Rise in Trade Disputes a Troubling Development to Some

Trade skirmishes are erupting on America’s north and south borders and across both oceans. Disputes are flaring over steel, lumber, high technology and movie production, to name a few industries.

As typically happens when the global economy turns down and job losses mount, political pressure for protectionist measures is starting to build, both in the United States and abroad.

That raises the specter of the kind of trade war that many historians blame for the length and severity of the Great Depression in the 1930s.

Though few analysts expect an all-out trade war this time, they say the outlook still is troubling: The pace of trade liberalization--rapid in recent years--seems likely to slow to a crawl.

Proponents of freer trade say even a slowdown in the destruction of remaining trade barriers could be detrimental to global economic growth in the long run.

The basic argument for expanded trade is that it ultimately benefits all nations by speeding the spread of technology and by fostering competition that keeps prices low for consumers worldwide.

But those claims are routinely challenged, and “anti-globalization” protesters have disrupted several major international gatherings of government and trade officials over the last two years. Critics say economic globalization gives too much power to multinational firms and erodes sovereignty, degrades the environment and keeps wages depressed.

Amid weak economic growth, more countries are finding their own reasons to resist new trade initiatives.

On Tuesday, India said it had joined with five other South Asian countries to oppose one of the United States’ major trade goals: the launch of a new round of global trade talks in November.

India’s commerce ministry said the group preferred that “obligations already entered into be fulfilled . . . before taking on fresh commitments and obligations.”

India and its allies contend that they have yet to see many of the long-promised benefits from the last global trade talks, the so-called Uruguay Round, in the mid-1990s.

Meanwhile, mounting U.S. job losses have emboldened opponents of the Bush administration’s campaign for trade-promotion authority, previously known as fast-track. The proposal would enable the White House to negotiate trade deals that must then be voted on by Congress without revisions.

Democrats, already unhappy with Bush over tax reform and other measures, are pushing for language that would ensure future trade deals include environmental and labor protections.

Rep. Philip M. Crane (R-Ill.), chairman of the House subcommittee on trade, acknowledged in an interview Wednesday that hard times in heavily unionized industries such as steel have made it tougher to get a trade-promotion bill to Congress.

Asked whether trade disputes might escalate, Crane said: “I would hope we’d faithfully observe the commitments we made in international trade agreements, but once people stress out--and that can happen with economic setbacks--you can get that sort of thing.”

The spreading pain from the U.S. slowdown already is inflaming trade tensions with its closest neighbors.

In Mexico--which sends more than 80% of its exports to the U.S. and has already lost an estimated 100,000 jobs along the border this year--farmers, truckers and satellite operators are complaining that they were shortchanged by the North American Free Trade Agreement, which took effect in 1994.

This week, Canadian officials threatened to hold their energy hostage if the U.S. follows through with lumber-import restrictions threatening thousands of mill jobs in British Columbia.

And in an unrelated complaint that Canadian officials said was disingenuous given U.S. domination of the movie industry, the Screen Actors Guild this week called for a federal probe of Canada’s alleged unfair subsidies for film production. The investigation carries at least the threat of retaliatory tariffs against Canada.

Still, Bruce Stokes, a trade expert at the Council on Foreign Relations in Washington, said there are so far no signs of a return to the “real protectionism” that surfaced during the 1980s, when the U.S. and Japan were engaged in high-stakes trade skirmishes that led to restrictions on U.S. imports of cars, steel and machine tools.

After a decade of tremendous expansion in global trade, international business linkages today are so tightly woven that trade relief for one industry--for example, measures to limit imports of low-cost materials--can be punishment for another industry in the same country.

U.S. manufacturers depend more than ever on components from abroad, and American consumers love cheap imports.

Also, international agencies, such as the Geneva-based World Trade Organization, exist today to hear and mediate trade disputes. That wasn’t the case in the 1930s, which began with Congress passing the infamous Smoot-Hawley tariff act, which made many imports far more expensive and helped cause global trade to collapse.

The presence of the WTO doesn’t eliminate trade friction, but it does provide a public forum where the power of consensus can help resolve disputes. Although the WTO lacks direct enforcement powers, its decisions are taken seriously because its member nations have agreed to play by its rules.

A WTO ruling gives the winning side the moral upper hand in a dispute, even if the winner chooses to negotiate a compromise rather than impose hefty penalties that could touch off a trade war.

On Monday the WTO upheld a complaint by the European Union that a law that shields U.S. multinationals from paying taxes on overseas earnings amounts to an illegal export subsidy.

The law, which saves billions of dollars annually for such giants as Microsoft Corp. and Boeing Co., must be revised or the United States could face as much as $4 billion in punitive export duties on U.S. goods bound for Europe.

Just Thursday, the WTO agreed to open a probe of a U.S. anti-dumping law known as the Byrd Amendment, which allows U.S. firms to collect certain import duties levied against foreign competitors that allegedly sell goods at unfair prices.

The EU and 10 individual countries contend that the law, named after its author, Sen. Robert C. Byrd (D-W.Va.), is a significant barrier to their exports.

Such anti-dumping laws, which critics say protect weak domestic industries from foreign competition, remain a concern worldwide, according to the free-market Cato Institute in Washington.

U.S. multinational companies have become the third-most popular target of anti-dumping measures globally, trailing China and Japan, according to a Cato study. From 1995 to 2000, U.S. exporters faced 81 dumping complaints by 17 countries. In 51 cases, anti-dumping penalties were imposed.

Even so, trade politics are increasingly murky, experts say, as it gets harder for a nation to easily define what is in its best interests.

For example, in the latest U.S.-Canada timber spat, the Commerce Department last month charged Canada with unfairly subsidizing its timber production and slapped a 19.3% punitive duty on Canadian softwood imports.

But that move exposed a rift here at home. U.S. home builders have joined the Canadians in protesting the action, arguing it will raise the cost of timber and squeeze 300,000 Americans out of the new-home market. This week, Canada filed a complaint against the U.S. with the WTO.

In a speech Tuesday announcing his decision to mount a WTO fight, Canadian International Trade Minister Pierre Pettigrew cited U.S. consumers as his ally. “In the softwood case, it is Canadian workers who are hurt by U.S. protectionism. It is also U.S. consumers, those who cannot afford homes now because of the punitive tariffs the U.S. wants to impose.”

Aside from the economic slump, another reason trade liberalization may move more slowly now is that the low-hanging fruit already has been picked, experts say.

The WTO and its predecessor, the General Agreement on Tariffs and Trade, have succeeded in eliminating many of the most punitive barriers to trade, such as high tariffs or quotas. That has left negotiators with problems that are far more complex and often involve myriad attitudes toward government regulation, culture and labor relations.

“As tariffs disappear, you end up with different social and legal systems grinding up against each other in the trade arena,” said Joel Johnson, vice president-international of the Aerospace Industries Assn. in Washington.