Who's Afraid Of The World Trade Organization?

One thing hasn't changed since the army of trade bureaucrats in Geneva switched the name on the door from General Agreement on Tariffs & Trade to World Trade Organization in January. They still have a tendency to discuss trade disputes endlessly, preferably over a nice meal.

That's why the protests of America Firsters that the WTO will run roughshod over U.S. trade law are overblown. Indeed, the dirty little secret about the new global trade tribunal is that its dispute-resolution process is deliberately set up to stall long enough to get both sides to negotiate a settlement.

WTO bureaucrats were hoping to test that process on something simpler than the escalating trade tensions between the U.S. and Japan--perhaps an obscure case such as U.S. complaints that Korea's regulations mandating short shelf-lives for meat effectively shut out American producers. The WTO's goal was to build a foundation of case law for more difficult disputes and bolster its political support in world capitals.

Instead, quelle horreur! The fledgling world trade court must make its debut by trying to resolve an intractable and politically charged trade quarrel: The fight between Tokyo and Washington over auto parts. Tokyo is taking Washington to the WTO for unilaterally imposing stiff tariffs on Japanese luxury cars. The U.S. in turn plans to go to the WTO with a broad indictment of Japanese practices that shut out the U.S. parts. The U.S. case would force the WTO to rule on so-called invisible trade practices--murky issues such as cartel-like dealings and business-government collusion for which there are no clear international rules. "We've been thrown into the deep end on this one," moans a WTO official.

America's neo-isolationists are salivating. A Tokyo victory would confirm their suspicions that the WTO is an all-powerful global court poised to impose one-world government on the U.S. "If Japan wins, it makes it clear we ceded a major part of our sovereignty," says economist and WTO opponent Pat Choate. The trade nationalists have been egged on by predictions that Washington has set itself up for a big fall. Japan's narrow case is widely considered a slam-dunk for Tokyo because WTO rules clearly ban a member country from hiking tariffs without approval.

But the likelihood is that the WTO ultimately won't pronounce judgment on either party. That's because of the design of the organization's dispute-resolution process (table). Even though Japan and the U.S. broke off auto talks in late April, WTO rules are about to send them back to the negotiating room. That means the two governments likely will have 60 days to work things out. If they can't, a panel of three trade experts will hear the case. If the panel finds in Japan's favor, the U.S. could appeal to another panel of bureaucrats. Along the way, both sides can keep talking. "There will be ample opportunities to settle this out of court," says Commerce Under Secretary Jeffrey E. Garten.

IN YOUR FACE. Still, leaving it up to the WTO entails risks for the U.S., Japan, and world trade. Despite the built-in mechanisms for consultation in the WTO process, the in-your-face rhetoric of top trade negotiators on both sides already has made it tougher to craft a compromise. And new WTO Director Renato Ruggiero, whose candidacy both the U.S. and Japan opposed, may lack the clout to bring the two sides together.

Privately, U.S. officials admit their case isn't as strong as Japan's. Many WTO members aren't rooting for Washington anyway. They would love to shut down U.S. use of unilateral trade sanctions, and many see Japanese-style collusive practices as "important tools in their economic development arsenal," says Clyde V. Prestowitz Jr., president of the Economic Strategy Institute. "A lot of people will think if America can win this case against Japan, it might come after us."

But rulings against the U.S. could hurt the WTO far more. It surely would provoke a protectionist backlash, stepping up pressure on the Administration to withdraw from the WTO and undermining the new global trade liberalization pact the U.S., Japan, and Europe labored seven years to create.

A chilling prospect, sure, but hardly the most likely outcome. Both sides in the bitter auto-trade feud have a huge stake in not letting it get that far. And the new trade tribunal, constructed over long, leisurely lunches, seems designed to make sure it won't.


The U.S. and Japan are starting cases against each other with the World Trade Organization. Here's how the process will work:

Step 1

The WTO will send the U.S. and Japan back to the negotiating table.

Step 2

If there's no resolution after about 60 days, the WTO can appoint a three-person panel to decide the case. The panel has six to nine months to issue findings.

Step 3

The panel's report may be appealed to another three-person panel. The appeals panel has 60 days to rule.

Step 4

The loser of the appeal must comply with WTO rules or negotiate compensation with the other country. If the parties can't agree on compensation, the complaining country may retaliate with tariffs.


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