The US and the EU simply are not, and never really have been, politically constrained by WTO agreements. Instead the WTO has served as kind of organizing tool for the purpose of attempting to constrain policies regarding trade, investment, and property rights particularly directed at developing countries. Both the US and the EU habitually flaunt their WTO commitments in favor of domestic priorities. For example, US House Agriculture Chair Colin Peterson famously responded when questioned about how the latest US farm law egregiously violates WTO agreements, "I want to write a Farm Bill that's good for American agriculture. If somebody wants to sue us at the WTO, we've got a lot of lawyers in Washington."
The FSA serves rather as more of a discursive tool for financial industry interests than anything else. It allows them to frame the argument just as the cited article does -- that we would be somehow violating the law (as if that's a very big deal) if we tried to regulate banks better. The best way to combat the argument is to simply not buy into it. As Rep. Petersen said regarding agricultural policy, "So let 'em sue us."
The best way to combat the argument is to simply not buy into it. As Rep. Petersen said regarding agricultural policy, "So let 'em sue us."
I would say that the best way to combat the argument is to use its possible consequences and its specific language to wind up everyone from anti-WTO activists and progressives to America First conservatives, Ron Paul libertarians and nativists to create a political firestorm that reduced the whole document and process to cinders.
The entire field of trade agreements needs to be revisited and re-done with an eye to making the agreements favorable to increasing the wage rates and benefits in developing countries and stopping the current race to the bottom on labor and environmental issues. That would constitute "not letting a good crisis go to waste." As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
Getting from here to there is, of course, highly problematic, but that should not preclude us from pursuing the goal of a workable, sustainable system. The alternative is that we devote all of our efforts and attention to dealing with serial bubbles and their aftermath until the system collapses. That seems to be the path we are on and where it is leading us. So I don't see that as a viable alternative, just the most likely outcome. As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
The alternative is that we devote all of our efforts and attention to dealing with serial bubbles and their aftermath until the system collapses. That seems to be the path we are on and where it is leading us.
Are periodic, worldwide collapses in the financial services industry -- every several decades -- really that big of a calamity? And couldn't the social cost of trying prevent any such rare event from ever occurring outweigh the costs of experiencing and mitigating them?
I mean, for you, personally, has this crisis been truly devastating, or was it more of an inconvenience or an interruption of your 1st world consumption pattern, or, like it has been for the vast majority of people who will never lose their jobs or homes, is it just an inconvenient, third-person spectacle event, like witnessing a train crash.
It could be just as true that it is better for policy to merely mitigate deprivation when it occurs rather than try to eliminate the risk of such rare events from ever occurring.
Are periodic, worldwide collapses in the financial services industry -- every several decades -- really that big of a calamity?
Yes. How many people have to be homeless or bankrupt before you think this is an issue?
santiago:
And couldn't the social cost of trying prevent any such rare event from ever occurring outweigh the costs of experiencing and mitigating them?
What social cost?
If you tax banks and speculators fairly the social cost isn't just zero, it becomes a social benefit.
For one thing, you're not counting the possibility of benefits that many people -- not just bankers and their ilk -- might have gained through the existing system and might still be gaining as their debts are forgiven while the crisis unwinds. How many more people were able to get homes that otherwise would not have been able to through easy lending and credit availability during the last few decades, for example?
Although bad things are happening to lots of people, good things have also happened to many others (or even the same people) over the last century in the system as it has been. You have to account for both sides of the social balance sheet in order to be honest about it. Again, you may be right, but if you are the data should support it too -- not just an assumption. What does the data really say about the costs AND the benefits?
Keynesian policy advice in the 1930's was to mitigate the bad outcomes rather than try to predict and avoid them. When the Great Depression occurred, there actually were many incidences of severe deprivation in the industrialized world -- famine and starvation occurred. This time, although by many economic statistics it was just as bad, if not worse, than the Great Depression, there are no documented incidences of starvation that have occurred as a result. That says a lot about how policy has already been implemented to adequately address such crises, and one implication might be that the system needs only tweaks now, not revolutionary changes.
The question is less about how many people have been able to get homes, but how many will still be in them when they retire - never mind owning them outright, which is what earlier generations were able to achieve.
Remember also that this banking fail has destroyed vast amounts of housing stock, especially in the US.
It is very possible that only reason that "The question is less about how many people have been able to get homes, but how many will still be in them when they retire - never mind owning them outright ..." may be because the same policy frameworks that allowed people to get into such high levels of home ownership or housing quality/space per person (for renters) is due to the less regulated lending environment in the first place, so you can't honestly approach the issue without accounting for the possible benefits first, somehow.
There are two ways to do it that come to mind: One is to find data which shows that the benefits were actually quite low and the costs of the crisis high, especially to the most vulnerable people. Another way is to show that the proposed policy changes would probably not have reduced the benefits people have enjoyed had they been in place already. I haven't seen anyone address something like either of these questions yet, buy let me know if you have.
I do think the story underlines the pervasiveness of the financial (strangle)hold on institutions - which I probably find the most disconcerting.
The original article that ARGeezer linked to on Zero Hedge excerpts its key points from a "policy primer" from Public Citizen Global Trade Watch (Lori Wallach's organization) titled "The Connection between the World Trade Organization's Extreme Financial Service Deregulation Requirements and the Global Economic Crisis" (PDF).
This primer discusses the confusing yet critical "prudential exception" clause in the General Agreement on Trade in Services about "Domestic Regulation" that afew pointed to above. In particular, it discusses the "self-cancelling" nature of the verbiage, and asserts that "it in fact provides no safeguard for [domestic] financial stability measures that may conflict with the WTO deregulation obligations":
GATS Annex on Financial Services contains a "Domestic Regulation" provision that makes clear that only countries' domestic financial stability measures that are not "used as a means of avoiding the Member's commitments or obligations under the Agreement" are permissible if they do not conflict with the pact's deregulation requirements.16 That is to say, even if regulatory measures are taken for prudential reasons, they are not safeguarded from the WTO's array of deregulation requirements, if they in effect undermine these regulatory constraints. Some have disingenuously called this provision the "prudential exception" or "prudential carve-out," but because it is self-cancelling, it in fact provides no safeguard for financial stability measures that may conflict with the WTO deregulation obligations. Bizarrely, given the loophole already eviscerating the provision, the financial service industry has been lobbying in the context of ongoing GATS negotiations for a narrow interpretation that would limit "prudential" measures to regulations concerning only solvency and financial disclosure.17 16 Annex on Financial Services, paragraph 2(a) states that "Member shall not be prevented from taking measures for prudential reasons, including for the protection of investors, depositors, policy holders or persons to whom a fiduciary duty is owned by a financial service supplier, or to ensure the integrity and stability of the financial system. Where such measures do not conform with the provisions of the Agreement, they shall not be used as a means of avoiding the Member's commitments or obligations under the Agreement." 17 The Commission on the Future of Health Care in Canada, summary report on Globalization and Health, Putting Health First: Canadian Health Care Reform, Trade Treaties and Foreign Polic (prepared by the Canadian Centre for Policy Alternatives), October 2002. Available at http://www:healthcarecommission.ca.
16 Annex on Financial Services, paragraph 2(a) states that "Member shall not be prevented from taking measures for prudential reasons, including for the protection of investors, depositors, policy holders or persons to whom a fiduciary duty is owned by a financial service supplier, or to ensure the integrity and stability of the financial system. Where such measures do not conform with the provisions of the Agreement, they shall not be used as a means of avoiding the Member's commitments or obligations under the Agreement." 17 The Commission on the Future of Health Care in Canada, summary report on Globalization and Health, Putting Health First: Canadian Health Care Reform, Trade Treaties and Foreign Polic (prepared by the Canadian Centre for Policy Alternatives), October 2002. Available at http://www:healthcarecommission.ca.
If this interpretation of the clause is as unambiguous as this paper makes it out to be (i.e. unambiguous in a WTO "court"), how could lawyers -- even U.S. or E.U. lawyers -- argue their way out of it?
santiago: The US and the EU simply are not, and never really have been, politically constrained by WTO agreements. Instead the WTO has served as kind of organizing tool for the purpose of attempting to constrain policies regarding trade, investment, and property rights particularly directed at developing countries.
Supposedly trade sanctions are the way that the WTO enforces obedience to its agreements and regulations, but I never understood how that worked. Is it conceivable that as China's economic and financial clout continues to grow, the Chinese government could use/leverage the WTO (e.g. via sanctions) finally to impose consequences on the US and EU for such violations of these agreements? The march of civilizations is a series of defenses that man has put up against the dread of pure existence.
There are built in costs to members' noncompliance to their commitments -- and noncompliance is usually a result of inability to overcome domestic opposition, not strategic willfulness on the part of the national authority responsible for foreign policy. The penalties for non-compliance come in the form of "allowing" affected member governments to impose trade sanctions of their own on imports from states that have been determined, through by an elaborate, multinational decision and appeal process, of being in violation of their commitments. Even then, states impose sanctions only if the they can muster sufficient domestic support for them - there is no automatic sanctions coming from the WTO as such, so this isn't in any way a level playing field among countries. Such sanctions serve as a domestic political weapon to help encourage pro-trade factions to prevail in domestic policy contests by encouraging exporters to also support policies which liberalize competing imports.
There is, therefore, nothing at all deterministic about WTO agreements. Rather it just provides some political tools that may, or may not, help pro-trade coalitions within nation-states prevail over anti-trade coalitions. Stronger international institutional arrangements such as NAFTA or the EU provide somewhat better weapons for domestic the pro-trade factions, but even then the outcomes are far from unambiguous.
On China's (current and/or future) ability to make use of WTO agreements and regulations to force more international compliance (even by the EU and USA), are you equally skeptical? The march of civilizations is a series of defenses that man has put up against the dread of pure existence.
