It is not enough that the "Buy American"
clauses in the stimulus legislation are now tagged with a requirement
to conform to World Trade Organization rules. Our trading partners can
still retaliate, in a WTO-consistent way that will further damage the
world economy. Despite protectionism rearing its ugly
head from time to time during the campaign, Barack Obama has been
mostly silent on trade issues. This was a disappointment for many of us
who are supporters of free trade. We were reassured when he finally
argued--and the Senate agreed--that the buy-America provisions in the
stimulus package bill must be consistent with World Trade Organization
rules. But more needs to be said, and done. First, having the buy-America provisions stay in, even with the
W.T.O.-consistency qualifier, is much less satisfactory than what
Senator John McCain suggested, which was to take them out altogether.
The truth is that lobbyists can spend vast amounts of money challenging
the qualifier, leaving protectionism alive and well. Second, the notion that even an effective W.T.O.-consistency
qualifier in our procurements will soothe other nations and prevent
trade retaliations and trade wars is naive. Contrary to what others
believe, countries like Brazil, China and India, which have not signed
the W.T.O.'s 1995 agreement on governmental procurement and, therefore,
do not enjoy those rights to our procurement purchases, will retaliate.
They can raise many current tariffs also in a "W.T.O.-consistent" way.
(Remember that China and India have large public sectors.) They can
easily shift their purchases of aircraft, nuclear reactors and other
high-value goods from us to Europe and Japan. We would then retaliate,
prompting retaliations by the others: all in a W.T.O.-consistent
fashion. Indeed, President Obama would find himself in a
W.T.O.-consistent trade war. The A.F.L.-C.I.O. argues that the Europeans, for their part, protect
certain domestic sectors in their government procurement decisions, so
it is O.K. for us to close their access to our procurement via
buy-American provisions. But this is a mistaken argument.
To argue that we are now free
to terminate access to our procurement in areas we previously agreed to
open to bids from the Europeans is to unravel that bargain unilaterally
and in violation to the concessions we made.
With the bailout to Detroit straining the 1995 W.T.O. agreement on
subsidy and countervailing measures and inviting a spread of mutually
harmful subsidies worldwide, and with the demands for "fair trade" also
being assiduously pressed on him by the unions lobbies wrongly fearful
of external competition, President Obama faces several protectionist
challenges. It is time now for him to make one of his resounding
speeches, this time on the virtues of free trade and the perils of
protectionism. Jagdish Bhagwati is an adjunct scholar at AEI.
