WTO is the big kid on the seesaw

The recent WTO attacks on U.S. consumer and environmental policies (see here, here and the one about to be announced here) have revived discussion of whether current trade agreements leave enough space for countries to regulate in the public interest.

Those who think not can cite to the fact that the WTO rules against challenged policies 90 percent of the time. Those who think yes often cite the WTO agreements’ so-called “exceptions” clauses. For instance, the WTO’s General Agreement on Tariff and Trade (GATT) Article XX reads in part:

“Article XX: General Exceptions

Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade, nothing in this Agreement shall be construed to prevent the adoption or enforcement by any contracting party of measures:

(a) necessary to protect public morals;

(b) necessary to protect human, animal or plant life or health;…

(d) necessary to secure compliance with laws or regulations which are not inconsistent with the provisions of this Agreement, including those relating to customs enforcement, the enforcement of monopolies operated under paragraph 4 of Article II and Article XVII, the protection of patents, trade marks and copyrights, and the prevention of deceptive practices;…
 
(g) relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption;…”

Sounds pretty sweet, doesn't it? Similar provisions are contained in the WTO’s General Agreement on Trade in Services (GATS) Article XIV.

While the WTO’s proponents argue that these exceptions help preserve sovereign policy space, these defenses are unsuccessful over 96 percent of the time. Put differently, countries that actually go out of their way to invoke the so-called "defenses" are even less successful than those that simply lay down and take the beating. 

We can break down the record of these exceptions in more detail.

Typically, when the WTO Appellate Body and panels examine the exceptions, they take three steps.

Say that Australia wanted to defend its anti-smoking policies from WTO attack by invoking GATT Article XX(b) above. The panel would first establish whether it fell within the scope of the subparagraph (b) by determining whether the policy was connected to the protection of human health.

Then, the panel would inquire whether the policy were “necessary” to protect human health, a step which itself is typically broken up into "weighing and balancing" the legitimacy of the aim of the policy (yes, the WTO gets to make a call on the legitimacy of the policies the officials you elected pass), the contribution of the policy to achievement of the aim, the trade restrictiveness of the measure, and whether a less trade restrictive policy option is available.

All these factors are not weighed equally, as it turns out: the trade-related metrics are the big kids on this seesaw.

Flipper gets axed by the WTO

Today, U.S. efforts to reduce dolphin deaths by corporate tuna fishers through dolphin-safe labels on tuna were found to violate the WTO. This follows last week's ruling that U.S. efforts to reduce teen smoking violated the trade organization's rules. These smackdowns of major consumer regulations will be followed by a third in the near future, when the WTO is expected to rule against country of origin labeling for beef.

What this ruling means for consumers and dolphins

When the WTO rules against a country's policy, that country has to change the law to comply, or risk trade sanctions.

The U.S. will have to get rid of the dolphin-safe labels, or water down the policy to Mexico's satisfaction. Mexico's long-standing position (reiterated in this case) is that it should get to receive a dolphin-safe label, even though tuna corporations there use methods to capture tuna that are dangerous for dolphins.

The U.S. currently defines "dolphin-safe" as tuna not caught using dangerous purse-seine nets anywhere in the world. For tuna caught in the Eastern Pacific, a unique region where dolphins and tuna swim together, additional steps are required to earn the label.

Shipping fleets of the U.S. and many developing countries (like Ecuador) operating in the Eastern Pacific have been able to meet these higher standards, thereby giving greater assurance to consumers that their tuna purchases are not harming dolphins.

In contrast, much of the Mexican fleet has chosen not to take such steps. Mexico has advocated use of a distinct standard that even the WTO acknowledges is weaker than the U.S. standard. The WTO ruling wrote of that distinct standard:

... taken alone, it fails to address unobserved adverse effects derived from repeated chasing, encircling and deploying purse seine nets on dolphins, such as separation of mothers and their dependent calves, killing of lactating females resulting in higher indirect mortality of dependent calves and reduced reproductive success due to acute stress caused by the use of helicopters and speedboats during the chase. 7.739 We also note that, to the extent that the AIDCP standard addresses setting on dolphins and not other fishing techniques that may also result in adverse effects on dolphins, it would also not provide an effective or appropriate means of fulfilling the US objectives in this respect.

Nonetheless, the WTO ruled against the U.S. standard. (We explore more of the details of the ruling below.)

Initial reports indicate that the Obama administration will appeal the ruling, although the track record of successful appeals is very limited and the WTO rules against challenged policies 90 percent of the time.

The broader worry is that this ruling leaves the door wide open to attacks on similar environmental and consumer policies - not only in the U.S., but all WTO member countries.

What this ruling means for trade policy

All three of these cases have something in common: none of them related to efforts by the U.S. to intentionally discriminate against foreign goods, nor to protect our own producers. Indeed, in the beef and dolphin cases, no discrimination could even be proved. (In the smoking case, a finding of "discrimination" was established in a biased analysis we detail here.) This alone would suggest that a trade organization has no business passing judgment on such policies.

But we are in a new era of trade policy, where even non-discriminatory, reasonable, even-handed, popular policies (some with virtually no impact on international trade) can be ruled against.

What's more, all three consumer policies could be considered very "free market"-oriented. Rather than the big old government telling Americans what they can and can't consume, the dolphin and beef policies simply require honesty in labeling, so that the consumer can decide on their own free will what to consume, and let the market works its magic.

We've long known that more interventionist government policies (like import bans) can run afoul of trade rules. Indeed, the two adverse rulings at the WTO's predecessor organization in the early 1990s against the U.S. ban on dolphin-unsafe tuna led to the eventual removal of that effective and popular policy tool. Now, with today's ruling, we learn that even regulation by more "free market" means is on the WTO chopping block.

This is going to make it harder for the Obama administration to sell similar anti-consumer trade initiatives like the trade deals with Korea, Panama and Colombia to free-marketeers and environmentalists across the political spectrum.

The long saga of protecting dolphins

After passage of various dolphin protection laws in the 1980s, the U.S. fishing industry abandoned the cruel and environmentally devastating practice of surrounding dolphins with mile-long purse seine nets to trap the schools of tuna fish swimming under the hunting mammals.  The practice had led to the death of millions of dolphins in the Eastern Tropical Pacific, where dolphins accompany schools of tuna.  The U.S. laws forbid the sale of tuna caught with purse seine nets.

In 1991, a General Agreement on Tariffs and Trade (GATT) tribunal ruled that this ban violated GATT rules forbidding discrimination. With the debate over NAFTA’s passage raging, Mexico decided not to impose trade sanctions when the United States maintained the laws. The U.S. prohibition was again successfully challenged under GATT by the European Union in 1994.

After NAFTA’s passage, the Clinton administration launched an intense effort to change the U.S. law to bring it into compliance with the initial ruling, while Mexico threatened a new WTO case to enforce the old ruling. After a lengthy battle with Congress, the Clinton administration managed to pass a new policy that removed the ban on U.S. sales of tuna caught with purse seine nets.

However, an attempt by the Clinton and Bush II administrations to weaken the related labeling law defining what could be labeled “dolphin safe” was reversed after a series of U.S. court cases.

WTO Rules Against Dolphin-Safe Tuna Labels

Round Three of the GATT-WTO Tuna-Dolphin Case: GATTzilla Kills Flipper Again

WASHINGTON, D.C. – The World Trade Organization (WTO) has ruled against the popular U.S. “dolphin-safe” tuna labeling in a case brought by Mexico, according to a panel report released today. The WTO has struggled to regain legitimacy following the highly visible 1999 Seattle protests that derailed plans to expand the organization’s remit – plans that have been sidelined ever since. Today’s ruling will intensify public opposition to the WTO, said Public Citizen. This is the third time the WTO and its predecessor General Agreement on Tariffs and Trade have ruled against America’s dolphin protection policies.

“It makes very real the threats these overreaching ‘trade’ pacts pose. The first round of this case in 1991 became known to environmental activists as ‘GATTzilla Kills Flipper’ and ignited U.S. public opposition to what would become the WTO,” said Lori Wallach, director of Public Citizen’s Global Trade Watch. “Until that first ruling, and then a second one several years later, all we could do was point out worrisome negotiating text that we thought could undermine vital domestic environmental and other public interest policies – and then, suddenly, we had the proverbial smoking dolphin.

“In this case, a WTO tribunal is telling American consumers that having the product labels that we rely on to make sure that our shopping and dining choices do not result in dolphins being killed is a WTO violation. These are labels that apply to domestic and foreign tuna alike, that we pushed our Congress to pass,” said Wallach. “Fury about a foreign tribunal ruling against a popular U.S. consumer labeling law on a common food product, which has been explicitly and repeatedly approved by our courts, is among the few things likely to unite Americans across the political spectrum.”

Added Todd Tucker, research director for Public Citizen’s Global Trade Watch, “Dolphin-safe tuna labels are strictly voluntary; Mexico can sell tuna in the U.S. market with or without the label. ‘Voluntary’ is the new ‘mandatory,’ according to this WTO ruling. It tells consumers that even voluntary labels, and the subjective consumer preferences they may cultivate, are ripe for WTO attack.”

This ruling comes on the heels of two other WTO attacks on consumer protection and information policies. Last week, the WTO ruled against U.S. measures to reduce teenage smoking, while a recently leaked ruling concluded that country-of-origin labeling for beef is a WTO violation. All three of these consumer policies are very popular with Congress and the public. These adverse WTO rulings are likely to make it more difficult for the Obama administration to gain approval for three trade deals with Korea, Colombia and Panama that contain similar anti-consumer provisions, Wallach said.

November Deadline for Obama’s First Trade Deal Falls Away as Controversies Roil Chicago Trans-Pacific Trade Talks

American Medical Assoc. Enters Fray Over Inclusion of Tobacco, Alcohol in Deal; Obama Administration Proposal Limiting Access to Medicines Stirs Fury

CHICAGO – A range of controversies, mostly on health issues, has emerged at negotiations of the Trans-Pacific Free Trade Agreement (FTA) in Chicago this week, such that the vaunted deadline to complete the deal – the November Asia-Pacific Economic Cooperation (APEC) summit in Hawaii – will not be met. And after this eighth round of negotiations, troubling signs are emerging that the Obama administration’s first trade deal could roll back initial reforms made on affordable access to medicines made during the last round of George W. Bush-era trade deals, Public Citizen said today.

“While the administration keeps touting this potential first Obama trade pact as a new 21st century model, and instead of implementing the many specific trade reforms President Obama pledged as a candidate to avoid more job loss and ensure import safety, it appears the administration is pushing for something like NAFTA on steroids with Vietnam and Malaysia,” said Lori Wallach, director of Public Citizen’s Global Trade Watch.

Growing controversy over the trade deal’s threats to domestic regulation of cigarettes and alcohol escalated when the American Medical Association (AMA) made its first foray into the trade debate, sending a letter on Sept. 8 to U.S. negotiators demanding that tobacco and alcohol be excluded from the pact. The AMA and other public health groups intensified their focus on trade talks after the World Trade Organization (WTO) ruled recently that the U.S. ban on clove, cola and candy-flavored cigarettes in the 2009 legislation to combat youth smoking violated WTO requirements, and ordered the policy changed. This followed an attack by tobacco giant Philip Morris Asia against Australia’s proposed cigarette “plain packaging” rules using an international commercial agreement that follows on a similar assault by a Swiss Philip Morris unit on a similar Uruguayan law initiated last year. Both attacks use the “investor-state” private enforcement system the Obama administration is pushing for in the Trans-Pacific pact.

Meanwhile, various countries and U.S. health, consumer and development groups reacted with ire as the Obama administration sought to distract attention from a proposal it was submitting earlier this week to roll back Bush-era 2007 improvements for affordable medicines access by expanding trade pact patent rules. While the U.S. proposal was being submitted behind closed doors, a paper was released publicly announcing a U.S. “Trade Enhancing Access to Medicines (TEAM) initiative” that was advertised as revealing a new policy to increase access to medicines for consumers. In fact, this initiative simply repackaged many of the most problematic aspects of the long-standing, retrograde U.S. position on trade patent rules that restrict medicinal access.

“It is insulting that the Obama administration released this paper on ‘access to medicines’ on the same day that it put forth its most controversial and access-restricting provisions at the Trans-Pacific FTA negotiations,” said Peter Maybarduk, director of Public Citizen’s Global Access to Medicines Program. “The U.S. intellectual property proposal rolls back even some of the few protections for access to medicines in the Bush-negotiated trade pacts. The administration is heading rapidly in the wrong direction, at the expense of global public health.”

The Obama administration’s attempts to roll back the “May 2007” reforms of trade pact patent rules relating to medicine access, its insistence over objections by Australia and other countries that private corporate “investor-state” enforcement be included, and its rejection of exclusions for any product from the deal is likely to add more dead weight to its efforts to pass pending Bush-negotiated trade deals with South Korea, Colombia and Panama. These deals were signed in 2007. After months of insisting votes would happen “within weeks,” it is increasingly likely that Congress could consider the deals in October. These three trade deals contain the same foreign investor rights and private enforcement used by Philip Morris to attack tobacco regulation in other countries.

“Obama folks always say that there just was not much they could do to fix the Bush-negotiated Korea, Colombia and Panama deals, but that when the new administration negotiated its own trade pacts, it would do them differently,” Wallach said. “Well, now they’re negotiating their own trade deal, and it’s looking like a Bush NAFTA-style deal in key respects – and even worse in some areas – and that only builds even more opposition to Obama’s call to pass Bush’s  old deals.”

Trans-Pacific FTA negotiations currently include Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore, the United States and Vietnam. The next round of Trans-Pacific FTA negotiations will be held next month in Lima, Peru. No high-level negotiations will take place at the APEC summit in Hawaii in November.

At least 18,600 jobs offshored by corporations signing pass-the-FTAs ad

As part of the corporate ad campaign to push congressional passage of the NAFTA-style trade deals with Korea, Colombia, and Panama, the heads of 32 corporations placed an "open letter" in yesterday's National Journal Daily (subscription only). Thing is, many of these very corporations are certified by the U.S. government as having offshored thousands of jobs under past U.S. trade agreements. That's right, the advertisement claiming that these Bush-era FTAs are needed to create U.S. jobs is sponsored by many chronic trade-agreement offshorers of, um, U.S. jobs.

Moreover, while these CEOs claimed that these deals would create U.S. jobs, the government’s own official studies predict an increase in the U.S. trade deficit from the deals. And, an independent economist projected the net loss of hundreds of thousands of jobs from the pacts. The historical record of similar trade agreements is that the United States has slower export growth to countries we have NAFTA-style deals with than with other countries.

In reality, it's likely that these corporations are licking their chops waiting for the offshoring opportunities that will come with another batch of unfair trade deals. Thanks to the Department of Labor's Trade Adjustment Assistance (TAA) data on workers laid off due to imports and offshoring, we can see how these corporations have taken advantage of past unfair trade deals to ship jobs overseas. (And, given it provides a list of corporate offshorers, we can also see why the Republicans in Congress are keen to kill off this program that provides training and extended unemployment benefits to workers whose are certified as casualties of trade pacts, offshoring, and rising imports.)

We have a searchable form of the TAA database on our website. There you can see that some of these 32 corporations have shipped a combined 18,600 American jobs overseas since 2001. Consider that an example rather than a full accounting of the damage, as TAA is a narrow program that excludes many workers who may well have lost their jobs to trade pacts and imports but who do not meet the program's criteria. If a broader range of trade-related job loss is utilized, the Department of Labor reports over 35,000 workers who have lost their jobs at these companies due to trade since 2001.

Just to pick out a few examples, Whirlpool took advantage of NAFTA and shipped over 1,000 jobs at their Fort Smith, Arkansas facility to Mexico in 2008. Caterpillar, a major backer of the proposed trade pact with Colombia, laid off 338 workers at its Mapleton, Illinois facility when it shifted their work to Mexico. And it looks like Texas Instruments was getting a head-start on the offshoring possibilities offered by the Korea trade deal when it shipped 149 jobs at its Attleboro, Massachusetts facility to South Korea, Mexico, and China in 2005. It just so happens that electronics is going to be the hardest-hit sector in terms of the ballooning deficit from the Korea pact, so the remaining Texas Instruments workers in the United States should be wary.

This ad came the day of Obama's big jobs speech, and it turned out that he slipped in one definitely anti-jobs pitch, advocating for the passage of the Korea, Colombia, and Panama pacts. (Although this time, unlike in the State of the Union address, he did not make the dubious "70,000 jobs supported" claim.) If this isn't bad enough, Larry Summers, Obama's former director National Economic Council, last month argued that "We should not oppose offshoring or outsourcing."

After the jump is a list of the incidents of offshoring at the corporations that signed the letter pushing the three trade pacts:

(UPDATED 9/12/11)

What Big Bird Could Teach the WTO

When I was a kid, a particular Big Bird sketch on Sesame Street made a strong impression on me: "One of these things is not like the other":

It turns out that Big Bird could teach the WTO a thing or two.

As we wrote earlier this week, and have been discussing over at the IELP blog, the WTO ruled against a rare public health victory: namely, the Family Smoking Prevention and Tobacco Control Act of 2009 (FSPTCA).

This legislation included a number of provisions, but one that attracted a lot of attention was its ban on flavored cigarettes that often serve as starter cigarettes for teenagers because of their sweet taste. The ban included candy, cola and clove flavored cigarettes, but did not include menthol flavored cigarettes in its initial ban.

You or I can disagree with the reasoning, but there was a reason for that particular design: while some kids smoke menthols, so do large numbers of adults, specifically in the African American adult community. As the Obama administration documented in its submissions in the case (quoted at length below in language that would make University of Chicago, Cass Sunstein and the Freakonomics crowd blush), immediately withdrawing menthol from the market would increase hospital visits, and overnight create a massive black market for the cigarettes.

(And not that the administration argued this in its legal case, but can you imagine the political blowback of banning a product (menthol cigarettes) that is predominantly smoked by blacks, that will increase crime and smuggling in predominantly African American neighborhoods (many of which are already struggling), while leaving untouched regular tobacco products that are more often smoked by whites, whose neighborhoods are often less crime-ridden? This would be a pretty harsh blow to race relations in the U.S., and undermine support for public health regulation period.)

By my read, the architects of the FSPTCA had some pretty sound logic for their incremental approach, which contemplated restrictions on menthol in the future, after the efficacy of the teenage-targeted measures could be tested.

Returning to the clip above, as Big Bird shows us, one of the bowls of birdseed is substantially larger than the other three. The WTO panel did not study up on their Sesame Street when ruling against the FSPTCA. In the ruling, the panel decided that menthol and clove were "like products," and that (because Indonesia exported the latter to the U.S.) a ban on the latter was "discriminatory" within the WTO's Agreement on Technical Barriers to Trade (TBT).

While menthol and clove are both "flavored cigarettes," so are cola- and candy-flavored cigarettes. The U.S. argued, plausibly in my mind and to paraphrase Big Bird, that "one of these things is not like the other." Specifically, menthol. Why? Significant numbers of adults smoke them, particularly in the African American adult community. For that reason, it poses significant adverse effect risks that the others did not.

Cloves and candy flavored cigarettes, however, are not only flavored, but they are trainer cigarettes that appeal to teenagers in significant numbers, but not to adults in significant numbers.

Lori Wallach on HuffPo: "Trade Pacts Obama's Flacking in Jobs Plan Would Increase Trade Deficit Say Government Studies"

Check out Lori Wallach's latest piece on the Huffington Post.

 

Trade Pacts Obama's Flacking in Jobs Plan Would Increase Trade Deficit Say Government Studies

Everyone expects Obama's imminent jobs plan and related speeches to include a pitch to pass Bush's leftover Free Trade Agreements (FTA) with Korea, Colombia and Panama. ... Problem is, whatever one thinks about the idea of "free trade," the federal government's own studies predict that these three deals would increase the U.S. trade deficit. Higher deficits mean more jobs will be displaced by imports than are created by exports. This was a critical factoid largely missed by reporters covering Obama's speeches after the debt ceiling deal -- with many stories simply repeating Obama's claim that these FTAs were vote-ready job-creators for Congress to take up ASAP."

Read the entire piece at the Huffington Post to find out what you need to know about the trade aspects of Obama's jobs plan.

U.S. measures to reduce teenage smoking deemed WTO violation

U.S. measures to reduce teenage smoking violate World Trade Organization (WTO) rules, according to a panel ruling released late last week. Indonesia successfully argued that the U.S. Family Smoking Prevention and Tobacco Control Act (FSPTCA) of 2009 violated WTO rules. The ruling opens the door to more teenage tobacco addiction, while further imperiling the legitimacy of a WTO that rules against environmental, health and other national policies 90 percent of the time.

The FSPTCA took a series of unprecedented and bold measures to combat teenage smoking, including the banning of many forms of flavored cigarettes. There is substantial evidence that tobacco companies produce and market these cigarettes as "starter" or "trainer" cigarettes in order to hook teenagers into a lifetime of nicotine addiction.

However, as the U.S. noted in its defense in the WTO case, the U.S. did not ban all types of cigarettes. In particular, regular tobacco and menthol cigarettes were excluded from the ban. The justification for these exclusions was that, unlike candy flavored or clove cigarettes, large numbers of adults are also hooked on regular and menthol cigarettes. To abruptly pull these products out of the market could cause a strain on the U.S. healthcare system (as lifetime addicts would instantly seek medical treatment for wrenching withdrawal symptoms) and might lead to a rise in illicit black market sales and associated crime. Nonetheless, various studies were ordered on the feasibility of banning menthol cigarettes in the future.

The FSPTCA banned candy and clove cigarettes regardless of where they were produced or who produced them. But Indonesia successfully argued that, since its exporters are the primary providers of clove cigarettes to the U.S. market, the FSPTCA constituted de facto discrimination, in violation of WTO rules under the Agreement on Technical Barriers to Trade (TBT). The WTO panel accepted this argument, despite the fact that the FSPTCA was totally non-discriminatory and many U.S. cigarette makers (such as those that make cola-flavored cigarettes) were also blocked from making these harmful products.

This severe blow to consumer protection comes on the heels of two other WTO rulings against America's dolphin-safe tuna and beef country-of-origin labels, and are likely to put a significant damper on the Obama administration's efforts to pass trade deals with South Korea, Colombia and Panama that contain similar anti-consumer rules.

More on the details of the case after the jump.