Now that the World Trade Organization has rejected the U.S. appeal to preserve steel tariffs and Washington is confronted with $2.2 billion in retaliatory tariffs from the European Union, the administration and its supporters need to face up to an unpleasant fact. The steel imbroglio is just the latest of several instances where the U.S. has talked free trade but practiced protectionism most notably here in our own hemisphere.
At the 1994 Summit of the Americas, leaders of the thirty-four democracies in the Western Hemisphere devised a plan to establish the largest free trade area in the world, a zone that would stretch from Alaska to Tierra del Fuego, excluding Cuba. They aptly named it the Free Trade Area of the Americas (FTAA).
With 2005 as the proposed start-date, the FTAA seemed like an ambitious yet doable prospect. Now, however, with the deadline less than two years away, negotiations seem to have reached an impasse.
Eager to blame someone else for the slowdown in negotiations, U.S. trade representatives have pointed their fingers at the less fortunate countries of the South, such as Brazil and Argentina. The plain fact is, however, the United States is currently as much a stumbling block as any of the less developed and protectionist countries in South America.
Its true that South American countries have been dragging their feet in FTAA negotiations. Instead of submitting past due proposals for market access agreements, Southern countries, led by Brazil, have been busy negotiating to act as a bloc in FTAA talks in order to consolidate economic power and gain leverage against their North American trading partner. Critics say this is evidence that the South isnt committed to free trade. But their hesitance is understandable in light of the U.S.s recent actions.
Although America has long employed free-market rhetoric, actions speak much louder than words. In July 2002, the Bush Administration announced plans to foster more global access for agricultural exports by lowering tariffs and subsidies worldwide. However, shortly afterward, Congress and President Bush pushed through the 2002 Farm Bill, a 10-year, $180-billion package that will increase farm subsidies by 70 percent.
Another example. U.S. trade officials have pressured Brazil to submit proposals for services, government procurement, intellectual property, and to lower tariffs on American goods. But the U.S.s own proposed plan to eliminate tariffs would offer the South only distant relief from the extensive tariffs that restrain its most competitive exports agriculture. Additionally, the U.S. insists on dealing with the issues of agricultural tariffs, subsidies, and general anti-dumping rules in the laboriously slow Doha Round of world trade talks, instead of making concessions within the confines of the FTAA.
Clearly, America is trying to have its cake and eat it too. By holding on to subsidies and tariffs, the United States gives the appearance that its trying to con South America into liberalizing its markets, only to be demolished by Americas government-supported industries. U.S. officials correctly tout the potential benefits of the FTAA for South America, claiming that access to and competition with the North will help them grow stronger, but Brazil and others know that this wont happen unless America opens up too.
So, if the United States doesnt want to be at fault for the demise of the FTAA, what should it do? It wont be easy. The Bush Administration must get Congress to amend the Farm Bill and tell subsidy-receiving American farmers and industries (e.g. steel) that its time to support themselves.
President Bush and some members of Congress may be reluctant to anger protected constituents. But once they show leadership and explain the benefits of liberalization and the penalties of protectionism they should have no worries about losing significant support.
The United States would do well to emulate New Zealand and Australia. Both countries eliminated most farm subsidies in the 1980s. Instead of putting farmers out of business, the subsidy cuts gave farmers the incentive to operate based on market demand. Without government paychecks, farmers stopped producing goods for which there was little demand and began to more efficiently produce goods according to their comparative advantage and the markets demands. There is no reason why lifting subsidies from American farmers would not have these same results.
The U.S. government must also cut tariffs on imported goods even goods that American farmers produce in large quantities. How can America convince poorer, less-developed, less liberalized countries to open their markets to goods from the richest and strongest nation in the Western hemisphere, if it doesnt lead by example?
Supporters of the FTAA are right to say that a hemisphere-wide free trade area will benefit all involved. However, as long as the United States continues to say one thing and do another, the South will continue to view it as an unfair competitor and not a reliable partner in free trade. Ultimately, if U. S. trade negotiators practice what they preach, South American leaders will have far fewer excuses to resist the FTAA.