BALANCING DEMOCRACY, TRADE, AND
BOTTOM-UP DEVELOPMENT
By
William Schweke
Corporation for Enterprise Development
Conference
on “Fix Globalization: Make It
More Inclusive, Democratic, Accountable
and
Sustainable”
October 9-11, 2002
Washington, DC
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Identify threats posed to democracy and bottom-up
economic development by new and proposed global trade and investment rules
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U.S. Constitution created world’s first free trade
zone
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Reigned in protectionism
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Struck a durable balance between private property
interests and government power
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Established checks and balances among branches and
levels of government
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Balances democracy and trade while keeping power
close to the people, despite the country’s size
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Goal of World Trade Organization is to write a
global constitution -- one without
these balances
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CFED and Harrison Institute for Public Law seek to
promote this original American goal of balancing trade and democracy
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Engage state and local public officials, the
missing actors in the trade debate
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Their governing powers depend upon the balance of
powers established by U.S. Constitution.
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Preserve states and localities as laboratories of
democracy
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Represent constituent interests that are more
diverse than the current trade policy voices
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Mainstream the debate over free vs. fair trade
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Strengthen the capacity of public officials to
govern in global economy and balance the needs of democracy and trade
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Help them play the following roles
1.
Assess the impact of globalization on sovereignty
and democracy
2.
Govern with attention to global agreements and
avoid unnecessary conflicts
3.
Oversee and monitor the negotiation and
implementation of international agreements
4.
Advise the federal government on how to balance democracy
and risk
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Advocate resolutions by State and Local trade
associations
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Letters to USTR and Congress
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Establish select legislative committees or study
commissions
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Conducting trade agreement assessments on impact
on state laws
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Researching state studies of plant closings and
job loss
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Public speakers reports, and articles
Defensive role
Offensive roles
Help state and local officials to craft
economic development and adjustment programs that allow their states and
communities to compete successfully in the global economy.
There are two elements: Competition
and Adjustment.
New global trade and investment agreements threaten a lot
of traditional and innovative development strategies on the sub-national level.
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Unrecognized
by most local (and state) policymakers and managers, changes looming in the
global legal environment could profoundly limit the autonomy and policy
discretion of sub-national governments.
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Could
curtail “laboratories of democracy,” where future national policies are
explored and tested in virtually every sector of governance before they are
replicated on a national scale.
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Areas
potentially affected include: banking regulation, economic development,
government purchasing, consumer protection, working conditions, health and
medical insurance, and environmental law.
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Agreements
empower such multilateral bodies as the WTO and a new set of international
courts and dispute resolution systems to rule on the legality of state and
local laws.
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Policies
found in conflict with these agreements must then be terminated, or trade
sanctions and monetary compensation will imposed.
Whether the agreements are largely good or bad for state and local
governments and their citizens, two facts are certain:
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To
date, state and local officials have had little to say (as compared to business
constituencies) about these changes and little input into the negotiations.
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In the
years of 2002 and beyond, the pace of negotiations will quicken on a variety of
fronts that will reach further into the local domain.
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“Fast
track” trade authority
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Free
Trade Area of the Americas
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WTO
agreement on subsidies (“red light” programs)
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WTO
existing agenda on procurement, services, agriculture
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NAFTA
Chapter 11 “interpretation”
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Bilateral
investment agreements
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Conditions
to IMF deals
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Procurement: transparency issues; affirmative action for
minority and women’s enterprises; buy local or buy American; human rights
standards; living wage ordinances
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Services: privatization (whether, when and how)
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Subsidies: economic development in all forms
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Investment: “everything” (e.g., subsidy disciplines,
licensing, ownership of assets, regulation and “takings”, etc.)
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Conflicts
over subsidies have always been at the heart of many global trade negotiations,
agreements and controversies. But new
developments are making them even more central.
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Success
in multilateral negotiations that restrict tariff, quotas, and other direct
instruments of protectionism, is encouraging free traders to go after other
“structural impediments” to global commerce and investment.
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Structural
impediments include: restrictions of foreign investor rights, subsidies,
regulations, and procurement practices.
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This is
all about “bread-and-butter” local government functions. Not only esoteric tariff policies.
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As the
effects of other impediments, such as duties and tariffs fall, the effects on
company bottom-lines increase.
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As a
result, globally-oriented companies are increasingly concerned about the
subsidizing of their competitors through procurement, on- and off-budget
government expenditures, regulatory policies, etc.
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A
wonderful window on these issues is the so-called SCM (The 1995 GATT Agreement
on Subsidies and Countervailing Measure).
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This is
one of the most important tools for curbing subsidy use.
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Monitored
by the World Trade Organization (WTO).
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It
attempts to define acceptable subsidies and restrict excessive and
inappropriate uses.
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Its
definition is very far-reaching.
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A
“financial contribution” by a governmental entity which confers a benefit to a
producer of a subsidized product.
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These
could include: government grants, loans, equity infusions, loan guarantees, tax
credits and abatements, and (even) government purchasing under especially
advantageous terms.
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It also
tries to tackle so-called indirect subsidies, which could mean subsidies that
pass through private organizations, or the use of regulatory or purchasing
arrangements, which could be regarded as subsidizing.
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Although
the SCM has not had a large impact yet, unlike many other areas of
international law, it has some enforcement and sanctioning mechanisms.
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WTO
participating countries can levy “countervailing” duties above the usual tariff
schedule, when a nation believes that the production or export of an imported
item was aided by an unfair subsidy in the country of origin.
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This
can happen both in cases when subsidized imports are entering the U.S. and
harming its firms, or when a company from, let’s say, France is using
subsidized monies to out-compete American companies in another country, for
instance, Columbia.
Originally,
the SCM sought to clarify the nature of allowable subsidies by organizing them
into three classes: (a) prohibited (“red light”); (b) permissible, but
actionable if they cause adverse trade effects (“yellow light” or “amber”); and
(c) non-actionable and non-countervailable (“green light”). More specifically:
1. Green light – protect certain types of research
and development activities; assistance to disadvantaged regions; and aid to
promote the adaptation of existing facilities to new environmental requirements.
(No longer existing)
2. Red light – cover aid that is tied to export
performance or to requirements for import substitution (or domestic content).
3. Yellow subsidies are everything else. But depending on the situation and the
degree of effect on the industry party (e.g., subsidies amounting to more than
5% of product value, efforts to forgive debt or cover operating losses, etc.)
retaliation through CVDs may be permitted.
Called the presumptions of
“serious prejudice.” And if you
are in this so-called “dark amber” territory, then you are assumed guilty
unless you can prove otherwise.
“Specificity” is another critical issue. Only “specific” programs are “actionable.” And countervailing
duties can only be taken against “prohibited” (e.g., red light) or “actionable”
(e.g., yellow light) subsidies.
The SCM
frowns on providing aid to an enterprise or industry or group of enterprises or
industries. Thus, targeting is
verboten. More specifically, factors in
deciding whether “specificity” has been violated include:
1. use of a subsidy program by a limited number of
certain enterprises,
2. predominant use by certain enterprises,
3.