U.S. Trade Policies: Preferential Treatment and Challenges

Trade agreements represent significant deals between nations. Recently, President Trump has indicated that the United States should benefit from trade concessions obtained by other countries. If other nations perceive that Washington will claim the best concessions without offering anything in return, they might choose to propose less favorable terms initially, even to American negotiators.

This concept was highlighted in disputes involving Brazil and Canada, where Washington contested that some countries provide better trade terms to specific partners than to the United States. Such distinctions are increasingly labeled as “discrimination” by the U.S.

Brazil’s Trade Agreements

Brazil, both on its own and through Mercosur, has “partial scope” trade agreements with Mexico and India. These agreements result in Mexican and Indian exporters facing lower Brazilian tariffs compared to American exporters. The U.S. Trade Representative has criticized these “unfair, preferential tariffs” during its Section 301 investigation into Brazil, pointing out that Mexico enjoys advantages on over 1,000 tariff lines, with India benefiting from many more.

Partial-scope agreements raise questions about whether they fulfill the World Trade Organization’s criteria that free trade areas should cover “substantially all trade.” Washington argues that American exporters face a disadvantage simply because others secured better agreements.

Canada’s Trade Dynamics

Canada, too, navigates its own agreements. The Canada-European Union Comprehensive and Economic Trade Agreement has provided Europe with preferential cheese access. Conversely, the United States negotiated a different dairy arrangement under the United States-Mexico-Canada Agreement (USMCA). Yet, Washington has invoked Section 338 of the Tariff Act of 1930 against Canada, citing that European cheese receives more favorable consideration, viewing it as discriminatory toward American commerce.

Legal expert Mona Paulsen has highlighted that Section 338’s architects recognized that America cannot indefinitely demand any advantage another nation secures. Recent failed U.S.-Canada negotiations partly stemmed from U.S. demands concerning future Canadian trade deals.

The Emerging Doctrine

By examining the United States’ approach to Brazil and Canada, a pattern surfaces: Washington employs Sections 301 and 338 like a most favored nation clause to which its trade partners never agreed. While bilateral investment treaties often have such provisions, the current U.S. stance resembles free riding, given that other countries negotiated these preferences and compensations.

Such stances undermine the credibility of negotiated agreements. The established postwar trading system has managed the tension between nondiscrimination and preferential trade by accepting that most favored nation is the norm, yet free trade agreements could involve deeper preferences through reciprocal commitments.

The United States has greatly benefited from these exceptions, particularly as Mexican goods receive USMCA preferences not extended to Brazilian products. Would other nations adopt the same strategy if Washington demanded Canadian treatment given to a different country without corresponding negotiations?

Potential Influence on Future Trade Agreements

Washington’s recent actions signal a move toward influencing Canada’s future trade agreements. The USMCA already requires Canada to provide advance notice before negotiating with a non-market economy and includes provisions for termination with six months’ notice. The U.S.’s August demands extend beyond these, aiming not just for shared benefits but also to control their formation.

In a similar vein, the U.S.-Malaysia agreement mandates consultation for future agreements that might threaten American interests, albeit without clear definitions.

For decades, nations were told that preferential access required negotiation. Trump’s policy shifts this notion. If another country secures a better deal, America might demand a similar arrangement or leverage tariffs to seek compliance. This approach does not mirror the traditional most favored nation principle or reciprocation; it represents an unratified most favored nation provision, enforced through tariff threats.

Authors: Marc L. Busch, Karl F. Landegger Professor at Georgetown University’s School of Foreign Service. Barry Appleton, interim director at Balsillie School of International Affairs and co-director at New York Law School’s Center for International Law.

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