Feb 27, 1989

BUSH ADMINISTRATION WILL CONTINUE CONFRONTATIONAL APPROACH.

GENEVA, FEBRUARY 23 (IFDA/CHAKRAVARTHI RAGHAVAN) The Bush Administration is essentially following and executing the confrontational approach to bilateral and multilateral trade negotiations that were developed and formulated during the second term of President Reagan, according to a Washington based trade policy analyst and consultant, Craig Vangrasstek.

Vangrasstek who runs from Washington a specialised trade information service for several governments and private parties is also a consultant for UNCTAD.

In an interview with IFDA, Vangrasstek said in the area of trade policy, there was a strong line of continuity between the second term of the Reagan Administration and the present Bush Administration.

In the second term of Reagan, goals were formulate and instruments fashioned to achieve them. Now in the Bush Administration these are being executed.

During the second Reagan term, as White House chief of staff and later as treasury secretary, James Baker had been responsible for developing the strategy of using and working with Congress.

The strategy developed was one of confrontation in the trade policy field, using unilateral actions and bilateral pressures to gain concessions from trading partners and from a wider strategic perspective, to pressure them to be more accommodative to U.S. goals in the Uruguay round negotiations.

There was no indication that this strategy would be changed now that Baker is Secretary of State, Vangrasstek said.

While there was now a new U.S. Trade Representative, Mrs Carla Hills, Clayton Yeutter was now in agriculture.

The U.S. was using the section 301 and ancillary provisions of the U.S. trade and tariff act as well as the U.S.-Canada bilateral trade agreement to force its trading partners to reach agreements in the multilateral area under threat of otherwise pursuing bilateral approaches.

Despite the growing protests in GATT and elsewhere over the use of section 301, the new USTR Carla hills, in her confirmation hearings, had told the senate that she would use these powers as a crowbar to pry open foreign markets.

Both Congress and the Administration were intending to use the "crowbar" or threat of use of the "crowbar" to achieve their goals. The Administration and the Congress were merely playing the traditional "good cop, bad cap" approach, with the Administration telling the multilateral system and its trade partners that if they did not yield congress would do worse.

Many of the Uruguay round issues had regional and other overtones, but the negotiations on Intellectual Property Rights (IPRS) was shaping up as a very strong north-south issue, with the administration about ready to start using the "super section 30l" to achieve its goals, the consultant noted.

It was a confrontational approach and use of bilateral threats and unilateral trade measures to secure U.S. goals in the multilateral negotiations, and a high-risk strategy.

But there was no lobby against it, domestically or in Congress, and third world countries would have to fashion their strategy and tactics to deal with this, Vangrasstek explained.

The U.S. trade law had some trade policy remedies where the initiative lay with the private parties, who had to file complaints and move the U.S. International Trade Commission (USITC).

These concerned antidumping and countervailing duty investigations, the "escape clause" petitions by domestic industries for protection against imports and unfair trade practices.

In all these, there was relatively little that the government could do to stop the proceedings. While previously, the administration had some leeway in providing relief, under the 1988 U.S. omnibus trade and competitiveness act; there was very little discretion.

This lack of discretion for the administration was being used by several industries to get protection or force its competitors to sign voluntary restraint agreements.

The U.S. steel industry, for example, had about 300 petitions on hand and ready to be filed, if the current voluntary agreements due to expire in September were not renewed.

But with the exception of this, since the new law no new AD/CV petitions had been filed either.

The only significant one now before the USITC was the one in respect of park products against Canada, where producers of raw materials had a test case seeking protection against the import of processed product.

(In a case involving imports of wine from EEC, a GATT panel ruled that only U.S. wine producers could initiate requests for safeguard actions showing material injury, and not grape producers. Congress then changed the domestic law to enable-raw material producers to initiate proceedings as interested parties).

There were a number of other areas where actions were to be initiated by the administration and there was a measure of discretion vested in the executive.

With the 1988 trade bill having been signed into law just six months ago, a number of mandated notifications and requirements were now under way and these could trigger a series of actions against trade partners under the "super 301" provisions or some similar sectoral provisions.

Essentially, the administration would begin negotiations with its trade partners to open up their markets for U.S. exports under pain of mandatory retaliation.

In the telecommunications sector, the USTR had to identify the priority countries, and this week South Korea, Japan and the European Community had been so identified, thus setting the stage for opening some coercive negotiations.

Since 1984, Congress had required the USTR to send an annual trade catalogue of economic-policies and trade practices of other countries, and on related issues of investment, intellectual property protection etc, which inhibit or reduce U.S. export opportunities.

Under the "super 301", the priority countries would have to be identified and notified to the congress. In some areas the deadline for this was April 30 and in others May 30.

Also, by June 30, the USTR had to identify and notify the priority practices in respect of which "super 301" actions would be initiated.

In all these cases, the law laid down a definite time-table for negotiation and reaching agreements or imposing retaliatory measures.

In respect of the IPR issue, private U.S. parties had been invited to file petitions about their experiences, and 12 petitions had so far been filed identifying among others 15 third world countries.

By May 30, the USTR would identify the "worst violators", and by June 29 initiate super 301 cases.

It remained to be seen whether the current GATT outcry against U.S. use of section 301, and the decision to refer the dispute over its use against Brazil, would slow down or accelerate the use of section 301 in these matters. But these measures and their pace could be controlled by the USTR through the discretionary powers.

In the area of agriculture, the Congress and Administration were not ready to accept the status quo and wanted elimination or substantial disengagement of government from domestic support and export subsidies.

The U.S. was threatening to move in the opposite direction, namely step up export subsidies, in a confrontational approach with the EEC, through the export entitlement and target assistance programmes.

The entire issue had some internal and external contradictions and conflicts. There were also the bilateral disputes like the hormones dispute with the EEC.

Internally, the U.S. had to deal with the problem of the budget deficit in fiscal 1990, beginning October 1, 1989. The budget deficit was linked to the trade deficit and the third world debt crisis.

Any rise in the subsidy war would mean increased budget outlays, while the administration was looking to a multilateral agreement to be able to save some 20-25 billion dollars in the budget.

At the same time, the new farm bill had to be enacted in early 1990, to replace the 1985 law.

If the Administration were unable to report sufficient progress in the Uruguay round, it would be under pressure to expand its domestic support and export subsidy arrangements, and make increased budgetary provisions.

While the drought of last year and this year in some of the growing areas could mean increase in world market prices and less outlays on subsidy, the U.S. was also worried that the EEC might use the opportunity to gain some market share in Latin America.

Another complication for the U.S. was that previously selling subsidised exports was easy: the U.S. drew from its stockpiles, which cost money to store anyway, and exported them under subsidy. Now it would involve cash outlays.

The U.S. saw the EEC as "the wild card" in the entire agriculture exercise.

While the drought of last year and the drought this year in some of the growing areas of southern hemisphere could mean increase in world market prices, and thus less outlay for subsidy, the U.S. is also worried that the EEC might use the opportunity to gain some market share in Latin America.

Vangrasstek said that there thus a number of contradictions and imponderables in the entire multilateral trade scene, from the U.S. perspective.

But there could be little doubt that the U.S. stance was no longer of winning friends and influencing them, but of confronting friend or foe, and influencing them through threats of retaliation.

"It is a high risk strategy, but one where the Administration and Congress are on the same side".