Bush's Well Placed Kick In The Trade Talks

History may record that just one day after President Bush lost the election for paying too little attention to economic policy, he miraculously rescued the 108-nation trade negotiations known as the Uruguay Round. By slapping 200% tariffs on French wine in an obscure dispute over animal feeds, Bush suddenly breathed life into talks that had been moribund for more than a year.

Bush's minuscule $300 million trade reprisal seemed to accomplish what six years of talk and three successive international economic summits could not. That is, it got the European Community negotiating with the U.S. on the pivotal issue of agricultural subsidies. While the entire effort may yet fail to produce a comprehensive trade deal, the Bush Administration's judicious use of the stick-and-carrot approach to negotiations holds some valuable lessons for the next occupant of the White House.

WARNINGS. The chief lesson of the new trade physics: Foreign subsidies or trade barriers tend to remain in place unless acted upon by an outside force, in this case the threat of U.S. retaliation. This was confirmed in 1985 after Congress passed a tough trade law and the success rate for negotiations climbed from one-third to two-thirds, according to an unpublished study by the Institute for International Economics.

Despite constant handwringing by economists who warned that aggressive unilateral action by the U.S. would precipitate a trade war, only 8 of the 67 cases examined in the study resulted in the U.S. following through on its retaliation threat. And just one case brought counter-retaliation--a minor tiff with Europe over pasta, citrus, lemons, and walnuts.

But the IIE study's authors warn against the Riddick Bowe approach as a panacea for stalled trade negotiations. "If you have a clear barrier and a clear objective, this can be an effective tool, but it's a limited means of achieving a limited objective," warns researcher Kimberly A. Elliot.

Nor does every warning of retaliation against foreign barriers work. The U.S. threatened India in 1989 and 1990 with trade sanctions unless it opened its borders to U.S. financial services and investment. India ignored the threat, and the U.S. backed off. Despite such occasional lapses, U.S. Trade Representative Carla A. Hills has managed to write the book on prying open markets. Some of the main conclusions from her record:

-- Pick targets carefully. Hills used great precision in selecting white Burgundy wines for the brunt of the trade retaliation. France has been the principal foot-dragger on reducing farm subsidies within the EC, and the French Agriculture Minister--a shrill critic of U.S. policy--is from the region. In a similar case with China this summer, publishing a detailed and extensive list of targets for U.S. sanctions helped lead to a quick pledge by China to drop barriers against many U.S. imports.

-- Keep it legal. The U.S. won two decisions on the current case before a quasijudicial panel under the General Agreement on Tariffs & Trade, the sponsoring body for multinational trade negotiations. The EC ignored the GATT findings, surrendering the moral high ground and rendering its cries of unfairness ludicrous. "Hills was patient, she lined up the international support she needed, and she made a record of having tried to negotiate," notes I.M. Destler, a University of Maryland political scientist.

-- Aim for tangible results. The U.S. engaged Japan in a monumental but largely fruitless three-year talkathon over "structural impediments." The diffuse goals of the talks included overhauling the Japanese distribution system, antitrust enforcement, and corporate structure, and boosting spending on parks and sewers, all while persuading the Japanese to take more vacations from work and school. Not much happened. But when the U.S. threatened retaliation unless the Japanese lowered barriers to U.S. supercomputers, glass, satellites, wood products, and electrical transformers, Tokyo proved willing to compromise.

-- Timing counts. There's always an election coming up in Europe--providing a plausible excuse to postpone reform. In the latest case, the Bush Administration waited until after the French vote on the Maastricht Treaty, a key Parliamentary vote in Britain, and local elections in Germany were out of the way. Then, waiting to announce the sanctions until a day after the election in the U.S. showed that the Administration wasn't just playing electoral politics.

When it comes to economic policy, Bush's performance will never draw many raves. And fans of Meursault may find themselves choking at the prospect of Lake Country White. But credit the U.S. with leading the world through six successful rounds of trade liberalization talks over nearly 50 years. The record proves that so long as the goal is freer trade and the methods are fair, the White House should keep its boxing gloves handy.

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