Journal of Commerce

The Other Key to a Sound US Policy on China

Cecille Isidro — Wed, 24 May 2000 00:00:00 -0400

Despite the claims of advocates, permanent normal-trade-relations (NTR) status is only one element of a meaningful China policy. The changes in U.S. law and review procedures for China's behavior that are included in the proposal of Reps. Sander Levin, D-Mich., and Doug Bereuter, R-Neb., are at least as important to establishing a sound policy toward China as granting that country permanent NTR.

After what seems like an endless run-up, Congress is finally moving to pass permanent NTR status for China. This will help pave the way for China's entry into the World Trade Organization and end Congress' annual ritual of voting on China's trade status.

The Levin-Bereuter proposal, however, contains a number of useful provisions.

First, it makes provision for close oversight of China's progress in implementing its WTO commitments.

Second, it creates legislation to implement the procedure negotiated by U.S. trade negotiators allowing the United States to impose special limits on imports from China that disrupt the U.S. market.

Third, it creates a commission to focus ongoing attention on China's observance of human rights.

Finally, it states the sense of Congress that Taiwan should be allowed to enter the WTO on the same schedule as China.

The provisions aimed at enforcing the WTO agreement with China are particularly important. China has an abysmal record of keeping the trade commitments it has made. Despite some statements made in the debate by administration officials, China has violated every recent trade agreement with the United States on topics from market access to prison labor.

Even the agreement to protect intellectual property, often held out as a success, has shown poor results. According to industry estimates, piracy rates in China remain more than 90 percent, and economic losses due to piracy have actually risen since the most recent effort to enforce the agreement.

WTO membership may bring multilateral pressure to bear on China to improve its trade performance. But the WTO is also likely to have considerable difficulty enforcing its rules in a country without an established rule of law and with an entirely opaque process of making trade policy.

The only hope of making real progress in forcing China to live up to its commitments is an ongoing effort on the part of both the United States and the WTO.

Almost since the day it was negotiated, the administration's WTO accession agreement with China has been sold to the nation in large part upon the safeguard that allowed the United States to restrict imports that disrupt the U.S. market. In concept, this provision was significant.

Without legislation to implement it, however, the safeguard would likely mean nothing. The next president might simply ignore it and, without a petitioning procedure, the affected domestic industry would have no way of triggering it. Fortunately, after some apparently heated negotiations, the House Ways and Means Committee passed legislation to implement this safeguard.

In another important provision, the Levin-Bereuter proposal creates a commission -- modeled on one used to address similar concerns in the old Soviet bloc -- to monitor progress in China on human rights. Both the Congress and the administration would have a direct role under this formulation.

Finally, the proposal includes a resolution calling for Taiwan to be admitted to the WTO. Unquestionably, Taiwan is a stronger candidate for WTO membership than China. To date, however, by employing intermediaries, China has been able to keep Taiwan out of the WTO.

Reportedly, Beijing has agreed to Taiwan's membership once China becomes a member. Given China's poor record of keeping promises and its obvious antipathy toward Taiwan, the United States should spare no effort to hold China to its word and ensure that Taiwan also enters the WTO this year.

Critics will quickly and rightly point to weaknesses in the Levin-Bereuter proposal.

The enforcement provision is limited by the inability to impose sanctions inconsistent with the WTO. The safeguard provision was inappropriately weakened in the legislative drafting process. A commission is not able to fundamentally alter Beijing's attitudes on toleration of dissent. Finally, congressional resolutions on Taiwan and other topics will have limited impact upon the Beijing Politburo.

Still, there are benefits to binding China -- at least on paper -- to obeying WTO rules, and these new procedures do ensure continued focus on the right issues.

With this focus, the president, the Congress and the WTO can continue to push China down the road to reform. The House, the Senate, and the administration should all work to ensure that the Levin-Bereuter proposal is passed along with permanent NTR and becomes an integral part of U.S. policy toward China.

Without it, permanent NTR would prove a flawed and ultimately disappointing policy.

The Sunset Review is Being Turned on Its Head

Cecille Isidro — Fri, 19 May 2000 00:00:00 -0400

With relatively little notice, the United States has begun to implement one of the more important provisions of the Uruguay Round global trade agreement -- a provision calling for sunset reviews of anti-dumping cases.

Anti-dumping laws seek to block sales of imports in the U.S. market at below the price in their home market or below the cost of production. Sunset reviews seek to weed out anti-dumping orders that are no longer necessary.

Unfortunately, the approach taken thus far to implementing these reviews threatens to create a far different outcome.

In essence, the World Trade Organization sunset measure requires the administrative authorities responsible for implementing anti-dumping laws -- in the United States, the Commerce Department and the U.S. International Trade Commission -- to review all outstanding anti-dumping orders after five years. The WTO instructs authorities to determine whether dumping and injury from dumping would likely recur if the anti-dumping order were terminated.

Obviously, this is not a simple determination. The initial decisions in anti-dumping cases can be based upon verifiable facts like market prices and import levels. In sunset reviews, however, the administering authorities are called upon to look into a crystal ball and imagine a hypothetical world in which the order does not exist. By its very nature, this calls for a certain amount of speculation and supposition.

It is debatable whether sunset reviews were even necessary in the United States. Even before the sunset reviews, it was U.S. practice to look at dumping margins regularly through administrative reviews and consider changes in the order at any time through changed circumstances reviews. If dumping ceased, anti-dumping orders were automatically eliminated.

Despite this, in the Uruguay Round negotiations many countries sought extra assurances on the topic of outdated orders. In truth, many of these countries and some of the domestic supporters of sunset reviews would probably have preferred to eliminate anti-dumping laws entirely.

The specific language adopted in the WTO on sunset reviews and the legislation that the U.S. Congress wrote to implement the provision, however, focus carefully only on the topic of unneeded or outdated orders, while leaving in place those still needed to block dumping.

The U.S. Commerce Department is charged with determining if dumping is occurring in anti-dumping cases and, in sunset reviews, if it is likely to recur. Since the Commerce Department was doing regular administrative reviews of dumping determinations before sunset reviews, its task is not too difficult.

Using much of the data already considered in administrative reviews, the Commerce Department has been moving forward on sunset reviews in much the same way that Congress intended.

The results at the ITC, however, have been quite different. The ITC has found injury likely to recur in about three-quarters of the cases in which the domestic industry sought continuation of the order, 69 of 94. (In 79 other cases, the order was terminated because the domestic industry expressed no interest.)

But these numbers deserve a closer look. In most of the cases that the ITC has found injury likely to recur -- 58 of the 69 affirmatives -- there has been no opposition to extending the order. The affected foreign companies did not bother to appear at the ITC, and the request of the domestic petitioner to continue the order was unopposed.

In cases in which the foreign companies chose to challenge the sunset review, they have prevailed well over half the time in their effort to have the anti-dumping order terminated.

This is exactly the opposite of the intended result of sunset reviews. In many cases in which the foreign company chose not to call for termination of the anti-dumping order, there was little real risk of dumping recurring. In many cases, the foreign dumper had left this industry or abandoned the U.S. market in the intervening years. In at least some of these cases, terminating the order may have made sense.

In those cases where the foreign companies previously found to be dumping chose to contest the order and spend tens or hundreds of thousands of dollars to make their case, there is an obvious intent to aggressively re-enter the U.S. market.

Further, in many sectors in which dumping has been a common problem -- steel, cement and various agricultural products -- dumping is virtually certain to recur.

Here, dumping is the result of a protected home market that keeps home market prices very high -- well above the open market price. In these cases, a foreign company wishing to enter the U.S. market must cut prices far below its protected home market price, the definition of dumping.

Sunset reviews were intended to eliminate unnecessary anti-dumping orders. Unfortunately, as they are now being implemented by the ITC they run a high risk of eliminating badly needed orders while leaving in place orders that are no longer needed.

This is exactly the opposite of the intent of the sunset reviews.

China's Debate's Legacy -- Unrealistic Expectations

Cecille Isidro — Fri, 12 May 2000 00:00:00 -0400

Particularly in an election year, no one should be too surprised that political debates in Congress and on the election trail contain a fair bit of exaggeration and gilding of the lily. But the rhetoric on permanent normal- trade-relations status for China, however, threatens to set a new high-water mark for fibs and misinformation.

Since the bulk of my criticisms here rebut claims made by the Clinton administration in favor of granting permanent NTR, I feel obligated to note two things at the outset.

First, provided sufficient measures are taken to ensure enforcement of the World Trade Organization accession agreement with China, I favor permanent NTR for China. Second, I am a lifelong Democrat who twice voted to elect William Clinton president of the United States.

Nevertheless, consider the following.

* Claim: The 1979 agreement that established trade relations between the United States and China obligates China to extend to the United States all the benefits of WTO membership even if the United States turns down permanent NTR.

Counter: On paper, the 1979 agreement does oblige both the United States and China to extend to each other most-favored-nation trade status, also known as permanent-normal-trade relations. But these commitments do not cover issues such as investment or services.

Further, neither side has taken this commitment seriously. After all, the 1979 agreement, read plainly, would also bar the United States from withdrawing MFN from China -- as critics of permanent NTR desire to do -- or the imposition of trade sanctions against China.

Under the scenario hypothesized by opponents of permanent NTR, it may be true that the United States could deter China from denying it benefits by threatening to withdraw benefits from China in retaliation. However, the 1979 agreement would be of little relevance in such a confrontation.

* Claim: WTO accession will reduce the U.S. trade imbalance with China.

Counter: Most credible economic estimates project that WTO membership for Beijing, with the resulting opening of the US textile and apparel market to China, will actually increase the size of the trade deficit, at least in the short term. Any projection of export gains depend upon China's compliance with the commitments it has made and a stable Chinese currency -- both of which are questionable assumptions.

* Claim: China has a good record of complying with past trade agreements.

Counter: This claim is a favorite of the Clinton administration and is usually supported by pointing to the 1992 and 1995 agreements on intellectual- property protection. But the claim overlooks the fact that the United States almost imposed sanctions on China on three occasions over Chinese tolerance of intellectual-property piracy.

Beyond that, US industry estimates are that intellectual-property piracy rates in China remain at more than 90 percent, and that total losses have actually risen since 1995. All in all, the intellectual-property agreements hardly provide evidence of Chinese trustworthiness with regard to trade agreements.

* Claim: WTO membership will bring the Internet to China and speed the arrival of democracy.

Counter: Just as was the case with the telegraph, the telephone and the fax machine, the Internet will likely become an important channel of communication in China. As anyone whose e-mail address has been publicized in China can attest, many wealthier Chinese, students and academics already have Internet access, and the poorer Chinese are unlikely to be able to afford it in the foreseeable future.

WTO membership will likely bring new Internet providers into China, but it will not arrest the penchant of Beijing's bureaucrats for blocking Internet sites they find offensive, screening e-mail, or otherwise seeking to control communication via the Internet.

* Claim: The United States gives up nothing to China in the WTO agreement.

Counter: This whopper would have everyone believe that the Chinese are foolish rubes who were taken to the cleaners by US trade negotiators. The United States did win many important concessions, but the Chinese also achieved their main objective -- a commitment to permanent, unconditional NTR access to the US market.

This access will not only allow China to build exports to the United States, it will also assist China in securing foreign investment. As a WTO member, China will also benefit in the short term from the phase-out of US restrictions on textile and apparel imports. The combined economic impact of just these two concessions could well outweigh all the benefits the United States secured for itself and other WTO members.

It now appears likely that Congress will approve permanent NTR for China. Even if that is the case, however, the unfortunate truth is that in the near future the trade deficit with China may well widen, China will most likely not keep all of its trade promises, U.S.-China relations will almost certainly remain tense, and the Internet will not revolutionize China.

In short, few of the expectations raised in the debate will be fulfilled.

If permanent NTR is approved, the next president -- whoever that may be -- will have the enormous task on his hands of reducing expectations for U.S.- China relations to a more realistic, achievable level. More than anyone else, he is likely to regret the excesses of the permanent NTR debate.

A New Age of Global Antitrust Considerations

Cecille Isidro — Fri, 05 May 2000 00:00:00 -0400

In the late 1980s and early 1990s, antitrust was widely seen as an antiquated topic, but things have changed dramatically in the last few years. Antitrust seems to be entering a new golden age.

The antitrust action against Microsoft is only the most visible sign of the revived interest. Europe's scrutiny of mergers and proposed mergers, including Boeing-McDonnell Douglas and MCI WorldCom-Sprint, indicate that the new trend is not confined to the United States.

One of the realities of globalization, however, is that markets are no longer constrained by national borders. The most important challenge facing U. S. antitrust advocates is adapting to the global economy a body of law that was designed primarily for dealing with a national economy.

Clearly, the realities of international competition have forced a fresh look at allowing increased collaboration between national companies to meet international competitive challenges. Sematech -- the research consortium among U.S. semiconductor companies (and originally the U.S. government) -- has demonstrated that there are important potential benefits to collaboration that should not be restricted by antitrust enforcement.

That said, it's undeniable that the country as a whole benefits from a diverse marketplace in which companies compete for customers on the basis of price and innovation.

Perhaps one of the most valuable things to be learned from the Microsoft case is that antitrust policy does seem to have a role to play in the ""new economy.''

The final resolution of the Microsoft case could easily be years away, and Microsoft certainly deserves the right to pursue all legal avenues reasonably available to it to defend itself.

Already, however, there are important lessons to be drawn from the litigation. Microsoft and its chairman, Bill Gates, have argued stridently that the old concepts of antitrust cannot be applied to the new economy of software and microchips.

This argument was initially appealing to many, including me. But it is striking how little Microsoft was able to produce to support this position. In fact, as the case unfolded it seemed that the parallels between Microsoft's actions and those of past trusts were too strong to be ignored.

Even more surprisingly, as the case enters its next phase it seems that many of the remedies employed in the past -- court-ordered breakups and limits on commercial behavior -- are, in fact, potentially viable in the new economy, just as they were in the old economy.

So antitrust is likely not as antiquated as it once appeared. Still, however, there are competitive realities that must be addressed.

Consider the recent merger of Boeing and the other remaining U.S. airframe manufacturer, McDonnell Douglas, which ultimately was approved by U.S. authorities.

Even though Boeing would still face intense international competition from Europe's Airbus, many were concerned that this merger would lead to troubling concentration in the production of large airliners.

Airbus, however, would not exist were it not for generous subsidies by European governments. Since the United States is not inclined to grant similar subsidies to Boeing, might it be appropriate to loosen antitrust scrutiny here? And in cases of other U.S. companies forced to compete with foreign governments as well as companies?

Beyond that, Europe's increasing interest in mergers involving major U.S. companies, like Boeing and MCI-WorldCom, raises other questions.

Europe has every right to promote a competitive marketplace in order to ensure low prices for its consumers. There is, however, a fine line between this type of legitimate action and measures designed to promote the interests of the European competitors of the U.S. targets of the EU actions. The latter, of course, is merely another type of protectionism.

Since so many of the world's largest companies -- General Electric, General Motors and Microsoft -- are U.S. companies, the United States must remain on guard to ensure that a global wave of antitrust actions does not become an excuse for a wave of anti-U.S. protectionism.

The day may not be far away when the United States must decide whether an antitrust action against Microsoft in Europe, Japan or elsewhere is a legitimate effort to follow a U.S. example, or merely an effort to boost a foreign Microsoft rival.

At some point, these issues will require an international agreement. Negotiations have already been proposed on an international antitrust agreement, but from a U.S. perspective they are likely to be long and difficult.

A diverse, competitive marketplace still remains very much in the best interest of the United States. The new competitive realities of the global market, however, make that goal harder to pursue than ever before.

An unfortunate truth, it seems to me, is that most other countries are more interested in building up national champions -- and perhaps tearing down U.S. national champions -- than building a competitive marketplace.

WTO Means More Than Trade for China

Cecille Isidro — Fri, 28 Apr 2000 00:00:00 -0400

The issues of granting China membership in the World Trade Organization and selling arms to Taiwan promise to generate many headlines over the next year. These issues, however, are linked in many ways that are not immediately apparent.

Assuming both China and Taiwan can join the global organization -- as both seek to do -- WTO membership could advance the cause of peace and stability in the Taiwan Straits as much as arms sales.

Although it has received limited attention, trade and investment are among the few bright spots in the Taiwan-China relationship. Despite the constant threat of conflict, economic ties have dramatically increased over the last decade.

According to Beijing's statistics, Taiwan is now China's fifth-largest trading partner. Since 1987, trade between mainland China and Taiwan has totaled almost $2 trillion; it grew at a 7 percent annual rate in 1999.

Investment has also undergone similar growth. According to statistics from Taiwan, businesses there have invested $14.4 billion spread over 22,000 projects in the mainland. Beijing's statistics put the level of completed investment even higher: $22.4 billion divided between 44,000 projects.

Despite the ongoing hostility, China is by far the leading market for Taiwanese investment, claiming more than 40 percent of Taiwan's total foreign investment.

This growth has not been unfettered. Direct trade between the two is generally prohibited, with most commerce passing first through Hong Kong.

Taipei has also screened Taiwanese investment in China. The current Taiwanese government has argued that too much trade and investment with the mainland could pose a security risk. The newly elected Taiwanese president, however, has indicated a willingness to explore liberalizing these restrictions.

This move to expand trade and investment could be boosted by another international development that both Taipei and Beijing are pursuing -- membership in the WTO.

China's high-profile campaign for WTO membership seems to be in its final stages. Taiwan's effort is even more advanced, with the necessary talks with WTO members essentially completed.

Acting through surrogates, however, China has attempted to hold up Taiwan's membership, at least until Beijing is admitted.

Assuming that China refrains from last-minute maneuvers to upset the apple cart, both China and Taiwan are likely to be admitted to the WTO this year.

Although either Beijing or Taipei could take formal reservations against the other to avoid complying with WTO provisions regarding the ""other China, '' WTO provisions would likely require liberalization of trade and economic ties over the Taiwan Straits. Most current restrictions on Taiwan-China trade and investment are incompatible with WTO requirements.

Thus, WTO membership could reinforce the move for liberalization already afoot in Taiwan and encourage the new Taiwanese president to lift existing restrictions. The almost certain result would be still more trade and investment between Beijing and Taipei.

Expanded economic ties are not a panacea for tensions between Taiwan and China. The relationship between Taipei and Beijing is complex, and maintaining peace will also require military and diplomatic steps and considerable ongoing U.S. involvement.

Mutual WTO membership and the expanded economic interaction that it is likely to bring, however, could be an important step toward comity. Already, trade and investment has created substantial business interests in Taiwan and Mainland China in favor of detente. Peace-minded leaders on both sides of the Taiwan Straits see economic ties as an important element of a lasting strategy to reduce tensions.

WTO membership itself also has an often-overlooked direct benefit in this connection. If both Taiwan and China were WTO members, the WTO could be a forum for direct communication on and adjudication of economic and trade disputes. The current virtual absence of direct ties often makes frank contact and negotiation difficult.

WTO membership would also provide Taiwan with something it has long sought, a forum in which Taipei and Beijing could deal as equals. Though again not a panacea, this would be a significant step forward for cross-straits relations.

A dispute between Taiwan and China is widely seen as the likeliest route to a new world war. There are, however, opportunities to reduce tensions and make conflict less likely.

If the United States is willing to exercise leadership within the WTO and Taiwan and China both behave responsibly, WTO membership for Taipei and Beijing could be secured this year. This would be just one step down the doubtlessly long and rocky road to peace, but it is nonetheless an important step in the right direction.

Mutual WTO membership for Taiwan and China and the expanded economic ties it is likely to bring represent an opportunity that should be grasped.

Putting the Globalization Process on Pause

Cecille Isidro — Mon, 24 Apr 2000 00:00:00 -0400

A wave of protesters attempting to disrupt the annual meetings of the World Bank and the International Monetary Fund was only the latest sign that the process of globalization has become immensely controversial.

Despite the many declarations of the inevitability and desirability of globalization, the actual process of globalization -- at least as measured through international institutions -- is likely to slow down or stop for the foreseeable future.

The last six months have been particularly rocky ones for the three main institutions of globalization: the World Trade Organization, the IMF and the World Bank.

The demonstrators who just turned their efforts toward disrupting IMF and World Bank meetings earlier this month had been more successful creating chaos in Seattle last December during a WTO summit.

More troubling to the institutions than either event, however, is that the protesters seem to have considerable public support in the United States and around the world. In the United States -- arguably the country that has benefited most from the process of globalization -- a majority of those polled expressed some sympathy with them.

And the problems are not confined to street theater. The Seattle WTO meeting also exposed significant schisms that divide the world's trading countries.

Critics can justifiably wonder just how committed the European Union and Japan are to new WTO negotiations; it seems the fear of additional agricultural liberalization, with accompanying political fallout from their farmers, has cooled both to the prospect of a major new WTO agreement.

Even larger difficulties are apparent between the developing world and the developed world. The developing world has increasingly come to see the WTO as an institution controlled by developed countries that often works to their detriment.

This argument seems strange because it is expanded global trade that has allowed countries such as South Korea to make enormous developmental progress. Whatever the facts, however, the perception is undeniably widely held. In the end, it was this breach between the developed and the developing world that truly brought talks in Seattle to an inconclusive close.

In the future, this developing-country attitude seems likely to grow more acute. The widely heralded addition of China to the WTO is likely to strengthen developing-country opposition to further trade liberalization.

China has long tried to claim the banner of leader of the developing world. In the context of the WTO, a boisterous China that opposes trade liberalization in areas ranging from protection of intellectual property to new rules on investment is likely to forcefully assume the leadership role it has sought.

In the next few years, the developed world, led by the United States and Europe, is likely to have its hands full merely resisting developing-country efforts to roll back WTO rules in many areas.

ncreasingly, the IMF and the World Bank are also under fire.

The protesters on Washington's streets were only the most visible opposition.

Critics from the right and left have castigated IMF policy for many years. An increasingly vocal group of economists and former government officials has called for its outright scrapping.

A U.S. government commission with the mandate of reviewing the operations of the IMF and the World Bank supported writing off debts to the poorest countries, but also called for a substantial curtailment of IMF operations. The United States is the largest contributor to both organizations, and its recommendations are likely to have an impact.

Both the WTO and the IMF have also been hamstrung by divisive battles over leadership. In part, these conflicts reflect the deep division between the developed world and the developing world. The World Bank could face a similar struggle.

It may well be that much of what is popularly called globalization is now beyond the reach of all governmental organizations. The actions of private actors, the global Internet and new technologies promise to further enhance trade and commerce around the globe. Even if they wanted to stop this progress, governments could likely do little.

Still, the WTO, the IMF and the World Bank have nurtured much of the process of globalization. But each of these institutions seems unlikely to play a leadership role in supporting and encouraging globalization in the near future.

This could well lead to a global pause in the process of economic globalization. Though it may sound ominous, such a pause may actually provide the world with a needed period of reflection. The pause may give street protesters, governments of developed and developing countries alike, and the international institutions themselves time to decide exactly what direction they want economic globalization to take in the 21st century.

It Only Seems As If the Steel Crisis is Over

Cecille Isidro — Fri, 14 Apr 2000 00:00:00 -0400

Just one year ago, the steel import crisis was the talk of Washington.

The House of Representatives had voted overwhelmingly to impose quotas on steel imports, and the Senate was preparing to vote on the same legislation. There was a definite atmosphere of urgency throughout Washington in responding to the crisis.

Now steel imports are down and U.S. steel companies are showing some signs of recovery. The atmosphere of urgency seems to have passed. Unfortunately, the underlying economic problems that triggered the steel crisis are still very much in evidence.

Perhaps the most dramatic evidence that the steel crisis has passed in the minds of Washington policy-makers is found in the recent actions of the administration and the International Trade Commission.

After urging steel wire rod producers to seek relief under a U.S. trade statute known as Section 201, the Clinton administration took five months longer than the law allowed to reach a decision on the case -- and then granted only limited relief.

For its part, the ITC also seems to have had an inexplicable change of heart. It voted unanimously to support anti-dumping cases on hot rolled steel when the quota legislation was pending. This year, a similar set of cases was being considered on cold-rolled steel; the ITC voted 5-1 to block anti- dumping actions.

In making its latest decision, the trade commission gave surprising weight to issues such as the 1998 General Motors strike as a cause for the steel industry's problems. The same issue was largely dismissed in their decisions on earlier cases.

The ITC also seemed to largely ignore a law passed by Congress to remedy past mistakes by the commission. The law directed the ITC to exclude internal transfers of cold rolled steel for further processing in examining the cold- rolled steel market. This seemingly small difference in practice appears to have had a critical impact upon the decision.

It is difficult to avoid the distinct impression that both the Clinton administration and the ITC are using recent decisions to balance support for the U.S. steel industry in 1998 and much of 1999. In administration officials' minds, at least, the steel crisis seems to be over.

In fact, although steel imports have trended down, the underlying problems that sparked the steel crisis are still very much in evidence.

In 1999, steel imports were down to about $15 billion from the peak of $19 billion in 1998. The 1999 import levels, however, were comparable to those at the beginning of the crisis in 1996 and 1997 and were considerably higher than any pre-crisis year.

For comparison, total steel imports in 1999 were up about 50 percent from 1993. The dollar figures also understate the actual impact of imports on the domestic industry since the volume of low-priced imports was still higher than the dollar figures would suggest. Little seems to have changed in 2000.

The sharp rise is all the more surprising since there is almost universal agreement that the U.S. steel industry is quite competitive and efficient by global standards. Certainly, the U.S. steel industry today is much more competitive than it was in the mid-1980s.

The real cause of the steel crisis was not lagging U.S. competitiveness, but economic crises in Asia and Russia and gross government interventions in the market in many other countries. The collapse of markets in Asia and Russia displaced much of the steel production in those countries into the United States.

Asia is showing signs of recovery, but the recovery is likely to continue for some time. And during that period Asian countries will be looking to exports, including steel exports, to finance the recovery. For its part, Japan is still showing signs of slipping back into recession, and the prospects for real economic recovery in Russia seem distant.

The long-term distortions in the industry are at least as serious as the short-term economic prospects. Collusion among Japanese steel companies still supports dumping in foreign markets.

Steel industries in countries from Europe to Latin America were built with heavy government subsidies that threaten to depress world prices for many years to come. Two of the new steel powers -- Russia and China -- sport large and increasingly export-oriented steel industries that were built and remain largely controlled by their governments.

In short, there simply is no global free market in steel. Even if the symptoms of the steel crisis have abated somewhat, the underlying problems remain and will continue to have an impact on the U.S. steel industry for years to come.

Those in Washington who wish to forget the steel crisis are sowing the seeds of still worse problems in the future.

Make Sure the Other China Gets in the WTO, Too

Cecille Isidro — Fri, 07 Apr 2000 00:00:00 -0400

It seems hardly a day can go by without a news item on China's campaign for World Trade Organization membership and the closely related issue of the United States extending it permanent normal-trade-relations status.

China has reportedly decided it is committed to gaining WTO membership this year -- regardless of a U.S. congressional vote on permanent NTR. Europe continues its own negotiations with China on WTO membership.

Generally absent from the public debate, however, is discussion of WTO membership for Taiwan, also known as the ""other China,'' which is likely to have a greater short-term impact on the U.S. economy.

Even many informed observers overlook the fact that Taiwan is a more important market for U.S. exports than China. Last year, Taiwan imported $19. 1 billion worth of goods from the United States; China imported only $13.1 billion.

Over the last two decades, Taiwan has consistently been a more important market for most U.S. industries, including those most aggressively advocating Beijing's WTO membership, than China.

The relative lack of attention to Taiwan's WTO membership in the United States is even more surprising since virtually all observers concede that Taiwan is likely to be a better WTO member than China.

In contrast to China's consistent record of shirking its commitments under trade agreements, Taiwan has aggressively negotiated meaningful commitments with all of its major trading partners and has a good record of fulfilling the trade promises it has made.

Taiwan forthrightly began the WTO negotiations by committing to accept the full set of obligations assumed by all developed countries. For its part, China has argued that its development status should exempt it from discipline.

Economic estimates of increases in exports are always debatable. Especially in light of China's compliance record and the constant prospect that China may devalue its currency, however, the chances are quite good that Taiwan's WTO membership will demonstrate a greater increase in U.S. exports than China's. This projection is particularly strong for the next 10 years.

In light of all this, it is perplexing that Taiwan's WTO membership has been a nearly invisible issue. This dearth of attention is all the more surprising because there is really only one reason why Taiwan is not now a WTO member: China does not want Taiwan to join the WTO before it does.

After World War II, China and Taiwan were at comparable levels of economic and political development. China has grown well for the last decade and a half, but Taiwan has surged past it. Taiwan is now a major trading power with a fully developed economy and democratic government; China is short of those marks.

Apparently believing that Taiwan's WTO membership would underline the differences between the two, China has fought Taiwan's membership through surrogates. The central problem is that Beijing believes that it should control Taiwan. Obviously, in practice it does not. But China usually fights tooth and nail against any measures, including membership for Taiwan in international negotiations, that seem to raise questions about the increasingly tenuous claim.

By spending diplomatic capital and acting through surrogate countries that are WTO members, China has managed to keep Taiwan -- which is widely seen around the world as an excellent candidate for WTO membership -- out of the WTO.

According to statements made by trade officials from a number of countries, China has agreed to let Taiwan join the WTO, once it has been allowed to join. Trade officials in many countries, including Taiwan, treat this as a firm agreement.

But Beijing's record on past promises should at least give all reason to wonder if China, upon achieving membership, might try some last-minute strategy to block Taiwan's membership. There has been, for example, speculation in the press that China might try to insist that Taiwan agree to a change in the name on its application.

To avoid this problem, Taiwan has sought membership in the WTO as a customs territory, not as an independent country. There are, however, limits on the degree that Taiwan would go to protect Beijing's illusions, and China could seek to use these to derail Taiwan's WTO application.

If there is any lesson to be drawn from experience on agreements with China -- unofficial and otherwise -- it is that there is ""many a slip between the cup and the lip.''

Assuming an adequate regime is in place to enforce China's compliance with the WTO, Beijing should be allowed to join the WTO. But U.S. trade officials and Congress should spare no effort to ensure that Taiwan, by far the better WTO candidate, is also allowed to join.

Is Europe an Economic Friend or Foe?

Cecille Isidro — Fri, 24 Mar 2000 00:00:00 -0500

Undeniably, there are deep social, cultural and economic ties between the United States and the European Union. In fact, most Americans are descended from immigrants who came from Europe.

In the economic realm, the United States and Europe are both commited to market economics and share most assumptions about economic and trade policy. The United States and the EU can fairly be called the leaders of the world economic and trading system. But despite this considerable basis for kinship and cooperation, the United States and Europe are drifting into serious international trade conflicts.

There are now 15 trade challenges pending against the United States at the World Trade Organization. Surprisingly, the European Union has brought -- either directly or in conjunction with other countries -- 11 of these challenges.

Sometimes statistics like this can be deceiving. But, in this case, the EU has also brought the most serious WTO complaints against the United States. Last fall, the EU successfully challenged a provision of the U.S. tax code known as the Foreign Sales Corporation provision. In brief, FSC provides some benefits for exporting companies that a WTO panel recently found -- at the behest of the EU -- to constitute subsidies.

This decision is particularly troubling because the FSC rule was established in large part to put U.S. exporting companies on an equal footing with European companies, which benefit from significant European tax rebates. There had reportedly been a ""gentleman's understanding'' between the United States and Europe to cease attacks on each other's tax laws. U.S. tax officials and corporations have expressed understandable consternation over Europe's decision to scrap the understanding and open what will likely be an extended battle over each other's tax laws.

In another important complaint, the EU has challenged the United States' practice of calculating subsidies in cases involving privatization. The EU and the WTO panel took the almost incomprehensible position that even if an industry was literally created by government subsidies, privatization had the effect of washing away the subsidy. How could a paper transaction such as an overnight sale wipe away subsidies on the very same plants and equipment that all agree were subsidized the previous day?

The EU's position on this issue is all the harder to explain because its own rules on subsidies both within the EU and with respect to imports do not assume that privatization extinguishes subsidies! For the United States, this is not a trivial matter -- 15 of the 26 U.S. countervailing (anti-subsidy) investigations brought and completed since the creation of the WTO involve privatization. Ultimately, the privatization ruling could tear a gaping hole in efforts to curb trade-distorting subsidies.

Unfortunately, countervailing duty laws are not the only U.S. trade law under European attack. U.S. anti-dumping laws -- Section 201 (temporary import relief), Section 301 (unfair trade practices), and Section 337 (intellectual property protection) -- have all been the subject of EU complaints to the WTO. The EU also joined with Japan and other countries to try to reopen WTO negotiations on anti-dumping laws. Europe took this step even though the current WTO rules are not fully implemented and the EU actually employs anti- dumping laws more aggressively than does the United States.

Some argue that this was entirely a political move by the EU. Because of the resistance of French farmers, the EU did not want a new round of WTO talks. Threatening to reopen anti-dumping laws -- a step the United States simply could not take in the wake of the steel import crisis -- provided a convenient opportunity to stymie the talks and put the blame on the United States. Ironically, the likely result of the effort to undermine U.S. trade laws, which are legitimate WTO legal measures to address trade problems, is exactly what the EU and other countries should not want: a decrease in support for the WTO and free trade in the United States and a likely accompanying rise in protection.

Some Europeans point out that the United States has brought needless complaints against the EU on bananas and meat from animals treated with growth hormones. The United States may well have erred by needlessly pressing the so-called banana case. The hormone case is, however, legitimate. Although it is a difficult issue, there is nothing duplicitous or contradictory about the United States raising this matter before the WTO.

Whatever the cause, the United States and the EU would do well to de- escalate this growing conflict. Both should consider dropping some of their peripheral complaints and suspending further action on others. These matters are likely to prove much easier to resolve in an atmosphere of cooperation than in one of confrontation.

Stop Tiptoeing Around and Celebrate Taiwan

Cecille Isidro — Fri, 17 Mar 2000 00:00:00 -0500

Taiwan holds its national election for president Saturday. Although this should be heralded as one of the greatest U.S. foreign-policy victories in the post-Cold War world, it has as yet attracted relatively little attention in the United States.

Far more attention has focused on China's provocative threats to use its military force against Taiwan unless the fledgling democracy begins negotiating seriously to "reunify" with the totalitarian power

The combination of the increasing military threat and the success of Taiwanese democracy make this the ideal time for the United States to consider what it can do to best nurture democracy in Taipei. Steps can and should be taken on three fronts.

Security. Almost since its inception, Taiwan's security has been guaranteed by the United States. Were it not for the U.S. security commitment to the island of 22 million, the neighboring mainland giant would likely have absorbed it through force or intimidation at some point in the last half century.

China's deployment of new ships and missiles, which seem aimed at threatening Taipei, coupled with recent statements regarding forceful reunification, demonstrate that the security threat continues.

The United States has supplied Taiwan with most of its weaponry, but it has committed to reducing these sales. U.S. presidents have also taken an increasingly ambiguous posture on the U.S. security commitment.

Even though clear commitments have helped guarantee peace in Europe and elsewhere in Asia, a tortured reasoning is frequently advanced that this ambiguity is somehow uniquely appropriate with regard to Taiwan.

In fact, this is simply double talk. In the South China Sea as in the rest of the world, the risk of miscalculation -- which could easily lead to war -- rises with ambiguity, not clarity. Especially in light of China's recent weapons acquisitions, the United States should sell critical naval, early warning and anti-missile systems to Taiwan.

It should also clearly state its commitment to preventing the use of force by Beijing against Taiwan. The Taiwan Security Enhancement Act, which is pending in Congress, would accomplish these objectives. And, despite the administration's veto threats, it should be a priority for this congressional session.

Democracy. Because official exchanges between Taiwan and the United States offend Beijing, the U.S. government has limited contact with Taipei. The United States is, however, the world's best teacher on how to build a functioning democracy.

The U.S. Congress, courts, executive branch and both political parties should undertake to expand official contacts with their counterparts in Taiwan in an effort to further democracy there. U.S. non-profit groups could also play a useful role by fostering similar though unofficial exchanges.

Economics. In Taiwan and elsewhere, a strong economy has been an important precondition to the success of liberal reforms. Without question, Taiwan's economic success has paved the way for much of its current democratic reform.

The United States now has an opportunity to foster this economic success in a way that directly benefits the United States.

Much discussion is devoted to China's effort to gain membership in the World Trade Organization, but many may be unaware that Taiwan is also seeking WTO membership. Taiwan's application is, however, more advanced than China's.

Taiwan has agreed to accept all WTO disciplines and has completed bilateral negotiations with its important trading partners. In fact, Taiwan would long ago have been granted WTO membership were it not for objections made by China through surrogates.

WTO membership not only would help Taiwan secure trade opportunities and investment, but it also would be a major boon to the United States. Taiwan already imports more from the United States than China. The tariff and trade concessions that Taiwan has agreed to in return for WTO membership would likely expand U.S. exports to the island by several billion dollars annually.

If an enforcement regime can be put in place, China should be allowed to enter the WTO. But the case for Taiwan's' membership -- both from the perspective of the WTO and from that of the U.S. economy -- is much stronger. The United States should use its considerable influence in the WTO to override objections from China or any other country and ensure that Taiwan is allowed to take its place in the WTO.

It is time to stop worrying about offending Beijing and truly celebrate the victory of democracy in Taiwan. Taiwan's transition demonstrates that U.S. foreign policy can succeed.

Rather than watching quietly, it is time for the United States to publicly embrace the success of democracy in Taiwan and take the military, diplomatic and economic steps necessary to ensure that the progress is made permanent.