One purpose of the GATT is to limit the power of U.S. politicians over the choices of American consumers. The agreement seeks to protect trade from exploitative politicians and heavy-handed bureaucrats. Since the GATT must be ratified by politicians, it will certainly be far from perfect. Yet the real question is whether people will have more or less freedom with the GATT. The answer is, they will have more.
"The U.S. has far more trade barriers than most American politicians choose to admit".
American trade negotiators have exerted far more effort to close the U.S. market than to open foreign markets. Since 1980, the U.S. government has negotiated 170 bilateral trade agreements to restrict exports to the United States. If a Third World nation’s exports of a clothing item equal 1 percent or more of U.S. production, the U.S. government almost automatically restricts that nation’s exports. U.S. trade law has turned incompetence into an entitlement, as any lagging American company has a right to seek relief from foreign competition.1 Foreign nations are increasingly denounced as unfair unless they take "affirmative action" to force their businesses to buy more American products.
"The Tariff Code carries 8,753 different rates."
Overall, the U.S. tariff code looks like a variable value-added tax devised in a lunatic asylum. The tariff on brooms is 42.3 percent, thereby safeguarding dust and dirt; the tariff on flashlights is 25 percent, thereby encouraging people to break their noses in the dark; the tariff on cheap scissors is 23.6 percent, thereby encouraging people to tear things apart with their bare hands.
America’s tariff makers perceive vast differences between similar products - which ordinary mortals miss. The tariff on duck liver is 16 times higher than on goose liver. The tariff on wine with low alcoholic content is six times higher than on wine with high alcoholic content.
"Each American is allowed the equivalent of a teaspoon of foreign ice cream a year."
"Taxpayers pay to keep out low-priced foreign food and again to feed low-income Americans hurt by high food prices."
William Cline of the Institute of International Economics, a Washington, D.C., think tank, estimates that the combined consumer costs of tariffs and other restrictions on textiles is $20.3 billion on the wholesale level and as much as $40 billion on the retail level.11 These burdens hit poor families far harder than rich families.
"GATT represents a worldwide tax cut of nearly $750 billion."
The United States would benefit, along with other countries. Trade already is vital to our economy. Last year, the U.S. exported over $650 billion in goods and services - the equivalent of more than 10 percent of the gross national product. More than 10 million jobs are directly reliant on exports.17 Under GATT, economic activity would expand.
U.S. Trade Representative Mickey Kantor testified in June that the GATT will result in "the elimination of tariffs in major industrial markets and significantly reduced or eliminated tariffs in many developing markets, in the following areas: construction equipment, agricultural equipment, medical equipment, steel, beer, distilled spirits, pharmaceuticals, paper, toys and furniture." Kantor noted that the GATT will also result in "deep cuts ranging from 50 to 100 percent on important electronics items (semiconductors, computer parts, semiconductor manufacturing equipment) and on scientific equipment by major US trading partners."21 [See Table I.]
"The GATT will result in the elimination or reduction of tariffs in established and developing markets."
Obviously, the potential benefits of the GATT are great. This is why we must seriously consider the main points of the opposition to the agreement.
Much anti-GATT rhetoric has sounded as if the opponents considered the WTO part of a secret "Protocols of the Elders of GATT." Senator Fritz Hollings (D-SC) - the U.S. Senate’s most prominent protectionist, a warrior whose own raiment is made in South Korea - proclaimed last August that the WTO would subject U.S. law to an "international tribunal" and place the nation "in the hands of the Philistines."22 A Connecticut spokesman for United We Stand, Ross Perot’s organization, warns that "The World Trade Organization will have complete power over us."23 Reality is otherwise.
"The World Trade Organization will only have the power to authorize a victim of an unfair trading practice to retaliate."
The World Trade Organization is necessary, in part, because national governments routinely violate their international obligations to abstain from protectionist practices. In the United States, companies routinely spend three to five years in litigation - and hundreds of thousands of dollars in legal fees - to challenge absurd dumping decisions by the U.S. Department of Commerce. These are decisions that penalize firms for supposedly selling imported products at "less than fair value." For example, in 1990 the Commerce Department accused Korean and Hong Kong sweater producers of dumping because they sold sweaters more cheaply in the United States than in other countries:25
"If a trade practice is found to be GATT-illegal, the U.S. has four options - including doing nothing."
The type of compensation that would be required is key to understanding why GATT would not impact national sovereignty. If the United States "wronged" Taiwan, for example, it would not be asked to surrender Guam, the Midway Islands or a few of the smaller Hawaiian Islands to Taiwan. Instead, the panel would estimate the trade-distorting impact of the GATT-illegal trade practice and authorize the injured nation either to retaliate comparably against United States exports or to seek comparable compensation from the United States. If the United States refused to change its GATT-illegal trade practice, at worst it would face retaliatory tariffs or other trade barriers from the injured nation.
The U.S. government and the offended government could negotiate over a compensation package. The United States could satisfy a foreign government’s complaint not by lifting the specific trade barrier or changing the law at issue but by lifting other trade barriers to provide equivalent compensation. Wrongful U.S. trade barriers on one product could lead to the negotiation of lower U.S. trade barriers on other products. This would be a "win-win" situation for American consumers: the U.S. could either lower the trade barrier the WTO found to be unjustified or could find some other trade barrier to lower.
Despite the litany of U.S. trade barriers recited earlier in this study, the United States is one of the less protectionist nations. While it may lose a few cases before WTO panels, U.S. exporters are likely to win more cases than our government loses. Thus the United States will reap a net gain from the firm international imposition of rules of trade.
"If the World Trade Organization became abusive, the U.S. could withdraw."
To understand the WTO’s perceived threat to U.S. sovereignty, let’s consider the types of trade agreements the U.S. has been found to have violated in the past. In July 1994, the U.S. was found to have violated the MultiFibre Arrangement (MFA), a compact of major textile importing and exporting nations, by imposing import quotas on El Salvador’s shirts - even though there was no evidence Salvadoran imports were disrupting the U.S. market. Reportedly, U.S. officials threatened Salvadorans with retaliation if they complained to Geneva. Although an international MFA panel ruled unanimously against the United States, the U.S. refused to abide by the decision and maintained our quotas for several months.29 The offending quota was lifted only after the Salvadoran government formally agreed to accept another, higher quota restriction on its shirts.
"U.S. export control regulations have severely hurt many of America’s leading technology companies."
Listening to complaints about the GATT, one would think that U.S. trade policy is the rational creation of bureaucratic sages and benevolent statesmen. Instead, trade policy is the precarious result of countless bad decisions made on Capitol Hill.
Congress has tended to view "national sovereignty" as an expression of its right to restrict Americans’ freedom. Representative Helen Delich Bentley (R-MD), who displayed her trade acumen by sledge-hammering a Japanese TV on the steps of the Capitol in 1987, recently wailed: "Under the new GATT, Congress will have limited power over trade. ...We cannot allow this to happen."38 Thus, because the WTO could potentially strike down protectionist U.S. trade laws, the WTO is a violation of national sovereignty. Similarly, columnist Patrick Buchanan warned, "We give up our freedom - to faceless foreign bureaucrats who will assume authority over America’s commerce that the Founding Fathers gave exclusively to the Congress of the United States."39
But the Founding Fathers never intended to give the Congress dictatorial power over what American citizens could buy. In fact, restrictive trade policies were a major cause of the American Revolution. In 1750, Britain prohibited Americans from erecting any mill for rolling or slitting iron; William Pitt exclaimed, "It is forbidden to make even a nail for a horseshoe." The Declaration of Independence denounced King George for "cutting off our trade with all parts of the world."
"The United States was born as a low-tariff nation."
The United States was born as a low-tariff nation. After 1816, when Congress began raising tariffs, citizen groups denounced the government for violating the basic trust of the U.S. Constitution. For instance, on February 25, 1828, the citizens of Newberry, S.C., denounced high tariffs, petitioning Congress with these words: "The species of legislation of which we complain is an infringement of the federal pact. It violates the eternal principles of justice by robbing one to enrich another. We observe with pain that the demands of the manufacturers are never ending. We are treated as colonies."40 The high-tariff policies of the early 1800s helped to sow the seeds for a Civil War that left over half a million Americans dead.
Senator Jesse Helms (R-NC), the presumptive chairman of the Senate Foreign Relations Committee, is working to delay consideration of the GATT. But it is worthwhile to examine Helms’ own philosophy on trade. In 1990, Helms complained that U.S. textile policy "gives our market to foreigners."41 Helms apparently believes that the U.S. Congress should have the right and power to give the market to whomever it chooses. To talk of "giving" the market is, in reality, to talk of giving the dollars of anyone who must depend on that market. Politicians who allocate market share are treating consumers as serfs.
Protectionist politicians complaining about the effects of GATT on national sovereignty have as much credibility as muggers complaining about too many street lights. Most trade legislation is based on the idea that a handful of people who are members of Congress have a right to tax or prohibit the purchases of 250 million Americans. Did the 90,000 people in eastern Ohio who voted for the lesser of two evils on a rainy November day know that their elected official would assume the right to raise U.S. oil prices by 40 percent, mangle international textile trade and ban peanut butter imports?
Currently, members of Congress can restrict Americans’ freedom to buy and sell from 96 percent of the world’s population. Trade barriers come down to a question of political legitimacy. What gives one person a right to arbitrarily and forcibly reduce another’s living standard? Should election to office give the elected the right to dictate other people’s food, clothing and cars?
To argue that an agreement that lowers trade barriers around the world is a step towards One World Government misses the key point: the GATT will reduce the power of governments over their citizens around the world. Anything that tends to decrease politicians’ arbitrary power over trade will tend to increase individual freedom. The GATT shifts sovereignty from the federal government not to a world government but to individuals, allowing each of us more sovereignty over the paychecks and dollars, yen, D-Marks or zloties in our pockets.
"Current U.S. dumping law has become a protectionist tool against imports."
The new rules consist largely of making unequal comparisons between U.S. and foreign prices - thereby creating the appearance that foreign companies’ prices in the United States are unfairly low. Clinton policymakers added this provision to the GATT legislation despite the stark evidence of the protectionist nature of existing U.S. dumping law. According to the Congressional Budget Office, current U.S. dumping law has become a protectionist tool that discriminates against imports.42
Worst of all, the administration appears ready to seize on fine print in the GATT to deny American consumers the imminent benefits of textile trade liberalization. Clinton administration policymakers have finagled numbers and exploited loopholes so that the U.S. government will continue protecting the domestic textile industry far longer than most experts expected when the GATT was signed. This will force American consumers to pay billions of dollars in higher clothing prices over the 10-year phase-in of the treaty.
In order to throttle textile imports, the Clinton administration has also manipulated the rules of origin. The administration essentially proposes to revoke 10 years of binding rulings by the U.S. Customs Service so as to suppress exports from Hong Kong and China. The new rule is intended to penalize companies that engage in multinational textile production - to make it a crime for nations to capitalize on their advantages. According to Clint Stack, a former U.S. government official and chief of International Development Systems, a Washington, D.C., textile consulting firm, "The new rule could adversely impact up to $6 billion in clothing imports a year."43
"The administration proposes to revoke 10 years of binding rulings so as to suppress exports from Hong Kong and China."
Most importantly, there is nothing in the GATT mechanism that prevents nations from unilaterally lowering their own trade barriers. The GATT imposes a ceiling on protectionist actions but no floor on trade deregulation. Many nations already have tariffs far below their permitted levels. For example:
Another concern of free trade GATT critics is the Clinton administration’s proposal to add labor and environmental provisions to the WTO’s litany of unfair trade practice definitions. On April 14, 1994, Vice President Al Gore spoke to the closing meeting of the Uruguay Round GATT negotiations in Marrakesh, Morocco. Gore stated, "The United States realizes that many countries fear that folding labor standards into the world trade context exposes their exports to potential forms of concealed trade restrictions. The United States will resist any effort to convert the issue of improved labor standards into a form of protectionism."48
But any international labor standard would almost certainly be biased against low-income nations, where young teenagers must work or starve. Besides, Gore did not justify trade sanctions against blue jeans sewed by 14-year-old Pakistani girls - at the same time that the U.S. allows 11-year-olds to deliver newspapers at dawn. At a meeting in Geneva a few weeks ago, U.S. government officials who proposed including labor standards in the working agenda of the new WTO were soundly rebuffed. The Daily Labor Report recently noted, "The U.S. government and organized labor found themselves effectively isolated when the International Labor Organization governing body debated November 14 the question of embodying international labor standards in the future WTO. Apart from France and to a lesser degree Germany, other governments did not side with the United States in the debate ...."49 Gore’s proposal to consider environmental standards in GATT rulings also has been rejected by most other nations.
In looking at the grim realities of American politics, one is reminded of an observation Georgia Governor Lester Maddox made in the 1960s. Maddox, when confronted with evidence of the pathetic living conditions in Georgia prisons, blamed the problem on the low quality of prisoners the state had. Similarly, a big problem with American trade policies is the low intellectual caliber of many American politicians. At present, the only way to dismantle U.S. trade barriers is to sign disingenuous treaties with foreign governments, in which each nation promises to lower its trade barriers. We wish that more politicians were wise enough to support trade liberalization as stark national economic self-interest. Since they are not, such liberalization must come wrapped in international agreements.
The GATT’s passage in the United States is far more likely now that Clinton has dropped his demand for extended fast-track negotiating authority. Such authority can be an asset in the right hands, allowing a president to negotiate future trade liberalization pacts. But Clinton’s and trade representative Mickey Kantor’s are not the right hands.
Besides, the GATT package is much less of a protectionist danger now that the Republicans have control of both houses of Congress. In a historic reversal, the Republican Party is now far less protectionist than the Democratic Party. Congressional expert Tom Miller, who compiles an annual index of votes on trade for the Competitive Enterprise Institute, notes that:50
"Many foreign politicians are unilaterally dismantling their own trade barriers."
After the GATT is enacted, the U.S. Congress can promptly repeal the U.S. dumping law, speed the phase-out of U.S. textile import quotas and abolish or speed up the phase-out of remaining U.S. tariffs.
While many American politicians still demand trade barriers, foreign politicians are unilaterally dismantling their barriers. In Mexico, between 1985 and 1987, the maximum tariff fell from 100 percent to 20 percent and the average tariff from 23 percent to 10 percent.51 In 1986, Kenya reduced many of its tariffs to 0.0.52 New Zealand announced a plan to slash its tariffs, most of which will be 10 percent or lower by l996.53 The International Monetary Fund recently noted, "Many Latin America countries had very restrictive tariff regimes in the 1980s but were able to modify their regimes rapidly in the late 1980s and early 1990s."54 Even Ethiopia is part of the tariff-slashing trend.
Some in the United States claim that unilateral reduction of tariffs is similar to unilateral disarmament. This analogy is misleading. U.S. missiles and the military have helped preserve our national independence; U.S. trade barriers have weakened our competitiveness and lowered our living standards. A better analogy would be to the unilateral defusing of old bombs scattered across our industrial landscape. The best way to fight foreign unfair trade practices is to maximize American productivity. Senator John Taylor wrote in 1822, "The most efficacious mode of defeating foreign restrictions to which we can resort, would be to establish a really free commerce, which would enlist the merchants of all nations to evade and counteract them."55 In 1849, Sir Robert Peel declared, "The only way of fighting hostile tariffs is by free imports."56 There is not a single existing trade barrier that has done the U.S. economy more good than harm, raised the American standard of living or boosted American productivity.
"The best way to fight foreign unfair trade practices is to maximize American productivity."
Of course simultaneous liberalization by the U.S. and our trading partners would be most advantageous. But unilaterally adopting free trade now will benefit us far more than multilaterally adopting it 10, 20 or 30 years from now. It is illogical to say that imports of Japanese semiconductors are beneficial to American computer makers only if Japanese consumers buy more American rice. There is no metaphysical connection between the two. The construct exists only in the political imagination, and it holds our most dynamic industries hostage to our least competitive ones.
The case against unilateral free trade is simply the case against unilateral betterment. The simple act of ending trade welfare would stimulate the self-reliance of American corporations. Once they knew that they could no longer run to Washington for a border-closing bailout, productivity would increase. Former U.S. trade representative Clayton Yeutter commented in a 1986 speech to the Semiconductor Industry Association, "We joked in Washington that many of you were becoming permanent features at [our offices] during the innumerable days and nights of semiconductor talks with the Japanese."57 If U.S. semiconductor makers spent more time in Silicon Valley and less in Washington, we would have a stronger chip industry. And if all of our companies hired fewer lawyers and lobbyists and more engineers, scientists and designers, they could produce better products at lower prices.
Protectionists warn that adoption of unilateral free trade would devastate American employment. In reality, it would likely have less impact on employment than a major recession. Agriculture — the most protected U.S. industry - could employ more people if federal farm subsidies were abolished.58 And, as economists Leland Yeager and David Tuerck note, "The pains of adjustment would not be due to free trade, as such, but to having adopted protection in the first place."59
Every trade barrier seeks to redirect capital and labor from relatively more productive to relatively less productive uses. Early American protectionists realized this principle and justified it by insisting that protection would be only temporary. After 200 years of protection for sugar and textiles and over a century for steel, we should call time.
Protectionism is a form of economic censorship. Protectionism seeks to obscure the fact that certain sectors of the American economy are not competitive. As analyst Sheldon Richman observes, "Protectionism is an attack on the price system per se and its communications function, since the prices set by the market are overridden, distorted, falsified by bureaucrats with a political agenda."60
The issue is not the U.S. government versus World Government but more versus less government. By reducing trade barriers, the GATT will decrease the power of politicians and bureaucrats over private citizens. Trade is a symbol of economic opportunity. Though GATT has blemishes, it will result in more economic opportunity for the citizens of the world.
It is understandable that some free traders are skeptical of a trade agreement championed by once-protectionist politicians. Free traders should monitor the agreement and remain poised to force U.S. withdrawal if the WTO becomes a parody of itself. Further, free traders must redouble the effort to convince all Americans that trade barriers are anathema to American energy and freedom.
The great challenge of the 1990s is to limit government power and restore our sovereignty over our own lives. The GATT and the WTO are steps in the right direction.
"The issue is not the U.S. government versus World Government, but more versus less government."
NOTE: Nothing written here should be construed as necessarily reflecting the views of the National Center for Policy Analysis or as an attempt to aid or hinder the passage of any bill before Congress.
