Computer chip settlement raises sticky trade issues

The U.S. government's decision to settle its complaint against China's tax on imported semiconductors is a good example of why trade disputes should not be negotiated during election years.

Analysts believe China would have had difficulty defending the tax, which gives its semiconductor industry a price advantage over foreign competition, if the United States had taken its complaint to the World Trade Organization.

But the administration agreed to allow China to gradually eliminate the tax in exchange for dropping its complaint. U.S. Trade Representative Robert B. Zoellick announced the settlement with a banner proclaiming the words “real results” in the background.

The banner appeared to be a response to criticism from the Democratic presidential campaign that the administration's trade policies have cost American workers hundreds of thousands of jobs. “This is another step toward real results,” said Zoellick. “China is a voracious consumer of semiconductor chips, and this will give us a level playing field.”

While industry analysts say the settlement may benefit foreign semiconductor manufacturers as much as U.S. makers, they also questioned why the administration did not extract damages for lost sales due to the tax.

Others said the move may not bode well for organizations such as the National Cotton Council, which wants China to honor provisions in its WTO accession agreement to buy a minimal amount of U.S. cotton annually.

The U.S. textile industry's fight for survival against a flood of Chinese imports has achieved only limited success in efforts to persuade the administration to impose the safeguard provisions of China's WTO accession agreement.

U.S. sock manufacturers recently filed another safeguard petition with the U.S. Commerce Department, asking the administration to restrict imports to a growth rate of 7.5 percent above recent import levels. The U.S. Hosiery Association estimates that China's sock exports to the United States have jumped from 1 million pair in 2001 to 22 million in 2003.

Following the collapse of the Doha Round negotiations last fall, the administration has shifted its focus to unilateral and multilateral trade agreements and negotiations of specific issues with countries like China.

But the unilateral agreements can have pitfalls, as those who have studied the administration's Free Trade Agreement with Australia have learned recently. Although the agreement ostensibly opens Australia's markets to more U.S. financial and insurance products, it also allows pharmaceutical companies to prevent imports of drugs into the United States. Some observers say the agreement also permits those companies to challenge decisions by Australia's national health program about which drugs it can provide its citizens.

As someone who has watched elderly friends cut their drug bills from $10,000 to $12,000 per year to $6,000 to $7,000 by buying them in other countries, such actions raise some serious questions about U.S. negotiators' intentions.

Looking at the election year trade ledger, you wonder if Brazil were as aggressive in its negotiations would the U.S. cotton industry still be defending itself against Brazil's WTO complaint?

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