Remember the FTA? Don’t worry, no one else does.

In the short time since his second term of office began in January, US President Trump has made plain his belief in Making Tariffs Great Again.  Tariffs, it turns out, are amazingly versatile.  They can be used to punish countries that aren’t sufficiently keen on sealing their borders (Mexico) or to scold countries that aren’t very enthusiastic about the prospect of becoming American themselves (Canada).  They can be imposed on China, because who needs a reason for China.  And they can be used to protect the American steel industry.

Whether the American steel industry actually needs protection is an open question: the United States is the third-largest producer of steel in the world (behind China and India and more or less level with Japan), with an annual turnover in the tens of billions of dollars, so business seems to be holding up pretty well.  Nonetheless, the White House has now announced a 25% tariff on all imported steel, which is due to commence on 12 March.

Which shouldn’t worry Australia, right?  Australian steelmakers export around $600 million worth of steel to the United States annually, and if that product suddenly becomes 25% more expensive, it will be a much less attractive proposition to American buyers.  But since 2005, Australia has had a free trade agreement with the United States, Article 2 of which has an Annex 2-B headed “Tariff Elimination”.  For several years, this treaty has provided tariff-free exports of Australian steel and steel products to the USA.  Until now.

The new Trump tariffs are as clear a breach of the treaty as you could imagine.  Whether there’s a remedy for that breach is a trickier question.  The FTA does contain a dispute resolution process, which appears to have been designed to be as cumbersome and slow-moving as possible.  But the chance of Australia invoking that clause is as remote as the chance of President Trump being elected Pope.  Australia is militarily dependent on the United States, and the government probably reasons that further provoking the President would not produce a helpful outcome.  Requesting an exemption (the current approach) is more likely to succeed than confrontation.  And, in any case, while the FTA does allow financial compensation to be ordered for a breach of the FTA, that compensation is capped at $15 million (adjusted for inflation) – in other words, peanuts (and, the way the President is going, expect a tariff on peanuts next week).

The second Trump presidency has already raised several issues of international law.  One thing it has demonstrated is that international treaties are given force by the good will of the parties, or by sanctions.  Where one party refuses to respect its bargain, and there’s no effective sanction, then the treaty has little real value.  And there’s this, too: unlike many FTAs, the Australia-US agreement never contained any provision for investor-State dispute resolution – clauses that allow individual foreign investors affected by a treaty breach to seek compensation from the responsible host State.  Australia lacked the bargaining power to ask for this, and the United States had no desire to be held accountable for any future action that might breach the treaty.  Which, from today’s perspective, looks a lot like foresight.