The Hindu Business Line : `Critical gap' in US Trade Policy

The ongoing meeting (March 22 and 24) of the Trade Policy Review of the US at Geneva in the World Trade Organisation (WTO) has come out with an assessment report of the world's trade major at the mid-point of the two-day meeting, highlighting the critical gap in the world's bastion of free trade!

Conceding at the outset that the US has undergone solid economic growth since its last Trade Policy Review in early 2004, bolstered by the openness and transparency in its trade regime, the WTO Secretariat report said the US made incremental changes to its trade regime, including liberalisation on an MFN (most favoured nation) and preferential bases.

Nonetheless, as the WTO strikes a cautious chord, "market access barriers and other distorting measures, notably subsidies, persist in a few but important areas". Hence addressing these "distortions" would benefit US consumers and taxpayers besides beefing up the global economy, the report said.

The report points out that imports have helped to keep US prices down in a context of strong private consumption, while large inflows of foreign capital have financed wide current account deficit of the US. The implication is that the US remains by far the world's largest import market and its economy has continued to support global growth by maintaining its market largely open. This openness is one of the factors that foster US growth, as it permits US producers and consumers to access requisite goods, services and capital from abroad at the best terms.

`Maintain openness'

Hence, WTO urged the world's trade major to maintain "this openness by pre-empting possible protectionist sentiment".

Taking due note of the growing penchant of the US to sign free trade agreement (FTA), the WTO said the US has increased the number of countries with which it has wrapped up FTAs from three at the start of the current administration in early 2001 to 15 by late 2005.

As of January 2006, agreements with a dozen other countries were being negotiated. Hence the bare-knuckle knock by the WTO that "the increasing number of FTAs in which the US participates raises concerns about administrative resources being distracted away from multilateral system, trade or investment diversion and interests being created that could complicate multilateral negotiations".

While taking note of the fact that applied MFN tariffs of the US are at the bound rates, lending predictability to the US tariff regime, the report said in 2004 (the latest year for which ad valorem equivalents - AVEs - were available), the average applied MFN tariff was 4.9 per cent, marginally lower than in 2002; in both 2004 and 2005, the average rate excluding AVEs, was 4.2 per cent.

Even as close to 38 per cent of all tariff items entered the US duty free in 2004, the average applied MFN tariff on agricultural products was 9.7 per cent, compared with 4 per cent on other products.

Tobacco, whey, sour cream, peanuts and footwear, among others sector, receive tariff protection in the 50-350 per cent range, a point highlighted by developing country exporters of these products to the US.

Though tariff quotas cover around 2 per cent of all tariff lines, high out-of-quota tariffs are one of the main forms of import protection for certain agricultural products, a point India's FCV (flue-cured virginia) tobacco industry has been crying hoarse. What is worrisome is that imports are subject to additional charges including merchandise processing fee and a fee on port use, both ad valorem.

Export assistance

The WTO reports also draws attention to a number of export assistance schemes.

The US provides insurance and export financing through its official export credit agency (the Export-Import Bank). A duty drawback programme is in place.

Even as the critics inveigh against WTO for being a mouthpiece of trade majors and undemocratic in decision-making, its TPR assessment is a testimony to the institutional credibility and spunk, the traits which had served the world well in ensuring the rule-based global trading regime.