Posted on 12/07/2003 12:42:23 PM PST by Willie Green
For education and discussion only. Not for commercial use.
When I first came to Washington, it was to work on the House Republican Research Committee, an organ of the then-minority GOP leadership. It was 1994, and the World Trade Organization had just emerged from the Uruguay Round trade talks, but Congress had to pass implementation legislation before the United States could join. As an economic historian, I wrote a white paper advising against accepting the WTO´s new dispute settlement mechanism as a threat to American sovereignty.
Unlike the previous General Agreement on Tariff and Trade (GATT), which was based on mediation and negotiation to settle trade disputes, the WTO was based on a claim of authority by which panels of foreign judges, appointed by foreign governments, would rule whether U.S. laws enacted by representatives elected by the American people were “legal” or not. If ruled “illegal,” Congress would either have to change the law, or risk trade sanctions authorized by the WTO. I felt this was an illegitimate and dangerous road for my country to go down.
After my white paper was circulated among Republican House members, I was called down to Rep. Newt Gingrich´s office. Though Gingrich would not become Speaker of the House until after that fall´s elections, he was clearly the GOP leader and a supporter of the WTO in the name of “free trade.” His advisors worked me over for about an hour before making their final argument, which was that since the United States was the world´s only Superpower and largest economy, we could always just ignore the WTO if it ruled against us on a major issue. The WTO had no real power and no other government would risk a trade war with Washington they assured me.
To further bolster this argument with worried House members, the following language was put in the implementation legislation: “Sec. 102 (a) RELATIONSHIP OF AGREEMENTS TO UNITED STATES LAW---(1) UNITED STATES LAW TO PREVAIL IN CONFLICT---No provision of any of the Uruguay Round Agreements, nor the application of any such provision to any person or circumstance, that is inconsistent with any law of the United States shall have effect. (2) CONSTRUCTION.---Nothing in this Act shall be construed---(A) to amend or modify any law of the United States....(B) to limit any authority conferred under any law of the United States.”
This was, of course, all true. But my point then, as now, is that there are plenty of officials in Washington who act as if the WTO is a higher authority and who scurry around to do its bidding.
Take, for example, President George W. Bush´s decision to lift the steel tariffs he imposed in March of 2002 after the U.S. International Trade Commission found that surging steel imports were a substantial cause of serious injury to the American industry. They were supposed to last three years to give the American companies time to reorganize, and for the financial tumult overseas which had triggered the import surge to subside. The tariffs were crafted to be in accord with WTO rules, that is with Articles 2.1 and 4.1 of the Safeguards Agreement, as well as Articles X:3(a) and XIX:1 of the 1994 GATT agreement. So from the first step, the shadow of the WTO was cast all the way from, Geneva to Washington, even though President Bush had termed saving the steel industry a matter of national security.
Yet, despite trying to stay within WTO rules, the tariffs were declared illegal by the WTO's Dispute Settlement Body and its Appellate Body. This was not surprising. The WTO operates on the basis of judge-made law on a scale that would make the most liberal proponent of judicial activist look like a strict constructionist by comparison. No foreign judge has any interest in allowing the United States to protect an industry from imports, whatever the reasoning. Bush was under the gun to remove the tariffs by Dec.10 – when the WTO was scheduled to formally approve the decision – or face the threat of billions of dollars in retaliatory sanctions by the European Union (which brought the case), Japan, and other steel exporting countries. So he removed the tariffs on December 4. So much for any brave talk about American power.
The Bush administration has announced a beefed-up monitoring program to guard against a sudden new flood of foreign steel imports, but with the WTO having ruled that American self-defense measures are illegal, it is not clear what President Bush would be willing to do if the alarm bells went off. The administration has also pledged to continue talks at the Organization for Economic Cooperation and Development to reduce global steel overcapacity and foreign subsidies. So far, the talks have made no progress. The other parties have been waiting to see what happened at the WTO. If Washington backed down and removed the tariffs, there would be no need to negotiate as they would have already won.
The idea that U.S. resistance to the WTO would trigger a trade war overlooks the fact that the trade war has been on for years. The imposition of the steel tariffs was a defensive response to foreign economic aggression. With overseas markets crippled after 1997 by financial turmoil, exporters dumped steel into the American market priced to force U.S. firms out of business so that the foreign firms could survive the crisis. From December 1997 through October 2001, 25 steel producers in the United States filed for protection under Chapter 11 of the bankruptcy law. These firms accounted for 30 percent of U.S. steelmaking capacity. Prior to the crisis, American industry had performed well and had invested billions of dollars in the construction of new, highly efficient capacity.
President Bush could and should have called the EU bluff on sanctions. The WTO only authorizes sanctions, it cannot impose them. That decision remains with foreign governments like the EU, which can be held accountable for their actions. The EU ran a $46.5 billion trade surplus in goods with the United States last year. It has much more to lose from an escalating trade war than does America, especially since trade plays a larger role in EU economies than in the U.S. economy. Had Washington threatened to retaliate against any country that imposed sanctions on U.S. trade, negotiations would have been back on, with the United States bargaining from a position of strength. But the EU has felt confident that it could strike an aggressive stance, led by its French Trade Minister Pascal Lamy, because Bush would blink. The EU was right and, unfortunately, so was I.
William R. Hawkins is Senior Fellow for National Security Studies at the U.S. Business and Industry Council.
Nonsense! It was a victory for American consumers who will no longer have to pay inflated prices for steel.
Kinda bad for national defense as well, IMO.
You are exactly right.
When tariffs are lifted, it pulls the plug on all jobs.
Sure it is...but having prices set by advocacy groups (unions) or Government fiat is far worse.
You should get your definitions straight if you want to engage in rational discussion.
Capitalism means the private ownership of the means of production.
It has nothing to do with trade.
Further, NAFTA and WTO have nothing to do with laissez faire (free) trade. NAFTA, WTO and the rest of the multilateral trade agreements are trade managed to the Nth degree.
The objective of this management is to redistribute US wealth to the "developing" world.
Regards
J.R.
Pull the tariffs- I'm not going to lose my job.
That argument doesn't fly.
Well, forgive all us ignorant, uninformed, irrational people when we talk about economics, but if you produce a product, you will have to trade it to someone before you can make a profit- or? If trade never enters the picture, you won't be in business very long- at least not in the world I live in.
Capitalism has nothing to do with supply and demand? Is this what I'm hearing here? Hey, forgive me, but I never knew this. It seems that in order for their to be an incentive to produce in the first place there must be a demand. Meaning the implicit understanding before producing any good is that there will be someone to trade it to once it is produced.
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