Trade Policy What Next?
Litan, Robert E., Brookings Review
The anti-globalization forces of Seattle who swept through Washington, D.C., last May may have caused only minor disruptions of the spring meetings of the International Monetary Fund and the World Bank, but they provided an apt symbol for the directionless condition of trade policy in the United States and elsewhere today.
To be sure, there are some bright spots. In April, at long last, Congress voted to give duty-free status to apparel made in some of the world's poorest countries--Africa, the Caribbean, and Central America. In September, in one of the most closely watched votes of the year on any matter on Capitol Hill, the Senate joined the House in approving permanent normal trade status for China, paving the way for its unconditional acceptance into the World Trade Organization.
Yet the larger trade agenda remains in disarray. While Patrick Buchanan and Ralph Nader have outlined a clear vision of trade policy that would move the process backward, both Al Gore and George Bush have largely steered away from the issue. Meanwhile, much of the American public is ambivalent, if not hostile, to further liberalization. Not surprisingly, one hears little these days about a new administration seeking "fast track" negotiating authority to speed Senate consideration of new trade agreements.
In such a political climate, where should U.S. trade policy be headed after the next president takes office? Here are the pros and cons of three alternative paths, with a modest suggestion at the end.
The best case for doing nothing rests on the view that the economic forces driving globalization--lower communications and transportation costs and the demand of consumers around the world for better and cheaper goods and services--are too strong to be stopped, especially given the rapid growth of global e-commerce. On this view, starting new trade negotiations now could be counterproductive, especially if the price of any deal is to allow trade sanctions against countries that fail to adopt and enforce certain minimum labor and environmental standards. In that event, poorer countries in particular could be stopped by advanced countries from using trade to improve their citizens' living standards, as many have done over the past several decades.
The advocates of a "do nothing" strategy are right to stress the importance of market forces in furthering globalization. But the risks of pursuing that course are great, especially for the United States, which has been the leading champion of trade liberalization since the end of World War II. If Washington doesn't continue to lead this cause, U.S. firms risk getting cut out of regional deals that give preferences to other countries--which, ironically, would only encourage U.S. companies to move abroad to take advantage of those preferences. Moreover, if there is no pressure to move forward on the trade front, demands to return to various forms of protection surely will mount over time and could easily triumph if our economy and others fall into recession.
The cyber-optimists of today should not forget that globalization was stopped dead in its tracks between World War I and World War II by a wave of protectionism. Policymakers, driven by popular passions or protests on the street, can always make the mistake again.
A second strategy is to pursue incremental liberalization, either by subject matter, by country, or by region.
The subject matter approach would carry on the so-called "built-in" agenda from the Uruguay Round, the series of world trade negotiations that concluded in 1994 and was implemented in 1995, by seeking to accelerate the phase-out of remaining barriers to freer trade in agricultural products, textiles, and services. A main advantage of this option is that it seems unlikely to arouse the strong passions of all those opposed to globalization. Because it would concentrate only on sectors the world trading community has already targeted for further negotiations, it need not involve thorny issues like labor and environmental standards and other controversial topics such as antidumping policy and barriers to foreign investment. …