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February 28, 2015 2:31PM

The Libertarian Mind Is Fareed Zakaria’s “Book of the Week”

On CNN's GPS, Fareed Zakaria declared The Libertarian Mind "the Book of the Week." Here's the transcript:

This week's book of the week is David Boaz's "The Libertarian Mind: A Manifesto for Freedom." People often wonder what it means when someone describes himself or herself as a libertarian. And that includes people like Rand Paul, Alan Greenspan and Peter Thiel. David Boaz does a superb job of explaining the ideas that animate an important philosophical tradition, and he does it with passion. For anyone interested in politics, this is a valuable resource and a well-written book.

And here's the 30-second video:

The show ran last Sunday, so today is probably the last day of its reign as "Book of the Week." Buy The Libertarian Mind today.

February 27, 2015 3:29PM

U.S. Trying (and Failing) to Contain the Spread of European ‘Geographical Indications’

One of the European Union’s highest priorities in trade negotiations is to globalize its restrictions on the use of place names as generic product descriptions. When they negotiate a trade agreement, they insist that the other country adopt regulations requiring that, for example, all champagne come from Champagne and all parmesan cheese come from Parma. The United States, worried that these rules limit access for U.S. products, is trying to use its own trade agreements to contain the effects of Europe’s push to protect “geographical indications” (GIs) in countries around the world.

Europe’s GI protections restrict the flow of accurate information while reducing competition and innovation. GI protection is not about preventing consumer confusion or false advertising; European rules forbid the use of place names even when phrases like “style” or “type” are added. 

One often overlooked but essential aspect of GI regulation is that use of a protected name requires not only physical location in that place but also adherence to government-mandated production practices.  “Authentic” champagne is therefore not only made in Champagne, but made a specific way required by law. 

By operating this way, the system functions not only to capitalize on a collective brand but also to reduce competition among producers. Once all the producers in a particular country (say, France) are divided by region and style, the industry starts looking a lot like a cartel. There may be multiple producers, but they all agree to keep making the same thing in the same place forever. They no longer have to compete on product quality.

U.S. trade negotiators are rightly resisting efforts to spread this anticompetitive regulatory scheme to other countries. As it stands, there is almost no chance that the United States could convince the EU or its member states to drop their GI regulations. But it is also unlikely that the United States will acquiesce to European demands to adopt such a system here, especially for meats and cheeses.

The battle over GIs is therefore being waged in other countries as the EU and the United States both use trade agreements to influence how GIs are protected in foreign markets. Commercially, the question is whether U.S. companies can continue to sell their generic brands abroad.

Media Name: Kraft-100-Parm-q50.jpg

Right now the United States is losing.  At this point, the most U.S. negotiators are hoping for is coexistence between protected GIs and trademarked U.S. brands.  According to Inside U.S. Trade ($), U.S. negotiators may not even get that much in the Trans-Pacific Partnership:

The United States, Australia and New Zealand are pushing rules in the IP chapter that would, among other things, require TPP countries to maintain a domestic process that allows for applications for GI protection to be rejected or canceled under certain circumstances. The proposal is aimed at countering the European Union's drive to protect such food names in countries around the world.

But TPP countries have been at odds over the extent to which international agreements between TPP countries and other parties such as the EU would be excluded from having to comply with these GI rules, and if so, what would be the scope of such an exception. TPP ministers considered this question at their October ministerial in Sydney but did not reach any resolution.

One informed source said Japan in particular is being defensive on the GI issue, as it does not want the TPP rules to prevent it from offering to protect EU GIs in a bilateral trade agreement that is currently under negotiation. If Japan was prevented from doing so, it might not be able to get as good of a deal on market access from the EU, this source said.

February 27, 2015 3:23PM

Casualties of the Drug War

Yesterday, the international aid organization Health Poverty Action released a new study on the effects of the global drug war. The report is entitled, “Casualties of War: How the War on Drugs Is Harming the World’s Poorest.”

From its introduction:

Since the mid-twentieth century, global drug policy has been dominated by strict prohibition, which tries to force people to stop possessing, using and producing drugs by making them illegal.

This approach, which has come to be known as the ‘War on Drugs’, has not only failed to achieve its goals—it is fuelling poverty, undermining health, and failing some of the poorest and most marginalised communities worldwide.

Both in the United States and around the world, the War on Drugs has been a humanitarian catastrophe and a financial money pit. Interdiction often harms indigent farmers who grow the coca and poppy plants for meager financial return while the global drug marketplace continues to meet high demand. Prohibition-fueled violence among rival cartels and gangs invariably spills over to claim innocent lives. For those reasons, it is no exaggeration to say that the $100 billion spent on global drug prohibition annually takes food off the tables of the poor and leaves many more dead from violence.

Well-meaning people can disagree about what is best to spend that $100 billion on—vaccines, food aid, micro-loans, infrastructure, clean water projects, drug treatment, etc.—but a growing number of people would say it would be better spent not fighting the Drug War.

Read the whole report here.

February 27, 2015 3:20PM

Infrastructure: Privatization and Innovation

Tomorrow at CPAC, I will discuss some advantages of infrastructure privatization. Perhaps the largest advantage is innovation. Unlike government bureaucracies, private firms in a competitive environment are eager to maximize the net returns of projects, so they find new ways to reduce costs and improve quality.     

The benefits of innovation are obvious in fast-moving industries such as high-technology. But innovation can also be important in long-established, hard-hat industries such as highway building. Numerous countries are ahead of the United States in privatizing and partly privatizing (“public private partnerships” or “P3s”) government assets such as highways, airports, seaports, passenger rail, and air traffic control. Experience around the world shows that much innovation is possible after such industries are liberated from the bureaucratic yoke.

A House hearing last year looked at the international experience with privatization. The head of a provincial P3 agency in Canada said that P3 projects are more likely to be completed on time and on budget than traditional government infrastructure projects. And he said, “Competition and the profit motive can lead to startling results, where the winning proposal provides solutions that the public owner never contemplated. This happens over and over again.” Isn’t that interesting?

In his latest newsletter, Robert Poole provides more evidence of the “innovative effect” of P3s. He discusses $2 billion of cost savings from P3 highway projects in Texas, which are examined in a paper by Fidel Saenz de Ormijana and Nicolas Rubio:

Texas DOT has been gradually increasing the extent of design flexibility it gives project developers, via two methods. One is to encourage P3 developers to submit “alternative technical concepts” (ATCs) as part of their proposals in response to an RFP. The other is to encourage potential developers to present innovative ideas during the industry review meetings that precede issuance of the RFP. In the latter case, those ideas may be included in the RFP as options for all potential bidders to consider.

The largest cost savings discussed in the paper concern the LBJ (I-635) project in Dallas, where TxDOT's conceptual design called for the express lanes to be constructed in a new tunnel beneath the existing general-purpose lanes, due to severe right of way constraints. During design review, the authors’ companies (Ferrovial and Cintra) suggested the alternative of a depressed center section for the express lanes, with the rebuilt general-purpose lanes partly cantilevered over the express lanes. This was presented in the RFP as an option, and the authors’ consortium’s bid that used this approach came in at substantially lower cost, contributing a large fraction of the resulting $1.3 billion construction cost savings.

The other cases described in the paper deal with several phases of the North Tarrant Express project in Fort Worth. In these cases, the developer-proposed changes were of two types. Some were changes in the design and placement of lanes and ramps, to provide better traffic flow (and generate more toll revenue). Others were changes in phasing, so as not to incur premature construction costs for lanes needed only in the ultimate configuration (10 to 20 years in the future), while designing now to facilitate their later addition within the long term of the concession agreement. These changes saved $480 million in NTE 1 and 2W and another $150 million in NTE 35W.

… By looking at the LBJ and NTE projects as businesses, the team was strongly motivated to come up with alternative designs and more-careful phasing of improvements to make the projects financially feasible. And to its great credit, Texas DOT was willing to accept many of those changes, resulting in projects that will provide very tangible benefits, without putting taxpayers at risk.

For more on infrastructure P3s and privatization, see here.

February 27, 2015 12:33PM

Responding to the White House Response on ISDS

Yesterday, my colleague Dan Ikenson blogged here about an op-ed by Sen. Elizabeth Warren (D-MA) in which she was critical of investor-state dispute settlement (ISDS) provisions in trade agreements.

Jeff Zients, director of the National Economic Council, posted a response to Warren on the White House website.  In this post, I'm going to comment briefly on his response, going through item by item. His statements are in bold; my comments follow in bullet points. 

Zients: "The purpose of investment provisions in our trade agreements is to provide American individuals and businesses who do business abroad with the same protections we provide to domestic and foreign investors alike in the United States."

• It’s important to be clear that these protections go both ways. Under ISDS, foreign investors can also sue the U.S. government. Of course, they could already sue under U.S. domestic law. In effect, ISDS means that foreign investors in America have two avenues for a lawsuit, while U.S. investors in America only have one.

• With regard to protections abroad, the result of ISDS is that American investors have protections in foreign countries, but non-Americans do not have protections in those countries. That seems like a bad signal to send: American investors get good treatment, but non-Americans do not. If the concern is expanding protections, there is a better way to do it: encourage these protections to be incorporated into domestic law, so that everyone gets them.

Zients: "ISDS is an arbitration procedure—similar to procedures used every day by businesses, governments, and private citizens across the globe—that allows for an impartial, law-based approach to resolve conflicts and has been important to encouraging development, rule of law, and good governance around the world. ISDS does not undermine U.S. sovereignty, change U.S. law, nor grant any new substantive rights to multinational companies."

• I’m not aware of any evidence that ISDS encourages “development, rule of law, and good governance around the world.” To some extent, it may discourage it. Rather than encouraging reform of domestic political and legal systems, it just takes judicial governance out of the hands of domestic actors. It allows the foreign government to avoid domestic reform entirely and simply add a special procedure for foreign investors.

• All branches of government in the United States, at all levels, may be forced by an international tribunal to pay compensation as a result of their actions. Certainly that affects U.S. sovereignty. Of course, sovereignty need not be absolute, and I don’t think an effect on sovereignty means a treaty should be avoided. All treaties affect sovereignty. But there is no question that ISDS has an effect on sovereignty.

• ISDS grants foreign investors the right to sue in an additional forum (domestic investors can only use domestic courts). Access to an additional procedural right is, in a sense, a substantive advantage. Beyond that, the rights are so vaguely defined in ISDS that there is no way to be sure what the substantive rights are. That could mostly be fixed by taking out the “minimum standard of treatment” provisions, such as “fair and equitable treatment,” and drafting other provisions more clearly, but this is not being considered.

Zients: "ISDS has come under criticism because of some legitimate complaints about poorly written agreements. The U.S. shares some of those concerns, and agrees with the need for new, higher standards, stronger safeguards and better transparency provisions. Through TPP and other agreements, that is exactly what we are putting in place."

• Again, the “minimum standard of treatment,” including “fair and equitable treatment,” is an example of a “poorly written” provision, but removal of that provision is not being considered. If governments were willing to consider substantive changes, such as focusing the provisions on prohibiting discrimination against foreigners, it could fundamentally alter the nature of ISDS. But for whatever reason, they have refused.

Zients: "It is an often repeated, but inaccurate, claim that ISDS gives companies the right to weaken labor or environmental standards, for example, suggesting that a trade agreement could result in the United States having to lower its minimum wage."

• I don’t know whether an ISDS complaint could be made against U.S. minimum wage laws, but it is certainly the case that environmental regulation can be challenged. (A U.S. company is currently challenging Canadian fracking regulations.) For that matter, ISDS complaints could probably be brought in order to raise labor and environmental standards! Some ISDS provisions are broad enough to cover just about anything.

Zients: "The reality is that ISDS does not and cannot require countries to change any law or regulation."

• It can’t require governments to change laws or regulations, but it can make them pay compensation for their actions. The Takings Clause of the U.S. Constitution also just requires compensation, but that doesn’t mean it has no effect! (And keep in mind, ISDS can require compensation for any actions deemed to violate the rules, not just expropriations.)

Zients: "Similarly, the investment provisions under TPP are designed to protect American investors abroad from discrimination and denial of justice."

• If these obligations were only about carefully drafted “discrimination” and “denial of justice” provisions, there would be few cases and we would never hear about these issues. The problem is, they are so broadly written that they cover a wide range of government action and inaction, and we just don’t know the scope.

Zients: "Under our Constitution, the Government has wide powers to regulate on behalf of the public interest even if that impacts private property. But when government takes its citizen’s property from them—be it a person's home or their business—the government is required to provide compensation. This is a core principle reflected in the U.S. Constitution and recognized under international law and the legal systems of many countries.

Unfortunately, foreign courts have not always respected this principle, and U.S. investors often face a heightened risk of bias or discrimination when abroad. That’s why governments have looked to international arbitration to resolve such disputes for centuries. Earlier in our history, the United States used gunboat diplomacy, sending our military to defend our economic interests abroad. The decision was made by our predecessors that it was better to rely on neutral arbitration instead."

• No doubt there is some bad treatment of investors by foreign governments (including their courts), but the problem has not been studied empirically. How often does this occur? What exactly are governments doing? And in which countries? What is the problem we are trying to address? Assertions and anecdotes are not enough. Policy responses need to be evidence-based. To address a problem through government action, such as a treaty, we need to understand it. We really don’t have any sense of the purpose of ISDS today. Historically, it was about expropriation, but that has declined considerably. So what is ISDS about today? Defenders of the system haven’t really offered much evidence of the problem they are trying to fix. The fact that Argentina and Venezuela treat investors badly sometimes does not justify the global proliferation of treaties we are seeing.

Zients: "Over the last 50 years, 180 countries have entered into more than 3,000 agreements that provide investment protections, the vast majority of which have some form of neutral arbitration. European countries are party to more than 1400 of those agreements. The U.S. is party to about 50.

Those thousands of agreements contain a wide range of standards, some that strongly protect a government’s right to regulate, others that do not. The U.S. has been at the leading edge of updating, upgrading and clarifying these standards; protecting the right to regulate; and drawing lessons from previous agreements to ensure that our agreements have the highest possible standards. TPP incorporates and builds on those efforts and goes beyond them by:

- Further raising the standards: TPP will make it absolutely clear that governments can regulate in the public interest, including with regard to health, safety and the environment, and narrowing the definition of what kinds of injuries investors can seek compensation for.

- Adding safeguards: TPP will include the ability to dismiss frivolous claims quickly and award fees against the claimant to deter such suits; making it possible for governments to provide binding direction to the arbitrators; and creating additional filters for cases having to do with financial services.

- Closing loopholes: For example, TPP will prevent sham corporations from accessing the investment protections provided by the agreement.

- Creating transparency: All arbitration proceedings under TPP will be open and non-parties, including labor unions and civil society organizations, will be able to file briefs to inform the outcome of cases."

• From what I’ve seen, these changes are just fiddling around the edges. Unless governments are willing to take a serious look at the substantive standards (e.g., obligations such as “fair and equitable treatment”), nothing much will change.

Zients: "There have only been 13 cases brought to judgment against the United States in the three decades since we’ve been party to these agreements. By contrast, during the same period of time in our domestic system, individual and companies have brought hundreds of thousands of challenges against Federal, state, and local governments in U.S. courts under U.S. law.

We have never lost an ISDS case because of the strong safeguards in the U.S. approach. And because we have continued to raise standards through each agreement, in recent years we have seen a drop in ISDS claims, despite increased levels of investment."

• Defending these cases can be very expensive. In that sense, even winning has some costs.

• The fact that the U.S. wins all its cases suggests either that making ISDS available against the U.S. government is a waste of everyone’s time and resources, or perhaps that we just haven’t had the right cases come yet. Either way, it doesn’t help much with a defense of the system.

Zients: "Senator Warren also questions the integrity of the arbitrators who decide cases, suggesting that they are biased against governments. In fact, ISDS panels more frequently side with respondent governments. The U.S. government, for example, has won every single case concluded against it. The arbitration rules used under TPP require the independence of arbitrators and provide for challenge and disqualification in the event of conflict of interest or bias. They also provide a central role for the government being sued to determine which arbitrators hear the case."

• The key point about the arbitrators is that they can act as litigators one day and judges the next. That’s not a feature of a credible legal system.

• The win-loss record of investors and governments misses the point. You need to focus on the nature and substance of the obligations. The system is biased in the sense that foreign investors have access and others do not. Some governments treat people badly—foreign investors, yes, but also other people. Under ISDS, big foreign investors have access to an international tribunal when they believe they have not received "fair and equitable treatment." The local dry cleaner does not. That’s the bias in the system, and the win-loss record doesn’t tell you much.

Zients: "We share a number of the theoretical concerns Senator Warren raises. But we disagree with her suggestion that we leave it to the free market to put in place basic rule of law and protections. That hasn't worked in the past and government has a role to play."

• In what sense does the market not work here? If you let the market run things, companies will not invest in countries with weak rule of law. That will give these countries an incentive to provide better rule of law. This change has been happening in recent years on its own, and many governments are now much friendlier to foreign investment than in the past.

February 26, 2015 3:14PM

Hold Politicians Accountable for Debacle in Libya

Will America ever again be at peace? Pressure is building for the U.S. again to intervene in Libya.

Less than three years after Libya’s civil war the country has ceased to exist. This debacle offers a clear lesson for American policymakers. But denizens of Washington seem never to learn.

The administration presented the issue as one of humanitarian intervention, to save the people of Benghazi from slaughter at the hands of Libyan dictator Moammar Khadafy.

Although he was a nasty character, he had slaughtered no one when his forces reclaimed other territory. In Benghazi he only threatened those who had taken up arms against him.

In fact, the allies never believed their rhetoric. They immediately shifted their objective from civilian protection to slow motion regime change. Thousands died in the low-tech civil war.

Alas, Libya was an artificial nation. When Khadafy died political structure vanished. The country split apart. Today multiple warring factions have divided into two broad coalitions.

“Operation Dignity” is a largely secular grouping including Gen. Khalifa Haftar’s “Libyan National Army” and the internationally recognized government. Last May Haftar launched a campaign against the Islamist militias with covert support from Egypt and the United Arab Emirates.

“Libya Dawn” is a mix of Islamists, moderate to radical, and conservative merchants which now controls Tripoli. They are backed by Qatar, Sudan, and Turkey, and deny that the Islamic State poses much of a threat.

Now Libya has become an ISIL outpost. Three jihadist groups have formally claimed allegiance to the Islamic State. These forces have attacked oil installations, killed journalists, and conducted bombings. Some of these militants were responsible for the murder of U.S. Ambassador J. Christopher Stevens.

ISIL’s slaughter of Egyptian Coptic workers triggered retaliatory airstrikes by Cairo, and then new Islamic State attacks. The national wreckage known as Libya is being pulled into the regional sectarian maelstrom.

Obviously, Khadafy’s continued rule would have been no picnic. Nevertheless, he offered an ugly stability which looks better than chaos, civil war, and terrorism. British envoy Jonathan Powell warned of the emergence of “Somalia by the Med.”

In Libya, as with most other failed interventions, war advocates say the problem was that America didn’t stick around. But as I point out on Forbes:  “the allies only played a supporting role; the Libyans liberated themselves through their own boots on the ground. The militias fighting now would have resisted any foreign occupation.”

Alas, this disastrous history hasn’t precluded new proposals for Western involvement. Abdullah al-Thinni, Libya’s official prime minister, wants the West back. Italian Prime Minister Matteo Renzi advocated that the UN run a “stronger mission.”

Unfortunately, there’s no reason to believe that the second (or third) time would be the charm. The Atlantic Council’s Karim Mezran observed:  “There are no good guys or bad guys there—both sides have been acting in bad faith.”

The West naturally favors the internationally recognized government. But intervening against the Islamist-oriented government would make enemies of many Libyans not linked to the Islamic State.

The best outcome would be a national unity government as backed by the U.S. and European governments. But months of mediation have led nowhere.

More practical would be to acquiesce in the partition of what never was an organic nation. In the meantime the West should consider selectively lifting the arms embargo to aid groups likely to combat jihadist forces.

Moreover, Libya’s neighbors should act rather than wait helplessly for Washington to do something. The region’s stability is these nations’ business.

Libya’s collapse has been almost total. But so far no one has been held to account.

As problems metastasize with the rise of ISIL in Libya, however, the American people may be more inclined to critically assess the judgment and competence of Washington policymakers. Voters should hold officials accountable for the disaster they created in Libya.

February 26, 2015 2:04PM

Fifth Time’s a Charm? Why the Court Should Strike Down the Armed Career Criminal Act as Unconstitutionally Vague

The Armed Career Criminal Act (ACCA) increases the minimum criminal penalty for defendants convicted of illegal firearm possession who also have three prior violent crime convictions. While the Act lists many crimes as qualifying as “violent”—such as burglary, arson, and extortion—it also contains a catch-all provision, a “residual clause,” that includes crimes that “otherwise involve conduct that presents a serious potential risk of physical injury to another.”

While that language may seem clear, its precise meaning has bedeviled courts for decades. In fact, Johnson v. United States represents the fifth time since 2007 that the Supreme Court has been asked to clarify what the residual clause means. For example, does drunk driving count? How about fleeing from officers in a high-speed chase? Even though the high court only hears about 75 cases per year—and it rarely revisits a law within such a short time-span—the ACCA’s residual clause keeps coming back. As Justice Antonin Scalia quipped in the last such case, “We try to include an ACCA residual-clause case in about every second or third volume of the United States Reports.” Justice Scalia’s comment came in a dissent in which he argued that the residual clause is unconstitutionally vague, and it seems that the rest of his colleagues paid attention. This is the second time this term that this case will be argued before the Court.

Last November, the issue was whether merely (illegally) possessing a short-barreled shotgun is a crime that fits into the residual clause. In January, however, the Court ordered that the case be re-argued on the larger question of whether the residual clause is itself unconstitutionally vague. Apparently, in discussing the law for the fifth time, the justices got tired of trying to answer questions that Congress should have addressed by writing a clearer law.

Cato now joins the National Association of Criminal Defense Lawyers, the National Association of Federal Defenders, and Families Against Mandatory Minimums in arguing that the clause should indeed be void for vagueness. Despite four previous attempts to clarify the law, lower courts are as confused as ever about how the ACCA interacts with, among other offenses, attempted crimes, battery of police officers, and statutory rape cases. This vagueness is not just a problem for defendants like Mr. Johnson here; it raises concerns about the separation of powers. The Supreme Court has said that overly vague statutes impermissibly draft judges into a legislative role. Quite so: vague language forces the judiciary, not the legislature, to define criminal offenses and establish their penalties.

Legislation—especially when it implicates individual liberty—must be clear and understandable enough that the general public can ascertain the conduct it prohibits. If trained and experienced judges can’t even figure out what a law means, clearly it’s too vague for an average person to understand. If at first, and second, and third, and fourth you don’t succeed in clarifying vague language, perhaps it’s time to throw out the legal text and try again. As another Samuel Johnson might say, injuries are revenged, crimes are avenged, and vague laws are rewritten.