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US vs. Europe at the WTO

The United States had its biggest trade deficit ever last year - $347 billion. That sum was 41 percent worse than in 1998. The American border, clearly, is highly porous to imports.

And though the US does have an armful of devices to discourage imports and promote exports, its tariffs are a bit lower on average than those of the European Union.

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So the US can't be accused of being especially protectionist.

Thus it may have seemed a low blow when an appeals panel of the World Trade Organization (WTO) in Geneva ruled last week that the US must scrap a law allowing companies to avoid paying taxes on some overseas sales by channeling them through overseas subsidies. Repeal of the law - if it happens - might add $4 billion or so a year to the taxes American companies must pay Uncle Sam.

That would add to the US budget surplus. But the fear is that Boeing, General Motors, and other multinational companies could become less competitive in world markets.

Economic theory suggests that the US dollar should drop in value to offset any loss in competitiveness. The currency markets haven't reacted that way, however. That's probably because foreigners are keen to buy dollars to invest in the US. They already own 39 percent of outstanding US Treasury securities and 38 percent of corporate bonds.

More to the point, the tax decision won't help the reputation of the WTO in the US. Anti-globalization groups stepped up their attacks on the WTO at a ministers' meeting in Seattle in December. Yet the WTO is basically a bureaucratic, legal body that tries - without complete success - to enforce trade rules set by its 135 member nations. It's not an evil monster.

In this tax case, there's a special feeling of unfairness because Europe has a similar tax loophole for its own companies. And it has not yet abided by long-outstanding rulings against it in disputes over imports of bananas and hormone-treated beef.

Should the US turn up the heat on the Europeans as some urge? Maybe so. But the danger is that the WTO will become so unpopular in Congress that opponents of the organization will prevent renewal of US membership later this year. That would be a risky retrograde step.

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Trade negotiations are almost always a game of hard ball. They usually involve politics as well as national economic interests.

One purpose of the WTO is to take trade issues out of the political furnace and deal with them on the basis of mutually accepted rules. Nonetheless, it may be necessary for President Clinton to intervene at the summer summit of the Group of Eight to get some resolution of these issues.

(c) Copyright 2000. The Christian Science Publishing Society