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Businessweek Archives

The New Protectionism: How To Fight It



A new form of protectionism is haunting the international community, and no independent multilateral trade organization, including the World Trade Organization, is set up to deal with it. That's clear from the bitter, long-fought battle between Washington and Tokyo over access to Japan's auto and auto-parts markets. It would be a tragedy if the world's largest trading nations didn't move swiftly to remedy this situation before serious harm is done to the global trading system. Not only does the U.S. continue to confront Japan over many issues, including film, aviation rights, and telecommunications, it is facing off against other Asian nations, as well (page 30).

The problem: Protectionism has evolved in recent years from a clear-cut system of tariffs into a more complex culture of mercantilism (invented in 16th century Europe, now popular in Asia). In past decades, opening markets was a simple matter of measuring tariffs, judging whether they were too high or not, and negotiating international agreements to lower them. The General Agreement on Tariffs & Trade was extremely successful at lowering tariffs for manufactured goods.

But the WTO is not equipped to handle invisible trade barriers that are the hallmark of mercantilistic protectionism, such as the keiretsu form of interlocking directorships in Japan, which has been shown to discriminate against foreign investors and exporters.

The WTO must define its mandate in broader terms. Under Article 23, the WTO considers certain government aid to domestic companies a collusive trade practice if the action undercuts previous trade agreements. That means that bringing Eastman Kodak Co.'s well-documented case of the Japanese government's intervention in favor of rival Fuji Photo Film Co. to the WTO could result in a win for the U.S.

But much more must be done to transform the WTO into an effective trade-barrier-buster for the '90s. Europeans, who carped about the bilateral U.S.-Japanese auto negotiations, need to recognize that invisible trade barriers are the new frontier in protectionism. They should join with the U.S. in setting up mechanisms in the WTO to negotiate them out of existence.

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