Regulations Increasingly Threaten Free Trade, Cato Paper Says
Regulatory protections are often outright protectionist policies used to promote domestic industry at the expense of international trade obligations and the U.S. economy, according to a recent policy analysis from the libertarian think tank the Cato Institute.
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As traditional tariffs and quotas have fallen away, countries are left with regulations as the means to control imports, said the paper, written by Cato Trade Policy Analysts William Watson and Sallie James. The proposed EU-U.S. agreement will likely focus heavily on regulation, James said at the Cato Institute April 18. “So this issue is going to become more important.” The paper uses various reports and case studies to make its case that regulations are growing. It cites a 2013 study from the UN Conference on Trade and Development, for example, which found that technical and sanitary barriers affect about 45 percent of international trade.
The paper also cites specific examples from U.S. regulations, including a prohibition on marking tuna as “dolphin safe” unless certain standards were met. A World Trade Organization appellate body ruled the regulations discriminate against Mexican products last year, and the U.S. is now trying to comply with that ruling (see 12051633).
Regulations like the tuna labeling may seem squarely in the public interest, but can turn into tools for domestic industry to exclude exports, Watson said. The 2008 addition to the Lacey Act, which made it a crime for U.S. companies to sell illegal lumber, is another example, Watson said. There was clearly an environmental factor to the regulation, Watson said, but many of its supporters were in fact the U.S. lumber industry. The regulation made it increasingly risky to purchase foreign lumber, “so there is an incentive to buy domestic lumber.”
To prevent protectionist policies, the paper recommends strengthening current rules -- like the dispute settlement process at the World Trade Organization -- and being more vigilant when regulations are initially proposed. Watch for “red flags,” Watson said. Domestic industry supporting a regulation is usually one sign it has a protectionist bent, such as with the Lacey Act expansion: When “people who are very upset about cutting down trees and people who cut down trees for a living” are on the same side, there are “shenanigans” happening, Watson said.