March 31, 2006
From the desk of Jane Galt:Anti-trade paranoia
Nathan Newman cites a Public Citizen report warning that the proposal currently facing the WTO to liberalise trade in services, in much the way that goods trade has been liberalised over the past half-century, will gut public service provision:
If hotel services are bound under GATS, a state or community that halts beach-front development for environmental purposes could be challenged by a foreign hotel or construction firm even though the policy applies to domestic firms also.[S]ome governments’ requirements that elder care or childcare services be non-profit entities are forbidden. For example, in the U.S., the state of Rhode Island prohibits for-profit hospital operators. Under the GATS, a government’s maintenance of any of these policies in a service sector covered by GATS would be subject to a WTO challenge.
Are hospitals a service sector covered by GATS? Given that a number of signatories consist of governments that have socialized health care systems, colour me sceptical. And while I'm sure it's true that a state or community's beachfront development rules could be challenged under GATS, it's unlikely that they would, because such a challenge would lose. The purpose of the World Trade Organisation is not to throw the world's fragile marine ecosystems open to the rapacious demands of developers; it's to see that the rules aren't set up so that only local firms can compete.
This may have the effect of overturning some of the interlocking rules that localities use to protect local retailers against "foreign" competition from stores like Home Depot or the Gap. But that's not necessarily a bad thing; as Mr Newman is no doubt aware, local governments often serve local businessmen, or wealthy homeowners, at the expense of the average consumer.
Nonetheless, that's one of his primary complaints:
Under GATS, governments spending could not favor locally-based businesses over multi-national corporations and even regulations that indirectly benefit local firms over foreign companies could be struck down under international law. For example, a local recycling law could be struck down if it would be harder for foreign firms to comply than for domestic firms. And under proposed GATS rules, privatization of public services would become essentially a one-way decision, since governments would be barred from subsidizing public services where private firms already operate – potentially chilling a whole range of health care and public transit initiatives.
Yes, a recycling law could be struck down if it would be harder for foreign firms to comply with than domestic firms . . . but how, exactly, do we get a recycling law that is hard for foreign firms to comply with? Generally, by structuring it specially in order to shelter local interests from competition. The part about privatisation is simply silly; the government is free to pay for whatever it wants, as long as it doesn't discriminate by national origin of providers. I haven't noticed devastating results on the American economy because the US government occasionally purchases Colombian coffee or French-manufactured pencils; there's no reason to think that German schoolbus firms would be any more dangerous to the commonweal. Public Citizen argues that a locality "may" trigger a WTO dispute if it attempts to undo a failed privatisation . . . but WTO disputes have to be lodged by government trade ministries with limited resources. How likely is it that, say, the EU trade rep is going to find time to go after the city of Bristol, Connecticut over a $1 million school bus contract?
Of course, many of the WTo's opponents would argue that localities should be able to preserve local oligopolies; to them, opening up local markets to competition is a bug, not a feature. There are two responses to this. The first is to point out just how great trade has been for American consumers--no matter how sorry we feel for southern textile workers, almost no one wants to go back to the days of lumbering old American gas-guzzlers, or that 19-inch Zenith television with the knob that came off every time you wanted to change the channel. The second is to point out just how great trade has been for American companies. Oh, not all companies . . . Bethlehem Steel hasn't enjoyed it. But Microsoft, Apple, Dell, and so forth have won big. And American service providers are, generally speaking, much more efficient than those in Europe or Japan; we'd probably gain more jobs than we lost out of services competition.
The other response is, sadly, to point out that services competition is probably not going to happen. And it won't be failing thanks to activists like Mr Newman, but because of intransigent European farmers, and industrial protectionists in the developing world. Doha is probably dead, and the forward momentum of trade liberalisation stopped in its tracks. So there's no need to waste any energy worrying about the negative side effects.
Posted by Jane Galt at March 31, 2006 11:12 AM | TrackBack | Technorati inbound linksGood analysis Jane, although I have to admit that a lot of the “concerns” being claimed by the author such as opening up more services to competition and challenging local laws that provide subsidies and protectionism for local firms seems like a feature rather than a bug. The whole point of granting the federal government its commerce power was to prevent State and local governments from discriminating against “foreign” (i.e. “locally-based businesses”) commerce in their laws and this treaty appears to be trying to do just that.
BTW has “Wal-Mart” really becoming the whipping-boy for every leftist cause under the sun?
"The purpose of the WTO is...to see that the rules aren't set up so that only local firms can compete"
But the WTO decision in the Kodak/Fuji
dispute signalled that the WTO would not
interfere in a nation's internal trade
arrangements(the reason Fuji could underprice
Kodak elsewhere in the World).
I haven't noticed devastating results on the American economy because the US government occasionally purchases Colombian coffee or French-manufactured pencils; there's no reason to think that German schoolbus firms would be any more dangerous to the commonweal.
What about Federal purchase of computers manufactured by China? Keeping in mind China's less-than-sterling record regarding computer security.
Do we want to become dependent on France for our aircraft? On Egypt for our tanks? On China for our electronics? On Saudi Arabia or Venezuela for our oil? (oops, too late...)
Do economists take social costs into account when they evaluate the cost/benefit ratios of trade with untrustworthy regimes? What's the value to the American taxpayer of retaining the industrial and human capital needed to produce our own military hardware? Our own computer technology? Our own energy?
We save money at the Mall, but if we increase our dependence on our enemies are we really making a wise decision?
Posted by: Jason Bontrager on April 1, 2006 08:26 PMJason, I would generally say yes, because the dependence goes both ways, as do the improvements. That is the fundamental nature of free trade: people peacefully helping each other. In addition to the immediate advantages, it pressures participants to stay at peace with each other.
It is true that a country can harm its trading partners if it is willing to hurt itself even more. Imagine Iran deciding to stop selling oil, just to stick it to the rest of the world. Everyone else's oil prices would go up, and Iran would lose one of its biggest industries. Who got the worse deal?
Nevertheless, if we imagine a country might do such a thing (Iran makes me wonder!), we can and do insulate ourselves via policies such as the strategic oil reserve: if Iran stops selling oil, we can bleed off the reserve to give time to other suppliers to pick up Iran's slack. There is such a thing as insurance in the financial world. ;)
Posted by: Daublin on April 2, 2006 06:43 AMOil isn't my only concern. Consider wages for unskilled and semi-skilled labor. American HS grads are essentially competing with Chinese and Indian labor. While finished goods for Americans are cheaper, the lack of employment due to outsourcing means that those lower prices don't necessarily make up for the loss. Especially as they don't translate into lower cost housing or vehicles or insurance or anything else necessary to a middle-class lifestyle nowadays (meanwhile the jobs that might've provided a decent income are being snapped up at below-legal cost by illegal immigrants).
And the argument that "they'll hurt themselves too" only applies if they care. That was the argument used prior to WWI after all...the nations of the world were "too interdependent" to ever go to war again. Not the best of predictions, especially given Iran's contentions that as there are more Iranians than Israelis, Iran would win a nuclear exchange. That's the logic we're dealing with in many cases.
Assume that we become so dependent for aircraft (because a subsidized Airbus has driven Boeing and McDonald/Marietta/Douglas/whatever out of business) that our aircraft designers and builders have all retired. That human capital is not easily recovered if the EU decides to stop selling us aircraft. From what I've read, book-learning isn't half of the knowledge necessary to keep high-tech industries functional. You need experience, and we're outsourcing our experience-generating capacity.
Posted by: Jason Bontrager on April 2, 2006 05:53 PMWhat about Federal purchase of computers manufactured by China? Keeping in mind China's less-than-sterling record regarding computer security.
No more meaningful than the fact that a hydroelectric facility I visited a few years ago was running a Chinese-built Pelton wheel and turbine. It generated electricity on command. So what?
Computer hardware is heavily standardized, the security issues arise as a result of who is the using the computer, and how carefully the software was configured. Both of these are factors are ultimately controlled in-house, not by the hardware manufacturer.
Furthermore, most of the computer hardware is being built from chipset designs created by US, Canadian, and Taiwanese companies...
Posted by: anony-mouse on April 2, 2006 05:58 PMWhen I was in university (cue time-warp sound effects) three years ago, protectionist groups up here in Canada like the "Council of Canadians," labour unions, etc. would send out press releases to the campus paper I worked at.
Day after day, night after night, they warned that globalization was going to kill off Canada's publicly-owned universities and healthcare system because the government would be FORCED to subsidise any furriners that wanted to operate a hospital or university. These press releases were just dusted off from the previous (US-Canada Free Trade Agreement, North American Free Trade Agreement and the Multilateral Agreement on Investment) battles over trade liberalization.
We still have our (miserly) public healthcare system and our public universities. The sky has not fallen.
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