Originally published in THE BOSTON GLOBE
Tuesday, November 9, 1999
Setting goals for the WTO
By Martin and Kathleen Feldstein
Global trade talks have far-reaching implications for US
Massive protest demonstrations about a wide range of issues from the environment to labor rights threaten to turn the World Trade Organization meeting in Seattle later this month into a political circus. But when the protesters have gone home, the trade negotiators from around the world will begin the serious business of remaking global trade rules with important implications for the United States. While the question of China's potential entry into the organization is high on the agenda, there are also difficult trade issues to be resolved with our European trading partners.
Breaking down trade barriers between countries provides an opportunity to make Americans better off both as employees and as consumers. The United States can produce almost everything that we trade with other countries. But Americans can enjoy a higher standard of living by using our resources to produce and export those things where our cost advantage relative to other nations is greatest - whether it be wheat or airplanes or other high-tech products. In turn, we benefit by importing goods - electronic products, shoes, textiles, and a variety of fruits and vegetables - that other countries can produce cheaply. Trade also provides American consumers with more choice in such products as cars and wine that we and others make well.
The primary US goal in the round of trade negotiations that will begin in Seattle is to increase the gains from trade by improving access for American products in foreign markets. Although tariff rates on manufactured products are already low, the trade group's rules and low tariff rates do not yet apply to agricultural products. Europe and Japan still block agricultural imports and subsidize their own agricultural producers to grow products at high cost that could be obtained more cheaply from the United States. Opening those markets to increased agricultural imports would help American farmers and, by reducing the politically necessary farm subsidies, would help American taxpayers as well.
But it is equally important for the United States to prevent a backsliding on the trade opportunities that now raise our standard of living and contribute to world economic growth. The source of that potential backsliding comes primarily from Europe. The European Union, acting as a single political block in the trade negotiations, is proposing a variety of loopholes to existing trade rules. These would allow European countries to restrict a variety of imports that currently are covered by World Trade Organization rules in order to help their own producers, even doing so would hurt European consumers as well as American producers.
For example, the French argue that their desire to preserve their "national culture" should permit them to establish strict quotas on foreign films, TV programs, and recorded music. They have persuaded the European Union negotiators to make this a major principle of their negotiations. American trade negotiators oppose this and see it as little more than an excuse to protect the French film, video, and music industries.
A more far-reaching issue is the European Union's proposal to restrict imports from the United States of manufactured food products that contain genetically modified material. They argue that this change of the trade group's rules should be allowed because such products could endanger the health of the European public and the environment of the United States and of those other countries that produce genetically modified food.
The final European proposal that we should resist would make the violation of "labor rights" an allowable reason to block imported products. While the precise meaning of these "labor rights" has not been spelled out, it's easy to imagine what they might include. If employees do not receive certain worker benefits, such as health insurance, or are paid below some minimum wage or work more than some number of hours per week, the products that they make might be blocked. The developing countries have indicated their opposition to this proposal as a blatant way of keeping their products out of Europe and the United States.
Introducing labor standards into the conditions for trade not only would hurt American consumers directly but could begin the gradual unwinding of the entire structure of free trade. If the developing countries feel that they have been unfairly discriminated against, they will find ways to retaliate by blocking US exports, perhaps by backsliding on such issues as protecting the patents of American pharmaceutical companies.
Finally, there is the critical issue of China. Although it has the world's largest population and could within a few decades have the world's largest economy, it is not a member of the organization. To be admitted, China must accept an opening of its markets and a gradual end of government subsidies within the country. When Chinese Premier Zhu Rongji came to the United States in April, he offered a massive program of Chinese reforms that the United States should have seized as more than adequate to justify China's entry to the organization. When President Clinton bungled this opportunity by sending Premier Zhu home without a deal, many Chinese bureaucrats and state-owned enterprises joined forces to oppose Chinese membership.
It is important to reverse this error and bring China into the World Trade Organization. Doing so not only would increase the scope for US exports but fundamentally change the Chinese economy and political system for the better.
Martin Feldstein, the former chairman of the Council of Economic Advisers, and his wife, Kathleen, also an economist, write frequently together on economics.