America's trade partners may feel a little confused. The U.S. is pushing to implement some of the same rules that apply to trade in manufactured goods to the growing international trade in services such as insurance, accounting, engineering, and the like. Progress in the services segment of the World Trade Organization negotiations has been halting, though Washington has long been a determined advocate for such liberalization. But there's a new roadblock.
U.S. governors and other officials say new trade rules and the judges that enforce them are impinging on states' rights. This echoes complaints from liberal and conservative critics of free trade that the U.S. is surrendering its sovereignty to an obscure organization in Geneva that can overrule U.S. laws and regulations. The alliance of Left and Right and state officialdom could call an abrupt halt to the WTO talks and to Bush's ambitious trade agenda.
The states are correct: Their powers are being circumscribed. Of course, Europe and other nations whose systems of government aren't as fragmented aren't particularly sympathetic to the states' rights arguments. In addition, the U.S. trade deficit, at a harrowing $617 billion, is suppressing job creation and putting heat on local politicians to preserve contracts for in-state businesses and workers. Even the services trade, one of the few areas where the U.S. has enjoyed a surplus, is struggling: The surplus has shrunk from $101.2 billion in 1999 to just $48.5 billion in 2004.
If the talks are to get back on track, the WTO will have to take seriously some of the states' misgivings. Too many WTO panels, which operate in secret and need not follow legal precedents, have been unsympathetic to environmental concerns. Trade negotiators have ignored the potential conflicts between trade rules and the state and federal powers to protect health, safety, and workers' rights.
A compromise needs to be struck that recognizes the legitimate rights of America's states to exercise powers. Under the U.S. Constitution, many powers to pass laws and regulate trade are reserved to the states. Washington should be careful about bargaining them away.