The Agenda of International Trade

By: Sam Vaknin, Ph.D.

Also published by United Press International (UPI)

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Last week, the WTO sided with the EU against the US and authorized the former to impose 100 percent duties on a list of American products. This would cost American manufacturers more than $4 billion - ten times the the highest punitive award ever granted by the WTO.

The Europeans seek to abolish an American export subsidy known as the "foreign sales corporation". They are unlikely to impose the sanctions any time soon, though. The US has already tentatively acted to remove the illegal subvention.

As the EU sees it, the US administration seems to have taken a sharp U-turn from free trade rhetoric to unprecedented protectionism - and back to free trade with the Trade Promotion Authority the President was granted last month. America imposed quotas on steel imports - and then exempted many European mills. It passed a huge farm support bill - but pursues the phasing out of agricultural subsidies worldwide. It applied timber and lumber quotas while signing a flurry of bilateral free trade agreements and participating in the the Doha round of multilateral trade negotiations. This inconsistency may be at the root of trans-Atlantic trade frictions.

Dan Horovitz is a partner in the City (of London) law-firm Theodore Goddard, established a century ago. He is responsible for the firm's Brussels office and leads its international - EU and WTO - trade and competition practice. He represents international clientele - governments and business - before the EU administration and its courts in Brussels and Luxembourg, as well as the dispute settlement body (DSB) of the WTO in Geneva.

He says:

"It often seems that the US Administration wishes to satisfy domestic constituencies and their colloquial political interest more than it cares to comply with US international obligations, including those stemming from the WTO Agreements. This has been attributed to two main reasons.

First, the leading global, 'sole superpower', role played by the US which enables it to pursue its self-interest while being largely oblivious to other constraints. Second, since the US economy is much more dependent on its own 'home market' than on exports, the US is less sensitive to what other players in other markets think of its positions.

The EU is far more 'outward looking' and largely dependant on export markets. Moreover, because of economic, political and historical reasons, the EU is traditionally perceived as more caring and responsive to foreign interests. Yet, the EU, much like the US, can sometimes be cynical about its WTO obligations, although the practice shows that in such instances the EU often resorts to one-sided interpretation of the existing rules rather to their violation.

In realpolitik terms, disregarding the interests of US partners would not facilitate the US Administration's task to safeguard the interests of US businesses abroad. Consider steel. US steel companies have important interests in certain central and east European steel enterprises. Thus, US Steel, for instance, controls the successful Slovak Kosice mill and is also reportedly eyeing Polish and Czech mills. Slovak steel exports are in fact American exports."

The Doha round of multilateral trade negotiations is supposed to tackle hypersensitive issues - such as agricultural subsidies and textiles - massively promoted by domestic lobbies in both the US and the EU. Traditional trade remedies, such as anti-dumping measures - regularly deployed by the USA and, increasingly, by other governments - are also on the table. A lot depends on collaboration between the EU and the USA.

The Uruguay round, which led to the establishment of the WTO, is considered by many governments and activists in developing countries to have been skewed to reflect the interests of the rich, industrialized, West. Horovitz predicts that "the negotiations would require much more time to complete than officially anticipated. The unfortunate example of Seattle comes into mind. The fiasco there did not alter the agenda of the global trading community. It only delayed the agreement on its terms."

The Doha round is different, he avers.

"Developing countries already account for a majority of WTO membership. (In) the new round, the votes of the developing countries will be decisive. They will thus have a golden opportunity to translate their votes into tangible advantages.

Moreover, China, which recently acceded to the WTO, is likely to defend the cause of the developing world. China already accounts for about one fifth of world trade and the developed world is expected to listen carefully to its views."

Still, it seems that trade policy on both shores of the pond is reactive, not proactive. It is shaped by the need to placate special interest groups, especially in election years. Horovitz disagrees:

"One must make a clear distinction between those EU measures (policy and legislation) which form part of its first-priority areas (e.g. enlargement, institutional aspects, global trade interests) and those which are of a 'routine' or day-to-day caretaking importance (certain trade remedy cases, minor health concerns).

With regards to the former, decisions follow a careful examination with results which are typically well-balanced and responsible. The latter may indeed seem sometimes to be haphazard or ill-considered. The worst examples are certain anti-dumping measures.

Still, important EU legislation cannot be truly described as haphazard. On the contrary, the preparations and consultations among the member states and within them - and then also amongst interest groups across different member states - are rather thorough. Important new legislation is taken very seriously by all involved."

Opponents of Brussels often point to its butter mountains and rivers of milk - the outcomes, they claim, of the misguided Common Agricultural Policy, the madcap CAP. Farmers across the European Union needlessly receive billions of dollars annually in subsidies. EU Countries like France, with a large - and politically influential - agricultural sector, have traditionally obstructed all attempts to reform the CAP.

The EU's enlargement to the east - encompassing at the very least Poland, Hungary, and the Czech Republic - would usher in millions of additional farmers. Even under the current phase-in schedules, CAP stands to apply to these newcomers within a decade. The cost to the EU could prove ruinous.

Horovitz: "I believe that the moment of truth is fast approaching. Initiatives to liberalise the CAP have been aired. Moreover, EU decision makers understand that, come enlargement, the EU would not be able to keep the same level of protection.

Furthermore, particularly in view of WTO priorities and the need to satisfy developing countries who must find outlets for their agricultural products in order to undertake the liberalisation of their less-developed industrial sector, the EU (as well as the US and others) realise that they have to tackle this problem head-on. Agriculture will clearly be one of the toughest issues of the new round."

In the meantime, trade wars proliferate. While the Americans often resort to classic trade barriers - such as quotas - the Europeans hamper imports more subtly. They tend to apply non-quantitative trade barriers.

The refusal to admit American genetically modified food into Europe - though it reflects real concerns of European consumers and health authorities - may well be merely a protectionist ploy. The French erected barriers against American culture products, especially films, citing concerns for their domestic culture industries and the preservation of their language and heritage.

Horovitz admits that "both real concern and real protectionism play a role. As a lawyer dealing with such cases, I can sometimes see that the EU regulator seriously believes that he is protecting EU consumers".

"Luckily, in today's WTO world, regulators cannot hide behind health or technical reasons and get away with a trade restriction, however genuine their intentions are. In many cases, the WTO's 'sanitary and phytosanitary' or 'technical barriers' provisions require WTO Members to base their restrictions on objectively established norms. Failure to respect such norms can lead to a WTO violation and risk retaliatory measures. Problems arise when clear-cut objective norms cannot be easily obtained. These are the cases you tend to hear about most."

Bilateral trade often serves as either carrot or stick in international relations. Trade sanctions, trade preferences, and trade concessions are liberally employed by both the USA and the EU.

Horovitz: "Trade concessions indeed form part of the 'carrot and stick' political game. These are often very welcome by their beneficiaries even if, at times, they refuse to pay the political price. EU - Israel trade relations are a typical example.

Israel was the first (and so far the only) Middle Eastern country to enjoy full free trade for its industrial products with the EU. Its first free trade agreement was concluded in 1975. It is a well documented fact that the opportunity given to Israeli industry to reach economies of scale through free access to the large European market was the most important factor in allowing certain industry sectors to attain the dominant market share they enjoy today.

The Europeans sought political leverage through this agreement. They always wanted to have a better say in Middle East politics, which requires Israeli consent."

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