You Could Drive A Lexus Through The Holes In The Wto

The two proudest trophies of recent U.S. trade negotiation--the North American Free Trade Agreement and the multilateral Uruguay Round--have already lost much of their luster. NAFTA was supposed to stimulate the emerging market most strategically important to the U.S. Instead, Mexico has become an awkward financial ward, destabilized by the hot portfolio capital that NAFTA itself attracted.

What's more, the new World Trade Organization, prize of the Uruguay Round and successor to the General Agreement on Tariffs & Trade, is alarmingly half-baked. On one hand, the WTO is too weak to be a true international court that might serve the U.S. by opening foreign markets. Yet it is just strong enough to undermine bilateral efforts and embarrass the U.S. if Washington rejects its rulings.

Despite the multilateral trade system, most real progress in opening markets has come from tough bilateral negotiation. The GATT system was useful for lowering official tariffs and establishing trade norms--but not much more.

Historically, national negotiating muscle has counted. The Economic Strategy Institute's recent document, Section 301: A Catalyst for Free Trade, describes 98 major cases where U.S. threats of sanctions--not recourse to GATT--made the difference. Section 301 of the Trade Act requires the executive branch to initiate complaints against foreign barriers and to retaliate if such barriers are not removed. If U.S. semiconductor manufacturers, satellite makers, orange growers, and retailers such as Toys `R' Us Inc. have gained a foothold in Japan, the credit belongs to Section 301 and the resolve of the U.S. Trade Representative. In the same fashion, pharmaceutical and software exporters have won intellectual-property protection in Brazil, and U.S. movie and compact-disk distributors have gained access to Asia.

UNILATERALISM? But Section 301 is in bad odor internationally, perceived as "unilateralism." Many nations supported the WTO precisely in the hope it would kill Section 301. In the legislation implementing the WTO agreement, however, Congress specifically directed the Administration to continue using Section 301 on issues not adequately covered by the WTO.

The U.S.-Japan auto dispute is a case in point. The trade imbalance in cars and parts accounts for about half the U.S. trade deficit with Japan. But the trade obstacles result from ostensibly private actions--the clubbiness of the dealership system, the imposition of excessive inspection charges and markups, and a pricing system for auto parts that systematically excludes foreigners. None of these is a state action, and thus none explicitly falls under the WTO.

By moving unilaterally, the Administration has been criticized for undermining the WTO. Worse, if Washington and Tokyo file rival WTO complaints, the WTO could well find that Japan's byzantine private system for discouraging imports did not violate "free trade"--but that Washington's retaliatory tariffs did.

In the end, the WTO has neither the authority nor the due process of a true legal body. It has no independent power to levy or collect penalties. WTO panels are ad hoc affairs, conducted in secret, and are not subject to rules of evidence.

TRANSATLANTIC TIES. It may be the U.S. applied the right principles in the wrong settings. Free-trade areas are a sound idea--but Mexico was a poor candidate. A global trade body, committed to genuinely open commerce and with adequate judicial authority, is also a fine idea, if a radical departure. The WTO is no such organization, and the U.S. is not yet ready to surrender its sovereignty to a true world trade court.

If the WTO is not a true world trade organization, how about a more suitable regional one? The Clinton Administration wants to expand free-trade areas to Asia and South America. Clyde V. Prestowitz Jr., president of the Economic Strategy Institute, argues that the U.S. should create a liberal trade area in the one region where it might work--the North Atlantic. The U.S. and the European Union are sufficiently close in their norms, living standards, and commercial practices to be symmetrical trade partners. European Union trade officials are in a testy mood right now, concerned that Washington and Tokyo will resolve their auto dispute with a bilateral deal that would leave Europe at a disadvantage. The concern is legitimate and is all the more reason to seek closer ties with Europe. A North Atlantic Free Trade Agreement--a different NAFTA--is already the subject of quiet diplomacy. It might be more workable than either the present NAFTA or the WTO.

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