May 14, 2005

Why Does The US Violate WTO Rules?

The US created the General Agreements on Tariffs and Trade. The GATT changed into the World Trade Organization, again under US direction. Why is it that the Bush Administration defied the WTO by implementing steel tariffs in 2001 and is now defying it again with import quotas on Chinese goods? Politics.

Specifically, the Bush Administration seems to think that strategic tariff increases will stave off opposition to various liberalizing moves. I caught part of this on Kudlow & Company yesterday when Don Boudreaux was on the show. As an example of a strategic protection, by reinstating or recreating the textile protections that expired after 2004, some observers have claimed that it would temporarily placate the textile industry and allow CAFTA to pass more easily. I can see the argument that inhibiting free trade at a few key points might allow it to come into force more generally.

Unfortunately, the opposite is true. First, by imposing tariffs it makes the protectionist arguments seem more reasonable and mainstream. After all, if the US just imposed a few new tariffs and NTBs, why not impose a few more here and some additional ones over here? It gives credibility to their argument.

Second, it weakens the position of principle and economic sense that free trade rests upon. The Bush Administration looks hypocritical and opportunist because it's willing to break WTO rules and free trade common sense at some points. It's hard to argue free trade or compliance with the WTO when you don't believe in the former and flaunt the conventions of the latter.

And does anybody think that the textile industry is going to accept a trade agreement it doesn't like (e.g. CAFTA) just because it got some import quotas restored? Of course not. Why would they allow a whole new reduction in trade barriers if they're so desperate for trade barriers? The textile industry isn't going to budge on CAFTA because it got some protections. Maybe a few wavering politicians will waver some more, but the people who fear trade are going to continue to do so even in the face of a few half-concessions.

China, after all, isn't even in the top ten countries for textiles exported to the US - despite the huge post-2004 jumps. Mexico and CAFTA nations are in the top ten. Why would anyone in the textile industry trade a defense from the 13th-largest textile provider for vulnerability to several of the top ten textile providers?

The sugar industry, as well, is putting up a hell of fight against CAFTA - even though it will be almost completely unaffected by its sugar provisions. They don't want a crack in the door to undermining their monopolistic protections.

All these "strategic" concessions do is undermine the wider argument for free trade by making it look hypocritical, inconsistent and opportunistic. Ultimately none of the entrenched interests are going to change their views because the fact is they can't compete. The concessions give further fuel to the people who think the US is a tool for corporations - free trade when it helps us, closed trade when that helps us.

Maintaining a legally, ethically and/or economically consistent policy toward free trade strengthens the arguments for it.


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