For European Biotech? Continued from Page 1 Around the World, Including the French Academies of Science by the Fact That the Complainants Did Not Challenge Them

Competitive Enterprise Institute - Volume 19, Number 2 - March/April 2006 Neeww Era,Era, oror ‘Ancien‘Ancien Régime,’Régime,’ fforor EEuropeanuropean BBiotech?iotech? by Gregory Conko

he long-awaited World Trade all remain in effect argues in favor of Organization (WTO) decision intervention by the WTO. (Ironically, Ton biotech food is due to be the current WTO Director General is released this spring, but a leaked copy none other than Pascal Lamy.) of the report has already elicited The most important victory for the considerable buzz. Most United States and its partners is the analyses score it a resounding WTO’s judgment that the EU failed to victory for the United States abide by its own regulations by “unduly and its co-complainants, and a delaying” fi nal approval of otherwise stinging defeat for European state complete applications for 25 food biotech protectionism. When it came time for products. The culprit here is the European The reality is that the decision their WTO defense, Commission’s highly politicized, two-stage is only a partial and largely symbolic however, the Europeans approval process: Each application must victory. For not achieving a more complete actually denied that a moratorium had ever fi rst be cleared for marketing by various and meaningful success, the United States, existed. Fortunately, the WTO decision scientifi c panels, and then voted on by Canada, and Argentina, which jointly fi led acknowledges the EU’s illegal practices— elected politicians. the complaint, have their own excessively and the disingenuousness of the EU’s Signifi cantly, the WTO assumed that risk-averse policies to blame. defense. “the conclusions of the relevant EC Signifi cantly, the WTO decision bluntly The WTO decision also makes clear that scientifi c committees regarding the safety scolds the European Union (EU) for existing national bans on certain biotech evaluation of specifi c biotech products” denying it had imposed a moratorium foods in Austria, France, Germany, Greece, were valid. That is, the trade panel did on biotech food approvals from 1998 to Italy, and Luxembourg blatantly violate not object to how the biotech products 2004. But that fi nding was a foregone those countries’ treaty obligations. When were reviewed. Although all 25 product conclusion. Until the WTO case was fi led, the United States fi led its initial complaint applications had been approved by EU European politicians freely admitted that a in 2003, European politicians insisted scientists, the EU Regulatory Committees moratorium existed. that the move was unnecessary. EU Trade and Council of Ministers—for transparently political reasons rather than concerns Anti-biotechnology activists hailed Commissioner Pascal Lamy boasted, “We about consumer health or environmental the moratorium as a sign of European are confi dent that the WTO will confi rm protection—repeatedly refused to sign off moral superiority, and in 2001, then-EU that the EU fully respects its obligations.” on the fi nal approvals. Environment Commissioner Margot But then, as now, the European Wallström acknowledged that the Commission (EC) was unable to persuade But the safety of biotech foods is not moratorium was “an illegal, illogical, its rogue members to conform to EU really in doubt. The technology has been and otherwise arbitrary line in the sand.” policies. The fact that those national bans endorsed by dozens of scientifi c bodies

Continued on page 3

DEPARTMENTS:

From the General Counsel...... 2

The Good, the Bad, and the Ugly.....10

Media Mentions...... 11

End Notes...... 12 WWW.CEI.ORG

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>>FROM THE GENERAL COUNSEL CEI Accountability, Power, PLANET

and Our CAP Project Publisher: Fred L. Smith, Jr. by Sam Kazman Editor: Ivan G. Osorio

iolations of the Constitution come in all shapes and sizes. Many of you Assistant Editor: may be familiar with the Tobacco Master Settlement Agreement (MSA), Peter Suderman Vwhich CEI is now challenging in federal court. The MSA was the culmination of a scheme by 46 state attorneys general and the tobacco industry to Contributing Editor: circumvent the Constitution’s Compact Clause—a little-known provision aimed Richard Morrison at limiting the ability of the states to gang up on the federal government or on each other. The MSA resulted in a de facto national sales tax on tobacco imposed without the vote of any elected offi cial whatsoever. The Constitution’s Appointments Clause, which governs the naming of federal offi cials, may be as little known The CEI Planet is pro- as the Compact Clause. Nonetheless, it is the focus of CEI’s second pending constitutional case, our challenge duced by the Competi- to the Public Company Accounting Oversight Board (PCAOB). The PCAOB was established by the Sarbanes- tive Enterprise Institute, Oxley Act of 2002, which Congress hastily enacted in the wake of the Enron collapse, and it has rapidly become a pro-market public interest group dedicated one of the most far-reaching and costly federal regimes in existence. to free enterprise and Despite their relative anonymity, both of these clauses are central to the Constitution’s chief purpose of limited government. restraining government. The Compact Clause restricts the ability of groups of states to form powerful factions—a threat that the Framers had painfully experienced under the Articles of Confederation. Similarly, British rule CEI is a non-partisan, over the colonies had demonstrated the dangers of unfettered bureaucracy; in the words of the Declaration of non-profi t organization Independence, King George had sent “Swarms of Offi cers to harass our People, and eat out their Substance.” incorporated in the Dis- The swarms sent out by the PCAOB involve the modern American equivalent of Crown offi cers—regulations. trict of Columbia and is The Board has issued a series of incredibly far-reaching rules governing the internal controls of publicly held classifi ed by the IRS as companies. These controls now need to be documented by comprehensive accounting audits. At the same time, a 501 (c)(3) charity. CEI relies upon contributions the PCAOB’s regulation of the accounting profession has drastically reduced competition in that fi eld; many from foundations, corpo- smaller accounting fi rms have simply stopped auditing even the smallest public companies due to the complexity rations and individuals involved. The annual costs of the Board’s rules have been estimated at over $35 billion. for its support. Articles The Board’s members are appointed by the members of the Securities and Exchange Commission (SEC). This may be reprinted pro- violates the Appointments Clause, which requires that major government offi cers be nominated by the President vided they are attributed or a court, while minor offi cers can be named by individual department heads. In contrast, the PCAOB’s to CEI. members are not named by any one person, but instead by a collective body—the SEC. (Moreover, the SEC itself is not a government “department” under the Constitution). As a result, neither the President nor any other individual in government is responsible for the PCAOB’s actions. As John Berlau and Hans Bader point out in a CEI Issue Analysis, the Appointments Clause was intended to “promote effective management in government Phone: by preventing lack of accounting in a multi-member body.” The lack of that accountability quickly turned the (202) 331-1010 selection of PCAOB members into a Keystone Cops routine. To top this off, Congress declared that the PCAOB is not a government agency. Fax: In February, CEI and the Free Enterprise Fund fi led a court challenge to the PCAOB on behalf of Beckstead (202) 331-0640 and Watts, a small Nevada accounting fi rm. The fi rm specializes in serving micro-cap companies, but the PCAOB is attempting to force it to comply with auditing standards more suited to the Fortune 500. Standing up to a E-mail: government force like the PCAOB takes guts, especially when Congress pretends it’s a non-government force, [email protected] and we applaud Beckstead and Watts for its courage. Developments such as the tobacco deal and the PCAOB illustrate the amazing extent to which the Framers got ISSN# 1086-3036 it right over 200 years ago. They got it right, moreover, not just on such “big-picture” issues as free speech and property rights, but on the details in which the devil resides. Both of these cases involve issues of accountability and power. The cases are part of CEI’s “CAP Project.” CAP stands for Control Abuse of Power, but it could just as well stand for Control the Accountability of Politicians.

2 WWW.CEI.ORG PLANETP L A N E T CEI ADVANCING LIBERTY FROM THE ECONOMY TO ECOLOGY CEI New Era for European Biotech? Continued from page 1 around the world, including the French Academies of Science by the fact that the complainants did not challenge them. and Medicine, the UK’s Royal Society, U.S. National Academy How can that be? Simple: The United States, Canada, and of Sciences, American Medical Association, and many others. Argentina didn’t challenge those policies because they use the same And, in 2003, EU Commissioner for Health and Consumer Affairs fl awed basic approach as the EU. Their regulations all discriminate David Byrne acknowledged that currently marketed biotech crop against biotech products by subjecting them—and only them—to varieties pose no greater food safety or environmental threat than a stringent, pre-market approval process. Just like the EU, these the corresponding non-biotech varieties. countries have disregarded the same scientifi c consensus that what The good news, then, is that the WTO chastised the European matters for health and safety assessments are the characteristics of Union for failing to follow its own regulatory rules. The bad new plant varieties, not the process by which they were developed. news is the absence from the panel report of any condemnation of Compulsory case-by-case review and costly fi eld test design those rules themselves, in spite of the fact that they are blatantly requirements have made biotech plants disproportionately unscientifi c and in clear violation of trade treaties enforced by the expensive to develop and test, with no added safety benefi t. In WTO. the United States, for example, these needless regulatory hurdles Under the various WTO-enforced treaties, member countries can add several million dollars to the development costs of every are free to enact any level of environmental or health regulations biotech plant variety—an amount that exceeds the total expected they choose, with the stipulations that: 1) every so-called sanitary revenue stream for all but the biggest commodity crops. Getting or phyto-sanitary regulation must be based on the results of a approval in enough other countries to make the biotech varieties risk analysis showing that some legitimate risk exists; and 2) the legally exportable can add tens of millions of dollars more. regulation must bear a proportional relationship to that risk. It’s no wonder, then, that the United States and its partners didn’t Every risk analysis performed by countless scientifi c bodies mount a broader challenge to EU policies. They would have been around the world has shown that the splicing of new genes into laughed out of Geneva for challenging a regulatory approach not plants, per se, introduces no incremental risks. Even a 2001 report fundamentally different from their own. summarizing the conclusions of 81 different EU-funded research Still, the European regulations are far more discriminatory projects spanning 15 years concluded that, because biotech plants and debilitating than those in the United States, Canada, and and foods are made with highly precise and predictable techniques, Argentina. For example, the EU now requires those few biotech they are at least as safe, and often safer, than their conventional foods that are allowed on the market to be labeled in such a way counterparts. that every ingredient can be traced back to the farm on which it was Not only is there no proportional relation between regulation grown. This is hugely expensive, utterly gratuitous, and—except and risk in the EU’s biotech policies, there is actually an inverse for stigmatizing food that contains gene-spliced ingredients— relationship between degree of risk and amount of regulatory accomplishes nothing. scrutiny. This is both absurd and illegal. In the end, however, it is unlikely that the WTO’s slap on It is disappointing that the WTO did not condemn the clearly the wrist will induce any major change in EU policy. At a illegitimate European policies, but the WTO’s actions were limited “background” briefi ng on February 8, EU offi cials lashed out at the WTO decision, but explained that, “It is nevertheless clear, beyond any doubt, that the EU will not have to modify its [biotechnology] legislation and authorization procedures.” Even if the EU does approve some of the 25 pending biotech products, few companies are likely to risk the tens of millions of dollars in regulatory costs to pursue new ones. Even worse, the less developed nations of Asia, Africa, and Latin America, which once anticipated that food biotechnology could provide them a brighter and more self-suffi cient future, will continue to be shut out of the important European market by policymakers’ callous obstructionism. The limitations of the WTO decision are not the fault of the organization, of course, but of regulatory policies worldwide that defy science and common sense. The only winners from such wrong-headed public policy are European and other government regulators and anti-technology activists, who rejoice at excessive and debilitating regulation. The biggest losers are the rest of us, who systematically will be denied access to safer, more nutritious, and affordable foods.

Gregory Conko ([email protected]) is Senior Fellow at the Competitive Enterprise Institute.

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nimal rights extremists—whom three men armed with pickaxe handles. culmination of a long campaign against the FBI has labeled America’s HLS Marketing Director Andrew Gay them when activists desecrated the grave of Abiggest domestic terrorism was attacked with a chemical spray that the owner’s grandmother and “kidnapped” threat—have encountered a number of temporarily blinded him. After SHAC her body. The activists were tracked down serious reverses recently. These reverses started using public records to threaten and recently entered a plea of guilty to are a great victory for science, free inquiry, HLS shareholders, the company relocated blackmail in relation to the desecration. and public health. In particular, Americans its fi nancial center to the state of Maryland. However, the whereabouts of the remains could learn from a popular movement in SHAC supporters in the United States remain unknown. Britain that is standing up to the threats have also been accused of harassment, Yet with such “successes” under their and intimidation of the animal ”liberation” intimidation, arson, trespass, and belts, it was inevitable that the extremists movement and asserting the moral vandalism. Eventually, the evidence would set their targets higher—so they arguments for animal testing. became too hard to ignore and the U.S. went after the world’s most distinguished The poster child for animal liberation branch of the group and six of its members institution of higher learning. Oxford extremists has been Huntingdon Life were indicted for inciting violence and University had decided to consolidate its Sciences (HLS), a British-based fi rm that terror, and for stalking. On March 2 they dispersed facilities into one biomedical conducts experiments on animals largely in were found guilty, some on several counts. research center on South Parks Road the fi eld of toxicology protection. In April Some of the six face up to 10 years in alongside its other famous scientifi c 1997, the fi rm was found to have breached federal prison. While denying any intent centers. The new center would replace British animal protection laws and had its to injure, one of the defendants said in the existing laboratories and at the same time license revoked for three months. However, trial that it was fi ne to throw rocks through upgrade them, thereby increasing the after that punishment was imposed a group somebody’s window as long as no one welfare of the animals involved. To the of animal rights activists founded a gang was home. SHAC has been condemned by extremists, however, it was too good a called Stop Huntingdon Animal Cruelty people and groups from across the political target to miss and they resolved to make its (SHAC) with the express aim of closing spectrum, including the Southern Poverty construction impossible. down HLS within three years. SHAC Law Center, which compared SHAC to Threats were issued. The fi rst claims to be committed to non-violent abortion clinic bombers. contractor, Walter Lilly, pulled out of direct action, targeting not just HLS but Despite this, SHAC nearly succeeded construction after SPEAK, the group anyone connected or doing business with in its efforts to close HLS down. Animal coordinating activities against the new it—whether a director of the fi rm or a rights extremists have moved on to facility, began hosting demonstrations cleaner doing contract work for it. target other organizations using equally against it. It was during one of these In February 2001, HLS Managing despicable methods. One egregious case demonstrations that on January 29 this Director Brian Cass—who was later happened last year: A British farm that bred year, a 16 year-old high school dropout honored by Queen Elizabeth II for services guinea pigs for use in animal experiments named Laurie Pycroft thought that enough to medical research—was attacked by pulled out of the business after the was enough. He spontaneously organized

4 WWW.CEI.ORG PLANETP L A N E T CEI ADVANCING LIBERTY FROM THE ECONOMY TO ECOLOGY CEI a small counterdemonstration in favor of up about 18,000 students to the realization The tide appears to have turned. Laurie the beneﬁ ts of animal research and with it that they were now at risk of attack from a Pycroft has become a celebrity and his Pro Test was born (http://www.pro-test.org. terrorist organization. cause is treated sympathetically by the uk/). Coincidentally, the most infamous of all the animal rights extremist movements, the Animal Liberation Front, got involved With “successes” under their at about the same time. In a press release dated February 2, the ALF announced: belts, it was inevitable that This is just the beginning of animal rights extremists would our campaign of devastation against ANYONE linked in ANY way to Oxford University. Every set their targets higher. individual and business that works for the University as a whole is As a result, within a month of its British media. The grassroots nature of now a major target of the ALF. The founding, Pro Test was able to host a major the Pro Test movement bears out another University have [sic] made a crass rally in Oxford, with over 1,000 people thing Dr. Harris said, that the British public decision to take us on and we will attending and addresses from Professor values and respects the work of medical never let them win! Tipu Aziz, Consultant Neurosurgeon researchers: and professor of neurosurgery at Oxford This ALF team is calling out University, Professor John Stein, professor My message to the scientists, to the movement to unite and of Physiology at Oxford, Dr. Simon researchers and students who carry ﬁ ght against the University on a Festing, Executive Director of the Research out biomedical work using animals maximum impact scale, we must Defense Society, and Dr. Evan Harris, is that you are heroes—underpaid, stand up, DO WHATEVER IT Liberal Democrat MP for Oxford West. Dr. under-pressure and under-praised. TAKES and blow these f***ing Harris spoke with passion and eloquence, You have always had my full monsters off the face of the telling the crowd: public support and that of the planet. We must target professors, vast majority of my constituents, teachers, heads, students, Several years ago I volunteered to of my parliamentary colleagues, investors, partners, supporters and be a human trialist of a potential and of the British people. Your ANYONE that dares to deal in any new AIDS vaccine, developed here work is legitimate, necessary, part of the University in any way. in Oxford. I know that would not carefully regulated, and—where have been possible without the authorized—the only or best way to There is no time for debate and use of animal models and safety provide insight into the causes and there is no time for protest, this is testing in animals. I said at the therapies of human diseases. You make or break time and from now time that animal research was are right. You are brave. You are on, ANYTHING GOES. vital if we are to conquer AIDS, valued. TB, and malaria, and every time We cannot fail these animals politicians talk about their concern The American public certainly respects that will end up in those death for the developing world and those and values the work of medical researchers chambers. diseases they should mention the here. As the SHAC convictions have role that animal research will play. shown, animal rights extremism is alive Be warned, Oxford University, and well in the United States as well. this is only the beginning of our My message to the extremists is While organizations that want to end campaign. Everyone linked to that you will never win. Every vile animal testing continue to bask in celebrity your institution is right now being action of harassment, intimidation, adulation, and with protests very much tracked down and sooner or later, or violence undermines any in the news these days, America could do they will be made to face the legitimacy your cause ever had and with a Pro Test movement of its own. consequences of your evil schemes. strengthens the resolve of those of us who support the rule of law and Iain Murray ([email protected]) is a Apparently, this made legitimate targets the role of science to resist you and Senior Fellow at CEI. A version of this of Bill Clinton, Tony Blair, and your to speak out against you. article appeared in TCSDaily. present writer, among others. It also woke

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ugar is already shaping up to be Organization (WTO) negotiations. share of the total Gross Domestic Product a contentious issue in upcoming Tighter federal budgets and the need to (GDP) was 6.8 percent, according to debates on the 2007 omnibus reduce the federal defi cit are sure to play the U.S. Department of Agriculture’s Sfarm bill. The call for dismantling an important role in shaping farm policy. Economic Research Service. the antiquated sugar support system Policy makers may fi nally look askance at But the U.S. agricultural sector has comes from a wide range of people and providing generous support for agricultural changed radically since the 1930s. Today, organizations. The costs of the U.S. sugar programs that mainly benefi t a small very large and highly mechanized farms regime include higher food prices for U.S. segment of the farm sector. predominate, employing substantially consumers and thousands of lost jobs in The driving force for any farm bill is fewer people. With the U.S. a highly sugar-using industries. In addition, the the array of commodity programs that set diversifi ed economy in the 21st century, U.S. sugar program causes environmental out the workings of the complex system of farming accounted for only 1.4 percent of damage, particularly in Florida, and blights farm subsidies, direct payments to farmers, total U.S. employment in 2001, and only economic opportunities for many small counter-cyclical payments, price supports, 0.7 percent of U.S. GDP. farmers in developing countries. and other programs to support farmers’ The U.S. sugar program, with its price As is true with many government incomes and prices. Besides this direct supports and import restrictions, also programs, the sugar program’s benefi ts support, farm bills include other special had its origins in the Great Depression. are concentrated and the costs are diffuse. farm assistance, such as agricultural loan Restricting the sugar supply to ensure a It principally benefi ts large sugar cane programs, crop insurance and disaster minimum price for sugar farmers remains producers in Florida and Louisiana and assistance, rural development business the crux of the program. The sugar sugar beet farmers in 14 upper-Midwestern assistance, land conservation and reserve program regulates both the amount of sugar and Western states. For those who benefi t, programs, and programs for marketing cane and sugar beets domestic producers the rewards are signifi cant—the General agricultural products. can sell in the U.S.—through the use of Accounting Offi ce estimated in 1991 that “marketing allotments”—and the supply 42 percent of the sugar grower benefi ts Stuck in the 1930s of foreign sugar that can come into the went to only 1 percent of all sugar farms, Many of these farm programs had their country—through import quotas. To ensure or 150 farms. Some 33 sugar farms origins during the Great Depression, when a minimum price for sugar producers received over $1 million in annual benefi ts. commodity prices plummeted as global and processors, the U.S. Department of No wonder the sugar industry wants to demand for agricultural goods dropped Agriculture (USDA) provides loans to keep such a sweet deal. sharply. Some of the agricultural support sugar processors, with the proceeds of However, this time around for a new programs were to be temporary—to prop the loans then paid to the producers at the farm bill, pressures to reform the sugar up farmers’ incomes when the bottom fell minimum payments levels set by USDA. program are multiplying: The tighter out. Others were enacted in recognition of As a result, sugar in the United States federal budget, less solidarity among the role that U.S. agriculture played in the costs two to three times the world market agricultural producers, loosening of nation’s economy. In the U.S. in 1930, for price. A GAO study in 2000 estimated some import restrictions on sugar, and example, 21 percent of the workforce was that eliminating the sugar program could agricultural reform looming in World Trade employed in agriculture, and agriculture’s have resulted in an estimated welfare

6 WWW.CEI.ORG PLANETP L A N E T CEI ADVANCING LIBERTY FROM THE ECONOMY TO ECOLOGY CEI gain in 1998 of up to $1.8 billion if cost they see as benefi ting the vast majority of Institute’s Center for Global Food Issues, savings were passed on to consumers. farm interests. Sugar cane and sugar beets Foundation for Democracy in Africa, DKT More recently, the OECD estimated that account for only 1 percent of total U.S. Liberty Project, and the Free Enterprise the cost of U.S. sugar policies to American farm cash receipts. Fund. consumers in 2004 was $1.5 billion. Sweetener-using industries, too, are The Alliance points out the sugar accelerating their long-time quest for program’s costs to consumers and New Competitive Pressures sugar reform. Facing steep domestic sugar taxpayers, the lost jobs in sugar-using Import quotas for sugar are prices, some candy manufacturers have industries, the environmental damage that administered by USDA and the U.S. Trade Representative, and must be consistent with the U.S. commitments to the World Trade Organization to allow 1.256 million short tons of imported sugar to enter the U.S. each year. That amount, allocated to 41 countries, can enter the U.S. duty-free or with a low tariff. Import amounts above that quota face a stiff tariff, unless the U.S. domestic supply has a shortfall in meeting demand, as it did in 2005, especially after Hurricane Katrina. However, under the North American Free Trade Agreement, in just a few years Mexico will be able to ship its sugar surplus to the U.S. market duty- free (although U.S. offi cials argue that a different agreement was made in a side letter). If indeed this occurs in January 2008, the U.S. will not be able to maintain CEI Adjunct Fellow and Sugar Reform Alliance Coordinator Frances Smith presents a copy of the CEI the price support program, which depends Issue Analysis “Is the U.S. Sugar Problem Solvable?” to Rep. Jeff Flake (R-Ariz.) at an April 25 Sugar on the government restricting the supply of Reform Alliance briefi ng on Capitol Hill. To her left are fellow Alliance members Kristina Rasmussen of the National Taxpayers Union and Fred Oladeinde of the Foundation for Democracy in Africa. sugar. The U.S. is facing other international moved their operations to other countries; the program encourages, and the harmful pressures to reform its domestic others have experienced signifi cant job effects on developing countries denied agricultural support programs, including losses, as domestic companies paying access to the U.S. market. the sugar program. With tight deadlines high sugar prices fi nd it hard to compete SRA and other opponents of the sugar looming and not much progress to show, in world markets. A U.S. Department of regime realize that pointing out the harmful the World Trade Organization is struggling Commerce study in February 2006 found effects of the program is not enough. to advance the Doha Development Agenda that limiting sugar imports was “a major The next step is to provide alternatives to better integrate developing countries factor” in the loss of 10,000 jobs in candy for policy makers to consider in their into the world trading system. The key manufacturing. deliberations on the 2007 farm bill. to success is reform of protectionist A new force pressing to reform the A new white paper published by CEI agricultural programs. Sugar reform should sugar regime is the Sugar Reform Alliance points to some possible approaches to be high on that agenda. (SRA). The SRA, coordinated by the eliminate or phase out the sugar program Competitive Enterprise Institute, is a (“Is the Sugar Program Solvable?” http:// Political Tide Turning working group of non-profi t organizations www.cei.org/gencon/025,05263.cfm). In negotiations and debate on farm dedicated to the elimination of the U.S. It won’t be a simple task—“Big Sugar” bills, usually the farm sector bands sugar program. SRA participants include has enormous political clout in Congress together to get broad support for consumer groups, international aid and a formidable lobbying machine. Yet commodity programs. But the sugar organizations, environmental groups, with opponents beginning to coalesce and industry’s aggressive lobbying against taxpayer groups, and think tanks from economic and trade pressures accelerating, the U.S.–Central America–Dominican across the political spectrum, including opportunities for reform may be possible. Republic Free Trade Agreement alienated CEI, the National Taxpayers Union, many other agricultural interests that Citizens Against Government Waste, Frances B. Smith ([email protected]) saw the trade pact as benefi ting their Consumers Union, Consumer Alert, is an adjunct fellow with CEI and is the producers. Large agricultural producers Consumer Federation of America, founder and coordinator of the Sugar are still frustrated that a small segment of Americans for Tax Reform, Consumers Reform Alliance (http://www.soursubsidies. the industry can hold up agreements that for World Trade, Oxfam America, Hudson org).

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E LETLET THETH NET INTERNETINTER UP. GROWGROW UP.

by Peter Suderman

merica has developed a proud cramped coach seats. Apaternal bond with the Internet. The underlying idea is a common one We’ve watched and cheered the Net’s among couriers of physical property: growth from its awkward, text-heavy Larger loads and faster service entail infancy into the capable, hard-working higher fees. Think of ISPs as virtual information network it has become. shipping companies. Instead of physical But, like many proud parents of goods, they deliver information. And prodigies, we’re so pleased with our just as physical shipping companies creation’s current brilliance that we’re charge more to move larger packages on the verge of stunting its development or for quicker delivery, ISPs want to with overbearing restrictions. These build a tiered business model where the restrictions, ushered in through innocent- price matches the quality and quantity of sounding but insidious “Net neutrality” service. legislation, threaten the Net’s maturation But Net neutrality proponents don’t into the powerful technology it ought to think ISPs should be allowed to offer such be. prioritized services. Gigi B. Sohn, for Net neutrality regulations would restrict example, president of the tech-advocacy Internet Service Providers (ISPs)—the group Public Knowledge, has complained owners of the Net’s infrastructure—from that “Prioritization is just another word charging Web content providers for for degrading your competitor.” But this prioritized access. In the current scheme, is hardly the case. Rather, prioritization all the bits and bytes passing through allows providers of online services to the Internet’s information gateways are receive and react to market signals, treated equally. But ISPs envision an allowing them to provide better service. Internet where, for a price, Net traffi c from Neutrality regulations also threaten some sites could be given preferential to impede digital property rights. ISPs treatment—like fi rst-class ticket holders, have invested massive sums in building those paying more would be bumped to the the communications infrastructures that front of the line. Net neutrality legislation allow the transmission of information would prohibit such fi rst-class treatment, over the Net; neutrality advocates would enforcing a Net perpetually stuck in commandeer these information pipelines

8 WWW.CEI.ORG PLANETP L A N E T CEI ADVANCING LIBERTY FROM THE ECONOMY TO ECOLOGY CEI from their rightful owners and attempt to force these owners into a mandated business model. Neutrality proponents bury their arguments within a mound of rhetoric about consumer choice, but the choice they offer is a stagnant, underdeveloped Internet, robbed of its tremendous potential. There is a prevailing, misguided notion in their arguments that the Net we have now is the Net we will always have. It is easy to forget that just over a decade ago, now-common features like Flash animation, web video and Internet telephony were still gleams in their CEI Vice President for Policy Clyde Wayne Crews, Jr. (left) presents a Bureaucrash “Enjoy Capitalism” T-shirt to Johan developers’ eyes. Norberg of the Swedish think tank Timbro at the conference “The Macro Issues of the Microsoft Case.” Currently, the Web is poised to deliver an even wider array of heretofore unavailable, advanced features that would CEI Takes the Fight for consume enormous amounts of bandwidth. Prioritized access fees would generate new Freedom Across the Pond revenue that could help fund the bandwidth s the economy has become Daily Mail; and with the economic adviser increases that these new services will globalized, so has regulation—and to the Shadow Chancellor. They also entail; neutrality advocates want to ACEI has jumped to meet the hosted a dinner at the celebrated Carlton close off these revenue streams and their challenge. Recently, CEI has increased its Club for three Members of Parliament. attendant market signals. The consumer activities in Europe, where several CEI Iain then visited Oxford to meet with the choice offered by neutrality advocates representatives have been busy promoting University’s Conservative Association. He refuses to accept a grand buffet of tasty the ideas of free enterprise and limited was heard to murmur, “If this is Tuesday, new Net services in favor of the bland government. this must be Oxford.” familiarity of an Internet no more exciting In Brussels, on February 25, while CEI than a brown bag lunch. President Fred Smith was addressing the Many of the Web’s largest content Libertarian International group—delivering providers are disingenuously lauding two talks, “Communicating Market Liberty neutrality proposals for their alleged in a Non-Liberal World” and “Protecting consumer-friendly bent. But the praise the Planet through Private Property”— offered by companies like Amazon and Senior Fellow Iain Murray and Vice eBay is designed primarily to insulate President of Development Terry Kibbe them from the delivery costs of the new attended a strategy session sponsored by bandwidth-hungry content they want to FreedomWorks Foundations’ Center for CEI Vice President of Development Terry Kibbe and American develop. Under the neutrality rules, these Global Economic Growth. The meeting Ambassador to the European Union C. Boyden Gray. companies would get to ship bigger, better, focused on promoting free market policies faster content without any concurrent and preventing wrong-headed proposals And on April 20 in Brussels, CEI change in price. Despite their name, these such as the European Union’s (EU) and the Centre for the New Europe co- rules are about as neutral as a football proposed REACH chemicals policy. The sponsored “The Macro Issues Of the game in which one team gets to play newly appointed American Ambassador to Microsoft Case: Antitrust Regulation’s wearing rocket boots. the EU, C. Boyden Gray, was featured at Threat To European Innovation,” a half- It’s understandable for Americans to the conference, which was also attended day conference focusing on the risks to feel protective of the Net. We’re proud of by leaders from free market think tanks innovation and competitiveness of Europe’s what it has become, and we’re afraid of throughout Europe. embracing of American-style antitrust what change could bring. But the Internet Fred Smith, Iain Murray, and CEI regulation and blocking of industry is still developing, and Net neutrality laws Senior Fellow Chris Horner then traveled institutional evolution. CEI Vice President would hinder that growth. Instead of to Iain’s old stomping ground of London. for Policy Clyde Wayne Crews, Jr. was a relegating the Net to its current, immature Fred provided a luncheon talk to the featured speaker. The conference brought state, let’s let dump the idea of neutrality Adam Smith Institute, “A Perspective on together academics and professionals to and let the Internet keep growing up. Anglosphere Politics.” They also met with discuss the risks of antitrust regulation in other think tanks, including Reform, the the dynamic world of high technology. Globalisation Institute, the Institute of Peter Suderman ([email protected]) Ideas, and Civitas; with journalists from is Assistant Editorial Director at CEI. – Clyde Wayne Crews, Jr., Iain Murray, The Times, Spectator, Financial Times, and Ivan Osorio, Fred Smith, and Terry Kibbe

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THE GOOD THE BAD THE UGLY WTO Strikes Down EU Automakers Saddled Activists Protest Wal-Mart’s Biotech Ban with New Fuel Economy Entrance into Banking Standards Industry

On March 27, in a unanimous vote, On March 29, U.S. Transportation The campaign to prevent Wal-Mart from the Federal Elections Commission Secretary Norman Mineta announced operating its own bank is mounting. At (FEC) decided to leave most politi- new Corporate Average Fuel Economy an April 10 Federal Deposit Insurance cal activity on the Internet unregu- (CAFE) rules for light trucks, including Corporation hearing, representatives lated, amid bipartisan worries that sports utility vehicles. The rules would from the banking industry, unions, and new rules could stifl e online political raise the average gas mileage stan- self-styled consumer groups testifi ed speech. The rules, which regulate dard for light trucks from 21.6 miles against allowing the retail giant to open paid political advertisements, exempt per gallon (mpg) to 22.2 mpg starting its own fi nancial facilities to expedite bloggers, the many online pundits in 2007. and lower costs in its own payment who use personal websites to publish processing. Wal-Mart has stated that it commentary on political events. FEC The new rules are the biggest changes does not intend to enter into the branch Chairman Michael Toner said that to the CAFE program in decades—yet banking business, but that hasn’t the rules “totally exempt individuals environmental activist groups like Envi- been enough to calm the critics. Rep. who engage in political activity on the ronmental Defense remain unsatisfi ed, Stephanie Tubbs Jones (D-OH), who Internet from the restrictions of cam- claiming that they are not enough. But heads a group of lawmakers opposed paign fi nance laws. The exemption as CEI General Counsel Sam Kazman to Wal-Mart expanding into fi nancial for individual Internet activity in the points out, the new fuel standards are services, went so far as to claim fi nal rules is categorical and unquali- unnecessary. “Now, as in the past, that Wal-Mart’s “massive scope and rising gas prices are leading to more international dealings” would expose fi e d . ” fuel-effi cient vehicles. Politicians may the federal government to fi nancial love to appear proactive, but this is a disaster. The prospect of regulation was trou- problem that solves itself,” he says. bling to bloggers across the political But this demagoguery is nothing spectrum, who welcomed the deci- It could have been worse. “There is new. As CEI Adjunct Scholar Zachary sion. Conservative blogger Mike one good thing about the new CAFE Courser notes, Wal-Mart’s opponents Krempaksy wrote, “This is a tre- program—it may no longer be as lethal are simply following a tradition of protest mendous win for speech,” while lib- as it once was,” Kazman notes. “Pre- that periodically meets growth and eral blogger Duncan Black (under vious CAFE standards encouraged change in America’s retail sector. “The the pseudonym Artios), wrote, “This production of small, light cars. This same story has repeated itself through could have been an utter disaster, improved fuel economy, but it also each major change to retailing: Groups but it appears to have all worked out reduced crashworthiness. The new mobilize against a vanguard of a new in the end.” CAFE program has been reformed to retail paradigm, public campaigns reduce the downsizing incentive by begin to rock the foundations of that introducing an mpg standard tied to enterprise, and eventually, legislatures vehicle size.” But that only minimizes react to restore normalcy by regulation the program’s damage rather than that business’ practices, allegedly in eliminate it. “CAFE is still a lethal pro- the public instance. The tragedy in gram. Those who push for higher stan- each instance is that the American dards should acknowledge that. Until consumer loses most in this drive they do, the debate over fuel economy for control over the forces of retail regulation is a dishonest one.” innovation.”

10 WWW.CEI.ORG PLANETP L A N E T CEI ADVANCING LIBERTY FROM THE ECONOMY TO ECOLOGY CEI

28 ruling by an independent arbiter, which held that major tobacco companies did in fact lose market share due to advertising restrictions imposed by the 1998 deal. MediaMENTIONS - National Review Online, April 12 Compiled by Richard Morrison Assistant Editorial Director Peter Suderman explains the latest battle in the war against technological innovation: The French climate of economic sluggishness and widespread unemployment has led to a pervasive Director of Energy and Global Warming Vice President for Policy Clyde Wayne restlessness. Many—especially the Policy Myron Ebell takes Congress to Crews, Jr. makes the case for radical youth—have taken to rioting, striking, task for grandstanding on gas prices: reform of the Federal Communications and protesting with a festival-like vigor. As public anger over soaring gas Commission: Naturally, anything with this sort of rock- prices continues to build, members of The FCC exists almost as it was when concert aura deserves a soundtrack…But Congress have noticed that their re-elect it was established way back in 1934. the French, never content without dirigiste numbers continue to go down. And so Of the three major telecom reform bills government intervention, have decided they are scrambling to fi nd someone or circulating in Congress, none has addressed that even their digital music needs to be something to blame. Big oil companies are institutional reform at the FCC. saddled with the burden of regulation. the favorite scapegoat, but the President, As a result, all the telecom reform bills Now Apple’s iTunes music store is under China, automakers, the Iraq War, and both overappreciate and underestimate fi re from a law that would strip Apple of speculators are also popular targets. new Internet communications. They go the right to protect its property without Most senators and representatives too far to apply new laws to Internet providing consumers any serious benefi ts. should be looking in the mirror in order to services, yet don’t go far enough to strip Supporters of stricter corporate regulations fi nd who is really to blame. Those who are away at core institutional regulation in often fl y under the fl ag of freedom, but complaining the loudest have voted again light of the growth and of these Internet what advocates of these proposals (and and again over many years for policies services. Watching policymakers neglect the French in general) often forget is designed to constrict energy supplies and or mangle telecommunications reform that the doors to freedom swing both thereby raise energy prices. gives the impression they wouldn’t ways. Seemingly nowhere is this a more - Human Events, April 28 recognize deregulation if it was on fi re and diffi cult concept than in the protection rollerblading naked past them. of digital media, where ideas that would Warren Brookes Journalism Fellow - The Washington Times, April 15 seem laughable in the context of physical Timothy Carney untangles the cross property suddenly become tenable. subsidies to be found in the airliner Director of Communications Christine - National Review Online, April 12 industry: Hall-Reis exposes the unholy alliance The Export-Import Bank (Ex-Im), between tobacco companies and state President Fred L. Smith, Jr. wades into governments: a federal agency that subsidizes U.S. the fi ght over federal budget earmarks: States are embroiled in a nasty squabble exports primarily through loan guarantees, During the Capitol Hill budget debates, with their business partner of seven years: dedicated a majority of its guarantee many spectators must have found the Big Tobacco. dollars again last year to subsidies for use of the term “earmarking” somewhat Major tobacco companies Philip Morris Boeing sales, according to the agency’s strange. What does it have to do with and R. J. Reynolds have accused the states annual report. Weighted by dollar value, budgeting? of failing to enforce anti-competitive laws Boeing directly benefi ted from 52.2% of The term refers to the practice of that were instituted as a part of the major specifying that a portion of a generalized Ex-Im’s long-term loan guarantees—the tobacco settlement of 1998. Under the spending bill will be used for a certain only transactions Ex-Im itemizes in its terms of the settlement, the companies purpose—for example, a bridge in report this year. Over the last nine years, were given the right to reduce their Alaska. In theory, this practice reduces Boeing’s share of Ex-Im loans and long- payments to the states if they could prove the power of the bureaucracy and requires term guarantees is 52%. two things: that the settlement caused Congress to become more accountable for With the agency’s authorization them to lose market share, and that the expiring this year, Ex-Im offi cials have states failed to “diligently enforce” laws spending decisions. In practice, the degree been touting their support for small imposing special taxes and regulations on of specifi city makes it easier to create businesses—an issue that lawmakers raised small competitors. alliances to increase overall spending. I’ll last time Ex-Im came before Congress for In 2006 alone, Big Tobacco companies back your bridge, if you back my reauthorization. gave over $6 billion in settlement payments convention center—and so on. - Human Events, April 20 to the states. That fi gure could plummet by - Liberty, March 2006 as much as $1.2 billion following a March

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Life Imitates Life of Brian Gouge Now! Thought the feud ‘twixt the People’s In February, the Minnesota Commerce Front of Judea and the Judea People’s Department announced plans to fi ne a Front in Monty Python’s Life of Brian ...END gas station chain $140,000 for selling was confusing? In Italy today, life gas too cheaply. State offi cials said imitates Python. According to The that Midwest Oil repeatedly sold gas Wall Street Journal, in Italy’s recent below the state’s minimum price law, elections, voters in some districts NOTES which was established in 2001 on a were able to “choose between formula based on wholesale prices, fees, the Refounded Communist Party, and taxes, allegedly to prevent large the Party of Italian Communists oil companies from driving smaller and the Marxist-Leninist Party of Italian Communists.” So is there a competitors out of business. It’s also a Communist Party of Italian Marxist good way to make consumers run out of Leninists lurking out there scratching money. for a fi ght with these groups? Shunned Smokers Flock Together Invest in Carbon Credits for This? Actor Russell Crowe was recently Prices plunged by half during the investigated for allegedly violating his last week of April at the European native New Zealand’s smoking ban Union’s (EU) Emissions Trading System, a carbon permit by lighting up at a nightclub where he was appearing with his exchange established under the Kyoto Protocol, reports Agence band, reports the BBC. Penalties for public smoking include France-Presse. The cause? Several European countries found heavy fi nes. Excessive? If Crowe thinks so, he could move out they were polluting less than they thought, thus reducing to Chicago—he currently lives in Australia—where he could the demand for credits to comply with Kyoto. Carbon emission patronize Marshall McGearty Artisans, a “tobacco lounge” permits began trading at $37.75 at the start of the week, and that is defying the city’s smoking ban, albeit legally. Marshall dropped throughout the week to end at $16.60 per ton. So does this McGearty is technically a tobacco retail shop that makes at mean that Kyoto is working too well? Hardly. Fifteen EU countries least 65 percent of its sales from tobacco. Sadly, smokers are still on track to exceed their eventual Kyoto targets. patronizing establishments that cater exclusively to them is still not enough for health nannies. “This is just another slimy trick What Would They Blame Starbucks For? The anti-Wal-Mart campaign has tried different approaches to by Big Tobacco to circumvent the system,” a spokeswoman for attack the retail giant—and now it’s really reaching. A group called Americans for Nonsmokers’ Rights told The Washington Post WakeUpWalMart.com is accusing Wal-Mart of being “unsafe for (R.J. Reynolds is Marshall McGearty’s parent company). “For shoppers,” due to an allegedly high number of police calls to Wal- the people of Chicago, this is an equal opportunity killer.” So Mart stores. Never mind that, as the largest retailer in America, much for individual choice—even a limited one. Wal-Mart stores are everywhere—so is it shocking that there would be police incidents at a chain that is ubiquitous? — Ivan Osorio

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