Payback Time as Countries Protest U.S. Trade Policies

As free-trader George W. Bush settles into the White House, the United States--the world’s most vocal and prosperous open-market advocate--is increasingly being called to account for its own protectionist policies.

Even as it pushes for ever-greater access to foreign markets for U.S. banana, telecommunications and pharmaceutical firms, the United States has lost several key cases recently before the World Trade Organization. And more and more countries, tired of the nearly constant U.S. application of anti-dumping laws to protect American corporations and workers, are retaliating with dumping cases against Uncle Sam.

Suddenly, American cattle ranchers and corn syrup producers are being hit with dumping penalties in Mexico, farmers are accused of flooding the Canadian market with cheap corn, poultry producers face 200% duties in South Africa, and a U.S. newsprint producer is fighting dumping charges in China.

U.S. markets, of course, are more open than most. But the United States “talks out of both sides of its mouth,” Australian Ambassador Michael Thawley complained last month, echoing the views of a growing number of nations.

This growing antipathy from some of America’s closest allies, coming amid a U.S. economic slowdown, doesn’t bode well for the free-trade initiatives expected from a Bush administration.

Warning of trouble ahead, Charlene Barshefsky, the outgoing U.S. trade representative, acknowledges that the U.S. needs to tackle some of its own “Achilles’ heels, such as textiles and sugar,” if it is serious about launching another round of trade talks after the WTO’s high-visibility flameout in Seattle in the fall of 1999.

Achilles’ heels--or, as Pedro de Camargo calls them, sacred cows. De Camargo, the head of Brazil’s second-largest farm group, takes a jaundiced view of one promised Bush initiative: the expansion of North America’s trade pact to the rest of Latin America under a proposed Free Trade Area of the Americas, or FTAA. Since the U.S. imposed strict quotas on sugar imports in 1981, Brazil’s exports to the U.S. have plummeted.

“If the FTAA is not sacred-cow-hunting season, then we’re not going to have the FTAA,” proclaimed de Camargo, director of the Brazilian Rural Society, which represents 20,000 farmers.

Increasingly, such complaints are finding their way to the Geneva-based WTO, where the U.S. has been on the losing end of several recent decisions. Last month, a WTO dispute panel ruled that U.S. import duties on New Zealand and Australian lamb, South Korean steel and European wheat gluten violated global trade rules.

On Dec. 22, Europe, Japan and seven other countries filed a WTO challenge to what they consider a particularly outrageous new law that awards U.S. firms the proceeds of anti-dumping tariffs. That followed a WTO ruling against the U.S. on an export tax subsidy program challenged by the Europeans.

“I think Japan, Europe and others see the WTO as a great leveler,” said Greg Mastel, a trade expert who recently left the New America Foundation, a Washington think tank, to work on Capitol Hill. “After years of feeling they’re on the defensive against U.S. companies, they see the WTO as a forum where they can turn the tables.”

Even during the long U.S. economic boom, with unemployment at a 30-year-low, protectionist sentiment and attacks on globalization were on the rise. As the U.S. economy begins to slow, finding the political will to lower barriers protecting some of America’s most powerful industries could prove all but impossible.

Just last month, the U.S. International Trade Commission ruled that low-priced steel imports from 11 countries, including China, Argentina and Ukraine, are harming U.S. producers, clearing the way for dumping penalties.

There is no gainsaying the threat to certain kinds of U.S. jobs when barriers come down. U.S. textile and apparel manufacturers, which face a global phaseout of most import quotas by 2005, have already moved most of their factories to Mexico, the Caribbean or other low-wage countries at a cost of 188,000 American jobs in three years.

“In this era of mixed emotions about globalization, any politician--whether it’s Bill Clinton or George Bush--is going to think about whether the political flak he’s going to get [for pushing freer trade] is worth the benefits,” said Bruce Stokes, director of trade programs for the New York-based Council on Foreign Relations.

Bush, by choosing staunch free-trader Robert B. Zoellick to replace Barshefsky, signaled that he will keep up the pressure for open markets. And Bush’s opposition to linking environmental and labor standards to trade agreements--a Clinton initiative--could ease resentment by developing nations against U.S. policy.

The U.S. already boasts one of the world’s most open economies, with average tariff rates of just 3.3%. American consumers have fueled global prosperity by purchasing Chinese-made apparel, Japanese automobiles and Australian beef in record amounts, boosting the politically sensitive trade deficit to about $360 billion last year.

Most foreign governments provide far greater protections for their domestic firms than the United States. These range from outright import bans and excessive tariffs to discriminatory licensing and health regulations.

U.S. sugar producers, for example, claim that Europe’s sugar price supports are 40% higher than U.S. levels and that Japanese consumers pay the highest sugar prices in the world because of their closed market.

“It’s only fair we not disarm unilaterally if other countries are still helping their economies to survive,” said Jack Roney, an official with the American Sugar Alliance, a U.S. trade group.

But frustrated foreigners also see hypocrisy behind the U.S. complaints.

While the overall U.S. economy is quite open to foreigners, sectors such as sugar, peanuts and tobacco are protected by a wall of restrictive quotas and high tariffs. Industries such as steel have staved off aggressive foreign firms through the use of anti-dumping laws designed to prevent foreign goods from being sold below cost in the U.S. market. And U.S. farmers, while blaming foreign agricultural subsidies for excess global production, themselves received a record $28 billion in government support last year.

The Brazilian Embassy in Washington issued a recent report calling U.S. barriers to Brazil’s top exports, including orange juice, steel and sugar, “inconsistent with the proclaimed free-trade rhetoric” of the U.S.

In its report, Brazil argues that the average tariff it levies on the top 15 U.S. exports was just 14.3%, while the average U.S. tariff on Brazil’s top 15 exports was 45.6%. That included a 44% U.S. tariff on Brazilian orange juice and surcharges of 236% on sugar and 350% on tobacco sold to the U.S. in excess of Brazil’s limited quota. U.S. trade officials said they had not seen the report and could not comment on those charges.

Mexico has angry sugar growers too, and new President Vicente Fox has promised to fight U.S. restrictions on sugar imports contained in the 1995 North American Free Trade Agreement. The Mexican government now says it never agreed to the terms of a NAFTA side agreement limiting Mexico’s sugar sales to the U.S. until 2007.

Even the World Bank stepped into the fray in a recent report on global development when it accused the U.S. and other developed countries of penalizing the world’s poorest countries by maintaining barriers to their textiles and apparel and agricultural goods.

The study pointed out that the most highly protected U.S. sectors (meat, sugar, dairy products, nuts, fruit juices, tobacco and textiles and apparel) are areas where developing countries have a competitive advantage because of geography or low labor costs.

The free-trade mantra holds that trade should be driven by competitive advantage--that if Brazil can produce better and cheaper sugar than the United States, too bad for the American sugar growers.

Particularly reprehensible, according to World Bank research manager Bernard Hoekman, is the heavy U.S. reliance on anti-dumping laws to protect domestic firms from low-cost producers often found in the poorest countries.

“We regard this as a very inefficient and dishonest instrument of protection,” he said.

Anti-dumping laws are one of the most globally inflammatory and domestically sensitive issues in the U.S. trade realm. The U.S. refused to even include dumping on the agenda for the ill-fated Seattle WTO summit meeting in November 1999, angering Japan and much of the developing world.

As a result, U.S. multinationals are feeling the heat. A decade ago, the U.S. and Europe filed the lion’s share of dumping complaints. But in recent years, foreign governments such as Mexico and South Africa have turned the tables, according to a new analysis of trade policy by the Institute for International Economics.

Gary Horlick, a Washington trade attorney who specializes in these cases, said foreign officials have told him, “It’s payback time.”

“American agriculture exports 40% of its production, and it is being hit with cases all over the world,” he said. “It used to be that the U.S., Europe, Canada and Australia filed 95% of the dumping cases. Now they file less than half.”

Jeffrey Schott, a senior fellow with the Institute for International Economics, doubts Congress would give up the controversial trade measures because they provide an “escape clause” by offering fearful domestic producers temporary protection against globalization’s dark side.

“Anti-dumping is a sacred cow on Capitol Hill,” he said.

But former Trade Representative Barshefsky believes the U.S. needs to reconsider its position on dumping, given the global upsurge in cases aimed at U.S. firms. She pointed out that these complaints are often filed in developing countries where the judicial system is weak or corrupt and U.S. firms might not get a fair hearing.

“We have a lot of interests to protect,” Barshefsky said.

“I’ve had more and more people coming to me and saying, ‘I was slapped for dumping in some foreign country.’ ”