Free Trade

Unruly Options

Why arguments for unilateral free trade don't work

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One month before the Clinton administration declared victory in the auto wars, U.S. Trade Representative Mickey Kantor had already opened another front in the perpetual campaign against Japan: the battle between film makers Kodak and Fuji. Kodak says Fuji and the Japanese government have colluded to keep Kodak out of the Japanese market–closing off access to wholesale distributors, offering discounts to retailers that offer only Fuji film, buying up film-processing facilities. Business Week called Kodak's case against Fuji "promising." "Kodak has a much clearer case than the U.S. automakers did," said Time. "Many trade pros think [Kodak's] case is far stronger," agreed Newsweek.

Fuji has countered with a credible case that, here in the United States, Kodak engages in many of the same "noncompetitive" practices it accuses Fuji of perpetrating in Japan. And as one attorney representing Fuji told me, "This is a classic example of two huge companies beating the shit out of each other in markets all over the world–to the benefit of consumers."

The attorney's argument is absolutely correct. And it has no chance of prevailing in the current political environment. The debate, after all, pits a corporation based in notoriously protectionist Japan against one headquartered in the more-or-less free-trading United States. With such visible players haggling over access to a common consumer product, the big picture–micromanaging film sales would hurt consumers–can become obscured.

That's why free traders might want to reconsider the argument, made most recently here in February ("No Deals," by Brian Doherty), that the United States should bypass such multilateral pacts as the North American Free Trade Agreement and the General Agreement on Tariffs and Trade and set trade policy unilaterally. After all, the Clinton administration is in fact bypassing GATT now–and the results haven't enhanced free trade. Negotiating ponderous, flawed treaties may not be the best way to open markets, but right now, it's the only game in town.

Since the days of Adam Smith, free traders have argued that an unimpeded flow of goods and services benefits the individual consumer because competitive pressures will force entrepreneurs to offer the best products at the lowest possible price. These "classical" arguments remain true. But in today's political marketplace, they aren't enough. Understanding trade policy requires a different economic calculus: public choice.

Public-choice pioneers James Buchanan and Gordon Tullock explained that when the people who benefit from a public policy are visible and organized–say, the stockholders and employees of Kodak–and those harmed by the policy are dispersed and disorganized–millions of film buyers–concentrated political interests will tend to trump the public good. Mickey Kantor's tenure as trade representative exemplifies this approach.

In a June 25 Washington Times op-ed, Kantor spelled out his goals for U.S.-Japan trade policy: "creat[ing] a balanced trade relationship with Japan." Kantor touted the "14 market-opening agreements [we have concluded with Japan] in areas including telecommunications, flat glass, insurance and medical technology." Kantor, who has called these agreements "WTO-plus," writes, "The stubborn refusal of Japanese negotiators to open their markets is the crux of the problem–not abstract concerns about free trade, or U.S. 'bullying,' or the intricacies of international trade rules." Kantor suggests that he plans to negotiate more narrowly targeted agreements, no doubt preceded by plenty of bluster and acrimony.

Unilateralists in both parties want to formulate trade policy, but the Republicans appear no more interested in reducing barriers than their Democratic counterparts. With remarkable insensitivity to car buyers and dealers, Newt Gingrich has suggested treating the stubborn Japanese as the French would: Require every Japanese car entering the United States to be inspected at a single port, say, Seattle, manned by only seven inspectors, half of whom are on vacation at any given time. Presidential front-runner Bob Dole is a legendary deal maker whose long-standing closeness to Dwayne Andreas, CEO of agribusiness giant Archer Daniels Midland, isn't encouraging. And if the populist right continues to demand concessions from Dole before giving him its support, what might Pat Buchanan, whose campaign is underwritten by archprotectionist textile magnate Roger Milliken, demand?

"Rules-based" trade deals like GATT and NAFTA are riddled with loopholes, take years to complete, and require armies of lawyers and bureaucrats to implement. But these pacts attempt to limit rogue actors like Kantor and Gingrich. They allow developing nations–who want to sell to world markets–to act as surrogates for the diffuse interests of American consumers. And the completion of one agreement establishes momentum for wider negotiations that can help more barriers fall.

Multilateral treaties may not offer the ideal path to free trade. But at least they reduce the influence of deal makers and shakedown artists.