[Viewpoint] U.S. protectionism on the rise

Economists generally agree on the advantages of openness in trade. But the case for nondiscrimination in trade is also a compelling one. A good trade policy should push for multilateral trade liberalization, such as at the Doha Round, rather than preferential trade agreements such as free-trade areas. It should also ensure that any retreat into protectionism doesn’t degenerate into discriminatory trade practices.

The last G-20 meeting in Canada was a disappointment on the first front. At the insistence of the U.S., an earlier reference by the G-20 to a definite date for completing the Doha Round was dropped.

In addition, President Barack Obama announced his administration’s willingness to see through the U.S.-South Korea FTA.

On the second front, there are recent reports that the U.S. Commerce Department is exploring ways to strengthen the bite of antidumping actions, which are now generally agreed to be a form of discriminatory protectionism aimed selectively at successful exporting nations and firms.

Equally distressing is Obama’s decision on Aug. 13 to sign a bill, approved in a rare special session of the Senate, that raises visa fees on H1(b) and L-1 temporary work visas to pay for higher border enforcement expenditures.

This proposal gained its legs from long-standing worries about the H1(b) and L-1 programs on the part of Republican Senator Chuck Grassley and Democratic Senator Richard Durbin, and had recently attracted the sponsorship of the influential Democratic Senator Charles Schumer of New York.

Schumer had long advocated against “outsourcing” as inimical to American economic interests, even allying himself with the supply-side economist, Paul Craig Roberts. But he gained clout with the onset of the current crisis, and concern over intractable unemployment numbers is enabling politicians to justify all sorts of superficially attractive remedies.

Thus, it was asserted that a tax on foreign workers would reduce the numbers coming in and “taking jobs away” from American citizens. Many supporters of the proposal claimed, that it would simultaneously discourage foreign workers from entering the U.S. and increase revenues.

Obama’s surrender exemplified the doctrine that one retreat often leads to another, with new lobbyists following in others’ footsteps. Perhaps the chief mistake, as with the recent “buy American” provisions in U.S. legislation, was to allow the Employ American Workers Act to be folded into the stimulus bill.

This makes it harder for companies to get governmental support to hire skilled immigrants with H1(b) visas. They must first show that they have not laid off or plan to lay off American workers in similar occupations.

Whatever the shortcomings of such measures in economic-policy terms, the visa-fee enhancement provision is de facto discriminatory, and thus violates WTO rules against discrimination between domestic and foreign firms, or between foreign firms from different WTO countries.

While the visa-fee legislation is what lawyers call “facially” nondiscriminatory, its design confers an advantage on U.S. firms vis-a-vis foreign firms.

The fee applies to both foreign and U.S. firms that employ at least 50 workers, of which 50 percent or more are H1(b) workers.

But U.S. firms have additional access to foreign workers under the immigration laws. India would be the chief loser relative to U.S. firms, and, with several sizeable firms, such as Infosys and Wipro adversely affected by the measure, it would also be the chief loser vis-a-vis smaller outsourcing firms from other countries. The Indian government has lost no time in raising these objections - as well as the prospect of a formal WTO Dispute Settlement Mechanism complaint.

Such acts of discrimination in trade policies find succor in the media and in some of America’s prominent think tanks. For example, in the wake of the vast misery brought by flooding to the people of Pakistan, the U.S. and other governments have risen to the occasion with emergency aid.

But there have also been proposals to grant duty-free access to Pakistan’s exports. But this would be discriminatory toward developing countries that don’t have duty-free access, helping Pakistan at their expense.

Astonishingly, Nancy Birdsall of the Center for Global Development, who favors such discrimination, even wrote cynically and approvingly that such a policy “would have little impact on U.S. textile producers.”

Unfortunately, major U.S. media, including The New York Times and The Wall Street Journal, have endorsed this deplorable assault on whatever nondiscrimination remains in the world trading system.

Is it too unrealistic to hope that the Obama administration, which has so far been far too responsive to weak economics and strong politics, will stand up to these demands?

*Copyright: Project Syndicate, 2010.
Bhagwati is a professor of economics, and Panagariya is a professor of economics and Indian political economy at Columbia University.

By Jagdish Bhagwati & Arvind Panagariya