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A Growing Menace To Free Trade: U.S. Sanctions

Economic Viewpoint


Free traders are alarmed by the defeat of "fast-track" legislation by House Democrats. The defeated bill would have given President Clinton authority to negotiate trade agreements that the House must vote up or down but not amend. Free traders fear that fast track's defeat signals eroding bipartisan support for free trade. But tariffs and quotas--the traditional forms of trade restraints--are less damaging to trade than a new restraint that even Republicans favor.

The new curb on free trade goes by the name of sanctions. Unlike tariffs, which protect domestic industries from foreign competition, sanctions undermine the position of our domestic companies in international trade by prohibiting them from doing business in the targeted countries.

For example, in early October, as congressional committees were approving authority for President Clinton to reduce tariff and quota trade barriers, the Office of Foreign Assets Control in the U.S. Treasury Dept. was occupied with implementing new barriers to free trade in the form of regulations to implement the Cohen-Feinstein trade sanctions against Burma.

The U.S. government does not like Burma's politics and is trying to reform that country by prohibiting U.S. companies from doing business there. The effect is to hamstring American companies in Southeast Asia. As a result of the sanctions, Unocal, a U.S. oil company currently involved in the development of offshore Burmese natural gas destined for markets in Thailand, cannot build its business beyond this single project. Within the past month, Texaco Inc., developing another offshore gas field, sold its interest to a British company.

MOVING TARGETS. In effect, the sanctions against Burma only hit our global oil companies to the benefit of French and British competitors. Another problem with sanctions is that businesses cannot foresee where Washington will next strike. Indonesia is a possible target, as is any country that offends environmentalists, unions, religious groups, legislators, or the State Dept. Formerly, our multinational corporations worried about the political and economic stability of foreign countries in which they had, or were contemplating, investments. Today risk assessment has a new meaning as our companies try to forecast where Washington will next apply sanctions.

Senator Arlen Specter (R-Pa.) and Representative Frank R. Wolf (R-Va.) are sponsoring legislation that would apply trade sanctions against countries in which there is religious persecution. They have in mind Syria, Sudan, China, and Russia. Many countries might regard religious persecution as a category applicable to the U.S., where school prayer is prohibited and the Branch Davidian religious sect was massacred.

Unions want trade sanctions against countries that offend U.S. labor standards. Greens want sanctions applied to countries that violate environmental standards. Human rights groups want sanctions imposed to combat political oppression. Many are not content for the sanctions to apply only to U.S. companies but also want to target every company in every foreign country that trades with the offending nation.

COLA CONTROVERSY. Even state and local governments and universities are getting into the sanctions business. A dozen cities and the state of Massachusetts have bans against purchases from companies with investments in Burma. Harvard University and other wild-eyed universities turned a soft drink company off their campuses for selling cola in Burma.

The European Union says that the Massachusetts sanctions against Burma are against the World Trade Organization rules, but the EU itself, along with the U.S. government, tried to prevent the Association of South East Asian Nations from admitting Burma as a full member of the trade group.

Unilateral trade sanctions have grown rapidly and changed in nature. Once a cold-war tool applied to the Soviet Union and Cuba, in 1988 sanctions became a way to retaliate against countries that refused to open their markets to our products. Today sanctions are an instrument with which U.S. state, local, and federal governments attempt to rule foreign countries and to coerce changes in the political, social, and religious policies of other governments.

This is trade policy in chaos. U.S. markets are supposed to be opened to all comers, but U.S. companies are then prohibited from operating in any foreign country that incurs the wrath of an activist group or government agency. The only certain effect of this policy will be to minimize the presence of U.S. companies in global markets and to weaken them in their domestic markets.BY PAUL CRAIG ROBERTS

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