Commentary

Commerce Department’s Power Invites Corruption

This article appeared in the Investor’s Business Daily.

“Power tends to corrupt,” noted Lord Acton, a point that official Washington tends to overlook in the wake of scandals involving campaign funding and the U.S. Department of Commerce. The real problem is not the funding per se, but the power that federal officials wield over international trade and commercial activity that provide companies the incentive to make certain campaign contributions in the first place. Since the law gives the Commerce Department wide latitude in allowing or impeding the flow of international goods and services, it is no accident that nearly all recent Commerce secretaries have been politicians — and have acted that way once in office.

An illustration: To please Florida tomato growers, the U.S. Commerce Department assisted in an antidumping case against Mexican tomatoes that the U.S. International Trade Commission (USITC) rejected. So the Commerce Department tried again, this time by attempting to show unfair Mexican pricing by counting only a few specific months when performing price calculations.

In addition, since Mexican tomatoes come off the vine plump and juicy, U.S. trade officials recommended new and disadvantageous packaging requirements. As Greg Rushford asked in the Rushford Report, “How dignified is it for the National Economic Council to schedule a special meeting to hear [Commerce Secretary] Mickey Kantor argue that Section 8e of the Agricultural Marketing Agreement Act of 1937 should be amended to squish Mexican tomatoes and please Sen. Robert Graham, a Florida Democrat?” To avoid exorbitant antidumping duties, attorneys for the Mexican tomato growers were forced to reach a settlement, one that favored the interests of the politically-connected Florida growers over U.S. consumers.

Recognition that antidumping laws benefit well-connected industries at the expense of consumers can even be found in the appendix to a recent USITC report: “[I]t must be remembered that the purpose of the antidumping and countervailing duty laws is not to protect consumers, but rather to protect producers… So it should not come as a surprise that the economic benefits of the remedies accrue to producers, and the economic costs accrue to consumers.”

Another source of corruption is Department of Commerce trade missions. The Center for Public Integrity and media accounts have documented that those executives allowed on the trips are usually the same ones whose companies make large campaign contributions.

The irony is that Ross Perot, Ralph Nader and other advocates of “campaign finance reform” want to grant more power to politicians to limit trade and investment, which only strengthens the hand of special interests. History shows that if you grant politicians power, they’ll soon use it — and frequently for less than benign purposes. Is it surprising that congressmen from flower-producing states are among those pushing hardest to use the drug decertification process to sanction Colombia and thereby further restrict Colombian flower imports?

The approach of the U.S. Trade Representative’s (USTR) office is another area of concern. USTR often acts as if it is a lawyer for a particular industry or firm, even threatening to raise tariffs on products used by U.S. consumers if USTR’s company “client” does not get what it demands of a foreign government. While foreign firms with U.S. subsidiaries are barred from USTR’s private sector advisory committee, “the [U.S.] business community, labor, environmental, and special interest groups” are welcomed, according to the 1996 Trade Policy Agenda.

It is time that policy makers view reform of America’s trade laws as part of an anti-corruption drive and not simply as good economic policy. Such a reform should contain several elements. First, we should eliminate the antidumping provisions or, absent that, at least require all antidumping duties to pass a test: Will assessing the duties benefit American consumers? The answer likely will be no. Second, abolish the Department of Commerce and distribute its trade functions to the Treasury Department. Commerce has shown itself to be highly politicized and its mercantilist tradition has favored politically well-heeled producers at the expense of other Americans. Third, change the mission of the USTR from one of advocacy for particular U.S. industries to that of seeking the best deal for U.S. consumers. Fourth, deemphasize often highly politicized bilateral trade discussions in favor of multilateral arbitration, such as the dispute resolution mechanisms established through the World Trade Organization.

The countries that international executives rate the most corrupt, such as Nigeria, are also the ones where government officials hold the most authority over trade and investment decisions. In Mexico, Newport Beach, Cal.-based Metalclad has been blocked for two years from moving forward with building an environmentally necessary hazardous waste treatment and disposal facility by a single government official, the Governor of San Luis Potosi. The company is filing for arbitration under NAFTA. The lesson both at home and abroad is clear: Keep power away from officials and the opportunity for corruption diminishes accordingly. After all, power corrupts.

Stuart Anderson is director of trade and immigration studies at the Cato Institute.