Commentary

Beefing Up Protectionism

By Aaron Lukas
August 2, 1999
On July 29, American consumers and hapless European exporters were punished because the European Union continues to reject imports of U.S. hormone-treated beef. Targeting mainly food and agricultural exports, the United States has slapped a 100 percent tax on annual purchases from Europe worth $116.8 million. Brussels sins, and cheese lovers do penance.

To be sure, both the Clinton administration and the European Union are playing by the rules. The World Trade Organization authorized the tariffs after finding that the EU’s ban on imported hormone-treated beef isn’t scientifically justified and therefore not allowed. Europe has accepted the WTO decision but would rather face the consequences than change its policy.

But the fact that Washington holds the high ground in this dispute will be cold comfort for the millions of Americans who will be forced to pay for the consequences of our trade policy at the checkout counter. Also suffering on behalf of U.S. beef producers will be importers and retailers, whose sales will plummet when the taxes take effect. They will be joining the ranks of other recent victims of U.S. trade policy, including those victims created by the $191 million tiff with Europe over its banana import regime.

Not to worry, says U.S. Special Trade Negotiator Peter Scher, since the list of EU products was specially chosen to exert “maximum pressure” on the Europeans, while inflicting “minimum economic impact” on U.S. industries and consumers.

Nonsense. As a trade negotiator, Scher should know that every transaction has two sides. Each sanctioned product from Europe will now cost willing American buyers twice as much. The U.S. importers may decide to pay the tax — and pass as much of it as possible on to consumers — or they may decide that imports aren’t worth it at the higher price. In either case, Americans lose just as much as Europeans.

Suppose you’re a fan of French Bleu cheese, which is one of the products subject to the import tax. Mr. Scher flippantly advises us that “there are many wonderful cheeses out there,” but as wonderful as Wisconsin cheddar is, it doesn’t suffice for every occasion. The situation is even bleaker if you have a taste for Danish ham: Pork accounts for about $30 million of the total damages that an arbitration panel determined are caused by the beef ban. Lovers of Italian tomatoes and French mustard are also out of luck.

The mounting trade barriers between the United States and its largest trading partner are troubling. The reason for the WTO’s existence is, of course, to promote trade liberalization and bring tariffs down. But the beef-hormone and banana cases demonstrate that the dispute settlement process too often leads to higher tariffs and reduced trade. It’s not clear whether these latest sanctions will prompt European officials to change their attitude toward American beef, but it is certain that the collateral damage from such games of trade policy chicken is becoming unacceptably high.

The Clinton administration is far from blameless in this whole affair. Instead of imposing sanctions, it should have negotiated compensation that would have forced Europe to open its market to U.S. exports elsewhere. In fact, the EU has suggested that it would be willing to drop tariffs on U.S. agricultural products as an alternative to the new sanctions. Such a move would prompt highly vocal EU farmers to push for an end to the beef ban — surely as effective as the current strategy — yet no U.S. interests would be harmed.

It’s mystifying that the administration didn’t seize that opportunity. Prying open the highly protected European agriculture market is at least as important to U.S. businesses as the beef-hormone dispute. Moreover, compensation would serve the long-term U.S. negotiating interest by avoiding the hostile, defensive attitude that heavy-handed sanctions tend to evoke.

But then, the administration hasn’t exactly gone out of its way to promote free trade lately. From 40 percent tariffs on imported lamb to an agreement with Russia to limit steel shipments, Mr. Clinton and his trade team are caving in to special interest pressures on a distressingly regular basis.

As trade ministers from around the globe gather in Seattle this year for the WTO’s ministerial meeting, they should take a hard look at how the dispute settlement process is working. Perhaps it’s time to improve the process so that it more effectively harnesses disagreements; such an improvement would break down barriers rather than raise new ones. Trade sanctions should be authorized only as a last resort; compensating tariff reduction is always preferable.

Aaron Lukas is an analyst at the Cato Institute’s Center for Trade Policy Studies.