Practical Economics


Nailing Trade Violators: Not a Slam Dunk

Art Pine

President Obama and Mitt Romney, front-runner for the GOP presidential nomination, are both promising tougher enforcement of U.S. trade laws. But it won't be as easy -- or as effective -- as their pledges imply.



Talking tough about cracking down on other countries' unfair trade practices may win political points with business or labor, but actually doing so is an uphill fight at best, and it doesn't always result in a win for the U.S.

To be sure, filing formal complaints with today's Geneva-based World Trade Organization has yielded far better results for the U.S. than occurred under the organization's pre-1995 predecessor, known as the General Agreement on Tariffs and Trade, or GATT. GATT's rules made it easy for other countries to prevent such cases from coming to the fore and even enabled the defending country to block the organization's dispute settlement judges from issuing a ruling. The WTO has more authority and is willing to use it.

SEE ALSO:

As a result, Washington has been able to claim some credible victories over the years -- including cases against Europe's subsidies to Airbus, the European aircraft maker, and China's restrictions on the export of Chinese industrial materials used in high-tech products. But Washington also has lost some cases, and others have been relegated to country-to-country negotiations in which the two sides are expected to work out a compromise on their own, without the prospect of sanctions against the offending party.

Advertisement

Win, lose or negotiate, the WTO process is painstaking. It isn't easy for U.S. officials to gather the details they need to prosecute cases. Businesses are often reluctant to provide evidence for fear they will jeopardize proprietary information or risk retaliation abroad.

Moreover, the WTO's dispute settlement process often takes years to complete, and additional time may be needed for the losing country to bring its practices in line with the WTO ruling. By then, the damage usually has been done. In some cases, the U.S. gets only part of what it wants. In the Airbus case, for example, although the WTO ruled that Europe's $18 billion in subsidies to Airbus were illegal, it also gave a thumbs-down to America's $4 billion in subsidies to Boeing.

Small wonder, then, that U.S. trade officials pick their cases carefully. During the eight years that George W. Bush was president, the U.S. filed 23 cases with the WTO, seven of them involving China. Obama has filed nine since he took office in 2009, six of them targeting China.

Of course, filing complaints with the WTO isn't the only way the U.S. can counter unfair trade practices abroad. In some instances, Washington has imposed punitive tariffs on its own, but these often have been overruled by the WTO, and other countries can retaliate.

And even if the U.S. successfully holds another country's feet to the fire, there's no guarantee that punitive action will bring any benefit to the aggrieved industry here at home, either by keeping out foreign imports or by protecting U.S. jobs. In 2009, for example, under pressure from unions, the U.S. imposed punitive tariffs on low-end tires from China, and the WTO blessed the move. But business groups say tire imports here never slowed; buyers just shifted their purchases from China to Mexico, and jobs in the U.S. tire industry continued to fall.

Meanwhile, China retaliated against the U.S. tariffs by limiting its exports of rare earth materials needed by the U.S. military and private industry. Washington has just filed a new case asking the WTO to declare that action illegal.

None of these difficulties suggest that the U.S. should stop taking its trade complaints to the WTO. But anyone who has a notion that "getting tough" is likely to solve America's trade problems is risking disappointment.



Editor's Picks From Kiplinger


You can get valuable updates like Practical Economics from Kiplinger sent directly to your e-mail. Simply enter your e-mail address and click "sign up."

More Sponsored Links


DISCUSS

Permission to post your comment is assumed when you submit it. The name you provide will be used to identify your post, and NOT your e-mail address. We reserve the right to excerpt or edit any posted comments for clarity, appropriateness, civility, and relevance to the topic.
View our full privacy policy


Advertisement

Market Update

Advertisement

Featured Videos From Kiplinger