Resident Scholar Philip I. Levy

The Bush administration has filed two cases this month with the World Trade Organization against China for failing to protect U.S. companies' intellectual property.

At first blush, this would seem to be cause for rejoicing. Of all the ways the administration might "get tough" with the Chinese, a WTO case is playing by Marquess of Queensbury rules. The WTO dispute settlement system will give a fair hearing to each side and render a decision. That's a far cry from other China trade sallies when the U.S. Congress sits as prosecutor, judge and jury.

There’s little doubt that sales of knock-off goods are rampant in China. The U.S., as a major producer of books, movies and music, would also benefit from tighter enforcement against piracy. So what's not to love about this?

The problem has to do with the role of the WTO and the nature of the U.S. complaints. There are some important differences between the way the WTO operates and the way a national government operates. A national government has sovereign power and can write, enforce and flesh out the meaning of laws (as Congress, the executive and judiciary do). The WTO is an institution that oversees agreements between sovereign nations.

The distinction becomes clearest in cases of disputes. When there is a dispute in the U.S. over the integration of schools, for example, courts determine the meaning of vagaries in the law and their decisions are ultimately implemented by force, if necessary (e.g. the National Guard).

It is a convenient fiction that losers in WTO disputes are "forced" to amend their laws. There is no WTO army or police force to carry this out. The sanction for misbehavior is that the aggrieved trading partner is allowed to retaliate. Because the WTO oversees a bargain between two sovereign parties, its role in disputes is to determine whether either side has breached the agreement and to allow for the unwinding of the agreement if one side continues to do so.

Countries usually try hard to comply with WTO dispute settlement panel findings, and rightly so. Without compliance, countries and businesses would lose faith in the WTO agreements and the great benefits of decades of trade liberalization would be lost. Still, countries are acting voluntarily. Politically, it can be easier to justify this compliance by saying, "The WTO made me do it."

Beyond enforcement, there is another important difference between the WTO and sovereign nations. A country like the U.S. begins with a set of principles (the Constitution) and then develops the meaning of those principles through laws and court rulings. The principles are necessarily incomplete (the Founding Fathers were probably not envisioning Internet pornography when musing about free speech) so the principles must be adapted to the times.

The WTO, contrary to popular belief, is not a holy order sworn to pursue the principle free trade. It is, and should be, the overseer of carefully wrought agreements between its members. It would be wonderful if those agreements called for unfettered free trade, but more commonly the liberalization stops short of that.

Therein lies the problem with the recent WTO cases. Is the administration arguing that China violated an explicit agreement it made when it joined the WTO? Or is it arguing that China violated the general principle of protecting intellectual property? The latter would be giving the WTO a much more expansive role, one to which the U.S. has objected in the past.

First, what does it mean to "enforce" a law? The U.S. has laws against murder, robbery and the use of narcotics, yet all of these go on daily. Police forces strive to limit these misdeeds, but they have limited time and money. There's little doubt that more recruits and funds would have some positive effect. Thus, enforcement is not a question of all or nothing; it is a matter of degree.

The WTO agreement on intellectual property rights that emerged out of the talks that concluded in the mid-1990s says that countries should enforce these rights. It goes on to say that the agreement "does not create any obligation to put in place a judicial system for the enforcement of intellectual property rights distinct from that for the enforcement of law in general." The Chinese response to U.S. charges is that the tougher enforcement sought by the U.S. would require just such a separate system.

But perhaps the principle of protecting intellectual property should supersede this particular codicil of the agreement. U.S. firms care a great deal about intellectual property rights, and this would push in the direction of more free, legitimate trade.

It is just this sort of reasoning that the U.S. decried when it was on the losing side of WTO cases concerning Internet gambling and agricultural subsidies. The U.S. argued that while there were generally agreed principles about freer trade in services and removing distortions in farm trade, those principles had carefully negotiated limits. Administration officials complained bitterly about WTO dispute panels exceeding those limits and effectively broadening trade commitments beyond what any negotiator or legislature had agreed to.

A passionate advocate of free trade could be tempted to ask--what's the harm? If we arrive at the right answer for the wrong reasons, is that so bad?

It is. Seeking or allowing expansive interpretations of WTO agreements poses serious democratic concerns. If U.S. courts interpret a law in a way that differs from Congress' intent, the Congress can quickly whip out a new law. If a WTO agreement is misinterpreted, the latest pattern has been to go more than a dozen years between agreements (the opportunity for redrafting). And the WTO operates on consensus rather than majority, further raising the bar. Thus, expansive interpretations undermine the legitimacy of the WTO.

Expansive interpretations also can impede future trade negotiations. If negotiators have to worry that agreements will not mean just what they say, but will instead serve as a blank check to extend the principle, they will be far more wary about what they are willing to discuss. Legislators and voters back home will be equally wary.

It is a great idea to pursue trade concerns in the multilateral forum of the WTO. It's just important to draw a distinction between enforcing an existing agreement and negotiating a new one.

Philip I. Levy is a resident scholar at AEI.