The World Trade Organization has just given its critics more ammunition. On September 2, a panel under the WTO’s Dispute Settlement Understanding (DSU) issued a ruling on case DS406, a challenge by Indonesia alleging that U.S. anti-smoking policies passed in 2009 are a de facto trade barrier and thus are WTO-illegal. Todd Tucker has an excellent analysis of the ruling over at Eyes On Trade. But I’ll offer a brief summary here. After all, the topic of WTO overreach is likely to be a consistent theme on this blog – the connection being that the WTO is an institution that plays a powerful role in development and global commerce, one that is not always beneficial or democratic. It’s an institution that is embedded in existing international political systems in incredibly complex ways, as an organization that is theoretically governed by consensus – in which every member country has an equal voice – but in practice often reproduces existing power structures.
But let’s start at a small scale, with a single argument. One of the most problematic aspects of the WTO is its ability to strike down domestic policies – which are often democratically created, sound regulations – as illegal barriers to trade. As one might expect, policies such as anti-dumping measures, safeguards and countervailing duties are challenged often under the DSU, and almost always struck down. More troubling are the so-called “non-tariff barriers” that are equally likely to be ruled WTO-illegal if challenged at the DSU. What exactly is a non-tariff barrier? That’s the rub: virtually any policy or regulation that a country can claim discriminates against its exports can be considered such. The WTO is then empowered to rule that such policies that are determined to be barriers to trade must be revised or eliminated. Countries that fail to comply could face trade sanctions. So unlike an organization like the ILO, the WTO actually has teeth, and has relatively powerful mechanisms with which it can enforce its rulings.
So, in this case, the Obama administration passed legislation in 2009 banning certain types of flavored cigarettes, like candy-flavored and clove cigarettes, on the premise that these types of cigarettes encourage young people to start smoking. Seems fine, right? But Indonesia claimed that the vast majority of clove cigarettes sold on the U.S. market are imported from Indonesia. Thus, the new ban unfairly discriminates against Indonesian exports and violates U.S. obligations under the WTO’s Technical Barriers to Trade (TBT) agreement. The DSU decided in favor of Indonesia, despite agreeing in its ruling that the U.S. policy is probably a good one. The fact that an ideological dedication to trade liberalization can trump sound policymaking is at the core of many critiques of the WTO.
(Note: my summary is slightly imprecise as a result of my trying to keep it short and easily intelligible. I encourage interested readers to check out the aforementioned Eyes On Trade post for a more in-the-weeds look at the details of the ruling.)
Full disclosure: I used to blog at Eyes On Trade, which is written by the staff of Public Citizen’s Global Trade Watch.