Saturday, December 11, 2004

What kind of system could prevent the world from getting into the jam a falling dollar may cause now? I've been reading about the World Trade Organization. In some ways they are the polar opposite of the UN regarding their relationship with the United States. We fight hard when we disagree about something, but rarely attack the organization wholesale. We tend eventually to comply with rulings that go against us.

The organization is surprisingly powerful, but it works around rather than against nationalism and sovereignty. It you break WTO rules, they give the people harmed permission to charge import taxes or other tariffs on your goods without being penalized as violators themselves. So they aren't ordering other countries around or trying to punish them themselves, but rather creating a set of rules so a consensus can be achieved as to what is a fair penalty vs an arbitrary tax war. Everything is done by consensus. This may make you think of UN veto power and nothing getting done, but ...

The Uruguay Round agreement also made it impossible for the country losing a case to block the adoption of the ruling. Under the previous GATT procedure, rulings could only be adopted by consensus, meaning that a single objection could block the ruling. Now, rulings are automatically adopted unless there is a consensus to reject a ruling — any country wanting to block a ruling has to persuade all other WTO members (including its adversary in the case) to share its view.

Although much of the procedure does resemble a court or tribunal, the preferred solution is for the countries concerned to discuss their problems and settle the dispute by themselves. The first stage is therefore consultations between the governments concerned, and even when the case has progressed to other stages, consultation and mediation are still always possible.

Although the rules and panels are created by consensus, once this is done a similar consensus is required to overrule them.

Right now this has no application to the dollar at all. There are no rules against one or more governments buying the currency of another government for any reason they choose. In fact, the WTO avoids ruling on internal issues, only ruling on the actual construction or content or products being imported and exported. Even if it didn't, the actions that got us into this situation were victimless crimes, neither the buyers of the dollar (who wanted to keep dollars strong so their own economies could look artificially strong in the short and medium term) nor the sellers (the USA, financing government debt by taking advantage of the former even while whining about it) would really have complained.

But this may be what we need to have a global economy which is sustainably prosperous for more than a few decades at a time. At least, the WTO is the only global organization not crippled by politics, perhaps because the 900 pound gorilla has a big stake in it.

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