Global Policy Forum

By Warren Vieth

The United States and other big countries still are promoting the virtues of free trade, but they are moving to protect vulnerable industries at a pace that undermines their rhetoric.

The downturn in the global economy and the collapse of prices of many commodities are contributing to a notable increase in protectionist actions--and retaliatory responses--by governments around the world. Setting the tone, some analysts assert, is the U.S., traditionally the bandleader for trade expansion.

"The more the big economies like the United States and the European Union appear protectionist, the more developing countries feel justified in doing the same thing," said Cliff Stevenson, chief economist with Mayer, Brown, Rowe & Maw, a global law firm based in London. "The danger is there will be a domino effect." When President Bush meets with European leaders Thursday, he will try to head off a trade war over his 30% steel tariffs. Foreign leaders already are spoiling for a fight over $50 billion in U.S. farm subsidies taking shape on Capitol Hill. Some members of Congress want to attach new protective measures to "fast-track" trade legislation making its way through the Senate.

But the U.S. has plenty of company. From Brazil to India, governments are responding to growing pressure to come to the aid of industries that wind up on the losing end of trade liberalization. Increasingly, they are seeking relief under "anti-dumping" rules that prohibit predatory pricing by exporters and "safeguard" provisions that give hard-hit domestic producers a timeout from global competition.

According to an analysis by Stevenson's law firm, protectionist activity reached "unprecedented levels" last year, with 24 countries initiating a record 348 anti-dumping investigations, 53 safeguard actions and 27 anti-subsidy inquiries.

The U.S. and India were the most aggressive users of anti-dumping rules, which allow a country to impose punitive tariffs if foreign companies flood its markets with goods priced at less than the cost of production.

Washington launched 79 anti-dumping investigations last year, and New Delhi 75. Other anti-dumping "superpowers" were the European Community, Argentina, Canada, Australia and Brazil, the study said.

"The American disease of overusing and abusing anti-dumping cases has been caught by many other countries," said Sherman Katz, a global business scholar at the Center for Strategic and International Studies in Washington.

"They're not willing to stand there empty-handed when they're being clobbered in the United States," he said.

In addition to anti-dumping measures that target individual countries, there is increasing use of across-the-board remedies such as the 30% tariffs imposed by Bush on some categories of imported steel. Chile and India also have been frequent users of these broader forms of protection.

The flurry of activity does not necessarily signal a broad retreat from globalism. For every ounce of protectionism, economists say, there is still a pound of trade expansion taking place as countries honor their commitments to lower tariffs and remove quotas in accordance with previous trade agreements.

With 144 countries now participating in the World Trade Organization, it is only natural that many of them will begin to use anti-dumping and safeguard rules to address perceived injustices.

U.S. Chamber of Commerce President Tom Donahue likened the WTO to a rapidly expanding country club: "Now that everybody has joined, they're going to see if they can get tee time," he said. But the challenges are occurring against the backdrop of growing acceptance of the benefits of global commerce.

"I feel we are opening up trade far more than we ever have," Donahue said.

Still, some analysts are troubled, particularly by the increasing tendency of the U.S. and the European Community to engage in tit-for-tat retaliation.

Europe has threatened to slap punitive duties on U.S.-made motorcycles, orange juice and other goods in response to Bush's steel sanctions. If it does so before the WTO rules on the steel measures, the U.S. has hinted that it will respond with retaliatory actions of its own.

Harvard University trade economist Robert Lawrence said the punitive tariffs Europe says it is entitled to levy in the steel case and a separate tax subsidy dispute exceed the benefits derived from Europe's concessions in the last big round of global trade liberalization.

"We're talking about tariff increases that could more than offset the gains we achieved in the eight-year negotiation that brought us the Uruguay Round agreement," Lawrence said. "These are big numbers."

Some economists are even more offended by the huge subsidies that Congress is preparing to bestow on U.S. farmers. The price supports tend to promote overproduction, driving down world commodity prices and preventing many developing countries from expanding their agricultural exports.

The big farm bill nearing final passage in Congress appears to conflict with commitments made by the U.S. to reduce subsidies and open its markets in the round of trade liberalization talks launched last year at Doha, Qatar. And it comes as the United States continues its long-running campaign for cutbacks in farm subsidies in countries such as Japan and France.

"If the current legislation goes through, it's going to greatly complicate our ability to complete a Doha round," said Jeffrey Schott, an economist at the Institute for International Economics.

"That's a hundred times more important than any of these other things."

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