The Trading Blues
The United States and the European Union keep trying to negotiate their trade disputes.
12:00 AM, Jun 7, 2005 • By IRWIN M. STELZER
THE FIRST SALVOS have been fired in a trade war that is unlike any other. Not that all has been peace and quiet on the trade front until now. Opposition to the Central America Free Trade Agreement (CAFTA) by America's inefficient but politically potent sugar beet producers and apparel makers has delayed congressional approval. Bob Zoellick, who negotiated that agreement before moving up to the number two spot in the State Department, is confident that opposition will be overcome, but at the moment it is a close-run thing.
And remember jokes about world trade agreements coming a'cropper on banana skins? Well, trot them out. As the Times put it last week, "Officials in Brussels have proposed a tariff of €230 a ton to stop big fat 'dollar' bananas [from Central America] burying the skinny and petite Windward [St. Lucia, St. Vincent, Dominica, and Grenada] specimens." Tiny farmers in the Windwards simply cannot compete with larger, more efficient plantations in Ecuador, Costa Rica, and Honduras, countries in which American companies have substantial investments. Look for a shoot-out at the world trade summit in Hong Kong in December.
Then there is China. American and E.U. threats of apparel tariffs have offended the Chinese. Commerce Minister Bo Xilai says such tariffs "lack legal grounding and are incorrect," and announced that China will retaliate by repealing its export taxes on over a dozen categories of goods. Which in turn has offended key senators, who want to impose a 27.5 percent duty on all Chinese goods to offset the undervaluation of the dollar-pegged yuan. Never mind that if these lawmakers get what they wish for, the Chinese might stop using the dollars they get in exchange for their trousers, underwear, and shirts to buy U.S. Treasury bonds. That would drive up interest rates, with unpleasant consequences for housing and other key industries.
THESE ARE what we might call traditional trade disputes. The brawl over subsidies to Airbus is a dispute of a different hue. The European champion is demanding "launch aid" of about $1.75 billion from Britain, France, Spain, and Germany to enable it to get its A350 midrange plane off the ground. That makes Boeing, manufacturer of the competing "Dreamliner" 787, very unhappy.
For a while, this looked like a typical dispute, of the sort that can be settled by negotiation. Looks were deceiving. Which is why the United States has taken the dispute to the World Trade Organization (WTO). The Americans are convinced that they do not have a negotiating partner they can trust. Peter Mandelson, the E.U. trade commissioner, is said by U.S. negotiators to back away from agreements he strikes, and is rumored to have threatened to go over the U.S. negotiators' heads by having Tony Blair contact George W. Bush, and then made matters still worse by attacking Zoellick in the U.S. press.
When Zoellick moved on to the State Department, the American team hoped that Bob Portman, the new U.S. Trade representative (USTR), would build an agreeable relationship with Mandelson. That is now more difficult. Instead of restricting itself to private communications with the American team, Mandelson's staff used the press to repeat the old E.U. offer to cut one-third off the launch-aid subsidy. "We are extremely disappointed that they've begun spinning to the press," said Richard Mills, spokesman for the USTR.
American disappointment seems to be of little concern to the veteran spinner. When the European Union filed its countersuit, Mandelson once again took to the press to announce that "the U.S. . . . has never wanted to engage in a serious, even-handed discussion," and to suggest that the launch aid would be paid to Airbus to coincide with the June 13 opening of the Paris air show.
American negotiators now long for the day when they could sit across the table from Pascal Lamy, then the E.U.'s hard-nosed trade commissioner, and now head of the WTO. Trust, they say, is the key to a successful negotiation. They felt that they could trust Lamy, but have chosen arduous and time-consuming (two years or longer) litigation at the WTO over further talks with Mandelson. That might change, if Mandelson's political masters believe it is in their interests to put pressure on him, but no one on this side of the Atlantic deems that likely.