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Wednesday, July 14, 1999 Published at 13:10 GMT 14:10 UK

Business: The Economy

The US arsenal of trade weapons

Trade has become the subject of increasingly bitter disputes

In the annals of trade wars, it is the United States which boasts the most formidable weapons.

The most recent, high profile cases - including beef and bananas - have involved trade sanctions authorised by the international body that supervises world trade, the World Trade Organisation (WTO).

World trade wars
To the fury of its trading partners, the United States has also taken unilateral action to ban imports - most recently, of Japanese steel.

But the most potent weapon in the US arsenal is 'Super 301', a provision of the 1974 Trade Act that authorises the investigation, not just of particular goods, but of the trading practices of an entire country.

Designed to be used against Japan, the provisions of the act were suspended, when the US joined the WTO.

But the recent re-activation of Super 301 by President Clinton, in the context of growing trade tensions, has infuriated trade partners of the US, including the European Union.

In their view, Super 301 allows the US government to act as both judge and jury in trade cases.

Huge penalties

"Super 301" is the portion of the US Trade Act that gives power to the US Trade Representative to investigate countries to see if they grant fair and open access to US exporters.

[ image: The US has sought to protect  its domestic steel industry]
The US has sought to protect its domestic steel industry
Countries which fail the investigation are potentially subject to huge penalties.

Under its terms, 'priority foreign country practices' are to be identified whose elimination are 'likely to have the most significant potential to increase United States exports, either directly or through the establishment of a beneficial precedent.'

The US scrutiny of other countries' trade practices range from the significant to the absurd.

For example, it is investigating why Canada, its largest trading partner, does not allow US tourists to keep fish caught on lakes which straddle the border, unless they spend a night in a motel in Canada.

More serious is the investigation of the steel industry, after the strong dollar allowed producers from Brazil, Japan and Russia to capture a large share of the US market.

Growing domestic pressure

The re-activation of Super 301 by the Clinton Administration at the end of March this year was a response to the growing protectionist pressures in the Congress.

As the US trade deficit has mounted, an unholy alliance between the left wing of the Democrat Party, and the right wing of the Republicans has been pushing for more aggressive action against the major exporters to the USA, charging them with unfair trade practices.

The power of the protectionist lobby has increased as the presidential election looms on the horizon, and the political power of President Clinton wanes.

Last year Mr Clinton failed in his attempt to gain 'fast-track' negotiating authority to help ease negotiations for a new trade round.

That will make future trade liberalisation much more difficult, as Congress will be able to approve or reject individual proposals even after they have been agreed in global negotiations.

And in April, the Clinton Administration failed to reach a trade deal with China that could clear the way for its admission to the World Trade Organisation.

Most recently, though, it managed to narrowly beat back an attempt in Congress to impose tough new steel import quotas.

Contradictory history

The United States has been seen as the country that most strongly advocates the development of free trade.

But it also has a history of acting unilaterally to protect its own interests, creating the world's highest tariff barriers in the 1930s to protect its industry during the Depression.

The isolationist impulse was strong enough to block the formation of an International Trade Organisation in 1948.

During the past two decades, even as the US finally sponsored the creation of the World Trade Organisation to arbitrate trade disputes, Congress also passed legislation which gave more powers for unilateral retaliation.

During the 1980s, concern about Japan was at its height, and there were fears that American industry - especially electronics and autos - would be overwhelmed by imported goods.

Despite the decline of those fears, the trade legislation it engendered still lives on.

And although the US was the main protagonist in giving the World Trade Organisation increased powers of dispute settlement, there is still a reluctance - particularly by Congress - to have US laws scrutinised by an outside body.

While that tension remains, the threat of US unilateral action is unlikely to go away.

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