Trading in our sovereignty?

REPUBLICAN support provided the narrow margin of victory last fall for the North American Free Trade Agreement. Most observers predicted that Congress would have less difficulty endorsing the Uruguay Round of GATT, since it is a much less ambitious (though more general) mechanism for extending free trade. But it is now facing unexpected resistance. Still more surprisingly, conservatives are among the most vocal skeptics. Why?

Since its tentative beginnings in 1947, the General Agreement on Tariffs and Trade (GATT) has evolved through successive trade-liberalization agreements (or "rounds," usually named after the conference sites where they were initiated). The latest agreement proposes to supersede the ramshackle machinery of GATT with a stronger, more orderly successor called the World Trade Organization.

Anything called a "world organization" raises hackles in some quarters, especially when liberals promise to link the "organization" to their broader "social concerns." House Republican Whip Newt Gingrich voiced such qualms succinctly: "I am for world trade but I am against world government."

Pat Buchanan expressed the point more belligerently: "The glittering bribe the globalists are extending to us is this: enhanced access to global markets--in exchange for our national sovereignty."

In fact, the Left has more reason to be fearful of trade liberalization, since enhanced international competition will undermine a whole range of controls that governments impose on their own economies. It fosters, in effect, a market in governments, allowing business to move from countries with burdensome constraints to those with more hospitable economic policies. That is why labor unions opposed NAFTA last year and why organizations like Ralph Nader's Trade Watch oppose the current Uruguay Round agreement. Similarly, expanded world trade--and strengthened policing powers for the WTO--should curb the ability of environmentalists to use trade sanctions as a club to force American environmental fads upon struggling nations in the developing world. Hence, Greenpeace is among the loudest opponents of the new GATT agreement.

Moving quickly to placate such critics, the Clinton Administration has joined a number of other governments in urging that the WTO should incorporate labor and environmental standards in subsequent trade norms. (There is almost nothing of the sort in the current agreement.) The Administration's proposals here parallel the tactic it pursued in the NAFTA debate, where Clinton arranged for the negotiation of ambiguous environmental and labor "side accords" in an effort (at least partly successful) to buy support from NAFTA critics on the Left. Of course, the Administration's proposals for the future direction of the WTO also are in keeping with its general confidence in the capacity of government to guide and "balance" economic development.

Champions of free trade, while warning against such manipulations of the WTO into the future, have been quick to endorse the general concept of the new trade organization. Economic analysts at both the American Enterprise Institute and the Heritage Foundation have applauded the agreement for bringing "the rule of law" to international trade. A paper recently circulated by the Heritage Foundation responds to concerns about American "sovereignty" by insisting that the WTO will "expand the sovereignty of American citizens" by reducing trade restrictions on the free choices available to businessmen and consumers.

This is too glib. There are, in general, good reasons for conservatives to worry about "sovereignty" in the old-fashioned sense of national self-determination. As Pat Buchanan senses, most Americans would probably be willing to sacrifice a significant portion of future growth if the alternative were to sacrifice a significant degree of national independence. Consumer sovereignty is all very well, but it is not something we will send our sons out to die for. And it is natural enough that historical conservative anxieties about "world government" have been reawakened by an Administration where the Secretary of State and even the Secretary of Defense have sometimes seemed to be taking their cues from the Secretary General of the United Nations.

But the notion that the WTO will threaten American sovereignty is more than doubtful. Individual governments have always had the power to try to force significant American trade concessions by imposing trade barriers of their own on imports from America. As the world's largest trading nation, it is clearly in our interest to regularize this system of tit-for-tat bargaining and reciprocal inducement.

GATT has long sponsored a system for resolving trade disputes between particular countries through arbitration panels, made up of internationally recognized trade experts. But the panel rulings were not formally binding, and if the party refused to accept the panel's conclusions, the other nation was essentially left to threaten--or impose--whatever retaliatory trade sanctions it judged best.

NAFTA established a similiar system of dispute resolution through arbitration panels but made the panel findings legally binding in the domestic law of each member nation. For the first time, American courts will be bound, under NAFTA, to enforce the decision of an international (or more often, binational) ruling against American trade officials.

The WTO is much more modest. It is not authorized to impose any additional sanction beyond that which individual nations, asserting their own grievances, may seek to impose. The WTO cannot organize an international trade embargo to punish recalcitrant states. And as the world's largest single importer as well as exporter, the United States is hardly a feasible target for such a global sanction in any case.

The effect of the new dispute-settlement machinery in the WTO will be to contain and clarify the consequences of refusing to comply. We may still refuse to comply with a panel judgment (as we have on occasion done in the past) and simply accept the complaining country's retaliatory measures as a tolerable price for continuing a particular disputed trade practice. Under the new system, the retaliatory response should, in fact, be more reliably confined by formalized norms of issue-linkage and proportionality.

The WTO will have no army to enforce its rulings. The agreement does not even pretend to be irreversible. It expressly allows any member state to withdraw on six months' notice and provides no means to enforce even that limited restriction on exiting. The WTO is not, in fact, a very dramatic departure from existing trade practices. It is a much less significant change than NAFTA was.

One at a Time, Please

WHILE the enhanced dispute-settlement powers of the WTO appear to be entirely unexceptionable, the new "legislative" powers--as they might be called--raise more valid concerns. But not to any great extent. Until now, international trade concessions have been negotiated in giant packages in successive GATT rounds, where governments committed themselves to accepting the entire package at one stroke. The new agreement may end this practice by authorizing the WTO to adopt "amendments" to the current agreement, one at a time. By this route, critics fear, governments that buy into the agreement for the sake of lower barriers may find the package has been amended to include labor and environmental standards that actually restrict trade. In contrast to the World Bank and the International Monetary Fund, where voting is weighted by the scale of contributions (so that the U.S. has always had a dominant voice), the WTO may adopt amendments on a one-nation/one-vote basis. In principle, then, as Newt Gingrich says, the U.S. will have "no more weight than Bangladesh."

Here, too, the changes sound more dramatic than they are. The rules of procedure for the new WTO require a two-thirds vote before any further "amendment" can go into effect. Even then the amendment will bind only those nations that agree specifically to be bound by it. To force universal compliance, a three-quarters vote would be necessary, and the sanction for enforcing universal compliance is itself left unclear, beyond the specified possibility of expelling a member state (which still would not force any of the remaining members to impose different trade terms on the expelled nation). So, in practice, the U.S. is very likely to be able to opt out of any new rules it does not like.

In practical terms, moreover, the WTO is not likely to get very far in trying to develop a labor or environmental agenda even for willing nations. Under the GATT rounds, holdouts could be induced to swallow liberalization measures they did not like, in return for other concessions in the same package. The WTO, taking up "amendments" one at a time, will have much more difficulty adopting controversial measures. An ambitious environmental or labor agenda is sure to be very controversial.

Many conservatives associate pretentious international pronouncements on "social concerns" with the Third World. But on trade matters, most poor countries are fiercely opposed to the imposition of international standards that would restrain their own trade. When the U.S. proposed that the WTO take up labor standards, a hundred thousand people rioted in New Delhi to protest the threat of Western interference in India's economic affairs.

The real pressure to complicate international trade issues with environmental and labor standards comes precisely from developed nations (especially in Western Europe: France was particularly effusive in its endorsement of the Clinton proposals). It is the developed nations that fear competition from less developed countries with laxer regulatory or labor standards.

Of course, if an American Administration wants to pursue such policies at the WTO on a large scale, it will find interested partners. But NAFTA is already a much more inviting forum for such ventures, given its smaller scale and its lop-sided linking of two rich nations with one poor nation. With more than 120 members in the WTO, champions of international social regulation are most unlikely to be able to secure a two-thirds majority for their schemes (much less secure a three-quarters majority to impose universal compliance). In practice, the WTO promises to discipline this temptation far more than it would extend or encourage it.

Still, conservatives might want to allay concerns about sovereignty by adding a provision to our GATT legislation which clearly confirms that no WTO rulings or standards will take effect in U.S. domestic law without independent action by Washington. There is surely no harm in pinning down this understanding. It might also be worth while to stipulate that the President or the U.S. Trade Representative make regular reports to Congress clarifying the U.S. negotiating stance toward new standards under consideration at WTO--a useful check on bureaucratic momentum and secret diplomacy.

But a breakdown of world trade--which is what the rejection of the WTO at this stage might mean--would be a disaster for the world. The experience of the 1930s, the last time the trading system broke down completely, might remind us that conservatives do not derive even tactical advantage from general disasters.