Keep a Lid on This Trade Stew
The United States and the European Union are headed for a transatlantic trade battle that could dwarf all previous disputes combined. The World Trade Organization last Thursday upheld an EU complaint that a U.S. law giving a tax break to exporters is an illegal subsidy.
The ruling plays into the hands of American protectionists who would like the United States to pull out of the WTO and its regulated trade system. The danger that transatlantic trade wrangling will spiral out of control has never been greater, and the WTO itself could well be one of the casualties.
Rather than retaliating with a complaint against the European Union’s even bigger tax-avoidance laws, as some business leaders suggest, Washington should look for a quick settlement, perhaps some adjustment of the tax law. Even more important, the two sides should try to work out their many differences before they expand into WTO litigation. The U.S. and European Union had informally agreed not to attack one another’s tax codes in the WTO; this case violates that understanding and opens the way for deeper intrusions into domestic policy.
The irony of the WTO decision is that neither the U.S. export tax break nor the EU challenge of it had a sound economic basis. The 1971 law, which gives U.S. companies an estimated $4-billion annual tax break on exports, was meant to encourage companies to keep jobs at home rather than move manufacturing overseas. The companies collected billions and left anyway, while the trade deficit continued to grow. European businesses have not supported the EU case because they enjoy a much bigger subsidy, a sales tax exemption on export goods.
The economics don’t matter much to U.S. opponents of the WTO. They see the organization either as an instrument of big business or an unelected body encroaching on U.S. sovereignty, and some are gearing up to challenge U.S. membership in the WTO. They will get a chance this spring when Congress plans to vote on President Clinton’s report--due out today--on the pros and cons of WTO membership.
Clinton is likely to win this time. But if the U.S. and the EU fall into a tit-for-tat trade war that includes simmering grievances over tax breaks, farm subsidies, genetically modified food or civil aviation, the case for the WTO will be tougher to make. Rather than testing the fragile limits of the WTO, the two sides should settle their differences in negotiation.
