WTO Judicial Activism vs. America

Ian Fletcher

Activist Post

The WTO’s latest outrage has brought this odious organization to public attention again, but this is hardly the first time it has sided against American interests.

For example, it has for years engaged in judicial activism aimed at systematically rewriting American trade law to our 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. [Hearing on “Trade Enforcement for a 21st Century Economy,” Finance Committee, U.S Senate, June 12, 2007.]

To take only one example of this, the WTO ruled in 2007 that the Unlawful Internet Gambling Enforcement Act interfered with free trade in “recreational services.” 

More importantly, the WTO has made a string of rulings too technical to inflame public sentiment but nonetheless important for their behind-the-scenes effects.  

For example, it ruled against so-called “zeroing” in antidumping cases (don’t ask, but it’s bad for us); deemed America’s “foreign sales corporation” provision an export subsidy; and repudiated the long-standing understanding that it would generally defer to national authorities in dumping cases. 

(Dumping is when foreign producers sell products in the U.S. at below production cost, or below their home-market price, in order to destroy American producers and capture the market; China does it all the time.)

Another example: the WTO forced 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. 

The WTO’s unelected judges ruled this amendment illegal in 2002 despite the fact that there is nothing in any WTO treaty even mentioning what governments may do with penalty money. Backed by WTO permission, the European Union then imposed a 15 percent retaliatory tariff on American paper, farm goods, textiles, and machinery. In 2006, Congress folded and repealed the amendment.

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.

The WTO harbors an inexorable bureaucratic will to power. The desires of the multinational corporations and relentlessly power-accreting bureaucrats that are its driving force are a constant in international relations, 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 (poor nations) or foolish enough to actually believe in them (Uncle Sam), 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.” 

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.

Despite the WTO’s undemocratic and authoritarian implementation of an economic ideal (free trade) that makes no sense even in theory, it actually has failed to deliver where free trade might do some good. 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.

Rational protectionism is the best policy, followed by a genuinely level playing field; the WTO has delivered neither.  The sooner the U.S. withdraws from the organization, the better.

Ian Fletcher is Senior Economist of the Coalition for a Prosperous America, a nationwide grass-roots organization dedicated to fixing America’s trade policies and comprising representatives from business, agriculture, and labor. He was previously Research Fellow at the U.S. Business and Industry Council, a Washington think tank founded in 1933 and before that, an economist in private practice serving mainly hedge funds and private equity firms. Educated at Columbia University and the University of Chicago, he lives in San Francisco. He is the author of Free Trade Doesn’t Work: What Should Replace It and Why.

Recently by Ian Fletcher:

Dreamy Thinking on Free Trade
WTO Sides With Chinese State Capitalism Against The U.S.

Free Trade and the Tea Party: Puppets or Rebels?

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