An Investment in Trade-Agreement Enforcement

February 18, 2000 |
 

Buried in the new Clinton administration budget is an additional $21 million for enforcing trade agreements. From the perspective of the entire budget, it barely qualifies as a rounding error. Nonetheless, if spent correctly and backed up with a commitment to take action, it could be one of the wisest investments in the spending plan

Trade agreements are the core of U.S. international trade policy. Virtually every trade problem the United States confronts is ultimately addressed through some form of a trade agreement with its trading partners.

Unfortunately, the record of foreign compliance with those agreements has not always been good. Over the last 20 years, the United States has experienced serious compliance/enforcement problems with trade agreements with virtually all of its major trading partners, including Japan, China and South Korea.

The record of trade accords has been so rocky that some have argued that the United States should rely less upon them. Those critics look longingly to the "informal,'' government-to-government and industry-to-industry arrangements at which Japan is thought to particularly excel; they argue that trade agreements are really just another feature of the litigious, lawyer- dominated culture in America.

What these critics ignore is that the United States cannot and should not try to pursue this type of informal diplomacy as a substitute for trade accords. The industry-to-industry trade agreements that the Japanese steel industry and its counterparts in other countries are said to have would be illegal under U.S. antitrust law.

A reliance on informal agreements that are shielded from public scrutiny but that inevitably impact the economic prospects of many companies and thousands of workers cannot be allowed. At least in the United States, secrecy beyond what is needed to negotiate almost invariably results in poorly bargained and unenforceable "understandings.''

This means that America will continue to rely upon trade agreements as the primary vehicle for conducting trade policy.

Historically, however, U.S. trade negotiators have often made the incredibly naive assumption that negotiating an agreement was the end of the process. Time and time again over the years, an accord was struck with Japan, China, or another trading partner, an announcement was issued, and the agreement was simply forgotten.

When the U.S. Chamber of Commerce in Japan chose to review the record of past U.S.-Japan trade agreements, it made some disturbing findings. It found that most of them had little impact upon the trade problems in Japan they were aimed at eliminating.

What is worse, so little attention was given to follow-up that some of the so-called agreements could not even be located. A few months ago, the U.S. General Accounting Office found that records had improved, but there were still substantial gaps.

This sign-it-and-forget-it strategy is obviously doomed. For the most part, the only trade agreements that have shown results on difficult issues, such as the U.S.-Japan Semiconductor Trade Agreement and the U.S.-China Agreement on Intellectual Property Protection, have done so only after extensive enforcement efforts, often backed up by trade sanctions. Even in these cases, the results have been far from perfect.

China is a particular problem in this regard. There have been serious enforcement/compliance problems with every trade agreement the United States has struck with China in the last 10 years.

Doubtlessly, one motivation for the Clinton administration's increased enforcement effort is to reassure a skeptical Congress that the recent World Trade Organization accession trade agreement with China will be enforced.

Unfortunately, budget is only one barrier to effective enforcement of trade accords. At least as serious a problem is the opposition of U.S. companies that are doing well selling products in the country in question in a sector not related to the trade agreement.

Inevitably, and with some justification, these companies fear that they will be the victims of counter-retaliation if the United States imposes trade sanctions to enforce an agreement.

Similarly, there are agencies within the United States government that are more concerned with military and diplomatic matters than trade. In their view, the threat of trade sanctions always risks disrupting relations and endangering a military base or a U.N. vote. To be effective, any trade- agreement enforcement strategy must address these systemic problems.

Recognizing those very real limitations, the Clinton administration still deserves praise for making the effort to create new offices and devote new resources to the enforcement of trade agreements.

These moves are a start. Hopefully, the United States will eventually come to realize that, without enforcement, U.S. trade strategy is truly a paper tiger.