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Monday, April 26, 2004

Kerry and Trade Policy 

The AP is reporting that John Kerry is calling for the US to bring more cases before the WTO:
The Democratic presidential candidate said Bush is not taking action to stop jobs from going overseas, such as aggressively filing unfair-trade cases with the World Trade Organization, or WTO.

"To engage and win in the global economy, we must not only open markets, we must ensure a level playing field for American workers," Kerry said in remarks prepared for delivery Monday. "As with most economic issues that impact American jobs and American workers, when it comes to enforcing our trade laws, this administration has been asleep on the job...."

Kerry's report notes that the administration has filed just 10 WTO cases during his three years in office, compared with 65 during the last six years of the Clinton administration. Democrats in Congress have also complained about that record.

Kerry offered a six-part plan to enforce trade agreements, including efforts to strengthen worker's rights, eliminate abusive child labor and stop illegal currency manipulation. He said he would double the U.S. Trade Representative's budget for enforcement and create an advocacy office there for small businesses.
Is this a legitimate complaint? First, it might help to review the policy tools available to a US President in the face of complaints about unfair trade practices. The Executive Branch can work either unilaterally (via the anti-dumping procedure), bilaterally (basically trying to "settle out of court" through existing forums or via ad-hoc negotiations), or multilaterally, through the WTO's dispute settlement procedure. We've seen the Bush administration try out the unilateral approach (as in so many other areas of foreign policy) by imposing tariffs on imported steel. We've also seen the results of this policy: the WTO gave permission to affected countries to put countervailing duties on US products, forcing Bush to withdraw the steel tariffs.

In judging Kerry's statement on the policy merits, there are two things to consider: first, is Kerry focusing on the right policy instrument? In other words, if we believe that American companies face an unfair export playing field, is the multilateral approach the right one? Most economists would say "yes, absolutely." There's a lot of suspicion about whether dumping as a practice actually exists, and the unilateral approach to trade policy is easily captured by protectionist interests at the expense of other industries. The steel tariffs are a great example: sure, steelworkers and mill owners got some breathing room when the tariffs were applied, but the consensus among economists is that industries using steel in their products lost a lot more than the steel industry gained, to the detriment of the US economy as a whole. The multilateral process gives more parties an opportunity to weigh in, leading to policies that more closely match national welfare considerations. Furthermore, just as in the realm of domestic politics, disputes are less likely to devolve into open acrimony when handled through mutually-accepted legal procedures than when parties in an argument take matters into their own hands.

But is there really a case to be made that other countries are treating American firms unfairly, or is this just more head-in-the-sand protectionist gobbledygook? I would argue that Kery has a strong case here, and that he's hit upon the optimal response to anti-free-trade political pressure. There are plenty of legitimate gripes about foreign (and American) trading practices that the WTO can solve. For example, a ruling last month made clear that Mexico was violating WTO rules by allowing its privately-held monopoly telephone company to charge border-crossing fees on incoming international telephone calls. As far as I can tell, the only losers here were shareholders and employees of Telmex, while the big winners were US phone companies and people who wanted to make phone calls to friends, family, or business contacts in Mexico. So big businesses trade blows, and consumers win. Excluding those with a personal grudge against AT&T, it's tough to see why anyone outside the industry would be particularly upset about this decision.

To the extent that Kerry's rhetoric adds fuel to protectionist fires, or leads people to believe that the nation's jobs or manufacturing woes should be blamed on international trade, it's probably a bad thing. But to his credit, Kerry has fastened onto an excellent policy response.

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