendations, even if they were also found to be GATT-inconsistent. The IMF held competence and enforcement powers over exchange actions, and therefore, the GATT deferred to its recommendations. 

A few years later, in a separate issue, Spanish representatives engaged in consultations concerning its BoP situation, finding that the GATT BoP Committee had followed the IMF determinations ‘too strictly’ and raised concerns about Spain’s economic development. Some Contracting Parties were sympathetic to Spain’s arguments and ongoing efforts to progressively liberalise. The consultation revealed slightly competing interpretations of Article XV:2, with some representatives understanding the consultations as one element of GATT assessment. However, the United States representative declared that Article XV:2 ‘obliged’ the Contracting Parties ‘to accept the determination of the IMF.’ 

We might read GATT Article XV:4 and the Note in a different light, imagining the GATT Council as understanding its coordination with, and deference to, IMF authority in these exchange matters. Yet the United States case, albeit briefly introduced, illustrates the tensions that can arise, leaving trade governance the loser (so to speak). Roessler criticised the ‘division of labour between the GATT and the Fund,’ finding that GATT ‘Article XV therefore provides no protection against frustrating exchange action approved by the Fund.’

Another issue is whether it matters that the preferred techniques for adjusting exchange rates today were foreseen by the GATT drafters. Do Members today require added rules and criteria respecting each potential technique? Is it enough that there was a commitment to consult and coordinate with the IMF on all monetary matters, regardless of what the drafters knew? How important is it that the exchange system looked wildly different?

In recent discussions with a colleague, I was reminded of the difference between legal history and legal interpretation. I always find it helpful to better understand how the architects of the ITO/GATT legal regime understood the meaning and function of norms and rules, particularly because they foresaw that consultation with the official drafting documents would be useful in early diplomatic consultations. But today, an international lawyer might say such history is contextual and offered only as a subsidiary source in narrow circumstances.

Paul Kahn, thinking of Robert Cover’s work, wrote that the law has many meanings, which explains why the law is what it is. Kahn wrote that ‘a community that understands a unique, normative past will understand itself as carrying that set of meanings into the future.’ If legal interpretation empowers a community to choose meaning, giving in to the idea that norms are ‘essentially contested,’ then there may be no reason to find them outdated, lost in the dusty box marked for the charity shop. On the other hand, we might think more practically and argue that not every term can live on – some are tethered by roots which hold firm, until state practice proves otherwise. The point was not to highlight past wrongdoing through temporary surcharges imposed by the United States (that may have been a happy accident). But beyond interpretation, we might consider the conceptual structure at play and what the group of WTO Members, as a community, finds integral. It may not be then we need to point to the IMF and demand action, or abandon hope of a conversation about China at the WTO.  Instead, history suggests the only way for a community to figure out whether the interpretation reflects the community is to get on with the business of talking about it. Article XV:4 provides one opportunity for doing so, but there may be others as well.

* * *

The WTO and the Fund signed a formal cooperation agreement in 1996, which replaced the informal letters I referred to above. The 1996 agreement sets out how each institution ‘shall’ facilitate ex ante cooperation, including reciprocal attendance at meetings and the provision of necessary information, such as agendas and documents. Thus, for example, the IMF invites a member of the WTO Secretariat to attend meetings on issues with ‘significant trade content’, and, reciprocally, the WTO invites a Fund staff member to attend meetings concerning the IMF’s jurisdiction (see paras 5, 6). Paragraph 10 requires consultation on possible inconsistencies with each institution’s constituting documents.

In studying GATT Article XV commitments, Deborah Siegel described this ‘cornerstone’ of the WTO/IMF legal relationship as ‘one-sided,’ noting that certain WTO obligations lack a corresponding requirement imposed on the Fund. However, Siegel also observed that, in practice, ‘procedures have been put in place to ensure that no actions taken in members’ relationship with the Fund give rise to WTO inconsistency.’ In terms of the WTO/IMF relationship, and in the context of dispute settlement, Rob Howse refined this position: where an exchange measure is ‘not consistent with the IMF Articles,’ the ‘safe haven’ of Article XV GATT disappears, and a WTO dispute settlement panel may consider whether a measure is consistent with WTO obligations – turning the WTO into a ‘residual enforcer for the IMF’ (my emphasis). Both scholars agree that ambiguities remain regarding the governance of the institutional relationship.

While Simon has recently offered several thoughtful reasons why litigation could be a path to an objective assessment of currency practices, it may be that the political economy of both institutions demands that coordination start with more politics.

China benefits from an undervalued exchange rate. A country running large current account surpluses would normally see its currency appreciate as it repatriates the foreign exchange earnings into domestic currency. In turn, this would curb Chinese exports and increase demand for imports. Instead, China’s currency fell as China’s central bank cut rates to offset the property downturn and guided the currency down (Chart 4a). Once pressure from the rising trade surplus meant the renminbi would rise, Chinese state banks – likely under the guidance from the central bank – bought dollars, at times heavily, to resist the currency’s appreciation (Chart 4b). The IMF estimates the renminbi may now be undervalued by 16 per cent.

Along the same lines, Brad and Shahin Vallée had a piece in Foreign Affairs on "How China’s Currency Manipulation Is Warping the World Economy." And the Economist tells us that "China’s currency is undervalued by between 15% and 30%, making its exports cheaper."

This view has been getting some traction with government officials. EU Parliament International Trade Committee Chair Bernd Lange recently made the following argument:

... the undervaluation of the Chinese currency must be addressed. The fixed exchange rate has resulted in an undervaluation of between 20 and 40%, which, alongside other unfair measures, also gives China a significant competitive advantage. The EU must find a way to address this. First and foremost, of course, is dialogue with Chinese partners. However, there can also be joint actions with other countries, particularly Japan and Korea, which are also severely affected by the undervaluation. As a last resort, the EU could consider imposing countervailing duties.

And Finbarr Bermingham of the South China Morning Post reports that "German Chancellor Friedrich Merz signalled a major shift in Berlin’s economic relations with Beijing on Friday, saying the Chinese currency was undervalued by 30 per cent, well above the International Monetary Fund’s estimate of 'about 16 per cent'." He also notes that "Merz pointed to the Plaza Accords as an example of how such matters could be addressed."

In considering how the EU should handle this, I thought it was worth mentioning that Chinese currency undervaluation was a big topic in the U.S. about 15-20 years ago, and there were lots of IELP blog posts about it. The "currency disputes" tag for the blog is here (with the earliest post back in December 2007!), listing all of the posts on this topic, but let me highlight some of the key ones:

• A number of experts weighing in on the consistency of China's currency policy with WTO rules. 
• Excerpts from a House Ways and Means Committee hearing on the China currency issue (additional details here).
• Excerpts from a CRS report on the WTO legal issues involved.
• Two posts about GATT Article XV:4.

So, for any Europeans trying to figure out what to do on the issue of currency undervaluation, it may be worth taking a look at previous thinking on how WTO rules might apply.

As far as I can tell, though, the European discussions do not involve the possibility of WTO complaints. This seems strange because the EU and China are both parties to the MPIA, so WTO dispute settlement still functions as between them. And the EU has been willing to bring complaints on other issues against China in recent years. Why not consider a complaint on currency undervaluation?

To be clear, the possible WTO complaints in this area all come with a good deal of uncertainty. The provisions are a bit vague on key points and the outcome of a dispute based on China's currency practices is unclear. Nevertheless, it seems to me that WTO obligations in this area should be part of the conversation.

If the approach taken is going to be something other than a WTO complaint, however, based on the statements above from government officials, it sounds as though there are several options under consideration: Dialogues, joints actions, and countervailing duties.

With dialogues, the question I would ask here is: How often do these approaches work to change a country's practices? There's a long history of these efforts, and I'm not sure how successful they have been, on currency or other policies. Would the circumstances here allow China to quietly make changes to the practices that are at issue? I don't have a good sense of this. Merz mentioned the Plaza Accord, and perhaps this could be one version of the outcome of a dialogue.

In addition, Lange talked about "joint actions" with other countries, but I'm not sure what those actions would involve. Maybe this is the better Plaza Accord example?

And then on countervailing duties, as with dialogues, it is worth considering whether this is likely to lead to changes in government practices. I'm not sure CVDs have a great track record in this regard. It's also worth considering how much effort would have to go into defending the CVDs in litigation. It's an open question whether CVDs as a response to an undervalued currency are allowed under either WTO law or EU law, and the EU would likely to have to put in a good deal of effort defending its actions in both WTO dispute settlement and EU courts.

A European 301 

Safeguards are meant to be strictly temporary and time-bound, thereby buying breathing space, but they do not obviate the EU’s lack of a true instrument to respond to China’s economy-wide distortions. The EU needs an instrument to penalise large countries with unbalanced domestic economies, closed domestic markets and an unhealthy reliance on a rising trade surplus for growth that they cannot generate at home. The EU’s anti-coercion instrument (ACI) is powerful but too sweeping – its use should be restricted to actual instances of coercion (for example supply restrictions aimed to force changes in European policy) rather than for sectoral self-defence. The EU needs a tool to occupy the space in between, and the Commission is mulling launching legislation to build it.⁴⁰  

One promising model is America’s Section 301 of the 1974 Trade Act. It allows Washington to investigate and respond to a wide set of foreign practices deemed unreasonable or discriminatory, even when they do not fit narrowly within WTO case law. That makes it a much stronger instrument than classic anti-dumping or anti-subsidy cases: it does not require the US to prove firm-level subsidies, or litigate one product at a time. Instead, the US can impose targeted tariffs on entire sectors and keep them in place for as long as the underlying distortion persists. Washington has used Section 301 across a wide range of disputes, from intellectual property theft and forced technology transfer to industrial overcapacity and forced labour. Currency practices can also fall within its scope: in 2021, the US trade representative (USTR) used Section 301 to challenge Vietnam’s excessive foreign exchange intervention and competitive devaluation.⁴¹  

The EU should use the Commission’s trade defence review to build a European equivalent. A European 301-type instrument would allow Brussels to respond to systemic distortions that fall outside traditional trade defence – notably China’s persistent currency undervaluation and macroeconomic policies that generate demand externally while suppressing it at home. A 301 does not imply indiscriminate tariffs on all Chinese imports, but flexibility to apply a remedy on key sectors. A 301-style tool would let Brussels flexibly target precisely the sectors that matter most – autos, machinery, chemicals, batteries, clean tech and the semiconductors to build them. 

That is likely to be an easier sell than the call of France’s national planning office for a broad 30 per cent tariff on all Chinese imports. It is far easier to keep Germany, the Nordics and business on board if Europe is defending machine tools and cars rather than raising prices on toys, consumer goods and in other sectors where it has little production and little strategic interest. A China-specific EU 301 measure is also easier to defend with trade partners than a broad de facto withdrawal of most-favoured-nation treatment, the cornerstone equal-treatment principle of the WTO. While ideally a 301 would provide the basis for a negotiated change in policy, US 301s are not time-bound and thus a European equivalent would allow Brussels to defend itself for as long as the China shock endures. One possible bargain with China would be that Beijing revalued the yuan in exchange for the EU dropping its 301. 

I think this is a bad idea for three reasons: (1) It is unlikely to change China's practices, (2) there are better options for doing so, and (3) it will undermine the rule of law in international trade. Let's take a look at each one.

Section 301 hasn't been very effective against Chinese practices

If changing China's practices is the objective, it is worth noting that the U.S. tried this with Section 301 and it has not gone very well. Pursuant to a Section 301 investigation that was started in the early part of Trump's first term, the U.S. imposed tariffs on Chinese imports in order to address "China’s Acts, Policies, and Practices Related to Technology Transfer, Intellectual Property, and Innovation." How did those Section 301 tariffs work out? In 2024, the Biden administration conducted a review of the tariffs, and its assessment of their impact does not provide a ringing endorsement. While it claimed that "the imposition of section 301 tariffs, or threat thereof, has induced China to take steps toward eliminating some of its technology transfer-related acts, policies, and practices," it also acknowledges that the situation actually got worse in some ways:

China has not eliminated many of its technology transfer-related acts, policies, and practices. Instead of pursuing fundamental reform, the Chinese government largely took superficial measures aimed at addressing negative perceptions of its technology transfer-related acts, policies, and practices. At the same time, China has persisted and even become more aggressive, particularly through cyber intrusions and cybertheft, in its attempts to acquire and absorb foreign technology, which further burden or restrict U.S. commerce.

The USTR report provides a lot of details that are worth reading in full to get a sense of all this, but at best the outcomes seem like a mixed bag.

Could the EU use a version of Section 301 more effectively against China than the U.S. was able to do? This is one of those questions where an "anything is possible" answer seems appropriate, but the practical reality is that an effective use of a Section 301-type mechanism by the EU on these issues seems unlikely. Sander and Brad probably need to grapple a bit with the lack of success under Section 301 on these issues if they want to convince people in the EU to try this approach.

I would also note here that some people may not be looking to change China's practices, but rather just want to impose broad tariffs on Chinese imports. For those people, the outcomes related to China's practices are not the main point. Here, though, Sander and Brad say that "[o]ne possible bargain with China would be that Beijing revalued the yuan in exchange for the EU dropping its 301"; they also talk about keeping the tariffs in place "for as long as the underlying distortion persists"; and they say "ideally a 301 would provide the basis for a negotiated change in policy." I take all this to mean that, unlike some other advocates of a Section 301-style approach, Sander and Brad are hoping for a change in China's practices, which means the outcomes on these issues matter.

There are better options than Section 301

Second, on possible alternatives to Section 301, I'm not totally clear on the full scope of the Chinese practices Sander and Brad want to address, but I'll note two main items they mention: (1) "persistent currency undervaluation," and (2) "macroeconomic policies that generate demand externally while suppressing it at home." On the first one, I think there may be a better approach, although it is totally untested; on the second one, I would say there are two parts to this, with one part having a better option available and the other one possibly too difficult to deal with anywhere.

On currency undervaluation, I would encourage Sander and Brad to look at GATT Article XV:4, which says:

Contracting parties shall not, by exchange action, frustrate* the intent of the provisions of this Agreement, nor, by trade action, the intent of the provisions of the Articles of Agreement of the International Monetary Fund.

_{* The word "frustrate" is intended to indicate, for example, that infringements of the letter of any Article of this Agreement by exchange action shall not be regarded as a violation of that Article if, in practice, there is no appreciable departure from the intent of the Article. Thus, a contracting party which, as part of its exchange control operated in accordance with the Articles of Agreement of the International Monetary Fund, requires payment to be received for its exports in its own currency or in the currency of one or more members of the International Monetary Fund will not thereby be deemed to contravene Article XI or Article XIII. Another example would be that of a contracting party which specifies on an import licence the country from which the goods may be imported, for the purpose not of introducing any additional element of discrimination in its import licensing system but of enforcing permissible exchange controls.}

This obligation has a non-violation nullification or impairment feel to it. If you are concerned with a WTO Member's currency practices, I think this provision is worth exploring, although doing so would break new ground and it's hard to say how a WTO panel or the MPIA would interpret and apply it.

On the macroeconomic policies, I think here they have in mind both subsidies and various policies that lead to low consumer demand. For the latter, I'm skeptical that Chinese consumer demand is going to change much, although I confess I'm not sure what would happen to consumer spending if, say, China instituted a stronger safety net. In my view, though, pressuring other countries to change how they run their safety nets, or their fiscal policies more generally, is probably not going to have much impact. (I would also note here that some people accuse Germany of engaging in the same sorts of practices, although Sander and Brad do argue that Germany has shifted gears recently.)

Turning to subsidies, if the goal is for China to rein these in, I would suggest a WTO complaint based on the SCM Agreement adverse effects provisions. A neutral ruling based on international adjudication of the issues is much more likely to convince China to change its practices than approaches such as countervailing duties or tariffs under a Section 301-style mechanism, which will be seen as unilateral protectionism and probably lead to retaliation.

Sander and Brad talk about using a European Section 301 to address issues that "do not fit narrowly within WTO case law." I'm not sure why they refer to "WTO case law," rather than just WTO law, but as set out above, it's clear there are WTO obligations that on their face could apply here. It seems to me that it would be worth bringing complaints under these provisions and see how they go.

The rule of law still matters

Finally, there is the rule of law issue. Sander and Brad don't have anything to say about whether a European Section 301 could be used against China consistently with WTO rules. There are, of course, arguments about how it might be consistent (some sort of Article XX defense?), but these arguments tend not to be very persuasive. The EU has been a strong defender of the rule of law in international trade in recent years, and most EU leaders believe they benefit from such a system and are currently seeking to maintain it in the face of ongoing attacks. If they decide to turn away from it, a lot will have been lost. And if they don't even get anything out of this in terms of changes to China's practices, the new approach definitely does not seem worth it.

The Journal is now inviting unpublished manuscripts for publication of its 18th Special Issue (Vol. 18 No.1) titled "Reimagining Global Trade: Industrial Policy and Strategic Autonomy in a Changing Global Order". Submissions are welcome in the form of Articles, Notes, Comments and Book Reviews. 

The full call for submissions is here.

If I'm counting the 2026 announcements correctly, there have been 21 safeguard investigations initiated by WTO Members so far this year. This puts us on pace to see the most investigations initiated by WTO Members in a year, surpassing the 34 in 2002. The figures for 2022, 2023, 2024, and 2025 were 4, 12, 16, and 14, respectively. (The WTO spreadsheet doesn't have data on the GATT-era).

What to make of this development? While I'm not a fan of protectionism in general, safeguards are probably my favorite kind because they constitute – as people say, although I can't find a quote – "honest protectionism." There are no suspect methodologies or accusations of "unfair trade." Rather, safeguard measures are simply an acknowledgement that the domestic industry is having trouble competing with imports and needs some temporary protection to help it out.

It will be interesting to see if any of the safeguard measures that result from these investigations are challenged in WTO dispute settlement. Some of the past WTO disputes on safeguard measures were a source of controversy due to interpretations by the Appellate Body. With dispute settlement now having been disrupted by the blockage of Appellate Body appointments and the emergence of the MPIA, there may be an opportunity to revisit the jurisprudence. We have already seen that the MPIA was willing to revisit the AD Agreement standard of review. It's possible that a fresh look at various elements of the GATT Article XIX/Safeguards Agreement analysis could lead to new thinking as well.

Of the WTO Members notifying safeguard investigations so far this year, the following are parties to the MPIA: Australia (fabricated structural steel), Canada (certain wood goods / certain vegetable goods), the EU (grain-oriented electrical steel), New Zealand (certain aluminium extrusions), and the Philippines (ceramic tiles / rice). Depending on the outcomes of the investigations by these WTO Members, other MPIA-party WTO Members faced with the resulting safeguard measures might bring formal WTO complaints, which could give the MPIA arbitrators a chance to weigh in here.

Products covered by the other notified investigations are:

• office paper (South Africa)
• motor car pneumatic tyres (Russia)
• soda ash (India)
• certain juices, nectars and non-alcoholic beverages (Madagascar)
• certain tableware, kitchenware, and household and packaging articles (Madagascar)
• certain types of rice (Morocco)
• fibreboards (Zimbabwe )
• doors (Zimbabwe)
• tinplate (Russia)
• dry pastries and breakfast cereals (Madagascar)
• plastic pipes and tubes and accessories (Madagascar)
• polyethylene terephthalate resin (Türkiye)
• terephthalic acid (Türkiye)
• other paper and paperboard (Türkiye)

If there's a pattern here in the types of products being targeted, I can't make it out, and I'm not sure what explains this surge in safeguard investigations. Exports by China are surely a part of it, but there could be other factors as well.

📢 Call for Papers! The Block Center for the Study of International Business Law at Brooklyn Law School invites scholars to submit proposals for the 2026 International Business Law Scholars Roundtable, taking place on Friday, October 9, 2026.

Researchers working in international business, economic, and financial law are encouraged to apply. Selected scholars from outside the New York City area may receive up to $500 in travel reimbursement.

Read more details and submit your 500-word proposal by July 15th, 2026 at this link.

So how are these export opportunities working out so far? The earlier post focused on exports of specific categories of products, and in this post I'm going to follow up by looking at some Bureau of Economic Analysis (BEA) data on exports broken down by country. In particular, I'll look at overall U.S. goods exports to the top 10 country destinations (which constitutes around 60% of U.S. goods exports).

If you just want to go straight to the export figures, there's a table at the bottom of the post that compares data on January through April goods exports over the period from 2024 - 2026, for each of the top 10 export destinations (note that the data is for value of exports rather than volume, and is in nominal terms, so you would expect the figures to rise a bit during the period to reflect inflation). Some notable points in the data are as follows:

• Exports to Canada are slightly down, which probably in part reflects Canadian consumer attitudes in response to the rhetoric of President Trump and other U.S. government officials
• Exports to China are significantly down, which is likely due in part to Chinese retaliatory tariffs
• Exports to Switzerland are significantly up, which may reflect the non-monetary gold exports that I mentioned in the earlier post
• Exports to Hong Kong are up by about the same amount as exports to China are down, which may reflect transshipment of goods that are ultimately destined for China but which are avoiding the Chinese tariffs (although it could be some non-monetary gold too).
• Exports to the UK are up, and this could be non-monetary gold as well.

To really get into the details of these export patterns, we need to combine the product data with the country data. I'll try to come back to that soon.

Here's the table of export figures by country:

Source: Data derived from Bureau of Economic Analysis trade data

Recent IMF research found that persistent trade imbalances harm deficit economies and benefit surplus ones by reallocating productivity gains. ...

The IMF acknowledged recently that imbalances are “concentrated and persistent” and driven at least in part by surplus country policies. In its most recent Article IV report, the IMF raised the alarm on the US current account deficit (driven primarily by the trade deficit), noting that the resulting negative net international investment position “raises the risk of an eventual disorderly external rebalancing.”

But, to address this problem, the IMF recommends untenable and outrageous solutions: large-scale tax increases (including a 10 percent federal sales tax) and austerity measures (including deep cuts to popular entitlement programs). ...

Jamieson says the IMF "recommends untenable and outrageous solutions" on taxes and spending. Let's take a look at what they said exactly. On p. 28 of the Article IV report, "Box 5. Potential Tax and Spending Policies to Lower the Federal Debt" provides the following:

A combination of options will be needed on both the revenue and expenditure side of the budget to bring the debt-GDP ratio down over the medium term. These include:

• Scaling back poorly targeted tax expenditures. These include not taxing the value of employer-provided health care, capital gains exemptions for individuals selling their principal residence, and income tax deductibility for mortgage interest and state and local taxes. Removing these tax expenditures would increase progressivity and generate around 1.4 percent of GDP per year in revenues.

• Closing the “carried interest” provision whereby income earned from partners in an investment fund can be treated as capital gains and taxed at a 23.8 percent rate (rather than at the 37 percent top marginal rate).

• Eliminating “step up basis” for capital gains which allows the value of inherited assets to be reset at the date of death so that any capital gains that has accrued during the life of the original owner are effectively never subject to capital gains tax.

• Phasing in a federal consumption tax. Such an increase in indirect taxes would generally be regressive and so would need to be combined with a well-designed social assistance program to cushion the impact on poor households. As an example, a 10 percent, broad-based VAT would yield around 2 percent of GDP in revenues per year.

• Raising the federal excise tax on gasoline and diesel. The federal tax on gasoline and diesel is not subject to indexation and has remained unchanged in nominal terms since 1993 (at 18.4 cents for gasoline and 24.4 cents for diesel). Doubling the tax on both gasoline and diesel would yield around 0.15 percent of GDP per year. A carbon tax could also be considered.

• Raising the corporate tax rate and fully moving to a cashflow tax. If combined, such a change in the corporate tax system could both raise revenue and reduce the marginal disincentive to invest. Each 5 percentage point increase in the corporate income tax rate would yield around 0.3 percent of GDP per year.

• Reducing imbalances in the social security system. Indexing social security benefits to chained CPI would save around 0.1 percent of GDP per year. Subjecting earnings greater than US$250,000 to social security payroll taxes would increase progressivity and yield around 0.4 percent of GDP per year.

• Lowering public healthcare outlays. A range of policies to mitigate the impact of population aging on the federal healthcare deficit have the potential to significantly reduce Medicare outlays and increase the program’s efficiency (see Box 6).

Reasonable people can disagree on these specific suggestions. For instance, I would say that removing the tax exclusion for employer-provided health care is a great idea, and a change that is crucial in order for the U.S. health care system to become something other than the horrible mess it is now; on the other hand, I'm more skeptical of a "10 percent, broad-based VAT." Others might have a different view on each of these.

Regardless of what you might think of each item, though, it's good that the IMF is putting specific proposals out there. It's clear that a change in direction is necessary for U.S. fiscal policy, and it's only going to happen if someone finds a way to get the issue into the political conversation. In domestic politics right now, these problems are mostly being ignored. For almost a decade now, U.S. fiscal policy has involved very high deficit spending, acting as a stimulus to keep the economy growing. You can do that for a while, but at some point you have to adopt a more fiscally responsible set of tax and spending policies.

In the meantime, a side effect of the fiscal irresponsibility is going to be trade deficits that are higher than they otherwise would be. If balanced trade is your goal, then U.S. fiscal policies need to be put in the mix of solutions. Whether the IMF's specific recommendations are appropriate ones will, of course, be the subject of disagreement among people who have always disagreed about these things. Regardless, it's clear that the U.S. needs to reduce its budget deficit, and that one of the effects of doing so will be to lower the trade deficit (although there are many other factors in play here, so it's hard to say with any precision how much of an impact this would have).

Senior U.S. officials have held preliminary discussions with major artificial intelligence companies about the potential for the federal government to acquire some shares in their firms, according to three people familiar with the matter.

Sam Altman, the CEO of OpenAI, has discussed the idea with senior Trump administration officials periodically since the president began his second term, said two of the sources, all of whom spoke on the condition of anonymity to reflect private deliberations. Altman first pitched the concept directly to President Donald Trump in a conversation in early 2025, and has discussed it again with senior administration officials in recent weeks as a way to more broadly distribute the economic benefits of AI to the public, they said.

While planning is ongoing and details are in flux, discussions have centered on having the firms voluntarily cede the shares to the government, the people said. The returns on the investment could then be directed to public purposes, one of the people said, such as distributing a dividend payment to all American households.

In comments he made on Friday, Trump seemed open to this idea.

If this actually happens, it will be interesting to see what the final arrangement looks like, but regardless I think this policy is likely to generate the following international response: Foreign governments could decide to pour resources into developing their own domestic AI sector. There are a couple reasons for this.

First, if a person's use of services from OpenAI and other American AI companies means that money gets sent to Americans but not to non-Americans, non-Americans are going to have a disincentive to use the service. Such a financial outcome would feel totally unfair to non-American users, and they are likely to seek out alternative services.

Second, there will be added privacy concerns with the U.S. government being involved in these companies. There is already a good deal of distrust about the U.S. government getting access to data held by U.S. tech companies. U.S. government ownership of shares in these companies makes this an even bigger concern.

It seems to me, then, that in response to demands from their citizens (and nascent industries), many foreign governments are almost certain to move in the direction of developing their own AI industries to compete with American government-owned AI companies, kicking off an industrial policy competition in this sector.

How difficult will it be for a foreign government to do this successfully? That's hard to say. Building an industry that is as good as the American one could be tough. The American industry has both a head start and greater resources. On the other hand, it's much easier to follow than to lead, so I think a fair number of other countries could develop a sector that offers a pretty good service, even if not quite at the American level at first.

And if they follow the U.S. model that is being suggested, it will be easy to market the product domestically by telling people there is money in it for them if they use the domestic service, and also that by using the domestic service they can help it improve and catch up to the Americans.

At this point, let me just add a general comment that will not come as a surprise to this blog's readers: In my view, state capitalism of this sort would be a terrible policy for the U.S. government (and every other government) to adopt, and everyone should turn away from this approach immediately. It will lead to worse services, worse business practices, and worse government policies in this sector, and should be avoided. Whatever your views on AI in general (I'm more on the skeptic side, as I think of AI as probably useful for some things but a bit overhyped*), I don't think government ownership of this industry is the right road to go down. What we want instead is a competitive industry that gives companies an incentive to behave better, and is subject to regulation that will prevent the range of abuses and harms that have been widely reported and should be taken more seriously.

Finally, let me note that if the real reason for U.S. government ownership here is that the AI sector has no path to profitability and the government is effectively being asked to "socialize the losses," this whole thing makes even less sense.

* _{The caveat to this is that I don't use AI at all (except for when a Google search forces it on me), so it's possible I don't know what I'm talking about! But I've read enough about how it works, and also I ran this by some people who are actual users/experts, so I feel confident enough to post this. Feel free to tell me in the comments how I'm getting it all wrong though!}

First, the switch from the old platform last September led to the loss of threading in comments that had been posted up to that point, which made it difficult to follow those conversations. I was recently able to salvage the original version of a good portion of those older comments and restore the threading, so things should look better now (although I think I've reached the limits of what can be accomplished and some comments from the old platform will remain jumbled).

Let me also note with respect to the comments that if there are multiple comments on a post, the current platform defaults to sorting them by "best." You can adjust this to "newest" or "oldest," but it starts out with "best." If I understand it correctly, "best" is judged by likes and dislikes on the comments. I don't find any of this very useful, but at least as of now there doesn't seem to be a way to disable it.

Second, just a reminder that if you are signed up for email notifications of new posts, they sometimes end up in the spam folder. So if you happen to be reading this post and are wondering why you aren't getting the email notifications you signed up for, please check your spam folder and tag the IELP blog emails as "not spam" or "not junk" (or however your email system describes these things).

 At the March 2026 Ministerial Conference of the World Trade Organization (WTO), India blocked the adoption of the Investment Facilitation for Development Agreement (IFDA), a plurilateral initiative backed by 131 members, including 94 developing countries. India stood alone after South Africa and Türkiye withdrew their objections.

The IFDA is, by design, modest in scope. It does not address market access (including for firms from specific countries), investment protection, or investor–state dispute settlement; nor does it restrict the ability of governments to formulate their own investment policies. Instead, it focuses on improving transparency, streamlining administrative procedures, and fostering cooperation between governments and investors.

These are not abstract ideals; they are practical reforms that many countries—including India—have already pursued domestically. India’s own policy trajectory mirrors the Agreement’s core objectives.

If India has already validated these reforms at home, why resist their codification at the global level?

The answer lies less in substance and more in principle. India’s opposition reflects a deeper concern about the rise of plurilateral agreements within the WTO framework.

The WTO has been anchored in consensus-based decision-making. Plurilateral agreements, negotiated among subsets of members, risk diluting this principle by creating parallel rule-making tracks that exclude dissenting countries. From a systemic standpoint, plurilateralism could fragment the WTO.

Yet there is a difference between resisting a trend and isolating oneself from it.

India’s solitary opposition to the IFDA carries reputational and strategic costs. When a major economy stands apart from a proposal supported by a broad coalition of developing and developed economies, it can appear hesitant about transparency or broader rule-making efforts.  

This perception sits uneasily with India’s parallel ambition to position itself as a leading destination for global investment. Over the past decade, India has invested significant political and economic capital in improving its business and investment climate. But global investors assess not only domestic policies; they also read signals from international engagement. A veto at the WTO risks undermining the credibility of reforms undertaken at home.

More importantly, when a critical mass of WTO members moves ahead with plurilateral agreements, the resulting standards often become de facto global benchmarks. In this case, the 131 participants in the IFDA accounted for over 75% of world imports (2025) and over 70% of world inward FDI flows (2024).

This dynamic is already visible in areas such as digital trade, where subsets of countries have advanced negotiations despite the absence of full consensus. Over time, these rules shape global value chains, regulatory expectations, and investment flows. Countries that remain outside such frameworks do not escape their influence.

How, then, to move forward?

A first option is for India to lift its veto on the IFDA’s integration into the WTO rulebook as a plurilateral agreement while safeguarding its systemic concerns.  

During the Ministerial, Minister Piyush Goyal indicated how this could be done, namely by establishing clear guardrails and legal safeguards. These could be enshrined in a Declaration accompanying the adoption of the IFDA, approved by consensus among all WTO members.

Such a Declaration could:

·      Reaffirm the core safeguard embedded in the WTO’s founding Marrakesh Agreement: that decisions must be taken by consensus.

·      Clarify that the IFDA is a standalone agreement, and its adoption does not establish a precedent for other plurilateral initiatives.

·      Confirm that any investment-related issue going beyond investment facilitation as contained in the IFDA—such as market access, investment protection, investor-state dispute—is separate and distinct from the IFDA.

·      Underline that nothing in the IFDA affects the rights and obligations of non-participants.

·      Reiterate that the IFDA is open to all WTO members to join in the future.

·      Require that the implementation of IFDA measures needs to be done in a non-discriminatory manner regarding foreign investors from all WTO members.

The second option is straightforward: India joins the IFDA, thus allowing the Agreement to be adopted by consensus. This would align India’s international stance with its domestic reform agenda and send a clear signal of commitment to transparency and predictability. Given that the Agreement does not constrain policy space on sensitive issues such as market access or investment protection, the costs of participation are limited, while the reputational gains could be significant. A Declaration as outlined above could facilitate this option, although joining the Agreement would in any event give India a direct role in its further development.

Whatever option is chosen, India can uphold multilateralism without resorting to obstruction, by engaging constructively in shaping emerging trade rules.

With the WTO at a turning point, India faces a choice not between multilateralism and plurilateralism, but between influencing the future of global trade or being shaped by decisions made without it.

· Karl P Sauvant is Senior Fellow, CCSI, Columbia University, and former Director of UNCTAD’s Investment Division; Rajesh Aggarwal is Visiting Professor, ICRIER, New Delhi.

Briefly, the report finds that all 60 economies under investigation, including the European Union, Canada, and Mexico, either failed to effectively enforce a forced labor prohibition or failed to impose any legal prohibition on the importation of goods produced wholly or in part with forced labor. Citing Section 301(b) of the Trade Act, the report notes that the Trade Representative must now “take all appropriate and feasible action …to obtain the elimination of that act, policy, or practice.” USTR proposes 10% as the rate of additional duties for one group of countries, and 12.5% as the rate for another group. To make this argument, USTR’s report simultaneously needs Customs and Border Protection (CBP) to be effective (to sustain the commerce-burden claim) and ineffective (to explain why forced labor still pervades the U.S. supply chain).

Researchers and practitioners have already devoted considerable time trying to understand the report’s implications for trade and labor governance, including why an initiative as critical to market integration as a forced labor import ban is being weaponized to justify yet another round of tariffs. I look forward to hearing from others, perhaps during the written comments period, which closes on July 6, 2026, or hearings on July 7, 2026. In this post, I offer a critique of some of the core elements of USTR’s reasoning related to forced labor import bans and their effects on destination and source economies.

 The Findings

Section 301(b) of the Trade Act authorizes the Trade Representative to take action to address acts, policies, and practices of a foreign country that are “unreasonable or discriminatory and burden[] or restrict[] [U.S.] commerce….”

Before applying that standard, the report divides the 60 economies into two distinct buckets. It finds that those in the first bucket (Canada, Ecuador, the entire European Union, Indonesia, Mexico and Pakistan) have “failed to effectively enforce a forced labor import prohibition” while those in the second bucket (54 other economies, including Australia, Singapore, and Switzerland) have “failed to impose a legal prohibition on the importation of goods produced wholly or in part with forced labor and to effectively enforce such a prohibition.”

The report then finds that the failure of all 60 economies to impose and effectively enforce a forced labor import prohibition is actionable. Referring back to the statute, the report argues that such a failure is “unreasonable” because it:

 (1) undermines the universal aim of eliminating forced labor; (2) permits firms that avail themselves of forced labor to produce goods at a lower cost and thereby distort market conditions for firms that do not use forced labor; (3) undermines the profitability of firms that do not use forced labor; and (4) contributes to the circumvention of existing forced labor import prohibitions.

That failure also:

[B]urdens or restricts U.S. commerce by subjecting U.S. producers to unfair competition from forced labor goods in both export markets and the U.S. market, and by displacing foreign goods produced without forced labor or forced labor inputs from their domestic market to the United States and other markets.

The report’s thesis, as I understand it, is as follows. U.S. forced labor import bans require U.S. producers to exercise, under relevant statutes, “reasonable care” in importing their goods into the United States, including through costly due diligence. Importers in the 60 named economies do not have to exercise reasonable care, or pay associated costs. When responsible U.S. producers export their goods, they have to compete with foreign producers in other countries, despite having higher production costs, giving foreign competitors an unfair competitive advantage in export markets. Moreover, when foreign producers import goods produced in whole or part by forced labor, they sell goods at artificially depressed prices in their domestic market, which in turn can pressure producers (presumably, the good actors) in those countries to look for markets elsewhere, “thereby perpetuating the trade in forced labor goods.” The U.S. economy, with its compliant production practices, is presumably one such external market.

 The Critique

USTR’s findings and reasoning require a lot from us without offering us much in return. They require us to agree that: (1) U.S. enforcement authorities, namely CBP, effectively enforce forced labor import bans in the United States; (2) CBP’s effective enforcement compels compliance with forced labor import prohibitions in the United States; (3) U.S. forced labor import bans make it more costly for U.S. companies to produce goods with supply chain inputs than foreign competitors; and (4) U.S. exporters do not similarly export inputs produced in whole or part by forced labor. I take each argument in turn.

 1. The United States Does Not Effectively Enforce Its Forced Labor Import Bans

USTR’s Section 301 findings rise or fall on its argument that CBP effectively enforces forced labor import bans under Section 307 of the Trade Act and the Uyghur Forced Labor Prevention Act (UFLPA). The report argues: “Economies like the United States that effectively enforce laws that prohibit importation of forced labor goods are a natural destination for these producers, as they would be less subject to price distortions caused by forced labor goods.” If CBP’s enforcement is deficient, however, none of the interconnected consequences described above come to fruition. USTR argues in support of its thesis that CBP has “at present 55 WROs and eight Findings in place with respect to various goods whose entry into the United States is prohibited under the U.S. forced labor prohibition.” There are (at least) two problems with this argument.

First, the premise of the report is that forced labor is prevalent in the supply chain, requiring an all-hands approach to banning imports produced with it. That is correct, and the strongest portions of the report draw on empirical data showing how forced labor continues to permeate production in trade and distort markets. In particular, the report aptly relays polysilicon and cotton case studies to show how forced labor inputs transit through third economies to reach U.S. markets despite existing prohibitions.

In fact, USTR makes such a strong case for the prevalence of forced labor that it sets up CBP’s 55 WROs and eight Findings to appear rather inadequate. If the U.S. import market is truly facing a barrage of inputs and goods produced by forced labor (as a consequence, presumably, of weak import bans elsewhere), why has CBP only issued 55 WROs?

While USTR’s report paints these empirics in the best light possible, a quick review of congressional testimony sheds better light on CBP’s enforcement scorecard. It is safe to write that Congress, the entity that designed and enacted the forced labor import bans, hasn’t given the agency high marks. During a congressional hearing in 2024, for instance, Representative Dan Bishop observed that “CBP’s detention rate is just a sliver of the billions of dollars of textile products the U.S. imports annually, emphasizing the continuing challenge in effectively enforcing the law.” That inadequate detention rate, he elsewhere observed, compounds the “lack of visibility into CBP’s decisions [and thus] represents ‘the epitome of failure of government.’”

Representative Bishop is not alone. In a public letter to CBP in 2023,  seven U.S. Senators, including Senators Bill Cassidy and Ron Wyden, wrote: “Recent reports of textile and apparel mill closures in the United States raise serious concerns as the lack of effective customs enforcement has been cited repeatedly as a key factor contributing to declining demand,” and argued: “Insufficient enforcement can create a pathway for banned Xinjiang cotton to infiltrate regional supply chains and undermine efforts to enforce the Uyghur Forced Labor Prevention Act.” CBP’s track record, according to Congress, fails to align with USTR’s characterization of effective enforcement.

Second, USTR’s figures are questionable for two reasons: (1) the link offered in the footnote, like many in the report, is wrong and (2) even a correct link reveals that at least four of the active WROs have been superseded by the UFLPA’s rebuttable presumption and thus no longer function as independent enforcement tools.

USTR has dug itself into an analytical hole here. It needs to convince us that the lack of effective forced labor import bans elsewhere has led to pervasive forced labor in the supply chain, including the U.S. supply chain, harming U.S. producers. But it also needs us to agree that CBP is effectively enforcing the ban to keep those imports out of the United States. Instead of addressing this tension head on, the report under-analyzes CBP’s track record and over-credits CBP’s enforcement statistics.

 2. CBP’s Enforcement Does Not Compel Compliance

Part of USTR’s Section 301 investigation centered on whether the 60 economies effectively enforce their forced labor import bans, raising an obvious question about what “effectively enforce” means. According to the report: “USTR considers that an economy fails to effectively enforce a prohibition if the economy is deficient in compelling observance of its forced labor import prohibition, if any.” To show how CBP compels observance, the report merely recites the number of WROs, Findings, and examinations the agency has conducted since 2016, indicating that CBP modified 16 WROs and Findings after importers “demonstrated they had remediated the indicators of forced labor” that led to the enforcement action.

Again, USTR’s statistics are not doing the empirical work it needs here. According to the Global Slavery Index, a total of $196.6 billion worth of imports at risk of being produced by forced labor make it into the United States. Neither foreign exporters nor domestic importers have been compelled into observance. Against that backdrop, the USTR’s paltry 16 actions stand starkly.

Furthermore, USTR offers no methodology for how it counts remediation actions. It does not break this figure down by sector or importer, nor does it provide a basis for treating 16 modifications across a decade as evidence of systemic compliance.

Perhaps acknowledging that arguments about compulsion require empirics on compliance behavior that exceed USTR’s expertise, the report helpfully points the reader to eight elements that can “also assist in examining whether an economy has the tools necessary to effectively enforce its forced labor import prohibition.” Space does not permit me to do a full assessment of CBP’s procedures, so I will stick to the first element: “A statutory definition of forced labor grounded in international law.”

I want to review this element because of its importance to broader trade and labor governance efforts. USTR’s invocation of international law to benchmark effective forced labor ban legislation is highly problematic in two respects.

First, while the U.S. forced labor import ban legislation reproduces the International Labor Organization’s definition of forced labor, it departs from that definition in the details. The ILO’s definition is codified under ILO Convention No. 29. The Convention states:

For the purposes of this Convention the term forced or compulsory labour shall mean all work or service which is exacted from any person under the menace of any penalty and for which the said person has not offered himself voluntarily.

Meanwhile, Section 307 similarly states:

'Forced labor', as herein used, shall mean all work or service which is exacted from any person under the menace of any penalty for its nonperformance and for which the worker does not offer himself voluntarily.

However, Convention No. 29 expressly includes “the imposition of forced labor for the benefit of private individuals, companies or associations.” U.S. legislation fails to honor that definition. When the question of ratifying Convention No. 29 was before the U.S. Tripartite Advisory Panel on International Labor Standards (TAPILS), the panel concluded:

Convention 29 cannot be ratified without amending U.S. law and practice…[TAPILS] concluded that the trend of states to subcontract the operation of prison facilities to the private sector in the United States conflicted with the requirements of Convention 29 relating to circumstances under which the private sector may profit from prison labor.

Consequently, the U.S. definition of “forced labor” is not grounded in international law.

Second, the deviance in the definition of forced labor has salient effects on trade. Private prisons in the United States made billions of dollars in profits last year owing to ramped up immigration detention. Prisoners who “volunteer” to work make $1 a day. The goods they produce, including food items, make it into the stream of commerce.

 3. U.S. forced labor import bans do not make it demonstrably more costly for U.S. companies to produce goods with supply chain inputs than foreign competitors

USTR’s report claims that due diligence costs in the United States are equivalent to a 2.5 percent tariff and attributes it to a RAND study commissioned by the Department of Homeland Security. It uses this statistic as evidence that U.S. producers are at a competitive disadvantage because producers in the offending economies “do not have to undertake due diligence to ensure that their goods are produced free of forced labor.”

USTR mischaracterizes what the RAND Study measures. The study’s actual calculation is entirely different. It calculates the tariff equivalent of the UFLPA’s observed trade effect, that is, the total reduction in import volumes the UFLPA caused.

USTR misattributed a macroeconomic policy effect to a microeconomic firm-level cost category. The UFLPA’s total trade-reducing effect has nothing to do with the specific cost burden on complying businesses. The UFLPA is a statute, not an enforcement action. Its trade-reducing effect reflects U.S. policy choices. However, Section 301(b) requires a finding that foreign conduct burdens U.S. commerce; USTR has instead substituted evidence of a U.S. statute’s trade effects to satisfy that requirement.

I am not suggesting that these data do not exist, merely that USTR has failed to offer them. An empirical survey of U.S. importers testing due diligence costs before and after 2016 would be probative, if USTR has time between now and the rather predictable litigation that will surely arise as this action unfolds.

 4. USTR’s Argument Falsely Assumes U.S. Exporters Are Compliant

The report’s comparative disadvantage argument assumes that U.S. companies do not engage in forced labor practices. This is a separate argument from above. If companies in the United States use forced labor to produce goods they export, then those companies are placing destination country companies at a similar competitive disadvantage.

Tellingly, USTR made no effort to show that U.S. exports comply with forced labor legislation. It merely contrasts the United States with another economy that “permits or does not police the use of forced labor to produce or provide services.” If the United States is guilty of the same, the comparative disadvantage argument either fails or is significantly weakened. Sectors of concern, the report notes, include agriculture, construction, manufacturing, and mining and quarrying. The report argues that “When these goods enter into an economy that prohibits the domestic use of forced labor, they directly undercut domestic producers and importers of legitimate goods.”

USTR is partly right. Its conclusion that forced labor practices undermine compliant companies is well documented. But its failure to engage with the U.S. forced labor practices in those same sectors raises significant red flags. Reports documenting forced labor in the United States are abundant. They suggest that between 50,000 and 1.1 million people are working in forced labor in the United States right now. They work in agriculture, where immigrant workers and young children are exposed to hazardous work without pay, including in export sectors. They work in manufacturing, where unaccompanied migrant children are forced into debt bondage. Private prison labor produces inputs in the global supply chain.

If U.S. exporters, like exporters elsewhere, defy forced labor prohibitions to produce tradable goods, then USTR’s comparative disadvantage argument requires rethinking. Before it can claim unreasonable interference with fair conditions of trade, USTR must think deeply about how U.S. corporate practices play into the so-called “race to the bottom.”

 Conclusion

Forced labor, whether in the United States or abroad, is abhorrent. It distorts the supply chain through perverse incentives to maximize profits at the expense of fundamental human rights. Curiously, USTR’s report characterized the prohibition against forced labor as “universal,” noting “the consensus within the international community that forced labor goods should not exist.” Its arguments seem to advocate for a rule of customary international law that could entice all governments, as a matter of erga omnes obligations, to enforce the prohibition under a shared legal interest. Rather than take that approach, USTR has tied itself (and brought us along for the ride) in circles, requiring it to argue, on the one hand, that forced labor continues to permeate the U.S. supply chain and, on the other, that CBP has effectively enforced U.S. forced labor import bans so as to compel compliance among importers. USTR’s poor reasoning and misleading use of data raise more questions than the report answers.