By Ari Hawkins

Presented by AAU

With help from Doug Palmer

— Washington’s top trade official Katherine Tai said it is not the administration’s goal to restore the World Trade Organization’s appellate body, and that a government shutdown could imperil negotiations with the European Union on a steel and aluminum deal.

— Canadian industry is bracing for complications after strikes from the United Auto Workers union expanded to 38 parts distribution centers in the United States, in a strategic move designed to ratchet up pressure on the Big Three automakers.

— The White House is kicking off its second U.S.-Pacific Islands Forum Summit as the Biden administration moves to shore up Washington’s presence in the region and counter China’s persisting influence.

It’s Monday, Sept. 25. Welcome to Morning Trade! The clock is ticking as lawmakers scramble to try to prevent a government shutdown before the end of the month. POLITICO shows you all the ways congressional sausage-making — across virtually every policy sector — could be put on hold. Send us your trade news at: [email protected], [email protected] and [email protected]. You can also follow us on X: @_arihawkins, @gavinbade and @tradereporter.

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WASHINGTON’S PLAN TO REFORM GLOBAL TRADE: With just five months as of Tuesday until the WTO opens its 13th Ministerial Conference, U.S. Trade Representative Katherine Tai spelled out U.S. ideas for reforming the group’s broken dispute settlement system and updating the organization’s rules for the coming decades. 

In a speech Friday at the Center for Strategic and International Studies, Tai made no promises about restoring the Appellate Body that the United States effectively killed several years ago because of concern about judicial overreach. Instead, she argued, the goals should be to provide “confidence that the system is fair” and revitalize “the agency of Members to settle their disputes.” A solution is possible by MC13 in the United Arab Emirates in late February, but that will depend on all members, not just the U.S., Tai said.

Transparency: In a veiled reference to China, Tai called on countries to honor their obligations to report subsidies and other measures affecting trade to the WTO. She also proposed other ideas to strengthen transparency, which she said would “improve our ability to monitor compliance and to resolve our disputes.”

New rules: Another priority should be to “rebuild the WTO’s ability to negotiate new rules for the new challenges that we face,” Tai said. Again, without mentioning China by name, she ticked off concerns about Beijing’s industrial subsidies and support for its state-owned enterprises, which she said harmed workers around the world. “We need to have real conversations about how the WTO can address these issues.”

Reality check: While an agreement on dispute settlement is “within the realm of possibility” for MC13, as Tai put it, reforming the WTO is a longer-term effort that could require several more ministerial conferences to complete, starting with MC14 in Cameroon in 2026.

GOV’T SHUTDOWN COULD HAMPER U.S.-EU STEEL TALKS: Tai also spoke by video link Friday to an Atlantic Council conference in Berlin, where she expressed optimism the U.S. and the EU could work out a deal by Oct. 31 to avoid a replay of their 2018-2021 trade war.

However, it was unclear whether Tai expected a final agreement in the steel and aluminum talks with the EU by the current self-imposed deadline, or just enough progress in the negotiations that the two sides would not reimpose tariffs on each other’s goods.

Asked at the CSIS event to identify the biggest challenges to the U.S. and the EU reaching a deal, Tai replied: “Government shutdown.”

That suggests USTR might have to furlough some of its negotiators if Congress fails to pass legislation to fund the government past the end of the current fiscal year this Saturday. However, USTR has not yet specified how the negotiations could be impacted.

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CANADIAN INDUSTRY BRACES FOR IMPACT: The United Auto Workers Union has expanded strikes to 38 parts distribution centers operated by General Motors and Stellantis, an intensification of the targeted work stoppages that could have impacts across the North American automotive sector.

The latest round kicked off Friday when more than 5,600 workers walked away from their posts and joined the roughly 12,700 union members on the picket lines who represent less than 13 percent of UAW’s 145,000 employees at the Big Three automakers.

The union group spared Ford Motor Co. from the latest batch of announced walkouts, saying the company had done more to meet its demands.

Slowdown incoming: The strike expansion to 20 states targets dealers, who sell and service vehicles and rely on just-in-time shipments for parts from across the deeply-integrated automotive sector throughout the United States, Mexico and Canada.

“Inventory of parts and components is in days to weeks, not weeks or months,” Dennis Darby, president of the Canadian Manufacturers and Exporters Association, which represents thousands of companies responsible for more than 80 percent of Canadian manufacturing, told Morning Trade.

“The first round of strikes affected a small number of plants, including some of our members, who either sourced product from those plants or would supply to those plants, but as these [stoppages] widen, it’s going to start to back up the supply chain,” added Darby.

A spate of global events including the Covid-19 pandemic as well as the ongoing global microchip shortage has already put smaller supplier plants in a precarious financial position, according to automotive analysts.

More to come: The latest round of strikes avoided the automakers' bestsellers in a signal UAW is continuing its strategy to gradually escalate the pain as negotiations progress.

WHITE HOUSE TO HOST PACIFIC LEADERS: President Joe Biden is hosting the second U.S.-Pacific Islands Forum Summit today and tomorrow as the administration moves forward with efforts to counter China’s persisting influence across the strategic region.

“There’s also no question that there is some role that the [People’s Republic of China] has played in all this,” said a Biden administration official who briefed reporters on background ahead of the announcement, citing China’s “assertiveness and influence.”

“But what we’re really focused on doing is showing our Pacific Island friends that the United States, working with like-minded partners, can provide viable alternatives that will work,” the official added.

Washington will establish diplomatic relations with two territories today, the Cook Islands and Niue, and provide new money for infrastructure, including to improve internet connectivity via undersea cables.

Not in the room: Solomon Islands Prime Minister Manasseh Sogavare won’t be in attendance, according to officials, after the region signed an agreement with China to build a “comprehensive strategic partnership.”

U.S.-CHINA WORKING GROUPS LAUNCHED: The United States and China announced an economic and a financial working group on Friday in the latest signal of a thaw in relations between the world’s largest economies. The Department of Treasury said the groups would come under the direction of Treasury Secretary Janet Yellen and China’s Vice Premier He Lifeng, who will meet “at a regular cadence” to exchange information on macroeconomic and financial developments.

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COMMERCE FINALIZES CHIPS GUARDRAILS: The Commerce Department finalized the national security “guardrails” on Friday, and implemented portions of the Biden administration's CHIPS and Science Act intended to limit China’s ability to benefit from the $39 billion in federal subsidies for semiconductor production.

Under the new rules, companies receiving funds will be prohibited from expanding material semiconductor manufacturing in foreign countries of concern like Russia and China for 10 years, according to a department press release. The rule also restricts certain types of joint research and technology licensing efforts.

The final guidance — which has been the focus of heavy lobbying from groups like the Semiconductor Industry Association — made several changes supported by chipmakers compared to the original proposal in March.

For instance, Commerce removed a proposed curb that could have compelled the department to review any transaction valued at more than $100,000 that expands the semiconductor capacity in a country of concern.

GSP MOD WANTED: Reps. Brian Higgins (D-N.Y.) and Bruce Westerman (R-Ark.) introduced legislation on Friday to remove tires from the list of products affected in the event of the renewal of the Generalized System Preferences program. The tariff-slashing program provided 119 emerging regions duty-free access to thousands of American products until it lapsed in December 2020.

“The GSP is the largest and oldest U.S. trade preference program. Unfortunately, some countries have chosen to abuse the program to illegally dump their tire products on the market,” said Higgins. The GSP waives a four percent duty on tires.

Timing is everything: The legislation comes on the heels of a meeting from the Ways and Means trade subcommittee on “reforming” GSP to “safeguard U.S. supply chains and combat China,” which underscored persistent disagreement over how to reform the program, and account for the digital economy.

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— The Fresh Produce Association of the Americas and more than 400 businesses sent a letter urging Commerce to reject a request by the Florida Tomato Exchange to terminate the Tomato Suspension Agreement, which would reimpose anti-dumping duties on billions of dollars’ worth of tomatoes crossing into the U.S. annually.

— The European Union has to be able to protect itself “when its openness is abused,” the EU’s trade commissioner Valdis Dombrovskis said in a speech in China, per Carlo Martuscelli.

— Washington will allow Israeli citizens this week to travel to the United States without a U.S. visa despite concerns over Jerusalem's far-right government, per AP.

— China’s Xi Jinping said on Saturday he will seriously consider a visit to South Korea to speak with Prime Minister Han Duck-soo, per Yonhap news agency.

— Florida Governor and 2024 Republican presidential candidate Ron DeSantis announced the suspension of school choice scholarships to four schools over alleged “direct ties to the Chinese Communist Party,” The Hill reports.

THAT’S ALL FOR MORNING TRADE! See you again soon! In the meantime, drop the team a line: [email protected], [email protected] and [email protected]. Follow us @POLITICOPro and @Morning_Trade.

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