D. Dowd Muska

 

Exposing a Partnership in Protectionism

April 18, 2013

Ah, the maligned public servant. Whatever polls reveal about his low popularity, he pursues policies that satisfy the government’s crucial role as protector of health, safety, and the environment.

Yeah, right.

As K. William Watson and Sallie James explain in a new Cato Institute analysis, “The legitimacy of the modern administrative state rests upon an inaccurate assumption that regulators will reliably behave like selfless agents of the public interest. On the contrary, legislators and bureaucrats respond to personal incentives just like anyone else. Because of this, the entire regulatory edifice is susceptible to lobbying and even capture by special interests.”

“Regulatory Protectionism: A Hidden Threat to Free Trade” argues that when “prominent standard bearers for left-liberal causes” act in concert with “inefficient, rent-seeking industries,” consumers suffer. Watson and James provide many examples of the disease they diagnose. One involves cigarettes. In 2009, the “Family Smoking Prevention and Tobacco Control Act” banned flavored coffin nails. But the touchy-feely legislation contained a ginormous loophole. Menthols were exempted, and the World Trade Organization found that the carve-out violated U.S. free-trade obligations. Why? “One, because [menthols] are popular -- 25 percent of all cigarettes smoked in the United States are menthols -- especially among African-Americans (80 percent of black smokers choose menthols). And two, because a ban on flavored nonmenthol cigarettes did not affect U.S. cigarette producers, only their foreign competition.”

The WTO’s decision rested on a simple principle. The General Agreement on Tariffs and Trade, Watson and James note, requires that “governments’ domestic laws must treat imports the same as goods produced at home.” When competition from abroad is penalized -- either blatantly or subtly -- those aggrieved can make their case to the WTO. And as “Regulatory Protectionism” makes clear, the U.S. is frequently on the losing end of the trade tribunal’s decisions.

The 2008 “farm bill” imposed country-of-origin labeling (COOL) on imported meat products. It wasn’t long before the mandate was brought to the WTO. It was defeated twice. Judges found that COOL treated “imported livestock and meat from Canada and Mexico (the two complainants in the case) less favorably than similar domestically produced products. According to the Appellate Body report, the burden of maintaining detailed records, which caused harm to foreign livestock producers by increasing their costs, was not justified by the goal of informing consumers, because the information ultimately given … was much less specific than what the processors were required to keep track of. This disparity sufficiently revealed the protectionist nature of the law.”

NAFTA haters, this one’s for you. The pact mandated that the U.S. allow Mexican trucks to head north by 2000. Well over a decade later, exporters below the border are still waiting. This time, the protectionist alliance consists of Naderite groups and the International Brotherhood of Teamsters. Watson and James aver that “trucks owned by Mexican companies and driven by Mexican nationals are no less safe then their American counterparts.” (A pilot program conducted during the Bush administration substantiates the claim.) Fed up, in 2009 Mexico retaliated with what the Houston Chronicle called “carefully calibrated rotating tariffs on 99 U.S. imports that effectively priced them out of the Mexican market, costing U.S. companies thousands of jobs and hundreds of millions of dollars.” In 2011, after promises from the White House, the tariffs were dropped. One needn’t be a cynic to expect them to return, if the Teamsters get their way.

The list goes on: Dolphin-safe tuna, cotton subsidies, catfish inspections. Again and again, the federal government enacts policies that violate its obligations under free-trade treaties. The winners are easy to identify. The anti-trade partnership’s value, Watson and James write, “is much greater for the protection-seeking industry that gets altruistic cover for its monopolistic schemes than for the progressive do-gooders who have to settle for the second or third best option in their quest for political success.”

More than two centuries ago, Adam Smith pithily outlined the fundamental truth that regulatory protectionism assaults: “Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to, only so far as it may be necessary for promoting that of the consumer.”

However disruptively, globalization is advancing. Nearly every economist agrees -- and a stack of studies confirms -- that Americans have benefitted from the lowering of tariffs. But as “Regulatory Protectionism” documents, a free-trader’s work is never done. Those who put profits, job security, union dues, and reelection ahead of economic freedom prevail too often, and we’re all poorer for their “success.”

D. Dowd Muska (www.dowdmuska.com) writes about government, economics, and technology. Follow him on Twitter @dowdmuska.

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