oh the contradictions of free trade

["Ian Murray" <seamus2001@xxxxxxxxx>]

[trade protection for democratic deliberation via logrolling and you get....protection ]

A Free-Trade Gamble by the U.S.
By Paul Blustein
Washington Post Staff Writer
Friday, March 29, 2002; Page E01


For a bunch of people who proudly proclaim themselves free traders, the top policymakers of the Bush
administration have been acting peculiarly of late.

Early this month, the White House announced President Bush's decision to impose stiff tariffs on
imported steel. Then came the Commerce Department's announcement last week of plans to slap duties
on Canadian lumber. The moves evoked howls from commentators both at home and abroad that the
president was betraying his free-trade principles to protect some of America's most inefficient
industries, and prompted counter-moves by trading partners, including a decision by the European
Union this week to impose its own tariffs on steel imports.

The reaction highlights the dangers of the gamble the administration is taking: A little
protectionism may beget a lot more, and the president may lose the moral high ground he needs to
prod other countries to open their markets.

But it's a gamble that has been carefully calculated. If all goes according to the administration's
plan, the moves on steel and lumber will be seen eventually as shrewd compromises with politically
powerful interests that helped pave the way for sweeping international deals to lower barriers on a
broad range of goods and services.

Without demonstrating their willingness to raise steel and lumber tariffs, administration officials
contend, the White House wouldn't stand a chance of winning congressional passage of "trade
promotion authority," the legislation needed to launch regional and global trade negotiations. (The
legislation ensures that when trade deals come to Congress for approval, they won't be subject to
killer amendments.) And while trading partners may be screaming bloody murder now, administration
officials believe they'll come around because otherwise they risk being excluded from potentially
lucrative trade accords with Washington.

"The United States starts out with a big piece of leverage -- the biggest, most dynamic market in
the world," said Robert B. Zoellick, the U.S. trade representative.

Accordingly, Zoellick dismissed complaints that Bush has undermined his authority to lead the world
toward more open trade, asserting that his hand has grown even stronger in inducing other countries
to negotiate pacts such as the Free Trade Area of the Americas, the proposed free-trade zone for the
Western hemisphere.

Nations such as Brazil, a big critic of the steel tariffs,have always known that if the
hemisphere-wide talks fail, the United States will cut separate deals with Central America, Chile or
other nations, giving them preferential access to the U.S. market; and now, Washington has made such
pacts a bit more attractive by granting special tariff exemptions on steel from countries with which
it has free-trade arrangements, such as Canada and Mexico.

"If you want to negotiate with the U.S. to open markets, we'll negotiate," Zoellick said, describing
the stance he is taking with foreign capitals. "Some countries may use [the U.S. tariffs on steel]
as an excuse for inaction on trade, but they would have found other excuses, and ultimately they
will only hurt themselves if they stay on the sidelines. . . . There's no shortage of potential
free-trade partners knocking on America's door."

That view, critics retort, overlooks the difficulties that free-trade advocates around the world now
face in making their case in light of Bush's decisions. And it ignores the outrage abroad over what
many consider to be the president's real motive -- to boost Republican electoral fortunes in steel
states such as Pennsylvania, West Virginia and Ohio.

Prospects of a serious trade war, while remote, have risen at least to some extent. The European
Union has let it be known that it is drawing up a list of U.S. goods for possible retaliatory
tariffs, with the items deliberately chosen to inflict maximum political pain on the White House
(Harley-Davidson motorcycles, for example, which are manufactured in the battleground state of
Wisconsin).

Many trade experts doubt that Brussels will strike back at Washington anytime soon, since doing so
would be highly questionable under World Trade Organization rules. But the Europeans are definitely
moving ahead with tariffs on steel, which they say is necessary to prevent their markets from being
swamped with the steel that is now being blocked from the United States. Other countries, including
Canada, appear likely to follow suit.

"In steel, it's looking like the 1930s. Every major market will be closed off in some form or
other," said Gary Horlick, a trade lawyer with O'Melveny & Myers. "This is scary."

Still, Bush's gamble may start looking smart if Congress approves trade promotion authority (TPA),
also known as "fast track," this year. Many analysts concur with Zoellick that the House, which
passed a TPA bill by one vote in November, would probably have rejected the legislation had it not
been for the signals the White House was sending that it would protect the steel industry. (The
administration also had to grant trade concessions to textile-industry champions from the Carolinas
to win that vote, another illustration of its willingness to diverge from open-market principles
when politically necessary.)

"Certainly in the steel case, and probably in the lumber case, too, the president's actions help him
get support for TPA," said I.M. "Mac" Destler, an expert in U.S. trade politics at the Institute for
International Economics. Destler noted that in the Senate, which has yet to pass a bill, the lumber
issue is particularly important to Senate Finance Committee Chairman Max Baucus (D-Mont.), whose
panel has jurisdiction over trade legislation, and Senate Minority Leader Trent Lott (R-Miss.).

A top Senate Finance aide goes further. "It would have been tough to get fast track to the [Senate]
floor at all if something hadn't been done on lumber," he said, referring to the clout Baucus and
Lott could have exerted to prevent a bill from moving forward. "These things like lumber and steel
are much more intensely felt by members than airy-fairy things like the FTAA and the WTO, which they
see as just academic and long-term."

Even some dyed-in-the-wool free traders voice sympathy for Bush's political calculus, saying that if
the White House had turned its back on the beleaguered steel industry, it would have been
overwhelmed with criticism for adhering to free-trade theory despite evidence that many foreign
steel firms enjoy government subsidies and other unfair advantages.

Jagdish Bhagwati, a Columbia University economist who is one of the profession's most outspoken
champions of free trade, noted that international trade rules allow countries to impose temporary
"safeguard" tariffs to protect industries that have been hit by a flood of imports, as U.S. steel
firms were in the late 1990s.

"It would only be a humorless economist who would say you have to stick to free trade at any cost,"
Bhagwati said. "I think the president was caught between a rock and a hard place. The best free
traders don't say you have to jump off a cliff."