US takes steps to avert a global trade war

Last month, Japan eliminated its quotas on rice imports but slapped on an 1,100 percent tariff increase that starts this April.

Concerned that other such trade barriers are starting to crop up around the world, the Clinton administration is trying to move trade negotiations onto the front burner.

This week will be an indication of how important the administration thinks trade will be for the year. A senior official from the United States Trade Representative will start negotiations in Japan on efforts to open up the country to more US goods, from apples to flat glass.

Today, three top administration officials, led by Treasury Secretary Robert Rubin, will testify in the Senate. Their message: The world economy is at a very delicate point and needs new momentum to shift countries away from protectionism.

"No one wants the financial crisis of 1998 to turn into the trade crisis of 1999," says David Aaron, undersecretary of Commerce for international trade.

Steel-town blues

One of the first stresses on the world trading system may come this week. The US has accelerated by a month its analysis of the December trade numbers to see if Japan and Russia have cut back on steel exports. Yesterday in Tokyo, the Japanese said their volume of steel exports to the US dropped almost 15 percent in December. But with steel imports from Japan up 500 percent over 1997, the administration is fuming. Congress is expected to consider legislation limiting steel imports.

The trade urgency comes at a time when the US trade deficit is soaring. The Commerce Department reported last week that the trade deficit widened to $15.5 billion in November - up from $13.6 billion in October.

One of the largest imbalances is with China - and the administration is starting to jawbone. In a speech here before the Asia Society, US Trade Representative Charlene Barshefsky said Beijing needs to do more to open up its markets. If it doesn't act, she says, "WTO membership may not come for some time." But, she adds, "delay in trade reform is not an option."

Rallying the public

In an effort to get the US public behind him on new negotiations, President Clinton talked about trade during his State of the Union speech last week. He said he wants to start a new round of trade talks to knock down tariffs and barriers in agriculture and services.

The US hopes to begin new talks late this year. Unlike the Uruguay round of the General Agreement on Tariffs and Trade, which took more than seven years to complete, the administration hopes to wrap up these negotiations in three years. It hopes countries will agree to implement some of the changes as they are agreed on.

"We want to pick some of the low-hanging fruit," says Mr. Aaron, who is responsible for formulating US trade policy.

For example, US trade officials are hopeful they can reach a quick understanding in the burgeoning area of electronic commerce. The US wants to ensure that content standards don't become barriers to trade.

Crucial to any new progress will be getting Congress to grant "fast-track authority." Under fast track, lawmakers agree not to make any changes on the treaty but, instead, vote on the total package when it comes up for approval. Last year, Congress would not agree to give the administration such approval. "Now people are asking, 'Is America fully committed to open trade,' " says Aaron.

Even if Clinton can convince Congress of the need for new negotiations, it isn't expected to begin until at least 2001, says Robert Hormats, vice chairman of Goldman Sachs International. And, he quips, "it may take a millennium to complete."

Ironically, Clinton can probably count on more support from the Republicans than Democrats, since business is in favor of opening up new markets. "Republicans can reason that it will take so long to negotiate an agreement, it will be the next president who actually gets to sign it," says David Wyss, an economist at the McGraw-Hill companies in Lexington, Mass.

Unions have opposed many of the freer trade initiatives in the past, but they may not be totally against them this time around. "They are looking for things they can support," says Aaron.

Opening agricultural markets

A top priority for the US is opening up agricultural markets. As Asian economies have slumped, US agricultural exports have fallen. But opening up markets for US beef and pork isn't easy. Take the Japanese tariffs on rice. Under the 1993 GATT agreement, Japan agreed to end its system of quotas, which would have permitted 9 percent of its rice needs to come from foreign markets by 2000. Now an unlimited amount of rice can be imported, but it faces a high tariff, which could actually slow imports.

Such protectionism, says Aaron, tends to spawn more protectionism elsewhere. Latin countries, which may soon enter a recession, could be tempted to restrict imports.