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The limits to openness

The latest Trade Policy Review (TPR) of the United States, carried out by the World Trade Organisation (WTO) in late March, shows how the largest economy and one of the most open markets in the world, is itself not immune to pressures and resistance to free and fair trade. This is a result of conflict between the use of trade instruments as a tool of foreign policy and requirements of fair trade as also between the political imperatives of the nation state to pay heed to different interests. According to the review, the U.S. has recorded "solid" economic growth since its last review in 2004, and also remained a "key engine of global growth" by keeping its markets open. This, it notes, also helped the U.S. contain domestic inflation. However, the WTO stresses that "it is important to maintain the openness by pre-empting possible protectionist sentiment." It is obvious that protectionism could emerge as a dominant sentiment only if the openness of the U.S. economy is not perceived as a threat to employment. The review apparently has this aspect in mind when it says that resistance to protectionism might "require effort in the U.S., including through a reduction in public absorption, and in the rest of the world through increased spending." Nearly 38 per cent of all tariff items entered the U.S. duty-free in 2004 and the average MFN (most favoured nation) tariff was just four per cent. However, the average MFN tariff on agricultural products was 9.7 per cent, while tobacco, peanuts, footwear and a few other farm products enjoyed a tariff protection ranging from 50 per cent to 350 per cent. Payments to U.S. agricultural producers as a share of net farm income continued, though at a lower level of 16 per cent in 2004 compared to 48 per cent in 2000. The U.S. also failed to comply with some rulings of the WTO dispute settlement mechanism.

The U.S. has accorded MFN treatment to all member-nations of the WTO, except one, Cuba, though MFN status is the right of all members of the global organisation. What is more, the U.S. has concluded a total of 15 bilateral and regional free trade agreements (FTAs) — 12 of them in the past two years — and is negotiating many more. Several of the FTA partners and potential partners of the U.S. can hardly be called democracies or upholders of human rights. Though the U.S. investment regime has been open and non-discriminatory vis-à-vis foreigners, it maintains FDI restrictions on coastal shipping, domestic aviation, and financial services. The Exon-Florio Amendment is still in force and this can be used to thwart, in the name of U.S. national security, attempts at takeover of U.S. enterprises by foreign investors or mount pressures to widen the present FDI restrictions. With the President's trade negotiating authority set to expire in July 2007, a major responsibility rests with the U.S. in ensuring the success of the Doha round of the WTO by adopting an equitable approach to the negotiations.

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