The Lacey Act: Protectionism through Criminalization

This week Gibson Guitars reached a settlement agreement with the Department of Justice to end a highly publicized criminal case involving wood imported in violation of the law of Madagascar.  Gibson was accused of violating the Lacey Act, an old federal law that since 2008 has made importation, sale, or possession of certain forest products a criminal offense.  The case gained notoriety after FBI agents conducted fully-armed surprise raids of Gibson’s Tennessee facilities and confiscated up to a million dollars worth of wood and guitars.  The move was condemned by politicians and activists concerned about over-criminalization and heavy handed enforcement by the federal government, and efforts have begun to reform the law’s most draconian provisions.

You can often learn a lot about a law by identifying its key supporters.  It’s worth noting, therefore, that proponents of the current restrictions in the Lacey Act include not just the predictable cadre of environmental organizations but also the American lumber industry and labor unions.  Why this peculiar alliance among traditional enemies?  As it turns out, the cost of compliance with reporting requirements and the risk of being slammed with huge fines and a criminal indictment for paperwork errors produce strong incentives to avoid buying foreign lumber altogether.  American consumers of lumber, which include productive, job-creating businesses like Gibson Guitars, cannot reasonably control whether a foreign supplier got all the right licenses and followed all local laws.  Ultimately, the Lacey Act enables domestic suppliers to avoid price-squeezing import competition in a way that harms law-abiding foreign suppliers, American consumers, and all sectors of the U.S. economy that make or use wood products.

The willingness to use government to achieve one’s ends can certainly produce strange bedfellows.  Protectionists these days like to paint their foreign competitors as devious cheaters whose unscrupulous ways give them an “unfair” advantage that the U.S. government should fix with trade barriers.  The effectiveness of this strategy prompted the tree-killing industry to team up with tree-hugging environmentalists to label their foreign competitors (and their own potential customers) as perpetrators or supporters of illegal logging and deforestation.  Environmentalists should remember, however, how that same finger-pointing rhetoric was used to justify the imposition of punitive duties on Chinese solar cell and wind tower manufacturers, and that free trade is the best path to advancing affordable clean energy in the United States and the world.

Perhaps one day environmentalists will embrace free-market solutions to both clean energy and forest maintenance, and all businesses will respond to import competition by improving quality and efficiency.  Until then, free traders will need to be eternally vigilant and willing to challenge protectionism in all its forms.  Reforming the Lacey Act is a good way to start.