, Research Paper
ELECTRONIC COMMERCE
Washington in duty-free move
The US is seeking to extend the duty-free status of international online
transactions to protect the development of global electronic commerce, the
Clinton administration said yesterday. Susan Esserman, deputy US trade
representative, said the US wanted the World Trade Organization to agree “at
the earliest possible date” to extend the current moratorium on customs duties
for electronic trade.
In testimony to the Senate foreign relations sub-committee on Europe, Ms
Esserman said duty-free cyberspace was particularly valuable to US software
companies that were seeking to distribute their products electronically.
The US is also looking for WTO members to affirm that electronic commerce is
subject to existing rules and agreements, and should not face “unnecessary
regulatory barriers to trade”. However Ms Esserman said “more time and work
are necessary” before electronic goods could be subject to final
classification under WTO rules.
Electronic commerce in the US is forecast to grow to $1,300bn by 2003, while
in India it is expected to grow by $15bn within two years. Richard Wolffe,
Washington
Protectionism, it seems, is always with us and it is useful to examine the
intermittent attempts made to establish rules for its containment. This book
is one such examination, on the conception, birth, and early years of the
General Agreement on Tariffs and Trade (GATT); it is restricted to the years
1940–53. It is the work of an historian but one at the political, rather than
economic, end of the spectrum. The heavy emphasis throughout is on the
American role within an essentially Anglo-American tussle. The argument is
that although trade was a relatively small proportion of US output it was used
for political and diplomatic purposes. The general thrust is that the US was
keen on a new liberal order and determined to break the British empire’s
preferential trading arrangements. However, when we read that the central
argument is that, ‘by liberalizing trade while protecting domestic economies
– a bargain consistent with US trade law, practice, and history …’, we
might reasonably expect to be in for a roc ky ride.
Politics is important and possibly even central in the process of trade
protection, but will always be found to depend on economic forces. The
politics here might well be overdone. The whole story is presented as a
struggle between the US and Britain/British empire. Although this tension is
an old story, Zeiler takes it further and argues that the Commonwealth had ‘a
major hand in shaping the GATT order’ (p.197). It is a complex story of
negotiations taking place under conditions of extreme difficulty, and the
author has worked diligently in the American, British and Commonwealth country
archives.
There is, however, a lot that raises the eyebrows of the economic historian.
Within a few lines of the opening we read that, ‘global business leaders …
seek a commercial regime unfettered by barriers’. This is rather the
antithesis of the conventional understanding of businessmen almost invariably
(and nowhere more so than in the US), seeking protection. And running against
the conventional view (without seemingly noticing) is the idea that America is
the home and inspiration of free trade. The British in the 1930s opted for,
‘Regulated, rather than American style market, capitalism … ‘ (p.20). Or
again, ‘Free trade frightened the British’ (p.39). And richest of all, ‘The
British simply would not accept the free trade doctrine’ (p.24). Zeiler
suggests that free trade was key to the American economy ignoring the fact
that America had been one of the most protectionist countries for most of its
history. This is unfortunate and results in a distortion of the argument, for
of the GATT negotiations Zeiler say s the British were not willing partners in
pursuit of lower trade barriers. At certain times that may have been true but
it did not derive from long-term hostility. Nevertheless, in the closing pages
of the book the author does concede that the US was no unilateral free trader.
Running alongside this idiosyncratic view is an account of the British economy
that is surely at odds with the facts. It is a picture of pathetic feebleness:
‘Great Britain faced a future of decline and hardship. Its once predominant
global position lay in tatters’ (p.2O). ‘Their economy was in a shambles …’
(p.39).
While the book is well written there is a danger of the story being presented
in overly dramatic terms (hinted at in the title), and at times a frivolous
and dismissive tone creeps in — ‘From his perch in the Treasury Department,
Keynes …’. And there are occasional lapses in accuracy such as that the
Commonwealth had moved to a discriminatory trading system in the 1930s (the
Dominions had been giving preferences from the 1890s), or, for example, that
there were tariffs on meat. Too much of the story reads as if the world began
around the time of the study. This is a pity for it is an important subject
and one from which business historians can learn and to which they can
contribute.
Prime Minister John Howard can claim a victory at the Commonwealth Heads of
Government Meeting (CHOGM) with the summit embracing his call for a statement
demanding freer world trade.
Mr. Howard had been pushing for the Commonwealth to make a strong stand on the
need to relax trade barriers ahead of this month’s World Trade Organization
(WTO) ministerial talks in Seattle.
Following their weekend retreat, Commonwealth leaders released a declaration
calling on all nations to dismantle trade barriers and enhance export
opportunities for poorer countries.
“We support efforts that would enable developing countries to build up their
skills and manufacturing capacities, including the production and export of
value-added goods, so as to enhance growth and achieve prosperity,” the
declaration said.
“Likewise, we urge that the forthcoming ministerial meeting of WTO launch the
next round of global negotiations on trade to be one with a pronounced
developmental dimension, with the aim of achieving better market access in
agriculture, industrial products and services in a way that provides benefits
to all members, particularly developing countries.”
Mr. Howard, who has announced a series of Australian aid packages for
Commonwealth countries, has argued trade restrictions need to be lifted in the
more globalizes world economy.
Globalization was a fact of life and could not be avoided, he said.
“It’s a question of understanding it and it’s a question of every community in
its own way making certain that its citizens understand and that where we can
even out the bumps and we soften the blow whilst continuing to go forward,” he
said.
The challenge of globalization is the theme of this year’s CHOGM, which is
also considering ways to strengthen democracy in the Commonwealth and what
follow-up action to take against suspended member Pakistan after last month’s
military coup.
Briefing: Maybe It Is Free Trade: It Certainly Doesn’t Cost The Government Very Much
The General Agreement on Tariffs and Trade (GATT), along with the Bretton Woods monetary agreement and the International Monetary Fund (IMF), were the cornerstones of international economic policy created at the end of World War II. All three institutions were designed to promote free trade, economic stability, and an end to the economic policies that led to the Great Depression and contributed to the coming of war.
The World Trade Organization (WTO) is, in effect, the supervising body for GATT, which is not one law, but a complex body of laws and regulations that have accumulated over a period of more than 50 years and covering a great many aspects of world trade and what signatories are and are not allowed to regulate for themselves.
The basic WTO guidelines are that “members should conduct their trade and economic relations with a view to raising standards of living, ensuring full employment and a large and steadily growing volume of real income and effective demand, and expanding the production of and trade in goods and services, while allowing for the optimal use of the world’s resources in accordance with the objective of sustainable development, seeking both to protect and preserve the environment and to enhance the means for doing so in a manner consistent with their respective needs and concerns at different levels of development.”
In addition, the charter of the WTO calls for it to enforce the following fundamental principles:
· Trade without discrimination. Members are bound to grant to the products of other members no less favorable treatment than that accorded to the products of any other country. Once goods have entered a market, they must be treated no less favorably than the equivalent domestically-produced good.
· Predictable and growing access to markets. While quotas are generally outlawed, tariffs or customs duties are legal in the WTO.
· Promoting fair competition. The WTO extends and clarifies previous GATT rules controlling “dumping” (selling goods abroad at below-market prices) and subsidies (governments providing money to make local goods cheaper than imports).
· Encouraging development and economic reform. Developing countries are given transition periods to adjust to the more difficult WTO provisions. Less-developed countries are given even more flexibility and benefit from accelerated implementation of market access concessions for their goods.
The North American Free Trade Agreement (NAFTA) has been in place since the beginning of 1994. A pet project of former President George Bush, NAFTA is a three-way agreement among the United States, Canada, and Mexico designed to encourage trade and commerce throughout the three nations of North America.
One World, One Trading Unit
The arguments for free trade vs. protected national economies has been with us since the very beginning of trade between tribes. Drawn with the broadest brush, the argument comes down to how much we perceive ourselves part of the international community and how much we wish to keep our tribe/estate/city-state/country separate from, and richer than, its neighbors.
Most economists agree that, at least in principle, free trade results in the greatest good for the greatest number of people. Suppose Country A grows kumquats better than Country B, but Country B makes widgets more cheaply; if Country A specializes in kumquats and trades some with Country B in exchange for widgets and vice versa, both will be better off.
According to this widely-accepted theory, both countries are better off under free trade rules even if one country is better at everything. In this case, the less efficient country will have lower wage rates than the more efficient one, but will specialize in the goods it produces most cheaply relative to others–and both will wind up richer through trade than through isolation.
However, free trade does have a disadvantage: Even if it works for the benefit of everyone in the long term, in the short term there are often dislocations. If America opens its textiles market to cheaper imports from Mexico, American textile workers lose jobs. Of course, American consumers benefit from cheaper clothes, and spend the money they save on other goods, thus creating jobs in other areas–but in the short term, a lot of textile workers have lost their jobs and have a hard time finding new ones. And the pain is concentrated, while the benefits are diffuse; the people who lose their jobs will complain bitterly, while the people who find slightly cheaper clothes at the mall may not even realize why prices have dropped.
The argument for free trade has another disadvantage: It’s counterintuitive. People seem comfortable believing that exporting is good, while importing is bad. Of course, this is oversimplified; if the Japanese make better stereos, we do ourselves no favor if we force Americans to buy inferior American hi-fi equipment. And we do the American hi-fi industry no good, because it will grow fat and happy in its protected market and will never develop into a viable competitor for Japanese manufacturers.
What’s the alternative? In 1929, the United States passed the Smoot-Hawley Act, which drastically increased tariffs on imported goods, in the name of protecting American jobs. Many historians and economic theorists believe that the Stock Market Crash of 1929, the Great Depression, the rise of Hitler can be directly attributed to that one law.
Proponents of GATT and NAFTA need only point to these economic and historical arguments to make their case.
One Trading Unit, No National Sovereignty
The principles of free trade may be hard to argue with, but the implementation of what we call free trade in the 1990s is another matter. NAFTA and GATT are extremely controversial among Americans, despite being perhaps the only thing Bill Clinton and George Bush agreed upon in the 1994 presidential election. The WTO, a whole new international entity with some of the powers of a government, is viewed with even more suspicion.
Before the passage of NAFTA in 1993, opponents warned that corporations would flee to Mexico for the cheaper labor and less restrictive laws. While that does not seem to have happened at the level people feared, many individual examples can be cited (including a 100,000-job transfer by IBM directly from the United States to “less expensive labor markets”). Do we really want, 10 years from now, to be buying Fords and Cheerios and IBM computers all made in Mexico, or Thailand? (To a large extent, we already are.) If our big corporations all move out of the United States, will Americans have any money left to buy Fords or Cheerios or computers? Or, as the free trade proponents argue, will we get better goods along with higher incentives to improve our domestic industries?
The second major criticism leveled at these treaties and the bodies that govern them is that they undermine the ability of signatory nations, including the United States, to make their own laws. This causes concern across the political spectrum, with the American left expressing serious concerns about our ability to keep and enforce our environmental laws and the American right seeing not only American sovereignty but the traditional concept of “states’ rights” in jeopardy.
Decisions made in the Uruguay Round of GATT talks permit the WTO to intervene in:
· Local agriculture subsidies (which can include programs like “Buy Oregon” or “Minnesota Grown”)
· Governmental purchasing, such as the federal government?s “Buy American” policy
· Federal and state environmental regulations that favor some products over others (such as the California higher emission controls for motor vehicles)
· The rights of Indian tribes, guaranteed by Federal law, to fish waters that are otherwise protected.
· Regulations controlling food quality, such as outlawing Red Dye #2 (a proven carcinogen), or bovine gonadotropic hormone (a suspected carcinogen)
To those who say such fears are groundless, opponents of the free trade agreements point out that before the WTO was in place, the Netherlands and the European Union brought a complaint against the United States’ Marine Mammal Protection Act, which allows us to forbid the importing of tuna which is caught in ways that harm dolphins. The Netherlands claimed that this law interfered with their ability to export tuna to America. The GATT body ruled against the United States, which allows the WTO to impose sanctions if that law is enforced. A similar suit was brought by Mexico under NAFTA in 1991
Some Americans are deeply concerned about the fate of dolphins in Dutch and Mexican waters; others, to whom the health of dolphins is entirely irrelevant, nonetheless do not like to see U.S. law overturned, or presumably expensive sanctions imposed, at the whim of an international body. Many people point out that the NAFTA and WTO decision-makers are not elected by anyone and are thus only responsible to their own organizations. If we do not like the rulings they make, or the sanctions they impose, we have no recourse within the organizations–secession is the only appeal.
Leaving the Alphabet Soup Behind
The WTO, GATT, and NAFTA are generally seen to be flawed compromises among various concepts of free trade. They could be scrapped, and “real” unregulated free trade among nations could take their place. On the other extreme, they could be scrapped and America could block imports and largely turn its back on the rest of the world, concentrating on building American wealth and American jobs. The two ends of the spectrum are easy to visualize: it’s the murky middle where the greatest problems arise.
Virtually no one without a vested interest in the organizations would hold up the WTO or the NAFTA governing body as ideal, but do they threaten the existence of the United States as an independent nation or are they vital to the peace and prosperity of the Free World?