The Americans, keen as ever to catch the French cheating on trade, put the French on a watch list under Section 301 of the Trade Act of 1974. This is in spite of the fact that America did not really export Scallops. The Canadians, on the other hand, who trade in scallops, decided to appeal to the WTO citing this as a kind of anon-tariff barrier to trading in Scallops. Strange as this story is, the real point here is America's tendency to resort to unilateral measures to resolve any trade dispute in its favour. Last month, America decided to go to battle for trade. Spurred by falling exports and cheap imports, America's trade representative Charlene Barshevsky hinted at the possibility of reviving the US Super 301 trade laws. This is a worrying trend for everybody, including India. For one thing, if the most important nation in the world's trading system decides to start working outside the WTO's rules, which is what the use of Super 301 laws amounts to, the legitimacy of the multilateral trading system is soon undermined. For another, India is still on the priority watch list under Section 301 regarding the opening up of the insurance sector and on the system of patent protection in the country. Reviving the Super 301 clause could possibly land us in further trouble, as the clause gives the USTR powers to initiate retaliatoryaction to force the offending foreign country to fall in line. The most obvious worry about the law should be that the US acts as a judge, jury and executioner in deciding unfair trade practices.

Cases are decided on the basis of fortunes of select US exports to the country in question. This means that even when global exports to the country in question have risen, the US could still find the country guilty of not having absorbed more American exports and threaten retaliation unless US are absorbed. As the US is the world's largest destination of finished goods, it has the bargaining power to force other countries to buy its produce. Since a country imports only what is required, and at the lowest available prices, the super 301 clause might force a country to forsake cheaper supplies for the sake of keeping the US happy. Often, this will be at the expense of exports from some other country. This law forces an outcome that runs counter to all tenets of fair play under world trade rules.

Ironically, thislaw, which is expected to open up new markets for US firms, may do the opposite in the US market. To see why, take a look at the political economy of trade negotiations. Firms operating primarily in the domestic sector are understandably not keen on competition from foreign firms. They find it profitable to team up to form lobbies to pressurise the government to protect domesic interests. The only way the government can counter this political pressure is to hold out the promise of access to new markets to the nation's exporters from multilateral trade negotiations. Use of the Super 301 clause tends to reduce the incentive for exporters to lobby for multilateral trade negotiations, because new markets are being opened through other means. As a result, political pressure against the open multilateral trading system intensifies. Such actions by the US increase the scope for bilateral trade agreements. By circumventing multilateral trade negotiations, they weaken the hold of the WTO on trade. Given India'sinfluence in international trade, this shift to bilateral trade negotiations is worrying. An analysis of past Section 301 actions by the US shows that the threat of retaliatory actions tends to depend on the relative strength of the opposing party. Relatively more actions have been threatened in the past against Japan than against the EU, reflecting in part the EU's greater trade muscle.

The threat of action against smaller economies like Taiwan has been even more blatant. What then are the chances of India being able to bargain an advantageous deal in bilateral negotiations? Seventy years ago, to combat depressed localc market conditions, America's Congress passed the Smoot Hawley laws to raise tariffs on foreign products and reduce competition. This led to a round of beggar thy neighbour policies from competing nations in global trade, which is thought to have accounted for a large part of the severity of the Great Depression. The global trading system was designed the way it was to stop countries fromtaking similiar unilateral trade steps; to prevent a replay of the circumstances that followed the passing of the Smoot Hawley act. The parallels are striking. A substantial part of the world economy is in recession. Obviously, imports from that part of the world will be cheaper and, therefore, more attractive in markets like the US economy.

Exports from the American economy will find impoverished markets and, so, smaller demand. Aggressive, accusatory trade policies of the sort espoused by Section 301 of the 1974 United States Trade Act will find others retaliating. It is up to America to resist these pressures from its domestic lobbies, and it is up to the rest of us to make sure the WTO proves stronger than unilateral trade actions. If we don't learn from history, we are condemned to repeat its mistakes.