Trade Wars Between Free-Traders

The new war in Washington won’t have any devastating physical consequences for the combatants, but it will leave many inside and outside the administration with wounded pride and seriously damaged careers. It is a war between free traders and, er, free traders, and is being fought on two fronts.

The first is between those free traders who believe that bilateral deals, such as those recently reached between the U.S. and Singapore and the U.S. and Chile, and the agreement now being negotiated with Australia, contribute to the reduction of barriers to trade. The logic is straightforward: massive, multilateral deals are wonderful, but difficult to achieve. So on the half-a-loaf-is-better-than-none theory, let’s sit down with each of those countries interested in freer trade with America, and eliminate any barriers that exist.

As a presidential appointee to the advisory group that works with U.S. Trade Representative (USTR) Bob Zoellick, I have watched some of these deals being negotiated. Their successful conclusion is a testimonial to Zoellick’s belief in their efficacy, and his newly developed patience and sense of humor in dealing with environmental and other politically potent domestic interest groups.

The opponents of this one-by-one approach to freer trade are not mere protectionists, but a group every bit as dedicated to removing barriers to free trade as is Zoellick. Count among them Columbia University professor Jagdish Bhagwati, a distinguished academic, who argues that bilateral agreements undermine the World Trade Organization, reduce the pressure on the parties to them to press for broader trade-opening measures, and allow the United States to use its greater economic and political power to wrest concessions from smaller countries that it could not obtain in a larger forum.

So far, this one battle in the war over trade policy is being won by Zoellick. But he is in danger of losing a second and far more important battle. Congress recently approved the deal the USTR negotiated with Singapore, but is delaying action on an almost identical package negotiated with Chile. Sources inside the USTR say that delay is created by the Chileans’ fussiness over details of the Spanish translation, but some in Congress say they are delaying to teach Chile there is a cost for refusing to support America in the battles in the UN Security Council over policy towards Iraq.

Those congressmen are not alone in wanting to let the world know that trade policy is now subordinate to foreign policy. They agree that free trade has its benefits, not least among them enriching all parties to it with its win-win results. But, they argue, there are times when it is worth surrendering those benefits in the interests of broader goals of American foreign policy.

Right now one of those goals is not only to reward friends such as Australia with something more tangible than last week’s visit by its prime minister, John Howard, to Bush’s ranch in Crawford, Texas. It is to punish those who devoted every resource at their disposal to frustrating America’s efforts to hold the Security Council to its promise to act when Iraq refused to abide by the terms of UN resolution 1441. Disagreement is considered quite all right, even though annoying. But lobbying countries to form an anti-U.S. alliance after lying to the American Secretary of State cannot go unpunished, lest it become an international habit.

Which means that France is in the president’s cross hairs, and will be very much on his mind when he issues final instructions to Zoellick before the next round of world trade talks, scheduled for Cancun, Mexico, in September. Bush has offered to eliminate all of America’s subsidies for agricultural exports if France and its EU colleagues do the same. The French, who have consistently refused to open their inefficient farmers to competition from the products of America’s hugely efficient agricultural industry, responded that they will review the EU’s $60 billion annual subsidy payments in 2013. In normal times, one would expect a negotiation in which each party gives some ground in order to reach an agreement.

That is now less likely. The White House has said that it will never forgive or forget France’s perfidy, and simply does not trust the French to abide by any agreement they might be willing to sign. With reason. Just last week Chirac put so much pressure on Airbus Military that it reversed its decision to award a $3 billion engine contract to low-bidder Pratt & Whitney, instead giving the business to a European group led by state-controlled Snecma of France. Nothing new in such interference with the flow of free trade: the EU has kept out bioengineered farm stuffs and numerous other US products on bogus health and safety grounds.

Besides, with an election coming up the White House, never a place in which economics has over-ridden politics in determining trade policy, will not want to take on the formidable farm-state bloc in the senate in order to push through a deal that congressional opponents, sensitive to public hostility to France and its “axis of weasels”, will label as favorable to France.

But Zoellick perseveres in pursuing what his staff calls “commercial enhancement discussions”. They say that several German CEOs are quietly discussing with them ways of calming the international waters. French businessmen, they note, have made no such overtures.

Zoellick says he remains “100 percent committed” to a successful conclusion of the current round of talks. But he may have to be content with White House endorsement of his policy of striking bilateral deals with willing partners, and forget about the major breakthrough he earnestly believes to be in America’s interests. At least for now, the White House thinks that the costs to America’s consumers of less-free trade are worth bearing in order to make clear to the world that, in singer Jim Croce’s words, it is not a good idea to tug on Superman’s cape.

This column appeared in London’s Sunday Times on May 11, 2003.