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January,
2003: Players Who’s Up To What
By Greg Rushford
Published in the Rushford Report
The U.S.-Chile deal: Good news, mostly.
On December 11, U.S. Trade Representative Robert Zoellick announced
that the
United States
and
Chile
had reached agreement on “an historic and comprehensive Free Trade
Agreement designed to strip away barriers and facilitate trade and
investment between both countries.” Tariffs will be cut. Markets will be
opened. It’s “win-win,” Zoellick declared, rightly calling
Chile
“an ideal free trade partner for the
United States
because of its sound macroeconomic policies and commitment to free
trade.”
Indeed, American businesses stand to catch up to competitors from
countries that have already cut duty-free deals with
Chile
. “A U.S.-made Caterpillar 140 horsepower motor grader now sold in
Chile
is assessed $13,090 in tariffs,” points out
Bill Lane
, the
Washington
governmental affairs director of the Peoria, Ill-based Caterpillar Inc.
“But the same tractor made in
Canada
pays zero tariffs.”
But life is never as neat as press releases.
If Congress takes all year to approve the trade bilateral, 2003
might be a loser for
U.S.
exporters like Caterpillar. If you were in Chile, and were considering
buying a major piece of equipment right now, would you buy American —
and pay that hefty tax — or buy Canadian at zero tax?
Message to Congress: Delay is costly.
Remember, these bilateral “Free Trade Agreements” are really
about preferential trade, not free trade. They distort global trade flows.
Only a generalized summary of the Chilean deal has yet been
released. But it is apparent that there is some economic mischief afoot.
For instance, Zoellick got
Chile
to agree that to qualify for duty-free treatment for any clothes it wants
to export to the
U.S.
, those clothes would have to be made out of American yarn and fabric.
This is a nice sop to the
U.S.
textile lobby, if not for American consumers.
Zoellick to the WTO: Let losers judge themselves.
On December 16, Zoellick announced that the
U.S.
and
Chile
were going to propose something called “flexibility reforms” in the
WTO’s dispute settlement system.
The idea was “to improve and clarify WTO dispute
settlement rules,” he said.
Improve and clarify — or corrupt?
The principle achievement of the
United States
in the Uruguay Round of Gatt negotiations that set up the WTO in 1995 was
to make WTO dispute findings binding on member countries. No longer could
countries ignore their WTO commitments.
While the reform has largely worked well for the
United States
, the domestic steel lobby is up in arms because it has (rightly) been
losing antidumping- and safeguards’ cases before the WTO’s Dispute
Settlement Body. The steel lobby thinks that it is unfair that the
United States
should have to live up to its commitments as a WTO member to administer
U.S.
trade laws in a legally acceptable manner.
Now Zoellick has made a feint in the steel guys’ direction.
“At present, dispute settlement reports are a ‘take it or leave
it’ proposition where WTO countries must accept or reject dispute
settlement reports in their entirety, without modification,” he
declared. “Under the proposal, countries would also get the ability to
reject specific aspects of reports that hinder settlement or do not
accurately reflect the obligations that were agreed on by the
negotiators.”
To losers in judicial proceedings at least, this is a very
attractive proposition. It is to the rule of law what dutch elm disease is
to trees.
Perhaps Zoellick is just posturing, so he can argue to the WTO’s
vociferous congressional critics — assuming that the proposition flops
in the WTO — that at least he tried to help them.
What’s in this for
Chile
?
Seems that the Latin country was upset when the WTO ruled that
Chile
’s so-called “price band” safeguards (designed to give some
agricultural products a bit of protectionism) were WTO-incompatible.
Chilean trade officials had known all along that these price bands were
dicey. But they thought that they had had a diplomatic wink and nod. But
when
Argentina
decided to bring in the lawyers, the WTO dispute panel stuck to the strict
language of the agreement.
Zoellick on tariffs:
Lord, make me a virgin.
Zoellick’s proposal that the world should slash all industrial
and consumer tariffs to zero is bold, imaginative, and a fine beginning if
the U.S. wants to regain the moral high ground in international economic
circles.
This is especially true for clothing and shoes, where
U.S.
tariffs are generally in the 18-36 percent range. “Our proposal would
turn every corner store in
America
into a duty-free shop for working families,” Zoellick has said.
“Globally, tariff-free trade could help lift millions of people in
developing countries out of poverty.”
Lift them out of poverty, that is, in the next generation. The idea
is to phase out tariffs only by 2015 — a cruel waiting period for Third
Worlders who don’t know where their next meal is coming from, much less
what they or their children will be doing in twelve more years.
Zoellick’s vision of a tariff-free world recalls a prayer offered
by the lusty St. Augustine of Hippo in his Confessions: “Lord, make me
chaste. But not just yet.”
Meanwhile, Zoellick keeps enjoying being decidedly unchaste.
He has pressed hard behind the scenes to slip a protectionist rule
of origin covering clothing into the proposed U.S.-Singapore preferential
trade bilateral.
Singapore
will be able to ship clothing it makes duty-free to the
United States
— but only if the Asian island state first buys the fabric to make those
clothes from
U.S.
producers. This is why economics used to be called “political
economy.”
Last year,
Singapore
— using non-American fabrics — exported about $280 million worth of
apparel to the U.S. Zoellick’s “free trade” deal will not free the
majority of this trade, which would still be subject to existing high
U.S.
tariffs. While there is a tariff-cutting incentive for some
Singapore
garment exports, it doesn’t amount to much. For example, cotton trousers
made from Asian cloth that are now taxed upon entry into
U.S.
ports at 17 percent, would “only” be taxed next year at 15 percent.
The Vietnamese catfish case:
Joe Spetrini strikes again
For many years, a hardworking career bureaucrat named Joe Spetrini
has been the real power at the Commerce Department’s import
administration. No matter whether Republicans or Democrats have supposedly
been in charge of the
U.S.
antidumping regime, Spetrini has long been the man to see — and to fear.
I first met Spetrini in mid-1991, when the first President Bush was
in the White House. At the time, the
U.S.
still had quotas on imported machine tools, which were scheduled to lapse
at the end of the year. The Hurco Cos., a world-class machine tool
manufacturer from
Indiana
, had had to grovel to Commerce to obtain a special license to import
certain computer controls from
Taiwan
that Hurco needed for its production line. When Hurco lobbied Congress in
favor of ending the quotas on schedule, Spetrini yanked the license —
throwing Hurco into an economic tail spin. Hurco complained to the White
House, but even the National Security Council couldn’t roll Spetrini.
In the first
Clinton
administration,
Washington
trade lawyer Susan Esserman, who then headed the import administration,
attempted to reign Spetrini in. But the wily bureaucrat survived, easily
outfoxing — and outworking — Esserman’s politically compliant boss,
Undersecretary of Commerce Jeffrey Garten. These days, Spetrini’s
political protectors are Commerce Secretary Don Evans and Undersecretary
Grant Aldonis.
Currently, Spetrini is engaged in the business of deciding how much
more American consumers will pay for their catfish. Last month, he showed
up in
Vietnam
, whose catfish producers have been targeted in a
U.S.
antidumping case.
As have many startled foreigners before them, Vietnamese officials
got a taste of how corrupt the
U.S.
antidumping regime really is. Basically, Spetrini let the Vietnamese know
that he was going punish them — but hadn’t made up his mind how much
pain he would inflict. He had “options,” Spetrini explained. He might
only hit Vietnamese catfish with a tariff as low as, say, 15 percent. But
then again, he could crunch the numbers so as to tax the foreign catfish
at a prohibitive 50 percent. In fact, Spetrini added, he even could tax
Vietnamese catfish at more than 100 percent, which would really be
prohibitive.
Spetrini’s ploy was to dangle a possible “suspension
agreement,” essentially price-fixing. The Vietnamese would avoid the
high tariffs and hope to hang onto a share of the
U.S.
market through some sort of quota scheme involving a price floor. The
Vietnamese were astonished and amazed that the same American government
that has been preaching the virtues of free markets would be involved in
such business. But every time they complain to
U.S.
officials, the Viets are told that, hey, this is a judicial-like
administrative procedure, and we can’t
interfere.
Knowing the Vietnamese, this could turn into a diplomatic
embarrassment for the
United States
.
Spetrini could not be reached for comment. The truth is, Joe
Spetrini doesn’t have to care what
Vietnam
thinks.
Tensions rise in
Hong Kong
Concerns are rising in respected
Hong Kong
legal and business circles over Chief Executive Tung Chee-hwa’s efforts
to enact — ram through might be more apt — anti-subversive legislation
pursuant to Article 23 of the territory’s Basic Law.
Last month, the respected Hong Kong Bar Association warned that
Tung’s proposals threaten
Hong Kong
’s internationally renowned freedoms, thus imperiling its status as a
world-class financial center. And on December 6, James Thompson, who
chairs the influential American Chamber of Commerce in
Hong Kong
expressed AmCham’s “great concern.” Thompson detailed that concern
in a polite-but-forceful letter to Tung’s security chief, Regina Ip.
“Many of the proposals contained in the Government’s
Consultation Document on Article 23 legislation fall short of meeting
Hong Kong
’s requirements as an international business city and risk reacting a
chilling effect,” Thompson warned.
Meanwhile, tens of thousands of protestors went into the streets in
peaceful protest.
Tung is playing with fire.
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