Consider alternative responses to this familiar parental challenge: “Daddy, Daddy, Joey hit me!” Should the parent respond, a) “Joey, go to your room right now!” or b) “Then you hit Joey right back!”
Now think about international trade disputes rather than spats between preschoolers. No world government can directly impose punishment like ordering a child to his room. The only alternative is option b, giving an official OK to retaliation by the injured party.
The “approved retaliation” option occurred recently when the World Trade Organization approved retaliatory measures proposed by the European Union and seven other nations that had challenged a U.S. law. Our law gives proceeds from some U.S. tariffs directly to firms alleged to be suffering from unfair imports.
Before getting to this point, the complaining countries had to go through a cumbersome complaint process. The WTO appointed a semi-judicial panel of trade law experts from other countries not involved on either side. That panel eventually ruled that the U.S. law broke WTO rules to which the United States had agreed when it signed the treaty establishing the WTO.
The complaining countries were authorized to compile a list of U.S. exports that would be hit with punitive tariffs. Those lists were supposed to cause economic hurt to the United States proportionate to the injury suffered by the complainants.
The WTO ruled that the proposed lists of retaliatory action were proportionate and that the complaining countries could legally proceed.
Note that the United States files similar complaints quite often, and when we win we impose similar sanctions. The game is to compile a list of foreign products that, when hit with high retaliatory tariffs, will produce maximum political pain in the target countries.
The general rule for the United States is that upon winning a ruling against the EU, we hurt France as much as possible and spare traditional U.S. friends like the United Kingdom and the Netherlands. So at times we have imposed punitive tariffs on Dijon mustard and fine French cheeses and wines.
The Europeans can play the same game, and they know which U.S. exports are produced in the districts of key members of Congress. House Speaker Dennis Hastert is from Illinois, home of Caterpillar, and U.S.-made earth-moving equipment figured high on the list of U.S. products approved for penalties last week.
Not all countries can use the process with equal influence. In this particular case, the Bush administration is pushing for Congress to repeal the law in question because the complaining countries — the EU plus Canada, Mexico, Japan, Brazil, India, Korea and Chile — are major buyers of U.S. exports. But if a small country such as Paraguay or Botswana had won a similar dispute, we would simply laugh at any retaliation because they would cause U.S. exporters so little hurt. The big have much more power than the small.
© 2004 Edward Lotterman
Chanarambie Consulting, Inc.