Economy & Trade, Europe, Global Governance, Globalisation, Headlines, North America

U.S.: "Free" Trade Bites Back at its Biggest Booster

Emad Mekay

WASHINGTON, Mar 2 2004 (IPS) - Business and its political allies here are scrambling after Monday’s news that the European Union (EU) is imposing four billion dollars worth of trade sanctions to retaliate for the U.S. failure to conform with a ruling by the World Trade Organisation (WTO).

The move is likely to complicate life for proponents of the so-called “free” trade pushed by Washington, as it is just one of many challenges the United States faces at the WTO over how it protects its industries.

Until now, many people here viewed the WTO and its authoritative dispute settlement methods as an arena where Washington could accuse other nations of violating free trade.

But on Monday, EU officials said they will hike duties by five percent on a number of U.S. exports, including jewellery, agriculture, wood products, toys, textiles, refrigeration equipment, iron and steel, construction equipment and paper products.

The tariff will be increased by one percent a month until it peaks at 17 percent, they added.

The punitive measure is aimed at dissuading the U.S. Congress from continuing to back a tax advantage they gave to U.S. exporters who sell to the European Union. In its final ruling in August 2002, the WTO ruled the tax is an illegitimate export subsidy.

The Geneva-based body also authorised the EU officials to impose as much as four billion annually in sanctions.

U.S. exporters, which are quick to rally against other nations’ protectionist policies, say the EU measures could indeed hurt their businesses.

On Monday, the U.S. Chamber of Commerce, the world’s largest business federation, representing more than three million companies, joined with other business groups to urge U.S. lawmakers to fix the lingering issue before the European Union imposed further retaliatory tariffs.

In a letter to Congress, Chamber President Thomas Donohue said the tariffs would hurt U.S. exports to Europe at a time when the global economy is just showing signs of renewed growth.

“Moreover, these tariffs will negatively impact jobs of American workers,” he said. The United States “must lead by example and comply with adverse WTO decisions if we are to expect similar behaviour from our trading partners”, added Donohue.

Earlier U.S. efforts to satisfy the requirements of the WTO ruling have fallen short and the deadline for a new approach to the tax for exporters has passed.

“Lawmakers must swiftly enact – and President (George W) Bush must sign ¡- legislation that will avert a trade war and fulfil our obligation under trade rules,” said the Chamber of Commerce in a press release.

The organisation and other business groups are also running ads in political publications urging action. One reads, “Act Now to Save American Jobs”.

The ad was paid for by the Business Roundtable, a grouping of chief executive officers of leading U.S. companies, the National Association of Manufacturers (NAM) and the American Farm Bureau Federation.

Congress has been slow to agree on how to amend the tax break for European exports. Committees in the House of Representatives and Senate accepted bills last year but the measures then slowed down. The Senate has scheduled action on its bill this week.

Yet, the Bush administration has shown no signs of retreating on the tax issue, and Washington is fighting back on another front.

It has taken a case against the European Union to the WTO over the EU’s unwillingness to buy genetically modified (GM) foods and crops from the United States.

But many in Congress view the WTO’s dispute settlement panels as increasingly subjective and out of bounds.

For example, the United States had to back down from imposing sanctions against EU and other steel producers after the body ruled the measures unlawful late last year, and to avoid two billion dollars worth of WTO-authorised sanctions.

In 2001, the WTO ruled that a U.S. law, the Byrd Amendment, which directs Washington to pass on duties it collects from imports accused of being priced unfairly low (“dumped”) in the United States to the U.S. companies that complained about the dumping, is illegal.

The case was launched by Australia, Brazil, Chile, the European Community, India, Indonesia, Japan, Korea and Thailand. Eight of the complaining countries filed requests for sanctions with a WTO arbitration panel last month. A decision is expected soon.

On Tuesday, Senator Chuck Grassley told NAM that Washington’s best option now for exporters selling to Europe is to repeal the current tax break and use all of the money saved to provide a tax-rate cut on the exporters’ income from U.S.-based manufacturing.

Trade has become a pressing issue with U.S. presidential elections scheduled for November and both Bush and hopefuls from the opposition Democratic Party trading barbs over the impact of trade on U.S. jobs.

The Democrats say they will consider protectionist measures to try to stop sending U.S. jobs overseas (known as “outsourcing”) in the name of free trade, while the Bush administration argues free trade will be more beneficial to the economy in the long run.

According to Washington-based Public Citizen, a civil society group that monitors foreign trade, Washington has so far lost more than 80 percent of all WTO complaints brought against its laws.

“Challenges against U.S. trade safeguard law at the WTO have been particularly frequent and largely successful,” says the group’s Lori Wallach in a new book on trade.

That only proves that WTO policies have too much power over national laws, argue Public Citizen and other groups.

“U.S. policies ranging from tax to anti-dumping measures and clean air to sea turtle protections have been labelled illegal by WTO dispute settlement panels, and unfortunately the U.S. has changed domestic policies to conform to many of these rulings,” Wallach adds in ‘Whose Trade Organisation: The Comprehensive Field Guide to the WTO’.

The book will be released later this month.