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Created 3/22/1997
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Bad Trade: The Cuban Embargo and the Future of the World Trade Organization

Brad De Long

March 25, 1997; draft 3.0

 


We all know why trade with China is vital. Trade with China gives executives and entrepreneurs contact with the liberal democratic civilization of the industrial west. It shows them that things do not have to be as they are in China--with all power in the bloody hands of a narrow oligarchy and a broader party of boot-lickers. Although China's human rights record has been abysmal, the best way to change this is to "engage" China so that its government has a stake in the good opinion of the rest of the world.

We also all know why no trade with Cuba is vital. Trade would give Fidel Castro and his lieutenants a powerful boost. Prosperity from trade would strengthen the regime, and delay democratization. The best way to nurture civil society and dissent in Cuba is by embargo. Castro and his high party officials are not personally impoverished, but that is the point: only by making the material economic failure of the Cuban regime crystal-clear can the U.S. "help" Cuba.

So far this is bipartisan Washington hypocricy. Congress is eager to vote for sanctions on Cuba, and reluctant to vote for sanctions on China. The President is eager for "engagement" with China, and happy to sign the Helms-Burton Act punishing Cuba. But today's inconsistency is no worse than under George Bush, Ronald Reagan, or before. The legacy of the Cold War, the hatred of Castro by immigrants from Cuba, provocations like the shoot-down of "Brothers to the Rescue" planes over international waters (along with Castro's belief that he is strengthened mightily by confrontation with the United States) have brought us here, where American politicians are comfortable with one set of principles for the Caribbean and another for the Pacific. The embargo has been tough luck for twelve million Cubans who cannot buy or sell in the U.S. But so far it has made little difference otherwise.

That is about to change.

The different principles for trade with Cuba are about to cause trouble.

Today the U.S. threatens to prosecute Wal-Mart if its Canadian subsidiary sells Cuban-made pajamas that the Canadian government orders Wal-Mart Canada to sell. The White House denies the newly-established World Trade Organization [WTO] jurisdiction over cases involving last year's Cuba-punishing Helms-Burton Act (which denies U.S. visas to executives of companies that use buildings or equipment seized by Fidel Castro, and which threatens financial judgments by U.S. courts against such companies). Europeans and Canadians point out that Helms-Burton infringes their sovereignty and violates America's obligations under the charter of the WTO. They are right. The U.S. counters that twelve million Cubans threaten the "national security" of two hundred sixty million Americans, and threatens that it will boycott any hearing the WTO schedules.

These are strange positions for President Clinton to take.

From the perspective of the U.S. economy, if the government "wins" the dispute and the Europeans and Canadians back down then the economy loses. This clash is the WTO's first major case. If the WTO's authority is denied or the case withdrawn, all will observe that the rules the WTO lays down are only binding when the strong wish them to be. A big step will have been taken away from trade as win-win exchange governed by agreed-upon rules policed by a referee (the WTO) and back to trade as a win-lose exercise of power, with all worse off than they might have been.

From the perspective of Clinton's place in history, his principal achievement has been trade liberalization. The capstone of that policy was the creation of the WTO. An open world trading system is unlikely to work well without a referee--the WTO--to police the agreed-upon rules of access to markets. The whole line of policy that culminated in the WTO was an accomplishment: the putting-in-place of the final piece of Roosevelt's and Truman's grand design for a free world that they had tried and failed to put-in-place in their day.

So why Clinton's aggressive defense of Helms-Burton? Why the willingness to weaken his major substantive achievement? It's not that Clinton has changed his mind, and is now pursuing a general policy of "linkage" between trade and democratization that applies to Cuba. Consider China again: it exports 24% of GDP, up from 4% in 1978. Today China's economy is more vulnerable than ever to coordinated sanctions that would cut off its exports to industrial countries, yet seems less open to democracy than ever as well. China's leaders have drawn conclusions from the collapse of the Soviet Union: if they allow dissent or take steps toward democracy they will be dead or jailed in a decade, and that no amount of economic benefit is worth the destruction of their regime. If increasing democratization is the test for access to the international trading system, China has flunked. Yet sanctions against China are not in the cards.

It is as if the White House thinks that the end of every story is a signing ceremony on the White House lawn: that the sole point of the whole exercise is to sign documents and then distribute the pens as party favors. But useful, functioning institutions are not created by a single stroke of the pen.

We remember the Marshall Plan today not because Secretary of State George Marshall gave a great speech or because President Truman successfully maneuvered the bill creating the staff and bureaucracy of the European Recovery Administration through congress. We remember the Marshall Plan because Truman had follow-through: he fought for half a decade to breathe life (and money) into the institutions so that they would function, and would make a difference for the post-World War II world.

Will we remember the World Trade Organization in half a century?


Op Eds

Created 3/22/1997
Go to
Brad De Long's Home Page


Professor of Economics J. Bradford De Long, 601 Evans
University of California at Berkeley
Berkeley, CA 94720-3880
(510) 643-4027 phone (510) 642-6615 fax
delong@econ.berkeley.edu
http://econ161.berkeley.edu/