In Search of a Trade Policy

By John DeMott

Hard-liners vs. soft-liners vs. just about everyone else

Modern international trade floats on a sea of dilemmas, steered by contradictions. Official U.S. policy has been to encourage free trade since the first Reciprocal Trade Agreements Act in 1934. But in practice trade has never been totally without restriction. It has been fettered by quotas, tariffs and political considerations. That is the reality the Reagan Administration is confronting as it searches for a trade policy that combines consistency and fairness.

The vague outlines of the policy are now beginning to take shape. In a 15-page "white paper" on trade, drafted by the Cabinet-level Trade Policy Committee and scheduled for release next month, the Administration reaffirms its commitment to free trade as the goal of international commerce. But the study admits that certain unspecified industries may need time and Government prodding on investment and labor policies before they are ready to compete in world trade. The main message of the paper is that the U.S. must export more or suffer grave consequences because of apparently unstoppable outflows of money to pay for imported oil.

That urgency seems undercut, however, by some Administration proposals. As part of its budget reductions, the White House wants to slash $600 million out of the $5 billion lending authority for the Export-Import Bank, which provides low-interest loans to foreign buyers of U.S. goods. Such credits are often a key factor in determining which company will win an export contract. Countries like France and Japan offer attractive loans if a foreign company agrees to buy their products. American firms may now be at a disadvantage in competing with those exporters.

Such ragged edges abound in the Reagan trade policy. There is, for example, what is becoming known as the "Brock Doctrine." William Brock, the chairman of the Trade Policy Committee and U.S. Trade Representative, calls for linking trade policy with other foreign policy considerations. The U.S. hypothetically might agree to forgo any restrictions on auto imports from Japan in exchange for larger Japanese spending on Western defense. Says Brock: "I'm not saying we should cut off exports or trade to pursue foreign policy objectives alone. But you cannot ignore the leverage that trade offers to our overall diplomatic posture."

The U.S. has always used trade to further political ends; the most recent example of this was the partial embargo on grain shipments to the Soviet Union after its invasion of Afghanistan. But there has never been a blanket declaration in advance of such a policy on so broad a scale. President Reagan and Secretary of State Alexander Haig support the concept of linkage. But trade veterans decry it as naive. Says one former Carter trade official: "Brock wouldn't advocate such a policy if he had more time on the job." The "anti-linkage" argument is that trade cannot be turned on and off because of a shift in foreign policy. If the U.S. becomes known as an "unreliable supplier," countries will take their business elsewhere. Adds the official: "What would have happened during Viet Nam if we had threatened to cut off trade with Canada unless they returned our draft evaders?"

Other lights and shadows in the policy are becoming apparent. The Government will permit private companies to be more aggressive in selling nuclear technology to such countries as Brazil and Pakistan. The Carter White House temporarily blocked shipments of uranium to Japan four years ago because of a dispute over that country's plan to build a nuclear reprocessing plant. The Reagan Administration will pay less attention to questions of human rights violations in determining its trading partners. In 1977 Carter sought a ban on certain exports to Argentina as a protest against that country's human rights policy.

The Administration will probably move to alleviate the tax burden of Americans working abroad. U.S. contractors are now sometimes forced to use foreign labor to keep their bids competitive for overseas work because U.S. taxes make it too expensive to send U.S. workers abroad. The vague language of the Foreign Corrupt Practices Act of 1977, aimed at stopping bribery to secure overseas sales, currently discourages some businessmen from getting involved in exports at all. The Administration is likely to support clarification of the law.

There is still uncertainty about Administration intentions on trade with the Soviet Union. Some Reagan officials say that they are only looking for a sign of reduced tensions in, say, Poland before increasing trade with Moscow. Says Brock of the Soviets: "We're waiting for a signal on how they are going to behave in the international community." The Administration's foreign policy hardliners, though, are less interested in trade. The new man in the key position of granting export licenses for all Communist countries is Lawrence Brady, 41 , Assistant Secretary for trade administration at the Commerce Department. Brady had been deputy director of the office of export administration from 1974 to 1980, when he resigned in a huff over his belief that the Carter Administration was being too liberal in granting export licenses. He points out, for example, that trucks produced in the Kama River plant, built with U.S. help, were used by the Soviets in the invasion of Afghanistan.

Meanwhile, the partial Soviet grain embargo continues, despite Reagan's campaign promises to end it. Administration officials fear that lifting the embargo would be seen by the Soviets as a sign of weakness. American farmers, who once loudly protested the embargo, do not seem to be hurting. Most of its ill effects have been offset by increased grain sales to China and Mexico.

The Administration will not be able to wait for the white paper before reaching a decision on its most pressing trade issue: auto imports from Japan. Last week the Reagan Cabinet remained split on the question. Brock, Commerce Secretary Malcolm Baldrige and Transportation Secretary Drew Lewis told a Senate subcommittee that they favor some voluntary slowing of Japanese car imports. Opposing trade restrictions are the Administration's top economic officials: Treasury Secretary Donald Regan, Budget Director David Stockman and Chief Economist Murray Weidenbaum. The President last week postponed a final decision in hopes of forging a compromise between the two groups while seeking concessions from the American auto industry on wages, investment and quality control.

The Japanese auto question has become the sharpest economic dilemma for the young Administration. A committed free trader, Reagan has also promised trade relief to auto workers. Said he in a campaign stop in Detroit last September: "I think the Government has a role to convince the Japanese that the deluge of their cars into the U.S. must be slowed while our industry gets on its feet." But hin dering the availability of Japanese cars in the U.S. could result in substantially higher auto prices for American consumers and hurt the Administration's battle against inflation. The outcome of the Japanese auto issue will give a clear signal of the trade policy for the entire Reagan Administration. Administration.

-By John S. DeMott. Reported by David Beckwith and Gisela Bolte/ Washington

With reporting by David Beckwith, Gisela Bolte

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