More Refutation of Protectionist Doctrine

The backlash against trade in the 110th Congress is fueled by three emotive but purely fictional assertions: (1) trade agreements have caused the trade deficit to rise, and an increasing trade deficit means we are losing at trade; (2) rising imports explain the decline in the U.S. manufacturing sector, including the loss of jobs; (3) the United States is losing at trade because the Bush administration doesn’t enforce our trade agreements and instead turns a blind eye toward the rampant cheating of our trade partners.

The Center for Trade Policy Studies  has produced numerous refutations of the first two fallacies (1, 2, 3, 4, 5, ), while a ruling yesterday from a World Trade Organization dispute panel adds to the growing list of refutations of the third. 

Mostly affirming the complaints lodged by the United States, Europe, and Canada in 2006, the panel ruled that Chinese tariffs on imported auto parts violate China’s WTO obligations.

China must now act to bring its practices into conformity with its WTO commitments (i.e., change the offending laws or regulations) or it can challenge the ruling before the WTO’s Appellate Body.  Yesterday’s decision constitutes the first ever WTO panel ruling against Chinese trade practices, but it doesn’t represent the first U.S. enforcement action taken against China.

The Auto Parts case is the second of five formal U.S. complaints against China in the WTO.  The first case was brought in 2004 and involved a Chinese value-added tax on integrated circuits for which domestic firms could get partial rebates—putting foreign suppliers at a disadvantage.  That dispute was resolved 19 months later during the consultation phase—without need of a dispute panel—when the Chinese agreed to change the tax rule.

The third case was filed in February 2007 and concerns other Chinese tax policies that grant refunds, reductions or exemptions from taxes to domestic firms only.  A memorandum of understanding to resolve and terminate the dispute was reached 10 months later, with China agreeing to change the discriminatory nature of the law.

Two other cases—both initiated in Spring 2007—are pending.  One concerns the alleged failure of China to protect and enforce intellectual property rights and the other concerns alleged barriers facing foreign traders and distributors of copyrighted materials, like books, videos, and DVDs.  A dispute panel was recently composed for the IP case, and the distribution barriers case is still in the consultations phase.

The administration has demonstrated its commitment to enforcement, not only by bringing WTO cases, but in myriad other ways that fly under the radar.  Dialogue is always ongoing between the United States and China, and the United States and other trade partners.  Contrary to the implications of the rhetoric that trade enforcement requires a bludgeon, the most effective enforcement entails quiet diplomacy, where problems are discussed and resolved outside of the shine of the spotlight.

When the foundations of the protectionist backlash are revealed to be made of silly puddy, you’ve got to wonder how long the backlash will endure.