Commentary

How to Open Markets by Example

In making the case for his free trade agenda, George W. Bush has warned against “a new kind of protectionism” — one that twists concern for labour rights and the environment into an excuse to close markets. The threat is a real one but the U.S. president needs to recognise that classic, old-style protectionism poses just as big a threat to his hopes for a rejuvenated U.S. trade policy.

At issue is the crucial question of renewing trade promotion authority, formerly known as fast-track approval of trade agreements. TPA, which commits Congress to voting up or down on trade deals without amendments, is vital if the US is to push ahead with market-opening negotiations — no country will bargain seriously with the US if whatever compromises are struck can then be rewritten by Congress. Without TPA, ambitious plans for a Free Trade Area of the Americas, a new round of World Trade Organisation talks and various bilateral deals cannot succeed.

Congress could vote on TPA legislation within weeks. While a “no” vote would certainly torpedo the Bush trade agenda, a “yes” vote could be equally fatal if the wrong kind of TPA passed. Many members of Congress insist they can support TPA only if certain strings are attached. Unfortunately, some of these would kill trade negotiations before they even started.

Most of the attention on this score has focused on demands that labour and environmental standards be written into new trade deals. Mr Bush strongly opposes such demands insofar as they contemplate the use of trade sanctions as an enforcement tool. And he is right to do so. Compounding the woes of poor countries by throttling their exports is no way to improve their working and environmental conditions.

Furthermore, whatever the merits, most developing countries are unalterably opposed to enforceable labour and environmental standards in trade agreements. As a result, U.S. insistence on such standards would almost certainly kill off any hope for the FTAA as well as a new WTO round.

But while Mr Bush has been admirably firm in opposing new-style protectionism, its old-fashioned counterpart is getting a pass. One obvious example is the White House’s announcement last month that it was launching an investigation under “section 201” of U.S. trade law. This could result in comprehensive import quotas on foreign steel.

A second, less publicised example is how the Bush administration has declared its opposition to putting another protectionist provision — the notorious anti-dumping law — on the negotiating table in future trade talks.

This move is a pre-emptive surrender to congressional supporters of anti-dumping, who want TPA legislation to deny fast-track procedures to any trade agreement that “weakens” the law. And since the primary anti-dumping user in the US is the steel industry, opposition to negotiations is yet another concession to that small but potent protectionist lobby. Pleasing the steel lobby may help win votes for TPA but it also alienates many of the U.S.’s trade partners. The danger is that TPA may pass but then prove unusable.

Anti-dumping supporters defend the law as a bulwark against “unfair trade”. In fact, though, the law’s Byzantine rules routinely punish foreign companies for engaging in perfectly normal commercial practices. Although many countries now have similar laws, the US remains the world’s worst anti-dumping offender — and the rest of the world is getting increasingly fed up.

Dozens of countries have voiced support for new WTO rules to restrain anti-dumping abuses. In the context of FTAA, Brazil in particular remains adamant that any eventual deal must include anti-dumping reforms. It is extremely unlikely that any new multilateral or regional negotiations will succeed unless the U.S. agrees to tackle its anti-dumping problem.

And why should they? If the U.S. is to lead the world towards more open markets, it must lead by example. It is positively unseemly for the country to hector others about their assorted trade barriers while it clings so tenaciously to its own. Sure, the anti-dumping law has politically powerful support — in particular, the same steel mills that are now receiving favoured treatment under section 201. But if the U.S., with all its wealth and advantages, cannot stand up to the special pleading of an industry with fewer than 200,000 workers, how can it expect to persuade much poorer countries to endure the economic and political disruptions of truly sweeping liberalisation?

If the Bush administration is serious about its ambitious trade agenda, it will have to stand up to old-style protectionists as well as their newfangled cousins. It must fight for the flexibility to include anti-dumping in new negotiations and it must make the case publicly why such flexibility is in the broader national interest. Otherwise TPA promises to wind up a fast track to nowhere.

Brink Lindsey is director of the Cato Institute’s Center for Trade Policy Studies.