[NY Times article and more below]
During the 2000 presidential campaign, Bob Zoellick took the lead in criticizing the Clinton-Gore administration for backpedaling on free trade and vowed that a Bush administration would once again put the United States in the forefront of global trade liberalization.
U.S. Trade Representative, Zoellick
The criticism was mostly partisan claptrap. And now, nearly three years into his term as U.S. Trade Representative, Zoellick's working majority in the Republican Congress is melting away, major negotiating initiatives are stalled and Washington finds itself allied with die-hard protectionists in Europe and Japan.
Even worse, an administration anxious about next year's election now seems willing sacrifice the economic interests of globally competitive sectors (services, high-end manufacturing) to protect politically sensitive industries that are shrinking (steel), dying (textiles) or woefully uncompetitive (sugar, citrus, cotton and soybean producers).
Zoellick can hardly be blamed for all of these developments. He is certainly not responsible for a weak economy that has undercut political support for free trade here and around the globe. And, to his credit, he reportedly dissented from Bush administration decisions to accept increases in agricultural subsidies and impose temporary steel tariffs. He's also been able to articulate a broad economic and geopolitical framework for trade liberalization that has untethered the U.S. negotiating position from the wish lists of multinational corporations and major trade associations.
But in pursuing his strategy, Zoellick may have fallen into the trap of trying to be too clever by half. In the lead-up to make-or-break global trade talks in Cancun, Mexico, in September, he joined with Pascal Lamy, his European counterpart, in putting forward a joint framework for negotiating reductions in agricultural subsidies and tariffs. These issues had been the big stumbling block to progress at the World Trade Organization ever since the Seattle debacle, and Europe remains the big holdout.
Unfortunately, Lamy didn't have much new to offer, and the framework he and Zoellick came up with disappointed just about everyone -- from traditional U.S. allies on agricultural reform such as Canada and Australia, to developing countries whose continued poverty is a direct result of rich-country subsidies. Significantly, it also gave middle-income countries like Brazil, India and China an opening to form a new negotiating bloc, which tried to gain leverage by accusing the world's richest countries of preaching free trade for poor people while practicing protectionism at home. Positions hardened, harsh words were spoken and the talks collapsed.
Now those bad feelings have spilled over into other talks aimed at creating a free-trade zone of the Americas. Once again, the United States is refusing even to talk about allowing Brazil and Argentina to sell their lower-cost soybeans, ethanol, beef and citrus fruit in the U.S. market. (A big reason they are cheaper, by the way, is that government subsidies have had the perverse effect of driving up the prices of agricultural land, leaving U.S. producers uncompetitive.) In response, Brazil and Argentina say they won't talk about the issues most of interest to the U.S., such as protecting investment and intellectual property. If the impasse isn't resolved, Zoellick says he'll move to Plan B and negotiate separate deals with smaller countries in the hemisphere that are less demanding and more reliant on U.S. trade and investment.
It should be clear now that Zoellick's negotiating strategy has succeeded in giving aid and comfort to protectionists at home while alienating precisely those countries that offer the greatest potential benefit to U.S. exporters and investors. Zoellick will try to turn things around Friday in private talks here with Brazil's foreign minister, who arrives with instructions to show less bravado and more flexibility than he did in Cancun. Should they fail to patch things up, however, his free-trade agenda could go down in flames when Western hemisphere trade ministers meet in Miami later this month.
Steven Pearlstein can be reached at pearlsteins@washpost.com
source: http://www.washingtonpost.com/ac2/wp-dyn/A1200-2003Nov4?language=printer 5nov03
WASHINGTON, Nov. 4 - Europe's top trade official said here on Tuesday that the United States could look forward to up to $6 billion of trade sanctions if President Bush failed to lift steel tariffs and Congress did not eliminate overseas tax shelters for American exporters.
Two months after global trade talks fell apart in Cancún, Mexico, and with Democrats attacking free trade agreements in the presidential campaign, Pascal Lamy, the European Union's trade commissioner, said Europe had shown enough patience with the United States over these issues.
"There is a simple way to get rid of the sanctions and that is to do what is required under international trade rules," Mr. Lamy said in an interview.
Three years ago Europe won its case against the United States regarding the tax issues and has waited for Congress to change the law. The House and the Senate are considering two competing bills that neither chamber has voted on.
Next Monday, the World Trade Organization will decide whether to uphold its earlier ruling against the United States on the year-old steel tariffs.
In two days of talks here, senior lawmakers and administration officials indicated free trade was taking a battering in Congress. Even so, Mr. Lamy did not blink concerning Europe's intentions.
"This is not a trade war,'' he said. "This is upholding the disciplines of an international trading system that has worked for everyone's benefit."
With an eye toward the 2004 election, President Bush is expected to try to appease both the steel industry, which asked for the tariffs, and the steel-consuming industries that oppose them. He could do this perhaps by continuing the tariffs but expanding the number of exceptions to them, thereby holding down steel prices.
If the steel tariffs are not lifted, Mr. Lamy said, Europe will begin imposing $2.2 billion in trade sanctions in mid-December, sanctions that could affect textiles, citrus fruits and motorcycles.
The far larger $4 billion worth of sanctions on American exports will begin in March and be phased in gradually if Congress fails to repeal the overseas tax shelter by the end of this year.
Robert B. Zoellick, the United States trade representative, told the European Parliament two years ago that the possible use of $4 billion in European sanctions against the United States was akin to the threat of a nuclear bomb.
"There's no doubt that if it starts to go into affecting that much trade, it's like using a nuclear weapon on the trading system," Mr. Zoellick said.
Trade experts fear that Europe and the United States are headed toward a trans-Atlantic trade war, especially because they are also arguing over Europe's moratorium on genetically modified food and the request by the United States that foreign airlines provide full information on their passengers before they board airplanes as part of measures against terrorism.
C. Fred Bergsten, director of the Institute for International Economics in Washington, said the risk of a trans-Atlantic war was rising. He said the steel tariffs should be lifted.
"The immediate issue is steel, but we have to prevent steel from igniting broader trade issues," Mr. Bergsten said.
Especially worrisome is how the United States can forge ahead on other trade negotiations when it has failed to solve disputes with Europe. Citing the failure of global trade talks, of the growing rift between the United States and Brazil as well as "China bashing" in Congress, Mr. Bergsten said there was a "dire need for some creative U.S. leadership in trade."
Mr. Lamy said talk of trade wars was wrong and only 1 or 2 percent of the $1 billion in daily trade between Europe and the United States was in dispute. "We have a huge forest that is doing fine, but only one or two trees that are not," he said. "It should not be overdramatized as trade wars or nuclear bombs."
Mr. Lamy met arguments that this is the wrong time to impose sanctions, given the fragility of the American economic recovery and the shape of Europe's economy, with the same unblinking determination.
Congress began serious discussions about repealing the tax law the day after the World Trade Organization decided on the $4 billion sanctions, he said.
Moreover, he said, when the United States won its trade cases against Europe over bananas and beef raised with hormones, Washington immediately imposed its sanctions. The United States continues to impose $125 million of tariffs against Europe to counter its ban on beef with hormones.
"We had better nurture this trade system, including using sanctions," Mr. Lamy said. "To do otherwise is to revert to the law of the jungle."
The European Union's top trade negotiator concluded two days of tough talks with Bush administration officials and key lawmakers yesterday, delivering a firm promise of swift retaliatory sanctions if the United States does not lift its steel tariffs and repeal long-standing export subsidies by the end of the year.
The uncompromising language of EU Trade Commissioner Pascal Lamy raised the prospects of a politically and economically painful trade war during a U.S. presidential campaign. And it seemed to have left the Republican-controlled Congress and White House with an unsavory choice: take action now that could harm the vulnerable steel industry and other manufacturers or risk sanctions that could be even more uncomfortable closer to the 2004 election.
"If the U.S. does not move, retaliation is a racing certainty," Lamy said yesterday in a speech before the European Institute, a research group devoted to transatlantic issues.
At issue are two separate trade disputes, steel and export subsidies.
On Monday, the World Trade Organization is scheduled to issue its final ruling against steep tariffs that President Bush imposed on imported steel in March. Lamy said the European Union will then give Bush five days to lift the tariffs or face the imposition of up to $2.2 billion in retaliatory tariffs by Dec. 15 on U.S. exports selected for their own political resonance, such as Harley-Davidson motorcycles, Southeastern textiles and citrus fruit from Florida.
The WTO has already ruled U.S. export subsidies illegal, and Lamy reiterated his pledge to impose up to $4 billion in retaliatory tariffs on 1,866 products by next March if Congress does not repeal the subsidies this year.
"The feeling on Capitol Hill is that it can be done," Lamy said to reporters. "My message is, 'Do it.' "
Both the Senate Finance Committee and the House Ways and Means Committee have approved broad corporate tax cuts that include a repeal of the subsidies. But deep divisions remain among Republicans, especially over the House version. And the prospects for quick passage of either bill are dim.
House Majority Leader Tom DeLay (R-Texas) said last week that the corporate tax bill will be brought to the House floor "when it's ripe" -- that is, when it has the votes to pass. A DeLay aide said yesterday that time has not come. Congress is set to adjourn by Thanksgiving.
Besides, Lamy said, both versions would phase the subsidies out in three years, a provision that he believes would be illegal under WTO rules. "Such a [transition] period has been specifically rejected by the WTO itself," Lamy protested. "I have no margin of interpretation."
Lamy's hard line came as a surprise to trade experts and policymakers, and it rankled lawmakers in no mood to be pushed around by Europe. Rep. Sander M. Levin (D-Mich.) said opponents of the House's $60 billion corporate tax cut were not about to let its authors push it through under the pretext of satisfying the EU.
"We're looking at an unnecessary escalation" in the trade dispute, Levin said after meeting with Lamy. "It would be a serious mistake to let European pressure shape American law."
U.S. Trade Representative Robert B. Zoellick played down the threats, saying Lamy understands that Washington is taking Europe's concerns seriously and is making strenuous efforts to address them.
"I explained -- and this is his general sense as well -- that there is a real commitment on the part of House and Senate leaders to try to bring the U.S. into compliance," Zoellick said. "At the same time, he understands that it remains a contentious issue. . . . His primary interest is not to impose sanctions, but to bring the U.S. into compliance."
Many in Congress had assumed that the hard-fought progress they have already made on their tax bills would have bought them more time.
"I think the EU appreciates the difficulty in making the kinds of changes we are committing to make in our tax code," House Ways and Means Committee Chairman Bill Thomas (R-Calif.) said last week. "I am sure at some point discussions will be held that will take that into consideration."
On steel, independent experts have said Bush could try to find a middle ground between lifting the tariffs and the status quo, perhaps by broadening exemptions from the tariffs for many European steel products. But Lamy made it clear there was no room for compromise there either.
"You know, you can't be half-pregnant," he said.
Such tough talk comes at a time when the movement toward broad global-trade liberalization has stalled and could actually move into reverse, said C. Fred Bergsten, president of the Institute for International Economics. Global trade talks collapsed amid recriminations in September.
U.S.-led talks to create a hemispheric free-trade zone convene later this month in Miami, amid a stiff headwind from important potential partners, such as Brazil. And U.S. lawmakers are growing increasingly bellicose in their demands for trade actions against China, which they accuse of manipulating its currency to lower the cost of its exports.
Lamy insisted yesterday that the broad transatlantic trade relationship will remain cordial even if the EU hits back on both the steel-tariff and export-subsidy issues.
But trade experts and business groups say he is understating the potential impact of narrowly targeted sanctions on specific products.
"The retaliatory threat is real, and the cost would be severe," said Calman J. Cohen, president of the Emergency Committee for American Trade, a group backed by large exporters such as Caterpillar Inc., John Deere & Co. and Cargill Inc.
source: http://www.washingtonpost.com/ac2/wp-dyn/A477-2003Nov4?language=printer 5nov03
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