U.S. Has New Weapon in Its Trade Arsenal : As Nations Brace for ‘Super 301,’ Some Worry That 1988 Law Could Backfire

WASHINGTON â€”  Bureaucrats at the U.S. trade representative’s office found pillows on their sofa arms and pizza leftovers in their wastebaskets when they arrived at work last Monday--signs that the weekend’s negotiations with South Korea had lasted well into the wee hours.

The marathon talks--not only with the Koreans but with officials of a host of other countries as well--all stem from one fact: The United States is about to launch a new weapon in its trade arsenal, and South Korea and other U.S. trading partners are scrambling to avoid becoming targets.

The new trade weapon--known as “Super 301,� after a section of last year’s Omnibus Trade Act that requires the White House to initiate “unfair� trade practices proceedings against countries whose trade barriers the U.S. finds egregious--can be effective. Under threat of eventual U.S. retaliation, South Korea agreed last week to liberalize its foreign investment restrictions and open its market to foreign advertising agencies, travel agencies and pharmaceuticals. It also pledged to stop closing its borders to protect new industries.

On the surface, the new procedure looks routine enough: Once the list of allegations is published, the targeted country has up to two years to reduce its trade barriers. If it refuses, Washington would be under pressure to “retaliate�--by barring some of the country’s exports or imposing new tariffs. The target list is scheduled to be made public before next Sunday.

U.S. Trade Representative Carla A. Hills said the new process has already given her “a good bit of leverage� to use in wringing concessions from U.S. trading partners. “We’ve probably had more intensive negotiations ongoing in the last 30 days than we had achieved earlier,� she said.

But some analysts fear that the new deterrent could just as easily explode in the Administration’s face. In South Korea’s case, for example, whatever Americans’ perceptions of that country’s trade barriers, the prospect that the United States was “getting tough� on Seoul has sparked anti-American riots there, undercutting South Korean President Roh Tae Woo and impeding U.S. efforts to keep the Roh government stable. Similar situations exist in other countries.

Frans Andriessen, the European Community’s trade minister, insists that the EC will not even agree to take part in negotiations with the United States as long as it is under the duress of the new Super 301 law. “We are prepared to look at any problem that may exist, but formal negotiations--not,� Andriessen asserted on Friday.

And several U.S. trading partners--including both the EC and Japan--have threatened to challenge the U.S. legislation in the Geneva-based General Agreement on Tariffs and Trade, the 96-country organization that sets and enforces global trade rules.

Andriessen asserted earlier this month that retaliation under Section 301 “runs counter to basic GATT principles and is in clear violation of� international trade law. “The EC will continue to defend its GATT rights whenever Section 301 is used,� he said.

Moreover, some analysts fear that too tough a stance on Washington’s part could spur retaliation by other countries.

Michael J. Boskin, chairman of the President’s Council of Economic Advisers, warns that Washington’s “bashing� of its allies and trade partners--along with increasing pressure for retaliation--could spark a trade war that would bring on a global recession.

Low Saving Rate Blamed

That, in turn, could ultimately derail the 2-year-old Uruguay Round of global trade liberalization talks now under way in Geneva. U.S. officials are hoping to win agreement for a major reduction in trade barriers around the world and new rules covering trade in services.

But, as Hills conceded this week, knocking down other countries’ trade barriers can go only so far toward solving the U.S. deficit problem. Most economists believe that the main reason the United States is running a huge trade deficit is that Americans are consuming more than they are able to produce and must buy more goods from abroad. With saving here so low, there is not enough money to expand production capacity.

“While there are some unfair trading practices out there (that) need to be rooted out, they are not the cause of our trade deficit,� Boskin said recently. He warned that “the biggest danger to the (U.S.) economy is the “incredible gathering momentum� for retaliation.

Indeed, the Administration itself has been divided internally over how best to employ the new trade weapon. Hills and Commerce Secretary Robert A. Mosbacher have been pushing for a tough show of force, particularly against Japan, which is the object of Congress’ ire this year.

But others--ranging from Secretary of State James A. Baker III to presidential National Security Adviser Brent Scowcroft--have been urging more caution, arguing that there is more to consider in U.S. relations with other countries than trade barriers alone.

U.S. strategists concede openly that they now regard maintaining the U.S.-Japanese alliance as the nation’s most important foreign policy objective for the next several years. Japan is America’s No. 1 ally in the Pacific and a vital source of financing for the federal budget deficit.

Alan J. Stoga, an international economics specialist for Kissinger Associates in New York, warns that the “automaticity� of the new trade law--the fact that it virtually mandates retaliation if other countries do not meet U.S. demands--is apt to be seen as protectionist.

As a result, all sides are expecting to see a major battle within the Administration over how to handle the Super 301 controversy.

Anti-Japan Sentiment High

This weekend, the Administration’s trade generals are mapping out their targets for the new Super 301 weapon. The Cabinet-level Economic Policy Council has already made a preliminary recommendation on a list of five foreign trade practices to cite as “unfair� under the new trade law and is expected to go to the President for a final decision early this week.

With congressional sentiment against Japan so high, the list includes two such practices by Japan--the refusal of the Japanese government to buy U.S.-made satellites and supercomputers and Japan’s complex and stringent lumber standards, which they say are crafted to keep U.S. products out.

The group has also proposed citing Brazilian rules relating to trade licensing and India’s restrictions on foreign investment and on foreign-based insurance companies.

And it recommended that South Korea, Taiwan and the European Community--three others on an earlier list of candidates--not be cited at all.

For all the hullaballoo about U.S. unilateralism under the new Super 301 procedure, the proposal is deftly crafted to send some clear signals to U.S. trading partners.

Japan is on the list for two alleged but relatively minor violations--an effort to mollify Congress yet avoid provoking a confrontation with Japan. Two surprise entrants--India and Brazil--have been prickly opponents of U.S. efforts in the current Uruguay Round of trade liberalization talks, and putting them on the list makes American chagrin over their positions even more plain.

Omitting South Korea and Taiwan rewards them for having lifted some trade barriers earlier this year. And omitting the European Community avoids any confrontation there at a time when the United States is seeking to keep Europe open to U.S. goods as the Common Market creates a single integrated market in 1992.

To top it all off, the Cabinet Council is proposing to name only specific trade practices rather than entire countries in the new listing--meaning there would be no mandatory retaliation. If the Administration cited a country, it would be required to launch unfair trading practices proceedings against every trade practice listed in the complaint. Merely citing individual trade practices would do no more than set an agenda for items that the United States would like to pursue.

It is not clear whether the lackluster listing will satisfy trade hawks in Congress. Protectionist sentiment--particularly against Japan--is more intense than ever this year despite the enactment of last year’s trade law.

Hills tried to skirt the issue Friday. “We’re trying faithfully to carry out the law,� she told reporters. “More than that I cannot tell you.�

In practice, Super 301 need not be as deadly as it seems, particularly if the White House is willing to take on Congress in cases where the lawmakers believe that the Administration has not been aggressive enough.

Even if a targeted country refuses to meet U.S. demands that it change its trade practices, the President can still decide not to retaliate if he believes that such action would run counter to the national interest.

And although the new Super 301 law empowers the chief executive to retaliate against recalcitrant trading partners, it also permits him to continue negotiations if he believes that it may prove fruitful.

Hills reminded reporters recently that despite the new weapon in its arsenal, the Administration’s long-term trade policy “still is to open markets and expand trade.� She pledged not to use the new law “in a bullying way.�

And it still is not certain how much in new concessions the United States can win using the new law as a cudgel. Indeed, so far, at least, the gains have been small. “We’re about in the same place that we’d be if we didn’t have the new law,� one U.S. trade negotiator says.