New Trade Law Has the Makings of a Monster

With last year’s sweeping trade legislation, Congress thought it had finally found a formula for forcing the Administration to take a hard line against U.S. trading partners: It would put U.S. trade policy on cruise control with the accelerator all the way to the floor.

Frustrated by years of presidential indifference to their concerns, lawmakers enacted complex machinery requiring the Administration to identify countries that maintain “unfair” trade policies and to submit dozens of reports on a wide range of trade issues.

Now, just eight months later, there are signs that Congress may have created a monster that is doing more to choke the Administration’s trade policy than to strengthen it.

Critics contend that beyond merely heightening White House responsiveness to Congress’ concerns, the bill has robbed the U.S. trade agencies of energy that might otherwise have been used to shape broader policy and resolve disputes with other countries.

“Everybody here is running around trying to decide which countries are on this or that list of alleged trade violators, and we can’t get anything else done,” said one frustrated trade official who has been involved in the process. “It’s diverting us from our real jobs.”

Used to Be ‘Policy Tool’

U.S. officials complain that the procedure is also distorting trade policy itself. “Since what’s in these reports is by law the agenda that we’ll have to follow, you don’t want to put anything down that you might have to deal with later,” one key trade official said.

Added another: “Before, deadlines and reports such as these were a policy tool that the U.S. could use when it needed leverage. Now, they’ve become the policy itself. These days, we’re spending more time negotiating with Congress than negotiating with other countries.”

“This thing has become a Frankenstein that may do substantial damage to what the Bush Administration is trying to accomplish,” said Harald B. Malmgren, a former Democratic trade official who now serves as a consultant to several top U.S. corporations.

The rigid congressional deadlines also can frequently boomerang, as in a case involving South Korea just last month.

The new trade law gave the Administration until mid-February to compile a list of countries that restrict imports of telecommunications equipment. Under the law, the countries would face automatic retaliation if they did not open their markets to U.S. exporters within 18 months.

But the effort turned into a marathon negotiation as major U.S. trading partners--South Korea among them--scrambled to keep off the list. Korean negotiators made concession after concession, but U.S. officials, fearing congressional criticism, held firm. Eventually, South Korea felt that it could not go any further, and the hit list came out on schedule, with South Korea--and the European Community--on it.

But the effort may have backfired. With the fight to keep off the list now over, South Korean Foreign Minister Choi Ho Joong has declared that it would be “shortsighted and hasty” for Seoul to “fully accept the U.S. demands.” Instead, the Koreans will wait the 18 months that they have under the law to avoid U.S. retaliation.

“If we had been allowed another week, I might have had a good deal,” a senior U.S. policy maker lamented.

No Clear Direction

The backwash hit the new Administration even before top officials formally took office. At a staff retreat in January, officials at the U.S. trade representative’s office had hoped to spend the weekend acquainting their new boss, Carla A. Hills, with the nation’s most urgent trade issues.

But the group wound up concentrating instead on the reports that the agency would have to send Congress shortly. “As it turned out, that was the most pressing issue on the agenda,” a participant said.

Hills’ office and other trade agencies are particularly handicapped because the Bush Administration has been slow to appoint middle-level officials, the ones who usually carry the brunt of the negotiating and policy-planning work.

The trade representative’s office still has no sub-Cabinet-level officials formally installed, and its tiny 150-member staff is not large enough to handle all the requirements of the new trade law. The State and Commerce departments also remain understaffed at the sub-Cabinet level.

On top of the new demands of the trade law, this year’s Congress has scheduled a host of hearings on how the law is being administered. Because the deputies are not yet in place, Hills and other top trade officials are forced to attend these hearings themselves, and most of the sessions have turned into forums for lawmakers to reiterate their views.

The trade law’s reporting and list-making requirements cover subjects ranging from the viability of a small-business export program to a listing of regulatory obstacles to negotiating debt-service reductions for Latin American debtor nations.

Major Negotiations Ahead

The four biggest and most controversial involve major policy considerations that could affect U.S. trade relations for the next several years:

- By April 30, the Administration must draw up a “national trade estimates” report listing the trade barriers that are maintained by all U.S. trading partners and gauging their potential cost to American exports.

- That same day, the White House must identify foreign countries that do not provide adequate protection for U.S. patents, copyrights and trademarks and that do not give full market access to U.S. companies, and it must initiate negotiations designed to persuade them to change.

- Also by April 30, the Administration must list all countries that are not living up to agreements to liberalize trade with the United States in telecommunications equipment.

- A month later, the trade representative’s office must make up a list of negotiating targets from the national trade estimates report and launch talks with each of those countries aimed at eliminating those barriers.

The trade act has forced the Administration to conduct full-scale reviews of a much higher proportion of deals in which foreign corporations take over U.S. firms. Although some officials fear that requirement may discourage foreign investment in the United States, an interagency committee has already considered almost 40 such cases this year, more than it reviewed during eight years of the Reagan Administration.

Preparing all the new law’s reports will require making sensitive judgments. For example, although the United States regards government subsidies for particular industries as inherently unfair in international business competition, many countries prefer to have their governments play a big role in their economies, and Washington cannot simply order them to change their ways.

So the United States must decide whether and how to apply pressure on these countries to drop the subsidies. Sometimes, such diplomatic strong-arm tactics do more harm than good by arousing antagonism overseas.

Uninformative Reports

There are also broad political considerations to take into account. For example, the United States needs Japanese investment. Also, the aggressive U.S. trade posture toward South Korea has sparked rioting against that country’s government.

Critics find little value in some of the reports completed to date. A recent State Department report supposedly chronicling the economic and trade practices of America’s roughly 100 trading partners contained about 1,600 pages of detailed information. But most of it assessed other countries’ human rights records, assessments that had already been filed in a separate report to Congress.

The Treasury, charged with taking stock of the worldwide effort to reduce global trade imbalances, classified much of its report as secret on grounds that it contained “sensitive” projections of countries’ trade performances. But such assessments are routinely available from private and international research organizations.

And a report by the U.S. trade representative’s office that was supposed to outline a new national trade policy agenda presented a general overview that Senate staff aides found uninformative.

Even some members of Congress are beginning to wonder what the trade measure has turned into.

“It concerns me,” said Rep. Sam Gibbons (D-Fla.), chairman of the House Ways and Means trade subcommittee. “I’d hate to think we’ve diverted people from doing what they need to do.”

Some hard-liners on the trade issue are disappointed that the bill has not had a greater impact.

Rep. Richard A. Gephardt (D-Mo.), who had fought for an even more stringent trade measure, criticized the way the law is being administered. Referring to a Treasury Department report on the trade outlook, he said: “I don’t think they understand. I don’t think they’re in the real world.”

Congressmen such as Gephardt pressed for a tough trade law because they had felt that top Reagan Administration officials had blithely dismissed congressional demands for more protection from foreign competition.

And some trade policy-makers, even in the Bush Administration, concede that they might be far less aggressive now were it not for the pressure of the trade bill. “Without this bill, we probably wouldn’t have any action at all in my field,” one U.S. trade negotiator said. “Given the alternative, I don’t think this is too bad.”

Analysts say it is still too early to tell precisely what impact the trade bill will have over the longer run. The Administration could prove better able to cope with Congress’ requirements than has been the case so far. The bill may spur some countries to come to the bargaining table more quickly. And Congress itself may allow policy-makers more flexibility.

But so far, at least, there are few optimists to be found. Consultant Malmgren, for one, fears that the trade “Frankenstein,” as he calls it, will only tie U.S. trade policy in knots, divert attention from the international trade talks and make policy-making more difficult.

“Right now, it’s creating a lot of nightmares,” he said. “But the worst hasn’t even begun to show.”