By
Russell L. Smith, Willkie, Farr, and Gallagher, LLP
WASHINGTON (KWR) The debate over trade currently taking place in the context
of the U.S. Presidential campaign at best resembles an elaborate,
classic ballet performance. Each step was choreographed years ago,
and the dancers are practiced in executing their positions. The result
of such a performance in ballet would be entertaining but artificial.
But in the trade debate, the results are very real, unattractive,
and often counterproductive.
Witness the 2000 election, in which Bush and Gore, two supposed advocates
of “free trade,” each professed that commitment in their debates
and their campaign literature. In fact, in an effort to win West Virginia
and other steel-making states, Bush and running mate Cheney actually attacked
the Clinton Administration for not doing enough for the steel industry and
all but invited the submission of a trade remedies safeguards (“Section
201”) case on steel if they took office. When those events came to
pass, and the Administration was forced to decide on whether to violate WTO
rules and protect the U.S. steel industry with high tariffs, the President
did what he committed to do, despite the strongest efforts by many of his
advisors to find some alternative to trade protection.
The results were as expected: a spike in steel prices, a severe decline in
imports, an adverse WTO decision, threatened worldwide retaliation, and a
substantial loss of credibility at a critical moment in the Doha Development
Agenda (DDA) negotiations. Bush correctly repealed the tariffs at the mid-point,
ostensibly because they had served their purpose of providing “breathing
room” for consolidation of the U.S. industry. Because U.S. steel imports
were artificially depressed, while at the same time global steel demand was
increasing and foreign steelmakers were shipping to other markets, as the
U.S. economy has recovered, the aftermath of the steel tariffs has been lack
of supply, enormous price increases, and hardships for those consuming industries
that need reasonably priced steel to feed increasing demand for their products.
This short term “fix” has created a long-term dilemma.
We are now on the edge of what will be a bitter Presidential campaign. The
two candidates, Bush and Kerry, are already on stage to perform the trade
ballet. Each one says he is committed to free trade as a philosophy and each
offers a record to support that claim. However, each one seems to have forgotten
how to be consistent with his dance steps. Acting through USTR Zoellick,
Bush is seeking to revive the DDA negotiations. However, at the same time,
acting through Commerce Secretary Evans, Bush is also promising to deliver
a “level playing field” to U.S. manufacturers. Kerry touts his
votes in favor of trade agreements but promises to staunch the outflow of
jobs from the United States, and to reopen all outstanding U.S. trade agreements.
These contradictory messages about trade policy have the potential to produce
some very negative results. The grand ballet could soon become a second-rate
dinner theatre production.
The United States has underway two dumping cases that threaten major imports
from key trade and strategic partners--bedroom furniture from China and shrimp
from China, Thailand, Vietnam, Ecuador, Brazil, and India. In each case,
the timing could not be more cynically political, since they are designed
to move forward within the Commerce Department during the summer and fall
of 2004. In each case, the constituencies are highly political--furniture
industry workers and shrimp fishermen in key Southern states. In each case,
industries that have high cost structures and have suffered in an economy
in which prices pressures come from many directions, the domestic petitioners
are arguing loudly that imports are the cause of all their problems. In each
case the petitioners are mobilizing political support.
What seems to be forgotten in each case is that the economic and strategic
consequences of imposing prohibitive duties on furniture and shrimp are serious
and deserve political notice. China has built a multi-billion dollar wood
furniture industry premised on its cost efficiencies, and its success is
reflected in the fact that many U.S. retailers depend on Chinese imports
to be able to offer their customers less expensive, high-quality wood furniture.
These American retailers, and their customers, will potentially be deprived
of the benefits of these imports by a dumping case. A depressed business
sector--furniture retailing--will become more depressed. China, which is
involved in a difficult effort to comply with market opening obligations
taken on when it joined the WTO, will be confronted with market restrictions
on an important export that it sees as fairly traded. This case opens the
U.S. trading relationship to question at a moment when it is vital that the
U.S. begins to adjust, and to deal with, China’s growing economic and
strategic dominance in Asia.
A negative outcome in the shrimp case could have far worse consequences.
The exporting countries are all developing countries with whom the United
States is allegedly seeking better economic relationships. Yet, at a time
when the United States is preaching partnership in Asia, some of our most
important and well-established allies already regard us negatively. The Wall
Street Journal reported recently that in Indonesia, for example, public opinion
towards the United States is at an all time low, in part because the United
States is perceived as caring more about U.S. businesses than the best interests
of Indonesians. Ironically, Indonesia was not even mentioned in the shrimp
dumping petition.
So what will happen in Vietnam and Thailand following the shrimp case? In
Vietnam, the United States has pursued a special economic relationship as
part of efforts to reconcile with a former enemy, but has already placed
high duties on catfish exports and now threatens another industry vital to
Vietnam’s economic future. In Thailand, a country the United States
claims is a major security ally and one with which we hope to negotiate a
free trade agreement, shrimp farming employs hundreds of thousands of citizens,
and by itself is a factor in the country’s GDP. This economic activity
is concentrated in southern Thailand, which has a large Muslim population.
All of these factors should call for extreme caution in the handling of these
dumping cases since their ramifications will go far beyond whatever assistance
to domestic industries that they may provide. Exclusionary duties will adversely
affect many hundreds of thousands of U.S. workers in furniture retailing,
and in almost every level of food service and grocery marketing.
Beyond the domestic and foreign jobs losses in these cases lies the longer-term
impact on American policy. At home, dumping cases make few headlines. In
the target countries, they are headline news, and the headlines inspire resentment
toward the United States, which is seen as seeking to cut off key developing
country industries simply because they are successful. U.S. decision makers
need to weigh the potential long-term damage at home and abroad of pressing
trade restrictions that are politically attractive in the short term. Long
after the “entertainment” value of prosecuting ambivalent trade
remedy cases, the real world consequences are often not amusing at all.
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