Fighting Off the Aussie Lambs HEY, HEY, HO, HO, U.S. PROTECTIONISM'S GOT TO GO
By Cait Murphy

(FORTUNE Magazine) – Okay, so free trade took a battering in Seattle--for heaven's sake, even the teddy bear statue outside F.A.O. Schwarz got trashed. Still, the world is unlikely to stop buying and selling just because a bunch of scruffy Luddites blocked traffic and recited really bad protest chants ("Hey, hey, ho, ho, WTO has got to go.") The protesters were wrong about most things, but they were right, albeit for the wrong reasons, on two points: Poor countries can be hurt by the way trade is conducted. And the U.S. can be part of the problem. The solution, though, is not less trade, but more. (For more on this, see Rob Norton's column, "Not So Fast," which debuts in this issue.)

Take agriculture. World farm tariffs run ten times as high as those on other goods and services. By these standards, America looks pretty good. Its farm protection programs cover a much smaller portion of agricultural production (16%) than Europe's (42%) or Japan's (69%). Still, some sharp contradictions remain.

There is, for example, the lamb issue. In February, American producers pleaded for relief from lamb imports. No one alleged that Australian and New Zealand importers were being unfair, just that they were successful. Therefore, they should be punished. President Clinton agreed, capping imports for the next three years and sharply increasing tariffs.

Or take sugar--please. Through a system of loan guarantees, price supports, and import controls, in most years American consumers pay double the world price for their sweet tooth. (Europe does much the same, but worse.) These arcane rules keep out cheaper sugar from places like the Caribbean, Africa, and India. "Isn't it ironic," asks Samir Somaiya, an Indian who came to Seattle to argue for agricultural liberalization, "that Europe is the most uncompetitive producer of sugar, and also one of the biggest exporters?" Well, yes. And the U.S. is little better.

Other agricultural follies abound. Peanut imports are allowed only when domestic production falls short. Producers in places like West Africa are therefore shut out. Grain, cotton, dairy, and tobacco farmers all have lobbies that keep them insulated from normal market pressures. Farmers in poor countries "shouldn't have to compete against state-owned enterprises, restrictive regulations, or the size of other countries' government grants," President Clinton told the WTO delegates. How true.

The same gap between theory and practice is gapingly obvious in textiles. America's textile policy is so complicated that the EU has charged that just filling out the customs form constitutes a trade barrier. But the bottom line is simple: Textiles are not freely traded goods. Import controls are being reduced, thanks to the WTO. But how is it right for history's richest country, basking in an economic expansion, to impose quotas on places like Bangladesh, Guatemala, and Romania?

It is ironic, and shameful, that the two most distorted and protected industries--food and textiles--are those in which poor countries are most likely to have comparative advantage. And that's not all. Though the U.S. is a largely open market, there are other trade-unfriendly practices--antidumping regulations, for example--that punish foreign firms for behavior that is unexceptional when done at home. Or rules that require goods being shipped between two U.S. points to travel on American vessels. Or the various "Buy America" requirements that shut out competition. President Clinton makes a strong case that free trade brings prosperity. The argument would be immeasurably stronger if the U.S. did more to practice it.

--Cait Murphy