Posts tagged ‘Tariffs’

11/28/2011

WTO: Should U.S. Sue China Over Trade?

In international trade, Gov. Romney argued in the Republican debates that we have been run over by China. Although he does not want a trade war, he believes we are being used. He said he would issue an Executive Order identifying China as a currency manipulator, because they artificially set the prices of their goods below market levels. He would sue China in the World Trade Organization (WTO), because the Chinese do not play by the rules. He wants to win the right to impose tariffs against them.

Former Gov. Huntsman worried if we won the right to impose tariffs, we would get the same in return, because we manipulate our currency, and a trade war would only hurt our exports. He questioned whether the WTO even allows currency issue disputes.

What would a U.S. complaint in the WTO against China involve?

The WTO, the world’s primary trade organization, with 153 member nations, came into being in 1994. China joined in 2001. Each WTO country has an obligation to conform their laws to the basic agreements that make up the organization. Rules, such as those forbidding unfair trade, are enforced against member states.

Dumping and the providing of subsidies are considered unfair trade practices. Dumping involves bringing goods into a country at less than their normal value. Governmental subsidies that distort product prices are also forbidden. Where there is a violation, states cannot take unilateral action, but must sue.

The WTO, based in Geneva, Switzerland, has a Dispute Settlement Body (DSB) which presides over the resolution of trade disputes between member states. WTO nations agree in advance to submit to the compulsory jurisdiction of the DSB. When one nation files a complaint against another, alleging a violation of WTO rules, they must first try negotiation.

If negotiations fail, the DSB sets up a 3-member ad hoc Dispute Settlement Panel. Each party submits written arguments, known as submissions. Experts are consulted. The Panel considers the facts and then issues a Panel Report in English, French and Spanish, which may include an order to remove inconsistent measures, give the injured country the authority to retaliate with tariffs against certain products, or they may grant restitution.

After the Panel Report is approved of by the DSB, the losing party may file an appeal. The WTO has a standing 7-member Appellate Body drawn from different geographic areas. New facts are not heard on appeal, as reviews are limited to alleged errors of law.

The U.S. would have the burden of proving China engaged in unfair trade practices, such dumping or illegal subsidies. Even if a violation by China was shown, Huntsman is correct, because the Chinese would certainly file a countersuit against the U.S., claiming we provide subsidies and also violate the WTO rules. If China won their case, we would have to prepare for losses in our export businesses, as a result of tariffs imposed against our goods.

06/14/2011

WTO Governs U.S. Economy

The U.S. and 22 other countries signed the General Agreement on Tariffs and Trade (GATT) in 1947 for the purpose of reducing tariffs and trade barriers throughout the globe. Today, the GATT is administered by the World Trade Organization (WTO), and it governs global trade for 146 member states, and 29 observers.

The GATT grants normal trade relations to all members, which means all counties who join are entitled to the same treatment. Nations must treat goods imported from one member, the same as their own. Any privilege extended to one, automatically applies to others. The goal of the GATT, via the WTO, is to repeal all nationally imposed tariffs, quotas, and barriers to trade.

The GATT specifically bars tariffs on imports, in excess of any taxes applied to domestic goods. It prohibits import quotas, quantitative restrictions, the dumping of foreign goods at less than normal value, voluntary export restraints, and technical regulations that discriminate against foreign goods. It seeks to end government subsidies that distort market prices.

During the first 47 years of the GATT (1947-94), their rules were enforced voluntarily, or many times not at all. When the World Trade Organization (WTO) was formed (1994) to enforce the GATT, the most significant change, was the creation of a Dispute Settlement Body (DSB) to try cases and impose sanctions.

Now, member states, usually at the request of private industries, file complaints in the DSB, and allege breaches of the GATT. If the DSB finds a violation of the GATT, it has the authority to order retaliatory sanctions against the guilty states. If the U.S., for example, proved another country discriminated against American exports, they would be allowed to impose tariffs on the violator.

Understanding the nature of the power yielded to the WTO is important, particularly in presidential election years. If candidates are well-read, they avoid promising tariffs to keep Chinese goods out, since they know such barriers would only cause the WTO to allow China and others to retaliate against U.S. exports. Smart politicians know we no longer govern our own economy and that the WTO is in control. In the upcoming presidential race, it’s high time one of them leveled with the American public.

06/13/2011

Tariffs: Why We Abandoned Them

Since the U.S. was founded, politicians debated the virtues of free trade versus protective tariffs. Historically, the industrial North manufactured goods and advocated the imposition of protective tariffs to make products made in Europe more expensive than our own. On the other hand, the agricultural South desired reciprocal free trade, because they had no industry to protect, and wanted to export cotton and tobacco, without facing retaliatory tariffs.

Alexander Hamilton argued infant American industries needed protection to give them time to develop and compete against more established European companies. After the American Revolution, President Washington approved a Congressional Act that placed tariffs on foreign goods (1789). Presidents Madison, Monroe, and John Q. Adams, also signed laws protecting American industries.

Southern Democrats were able to lower tariffs, at least before the Civil War. Andrew Jackson was the first President to openly support free trade (1828) and Presidents Tyler (1841-45), Polk (1846), and Buchanan (1857), vetoed and reduced them.

President Lincoln, an Illinois Republican, promoted industrial growth, and favored tariffs in the 1860 election, causing the South to secede, and triggering the American Civil War (1861-65).

After the war, tariffs became the norm in U.S. trade for the next seven decades. President Harrison, a Northern Republican, raised them to new highs, under the McKinley Act (1890). Ohio Republicans, Taft (1909) and Harding (1922) also increased them.

Following the 1929 Stock Market crash, President Hoover, an Iowa Republican, believed more protection was the answer, as he signed the Smoot-Hawley Tariff Act (1930), raising U.S. import duties 60%, to an all-time high. This caused foreigners to impose retaliatory duties, reduced international trade, and exacerbated the Great Depression. When it became clear high tariffs were making the depression even worse, policy makers turned to free trade economists for answers.

Economists explained that tariffs on imported goods caused retail prices to rise, as they were simply added to the cost of the goods sold. Consumers, not foreign manufacturers, ultimately ended up paying tariffs. Economists argued they created a net societal loss.

They also explained that when nations use tariffs, other countries respond by enacting retaliatory tariffs, which negatively affect exports. If for example the U.S. placed tariffs on French wine, and France retaliated by imposing duties on the import of U.S. autos, the export industries in both nations would lose.

Since the Great Depression, the U.S. has been involved in a long march away from protective tariffs and towards free trade. President Franklin Roosevelt set the U.S. on a new course, by signing the Reciprocal Trade Agreements Act (1934), which delegated to him the authority to lower tariffs, product by product.

For the past 75 years, both political parties have embraced free trade, because they fear tariffs decrease international trade, harm national export industries, and hurt domestic consumers, with higher prices. What they have ignored is the other side of the coin. The abandonment of tariffs also explains why U.S. factories have been closing, and why American workers are losing their jobs.