U.S. May Drop 4 Asian Nations’ Trade Privileges
A Cabinet-level committee has recommended that President Reagan withdraw special trade privileges enjoyed by four fast-growing Asian nations whose soaring trade surpluses with the United States have created a serious economic challenge to the Administration.
Sources said the President is expected to approve the decision of the White House Economic Policy Council, which could be announced as early as Saturday and would take effect next January.
The action reflects the Administration’s frustration with the so-called four tigers of Asia--Hong Kong, Singapore, South Korea and Taiwan--whose double-digit economic growth is due in large part to their trade with the United States. The action also reflects the four countries’ growing statures as industrial powers.
Loss of Duty-Free Status
The countries would be removed from the list of 140 less developed countries eligible to export many products to the United States free of duty under the Generalized System of Preferences (GSP), giving them the same status as Japan, West Germany and other industrialized nations.
Together, the four Asian nations received $5.3 billion in benefits under the GSP program by avoiding duty payments, U.S. Trade Representative Clayton K. Yeutter said a year ago. In effect, the duty-free status reduces prices of products from those countries sold in the United States, giving them a significant competitive advantage.
South Korean economists estimated that the U.S. action would reduce exports to the United States by $300 million annually. No estimates were available for the other countries.
In the last year, the U.S. trade deficit with the four countries grew from $30.7 billion in 1986 to $37.2 billion last year, according to First Boston Corp., and now exceeds the U.S. deficit with Western Europe, which dipped from $32.7 billion in 1986 to about $30 billion last year.
The decision, made Tuesday, is expected to trigger protests in the four countries, all of whom are staunch allies of the United States. But it may help the Administration in fending off passage of the more protectionist elements in a massive trade bill now before Congress.
The move was led by Treasury Secretary James A. Baker III, Administration sources said, after Hong Kong, South Korea and Taiwan refused to let their currencies rise in value against the dollar, as have the Japanese yen and currencies of other major trading partners. Singapore, whose currency has risen in line with the dollar’s fall, was included because its trade surplus has also grown, Administration sources said.
By preventing their currencies from rising as much as the dollar has fallen, the three Asian nations have reaped major benefits from the currency changes over the past three years, increasing their exports to the United States and becoming major suppliers of parts to Japanese industries. The Japanese practice of buying less expensive components from the four Asian nations has helped its products remain competitively priced in the United States.
The decline of the dollar cuts the cost of U.S. products overseas, increasing their competitiveness, while tending to raise the cost of foreign products in the United States.
Some Argue Against Move
But removing the preferential treatment given to the four countries is not universally popular in Congress and among American manufacturing and service industries. Sen. Pete Wilson (R-Calif.) said the action is counterproductive “when you yank benefits from countries that have responded favorably to our trade complaints, such as Singapore and Hong Kong.”
Some congressional trade specialists believe that Hong Kong and Singapore, which maintain no trade barriers, should be allowed to retain their privileges as a sign that countries practicing free trade can get special rewards from the United States.
A coalition of American businesses also has been lobbying hard against the move, arguing that U.S. firms will suffer along with the four Asian nations.
Some members of the coalition are high-technology manufacturing companies that import low-cost components duty-free from the four and are concerned that the loss of the special privileges will increase the prices of their products, making them less competitive against products from Japan and Western European countries. Others are exporters who believe that retaining the provision gives the government leverage to force two of the countries--South Korea and Taiwan--to ease their restrictions against U.S. products.
“The GSP Coalition of U.S. Businesses is deeply disappointed that the Administration has apparently ignored the negative impact of GSP country graduation on the competitiveness of U.S. manufacturers,” said Thomas F. St. Maxens and Christine Bliss, who head the business group.
Administration sources said Baker and Yeutter suggested in preliminary meetings that only South Korea and Taiwan lose the privileges, but Secretary of State George P. Shultz said that, for overall foreign policy reasons, it was better to treat all four countries the same. No opposition was registered at the formal policy committee meeting Tuesday to removing the privileges of all four nations, the sources said.
