Commentary

Flouting Trade Rules Won’t Open Markets

Last weekend’s “three amigos” summit put President Obama’s trade identity crisis on full display. On the one hand, he praised open markets and again vowed to resist protectionist impulses. On the other hand, Obama’s Canadian and Mexican counterparts gave him an earful about US policies harming trade between the three nations.

Such is the state of US trade policy, and nowhere are Obama’s current problems more evident than in the Administration’s new trade enforcement initiative. Announced last month, the program bolsters the efforts of the United States Trade Representative (USTR) to snoop in other nations’ closets and ferret out illegal restrictions to U.S. exports.

But while increasing foreign market access for U.S. goods and services is a laudable goal, until the United States gets its own (glass) house in order, the administration’s plans will be ineffective at best and counterproductive at worst.

The White House’s new trade enforcement initiative can be whittled down to three “S”s: more searching, more shaming, and more suing. USTR has promised to expand its targeting of foreign barriers to U.S. exports, to increase diplomatic pressure on trading partners to remove these barriers, and, where diplomacy fails, to bring more cases to the World Trade Organization.

USTR Ron Kirk justified the decision to make trade enforcement a “centerpiece” of American trade policy on the fact that “we need access to foreign markets.” In that sense, he’s right: expanded market access for U.S. farmers, manufacturers and service providers is critically important to the future success of the U.S. economy. Ninety-five percent of the world’s consumers live outside America’s borders, and fledgling economies provide especially fertile ground for the seeds of U.S. business. Thus, efforts to ensure that other nations abide by their trading commitments and keep their markets open have been, and should continue to be, an important part of U.S. economic policy.

The United States has some very valid market access concerns. Mischief abounds in this difficult economic climate. But enforcement can only be a centerpiece of American trade policy when the United States meets its own international obligations. Why will countries respect America’s rights in the global trading system when we so commonly and brazenly disrespect their co-equal rights?

The quick answer: they probably won’t.

China probably won’t end its baseless restrictions on U.S. pork exports (supposedly to prevent the “swine flu”) while the U.S. maintains similarly groundless restrictions on Chinese poultry imports (supposedly to prevent the 2004 avian flu). Indeed, China has already filed a protest with the WTO over the chicken issue.

Canada probably won’t agree to better police its (allegedly) subsidized lumber market when the United States freely subsidizes its auto sector without regard to global trade rules, and confounds Canadian businesses’ ability to bid on U.S. infrastructure projects with indecipherable “Buy American” restrictions. In fact, Canadian municipalities have already responded with “Don’t Buy American” laws - hardly the ideal political environment for new U.S. enforcement demands.

South Korea probably won’t change onerous automobile emissions standards that keep American cars and trucks out of its market when the United States maintains a 25% tariff on foreign truck imports, sits on a U.S.-Korea Free Trade Agreement that was signed in 2007, and keeps Mexican trucks off of U.S. roads for equally dubious environmental reasons that have been found to violate NAFTA. (Not to mention those auto subsidies!)

Of course, when the diplomacy fails, there’s always litigation. But compliance with adverse rulings from the WTO - the only global body handling trade disputes between governments - is purely voluntary. Nations found to have violated global trade rules can accept retaliatory tariffs against their exports instead of opening their markets. The United States is a big believer in this “alternative,” refusing to implement multiple WTO rulings against its bloated agricultural subsidies, its biased antidumping law, and its discriminatory gambling restrictions. Of course, this non-compliance has serious costs to U.S. companies whose exports face new retaliatory duties, and to the consumers in those now-closed foreign markets.

Governments that the U.S. brings to the WTO are likely to follow in our footsteps. So after the administration’s new diplomacy fails and it resorts to WTO litigation, a “victory” in Geneva will most likely mean less market access around the world, not more. And the big losers will be American consumers.

The WTO also will lose out. Because the trade body has no enforcement powers, a fundamental motivation for nations to comply with adverse rulings is to maintain the integrity of the trading system. Non-compliance is supposed to be a last resort. So when the United States and other countries increasingly take this route, the system suffers.

In explaining the administration’s “new approach to trade,” USTR Kirk stated, “If they know we are holding a magnifying glass up to their actions, they’ll be less likely to break the rules.” Unless the Obama Administration first turns that magnifying glass inward, its new trade enforcement plan will be a failure - one that could harm American consumers, contract global trade flows and further marginalize the WTO.

That’s not a new approach worth taking.

Scott Lincicome is an international trade attorney at White & Case, LLP, and co-author of the Cato Institute study “Audaciously Hopeful: How President Obama can Help Restore the Pro-Trade Consensus.”