World Trade: America's Change Of Heart

The U.S. is having doubts about the world trade pact it championed

For years, politicians and policymakers have struggled to create a mechanism for resolving international trade disputes amicably. They thought they had a breakthrough in 1994 when 124 nations reached agreement on an accord that drastically reduced trade tariffs and provided new global rules for trade in burgeoning service industries. A new world court was set up in Geneva to arbitrate disputes speedily. The World Trade Organization would be a key watchdog in the new era of global capitalism.

Yet hardly a year after it began operating, the WTO is adrift. Global talks aimed at opening trade in telecommunications services broke up on a sour note on Apr. 30. Similar talks on financial services collapsed last year. On Apr. 29, the U.S. lost its appeal in the first case adjudicated by the WTO, over U.S pollution standards for imported gasoline. Such disappointments are spurring American economic nationalists to question just how much the U.S. stands to gain from the new world trade order. Senate Majority Leader Bob Dole, the presumptive Republican Presidential nominee, is even championing a clause that would let the U.S. pull out of the WTO if Washington decides the trade court tramples on American sovereignty. "Our laws should continue to be a matter for Americans, not international judges, to determine," Dole declared on May 2.

The backlash against the WTO is a classic Clinton drama. The Clintonites lobbied strenuously for a year to win congressional approval for the WTO. But then Clinton's trade and economic advisers failed to follow through. The U.S. didn't file a case at the WTO until April 1995, for example, four months after the trade tribunal came into existence. A slew of early filings and some lobbying of Geneva bureaucrats might have ensured that the WTO's first ruling wouldn't slam the U.S., Clinton's critics say.

"AVALANCHE?" The blunders are taking their toll. "The WTO is already having a chilling effect on U.S. trade policy," laments one Washington trade hand. American ambivalence to the WTO could undercut China trade policy. The U.S. is using membership in the WTO as a bargaining chip to force the Chinese to open their market more quickly. Meanwhile, U.S. trade officials are wary of threatening sanctions against Japan over hot issues such as semiconductors, for example, partly because of fears that the WTO would rule against the U.S. "One more negative (WTO) decision, and there will be an avalanche" of political attacks by U.S. opponents to the trade court, warns a Senate staffer.

A lack of American commitment to the WTO could damage important efforts to open trade further around the world, some analysts fear. Without firm U.S. leadership, European and Asian countries will be reluctant to commit to new measures to break down "invisible" barriers to trade, such as collusive business practices, cartels, and administrative guidance.

That raises the stakes for what could be the most important case to go to the WTO this year, Eastman Kodak Co.'s allegations of unfair trade collusion between Fuji Film Co. and Japan's Ministry of International Trade & Industry (MITI). Frustrated by Tokyo's refusal to even discuss Kodak's charges at the bargaining table, the Administration is considering taking part of the film giant's complaint to the WTO.

Trouble is, it's not clear the WTO can mediate the fuzzy issues of business-government collaboration at the heart of Kodak's complaint. "The WTO doesn't have jurisdiction over competition policy," argues Ira Wolf, a Kodak vice-president. If the trade court rejects the case on the grounds that its rules don't apply, the Administration could be in a politically embarrassing position. Its fallback option--sanctions--would be illegal under WTO rules.

What's going wrong? Many in Europe believe the culprit is U.S. election-year grandstanding. If Americans are disappointed in the WTO, they have only themselves to blame because the U.S. was chief architect of most of its rules, say bureaucrats at the trade court's secretariat in Geneva. For example, the dispute-settlement process that resulted in a WTO ruling that the U.S. Clean Air Act discriminates against foreign oil refiners was largely drafted to U.S. specifications.

The Euros also contend that the financial services and telecom talks failed because Washington pulled the plug for political reasons. In both negotiations, countries made widely varying proposals to allow foreign investment and participation. "The idea that the offers on the table in both telecom and financial services were without significant value is not widely shared," says WTO spokesman David Woods. "It has never been possible in trade negotiations to secure everything overnight."

U.S. negotiators did pull back from a telecom deal at the 11th hour, but not because Clintonites were queasy about inking another market-opening pact in an election year. Administration trade officials would have been delighted to trumpet a telecom deal to counter mounting U.S. skepticism about the WTO's accomplishments. But they walked away from the table after industry execs and leading Republican and Democratic senators balked. A weak deal, they charged.

BUTT OF CRITICISM. What next? Top U.S. trade hands vow to redouble their efforts to get a telecom agreement by teaming up with Europe to squeeze better offers from recalcitrant Asian nations. The Clintonites reject calls from some trade experts for another megatrade round as too much too soon. That's a view shared by U.S. business, which is still feeling its way around the WTO. Instead, the Americans will press the WTO to tackle controversial barriers such as anticompetitive practices and bribery.

It will take time--and more trade disputes--for these efforts to succeed. In the meantime, the WTO may remain the butt of criticism from U.S. economic nationalists. The fact remains, however, that the dynamics of international economic relations have shifted and such a multilateral organization is bound to play a crucial role.

Indeed, the U.S. cannot afford anymore to cut global trade pacts essentially with Europe and Japan, giving third-world players a free ride. Says Stuart E. Eizenstat, Commerce Undersecretary for International Trade: "The world trade environment is no longer going to be a one-way street in which the U.S. and the developed world offer unrestrained access to our markets in return for very little access to the markets of upper-tier developing nations." Washington is in a good position to steer its partners toward a more friendly world trade order. But if the WTO is going to be the vehicle, the U.S. must put a firmer hand on the wheel.