Princeton University Global Governance Advocate Calls for New Wave of American Regulatory Socialism in the Image of European Protectionism

http://www.nytimes.com/2008/06/13/opinion/13krugman.html?em&ex=1213502400&en=a52b0be721dfaf26&ei=5087


Bad Cow Disease


By PAUL KRUGMAN


NEW YORK TIMES


June 13, 2008


“Mary had a little lamb / And when she saw it sicken / She shipped it off to Packingtown / And now it’s labeled chicken.”

That little ditty famously summarized the message of “The Jungle,” Upton Sinclair’s 1906 exposé of conditions in America’s meat-packing industry. Sinclair’s muckraking helped Theodore Roosevelt pass the Pure Food and Drug Act and the Meat Inspection Act — and for most of the next century, Americans trusted government inspectors to keep their food safe.


[WE MIGHT SUGGEST ANOTHER MORE APPROPRIATE 'LITTLE DITTY' THAT REFLECTS THE ESSENCE OF WHAT MR. KRUGMAN IS CALLING FOR - A RETURN TO EARLY 20TH CENTURY SOCIALISM: “Democracy and socialism have nothing in common but one word, equality. But notice the difference: while democracy seeks equality in liberty, socialism seeks equality in restraint and servitude.” Alexis de Tocqueville].

[MIGHT WE REMIND READERS THAT UPTON SINCLAIR WAS A MEMBER OF THE SOCIALIST PARTY AND WAS INFLUENCED BY EUROPEAN MARXIST POLITICAL THINKING. "The Jungle is a classic work of socialist realism. Critic Christopher Hitchens has described it as ‘the most fully realized instance of the genre, more telling and more moving than even the works of Dickens and Zola’. Sinclair’s objective was to expose the ways in which the capitalist class, in pursuit of maximum profit, exploits and discards the working people. Jack London called the book ‘the Uncle Tom’s Cabin of wage-slavery’...The Jungle was a bestseller in the United States and Britain, and its translation into 17 languages made Sinclair an international literary figure. The Jungle inspired scores of other successful social protest writers, including Iceland’s Halldor Kiljan Laxness (1902–98)...Upton Sinclair was born in Baltimore, Maryland, United States, on 20 September 1878. His father, an alcoholic, moved the family to New York in 1888. His parents were extremely poor but his grandparents, with whom he spent extended periods, were wealthy. He claimed that experiencing these extremes pointed him in the socialist direction. His outlook was influenced by the books of English Fabian Robert Blatchford, Russian anarchist Peter Kropotkin, American radicals Jack London and Frank Norris, and the investigative journalism of proud ‘muckrakers’ Ida M. Tarbell, Lincoln Steffens and Ray Stannard Baker...In 1915, Sinclair moved to California with his wife, Mary Craig, and in 1934 he won the Democratic Party’s pre-selection to contest the state’s election [FOR GOVERNOR]. For most of his life Sinclair defended communists, but his socialism was in the social-democratic mould. He parted company with Marxists in his belief that socialism could be achieved through electoral processes in America, without the need for the revolutionary overthrow of capitalism." See: Aiming for the Heart - Barry York describes how Upton Sinclair’s novel, The Jungle, shocked the American public and forced changes in legislation, National Library of Australia News (Jan. 2006), at:
http://www.nla.gov.au/pub/nlanews/2006/jan06/article3.html . READERS SHOULD NOTE THAT THE EUROPEAN UNION NOW REFERS TO ITSELF AS BEING IN THE 'SOCIAL-DEMOCRATIC MOULD'.]


Lately, however, there always seems to be at least one food-safety crisis in the headlines — tainted spinach, poisonous peanut butter and, currently, the attack of the killer tomatoes.


[IT IS ALWAYS HELPFUL THAT PUBLICITY-SEEKING CONSUMER & ENVIRONMENTAL GROUPS PROVIDE MEDIA WITH THE SENSATIONAL HEADLINES THAT WORRY THE AMERICAN PUBLIC ABOUT PRACTICALLY EVERYTHING IN THEIR DAILY LIVES. MR. KRUGMAN, WHY NOT ADMIT THAT THIS IS WHAT OCCURS? PLEASE ALSO BE HONEST ABOUT HOW SENSATIONALIST FEAR CAMPAIGNS SERVE THE INTERESTS OF SUCH GROUPS - i.e. IT PERMITS THEM TO 'POSTURE' TO ATTRACT FUNDING. FUNDING FLOWS IF THEY ARE SEEN AS 'SERVING THE PUBLIC INTEREST' BY PROVIDING IT WITH INFORMATION. ALTHOUGH CONSUMERS OFTEN HAVE LEGITIMATE CONCERNS ABOUT WHERE THEIR FOOD COMES FROM & HOW ITS SAFETY IS ASSURED, HOWEVER, WE QUESTION WHETHER THESE GROUPS PROVIDE MORE INFORMATION THAN DISINFORMATION.]


The declining credibility of U.S. food regulation has even led to a foreign-policy crisis: there have been mass demonstrations in South Korea protesting the pro-American prime minister’s decision to allow imports of U.S. beef, banned after mad cow disease was detected in 2003.


[MR. KRUGMAN CONVENIENTLY LEAVES OUT SOME IMPORTANT FACTS HERE, NAMELY, THAT THE KOREAN BEEF INDUSTRY AND NGO COMMUNITY DO NOT HAVE 'CLEAN HANDS'. KOREA'S BEEF INDUSTRY WAS PREVIOUSLY FOUND BY THE WTO TRIBUNALS TO VIOLATE INTERNATIONAL TRADE LAW THROUGH IMPOSITION OF 'FOOD SAFETY' REGULATIONS DEEMED TO ACTUALLY CONSTITUTE 'DISGUISED REGULATORY TRADE BARRIERS'. IN ADDITION, KOREAN NGOs HAVE BEEN STEADILY INFLUENCED BY THE EUROPEAN SOCIALIST NGOs TO BLOCK ALL KINDS OF FOODS, EVEN WHEN SCIENTIFIC RISK ASSESSMENTS HAVE PROVEN THE FOOD is 'SAFE'. HORMONE-INJECTED BEEF, IS ONE EXAMPLE THAT TIES BACK TO THE EUROPEAN BAN ON U.S. BEEF, IN PLACE SINCE THE MID '90's, NOTWITHSTANDING THE WTO'S RULINGS AGAINST THE EU CITING THEIR BAN AS ILLEGAL 'TRADE PROTECTIONISM'. IN ADDITION, KOREAN NGOs, WITH THE HELP OF EUROPEAN SOCIALIST-GREEN GROUPS, HAVE WORKED TO BLOCK THE INTRODUCTION OF GENETICALLY MODIFIED FOODS, FEEDS & SEEDS, NOTWITHSTANDING THE SCIENTIFIC RISK ASSESSMENTS IN BOTH THE U.S. & THE EU SHOWING THE PRODUCTS TO BE 'SAFE', AND THE WTO TRIBUNAL RULING FINDING THAT THE EU MORATORIA ON 'GMOs' WAS AN ILLEGAL DISGUISED PROTECTIONIST BARRIER TO TRADE. See: Lawrence A. Kogan, Discerning the Forest From the Trees: How Governments Use Ostensibly Private and Voluntary Standards to Avoid WTO Culpability, Global Trade and Customs Journal (Sept. 2007), at: http://www.itssd.org/GTCJ_03-offprints%20KOGAN%20-%20Discerning%20the%20Forest%20from%20the%20Trees.pdf ; Lawrence A. Kogan, World Trade Organization Biotech Decision Clarifies Central Role of Science in Evaluating Health and Environmental Risks for Regulation Purposes, Global Trade and Customs Journal (March 2007) at: http://www.itssd.org/Publications/GTCJ_04-offprints_Kogan[2].pdf .]


How did America find itself back in The Jungle? It started with ideology. Hard-core American conservatives have long idealized the Gilded Age, regarding everything that followed — not just the New Deal, but even the Progressive Era — as a great diversion from the true path of capitalism.


Thus, when Grover Norquist, the anti-tax advocate, was asked about his ultimate goal, he replied that he wanted a restoration of the way America was “up until Teddy Roosevelt, when the socialists took over. The income tax, the death tax, regulation, all that.”


The late Milton Friedman agreed, calling for the abolition of the Food and Drug Administration. It was unnecessary, he argued: private companies would avoid taking risks with public health to safeguard their reputations and to avoid damaging class-action lawsuits. (Friedman, unlike almost every other conservative I can think of, viewed lawyers as the guardians of free-market capitalism.)


[MR. FRIEDMAN WAS CORRECT IN HIS ASSESSMENT OF THE ROLE THAT TRIAL LAWYERS CAN CONSTRUCTIVELY PLAY IN A SYSTEM SHAPED BY FREE MARKET CAPITALISM. WE DON'T AGREE, HOWEVER, THAT GOVERNMENTAL REGULATORY BODIES, SUCH AS THE FDA, SHOULD BE DISMEMBERED AND/OR ABOLISHED. BUT, REGULATORY BODIES SHOULD BE CONSTRAINED BY PRAGMATIC OBJECTIVE BENCHMARKS OF GOVERNMENTAL ACCOUNTABILITY & DUE PROCESS, INCLUDING ECONOMIC CONSIDERATIONS OF THEIR PROPOSED PROMULGATIONS. THE 'SOCIALIST' APPROACH ADVOCATED BY MR. KRUGMAN WOULD PROVIDE GOVERNMENTAL REGULATORY AGENCIES UNFETTERED DISCRETION TO EXERCISE THEIR 'GATEKEEPER' AUTHORITY ON BEHALF OF THE 'PUBLIC INTEREST' THEY ARE 'CHARGED TO PROTECT'. BUT, WHO WILL WATCH THE GATEKEEPERS & HOLD THEM ACCOUNTABLE??]


Such hard-core opponents of regulation were once part of the political fringe, but with the rise of modern movement conservatism they moved into the corridors of power. They never had enough votes to abolish the F.D.A. or eliminate meat inspections, but they could and did set about making the agencies charged with ensuring food safety ineffective.


[THIS DISTORTION-PRONE AD HOMINEM RHETORIC DOES NO ONE ANY GOOD. IT EXAGGERATES THINGS FOR THE PURPOSE OF PROMOTING 'PET' POLITICAL/POLICY GOALS & PERSUADING THOSE UNFAMILIAR WITH THE MECHANISMS OF THE 'WASHINGTON ESTABLISHMENT' THAT THOSE GOALS AND POLICIES ARE 'GOOD'. THIS SOUNDS SO MUCH LIKE PLATO PHILOSOPHER KING-'TALK'.]


They did this in part by simply denying these agencies enough resources to do the job. For example, the work of the F.D.A. has become vastly more complex over time thanks to the combination of scientific advances and globalization. Yet the agency has a substantially smaller work force now than it did in 1994, the year Republicans took over Congress.


[MR. KRUGMAN, ONCE AGAIN, YOU DISTORT THE TRUTH. IS 'BIGGER' ALWAYS 'BETTER', CONSIDERING ALL OF THE BUREAUCRATIC WASTE, MISAPPROPRIATION, INEFFICIENCY & CORRUPTION THAT COMES ALONG WITH BIGGER GOVERNMENT??]


Perhaps even more important, however, was the systematic appointment of foxes to guard henhouses. Thus, when mad cow disease was detected in the U.S. in 2003, the Department of Agriculture was headed by Ann M. Veneman, a former food-industry lobbyist. And the department’s response to the crisis — which amounted to consistently downplaying the threat and rejecting calls for more extensive testing — seemed driven by the industry’s agenda.


[MR. KRUGMAN, ONCE AGAIN, DISTORTS THE TRUTH BY LEAVING OUT PERTINENT FACTS. CALLS FOR MORE EXTENSIVE CASE-BY-CASE TESTING & ANALYSIS WILL DETERMINE WHETHER PARTICULAR FOODS PRESENT PROBABLE HEALTH 'RISKS' TO CONSUMERS. GOVERNMENT MUST UTILIZE TOOLS THAT PROVIDE IT WITH METRICS & USEFUL INFORMATION THAT CAN THEN TRANSLATE INTO PRACTICES & PROCEDURES FOR INDUSTRY THAT WILL ENSURE GREATER FOOD SAFETY WITHOUT CAUSING COMPANIES (THE FOOD PROVIDERS) TO GO BANKRUPT, TO PASS THE HIGHER COSTS OF REGULATION TO CONSUMERS THROUGH PRICE INCREASES, OR TO OTHERWISE DEMAND HIDDEN GOVERNMENT TAXPAYER -FUNDED SUBSIDIES. MR. KRUGMAN'S PREFERRED REGULATORY 'FIX' WOULD BE TO PERMIT A CHANGE IN REGULATION THAT DISPENSES WITH THE EXTRA TESTING AND REPLACES IT WITH A A GENERAL RULE BASED ON A REGULATORY PRESUMPTION OF POSSIBLE FOOD 'HAZARDS', EVEN WHERE NONE ARE SHOWN TO EXIST. THAT FUNDAMENTALLY TRANSLATES INTO MORE UNNECESSARY COSTS, DELAYS & A MUCH BIGGER GOVERNMENT, AS IN THE EUROPEAN UNION. FISCALLY CONSERVATIVE POLITICIANS ON BOTH SIDES OF THE AISLE ARE CORRECT ABOUT ONE THING THAT ESCAPES MR. KRUGMAN - BIGGER GOVERNMENT IS USUALLY NOT THE ANSWER.]


One amazing decision came in 2004, when a Kansas producer asked for permission to test its own cows, so that it could resume exports to Japan. You might have expected the Bush administration to applaud this example of self-regulation. But permission was denied, because other beef producers feared consumer demands that they follow suit.


[MR. KRUGMAN, YET AGAIN, LEAVES OUT IMPORTANT FACTS. THE U.S. GOVERNMENT WAS OPPOSED TO PERMITTING U.S. INDUSTRY TO 'SELF-REGULATE' (i.e., to BYPASS U.S. DEPARTMENT OF AGRICULTURE HEALTH & SAFETY REGULATIONS BY HAVING EACH HEAD OF CATTLE INSPECTED & LABELED AS 'SAFE' & MAD COW-FREE), BECAUSE IN MANY CASES THE CATTLEMEN DID NOT HAVE ADEQUATE SAFETY LABORATORIES TO UNDERTAKE THE NECESSARY SAFETY ASSESSMENT AND TO ENSURE THE ACCURACY OF THEIR DESIRED MARKETING CLAIM THAT THEIR BEEF PRESENTED ZERO RISK, AND THUS WAS 'SAFE'. IN ADDITION, IT IS THE REGULATORY PHILOSOPHY OF THE UNITED STATES NOT TO ADOPT THE EUROPEAN PRECAUTIONARY PRINCIPLE, WHICH WOULD REQUIRE THAT EACH HEAD OF CATTLE BE TESTED WITHOUT REFERENCE TO TELLTALE SIGNS OF DISEASE. THE IMPOSITION OF THIS EXTRA COST & BURDEN UPON EUROPEAN BEEF EXPORTERS HAS MADE THEM LARGELY NONCOMPETITIVE WITH EXPORTERS FROM OTHER COUNTRIES, WITHOUT MAKING THE BEEF ANY 'SAFER'. MR. KRUGMAN WOULD LIKE TO HAVE THE EXPENSIVE & INEFFICIENT FOOD SAFETY SYSTEM IMPORTED INTO THE U.S.]


When push comes to shove, it seems, the imperatives of crony capitalism trump professed faith in free markets. Eventually, the department did expand its testing, and at this point most countries that initially banned U.S. beef have allowed it back into their markets.


[THE U.S. DEPARTMENT OF AGRICULTURE, LIKE OTHER U.S. AGENCIES, CONTINUALLY UPDATES ITS SCIENTIFIC EVALUATIONS, PROCEDURES & PRACTICES, TO REFLECT MORE CURRENT KNOWLEDGE, JUST AS THEY SHOULD. THIS RESULTED IN MORE EXTENSIVE & EFFICIENT TESTING.]


But the South Koreans still don’t trust us. And while some of that distrust may be irrational — the beef issue has become entangled with questions of Korean national pride, which has been insulted by clumsy American diplomacy — it’s hard to blame them.


[MR. KRUGMAN, THE GLOBALIST, TAKES IT UPON HIMSELF TO APOLOGIZE TO THE KOREAN GOVERNMENT AND THE KOREAN PEOPLE FOR THE AMERICAN OFFENSE OF TRYING TO HOLD THE KOREAN GOVERNMENT TO THE WTO RULES WHICH THEY HAVE AGREED TO FOLLOW, AND OF NOT HONORING THEIR 'CULTURAL PREFERENCE' FOR 'PURE' KOREAN BEEF & DISGUISED PROTECTIONISM . APOLOGY UNNECESSARY & INAPPROPRIATE. See: Lawrence A. Kogan, Looking Behind the Curtain: The Growth of Foreign Trade Barriers that Ignore Sound Science, National Foreign Trade Council (May 2003), at pp. 8, 12-13, at: http://www.wto.org/english/forums_e/ngo_e/posp47_nftc_looking_behind_e.pdf .]

[MR. KRUGMAN PREVIOUSLY LAUDED THE SOCIALIST REGULATORY SYSTEM OF THE EUROPEAN UNION THAT SEEMS TO PROVIDE A MODEL FOR KOREA AND OTHER COUNTRIES FROM TIME TO TIME, IN HIS PREVIOUS NEW YORK TIMES ARTICLE ENTITLED, The Comeback Continent. See: Why Has an Avowed Multilateralist Princeton Academic Been Recruited as a 'Spin-Doctor' to Improve Europe's Image Among Americans???, ITSSD Journal on Economic Freedom (Jan. 12, 2008) at: http://itssdeconomicfreedom.blogspot.com/2008/01/why-has-avowed-multilateralist.html .]


The ironic thing is that the Agriculture Department’s deference to the beef industry actually ended up backfiring: because potential foreign buyers didn’t trust our safety measures, beef producers spent years excluded from their most important overseas markets.But then, the same thing can be said of other cases in which the administration stood in the way of effective regulation. Most notably, the administration’s refusal to countenance any restraints on predatory lending helped prepare the ground for the subprime crisis, which has cost the financial industry far more than it ever made on overpriced loans.


The moral of this story is that failure to regulate effectively isn’t just bad for consumers, it’s bad for business. And in the case of food, what we need to do now — for the sake of both our health and our export markets — is to go back to the way it was after Teddy Roosevelt, when the Socialists took over. It’s time to get back to the business of ensuring that American food is safe.


[MIGHT WE REMIND MR. KRUGMAN AND HIS FELLOW 'SOCIALISTS' ABOUT A FAMOUS QUOTE FROM NONE OTHER THAN SIR WINSTON CHURCHILL? “Socialism is a philosophy of failure, the creed of ignorance, and the gospel of envy, its inherent virtue is the equal sharing of misery.”]

U.S. WTO Submission - 'Determining the Need to Regulate' - A Document Even the 110th Congress Can Learn From

http://www.wtocenter.org.tw/SmartKMS/fileviewer?id=93847


World Trade Organization


Committee on Technical Barriers to Trade


G/TBT/W/285 (March 19, 2008)


DETERMINING THE NEED TO REGULATE

Communication from the United States


I. INTRODUCTION


1. In its successive reviews of the World Trade Organization Agreement on Technical Barriers to Trade (TBT Agreement), the TBT Committee has highlighted the importance and relevance of “good regulatory practice” as a tool for preventing the creation of unnecessary obstacles to international trade. From the U.S. perspective, an important component of good regulatory practice is the effective use of processes and analytic tools for determining the need to regulate. These processes and tools rely significantly on the commonly accepted principles for good regulatory practice originally set forth in the 1995 OECD Recommendation on Improving the Quality of Government Regulation and discussed in an earlier communication from the United States to the TBT Committee on “Good Regulatory Practice.”[1]


2. Discussions of good regulatory practice address issues that go beyond the scope of the TBT Agreement; nevertheless, the principles are relevant to the development and application of standards, technical regulations, and conformity assessment procedures. The successful application of good regulatory practices should reinforce, in a domestic context, the goal of preventing unnecessary obstacles to international trade.


3. This U.S. submission responds to the Committee’s invitation for the submission of papers and provides an overview and summary of the key elements that are part of the U.S. federal regulatory approach for determining when it is necessary to regulate.
[1] G/TBT/W/258, 26 October 2005.


A. Background

B. Identification of the Need for a Regulation

C. Consideration of Legal Requirements

D. Consideration of Alternatives

E. Risk Assessments[11]

F. Cost-Benefit Analyses[14]

G. Continual Reassessment of Need During the Regulatory Process


H. The Logic of the Decision


1. During the preparation or review of a draft regulation, there are a number of questions that should be asked to ensure that the regulatory decision is justified. This process can be somewhat like a peer review, with questions being asked about the basis for assumptions or the source of data, about legal authority or policy judgments, etc. Many of these questions reflect the disciplines and principles of the WTO agreements, particularly the TBT Agreement.


The basic, general questions that should be addressed, with some possible follow-up questions, include:


(a) Is the problem or policy goal clear? For example, for a safety regulation, why do private markets provide less than the optimal amount of safety? Have the agency officials made the objective clear enough to ensure that it will be met by the regulatory action? Are they sure that a regulation is being issued to address a problem that really exists?


(b) Will the regulatory action address the problem? If the objective is to make bathrooms in a building accessible to disabled persons, for example, will the regulation require that the bathroom be accessible, but not that the building itself be accessible? If you require that drug or food labels include information for the consumer to ensure they do not use drugs or food that may be harmful, would tests show that the average person would not understand the label? If you require seats on aircraft that will withstand greater crash forces, will the aircraft floor be strong enough to hold the seat in place when subject to those forces?


(c) Do the data and the analyses support the decision? Are the costs and market distortions minimized while the benefits are maximized? Are data sources reliable? Are the ranges of possibilities so broad that the basis of the decision is questionable?


(d) Is the action sensible? Is it possible that a mistaken decision could cause serious harm to the marketplace or adversely affect health, safety, or the environment?


(e) Are the assumptions reasonably explained and supported? Are appropriate sensitivity analyses conducted to respond to challenges to assumptions?


(f) Does the regulation comply with legal requirements, including international agreements (including the WTO agreements, bilateral and regional free trade agreements, and mutual recognition agreements) to which the United States is a party, statutes (including implementing legislation for such agreements), executive orders, and regulations?


(g) Are conflicts or other effects on achieving other objectives and requirements explained and justified? Assuming, for example, that a regulation is necessary, in assessing alternatives has there been any consideration of how other governments have chosen to regulate in this particular area? Have there been any consultations with foreign governments?


(h) Could the regulatory action have unintended consequences? Could the increase in costs for a product or service as a result of a required safety improvement cause consumers to choose alternatives even less safe than the product or service before it was improved? Because of costs, would a company have to forego one safety protection in order to provide another required protection? For example, would consumers choose a less safe way to travel, if regulations raised the cost of another mode of transportation? Would patients refuse to take a necessary drug, because a required warning about a very minor risk associated with the medication scared them?


(i) Will the action promote or hinder innovation, competition, trade, and investment? If the regulation does not reference or incorporate performance standards, specifically internationally-developed standards, if available, why not? Does the regulation require the use of U.S. certification agencies or laboratories and, if so, why? Will foreign businesses have a hard time complying because the regulation is based on U.S. industry manufacturing processes?


(j) Are there reasonable alternatives and explanations for their rejection?


(k) Is the regulation clear, practical, and easily enforced? Would a regulatory alternative that is more acceptable to the regulated community but establishes a slightly lower level of protection end up providing more protection if regulated entities were more likely to comply with it? Or if it were easier for the industry to comply?


III. CONCLUSION


33. A thoughtful, open, and transparent process for examining the need for regulation leads to better decisions. Well-done analyses are exceptionally valuable tools in this decision-making process. They have convinced advocates of one position or another to change their minds about a particular action.


34. If the process is used correctly, there will be better participation in the process by the public and other governments, and regulations are much less likely to create trade barriers or other problems.


FOOTNOTES


[1] G/TBT/W/258, 26 October 2005.


[11] See f.n. 3, supra. See also, Treasury and General Government Appropriations Act for FY 2000, Pub. L No. 106-554; § 515 (“Quality, Objectivity, Utility, and Integrity of Information” and OMB “Guidelines for Ensuring and Maximizing the Quality, Objectivity, Utility, and Integrity of Information Disseminated by Federal Agencies” (2002). {[3] See “Updated Principles for Risk Analysis” (December 19, 2007 memorandum from the Administrator, Office of Information and Regulatory Affairs (OIRA), Office of Management and Budget (OMB), and the Associate Director and Deputy Director for Science, Office of Science and Technology Policy; OMB regulatory documents are generally available at http://www.whitehouse.gov/ omb/inforeg/regpol.html).}


[14] See f.n. 4, supra. {[4] See OMB Circular No. A-4, “Regulatory Analysis” (2003).}

East Africans Fail to Remove Technical Market Access Barriers Amongst Themselves, Despite Adverse Impact on Trade Flows

East Africa: Remove Trade Barriers


http://allafrica.com/stories/200802120616.html


The Citizen (Dar es Salaam)


EDITORIAL


11 February 2008


Posted to the web 12 February 2008


A workshop was told In Dar es Salaam recently that no member of the East African Community (EAC) has removed non-tariff barriers. This is despite approval of the EAC Council of Ministers that partner states form committees to oversee the issue.


Formation of the national committees was an attempt to address the problem of non-tariff barriers on trade which would now be removed in order to make the movement of goods between member states smooth.


We are a bit perplexed why partner states have not taken steps to implement such an important issue which affects the trade pattern of member states.


For, as it is now, there are many impediments towards smooth trade among them. These hinder the movement of goods from one country to another, contrary to the very purpose of forming the EAC.


Leading forms of barriers include police road blocks, standards requirements, customs procedures, documentation and poor application of the rules of origin.


It is disheartening that while other economic blocks take steps towards closer cooperation the EAC seems to be marking time. And with the turmoil in Kenya it is anybody's guess if member states will ever take steps to implement the resolution of the EAC council of ministers. Let's wait and see.

India Won't Tolerate Any More Barriers

'India will retaliate if faced with non-tariff trade barriers'


February 8, 2008


http://www.hindu.com/thehindu/holnus/000200802081866.htm


The Hindu


Bangalore (PTI): India on Friday warned that it will retaliate against countries that seek to impose non-tariff barriers to trade on its exporters.


Without taking names, Commerce and Industry Minister Kamal Nath told exporters at a meeting here that the sub- continent nation has become a key market to some of these countries, which could not afford to lose out on it.


He was replying to questions about some countries creating hindrances to trade by invoking labour laws, packaging standards and safety measures.


Last year, some leading international clothing brands had put a freeze on sourcing of readymade garments from an Indian manufacturer citing employment of child labour. It had nearly caused a diplomatic stand-off between India and the Netherlands.


Industry estimates had pegged the growth of garment sourcing from India at 12 per cent. Other estimates suggested that clothing and textile production in India by foreign brands would touch USD 22-25 billion this year.


The textile industry, an employment intensive sector, is already said to have suffered the worst by the rupee's appreciation against the US dollar.


Nath said India's strength lies in its credibility and should be leveraged in the face of stiff competition offered by global players.


He said India was negotiating trade agreements with various countries to strengthen its position on trade.


India's inherent strength of being a large market and her ability to topping technology and innovation has made the country into a key supply source, the minister said.

Russian Regulatory Roulette: The Raising of Disguised Technical Barriers to Trade??

MOSCOW NEWS


Breaking Barriers

http://mnweekly.rian.ru/business/20080221/55311414.html

21/02/2008


Last Friday, Chairman of the Association of European Businesses, Reiner Hartmann, and a delegation from the AEB, held a meeting with EU Commissioner for Trade, Peter Mandelson on customs, visas, taxation and intellectual property rights issues - the four main concerns identified by European businesses operating in Russia.


Specific challenges regarding customs barriers included customs clearance procedures and different interpretations of customs regulations. A spokesperson from AEB told The Moscow News on Wednesday that "there are numerous documents that need to be provided as well as high custom costs for imports of certain goods, more particularly for cigarettes, chemicals, electronics, machine building equipment and textiles."


Concerning taxation, European businesses said they were concerned about transfer pricing, criticizing the practice of "black listing" certain countries - among others Malta and Cyprus - using the sole criterion of the tax rate applicable in that country.


According to the Draft Law on Transfer Pricing, this rate should not be less than half the tax rate applicable in the Russian Federation, which means it should not amount to less than 12 percent. The AEB stated that "a special clause of information between the countries for tax rate difference shall be introduced. However, there could be possible discrimination between EU member states." The AEB did however welcome President Vladimir Putin's recent announcement that the VAT rate will decrease significantly in coming years, which will benefit European business as well as others.


In the area of Intellectual Property Rights, difficulties abounded. In particular, representatives from pharmaceutical and agrochemical sectors reported experiencing excessive red tape and "extremely protracted and messy procedures for the registration of new products and re-registration of existing products," the AEB said.


Moreover, software manufacturers detailed barriers for importing their products into Russia. The first step entails receiving approval from the Federal Security Service (FSB) to import the software. Following approval, the Ministry of Economy issues a license to the company, but the license remains valid only for that particular shipment.


As a result, software manufacturers currently find themselves repeating the entire application process each time anew. Additional disadvantages are incurred while waiting in line for import approval: the importer must pay a service fee while customs holds the product (which on average takes three weeks), Russian authorities may keep reference samples of items used to conduct tests, and yet another fee is levied for the test analysis from an FSB-recommended lab.


The meeting served as a continuation of AEB and European Com­mission cooperation within the framework of the EU Market Access Strategy, the goal of which consists of ensuring fair trade conditions for European companies doing business not only in Russia, but any third-party state. European businesses operating in Russia will take advantage of this channel for collectively communicating their hardships on a policy level.


In order to address some of these concerns, Commissioner Mandelson emphasized the importance of feedback from European companies in offering concrete cases of discriminatory trade barriers from their experience on the ground.


AEB Chairman Reiner Hartmann indicated AEB intentions to "intensify its participation in [this] process."

By C. Anne Shupe

Trading Places - The New Mercantilism

http://findarticles.com/p/articles/mi_m2751/is_79/ai_n13502257/print


Trading places


Peter F. Drucker


The National Interest


Spring, 2005


THE NEW world economy is fundamentally different from that of the fifty years following World War II. The United States may well remain the political and military leader for decades to come. It is likely also to remain the world's richest and most productive national economy for a long time (though the European Union as a whole is both larger and more productive). But the U.S. economy is no longer the single dominant economy.


The emerging world economy is a pluralist one, with a substantial number of economic "blocs." Eventually there may be six or seven blocs, of which the U.S.-dominated NAFTA is likely to be only one, coexisting and competing with the European Union (EU), MERCOSUR in Latin America, ASEAN in the Far East, and nation-states that are blocs by themselves, China and India. These blocs are neither "free trade" nor "protectionist", but both at the same time.


Even more novel is that what is emerging is not one but four world economies: a world economy of information; of money; of multinationals (one no longer dominated by American enterprises); and a mercantilist world economy of goods, services and trade. These world economies overlap and interact with one another. But each is distinct with different members, a different scope, different values and different institutions. Let us examine each in turn.


The World Economy of Information


INFORMATION AS a concept and a distinct category is an invention of the 18th century--of the newspaper in England and the encyclopedia in France. Within a century, information became global with the development of the modern postal system in the 1830s, followed almost immediately by the electric telegraph and the first computer language, the Morse Code. But unlike the newspaper and the encyclopedia, neither the postal service nor the telegraph made information public. On the contrary, they made it "privileged communication." "Public information" by contrast--newspapers, radio, television--ran one way only, from the publisher to the recipient. The editor rather than the reader decided what was "fit to print."


The Internet, in sharp contrast, makes information both universal and multidirectional rather than keeping it private or one-way. Everyone with a telephone and a personal computer has direct access to every, other human being with a phone and a PC. It gives everyone practically limitless access to information. And it gives everyone the ability to create information at minimal cost, that is, to create his own website and become a "publisher."


In the long run, the most important implication is probably the impact of information on mentality and awareness. It creates new affinities and new communities. The woman student in Shanghai who taps into the Internet remains Chinese, but she sees herself at the same time as a member of a worldwide, non-national "information society."


Businesses and professional groups such as lawyers and doctors have, of course, had access all along to worldwide information in their own field. But the Internet gives such access to the ultimate customer. In the United States at least (but apparently also in Japan and Europe), the ultimate customer now gets his information about plane schedules and airfares from the Internet rather than from a traditional travel agent. And while a good many book buyers in the United States still pick up and pay for the book of their choice at a bookstore in their neighborhood, an increasing number of them decide what books to buy by reading about them online first. An automobile still has to be serviced by a local dealer. But increasingly, buyers first study both their choice for the new car and their options for trading in their old car online before visiting a dealer.


What is already discernible is that, like all new distribution channels, this new information economy will change not only how customers buy, but what they buy. It will change customers' values and expectations, and with them how to promote goods and services, how to market and sell them, and how to service them online. In other words, Internet customers are becoming a new and distinct market. In the early years of the 21st century, power is shifting to the ultimate consumer.


There is no distance in this world economy. Everything is "local." The potential customers searching for a product do not know--and do not care--where the products come from. This does not eliminate or even curtail protectionism. But it changes it. Tariffs can still determine where a product or service has to be bought. But they are increasingly unable to protect the domestic producers' price.


One example: To get the industrial Midwest with its 140,000 steel workers to vote Republican in congressional elections, President Bush slapped a prohibitive tariff on imports of steel from Europe and Japan in 2001. He got what he wanted: a (bare) Republican majority in the Congress. But while the large steel users (such as automobile makers, railroads and building contractors) were forced by the tariff to buy domestic, they immediately set about cutting their use of steel so as not to spend more on it than they would have had to spend had they been able to buy the imports. Bush's tariff action thus only accelerated the long-term decline of the traditional midwestern steel producers and the jobs they generate. Tariffs, in other words, can still force users to buy domestic, but they are no longer capable of protecting the domestic producers' prices. Those are set through information and on the world-market level.


This development underlies the steady shift in protectionism: from tariffs--the traditional way--to protection through rules, regulations and especially export subsidies. World trade has grown spectacularly in the last fifty years. The largest growth has been in subsidized farm exports from the developed world: western and central Europe, Australia, Canada and the United States. Farm subsidies are now the only net income of French farmers, as their crops produce nothing but net losses and are grown only as the entitlement for the subsidies. These subsidies are in fact a major--perhaps the major--cement of the Franco-German alliance, and with it, of the European Union.


The international organization designed to set world economic policy is the World Trade Organization (WTO). But its meetings and agreements deal less and less with trade and tariffs, and instead with rules, regulations and subsidies. The discipline of international economics still, in large measure, concerns itself with international trade--that is, with the flow of money, goods and services. But the essence of the new world economy is that it is, above all, an economy of information and truly a global economy.


The Global Oligopoly of Money


THE NEXT major economic crisis will most probably be a crisis of the U.S. dollar in the world economy. It will put to a severe test the oligopoly of the central banks of the developed countries that now rules over the world financial economy.


Sixty years ago, in the Bretton Woods meetings of 1944, which tried to refashion a world economy that had been devastated by depression and war, John Maynard Keynes, the 20th century's greatest economist, proposed a supra-national central bank. It was vetoed by the United States. The two institutions that Bretton Woods established instead, the Bank for International Development (World Bank) and the International Monetary Fund (IMF), are, despite their impressive names, auxiliary rather than central--the former mainly financing development projects, the latter providing financial first aid to governments in distress.


The Bretton Woods system was never the stable, "non-political" system Keynes wanted. It could not and did not prevent currencies from being overvalued or undervalued. Still, although it limped from one crisis to the next, the Bretton Woods system worked for most of the half-century after World War II. And there was only one reason why it worked (however poorly): the commitment to it of the United States and the strength of the U.S. dollar as the world's key currency.


The dollar is still the world's key currency. But the Bretton Woods system is being killed by the U.S. government deficit, which is fast becoming the sinkhole of the world financial economy. The persistent U.S. deficit creates a persistent deficit in the U.S. balance of payments, which make both the U.S. economy and the government increasingly dependent on massive injections of short-term and panic-prone money from abroad. The U.S. savings rate is barely high enough to finance the minimum capital needs of industry. It could, in all likelihood, be raised considerably by raising interest rates. But that is not only politically almost impossible; it would also require that a larger share of incomes go into savings rather than into consumption, with an inevitable collapse of an economy based on consumer spending and low interest rates, as for instance, the U.S. housing market.


The government deficit is therefore being financed almost in its entirety by foreign investments in the United States, mostly in government securities like short-term treasury notes and medium-term bonds. The Japanese are converting most, if not all, of their trade surplus with the United States into dollar-denominated U.S. government securities and have thus become the largest U.S. creditor.


It is often argued, especially in Washington, that the deficit is mostly an accounting mirage. Defense spending--the main cause of the deficit--enables other free countries to keep their own defense spending low, which then generates the surpluses these countries invest in U.S. government securities. But this is a political argument. The economic fact is that the United States increasingly borrows short term (U.S. securities can be sold overnight) to invest long term and with very limited liquidity. This, needless to say, is an unstable and volatile system. It would collapse if the foreign holders of U.S. government securities (above all, the Japanese) were for whatever reason (such as a crash in their own economy) to dump their holdings of U.S. government securities. It certainly cannot be extended indefinitely, which, among other serious drawbacks, calls into question the long-term viability of the Bush Doctrine's goal of defending and extending the "zone of freedom" around the world.


The World Economy of the Multinationals


THERE WERE 7,258 multinational companies worldwide in 1969. Thirty-one years later, in 2000, the number had increased ninefold to more than 63,000. By that year, multinationals accounted for 80 percent of the world's industrial production.


But what is a multinational? Most Americans would answer: a big American manufacturer with foreign subsidiaries. That is wrong in almost every particular.


American-based multinationals are only a fraction--and a diminishing one--of all multinationals. Only 185 of the world's 500 largest multinationals--fewer than 40 percent--are headquartered in the United States (the European Union has 126, Japan 108). And multinationals are growing much faster outside the United States, especially in Japan, Mexico, and lately, Brazil.


Furthermore, most multinationals are not big. Rather, they are mostly small- to medium-sized enterprises. Typical perhaps is a German manufacturer of specialized surgical instruments who, with $20 million in sales and with plants in eleven countries, has around 60 percent of the world market in the field. And only a fraction of multinationals are manufacturers. Banks are probably the largest single group of multinationals, followed by insurance companies such as Germany's Allianz, financial-services institutions such as GE Finance Corporation and Merrill Lynch, wholesale distributors (especially in pharmaceuticals), and retailers like Japan's Ito Yokado.


The traditional multinational was indeed a domestic company with foreign subsidiaries, like Coca-Cola. But the new multinationals are increasingly being managed as one integrated business regardless of national boundaries, and the managers of the "foreign subsidiaries" are seen and treated as just another group of "division managers" rather than as top managements of semi-autonomous businesses. Internally, new multinationals are often not even organized by geography, but worldwide by products or services, such as one worldwide division for cleaning products or short-term inventory loans. They are increasingly organized by "markets": fully-developed markets (such as western and northern Europe or Japan); "developing markets" (eastern Europe, Latin America and parts of East Asia); and the "underdeveloped markets" and big "blocs" (China, Russia and India)--each with different objectives and strategies.


Finally, the new multinationals are increasingly not domestic companies with foreign subsidiaries, but are more likely to be domestic companies with foreign partners. They are being built through alliances, know-how agreements, marketing agreements, joint research, joint management development programs and so on. They require very different management skills; they must persuade, not command. The typical old multinational began planning with the questions: "What do we want to achieve? What are our objectives?" The first question in the new multinational is likely to be: "What do our partners value? What do they want to achieve? What are their competencies?" And in turn: "What do they need to know about our values, our goals, our competencies?"


We have almost no data on the world economy of the multinationals. Our statistics are primarily domestic. Nor do we truly understand the multinational and how it is being managed. How, for instance, does a multinational pharmaceutical company decide in what country first to introduce a new drug? How does a medium-sized multinational, like the German surgical-instrument maker mentioned earlier, decide whether to keep importing into the United States? To buy a small American competitor who has become available? To build its own plant in the United States and to start manufacturing there?


Our dominant economic theories--both Keynes and Friedman's monetarism--assume that any but the smallest national economy can be managed in isolation from world economy and world society. With an estimated 30 percent of the U.S. workforce affected by foreign trade (and a much higher percentage in most European countries), this is patently absurd. But an economic theory of the world economy exists so far only in fragments. It is badly needed. In the meantime, however, the world economy of multinationals has become a truly global one, rather than one dominated by America and by U.S. companies.


The New Mercantilism


THE MODERN state was invented by the French political philosopher Jean Bodin in his 1576 book Six Livres de la Republique. He invented the state for one purpose only: to generate the cash needed to pay the soldiers defending France against a Spanish army financed by silver from the New World--the first standing army since the Romans' more than a thousand years earlier. Mercenaries have to be paid in cash, and the only way to obtain a large and reliable cash income over any period--at a time when domestic economies had not yet been fully monetized and could therefore not yield a permanent tax--was a revenue obtained through keeping imports low while pushing exports and subsidizing them.


It took 300 years--the time until the unification of Germany and Italy in the 19th century--before Bodin's political invention, the nation-state, came to dominate Europe. But his mercantilism was adopted almost immediately by every European government, large or small. It remained the reigning philosophy until Adam Smith showed the absurdity of believing (as mercantilism does) that a nation can get rich by robbing its neighbors.


Twenty-five years after Smith, mercantilism was still the doctrine that underlay America's first and most important work in political theory, The Report on Manufacturers (1791) by Alexander Hamilton. And almost a century later, in the second half of the 19th century, Bismarck based the new German Empire on Bodin's mercantilism as adapted to Europe by Hamilton's great German admirer, Friedrich List, in his 1841 book, The National System of Political Economy. However discredited as economic theory, mercantilism, not Adam Smith's free trade, thus became the policy and practice of governments virtually everywhere (except for one century in the UK).


But mercantilism is increasingly becoming the policy of "blocs" rather than of individual nation-states. These blocs--with the European Union the most structured one, and the U.S.-dominated NAFTA trying to embrace the entire Western Hemisphere (or at least North and Central America)--are becoming the integrating units of the new world economy. Each bloc is trying to establish free trade internally and to abolish within the bloc all hurdles, restrictions and impediments, first to the movement of goods and money and ultimately to the movement of people. The United States, for instance, has proposed extending NAFTA to embrace all of Central America.


At the same time, each bloc is becoming more protectionist against the outside. The most extreme protectionism, as already discussed, consists of rules with respect to agriculture and the protection of farm incomes. But similar protectionism is certain to develop for blue-collar workers in the manufacturing industry, and for the same reason: They are becoming an endangered species, the victims of productivity.


In the United States for instance, manufacturing production increased in volume by at least 30 percent during the 1990s. It has at least doubled since 1960, and may even have tripled. (We have only money figures and have to guess at volume.) But manual workers in industrial production in the same period decreased from some 35 percent of the work force to barely more than 13 percent--and their numbers are still going down. Total employment in the manufacturing industry has remained the same proportion of the work force--it probably has even gone up. But the growth has been in white-collar work rather than the manual kind.


A mercantilist world economy, however, faces the same problems that led to the ultimate collapse of mercantilist national policies: It is impossible to export unless someone imports. This means, as Adam Smith showed 250 years ago, that the blocs must concentrate on those areas in which they have comparative advantages. In today's technology and world economy, that means concentrating on an area of knowledge work. Such concentration is already beginning. India is emerging as a world leader in applied-knowledge work--its comparative advantage is the 150 million well-educated Indians whose main language is English. China may similarly attain leadership through its world-class competence in manufacturing management--the legacy of the communist emphasis on output and production.


And just as it was for the mercantilists of 17th- and 18th-century Europe, an adequate home market (or access to one, as the Swiss and Dutch had to the markets of Germany and central Europe in the 19th century) is the most effective base for being competitive in the world economy. This "home market"--small enough to be protected and big enough to be competitive--is what the "blocs" provide.


Thus, the European Union is already in the process of creating the institutions for its bloc to be effective in this world economy: a European Parliament, a European Central Bank, a European Cartel Office and so on. Even the French, reluctantly, are integrating their economy and their industries--and even their agriculture--into the economy, the industries and the agriculture of the EU (provided that the Germans foot the bill).


The United States, of course, has been a genuine bloc and a nation-state all along. Its economic institutions have been federal, at least since the creation of the Interstate Commerce Commission and the Federal Reserve Banking System. U.S. institutions like the Federal Reserve Bank of New York also act, in emergencies (such as the recent collapse of the Mexican peso) as the agent of NAFTA.


WHAT, THEN, is likely to be the future relationship between these two blocs? The United States has openly announced its policy of extending NAFTA to all of Latin America. And while NAFTA means free trade within the bloc, it also means high protection externally, and especially high protection against Europe. Officially, the United States is still committed to worldwide free trade. But the actual result of its policies is that a zone of preferential trade agreements is gradually emerging around the United States--not unlike the bloc that is the EU. The world economy is thus fast coming to look far more like the mercantilism of Alexander Hamilton than like Adam Smith's free trade. It is fast becoming an "interzonal" rather than an "international" world economy.


But a new kind of mercantilist rivalry is emerging in this new economy--one in which the United States suffers from little-noticed disadvantages. For instance, the EU is seeking to export its regulations (and to impose its high regulatory costs on the United States) through international agreements, the reinterpretation of WTO rules, and the growing acceptance of EU standards in third markets. (1) It is also promoting its new currency, the euro, as a rival and alternative to the dollar as the world's reserve currency--a step that, if it succeeded, would greatly reduce the U.S. government's ability to attract foreign funds to finance its deficit and thus maintain the Bush Doctrine. Nor can the United States be certain of maintaining the solidarity of its own bloc in competition with the EU.


Several Latin American states are going slow" on the negotiations to extend NAFTA for political reasons. The EU is itself seeking closer trade and economic relationships with Latin America through partnership talks with MERCOSUR. And the recent trend of Latin American politics has been to drift away from "neo-liberalism" and towards a Left perennially tempted by anti-yanqui protectionism. What is different today is that the EU offers these political forces the ability to choose free trade while simultaneously resisting U.S. "hegemony." The United States could therefore find itself with a smaller "home market" than rival blocs, but with the same high-cost regulations, in a world of intense mercantilist competition.


For thirty years after World War II, the U.S. economy dominated practically without serious competition. For another twenty years it was clearly the world's foremost economy and especially the undisputed leader in technology and innovation. Though the United States today still dominates the world economy of information, it is only one major player in the three other world economies of money, multinationals and trade. And it is facing rivals that, either singly or in combination, could conceivably make America Number Two.


(1) For more, see Lawrence Kogan, "Exporting Europe's Protectionism", The National Interest (Fall 2004).


Peter F. Drucker is a writer, consultant and teacher. His most recent book is Managing the Next Society (2002).

COPYRIGHT 2005 The National Interest, Inc.