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Taming Protectionism

July 21, 1985

The Reagan Administration remains basically committed to free trade, but it is not getting enough help from some of its friends as it seeks to strengthen the policy by resisting demands for extreme measures of protectionism. That reality was starkly dramatized with the collapse Friday of efforts to start another round of multinational trade talks.

The 90-nation council of the General Agreement on Tariffs and Trade was unable to reach agreement because of a division over an issue of critical importance to the United States--the inclusion of services for the first time in multilateral negotiations. For the United States, with two-thirds of its production and employment geared to the service sector, this is the key to growth in expanded exports. But expansion of the United States overseas in major service sectors--including finance, banking, insurance, shipping and tourism--has been blocked in many countries by protectionist barriers. Those barriers would be the target in a new round of trade talks.

Brazil and India led the opposition, arguing that they and many other Third World countries would be overwhelmed in competition in the service sector with the more advanced service sectors of the industrialized world. Their resistance is shortsighted. Special provisions for Third World nations have been traditionally respected in multinational trade arrangements. To obstruct moving on to broader trade agreements and the inclusion of services at this stage is only to invite an expansion of the already excessive protectionism growing in almost every nation of the world.

Another attempt may be made in September to win GATT agreement on the new round. Failure would make more difficult the task of world leaders, including President Reagan, in resisting the pressures for protectionism.

The extremes of reckless and counterproductive protectionism are evident these days in Congress. Leading Democrats have introduced legislation to try to turn around the staggering trade deficit by applying a surcharge to the goods of nations, like Japan, with huge surpluses in their trade balances. The move holds no promise for expanding export markets for the United States--as Clayton K. Yeutter, the U.S. trade representative, quickly told Congress--while Japan already has offered voluntary export restraints that would be less damaging than recourse to a surcharge. That is not the only bad bill. A dangerous and enormously costly textile bill now has the support of a majority of the Senate and at least 291 of the 435 members of the House.

Reagan stands ready to veto both measures, fortunately. And there is also the likelihood that he will resist pressure to impose shoe-import restrictions recommended by the International Trade Commission. All these proposals would impose extreme costs on consumers to guard only a limited number of jobs or to preserve businesses no longer able to compete in a free market. The first victims of the inevitable retaliation would be American exporters.

"Multinational trade negotiations offer an opportunity to escape from self-defeating protectionism," Allen Wallis, undersecretary of state for economic affairs, said recently. That is true. And that reality makes urgent proceeding to the new round, taming protectionism before it further weakens the already fragile structure of international trade.

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