Friday, April 09, 2004

WTO Weakness 

Although there hasn't been quite as much coverage of them over the last year or so, anti-globalization protesters continue to pop up here and there, despite this Economist article suggesting the movement is effectively dead. Last winter in Miami, hundreds of protesters showed up to yell about the proposed Free Trade Area of the Americas. Anti-WTO banners are visible at more or less every antiwar protest. And we can expect there will be a presence from this crowd at the G8 summit in Georgia later this year.

Part of the protesters' case against the WTO is their contention that it removes nations' ability to make their own laws, effectively ceding sovereignty from democratic bodies to unaccountable tribunals. But an article in today's Washington Post (free registration for non-paranoids) suggests that the WTO is far, far weaker than its opponents paint it. The article attempts to show that the US Congress is terribly gridlocked, by pointing out that
nearly two years after the World Trade Organization ruled an obscure U.S. export subsidy illegal, and more than a month after the European Union imposed retaliatory sanctions, Congress still has not repealed the subsidy. Yesterday, the Senate joined the House on an Easter recess after failing to pass legislation that could lift the sanctions crippling companies such as Hord Crystal Corp. in Rhode Island.
"This could lead to the demise of this company, and this company has been around since 1946," said Bill Feldman, whose jewelry industry has been among the hardest hit. "All I can say is, companies like ours . . . do not have the time to watch them play around..."

In August 2002, the World Trade Organization gave Europe the go-ahead to punish U.S. companies if their government did not repeal the Foreign Sales Corporation/Extraterritorial Income Exclusion (FSC/ETI) subsidy for exports. Last November, the European Union drafted a hit list designed to maximize the pain for lawmakers.

Targeted for sanctions were industries in heavily Republican states, many of them already teetering on a financial precipice: leather goods and wood products, paper and carpets, textiles and footwear, travel goods and jewelry, even thoroughbred racehorses.

To complicate matters, the EU exempted industries that European businesses depend on, such as aircraft manufacturing.
All of this makes clear a couple of important points about the WTO. The WTO and its tribunals can't actually strike down domestic laws. They can only authorize successful complainants to put up limited countervailing protection. The complainants don't actually have to raise their own barriers even if they get permission, and countries successfully complained against can decide to live with the consequences.

Or in this case, fail to decide one way or the other. Theories of the political economy of trade would predict that the EU's targeted tariffs would have prompted almost immediate repeal of the offending subsidies. The pain to producers is clearly intense, and the limited range of affected firms would suggest that collective lobbying would be fairly easy. Furthermore, the EU targeted firms in districts controlled by the party in power in both houses of the legislature and the White House. But according to the article, Congress has been too confused to act:
Last fall, both the House Ways and Means Committee and the Senate Finance Committee reported out complex business tax bills that would repeal the subsidies and replace them with a variety of other business tax cuts. The bills have languished since as lawmakers have debated internal procedures.

And the simple task of repealing a $5 billion-a-year export subsidy has grown ever more complex as lawmakers seek to please each other and the conflicting demands of the business lobby. The Senate bill now stretches to 930 pages, with tax breaks worth $72 billion over 10 years, offset by a dizzying variety of tax loophole closers, revenue raisers and regulatory changes.

In March, the European Union imposed the first WTO-approved trade sanctions against the United States, a 5 percent surcharge on goods coming into Europe that will rise by a percentage point each month until it reaches 17 percent. It now is 6 percent, heading to 7 percent before Congress shakes off the cobwebs from its spring break.

"It'll go all the way up to 17 percent before they do anything about it. I'll guarantee it," said Ken Anselm, the self-described "owner, CEO and janitor" of tiny Western Cutterheads Inc., which makes mass-production wood lathes in Kentucky.

The repercussions have rippled across the country.

In Mississippi, Shuqualak Lumber Co. depended on Europe for 5 percent of its southern yellow pine sales and 8.5 percent of its revenue. That's all but gone, said W. Anderson Thomas, a company vice president. Pacific Lumber Co. in California has taken to paying the duty itself, hoping to hold on to its European customers until Congress acts.
In this pre-election period, with outsourcing and manufacturing job loss being such a colossal issue that the president announced the appointment of a new "manufacturing czar" today, it's hard to believe that the relevant committee chairmen just haven't figured out that they could ram through ad-hoc legislation dealing only with removing the subsidy. It's just as unlikely that clever Democrats could be holding up consideration of the bills, especially in the House, where the majority party has enormous agenda-setting power. It would seem to me instead that there's probably something of a stalemate between backers of the (now illegal) subsidies and those hurt by the countervailing measures. In other words, domestic politics still matters as much as, if not more than, a WTO ruling.

"Sure," the WTO protester might say, "but this is because business is fighting business. When it comes to labor or the environment, business and its WTO handmaidens will win every time." Maybe so. But it would seem to me that the lesson here is that there's no need to organize against the WTO if you can organize a domestic lobbying coalition sufficient to keep Congress from adjusting to negative WTO rulings. There are a lot of good things the WTO can do (and hopefully will) for the worlds' poorest countries and their citizens. If protesters are concerned about keeping up strong labor and environmental laws in rich countries, today's news suggests they can do so quite successfully by focusing on domestic politics.

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