- The Washington Times - Tuesday, June 9, 2009

ANALYSIS/OPINION:

COMMENTARY:

When it comes to international trade, President Obama and other administration officials are letting the world know the United States rejects economic isolationism but will adopt a trade policy that reflects American economic interests as well as America’s values.

This is welcome news in the international marketplace. Global trade is projected to drop by 9 percent this year, falling faster at this point than it did in 1930. The United States and other countries are hemorrhaging jobs. In response, those countries are working hard to shore up their domestic economies while keeping commerce flowing.

The news also is welcome for American workers, who have grown skeptical of the promise that they benefit from trade. There is bipartisan support for the administration’s pledge to bring more balance in global trade and extend trade’s benefits more broadly through more vigorous enforcement of trade rights and obligations.

To be sure, enforcement is vital. The viability of individual companies, entire economic sectors and, indeed, the international rules-based system itself rests on the enforcement of its obligations and rules. All nations can and should use trade remedies to ensure fairness for their citizens. In addition, the World Trade Organization’s (WTO) dispute system must not be misused to create obligations never agreed to by the U.S. or other members. Many are anxious for the Obama administration to achieve these critical objectives.

But enforcement alone, as critical as it is for particular industries and their workers, is not enough. The Obama administration must begin to take on the structural causes of the huge trade imbalances that distort the global economy.

First, over the past 50 years or so, nearly every major trading nation except the United States has moved to rely increasingly on indirect or valued-added taxes (VAT) on goods and services. On a bipartisan basis, there has not been the political will for the United States to adopt an indirect tax system. Generally, Democrats are worried about increasing inequality in the tax code, while Republicans are concerned that a new indirect tax would mask a large tax increase.

The result has been a systemic global bias against U.S. companies and U.S. workers. Foreign indirect taxes, which run up to 25 percent of the price of goods, give a real competitive advantage to foreign producers. For example, our industries take a double hit when Germany slaps a 19 percent VAT on our exports to that nation and provides a 19 percent VAT rebate for most of its exports to the U.S. The result, when multiplied by the 153 nations that have an indirect tax system, is the largest single unfair imbalance that Americans face. In fact, when you add up the indirect tax distortion, it creates a $350-billion-a-year arbitrary global disadvantage weighing down U.S. companies and workers in goods alone.

To address this imbalance, the administration and Congress either need to modify U.S. taxes to adopt a much greater dependence on indirect taxes (with lower indirect tax rates on consumer essentials to reduce the potentially regressive impact) or finally get the international rules changed to stop penalizing U.S. companies and their workers.

Second, currency misalignment similarly can result in massive dislocations to companies and workers. Where the misalignment is a result of deliberate government policy, multilateral institutions such as the International Monetary Fund and the WTO or non-institutional groupings of major nations such as the Group of 20 should be given a chance to provide an effective solution. If that does not yield progress, unilateral action might be necessary.

Third, energy prices have very distortive effects on trade and account for a large portion of the U.S. trade deficit. It is laudable that the administration is trying to address this by promoting the development of alternative energy sources. However, Mr. Obama also must look at how trading nations can eliminate the cartel premiums extracted by coordinated foreign energy providers.

Finally, the administration needs to achieve a good outcome in the ongoing WTO negotiations (the so-called Doha Development Agenda) for American companies, farmers and ranchers, and workers. A new global trade agreement must expand trade opportunities and give least-developed countries more access to trade’s potential benefits. A balanced agreement also can advance efforts to confront global climate change, remove or reduce various distortions to expanded trade, rebalance the trading rules and dispute settlement system, and be a win-win for all WTO members. The administration also should embrace opportunities to expand bilateral and regional trade if those agreements can benefit the range of U.S. and global stakeholders.

The challenges we face in international trade are the result of a growing systemic disequilibrium that is not sustainable. This time of crisis provides the opportunity to restore balance in the international economic system. Achieving progress on these issues is a heavy lift, but the Obama administration cannot achieve a sustainable economic global order without addressing the causes of disequilibrium. Let us hope this time of crisis gives our leaders the opportunity to move us to restored economic balance.

Terence P. Stewart is the managing partner of the law offices of Stewart and Stewart, a 50-year-old Washington-based trade law firm. He has served previously as chairman of the U.S. Court of International Trade Advisory Committee on Rules and as president of the Customs and International Trade Bar Association and as a board member of the Federal Circuit Bar Association.

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