Gilbert B. Kaplan
By Gilbert B. Kaplan
Former Deputy Assistant and Acting Assistant Secretary of the U. S. Department of Commerce
It is now time for the President and the Congress to turn to international trade. That should be the next big push. The area has been neglected on Capital Hill since 1994. It is hard to imagine why Americans have put up with it for so long. The benefits of trade have been superseded by the downsides. Unfair trade hurts the many Americans who have lost their jobs, the U.S. companies that have gone out of business, and the communities across this country that now look like ghost towns. But it also hurts those multinationals and export-oriented companies, many in the high technology and pharmaceutical sectors, that favor the trading system. They will find support for trade diminishing over time.
There has not been a major revamping of the trade laws in this country since the Uruguay Round Act passed in 1994, with much fanfare and much hope for the future. There were good things in that bill, and in the WTO Agreement it implemented. New commitments were made to allow U. S. services to be exported, subsidies were further disciplined, and a mandatory dispute settlement system was agreed to, designed to enforce United States companies’ access to foreign markets.
Some of the promises have been kept, but many have led only to disappointment. More importantly, the world has changed a lot since 1994. China joined the WTO in 2001 and has became the dominant force, perhaps after the U. S. and the EU and perhaps even ahead of them, in the world trading system. The internet expanded exponentially and has reached a surprising level of maturity and importance. And perhaps most critically for the United States, our manufacturing sector has been broadly undercut by our trading system and is leaving our shores in vast and quickening waves.
It is time for the Congress and the Administration to address these issues in a comprehensive trade bill that will start turning the tide back in our favor. If we don’t–and if you think things are bad now–imagine what our country will look like in ten years. At the rate of manufacturing decline we are experiencing, it is likely that soon no new factories will be built in the U. S. Is this the legacy we want to leave our country and our children?
Many people say there are problems other than international trade that are undercutting our productivity and our manufacturing sector. High wages, excessive health care costs, not enough engineers or scientists, too much regulation. There may be some truth to this, but as someone who has worked in international trade, representing U. S. companies, for over twenty years, I think the number one issue is the failure to design a trade system that helps U. S. producers. It is simply not possible to compete if our foreign trading partners heavily subsidize their industries, allow or encourage them to break every rule in the book, and keep our exports out of their markets.
Imagine two dry cleaners on a side street in Binghamton, New York (one of the many mid-size cities in the U. S. that has been largely destroyed by international trade). Imagine that one of the dry cleaners gets a million dollars a year from the city, is not required to pay any taxes, has a guaranteed, mandatory market share from a big part of all the potential customers, and is allowed to dump its noxious dry cleaning chemicals in the river out back at no cost. The second dry cleaner gets no million dollar subsidy, pays a high tax rate, has to compete for customers, and has to carefully dispose of any environmental contaminants at a high cost. Oh, and imagine that because it’s fair to its workers the second dry cleaner pays them $10 an hour instead of 87 cents an hour (the average wage in China.) How long do you think dry cleaner number two is going to stay in business? That’s what we’re facing, not because dry cleaner number two is less competitive. But because the laws and rules of international competition cut against the U. S. They have been determined by multinational companies that don’t care about our country’s long term health, by free trade economists that only see one side of the picture, and by foreign governments well represented in international trade forums, and not by the U. S. in the articulation and implementation of a robust and fair and results-oriented trade policy.
A short list of the key provisions in The Trade Bill of 2010 should include the following:
1) Strengthened authority for the U. S. to offset subsidies, including currency manipulation subsidies, in China and other countries engaging in unfair trade.
2) Strengthened rules that punish any foreign companies that fail to follow our trade rules or lie to our trade enforcers.
3) Requirements to revise our trade agreements to deal with labor rights and wage disparities that undercut our workers.
4) Requirements to revise these agreements so that other countries are not allowed to rebate their taxes at the border when their companies export, while the U. S. is not.
5) Payments to communities, workers, and companies harmed by unfair trade, that would be financed by tariffs on the unfairly traded imports.
6) Special provisions financing and encouraging high-tech and innovative industries to remain in the U. S.
Certainly, other ideas will emerge. The key point is that we need to engage now, before the next election, and get something done. This should be something both parties can agree on. No one should want more jobs to move off-shore. And no one should want to watch the last factory in America shut down its assembly lines, and go dark.
Mr. Kaplan is the Former Deputy Assistant and Acting Assistant Secretary of the U. S. Department of Commerce and he is currently a partner in the international trade firm of King & Spalding in Washington, D. C. He filed the first successful anti-subsidy case by any U. S. industry against China, which led to large anti-subsidy duties on imports.