Free Trade Doesn't Work

by Ian Fletcher

  The WTO not only strikes down laws, but prevents good laws from being made in the first place. For example, the State of Maryland was intimidated against passing sanctions on the Nigerian dictatorship for fear of WTO complications.590

  RIGGED NEGOTIATIONS

  In adopting these agreements, democratic debate is sabotaged at every turn. Because their details are ill-equipped to stand the light of day, most contain both public and secret (so-called side letter) provisions, to which only the governments signing them are privy. American trade negotiators have even been known to withhold details of these treaties from other U.S. government departments whose laws they would overturn.591 When George H.W. Bush announced finalization of the NAFTA text in 1992, he trumpeted this “achievement,” but was so afraid of public reaction to the details that he would not release the text until after he had left office. The House of Representatives has exacerbated this erosion of democracy by agreeing to so-called Fast Track provisions (effective 1974-1994 and 2002-2007), which forfeit its right to debate details, restrict it to a mere 20 hours of debate, and require a straight yes-or-no vote with no amendments. The Senate has given up its right to filibuster.592

  These agreements are administered by distant (in the WTO’s case, Geneva, Switzerland) and unaccountable bureaucrats. They are susceptible to deliberate manipulation by corporations whose interests, by their own blithe admission, do not align with those of the United States—or any other country, for that matter.593 These bureaucrats operate largely in secret and even when they do not, they employ a deliberate technical abstruseness calculated to frustrate review of their actions by outsiders. Corporate lobbyists are welcomed and have the funding to intervene seriously. Corporations “rent” their own governments, which then cloak their agendas in the name of their respective nations. Most developing nations simply cannot afford the hordes of expensive staffers needed to negotiate effectively, even assuming they had leverage to negotiate with in the first place. Only a token presence from citizen groups is allowed.

  When WTO agreements are negotiated, the organization’s one-nation, one-vote principle goes by the board and the real deals are struck in so-called Green Rooms by the big players, who then present the results to the others on a take-it-or-leave-it basis.594 (The term of art for this tacit abrogation of one-nation, one-vote is “invisible weighting.”) William Greider has thus described the WTO as:

  A private club for deal-making among the most powerful interests, portrayed as a public institution searching for international “consensus”…The WTO aspires, in effect, to create a Bill of Rights for capital...The system defends property rights but dismisses human rights and common social concerns as irrelevant to trade.595

  The de facto internal politics of the WTO usually consists in aggressive U.S. pushes for freer trade, restrained somewhat by the EU, with the larger developing nations like Brazil and India representing the interests of the developing world.

  REVERSING EXISTING PROGRESS

  These trade agreements threaten legislative progress already made. For ex-ample, only three major environmental treaties enjoy protection from potentially being overruled by NAFTA as trade restrictions: the Convention on International Trade in Endangered Species, the Montreal Protocol on Substances that Deplete the Ozone Layer, and the Basel Convention on the Control of Transboundary Movements of Hazardous Wastes.596 All the rest are fair game. And the world has 200 or so other environmental agreements vulnerable to being overruled as trade restrictions by the WTO.597 In the words of Carl Pope, head of the Sierra Club environmental group:

  The treaties that we have negotiated do not permit the enforcement of international environmental obligations. These are basically get-out-of-jail-free cards for the governments of these countries that say they don’t have to abide by these international treaty obligations. These are not treaties to enforce environmental laws. These are treaties designed to shield all of the countries, including the United States, from our international environmental obligations under treaty law.598

  While (as its supporters endlessly point out) the WTO cannot literally strike down American laws as the Supreme Court can, it can still demand that the U.S. change its laws or suffer a penalty. This has the same effect, especially when our government is already looking for an excuse to ditch an existing law. WTO tribunals do not observe elementary principles of justice, such as requiring the burden of proof to be on the challenger to existing laws,599 and require unduly stringent standards of proof before allowing trade restrictions to prevent harm to human health or the environment.600 Nevertheless, their rulings are deemed to be treaty law, which American courts are required to enforce (and place above domestic laws) under Article VI, Clause 2 of the U.S. Constitution.601 Nations can theoretically leave the WTO, but in practice this is difficult after their economies have adjusted to the trade concessions involved in joining.

  Even when the WTO does not overturn laws, it still refuses to place its enforcement powers, like authorizing trade sanctions, at the service of anything except free trade. Not environmental violations, not labor standards, not human rights, not even invading one’s neighbors.602 Except it does have a nasty little device called cross-conditionality, which means trade sanctions can be used to enforce the dictates of the IMF and the World Bank.603 (Conversely, refusal of loans by these institutions has been used to enforce trade openings, as has withdrawal of foreign aid.)604 So although free trade advocates would prefer to separate discussion of free trade from the rest of the free-market Washington Consensus, these policies are tied together in practice.

  Like many clubs, the WTO has a tendency to impose higher standards on those who want to get in than it asks of existing members. Even desperately poor nations have been subjected to this: Cambodia was forced to comply with intellectual property standards on a schedule even faster than that required of other developing nations like India.605 And thanks to the WTO’s so-called “single undertaking,” nations must agree to its entire package of requirements in order to join. No consideration of the diverse needs of economies at different stages of development, or with different strengths and weaknesses, is allowed.

  The WTO also implements a number of problematic ancillary legal structures, like its so-called Trade-Related Intellectual Property Measures (TRIPs). These basically require foreign nations to adopt American-style patent law. This has encouraged, even if it has not literally caused, chicanery such as patenting medicines and seed varieties “discovered” by commercializing the botanical knowledge found in the traditional cultures of nations like India. Genetically modified seeds, 99 percent of whose design is the work of millennia of breeding by ordinary farmers, have received one percent modifications and then been denominated entirely new creations, protected by patent.606 Even more brazenly, specific properties of plants already known to traditional medicine have been patented.607

  Trade agreements between the U.S. and individual countries are rife with all sorts of mischief, tucked away in various clauses. For example, strict requirements on the protection of intellectual property have been incorporated into trade agreements with nations such as Jordan and Chile. Within reason, this is a good thing, but these agreements have thereby narrowly restricted poor nations’ use of compulsory licensing of patented drugs to force prices down.608 These agreements have also imposed the same restrictions back upon the U.S.—which may permanently block use of this policy to control drug prices and the taxpayer’s costs for medical programs. The WTO reached an agreement on paper in 2001 to allow public health to take priority over patent rights, but the U.S. has used individual trade agreements to evade it. The EU, while not actively pursuing this strategy itself, has nonetheless benefited from foreign nations tailoring their patent laws to this American pressure; such “piggybacking” is a common strategy of this sly bloc.609

  THE GATT: LESS RIGIDITY, BETTER RESULTS

  The WTO promotes itself as a universal, consistent, and objective “rules-based” system, fairer than its 1947-1994
predecessor the GATT, which was a loose framework of country-by-country agreements. The WTO’s universal rules supposedly let even the weakest players in the global economy, with insufficient leverage to force open foreign markets on their own, enjoy the same benefits of free trade that the strongest enjoy. But the price of this universality is twofold: first, it makes no sense at all unless its underlying premise (free trade is always best) is correct, and second, it entails rigidity and authoritarianism.

  The resulting lack of room for compromise has actually made the WTO more unstable, crisis-prone, and contentious than the GATT ever was.610 The GATT was a free-trade system, too, so it was far from innocent, but it did allow, for example, for “special and differential treatment” exceptions to free trade for such purposes as controlling trade deficits and promoting infant industries.611 As a result, developing nations could carve out solutions to their own particular circumstances and levels of development. And the GATT was more counterbalanced by regional trading blocs, such as the Southern Common Market (in Latin America), the South Asian Association for Regional Cooperation, the Southern African Development Community, and the Association of Southeast Asian Nations, which often sided with the interests of developing countries.612

  The WTO’s Trade-Related Investment Measures (TRIMs) also ban many policies developing nations can use to obtain a modicum of leverage over multinational corporations, such as local employment requirements and export quotas.613 TRIMs also rule out help for local corporations like subsidized loans and export subsidies. And the WTO has tried to prohibit limiting foreign ownership of corporations to under 50 percent—an understandable way for developing nations to bring in foreign capital and expertise without completely surrendering control of their economies.

  The WTO now prohibits many of the trade and industrial policies with the best records of success in the developing world. For example, it bans domestic content requirements, export performance requirements, import quotas, and foreign exchange rationing. While it still technically allows some of these policies, they are only permitted as exceptional and temporary provisions, or require agreement between the two trading partners. The latter, especially, tends to make them mere bargaining chips to induce developing nations to submit to demands in other areas, not fundamental commitments of the system, built into it because the policies are understood to work.

  THE POWER POLITICS OF TRADE

  It was only after about 1980, as the GATT’s ideological arteries began to harden prior to its morphing into the WTO in 1995, that its former flexibility began to disappear. Cynically, one might blame the decline of the Soviet Union and world socialism generally. The GATT’s 1950-1980 heyday seems to have coincided with global capitalism’s Cold War need to coax the rest of the world out of the Communist camp.614 It is quite possibly no accident that the Third World made its greatest economic strides from about 1950 to 1980: more Third World nations experienced periods of solid growth and fewer went through economic crises. According to one group of scholars at the UN’s Department of Economic and Social Affairs:

  In the 1960s and 1970s, nearly 50 out of a sample of 106 developing countries experienced one or more prolonged episodes of sustained and high per capita income growth of more than 2 percent per year. Since 1980, however, only 20 developing countries have enjoyed periods of sustained growth. In contrast, no less than 40 developing countries have suffered growth collapses, or periods of five years or longer during which there was no growth, or a decline, in per capita income.615

  The WTO has not been particularly kind to the United States, either—which should give pause to those who regard the whole thing as a vast American plot. Under the GATT, the U.S. lost only 61 percent of the disputes it submitted for adjudication. But under the WTO, it has lost 74 percent of the time.616 The WTO has also engaged in judicial activism aimed at systematically rewriting American trade law to American disadvantage. As Robert Lighthizer, a former Deputy U.S. Trade Representative, told a hearing of the House Trade Subcommittee in 2007:

  Rogue WTO panel and Appellate Body decisions have consistently undermined U.S. interests by inventing new legal requirements that were never agreed to by the United States....Our trading partners have been able to obtain through litigation what they could never achieve through negotiation. The result has been a loss of sovereignty for the United States in its ability to enact and enforce laws for the benefit of the American people and American businesses. The WTO has increasingly seen fit to sit in judgment of almost every kind of sovereign act, including U.S. tax policy, foreign policy, environmental measures, and public morals, to name a few.617

  For example, the WTO ruled in 2007 that the Unlawful Internet Gambling Enforcement Act interfered with free trade in “recreational services.” More importantly, it has made a string of rulings too technically abstruse to inflame public sentiment but nonetheless important for their behind-the-scenes effects.618 Perhaps the most flagrant was forcing repeal of the Byrd Amendment, a 2000-2006 American law that caused penalty tariffs in dumping cases to be paid to the victimized industries themselves, rather than to the U.S. Treasury. In response to protests by the EU and seven other nations, the WTO ruled the amendment illegal in 2002 despite the fact that there is nothing in any WTO treaty even mentioning what governments may do with penalty money. In 2005, backed by WTO permission, the EU thus imposed a 15 percent retaliatory tariff on American paper, farm goods, textiles, and machinery.619 (This is standard procedure: the WTO has no enforcement powers of its own, but works by authorizing retaliation by the injured party against goods chosen to maximize political pressure.) In 2006, Congress folded and repealed the amendment.

  POWER-HUNGRY BUT BIDING ITS TIME

  All these problems with the WTO are no secret. They are the major reason its drive for ever tighter global economic integration has stalled in recent years. The 1990s were, in retrospect, the gung-ho era for free trade, but a visible turning point occurred in 1999, when the famous Battle in Seattle protestors disrupted the WTO’s meeting there. Unfortunately, the main lesson the WTO seems to have learned was, “Don’t hold meetings where protests are legal,” so in 2001, the next round of talks was held in Doha, capital of authoritarian Qatar. Protests were simply banned.620 This did nothing, of course, to restore the rapidly eroding credibility of free trade or the WTO’s authoritarian implementation of it, so the talks collapsed after only four days. The next round of meetings in 2005, in similarly well-policed Hong Kong, was held in an atmosphere of deliberately lowered expectations. These were fulfilled, and the WTO’s agenda has slowed to a crawl in the years since.

  Despite its currently slow progress, the WTO retains an inexorable bureaucratic will to power. It is clearly waiting out a tide that it expects will eventually turn. The desires of the multinational corporations and relentlessly power-accreting bureaucrats that are its driving force have not changed, even if both are pragmatic enough to draw back occasionally. The WTO’s tendency is to expand over time on two separate tracks. Track one, for those powerless to resist its dictates (or foolish enough to actually believe in them), consists in ever-more-rigid rules, of ever greater scope, designed to usher in a borderless world economy, at least on paper. Its ultimate ambition has been described as “writing the constitution of a single global economy.”621 Track two, for nations shrewd enough to practice mercantilism while preaching free trade, is a puppet show designed to square these nations’ policies with the legal framework that props open their foreign markets. Since this puppet show furthers both the power of the bureaucrats and the profits of the corporations, neither has any reason to announce publicly what both know perfectly well: free trade is largely a charade, the real meaning of which is well understood by those in the know but differs markedly from the literal meaning of the phrase.

  Thanks to the many ways in which trade is manipulated, it is, in fact, estimated that only about 15 percent of world trade is genuinely free.622 So perhaps the saddest defect of the WTO is that despite its undemocratic and au
thoritarian implementation of an economic ideal that makes no sense even in theory, it actually has failed to deliver where free trade might do some good. Rational protectionism is the best policy, followed by a genuinely level playing field; the WTO has delivered neither.

  The WTO is rife with posturing of all kinds. The big news at Hong Kong, for example, was the U.S. government’s announcement that it would lower its tariff on imported cotton. But the U.S. is a cotton exporter. Such empty stunts are not confined to the U.S.: in 2001, the EU’s “Everything But Arms” initiative unilaterally opened its markets duty-free to the 49 poorest nations in the world—which have almost no commercially viable exports (or they wouldn’t be the 49 poorest nations in the first place). The EU also imposes very restrictive rules of product origin, so only about half the products eligible for this program in principle are eligible in practice; tricks like this riddle the system.623 Japan long ago perfected the art of combining nominally open borders with a closed distribution system inside the country, and its pupils China, Korea, and Taiwan have followed right behind. Offset requirements—buy $X of our exports and we’ll buy $Y of yours—are illegal but common.624 The Articles of Agreement of the IMF prohibit members from manipulating their exchange rates.625