Latest WTO Lunacy: Poker and Piracy Together at Last

Op-ed by Global Trade Watch Director Lori Wallach, published in The Huffington Post:

On Monday the World Trade Organization (WTO) officially authorized Caribbean nation Antigua to sell $21 million in "pirated" U.S.-copyrighted music, films and computer programs in retaliation for the United States failing to comply with a 2005 WTO order to allow online gambling here.

Say what? (And, no, this news was not sourced from a parody in The Onion.)

The case is an illustrated guide to much of what is wrong with the WTO. And, it should spotlight the lunacy of Obama administration plans to expand this dangerous "trade" agreement model via the Trans-Pacific Partnership (TPP) "free trade"agreement. More on that later. Let's tour what is now a full coop of WTO chickens that have come home to roost on this WTO case.

First, the backstory: in 2003, Antigua filed a case at the WTO claiming that U.S. laws banning Internet gambling violated WTO rules. The case, which some say was in fact the brainchild of an American attorney, Mark Mandel, who is handling the WTO litigation for Antigua, was joined by the European Union and other countries with major gambling industries. Antigua won a final ruling in 2005 and Monday's "sanctions" announcement was retaliation for the United States failing to change its domestic laws to comply with the WTO.

Why does the WTO have anything to say as to whether or not the U.S. Congress can ban Internet gambling, especially when the ban applies to domestic and foreign firms alike? Unlike past trade agreements, which focused on cutting tariffs, the WTO imposes expansive constraints on signatory governments' non-trade policies and establishes new corporate rights. The WTO's General Agreement on Trade in Services (GATS) limits how the U.S. government may regulate foreign service firms operating here and cross-border "trade" in services too. The WTO's Trade-Related Aspects of Intellectual Property Rights (TRIPS) agreement requires countries to provide expanded monopoly patent and copyright terms. (That's how U.S. drug patent monopolies got expanded from 17 to 20 years in 1994 when Congress OK'd U.S. WTO accession, overruling decades of congressional opposition to such patent extensions and costing us billions in higher drug prices, pocketed by WTO booster Big PhRMA.)

Yup, the appealing "free trade" brand was used to sell worldwide a Trojan horse delivery mechanism for a comprehensive set of policies that deeply invade domestic non-trade policymaking space. And, this horse has a kick. Unlike other international agreements, the WTO is strongly enforced.

Countries are required to conform their domestic policies to its rules and can be challenged in WTO tribunals if they don't. WTO tribunals rule against domestic laws 92 percent of the time. And if a country does not change its laws as ordered by the WTO, sanctions are authorized.

But wait, didn't WTO just authorize Antigua to violate U.S. copyrights? Welcome to the world of WTO "cross-retaliation." That is a WTO feature that the United States demanded. It wanted to be able to slap tariffs on developing countries' commodity exports (i.e. real trade) if these countries did not comply with the WTO's invasive drug patent, financial service deregulation and other one-size-fits-all dictates.

The delicious and tsunami-scale irony is that now Antigua (population 88,000 and GDP $1 billion) is being "borrowed" by gambling interests to cross-retaliate against the United States - by removing intellectual property rights from U.S. products in the first use of such a sanction. Except, wait, didn't Ralph Nader warn against just this scenario of some commercial interest finding a tiny country to attack U.S. public interest policies back when the WTO was being debated?

And, if you are looking for a silver lining, it is not that the WTO is that rare international organization where small, developing countries get a fair shake. Indeed, this case is Exhibit #1 that they do not. Rather, Antigua's move comes after seven years of the United States ignoring its initial WTO win. And, now that Antigua is trying to enforce, using a mechanism created by the United States itself, the comments from the U.S. Trade Representative's Office are ominous: "To be clear, the United States will not tolerate theft of intellectual property and will take whatever steps are most efficient and effective to prevent this from happening."

U.S. trade negotiators have threatened that Antigua will be harming its own interests if it follows through with enforcement. Hum...wonder if we'll soon hear about the threats to the students at Antigua's offshore American medical school of access to super-cheap on-line music and more... In all seriousness, Antigua will certainly face liabilities for enforcement actions, no matter how totally legal they are under WTO rules.

Which brings us back to the core point - the damaging WTO rules. By now you might be wondering about these vaunted benefits of the WTO that were promised by politicians and corporations alike back when the WTO was being considered by Congress.

Would those benefits include the 5 million U.S. manufacturing jobs that we have lost since the WTO went into effect? The exploding U.S. trade deficit that has slowed U.S. growth? Would the benefit be that the United States could face more trade sanctions unless it guts the country-of-origin meat labels we all rely on in the grocery store, the highly popular dolphin protections that we all know from the dolphin-safe labels on our tuna cans or our ban on the U.S. sale of sweet-flavored cigarettes used to hook kids on smoking? Yup, the WTO has ruled against all three popular policies and ordered the United States to gut them by this summer.

The vast gulf between promised WTO benefits and reality is especially worth considering now, as the Obama administration and the same exact corporate interests are trotting out the very same myths to try to sell Americans on the TPP negotiations.

In which the WTO Beats a Dead Horse with another Dead Horse

The World Trade Organization (WTO) has two dead horses on its hands: Doha – the deceased WTO round that has long awaited a proper burial – and the paternalist development model.  The latter is epitomized by WTO and International Monetary Fund (IMF) policy impositions on developing countries that crescendoed in the 1990’s, but have taken a global battering ever since.  The WTO seems to think that using one dead horse, the we-know-what’s-best-for-you development approach, to beat the other, Doha, will reanimate both. Call me crazy, but beating one dead horse with another doesn’t seem like a winning strategy.

The WTO disagrees, WTO Director-General Pascal Lamy particularly disagrees, and some developed countries of the WTO aggressively disagree.  They have picked a new name for the dead horse embodying the paternalist development model: “trade facilitation.”  This euphemistic WTO proposal would have developing countries spend their own limited funds to improve their import infrastructure, i.e. customs and port facilities. WTO adherents are pegging their hopes of Doha resuscitation to this new scheme.  In Friday’s issue of The Guardian, Pascal Lamy singles out the trade facilitation agenda as the best hope this year for reviving the much-chagrined Doha round. EU Ambassador to the WTO Angelos Pangratis argues that “most delegations” realize the “vast benefits” that trade facilitation brings “both in terms of intrinsic economic value, as well as systematically.”

Really?  If there’s such widespread agreement on the benefits of trade facilitation, why does the Doha trade facilitation negotiating text have about 650 square brackets, each one indicating disagreed-upon text (according to Washington Trade Daily)?

The significance of that number of edits is being downplayed by the trade facilitation negotiations chair Eduardo Ernesto.  Meanwhile Pascal Lamy is hard at work selling trade facilitation as “essentially about making trade, both imports and exports, easier and less costly.”

Less costly for who, Mr. Lamy? For developing countries whose strained budgets must now make room for outsider-requested line items of bigger ports and more customs personnel?  Less costly for farmers in those same developing countries who would be outcompeted in their local markets by increasing flows of subsidized imports?  

Let’s look at that again: the World Trade Organization would have developing countries paying the cost of importing more goods, including agricultural products that would, and have, put their own small farmers out of business, bringing increases in unemployment, immigration, and food insecurity.  Even more, the added budgetary cost of refurbishing imports infrastructure would place greater pressure on developing country governments to cut education/training programs that might help those displaced farmers.  So “trade facilitation” could cost the livelihood of farmers, and the ability of the government to support that sizeable population.

Mr. Lamy, your belief that “trade facilitation” makes trade “less costly” is measuring “costs” in the wrong way.  

More Bad News for U.S. Exports under Korea FTA

Newly-released government data reveals that U.S. exports to Korea continue to plummet after eight months of implementation of the U.S.-Korea "free trade" agreement (FTA).  Despite Obama administration promises that the NAFTA-style pact would boost U.S. exports (and thus jobs), U.S. exports took a dramatic plunge after the deal took effect in March 2012, and have continued the downward trajectory since (as we've reported here, here, and here).  Under the FTA, U.S. goods exports to Korea have declined by nine percent (a decrease of more than $2.5 billion) in comparison to 2011 levels for the same months.   The post-FTA export plunge is indicated by the blue line in this graph:

Ironically, some of the biggest downfalls in U.S. exports to Korea have occurred in the automotive and meat industries—the two sectors that the Obama administration promised would experience particularly strong export growth under the deal.  Compared with the pre-FTA levels of 2011, here's the FTA's legacy thus far in these key sectors:

• U.S. auto exports have declined by 1 percent ($11.7 million) while imports of cars and auto parts from Korea have soared 17 percent ($1.8 billion) resulting in a 19 percent increase in the U.S. automotive trade deficit with Korea.
• U.S. beef exports have fallen by 13 percent under the FTA, a $50 million loss.
• U.S. pork exports have dropped by 20 percent under the FTA, a $52 million loss.
• U.S. poultry exports have plummeted by 40 percent under the FTA, a $36 million loss. 

In just the first eight months of the FTA, the decisive fall in U.S. exports to Korea has contributed to a 21 percent increase in the U.S. trade deficit with Korea, in comparison to the same period in 2011 (indicated by the increased red area in the graph above).  Using the same ratio employed by the Obama administration, this trade deficit expansion implies the net loss of over 16,000 U.S. jobs under the pact's first several months.  

Amazingly, the administration is still trying to sell the Trans-Pacific Partnership, the NAFTA-esque successor to the Korea FTA, with the same tired shtick used for the Korea deal: FTA = exports = jobs.  How far will exports have to fall before this data-defying talking point can be put to rest?  

A Shiny Quarter per Day: New TPP Study Uses Sweeping Assumptions to Project Tiny Benefit

A new study at the Peterson Institute for International Economics predicts that the Trans-Pacific Partnership (TPP) will bring increased income to the U.S. and the world at large.  In so doing, the Institute continues a stalwart tradition of using assumptions-laden computer models to project starry-eyed gains from nearly every NAFTA-style deal it sees.  The frequency of those rose-colored projections is matched by the frequency with which they’ve been wrong. 

The year before NAFTA was implemented, the Peterson Institute’s Gary Hufbauer and Jeffrey Schott projected that the deal would lead to a rising U.S. trade surplus with Mexico, which would create 170,000 net new jobs in the U.S.  Instead, the U.S.’s $1.6 billion trade surplus with Mexico before NAFTA quickly became a trade deficit after the deal took effect.  After nearly two decades of NAFTA, that trade deficit has ballooned to over $100 billion, spelling the loss of hundreds of thousands of U.S. jobs according to the Institute’s own logic.  

Even before the depth of the NAFTA deficit became manifest, Hufbauer recognized that his NAFTA-happy predictions were ill-fated.  Just two years into NAFTA, he told the Wall Street Journal, “The best figure for the jobs effect of NAFTA is approximately zero…the lesson for me is to stay away from job forecasting.” 

It appears that Hufbauer’s colleagues haven’t learned the lesson.  The Peterson Institute’s new study on the TPP, authored by Peter Petri, Michael Plummer, and Fan Zhai, uses similar computer models to conclude that the deal “promise[s] substantial benefits and could lead to…a more peaceful and prosperous world economy.” 

Even if we accept the study’s many sweeping, benefits-aggrandizing assumptions, the supposed TPP income gains touted by the authors are pretty meager.  They predict that the TPP would add $77.5 billion to the U.S. gross domestic product (GDP) by 2025, which amounts to a mere 0.4% increase in projected GDP after over a decade of the deal.  How much money might this idealized picture of the TPP mean for your wallet? 

Twenty-seven cents per day. 

That’s right.  The present value of the additional income that the Institute thinks the TPP will bring to each person in the U.S. in 2025 amounts to a daily gain of: one shiny new quarter.  While the assumptions employed by the TPP-praising study are remarkably optimistic, the promised income gains are surprisingly dull.

Even so, these dull hoped-for gains are overstated.  To arrive at their conclusions, the authors make a litany of assumptions about the TPP’s membership and economic results—assumptions that surpass even what pro-TPP policymakers and business executives have been willing to project.  The authors admit as much in an earlier version of their study, stating, “We are attempting to evaluate the implications of aggressive policy changes rather than to predict probable outcomes.” 

Lori Wallach on the Kluwer Arbitration Blog: Brewing Storm over Extreme Investor-State System

The investor-state system allowed the U.S.-based Renco corporationto demand $800 million of Peruvian taxpayers after the Peruvian government asked the company to comply with its obligation to clean up severe pollution from its metal smelter (pictured here), which has poisoned children in the surrounding community of La Oroya.

Yesterday on the Kluwer Arbitration Blog our own Lori Wallach explained what is fueling the “perfect storm” of opposition to the Investor-State Dispute Resolution system (ISDR).  Under NAFTA-style deals, this radical system provides foreign firms a way to attack domestic health, environmental, and other public interest laws, claim that such public protections threaten their "expected future profits," and demand millons of dollars in taxpayer compensation.  Now the Trans-Pacific Partnership (TPP) threatens to expand the extreme system further.  

Growing rejection of the investor-state rules is a result of many converging factors, including the alarming investor-state text contained in a leaked draft of the TPP Investment Chapter, expansion of the scope of corporations' attacks, and the skyrocketing number of investor-state challenges.

Wallach goes on to explain why the ISDR system is facing scrutiny in many arenas and across political spectrums:

From a conservative perspective, this system poses an unparalleled threat to national sovereignty and solvency, and from a progressive perspective to democratic governance and the public interest polices won through years of struggle. In the past, little attention was paid to the ISDR regime by the vast majority of voters, policymakers, journalists, academics or civil society advocates. Now the results of the regime are awakening diverse interests to a quiet but very troubling transformation of the legal system that has taken place over the last few decades without their awareness, much less consent.

Check out the full blog post here, and stay tuned for part two, which will delve deeper into how concerns over this extreme system have begun to torment the negotations over the TPP.  

New Year's Resolution for the WTO: Let Countries Regulate Finance

Here's a new year's resolution for the World Trade Organization (WTO): make sure prevailing trade law does not prevent countries from enacting policies to prevent a next financial crisis.   

Back in October, civil society organizations across the globe urged the World Trade Organization’s Committee on Trade in Financial Services (CTFS) to hold a clarifying discussion about countries’ ability under WTO rules to employ crucial capital controls and other measures to avoid and mitigate financial crises.  To that end, more than 100 organizations from across the globe participated in weeks of advocacy in support of a discussion proposal submitted by WTO member state Ecuador, releasing an impressive statement, penning op-eds, sending letters to officials, arranging meetings with ministries, and reaching out to the press.

Civil society’s persistence paid off when, at the December 5, 2012 CTFS meeting, the Committee agreed by consensus to approve the framework of Ecuador’s proposed “dedicated and focused discussion” on the experiences of WTO Members in introducing prudential measures, including macroprudential regulations or policy measures.  The discussion will be held at the first quarterly meeting of the CTFS in March 2013, with the possibility of continued discussion at the following quarterly meeting in June of the same year.

Such a clarifying discussion is timely and important because more than 100 countries (including 40 developing nations) have financial services commitments under WTO’s General Agreement on Trade in Services (GATS).  Countries that have made such commitments now face the danger that GATS rules could prohibit the usage of policy tools needed to ensure financial  stability (such as capital controls).  Given this potential contradiction between GATS and financial stability, countries face three options: (1) implement financial regulation and risk facing a WTO challenge, (2) choose not to institute a needed regulatory tool to avoid a threatened challenge, or (3) alter their GATS commitments and comply with WTO-mandated compensation to affected member states--an option that may be particularly infeasible for developing countries.

While the Committee’s agreement to simply hold a discussion on this topic may seem like a minor step, it is important to note that in 2011, the U.S., EU and Canada rejected the possibility of a review of the WTO rules in light of the financial crisis and then continued to block even a discussion in the Committee two additional times in 2012.  But pressure for such a discussion continued to mount.  In addition to the increased advocacy by consumer, labor and development organizations and growing support for a discussion by major developing countries, institutions such as the IMF have now officially shifted their position on the use of capital controls, endorsing them as a legitimate tool for financial stability.

The fact that a dedicated discussion will take place at the WTO signals that, thanks to Ecuador’s proposal and civil society’s call for action, these developed countries have been forced to acknowledge that it is necessary to address concerns about the compatibility of WTO rules with financial regulation priorities. We will be eager to see the outcome of this dedicated discussion this year.