VISION & VALUES CONCISE: The WTO Punching Bag

September 24, 2004 | by | Topic: The Path to Freedom, Vision & Values Concise E-publicationsPrint Print

The World Trade Organization, a favorite punching bag of some conservatives, is at it again.  But hold on conservatives, the WTO is right on this one! For pocketbook reasons, the U.S. would be wise to heed their ruling.

For the fourth time in less than a year, the WTO has ruled that a U.S. policy violates international trade rules.

The most recent ruling concerns a 2000 law, known as the Byrd amendment, which enables the U.S. government to give duties collected on low-priced imports to U.S. companies that compete against those imports. The duties are imposed against foreign producers guilty of “dumping,” which is selling products in the U.S. for less than the cost of production, or less than they charge in their home market.

While the U.S. trade representative has indicated a desire to comply with WTO obligations, John Kerry criticized the Bush Administration for failing to stand up for American companies and workers at the WTO.   Kerry should think again. His position may temporarily help a few. Bush’s position will help everyone, especially lower income workers, by making goods more affordable. Why? Antidumping duties not only hurt foreign exporters, they raise prices for, and reduce the consumer options of, American consumers.

To understand the role of the WTO, we need to consider why nations restrict trade.  Tariffs and other trade restrictions are used to protect politically powerful businesses and their employees from foreign competition.

But, by prohibiting imports, governments deny their citizens the opportunity to freely choose to buy goods and services from anyone in the world who offers them the best deal. Economic analysis demonstrates that the losses to consumers generally exceed the sum of the tariff gains. Yet, the restrictions persist because producers lobby and vote for politicians who support tariff policies. On the other hand, the average consumer experiences smaller individual losses from trade restrictions and thus does not have an incentive to find out which political candidates support trade restrictions.

The stated goal of the WTO is to reduce trade barriers.  Fewer trade barriers mean greater economic freedom and more opportunities for people to raise their standard of living through mutually beneficial exchange.   Any evaluation of the WTO must consider how effective it is in reducing trade barriers.  The Achilles heel of the WTO is that it is almost powerless to prevent member nations from restricting trade in ways contrary to the stated intention of WTO agreements.

A realistic assessment of the WTO must focus on the factors which limit its ability to bring about trade liberalization.  One reason that WTO member nations continue to protect politically powerful industries is because of loopholes in the agreement.  One such loophole is the antidumping provision, which allows a country to put tariffs on a product if other countries are selling that product at prices below cost.  In identifying cases of dumping, government bureaucrats must arbitrarily define “cost.” And they have strong incentives to err on the high side in order to justify protecting domestic producers from low priced foreign competition.  Antidumping duties apply to hundreds of products imported into the United States.

The recent WTO ruling against the U.S. Byrd amendment does not prohibit antidumping duties, but only specifies that those duties may not be paid to companies that produce competing products.  Therefore, without violating WTO rules, the U.S. government may continue to deny U.S. consumers the right to pay low prices for certain imported products that foreign producers would like to sell them.  So, “What’s the big deal Miller?” you may be asking.  

Here it is – while repeal of the Byrd amendment would not end the use of antidumping duties that restrict trade, it would reduce firms’ financial incentives to file antidumping cases, thereby allowing consumers to benefit from more lower-priced goods.

In an ideal world, the WTO and other trade agreements would not be necessary and nations would unilaterally eliminate trade barriers in order to facilitate the freedom and prosperity of their citizens.  Due to the flaws of human nature and political institutions, however, governments will continue to restrict trade in response to pressure from politically powerful producers.

The WTO has been successful in the past in negotiating mutually beneficial reductions in trade barriers, particularly between high income countries.  Much more remains to be done to eliminate trade restrictions, particularly on agricultural products.  The WTO continues to provide a forum where nations meet to consider eliminating those barriers that keep their citizens from having access to inexpensive imported goods.  Whether it continues to make progress in reducing trade barriers depends upon whether enough voters in the United States and other leading nations can be persuaded that economic freedom and the prosperity it brings deserves their political support.

So, even if you don’t like the WTO just imagine your monthly home budget expenses shrinking before you start swinging at the WTO punching bag. And if you want to do something of value to reduce your WTO-stimulated blood pressure, ask your congressman to stop trying to protect you from low-priced imports and to support the repeal of the Byrd Amendment.

Tracy Miller

Tracy Miller

Dr. Tracy C. Miller is an associate professor of economics at Grove City College and fellow for economic theory and policy with The Center for Vision & Values. He holds a Ph.D. from University of Chicago.

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