The Two Sides Of Trade

Manufacturers are full of praise and criticism as the WTO's influence spreads. Meanwhile the 146-member group finds itself at a crucial crossroads as globalization alters the trade landscape.

The impact of the World Trade Organization (WTO) on the fortunes of U.S. manufacturers is indisputable. In recent months, the sometimes-pilloried, sometimes-championed global trading body's decisions on a host of international trade disputes have caused both cheers and jeers among manufacturers. Meanwhile, its previously stalled multilateral trade liberalization efforts are beginning to show the tiniest signs of life. The WTO may be less than a decade old; however, its actions can loom large for manufacturers. For example:

  • In March the European Union (EU) began levying multimillion-dollar trade sanctions on a wide range of U.S. goods in response to the United States' failure to bring the Foreign Sales Corporation tax law into compliance with world trade rules. The law amounts to an illegal subsidy, the Geneva-based WTO says.
  • In February the WTO gave the 15-member EU the go-ahead to impose trade sanctions against the United States in response to challenges to the Anti-dumping Act of 1916, which the WTO declared illegal in 2000.
  • In January the WTO found in the U.S.' favor in a long-running softwood lumber dispute with Canada; while in December 2003 President Bush's decision to abandon his controversial steel import quota program came on the heels of the WTO's November determination that the program flouted world trade rules.
And looking ahead, a host of other, equally important issues to U.S. manufacturers remain on the WTO's agenda, including the so-called Byrd Amendment, which allows U.S. manufacturers to share in anti-dumping duties; as well as the EU ban on genetically modified food. Yet, for all of that, trade disputes "are only the tip of the iceberg of what happens in global trade every day," notes attorney James Bacchus, a former member of the appellate body of the WTO and now chair of the Greenberg Traurig law firm's Global Trade Group in Orlando. Despite its youth, the WTO's roots go back more than 50 years. It is the successor to the General Agreement on Tariffs and Trade (GATT), and its duties in part include administering trade agreements, acting as a forum for trade negotiations and assisting developing countries. Free and fair trade is its overriding objective, the organization says. It is on the larger issue of global trade liberalization that the WTO is largely stalled. Its latest round of trade negotiations, formally called the Doha Development Agenda and begun in Doha, Qatar, in November 2001, came to a crashing halt at the 2003 Cancun Ministerial Conference in Mexico last September. Until recently the round showed little progress or potential to conclude by its Jan. 1, 2005, scheduled completion date. Blame for the failure was laid at several doors, but by many accounts the primary sticking point was agricultural reform. Those negotiations stalled at a time when many in the U.S. manufacturing community are questioning the seemingly unfettered advance of globalization. Developing countries are the beneficiaries while U.S. manufacturing jobs and opportunities continue to drain away, they rail. Yet, the WTO -- whose 146 member countries represent more than 90% of world trade -- may be the best place to level the playing field, suggests Frank J. Vargo, vice president of international economic affairs for the National Association of Manufacturers (NAM), Washington, D.C. To illustrate, he points to tariffs placed on industrial goods imported to the United States. They average less than 2%, he says, while other countries' tariffs may be 20% or higher. "We want to get rid of those [the latter]." But how? "You can do it 'house by house,'" via bilateral agreements such as those currently being pursued by U.S. Trade Representative Robert Zoellick, Vargo says. "Or the WTO could allow us to get all tariff levels down." For example, a 1996 WTO multilateral trade agreement eliminated import duties on information technology products. "Theoretically, [the WTO] is the best place to cut these tariffs around the world, but it's also the hardest," Vargo states. In January Zoellick announced an initiative to restart the Doha trade negotiations and embarked on a round of worldwide meetings to gather support. NAM applauded the move. "We particularly welcome their emphasis on industrial tariff liberalization," said NAM President Jerry Jasinowski shortly after Zoellick's announcement. "The timing of the initiative could not be better because the return of the U.S. dollar to reasonable levels means that American exporters are competitive again and need better access to foreign markets. Expanding exports is one of the best ways to put manufacturing workers back on the job." Whether the Doha round moves forward in reality remains uncertain. Decision-making at the WTO rests with the entire membership and is typically by consensus. Getting that many countries to agree "is like herding ducks," notes NAM's Vargo. EU Trade Commissioner Pascal Lamy issued a much harsher opinion at the conclusion of the failed Cancun ministerial. "Despite the commitment of many able people, the WTO remains a medieval organization. The procedures and rules of this organization have not supported the weight of the task. There is no way to structure and steer discussions amongst 146 members in a manner conducive to consensus. The decision-making needs to be revamped." (Lamy also has championed the WTO. He applauded its ruling on the U.S. Anti-dumping Act of 1916: "The decision of the [WTO] arbitrators is a welcome reaffirmation that the WTO is a rule-based system, and members may not ignore their obligations with impunity.") The EU trade commissioner is not the first individual to raise the question of reform within the WTO. Ernest H. Preeg, senior fellow in trade and productivity at the Manufacturers Alliance/MAPI, has taken the idea of reform a step further, proposing a new trade strategy for the WTO. His strategy, outlined in the white paper, "Free Trade in Manufactures: A Forward-Looking, Post-Cancun Trade Strategy," calls for the hundreds of free-trade agreements (FTAs) proliferating outside of the WTO to be consolidated "into a multilateral, most-favored-nation framework, and the adoption of multilateral free trade for the dominant manufacturing sector as the initial decisive step to this end." Preeg points out that the U.S. in fact proposed a multilateral FTA for manufacturing within the Doha negotiations in November 2002, "but the proposal never received serious attention." Preeg says the WTO's current trade strategy doesn't recognize the primacy of the manufacturing sector in global trade, despite the fact that it accounts for 77% of merchandise trade. Instead, the WTO recognizes the primacy of agriculture, which accounts for just 10% of trade and "has atypical political problems to open trade in almost all countries . . . ." Preeg calculates that a multilateral free trade agreement for the manufacturing sector would lead to more than 90% of world merchandise trade in a most-favored-nation free trade framework. The gains from adopting such a proposal? A $2 trillion increase in global GDP, Preeg says, split roughly in half between advanced industrialized and newly industrialized countries. For advanced industrialized countries, he says, that equates to a 4% increase in national GDP. In the meantime, America has much to lose if the Doha negotiations fail, says WTO Director-General Supachai Panitchpakdi. ". . . if the Doha negotiations stumble, doubts may grow, not just about the WTO's effectiveness, but about the future of multilateralism in trade," he said in a February speech to the National Press Club in Washington, D.C. "This should be a major concern to the U.S. for two reasons: First, the U.S. is now integrated with the world economy as never before. A quarter of U.S. GDP is tied to international trade, up from 10% in 1970," Panitchpakdi stated. "The second point is that strengthening the world trading system is essential to America's wider global objectives. Fighting terrorism, reducing poverty, improving health, integrating China and other countries in the global economy -- all of these issues are linked, in one way or another, to world trade."
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