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China's Entry Into WTO Is Questioned By Former Chief U.S. Trade Negotiator
By Richard McCormack richard@manufacturingnews.com
The chief U.S. trade negotiator who paved the way for China's entry into the World Trade Organization says the deal has not worked to the benefit of the United States.
Now that he is retired, Robert Cassidy, former assistant United States Trade Representative for China, says he is compelled to speak his mind in expressing misgivings over how the federal government failed to stop China from gaming the global trading system. In voicing his disapproval "essentially what I felt I was doing was going against conventional wisdom," he says. "And conventional wisdom says that free trade is good, and my argument is that, well, if that's the case, why hasn't it been good?"
Cassidy originally expressed his concerns in an article published by Foreign Policy in Focus. An editorial under his byline entitled "Failed Expectations in U.S. Trade Policy" was later published in Asia Times. In it he said: "The benefits of the agreement with China fell into two groups: multinational companies that moved to China and the financial institutions that financed those investments, trade flows and deficits...Conversely it is doubtful that the U.S. economy or its workers are better off....Is there any wonder that the people on Main Street think that trade agreements do not work?"
When he was the lead negotiator for the U.S.- China 1999 Market Access Agreement, Cassidy assumed that China's entry into the WTO would subject it to international laws governing trade. There were predictions that trade with China would increase U.S. exports and American jobs; that the trade deficit with China would improve; and that the industry-specific "421" safeguard mechanism would be administered by the next president. Those safeguards were intended to hold China's government accountable for unfair advantages and subsidies it provided Chinese producers.
But Cassidy never imagined that China would manipulate its currency in a manner that has radically distorted trade between the two nations; nor did he predict that the Bush administration would never enforce the "421" safeguard. In the meantime, China's unfair trade practices and U.S. multinational corporations' support of them have inflicted heavy damage on the U.S. economy. The trade deficit with China has doubled every five years. "I have looked at the statistics and I just question: What is happening and why did this occur?" Cassidy asks. "This is a huge problem. I don't think anybody expected what happened to happen."
The deal with China is a reflection of a much deeper problem with U.S. trade policy which boils down to the fact that the United States government does not have a coherent economic strategy. As such, the United States Trade Representative "has become more like an adjunct to the State Department, negotiating trade agreements with countries for political reasons," says Cassidy. Moreover, U.S. policy regarding currency exchange resides solely in the hands of the Treasury Department -- no other federal agency can touch it -- even though exchange rates have a direct bearing on the health of the U.S. economy.
"You really can't have a pro-trade agenda without having a very strong monetary policy and an internationally balanced exchange rate," says Cassidy. "There has to be a much more rational economic policy because there are too many imbalances" caused by a trading regime that has discredited U.S economic interests. "The next administration needs to get back to the basic principle of a national economic council that is not led by Treasury but is an integration of the economic agencies, and keep the State Department out of it."
A new trade agenda has to be adopted that is based on market principles that extend beyond tariffs to include currency, rebated value added taxes and non-tariff barriers that affect international trade and distribution. It would also accommodate differences in environmental and labor standards.
Cassidy would stop the implementation of all free trade agreements until the International Monetary Fund or the WTO creates a mechanism to deal with countries that manipulate their exchange rates. Cassidy would also renegotiate the trade pact with Korea to include concrete steps to remove Korean government industry technical standards in areas such as telecommunications that are being used as barriers to effectively impede U.S. imports. If no agreement is reached on standards, then the trade agreement for specific industrial sectors would be terminated, "so that there's a provision that will drop you back to MFN rules as opposed to the FTA rules," Cassidy explains.
Even Canada is exploiting the system against U.S. companies by placing restrictive technical standards on U.S. imports, and it has to stop, says Cassidy. An example is the requirement that all automobiles sold in Canada have their headlights on at all times. "The problem is that each one of these standards represents a cost to U.S. producers for what are relatively small markets compared to the U.S. market," Cassidy explains. "The U.S. has been eliminating regulations and restrictions since the Reagan era started while other countries have been maintaining theirs as a barrier against the United States. Well, now they've won," says Cassidy.
Americans know that there is something fundamentally wrong with the current trade regime. "Have you read the book 'Blink'?" Cassidy asks. One of the arguments made in the book by author Malcolm Gladwell is that the subconscious mind is more efficient than the conscious mind at making decisions. When faced with an important decision, it is good to sleep on it, take a run or a shower, in order to allow the subconscious mind to work, Cassidy explains. "This is the psychology involved in the general public's perception of trade."
Cassidy has heard corporate CEOs and government defenders of the current free trade policy arguing that the problem is the public is misinformed; that it doesn't understand the benefits of trade; and that the corporate world along with government officials need to do a better job of educating the public on the benefits of free trade.
None of that will work, says Cassidy, because the public in its subconscious mind knows exactly what it is seeing: boarded up cities and devastated communities, declining wages, a lower quality of life, and a global economic and financial system that favors only those with a lot of money and is now in need a massive taxpayer funded bailouts.
The book -- 'Blink, The Power of Thinking Without Thinking' -- "says forget about trying to educate Americans. It doesn't make any difference what the economists say or the corporate officials say, or what [USTR] Susan Schwab says," says Cassidy. "Nobody believes their numbers. Americans know in their subconscious what the impact of free trade is on them. They know trade agreements fundamentally do not work. I hope I can help cause a reexamination of the whole trade agenda to challenge the idea that free trade is good."
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