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The Pendulum Swings

Puce noire La Presse, 14 juin 2002 , Christian Deblock

Article traduit par Nancy Dunham et révisé par Linda Jarosiewicz.
Christian Deblock, « Le retour du balancier », La Presse, 14 juin 2002, p. A13.

The Pendulum Swings

The protectionism game can’t last much longer ; there are too many interests in play for the United States to continue down this road.

It’s all very well to say that the upsurge of protectionist fever gripping the United States is primarily due to electoral considerations and is no more than a quick fix, but now no one knows what to expect from an administration that persistently preaches free trade and accuses others of protectionism, but is the first to pick and choose how it will apply free trade and the first to use protectionism when it suits its purpose.

Already hurt by the new competitiveness shamelessly indulged in by every nation on the planet, starting with the most powerful, the multilateral trading system has been seriously shaken this time. Four lessons can be learned from the latest American decisions—four lessons that may have an impact on the future.

Four lessons that can be learned

First lesson : to realize to what extent the WTO rules can be easily, and legally, bypassed. This can be seen in the example of the Farm Bill ; the measures taken do not actually contravene the established rules because the grants and subsidies for production are lower—19.1 billion American dollars a year—than the limit set by the WTO. The problem is rather in the vague writing, the exemptions and exceptions clauses, and the grey areas that people feel free to interpret as they please.

The Uruguay Round made it possible to introduce clarifications and to better control recourse to the use of safeguard, countervailing and antidumping measures, but the problem remains. In this respect it is significant to note that the rules and procedures that govern regional trade agreements, today by far the main derogation of the non-discrimination principle, remain unclear, which suits everyone. The result is that the Committee on Regional Trading Agreements (CRTA), created in 1996, is completely paralyzed.

Second lesson : the trade negotiations launched with much difficulty at Doha have been filed under the development and integration of developing countries in the world economy. But how much credit should be given the new discourse regarding "capability building" ? Is it anything more than a decoy to obtain from developing countries even more concessions as regards openness and recognition of investors’ rights ? Are developed countries really ready, as they have promised, to open their markets and to help developing countries to profit from globalization ? (…)

Third lesson : the dispute resolution mechanism, one of the largest gains from the Uruguay Round is clearly showing its limitations. The United States needs the WTO too much to challenge the institution, and they are the ones who are trying the hardest. And, as the Trade Representative likes to remind us, even if some decisions go against them, in the main, they are the big winners with the new dispute resolution mechanism. However the procedures are still too long, and not every government has the physical inputs of the United States to track the trade policies of others. But on a more fundamental level, there is the entire problem of trade sanctions.

The WTO prefers to talk about compensatory and suppression measures rather than trade sanctions, which, in the institution’s mind, should make it possible to re-open talks and bring the offender back to the fold. But what is really happening ? First, there is no doubt that these really are sanctions, each country or region trying hard to find technicalities that will do the greatest harm to the other, with the result that things are very quickly getting nasty. Second, it is the "injured" country and not the WTO that applies the decisions or sanctions. Third, the sanctions have reached staggering amounts that are, for all practical purposes, inapplicable ; for example, between one and four billion dollars US in the case of a dispute between Europeans and Americans in the matter of tax benefits given to exporting companies (Foreign Sales Corporations). And above all, fourth : no one has the means to follow up on these conditions.

Although, in principle, all countries are equal at the WTO, in this little game, equality does not win out. Except for strategic reasons, the United States has never hesitated to impose sanctions if their rights are contravened, often before all possible solutions have been explored. Europe, despite its trade power, is much more reluctant to do so. But what about medium-sized countries such as Canada, let alone developing countries ? Do they really have the means to impose sanctions ?

This was evident in the dispute that pitted Canada against Brazil : Canada could not resort to trade sanctions against Brazil as these would have had little impact. It preferred to show subtlety by subsidizing Bombardier’s contracts, only to finally find itself right back where it started from. In the softwood lumber issue, the problem was different, but the result was the same. Even though Canada won its case at the WTO, does it dare sanction a partner on whose economy it is so dependent and risk a trade war that it cannot possibly win ? (…)

Finally, the fourth lesson : it has perhaps been forgotten, but trade is also a matter of lobbying. The very least we can say is that the lumber, steel and farming lobbies are highly organized. For all practical purposes, free trade lobby groups, such as the National Trade Council, the Business Roundtable or the Emergency Committee for American Trade have scarcely made their voices heard, or have done so belatedly, and then mainly to worry about how the decisions made could have a negative impact on their own activities.

At the time of the Uruguay Round negotiations and the Canadian-American negotiations, remember, these groups brought much pressure to bear on the presidential administration, the public and the media to bring negotiations to an end, and they were ultimately successful. But, as The Economist observed, the major part of what could have been obtained was obtained with NAFTA, the Uruguay Round, the Financial Services Agreement, etc. The results of the Doha negotiations or hemispheric negotiations will, in the end, be only minor compared with what has already been acquired. Hence, the lack of willingness on the part of these groups to launch an attack, companies being more occupied with developing markets and generating profits from the last negotiations than with hounding elected officials and threatening to cut off their election campaign financing.

The pendulum has swung to the side of protectionism for the moment, but rest assured that it can’t last much longer ; there are too many interests in play for the United States to continue with this little game. The fact remains that it is increasingly a question of picking and choosing when it comes to free trade.

[This is the second and last part of the text published by La Presse]


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