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Democratic accountability and the Doha Round

By Peter Morici
web posted September 24, 2007

History teaches that open markets best promote economic progress, but markets without good rules can pitch us into chaos, and the rule makers must be broadly accountable or tyranny will follow. In our effort to bring order and fairness to global markets, the Doha Round of World Trade Organization negotiations could sabotage democratic accountability by relegating tough issues to unelected bureaucrats in Geneva.

WTO agreements circumscribe much of what national governments may do to promote public welfare while managing competition across international borders.

For example, the Agreements on Technical Barriers to Trade (TBT) and Sanitary and Phytosanitary Standards (SPS) permit the United States to block imports of tainted food and toys containing lead paint, but require that safety regulations be backed by science and be evenly applied between domestic and imported products.

The WTO Appellate Body struck down an EU ban on imported beef from cattle treated with growth hormones, because the EU could not produce convincing scientific evidence of threat to human health, and the EU permits the sale of European pork from pigs treated with hormones.

Other WTO rules ensure fair competition in transnational markets, much as competition and antitrust laws do inside the EU and United States. U.S. antitrust laws prohibit a Denver tire manufacturer from using profits it may obtain by selling at high prices in Seattle, where it may face little competition, from selling at prices below cost and driving out other businesses in Los Angeles, where competition may be intense.

Similarly, the WTO Anti-Dumping Code permits the United States to impose duties on tires manufactured in Kyoto, if those are sold in Los Angeles at prices less than in Japan or below the Kyoto firm's cost of production, if that harms the U.S. industry.

The application of WTO rules to national policies, whether to ensure public health or fair competition, is complex and often arcane. It can lead WTO bureaucrats, who settle disputes among governments, to impose maddening conditions.

For example, U.S. dumping laws, written to comply with WTO rules, do not give the Kyoto tire manufacturer much credit for charging higher prices in Seattle if it dumps tires and harms competitors in Los Angeles by charging prices there below its costs. Quite elegantly, less importance is attributed to the higher prices charged in Seattle than the predatory prices charged in Los Angeles when computing the antidumping duties.

The logic is compelling. You can't justify speeding at 90 miles an hour in Los Angeles by driving 15 miles an hour in Seattle.

This practice is called "Zeroing" and makes dumping laws consistent with U.S. and EU antitrust laws. The WTO Appellate Body struck down this approach in the application of both U.S. and EU dumping laws in a series of decisions from 2001 to 2006.

It is an absolute puzzle why a Denver tire manufacturer cannot use profits from sales in Seattle to drive out competitors in Los Angeles, but the WTO requires the U.S. government to permit a Kyoto manufacturer to practice the same predation.

Whether it is product safety, antitrust or regulations to protect public morals, national policies differ among countries and are not easily generalized into reasonably fair international rules.

As with Zeroing, WTO Agreements may be vague. WTO officials may be forced to resolve particular disputes, but their findings can establish quite perverse competitive rules.

Domestically, national legislatures make new laws when courts make bad rulings, and in the WTO, there is always the next round of multilateral negotiations to further refine the rules.

Predictably, the United States wants to address Zeroing in Doha Round of negotiations but Japan and Brazil argue that since the WTO Appellate Body has ruled, the issue is closed.

That is folly. Zeroing is just the kind of issue national legislatures address when judges hand down bad decisions, domestically, and it is ripe for renegotiation in the Doha Round.

Similarly, other countries may have their own frustrations with exasperating WTO decisions, and those should be addressed too.

WTO Codes are general and in many places vague. Failure to review dispute settlement findings in multilateral negotiations would turn over too much rulemaking to unelected bureaucrats in Geneva. That is a sure prescription for bad rules and tyranny.

Conceding to Japan and Brazil, by taking Zeroing off the Doha agenda, would set a dangerous precedent. It would undermine confidence that the WTO can provide sound, democratic governance, and could ultimately result in a dismantling of the benefits the institution provides. ESR

Peter Morici is a professor at the University of Maryland School of Business and former Chief Economist at the U.S. International Trade Commission.


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