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 areplaying by the rules. The World Trade Organization authorized thetariffsafter finding that the EU's ban on imported hormone-treated beef isn'tscientifically justified and therefore not allowed. Europe has acceptedthe WTO decision but would rather face the consequences than change itspolicy.
But the fact that Washington holds the high ground in this dispute willbecold comfort for the millions of Americans who will be forced to pay forthe consequences of our trade policy at the checkout counter. Alsosuffering on behalf of U.S. beef producers will be importers andretailers,whose sales will plummet when the taxes take effect. They will bejoiningthe ranks of other recent victims of U.S. trade policy, including thosevictims created by the $191 million tiff with Europe over its bananaimportregime.
Not to worry, says U.S. Special Trade Negotiator Peter Scher, since thelist of EU products was specially chosen to exert "maximum pressure" ontheEuropeans, while inflicting "minimum economic impact" on U.S. industriesand consumers.
Nonsense. As a trade negotiator, Scher should know that everytransactionhas two sides. Each sanctioned product from Europe will now costwillingAmerican buyers twice as much. The U.S. importers may decide to pay thetax -- and pass as much of it as possible on to consumers -- or they maydecide that imports aren't worth it at the higher price. In eithercase,Americans lose just as much as Europeans.
Suppose you're a fan of French Bleu cheese, which is one of the productssubject to the import tax. Mr. Scher flippantly advises us that "therearemany wonderful cheeses out there," but as wonderful as Wisconsin cheddaris, it doesn't suffice for every occasion. The situation is evenbleakerif you have a taste for Danish ham: Pork accounts for about $30 millionofthe total damages that an arbitration panel determined are caused by thebeef ban. Lovers of Italian tomatoes and French mustard are also out ofluck.
The mounting trade barriers between the United States and its largesttrading partner are troubling. The reason for the WTO's existence is,ofcourse, to promote trade liberalization and bring tariffs down. But thebeef-hormone and banana cases demonstrate that the dispute settlementprocess too often leads to higher tariffs and reduced trade. It's notclear whether these latest sanctions will prompt European officials tochange their attitude toward American beef, but it is certain that thecollateral damage from such games of trade policy chicken is becomingunacceptably high.
The Clinton administration is far from blameless in this whole affair.Instead of imposing sanctions, it should have negotiated compensationthatwould have forced Europe to open its market to U.S. exports elsewhere.Infact, the EU has suggested that it would be willing to drop tariffs onU.S.agricultural products as an alternative to the new sanctions. Such amovewould 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. interestswouldbe harmed.
It's mystifying that the administration didn't seize that opportunity.Prying open the highly protected European agriculture market is at leastasimportant to U.S. businesses as the beef-hormone dispute. Moreover,compensation would serve the long-term U.S. negotiating interest byavoiding the hostile, defensive attitude that heavy-handed sanctionstendto evoke.
But then, the administration hasn't exactly gone out of its way topromotefree trade lately. From 40 percent tariffs on imported lamb to anagreement with Russia to limit steel shipments, Mr. Clinton and histradeteam are caving in to special interest pressures on a distressinglyregularbasis.
As trade ministers from around the globe gather in Seattle this year forthe WTO's ministerial meeting, they should take a hard look at how thedispute settlement process is working. Perhaps it's time to improve theprocess so that it more effectively harnesses disagreements; such animprovement would break down barriers rather than raise new ones. Tradesanctions should be authorized only as a last resort; compensatingtariffreduction is always preferable.