GRISWOLD: Obama’s push vs. trade ‘cheats’ may backfire

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ANALYSIS/OPINION:

The Obama administration has vowed to ramp up enforcement of existing trade agreements in an effort to open markets further to U.S. exports. The pledge is popular with members of Congress who blame job losses on trading partners that “cheat,” especially China, but the tactic could backfire easily.

The U.S. government is certainly within bounds to expect other governments to follow the letter of international commitments, whether on trade, arms control, extradition or a host of other areas where international treaties apply. But an obsession with enforcement at the expense of trade liberalization would be a mistake. Such an approach exposes American producers to countermeasures and undermines efforts to open markets further in the United States and abroad.

U.S. trade officials routinely claim that the United States is more open to the global economy than just about any other economy. Not really. In the latest Economic Freedom of the World annual report, published jointly by the Cato and Fraser institutes, the United States ranked a modest 26th in the world in our “freedom to trade internationally.” Among those economies more open than ours: Germany, Great Britain, Ireland, the Netherlands, Denmark, Sweden, Chile, New Zealand, Hong Kong and Singapore.

The administration’s more-open-than-thou approach to trade diplomacy carries great risk. The United States is vulnerable to enforcement counterpunches against our own laws and practices that cross the line of international trade agreements. Cases against the U.S. government can result in punitive tariffs against U.S. exports.

The United States filed 84 cases against other World Trade Organization (WTO) members between 1995 and 2007, but the U.S. government was the defendant in 94 cases. Foreign politicians could just as plausibly rail that the United States “cheats” by refusing to play by the rules. Among the more prominent examples:

The U.S. government has lost repeated cases in the WTO against the U.S. Commerce Department’s unfair application of anti-dumping laws through a practice known as zeroing. Japan, the European Union and other WTO members are weighing the option of imposing $500 million in targeted sanctions against U.S. exporters as the U.S. government drags its feet.

Our small hemispheric neighbors Costa Rica and Antigua have been the victims of U.S. discrimination against their on-line gambling companies. Contrary to our WTO commitments to allow service competition, the U.S. government protects domestic online gambling companies against their offshore competitors. The U.S. government has yet to comply with a WTO ruling in favor of our two neighbors. Our rhetoric about “fair trade” sounds hollow to the thousands of workers in those countries whose jobs have been put at risk by our WTO-illegal restrictions.

Brazil successfully challenged U.S. cotton subsidies because of the harm they have caused farmers in that country by artificially driving down global prices. Rather than change the offending policies, the U.S. government is paying damages directly to the Brazilian government, in effect offsetting one subsidy with another.

A WTO panel ruled in September that the United States has been illegally subsidizing the research, development and production of Boeing Co. commercial airliners. The decision takes a lot of steam out of the successful U.S. complaint against European launch-aid subsidies for Airbus.

Closer to home, the U.S. government has shirked its commitment under the 15-year-old North America Free Trade Agreement to allow safety-certified Mexican trucks to deliver goods within the United States. Those Mexican trucks allowed on U.S. roads through pilot programs actually have compiled a better safety record than U.S. trucks. Under the political influence of the Teamsters union, Congress has refused to comply, exposing $2.4 billion in U.S. exports to retaliatory tariffs.

Besides the obvious risk of retaliation, the enforcement-only strategy ignores the simple truth that Americans are better off participating in trade agreements that are imperfectly adhered to than not participating at all. Even when either party fails to adhere fully to an agreement, the glass is usually still well more than half full.

For example, the accession agreement that China signed to enter the WTO in 2001 committed it to a major opening of its economy. While critics rightly can point to some foot-dragging and backsliding, the Chinese economy is much more open to U.S. exports than it was 10 years ago and more open than it would have been without the accession agreement. Getting tough with China over its less-than-perfect compliance exposes American hypocrisy while at the same time putting in jeopardy our rapidly growing exports to China.

When it comes to trade agreements, the U.S. government should seek the most comprehensive and ambitious deals it can with our major trading partners but then exercise patience and restraint when those agreements are not always fully implemented. As the ancient warning goes, by the measure you use to judge, so you will be judged.

Daniel Griswold is director of the Cato Institute’s Center for Trade Policy Studies and author of the 2009 book, “Mad About Trade: Why Main Street America Should Embrace Globalization.”

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