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Info Service on WTO and Trade Issues (Jun26/05) Geneva, 8 Jun (D. Ravi Kanth) -- The United States has notified the World Trade Organization's Committee on Balance-of-Payments (BoP) Restrictions that it does not "currently envision any progressive relaxation" of the 10% import surcharge imposed under Section 122 of the US Trade Act of 1974, even as WTO members grow skeptical about the 150-day measure being levied without prior consultation, said people familiar with the development. "Given that US law by default limits the import surcharge to a 150-day duration, the United States does not currently envision any progressive relaxation of the surcharge during the short time period that it is in force," the US declared in a document (WT/BOP/G/25) circulated on 2 June 2026. THE MEASURE The US explained that on 20 February 2026, the President of the United States issued Presidential Proclamation 11012, imposing a temporary 10% ad valorem import surcharge on all goods imports from all trading partners, with specific product exceptions. It acknowledged that the surcharge applies on top of existing US bound tariff rates. The measure is explicitly temporary, effective from 24 February 2026 and scheduled to terminate on 24 July 2026 (150 days), unless extended by an Act of the US Congress. Justifying the 10% surcharge due to a "large and serious" US balance-of-payments deficit, the US argued that such a deficit poses significant risks not only to its own economy but also to the global economy, given its central role. Relying on data from the US Bureau of Economic Analysis, the Council of Economic Advisers, the International Monetary Fund (IMF), and public economic literature, the US said that it is facing a fundamental and dangerous external imbalance that compelled the imposition of the surcharge. The US acknowledged that the standard BoP accounting framework - current, capital, and financial accounts - nets to zero by design, but argued that Article XII of the GATT 1994 (Restrictions to Safeguard the Balance of Payments) refers to a narrower, economically meaningful concept of deficit. According to Washington, multiple credible methodologies - from the narrow current account balance to broader measures including the capital account and net foreign direct investment (FDI) - all confirm a large and serious deficit as of 20 February 2026. In this regard, the US provided the following data: Primary Measure (Current Account): As of 2024, the annual US current account deficit stood at USD 1.2 trillion, or -4.0% of GDP. This is described as the largest deficit since 2008, nearly double the -2.0% of GDP average between 2013 and 2019. The current account shows a persistent deficit since the 1990s, with a dramatic widening post-2019. Trade Balance: The goods and services trade deficit, the largest component of the current account, reached USD 1.2 trillion in 2024 and remained at that level in 2025 - a 40% increase from 2019. Broader Measures (Current + Capital + Net FDI): Even this more volatile and too-inclusive metric tells the same story: a prolonged, large, and worsening deficit over decades. IMF Confirmation: The US cites the IMF's 2026 Article IV consultation, noting that the IMF Directors "expressed concern about the size and persistence of the US current account deficit," which is projected to remain above 3.6% of GDP through 2031, deteriorating from 3.7% in 2025 to 3.8% in 2026. "SERIOUS CONCERN" The US argued that the deficit is not only large but also "a serious concern" due to its connection to the net international investment position - the difference between foreign-owned US assets and US-owned foreign assets. The US maintained that as of 2024, the US net international investment position reached -90% of GDP. Describing such a situation as "highly atypical" for an economy like the US, Washington said this is the largest negative international investment position in the world in dollar terms, and one of the most negative among developed countries as a share of GDP. The US, it states, has become a "large debtor." The IMF has previously warned that such a large negative international investment position increases susceptibility to exchange rate fluctuations, market conditions, and a loss of investor confidence, as well as a higher share of domestic cash flows accruing to foreigners at the expense of US households. However, the IMF never proposed a surcharge or an increase in tariffs from the US bound tariff schedule, a person familiar with the development suggested. Suggesting a loss of the US dollar's "exorbitant privilege" - a term coined by former French President Valery Giscard d'Estaing - the US said that historically, it ran a positive primary income balance (returns on foreign assets exceeding payments on liabilities), which offset trade deficits. However, the primary income balance fell sharply in 2024, recording the first negative annual reading since 1960 - the largest year-over-year drop on record. This stabilizing force, the US argued, has vanished. Further, the US maintained that current account deficits persistently between 2% and 5% of GDP are considered unsustainable, pointing out that large deficits eventually require adjustment via currency depreciation, reduced consumption, and increased exports. It suggested that the more negative the international investment position , the greater the risk of a sudden, costly adjustment. The US stressed that as the world's largest economy (generating more than 20% of global income), its BoP problems are a serious concern for all WTO members, adding that any disruption or adjustment in the US economy will have substantial global implications. It outlined several macroeconomic measures that Washington has taken to narrow the deficit, including the "One Big Beautiful Bill Act," which includes: (1) "no tax on tips" and "no tax on overtime" to boost labor supply and incomes; (2) reforms to student loan programs to reduce indebtedness; and (3) significant discretionary spending reductions to improve the government budget deficit. Even though these measures are expected to raise GDP growth to 3% over the next decade, Washington explicitly stated that they were insufficient to restore BoP equilibrium on a sound and lasting basis. Against this backdrop, the US maintained that the temporary import surcharge is necessary to safeguard its external position. BoP IMPORT RESTRICTION In its description of the BoP import restriction, the US detailed the temporary 10% ad valorem import surcharge on all goods imports from all trading partners for 150 days, which applies in excess of existing US bound WTO tariff rates, with exemptions for several categories of products, including certain critical minerals, specific agricultural products (beef, tomatoes, oranges), pharmaceuticals, and others. As a legal basis for the 10% surcharge, Washington cites dual authority: Section 122 of the Trade Act of 1974, and WTO law - GATT Article XII, the 1994 Understanding, and the 1979 Declaration. In short, it maintained that the US action is fully consistent with these provisions, which permit import restrictions to safeguard a Member's external financial position and BoP. "Given that US law by default limits the import surcharge to a 150-day duration, the United States does not currently envision any progressive relaxation of the surcharge during the short time period that it is in force," the document states. The measure, it adds, is binary: either in effect for the full period or terminated early. CRITICAL REACTIONS The US defense of its 10% surcharge on BoP grounds raises several sharp concerns, said a WTO member who asked not to be quoted. It appears to be effectively rewriting a key WTO provision, particularly Article XII of the GATT 1994, which was drafted in the Bretton Woods era of fixed exchange rates and capital controls, when "BoP difficulties" clearly meant an inability to finance current account transactions. However, as the US dollar is the world's de facto reserve currency, the US borrows in its own currency, and capital flows are vast and liquid. A current account deficit is not inherently a "crisis" - it is the mirror image of the US role as global supplier of safe assets, the member suggested. The IMF, which the US cites, has not called for the imposition of import surcharges. The IMF's Article IV consultations typically recommend exchange rate flexibility and fiscal adjustment, not across-the-board tariffs. By "cherry-picking" the IMF concern while ignoring its policy prescriptions, the US engages in selective citation, said an analyst. On the issue of the net international investment position, which has deteriorated to -90% of GDP, making it the world's largest debtor, the US appears to ignore a crucial feature of its international investment position: namely, its composition. US foreign assets are largely high-return FDI and equities, while US liabilities are largely low-return safe debt (Treasury bonds), analysts said. The document seems to conflate the notion of "large debtor" with "distressed debtor." For the United States, the negative international investment position is largely a reflection of the US dollar's central role, not a sign of impending collapse, analysts added. Strangely, while the US admits that its own domestic policies will not solve the problem, the One Big Beautiful Bill Act's provisions - no tax on tips, no tax on overtime, and student loan reforms - are microeconomic tweaks, not macroeconomic shocks. They are unlikely to meaningfully alter in the short term the US national savings rate, currently around 18% of GDP. More importantly, the US inverts the logical order, analysts said. GATT Article XII permits BoP measures as a temporary exception only while a Member undertakes "domestic policy measures to restore equilibrium on a sound and lasting basis." +
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