Posts tagged ‘Trade Policy’

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.

04/06/2011

China Will Not Apply Western Law

The news reported yet another crackdown against dissidents and rights advocates in China. While we may and should criticize human rights abuses, we also need to understand why the Chinese distrust of the western approach to law.

China never set out to colonize the world. They instead built a Great Wall to keep people out. From the arrival of the colonial Portuguese (1517) through the 20th Century, western European powers imposed their will on China. At the point of a gun, Britain seized Hong Kong (1842), and later the Kowloon Peninsula. They forced China to surrender their seaports to nine western states, under unfair treaties (1860). China was required, for example, to give Britain a lease to Hong Kong, rent free, for 99 years (1898). The west ultimately controlled 60 Chinese ports.

The unfair treaties led to anti-Western sentiments and the Boxer Rebellion (1898-00). Troops from England, France, Germany, Italy, Austria, Russia and the U.S. were sent to suppress it. Following WWII, Mao Tse Tung’s troops won the Chinese Civil War (1949) and ushered in a People’s Republic, which ousted the Europeans from the mainland, for the first time in 432 years.

As the American War in Vietnam (1965-73) escalated, Mao feared the infiltrating power of the U.S. and started a Cultural Revolution to purge China of all western influence (1966-68). A Red Guard of 22 million teens moved all persons educated in the West to the rice fields. They carried Mao’s little Red Book and quoted his works, as they closed schools and universities, to restructure the curriculums. They attacked those who resisted, such as journalists and intellectuals. Some were forced to wear dunce caps, and were given manual work to get their minds right.

When Mao died, his anti-western policies were reversed (1976) and the Gang of Four (including Mao’s wife) were put on trial for Cultural Revolution excesses (1978). President Carter established diplomatic ties, ending decades of strained relations (1979). China reopened their law schools and resumed trade with the west, as they moved from a controlled to a market economy (1979). The law schools started graduating attorneys again in 1983, following a 17-year hiatus. President Reagan traveled to China and signed trade deals, which allowed U.S. businesses to conduct trade (1984).

I personally witnessed the Chinese legal system that year. I toured a prison in Beijing in 1984, which housed 1,900 prisoners, of whom 50 were counter-revolutionaries. As I walked through the facility, the inmates were making bicycles. They could not look at me. Their inability to even glance away, for just a split second, was chilling. I had been in U.S. jailhouses, as a lawyer, but the strict atmosphere in this prison, made a lasting impression.

I also visited the People’s Court in Shanghai, where I noticed no trials in progress, even though the city had millions of residents. I asked how many lawyers there were in Shanghai and was told there were only 850. Individual rights were at great risk in China, given the shortage of lawyers, caused by the Cultural Revolution.

While China subsequently increased their number of attorneys, they still give the state more respect than the individual. When students rallied for democracy in Beijing’s Tiananmen Square and demanded a free press in 1989, the army fired upon them.

While China today is now willing to conduct trade with the west, they still distrust the Anglo-American western legal system, which was so unfair to them for hundreds of years during the colonial era. This is why it is difficult to convince China to accept our approach to law. The Chinese politely reject westerners who lecture them regarding law, particularly when the preachers are from one of the countries that historically abused their rights.

03/21/2011

Brazil: Time to Trade in South America

President Obama did the right thing by leading a mission to Brazil for the purpose of improving U.S. trade in South America.

Brazil and the U.S. need to become stronger trading partners.  Brazil has much to offer in terms of natural resources. It is physically the largest South American state. Its width can be pictured by considering the fact that the Trans-Amazon Highway runs 3,400 miles from the Atlantic, in the east, to Peru, in the west. Brazil, with 200 million people, also has a large population. Its customer base is second in the Americas, only to the U.S.

Many Americans still harbor images of Brazil as a military dictatorship. Military juntas ruled from 1930 through 1954 and again from 1964 through 1985. They set aside constitutional law and dissolved political parties. They heard civilian cases in military courts. They denied individual rights. Political prisoners were subjected to torture and death squads.

But the days of military rule are gone. During the Jimmy Carter presidency, Human Rights became an issue worldwide. Brazil implemented reforms in 1979, and ended military rule in 1985, as the people voted again for the first time in decades. Brazil recently acknowledged their history of human rights abuse and moved on. Last year, they elected their first female president. Internationally, they have served on the Security Council 10 times since WWII. If the UN Charter were being drafted today, they certainly would be in line for a permanent seat.

Brazil is now a leading global economy. They joined the World Trade Organization 16 years ago. They are an industrial state that produces cement, steel, iron and vehicles. They are no longer limited to just coffee, corn and rice. 89% of their people are now literate. They host 33% of the top 100 Latin American colleges. Their scientists set off a controlled nuclear chain reaction, 54 years ago already. They launched a rocket into space in 2004.

The U.S. will never again have the preferred trading status it enjoyed during the 25 years following WWII, when Europe and East Asia were flat on their backs. It is a competitive world now and the U.S. must improve trade relations with other nations and particularly with developing states like Brazil.

03/17/2011

Cuba: End the U.S. Trade Embargo

The U.S. has had a trade embargo against Cuba since 1962 and it is time to end it. After 49 years, it has no purpose and most people now have no idea why it was imposed in the first place.

The story begins with Gen. Batista, who came to power in a coup backed by the U.S. (1952). He ran a dictatorship that censored the press and suspended constitutional rights (1953). Fidel Castro, a lawyer, led the overthrow of Batista’s regime in the Cuban Revolution (1953-59). While Castro’s dictatorship had some of the same faults as Batista’s, most Cuban people accepted Fidel, because at least he eliminated illiteracy and provided health care.

Anger at Cuba from abroad was not because Batista was removed, but instead due to Fidel’s subsequent confiscation of land from foreigners and the nationalization of U.S.-owned oil refineries, sugar mills, casinos and utilities. What Castro did was not however unique. Scores of nations that declared independence at that time also nationalized their natural resources and industries.

In any event, diplomatic relations with Cuba were severed. When President Kennedy took office, anti-Castro exiles unsuccessfully staged a military invasion at the Bay of Pigs (1961). Once the U.S. banned trade with Cuba (1962), Castro turned to Moscow for help. The Soviets said Cuba had a right to be free of foreign interference and supplied Cuba with weapons for their defense. This is when U.S. reconnaissance observed nuclear weapon sites in Cuba, triggering the Cuban Missile Crisis (1962). Although the weapons were removed when the U.S. Navy blockaded the island, the friction between the U.S. and Cuba continued.

The U.S. now trades with the People’s Rep. of China, Vietnam, and other communist countries. There is no logical reason not to trade with Cuba. Fidel Castro recently turned the presidency over to his brother Raul (2008), and soon both of them will be gone.

Today, the streets of Havana still show the effects of 1962 embargo. Most cars pre-date the 1959 revolution and there are no recreational boats in the harbor. Opening trade would not only benefit the Cuban people, it would create jobs for many U.S. businesses and their employees, particularly here in Florida.