Prelude to Successful Trade Negotiations

Trade negotiators dance to mood music, and the mood music is decidedly sour. Start with the fact that the constituency that favors free trade is fractured and politically ineffective relative to the constituency seeking protection from international competition. The apparel manufacturer and his work force know that competition from China is hurting them, and can hire lobbyists to carry their tale of woe to congress; the Wal-Mart customer who buys the low-priced t-shirts and jeans is unlikely to write his congressman demanding that barriers to trade be kept at a minimum.

That puts a burden on leaders who know that the freeing up of trade in the sixty years since the end of World War II has contributed to increased material well-being for nations that are active in the global economy. They have to represent consumers' interests.

Which is why the performance of EU trade commissioner Peter Mandelson, twice forced to resign in disgrace from Tony Blair's cabinet, where he had the reputation of spinner-in-chief, has been so destructive. "Trust," one trade negotiator told me, "is essential to successful trade negotiations." Negotiators have to know that their counterparts speak for the nation or nations they represent, and have to keep their word.

It was because USTR Bob Zoellick, now number-two at the State Department, and the EU's Pascal Lamy trusted one another that progress has been made in the past several years in bringing down barriers to trade. Mandelson decided to substitute bluster and spin for trust and negotiation, with consequences predictable to everyone but him.

As a member of the USTR advisory committee, I have watched Zoellick maintain his cool and good humor even when provoked by anti-free-trade types, greens who see economic growth as the enemy of the environment, and politicians with very narrow interests to defend. So I find it difficult to believe that he, rather than Mandelson, slammed down the telephone in the midst of their negotiations over aircraft subsidies. And even more difficult to contemplate a Zoellick cowering at the prospect of Mandelson's displeasure.

But I don't find it at all difficult to believe that he reacted negatively when Mandelson first backed away from their agreement to attempt to keep the subsidy battle from developing into a full-blown brawl at the World Trade Organization, and then took to the pages of the Washington Post to carry his arguments over the head of Zoellick to …. Well, to whom? The old spinmaster, already under fire in Brussels for briefing only selected journalists rather than attending open press conferences, couldn't have expected that a few hundred words from him, blaming the breakdown on Zoellick, would prompt President Bush to fire the man he just promoted, or congress to call the former USTR on the carpet, or the public to march on Washington to demand Zoellick's head. No. Mandelson was probably following his reflexes: when in trouble, spin, fling a bit of mud, and hope some of it will stick.

So even if the negotiations resume, the mood music will remain dissonant. Which simply adds to the threat created by a surprise 67-33 vote in the Senate to slap a 27.5% tariff on imports from China.

Although that vote will be overturned when the final bill is considered, it shows the extent of congressional unhappiness with the $162 billion trade deficit recorded with China last year, and with the Chinese authorities' unwillingness to allow the value of their currency to rise so that the competitive disadvantage at which American exporters operate is reduced, and made-in-China goods become more expensive in American shops.

But there is more than mere unhappiness over China's pegging of the renminbi to the dollar. Again, the mood music matters. And that music is dominated by the drumbeat of China's increasing threat to move against Taiwan -- and Australia, should it side with the U.S.; its alleged insistence on selling arms to Iran; and congressional unhappiness with the impending decision of the EU to end the arms embargo that is slowing China's efforts to obtain equipment that might be used against American forces in the event of a showdown over Taiwan.

It is against that background that America's textile manufacturers have filed petitions with the White House to increase the number of categories of clothing subject to import limits. It is to Mandelson's credit that he has so far resisted pressure from France and Italy for such a protectionist crackdown by the EU, pending receipt of import data from the EU's 25 member countries.

But the pressure on him will surely mount. After all, last month eleven countries blocked a proposal to give preferential duties to developing countries hit hardest by the tsunami, lest India's clothing sector flood Europe with inexpensive garments that the EU's recession-burdened consumers might find attractive.

Meanwhile, America's Manufacturers Alliance, a trade association, has launched a campaign to end what it calls Europe's "gaming" of World Trade Organization rules that allow VAT to be rebated on exports and imposed on imports, but prohibit such treatment of the worldwide income taxes paid by U.S. corporations. Again, the anti-trade background music will matter when the President's Advisory Panel on Tax Reform decides on its recommendations.

The president, of course, remains committed to his free trade agenda, which includes getting the Central American Free Trade Agreement through congress, and eliminating trade-distorting agricultural subsidies during what he hopes will be the Doha round of negotiations. But he will find precious little time to exert pressure on a reluctant congress. Iraq and the Middle East command much of his time, and the balance will be spent traveling the country to sell his social security (pension) reform plan to a skeptical country. Not much left over for trade matters -- and certainly not enough to read Mandelson's whining in the U.S. press.

A version of this article appeared in the Sunday Times (London).