EU, WTO and Trade Sanctions Against USA

by Llewellyn H. Rockwell, Jr.


[Posted January 22, 2002]


In an awful, but not unexpected, ruling on a long-standing dispute

between Europe and the US, the World Trade Organization says that the US

must stop permitting US exporters to set up foreign subsidiaries that

save as much as 30 percent in taxes they would otherwise pay. Now the US

must either raise taxes by eliminating loopholes or face massive new

sanctions that will seriously harm our export sector.


In the complaint, the EU said that US tax breaks constitute an unfair

subsidy, and the WTO agreed. Of course, by the same logic one might also

argue that every American citizen is unfairly subsidized by enjoying

more tax loopholes as compared with people in more-socialist states in

Western Europe.


There’s been a lot of talk recently about foreigners who hate our

prosperity and civilization, and seek ways to inflict violence in

retaliation. Well, here’s another case in point, except these are not

swarthy Islamic terrorists; they are diplomats and statesmen on nobody’s

list of suspicious characters.


If the duties are imposed, what will get hit? The short list include

cereals, aircraft and spacecraft, iron and steel, nuclear reactors,

boilers, mechanical appliances, electrical machinery, clothing and

footwear, aluminum, tools, toys, paper, wood, books and newspapers, and

wool and cotton. In short, just about the entire US export sector.


Just what we need: a trade war to follow a hot war, the combination of

which could do to the US economy what the Air Force did to Afghanistan.

Something or somebody needs to do something quick to avoid it, but the

only option that anyone is discussing is the one the WTO seems to be

calling for: raising taxes on US exporters.


How does it happen that this shadowy international bureaucracy can tell

the US to raise taxes? Why is an international arbiter which is

ostensibly devoted to promoting free trade now imposing on the US a

choice between trade war and socialism? What got us into this mess?


The trouble began nine years ago, when the debate began on creating a

World Trade Organization as a corollary to the IMF and World Bank--the

additional institution that the folks who gave us Bretton Woods tried

but failed to create after World War II. International trade is one of

those glorious institutions of the market economy that needs no central

regulatory agency, so good sense tells us that the attempt to erect a

kind of regulatory dictator spells trouble.


No surprise that Bill Clinton was all for the World Trade Organization,

but so was most of corporate America. Who was against it? Many people on

the left who are against all world trade, and also a small group of

principled free traders from the Mises Institute and the Competitive

Enterprise Institute, who warned that a WTO would eventually try to pull

some racket like this. It was obvious enough from the WTO’s expansive

charter.


The Mises Institute, for example, argued that the WTO could become an

"enemy of free trade" and bring about "more trade litigation, reprisals,

and disputes than the present system," and that it would "use its global

powers to promote a big-government philosophy of full employment,

demand-side fiscal management, sustainable development, and wealth

redistribution." (The Free Market, February 1994)


But on the other side was a huge range of naive pundits who believed

that the path to freedom and free enterprise lay in the creation of

another layer of world bureaucracy. They said the WTO would bring about

free trade by restraining governments from imposing protectionist

policies.


These people promised that the WTO’s powers to do harm were nil but

(implausibly) its powers to do good were immense. They said that its

teeth would never be used to harm the US but (implausibly) always to

harm the US’s competitors.


They said that the bureaucracy would violate no one’s sovereignty, while

completely forgetting that the agency might not always be under the

political control of the United States, and that the US Congress is

always looking for an excuse to increase taxes and regulations.


Consider these famous last words:


* Jerry R. Junkins, CEO of Texas Instruments: "The fact is that WTO

cannot change U.S. law; only Congress can do that . . . We want

stronger rules--we will benefit from them. The WTO was set up to make

sure other countries cannot

cheat . . ." (Washington Times, November 29, 1994)


* Bill Frenzel, special adviser to the National Association of

Manufacturers: "The budget issue should not be an issue at all . . .

Commerce needs rules and stability. The United States is the biggest

trading nation in the world and needs" the WTO. (Washington Times,

November 29, 1994)


* Joe Cobb, Heritage Foundation: the WTO is a "major step toward more

open trade to the benefit of all trading nations. . . . There are no

sinister new powers for successful litigants to enforce the dispute

settlement panels’s decisions. . . The GATT agreement, and the WTO it

creates, seems well structured to keep economic freedom dominant over

the interest-group political pressures that compete to influence

governments." (Backgrounder, "A Guide to the New GATT," May 25, 1994)


* Claude Barfield, American Enterprise Institute: "A close examination

of the new WTO and its power reveals that the organization has little

more institutional authority [than Gatt] . . . In the future, neither

new WTO rules nor dispute settlement panel decisions will

automatically become binding upon the United States." (Washington

Post, June 26, 1994)


* William F. Buckley, Jr., syndicated columnist: Under the WTO, "it is

all but inconceivable that foreign nations would gang up to force

trade sanctions against the United States." (Orange County Register,

August 17, 1994)


* Brink Lindsey, The Cato Institute: "The WTO still cannot force a

country to change policies or laws that violate its rules, but its

rulings highlight practices that rob consumers of the freedom to

trade." (Regulation, Volume 20.1, 1997)


* Joe Cobb, again: "Does the WTO have any power over the United States

that could undermine U.S. sovereignty? None whatsoever." (Journal of

Commerce, November 28, 1994)


* William Kristol, Weekly Standard: The WTO is "an historic free trade

agreement and a big nut-plus for both the American economy and

free-market principle." (Memo, Project for the Republican Future,

November 30, 1994)


* Bryan Riley, Citizens for a Sound Economy: "By enforcing

already-established trade rules, the new WTO stands to primarily

benefit the United States. . . . [A]s long as the WTO fulfilled its

mandate to enforce rules designed to promote trade, individual freedom

would gain a powerful ally against protectionist trade barriers

worldwide." (Issues and Answers, August 20, 1994)


* Virginia Postrel, Reason Magazine: "The treaty does not force the U.S.

government to do or not do anything--neither GATT nor its proposed

World Trade Organization has an army. . . . With the new treaty, and

its predecessor, national governments bind themselves to respect the

right of their citizens to trade." (Journal of Commerce, August 29,

1994)


* Washington Times: "Understand this about the WTO. It has absolutely

zero

power--none, nada--to change US laws. . . . The biggest reason to

support [the WTO] is to expand individual liberty." (Editorial,

November 30, 1994)


* Washington Post: "It is abroad, and especially in Europe, that the art

of disguising protectionism as health standards has been brought to it

highest level. Much of the language in the WTO’s rules is the result

of outraged protests by American exporters, who will at least get a

weapon against this abuse." (Editorial, December 1, 1994)


Yes, I know it is impolite to actually hold people accountable for their

past opinions, but so be it. These were the voices that paved the way

for the US to enter into the WTO, which is now attempting to make the US

choose between international conflict and higher taxes. Instead of

creating the free-trade utopia we should all favor, it is now creating

the legal conditions that will bring about trade war in the midst of a

terrible recession.


The advocates of the WTO were convinced that if somehow we could give

lots of power to a bureaucracy, this bureaucracy would behave exactly

the way they hoped it would. Reminds one of what Mises said: "Nobody

every recommended a dictatorship aiming at ends other than those he

himself approved. He who advocates dictatorship always advocates the

unrestricted rule of his own will."


What to do now? It’s true that the WTO cannot literally force the US to

raise taxes. There’s always the option that Congress could throw a

wrench into the WTO’s gears by lowering corporate taxes across the

board, thereby eliminating the alleged subsidy of current tax loopholes.

When the news of this amazing event appears in the European papers, many

Eurocrats will cough up their morning cappuccinos. It will also be a

cold day in Hell.


_________________


Llewellyn H. Rockwell, Jr., is founder and president of the Ludwig von

Mises Institute and editor of < http://www.lewrockwell.com/ >

LewRockwell.com. Send him email at < mailto:Rockwell@mises.org >

Rockwell@mises.org. Also, see his Mises.org

Bookmark this post --- Email this post