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Fred Smith, founder and president of the Competitive Enterprise Institute, is one of those evil, evil men who takes funds from giant multinational corporations and uses them to roll back government regulation. He's also a walking encyclopedia, lively conversationalist and legendary party-thrower in the zany world of DC-based think tanks.
Smith and his wife Fran (also a CEI scholar) came by the editorial board Oct. 16 to warn against the Law of the Sea Treaty, predict a "dot-com"-like ethanol collapse, rail against California's energy policies and much much more. A few highlights:
(On a global sea treaty.)
Fred Smith: Big issues right now is Law of the Sea Treaty. I just saw you had a thing down there about the [altered oceans]. It's an interesting treaty, it's got the support of the whole establishment: The Navy, the business community, the administration, the Democrats, the environmentalists. There aren't many people against it. The military, the sort of the, the sort of the right-wing military types, Frank Gaffney and something, have done a very good job of arguing against. Their position is not the same as ours, although we sort of sympathize with it, is that it seems like the Navy has been taking over by the JAG. Judge Advocate Court? Court? Group?
Anyway, as far as I can understand, there are people in the Navy who think they'd be perfectly willing to trade off the Seventh Fleet for a vote of the General Assembly, I mean it just seems crazy to me, but um.
Matt Welch: Back up about a half a second and--
Smith: What is the Law of the Sea Treaty?
Welch: Uh, and just where it's at, and what, what is your interest in it.
Smith: It was 1972 or something negotiated, it was moving forward pretty aggressively when Reagan took over. Everybody told Reagan, "Look, it's stupid but it's gotten this far, we might as well go ahead and sign it." And Reagan said, "No, that's not why we got elected for," and said no. And actually in his diary he explains why: it was just a stupid treaty.
The treaty is big -- it's got 12 or 13 parts of it. The part that people are focused on is part 11, which deals with the Sea-Bed Authority. It creates this essentially socialist enterprise to develop the sea bed, allow private entries to come in; you can go out and explore if you're a private firm. If you find something you think is worthy of exploration, you sort of have to divide your claim into two pieces. You give them both to the Authority -- the socialist enterprise -- it picks the one it wants to develop, and you get to develop the other one. But then if it turns out you don't have the right -- as you're a poor socialist enterprise -- you don't have the right technology, the right institutions, the private firm has to share with you. "Now you've got to play with others, share with your toys."
And then you get taxed for the privilege of doing all that, and etc., and then you've got to jump through every hoop that the United Nations -- well, the global establishment -- can have: the environmental hoops, everything else, human rights. So it's a design to make sure you'll never develop the sea bed, right? That, people are focused on; that's stupid.
The point is there's a sort of a codification of the standard navigation rules. We've got those, everybody agrees those are sensible, we don't need a treaty for those. If we wanted a treaty for that, that would be fine. But they've latched all this-- it's sort of like having, you know, you can marry the pretty sister, but you've got to marry the ugly sister at the same time, you know. It's just stupid to put that in.
The piece that most people haven't focused on -- certainly the business community hasn't focused on it, and it doesn't appear the administration has -- there's a whole bunch about protecting the oceans in there. Protecting the oceans, well, guess what? Everything flows into the oceans. If we're gonna protect the oceans we gotta protect what flows into it. What flows into it comes from rivers; rivers run in nation-states, so the nation-states are under an obligation to ensure that they do nothing that will threaten the oceans. Well suppose they do? Suppose an international group isn't happy with our farming practices or our chemical use practices, or our industrial practices or our anything? Then there's a tribunal that can require, that could be established to sort of ensure that land-based pollution is minimized to threaten the ocean.
And this is, what it's gonna be is a windfall for the global, for the NGOs, the environmental movement; it strengthens them. It strengthens the NGOs' role of being able to stop development anywhere, including the United States. And also it's just an incredible boondoggle to trial lawyers. [...]
The arguments -- I testified to this, in the [congress]; and this was dismissed, this was foolish. Yes, of course the language says that, but it's just ... language; we don't need to worry about it because it doesn't mean anything, it's just you know, uh, dressing, it's just you know sort of language to make people feel good.
Well, in America language that makes people feel good led the Clean Waters Act to be the wetlands protection act, led the Endangered Species Act to be able to stop anything over a bug or a minor plant. Led the Clean Air Act to be a national industrial policy act, and on and on. I mean, our laws have teeth, maybe not in other countries but certainly the United States. And vague amorphous language, the people who we worry about, the regulators, have been very very clever at translating vague language into real biting things.
And it just seems to me that due diligence hasn't been practiced. I don't think any of the senators have looked at this. [Sen. David] Vitter has done a good job of focusing in on this, um, and it's worth noting his language. He said, "Well, what does this mean?" Land protection; prevent land pollution and enforcement mechanisms. The enforcement mechanisms is through a tribunal. Tribunals are, if you and I agree we can pick our negotiators; if we don't, they're picked for us. In the system we'll be working in, are those likely to be pro-U.S.? Not likely. And even if they were pro-U.S., uh, the use of this kind of vague language by the U.S. itself has been very dangerous.
The best example of why I want you to worry about the Law of the Sea Treaty is the vague, amorphous, hoity-toity language that was included in the preamble to the World Trade Organization. They had language in the beginning that says, "Everything in this act shall be in accord with the sustainable development of the earth." More or less. Vague, amorphous language. Who the hell would; what could that possibly mean?
Well, the U.S. gets into a dispute over Asian nations over shrimp. "Those sonofabitches are selling cheap, good shrimp, and putting our shrimp people out of business." Well, that's life, and you can't just go in and ask for protectionism.
But! They were growing this shrimp in wetlands near the coasts of the Asian seas. How do we know they weren't endangering wetlands, or mangrove swamps or sea turtles. So we -- well, "we"; the USTR -- launches a complaint. It goes to the World Trade Organization where it's thrown out, this is stupid.
The term in trade policy is called PPM -- Process and Procedures Methods? It's a wonderful principle. That says that trade is based on the commodity, not how it got there. If you have one technology to produce a tablet, and I have another technology to produce a tablet, the tablet stands or falls, if it's the same tablet. It's the same thing in trade. I can't reach upstream and say, "Well you used the wrong technology," or "You didn't hire enough women, or minorities," or "You discrminated against some religious group," or you know hundreds of things that some groups are worried about.
Trade is supposed to work on the product itself, OK? That's PPM, and that's been the basic concept of trade. Because otherwise everybody is reaching upstream into other people's regulatory and tax policies and so on, to try to second-guess it. "It's not fair trade because you did it in a wrong way." It's made possible trade, because everything is essentially a standardized commodity.
Well this idea is, "Well, you're producing the shrimp" -- nobody's saying the shrimp were different -- but "you're producing the shrimp by the wrong method. You're threatening something that we care about it, even though it's your domestic decision on how to grow shrimp, and therefore--."
Well, we lost. But then we appealed, and in the appeal court they said, "Well, you still lost, but the language of sustainable development, had they been developed a little more, the U.S. could have prevailed." [...] Look at the way incredibly weak language was transformed to essentially into changing the whole principle of trade policy.
Welch: And it really has led to....?
Smith: It's led to this kind of argument being raised more and more. It hasn't actually threatened trade yet, but it has changed the essential underlying -- and the environmentalists all treat this now as established law.
Welch: The "sustainable" thing?
Smith: Yeah. And all of our trade policy now adds more and more of this kind of language to the trade, the bilateral trade--
Welch: And you would claim that there's like some connection between that and like asking for union standards or workplace standards, or?
Smith: Well I would say the argument about "land pollution has to be policed," is, what does that mean? I mean how could you reach into the United States, this is about protecting the seas, it's not about; sovereignty is totally preserved, we're told. Well, if I can reach into your country and decide your land-use practices are wrong, then I'm pretty much, well, I've given you an incredible....
Now of course that won't be exercised by itself; the environmental groups will do it, and they'll say, "Under the Law of the Sea Treaty which the United States signed, the farmer in Nebraska has to change his land use." [...]
Welch: And do you see activist groups who are sort of lining up and recognizing this to be an opportunity to--
Smith: Oh, some of the language behind; the environmentalists see this as the biggest; if they get this through they've got the biggest coup in history.
Smith: Clinton said something like, this is the most important environmental treaty in the world. Now, he means that as a compliment....
Welch: So where is it at right now? How serious--
Smith: It's been submitted by the administration. There's been two hearings on it; out of 11 witnesses two were opposed.
* * *
On the fate of the sex-scandalized Republican Party, and the 2008 presidential race.
Tim Cavanaugh: Is there any leeway, is there any space opening up for a more traditionally conservative Republican Party as a result of this? It seems like it's moving, everything is moving in the other direction.
Smith: Well it looks like in the short run there's just got to be a lot of pain before there can be any gain. Uh. You would think that if there was any time in history for sort of a moderate libertarian candidacy this would be the period, and yet there's nobody on the right. I mean Paul's doing better than anyone imagined.
Welch: Yeah, I mean he's the only one who has the, you know, the unlikely campaign that anyone's excited about this year is a libertarian; that's the first time that's happened in a long time.
Smith: And if he ran as an independent after this is over with, he might get 10% of the vote. [...] And remember the interesting thing about this election ... the candidates are likely both to be picked by March, which gives eight months of buyer's remorse. I mean, can you imagine how disillusioned Americans are gonna be by the time November rolls around?
Welch: That's a good point, actually.
Smith: I guess the Democrats might be willing to say, "It doesn't matter, it's a Democrat." But the Republicans certainly aren't going to be that happy.
Cavanaugh: And they're both gonna be; I mean it's gonna be a DINO vs. a RINO no matter how it shakes out.
Smith: And it's gonna be, you know, the purists on both sides aren't gonna be happy. And neither one of these candidates -- assuming it's Giuliani and Hillary -- I mean, I'm certainly not going to vote for either one of them.
* * *
(On ethanol subsidies.)
Smith: It still doesn't make any sense.
Welch: But John McCain said that now it makes sense in a way that, you know, it didn't make sense last time around! But this time--
Smith: But that is the; he and Hillary were both good on that issue, which shows how incredibly corrupting this issue is, because they were both on that issue, good on it.
Welch: Has she gone bad too on this?
Smith: Oh she's gone bad too.
Fran Smith: Yeah, yeah. Well part of it is every state just about can grow corn. Not efficiently, but with the amount of subsidies you can get, and then the Farm Bill: if the 2007 Farm Bill goes the way the House has termed it, even more subsidies would be available.
Smith: We think this could easily become, make the dot-com collapse look--
Fran Smith: Yeah, yeah.
Welch: Oh really? It's like a house-of-cards thing with the price of--
Smith: There's not enough land in America if we want to eat and do other things.
Fran Smith: And there are also, farmers are now substituting corn production for production of other things. [...]
Smith: And the environmentalists have turned against it, you've got some elements of the farm community; the food producers are getting very upset about this. Because if you're a, remember, if you're a--
Welch: Why are the food producers so useless? I gotta ask this. I mean seriously, there's a really easy and good argument against farm subsidies at some point, that everyone understands on the political spectrum, everyone who's rational agrees with, and the industry that gets the worst hit by far is food production, as far as I can figure out, guessing. Where the hell are they?
Smith: Well downstream from them is the supermarkets. The supermarkets don't seem to care, as far as I can tell. I don't know why; they should care, too. There aren't a lot of food producers, you know -- the big ones are Kraft, Unilver, and um
Fran Smith: Nestle.
Smith: Nestle. And they don't spend a lot of time on these things. I don't know why. It's a good question.
Welch: You haven't been doing your work! You need to get--
Smith: No, you're absolutely right, I should.
Fran Smith: When I used to work -- and Fred and some of the staff members used to work with the food industry -- and they have so many issues that they're dealing with. They're dealing with labeling, food safety issues, just new ingredients.
Smith: And all the sugar guys have got to do is just go after their tariff every year.
Fran Smith: Competition, yeah, coming up with -- what was that ice cream that uh
Smith: Merger policies.
Fran Smith: Yeah obesity! Obesity. The obesity issue has consumed a lot of food producers over the last five years. So they have so many issues, the sugar -- I worked on sugar issues -- the sugar producers, day in and day out, are focused on one thing: They visit all the congressional and senatorial offices. You know, it's the diffuse--
Smith: It's the old, this is what I always call the Julia Child school of politics? You know Julia Child: "You start off with a gallon of water, a few bones, a few vegetables, and you taste it and it's the most watery thing you've ever tasted in your life. But if you cook it down until it's about this big and you've got a really good soup!"
Only when industries become economically irrelevant do they have political power in a way. You know, it's sort of the opposite of what you think about. It's a concentrated interest -- they can focus on one issue rather than the hundreds of issues.
Welch: Give an example besides sugar.
Smith: Uh. (Five seconds silence)
Welch: It's a great theory, I just--
Smith: Well, farming generally is one. I mean farming generally -- when everybody was a farmer there were no farm subsidies; now that nobody's a farmer there's all kinds of farm subsidies. And that's not one crop, that's lots of crops out there.
Welch: The Newspaper Preservation Act.
Smith: Manufacturing. When America was a manufacturing system, well we don't have an awful lot of manufacturing protectionism, but we got a little steel and auto protectionisms, about, when, 15 years ago, and then gradually died out. But then you didn't get them initially in the auto industry. After World War II we had probably in those years relatively free trade. Well, nobody could ever compete with us, so it was easy. [...]
The thing, I think the thing to think about in the biofuels area is whether or not the collapsing support means that this thing is a house of cards.
Welch: What's the collapsing support?
Smith: Well, the environmentalists pulling out their support. The human rights groups beginning to point out about, you know, are we going to starve Africa to death becasue we are--
Cavanaugh: That's what, Fidel Castro and Hugo Chavez both have been working that angle!
Smith: Well, and so has Oxfam International and so have the human rights groups. So that's what brings in a whole moral level into it. You've got the food producers -- a weak voice, I agree. But they're; for example the sweeteners groups, though, do have problems, you know. They were sort of driven out of sugar by the tariff, OK? They went to higher-fructose corn syrup. Well, we're now driven out of that by ethanol subsidies. And chemicals, the only other alternative, are driven out by the environmentalists claiming that, you know, one more Aspartame and my kids won't go to Harvard.
Cavanaugh: So is that when the dot-com collapse happens for them, when the political support erodes?
Smith: Yeah, well it's totally a political balloon, it can't go; and what, but that's gonna be a part of it, the other part of it is gonna be everybody trying to get through the door at the same time -- it's going to create all kinds of problems. The price of the stuff is going to go up, the subsidies will not keep up for all of them, you know. I mean the subsidy depends on what the existing price of corn is, the price of corn keeps going up the subsidy becomes less and less attractive, you know. It takes a lot of subsidies to make water run up hill as far as this thing is going to have to run up.