Bracing For A Trade Battle In Seattle

The coming trade summit could turn into a brawl over everything from e-commerce to agriculture

Millennium Round? Seattle Round? How about the Clinton Round? That has a nice historical ring to it. And President Clinton would love to attach his name to the global trade talks that get under way on Nov. 30, just as his idol, President John F. Kennedy, did with the highly successful Kennedy Round in 1962. After all, an explosion of international trade has marked the Clinton era. Even amid record trade deficits, U.S. exports stand at 23% of economic output, up from 19% in the 1980s. Trade accounts for one in six of the 19.4 million jobs created in the U.S. since 1992. And it was Clinton who persuaded the World Trade Organization to come to Seattle to kick off "a new kind of round for a new century."

But the Seattle WTO summit now looks as though it may make history of a different sort. Unless Clinton can turn the situation around, Seattle--the biggest trade confab in history--may be remembered as the place where his global trade ambitions hit the rocks. Only a month before the 132 member nations and 31 applicants--including China--meet, the U.S., Japan, and Europe are oceans apart on major issues. Meanwhile, the 77 developing nations that dominate the WTO are trying to escape from prior commitments to such free-trade principles as lower tariffs. Add to that the presence of dozens of protest groups--from Greenpeace to the AFL-CIO--and "a disaster in Seattle is by no means impossible," warns C. Fred Bergsten, director of the Institute for International Economics in Washington.

Already, the charges are flying. The U.S. accuses its trading partners of trying to sabotage three years of planned talks by loading the negotiating table with too many issues, including demands by some nations to backtrack on prior trade deals. "I call it the `Let's put everything in so nothing comes out' approach," charges U.S. Commerce Under Secretary David L. Aaron. Japan, for example, is leading a 20-nation assault on a long-accepted WTO ban on the dumping of subsidized goods.

The European Union wants to reopen last year's failed talks to foster foreign investment worldwide. The EU also wants the Seattle summit to consider new rules on food safety and to require labels on foods that contain bioengineered ingredients--a blow aimed directly at the dominant U.S. biotech industry and American farmers. Even traditional food exports would likely be snared by such rules, leading other major food exporters such as Australia, Argentina, and Canada to oppose the EU proposal. Food-exporting nations view such labeling rules as attempts to discriminate against imports.

The U.S. is also in conflict with Europe over the Americans' prime negotiating goal in Seattle: keeping hands off e-commerce. The U.S. wants to make permanent a worldwide moratorium on taxing business over the Internet and to persuade regulators to go easy on new e-industries. But the European Union is itching to freeze out U.S. credit agencies by imposing privacy restrictions. What's more, the EU wants to define a sale over the Internet as a service, thus circumventing far stricter free-trade rules governing sales of goods. As a result, U.S. officials say, France could limit the sale of English-language software, music, and movies over the Net as a special "cultural protection," which is accorded to the sale of services.

SACRED COWS. By longstanding agreement, the main focus of the trade talks is supposed to be services and agriculture. But that consensus, too, seems to be fraying. The U.S. seeks an end to Europe's $48 billion in farm subsidies. But in a recent statement, EU farm ministers responded that "safeguarding the future of the European model of agriculture" would be Europe's top goal. "Agriculture is now the most protected segment of international trade, and Europe's subsidies disrupt the world markets, but the EU will hang on to export subsidies as long as possible," predicts Timothy Josling, a Stanford University trade economist.

Developing nations are raising yet another set of thorny issues. While they have the most to gain from lowering barriers to agricultural imports in Europe, they are focusing more on raising barriers at home. Led by India and Brazil, developing nations want the right to subsidize home industries, raise tariffs on imports, and delay the January, 2000, implementation of WTO rules on intellectual property. Their ultimate goal: relaxation of pharmaceutical patents so that poor countries can produce cheap drugs and vaccines to fight such diseases as AIDS, malaria, and tuberculosis without paying royalties to U.S. and European drugmakers.

The stakes in the intellectual-property fight are enormous. Brazil and India could be forced to pay out nearly $2 billion in royalties for Western copyrights and trademarks, says Keith E. Maskus, a University of Colorado economist. Some 50% of U.S. business-application software is now pirated abroad, according to the trade group Business Software Alliance.

Against this contentious backdrop, Japan will be both for and against U.S. policy in Seattle. Tokyo backs a U.S. demand that Europe cut farm subsidies. But Tokyo balks when it comes to ending subsidies for Japan's fleets of trawlers, a key factor in its $23 billion fishing industry. Most Asian nations and much of the developed world have agreed to try to protect the world's dwindling fish stocks. But Japan, citing food security, has for two years resisted taking up the issue at the Asia-Pacific Economic Cooperation forum (APEC).

LET CHINA IN? Japan is also at loggerheads with the EU and the U.S. over letting China into the WTO. Japan has endorsed China's entry; the U.S. and the EU are demanding more concessions from Beijing. China is presently negotiating with the U.S. and the EU separately but isn't expected to complete the negotiations by Nov. 30.

The nations that the U.S. accuses of sabotaging Seattle have some choice words for the Administration. They say that it's trying dominate the agenda for its own purpose. It's no coincidence, they say, that the U.S. is focusing on trade liberalization for its strongest industries, such as e-commerce, while opposing any efforts by developing nations to protect their infant industries.

In addition, critics charge, the U.S. is refusing to consider an early phase-out of its quotas on textiles and apparel imports, due to end in January, 2005. Meanwhile, the developing world is dead set against a U.S. push to include protections for labor rights and the environment in trade agreements. A prohibition on imports made with child labor, they say, is really protectionism masquerading as concern over human rights.

Once the talks begin, it's not out of the question that the squabbling could give way to progress. But the last trade talks, the Uruguay Round that began in 1986, took eight years to complete--and that was before e-commerce and gene-splicing. So if President Clinton wants to be the savior and the namesake of the ninth round of global trade talks before he leaves office in January, 2001, he'll have to act fast.

    Before it's here, it's on the Bloomberg Terminal.