Transformation, poverty and crime

is the subject of my Trade Tripper column this Friday-Saturday issue of BusinessWorld:

A prevailing myth apparently adopted by most of our society is that crime happens because people were forced to do so by poverty. The effect of this thinking is to essentially absolve the commission of crime due to the misguided (and destructive) notion that people should be released from any responsibility for doing what they did in order to survive. The truth of the matter is that people, no matter how poor, should be made accountable for their decisions. And our policies should be made to reflect that fact.

Some of the poorest countries in the world actually have the lowest of crime rates: Azerbaijan, Andorra, Angola, Bangladesh, Burkina Faso and Mali, Cambodia, Cameroon, and Vietnam. According to one source, India has one of the lowest crime rates in the world and this from a country with 1.2 billion people. Aside from battling massive poverty, it is also a huge mix of different cultures and religions. By Philippine understanding, it should be mired in crime but isn’t. On the other hand, the US, definitely an economic leader, possesses high crime rates.

Heather MacDonald, reporting for the Wall Street Journal, points out that the “notion that crime is an understandable reaction to poverty and racism took hold in the early 1960s,” particularly through the work of sociologists Richard Cloward and Lloyd Ohlin. However, these theories came into considerable doubt when it was found that crime rates fell when unemployment rose. The financial crisis of 2008 resulted in the loss of seven million lost jobs but sees crime rates fall at record levels.

Thus, as MacDonald finds, even in the 1960s “homicides rose 43%, despite an expanding economy and a surge in government jobs for inner-city residents. The Great Depression also contradicted the idea that need breeds predation, since crime rates dropped during that prolonged crisis.” In more recent times, “by the end of 2009, the purported association between economic hardship and crime was in shambles. According to the FBI’s Uniform Crime Reports, homicide dropped 10% nationwide in the first six months of 2009; violent crime dropped 4.4% and property crime dropped 6.1%.”

The poverty-results-in-crime theory is certainly a very destructive basis for social policy. But for those espousing liberal politics in the US and very much the common attitude in the Philippines, it justified the giving of preferential treatment to the unproductive in society. But clearly this resulted in the worst for our country: our chronically weak institutions have been continually undermined due to the belief that since individuals cannot be held responsible for their actions, then society owes something to individuals rather than the other way around.

Furthermore, it also disguises the fact that the most massive corruption and crimes in this country are actually committed not by the poor but by our rich elite. From the embezzlement of Katipunan funds, to collaboration with the Americans or the Japanese, war profiteering, corruption over the US Army surplus, currency manipulation, import licensing schemes, behest loans, government coddling of favored companies, bungled land reform, missing sequestered assets, missing agricultural funds, NBN-ZTE, the unconstitutional MILF-MOA -- these are not crimes committed by the poor.

So, instead of poverty, some experts are pointing to other causes of crime: the breakup of families, poor housing conditions, education, weak police enforcement, and inequality. The last is interesting as it was just recently reported that Stratbase Research Institute found the Philippines to have a higher degree of inequality as compared to other Southeast Asian countries. The institute warned that “inequality, if left unaddressed, leads to the polarization of society and the creation of social tensions that eventually undermine the process of growth and development.” The foregoing is paralleled by a World Bank report finding that “the richest 20 percent of the Philippine population outspend the poorest 20 percent by more than eight times.” Most reprehensively, it was found by the ADB that the “[richest 10% of Filipino families are] raking in more than a third of the country’s total income.”

Moving forward on a new legislative year, it would be helpful therefore to take into account realities rather than romanticizing the plight of our people. We should address crime as a matter that takes into account individual responsibility and emphasizing discipline for purposes of benefiting society. Our law enforcement capabilities should be strengthened and essentially give a signal that when people commit crimes they will be taken to account for their actions. Furthermore, dole-outs or any similar type of welfare programs should be stopped. If money is to be given out, then it should be done in a manner emphasizing the need for equalization of opportunity and the rewarding of merit, not encouraging dependency. Instead of having a contraceptive and divorce mentality, policies should be made strengthening the family as an institution. Finally, rather than focusing on growth as an indicator of economic success, we should address the continuing problem of inequality in the country.



is the subject of my Trade Tripper column in this Friday-Saturday issue of BusinessWorld:

As I repeatedly keep pointing out, one of the most annoying things in international law practice is how more often than not it would be fellow Filipinos who would be “lawyering” for the other countries. Merun kasi diyan ang galing makipagtalo pag kapwa Filipino pero pagdating sa dayuhan oo agad o tameme lang. This inane behavior is again on full display in relation to the Spratly islands debate. Rather than have confidence in the strength of our position, some would go to the extent of criticizing our public officials for doing something that they also should be doing: asserting our national interest.

Foreign Affairs Secretary Albert del Rosario must be lauded and supported for declaring, as reported in the newspapers, that “China’s hesitation to accept the Philippine suggestion to elevate their dispute to ITLOS could lead to conclusion that China may not be able to validate their stated positions in accordance with the UN Convention on the Law of the Sea (UNCLOS).”

The reason for the need to have China accept the proposal to elevate the case to the International Tribunal Law of the Sea (or ITLOS) is that, unlike domestic tribunals which can acquire jurisdiction by mere service of summons for example, international tribunals operate within the constraints of State sovereignty. In other words, the only way an international tribunal can have jurisdiction over the case is if the States parties to the dispute actually give their consent to be subjected to such jurisdiction. The application of sovereignty to a tribunal’s jurisdiction is such that, in certain cases, the States parties can even dictate who the tribunal members are, the language to be used, the scope of the ruling, venue, etc. Sovereignty constraints also bind the UN’s International Court of Justice, which essentially presents a two-consent mechanism: assent to the ICJ Statute and execution of the optional jurisdiction clause. China has not done the latter. The WTO dispute settlement system jurisdiction, on the other hand, had been consented to by the members upon joining.

So Secretary Del Rosario was completely right in concluding that China’s discomfort with the objective proceedings of the ITLOS (or ICJ) is essentially an indication of an admission of weakness on the part of China. The latter’s lame excuse not to resort to international tribunals is that “China always maintains that the South China Sea dispute should be resolved through direct negotiations between directly concerned countries.” Annoyingly, a number of our countrymen bought this argument, all the while conveniently forgetting that we are dealing with a country whose government just does not have palabra de honor.

One example: as George Weigel of the Ethics and Public Policy Center recently wrote: “For some time, a modus vivendi was in place between the Vatican and Beijing on the appointment of bishops. It was never codified, but everyone knew the basic rules of the road: No bishops are to be ordained without the tacit approval of the Holy See. The regime brazenly broke that working agreement late last year, going so far as to drag one elderly Chinese bishop by his hair to an illicit episcopal ordination.” And as if it needs emphasizing: China’s military has resorted to repeatedly harassing the Philippines in asserting its dubious claims.

The Philippines should view its relationship with China with greater objectivity, not allowing itself to be dazzled by the business that China is baiting us with or be awed by its supposed power. This is not to say we shouldn’t deal diplomatically with China. Of course we should. But we negotiate with the strong inner conviction that we are in the right. Because we are. This includes, if necessary, re-drafting our Baselines Law approximately back to the boundaries covered by the old Baselines Law: RA 3046, as amended by RA 5446, that, along with PD 1596, expressly includes Sabah and the Kalayaan Islands as part of Philippine territory. We should prohibit or ban any map or material, specially official documents, that makes reference to a “South China Sea” because it’s really the “West Philippine Sea” or the “Philippine Sea.”

And I reiterate, in the meantime, the best way to deal with China and protect our national interests is by simply implementing our laws. Firstly, it would be good to really clamp down on smuggling, including “technical smuggling.” Another would be stricter application of our immigration rules. Reports of foreigners surreptitiously entering our country should be investigated and prosecuted vigorously. Considering the rising unemployment in our country, to stop the entry of illegal aliens should be a priority.

Finally, our foreign and trade relations should be done not only with the view to financial gain but also to advancing human rights, labor standards, environmental protection, and democratic values. Why? Because they are what we stand for! It’s hypocritical and betrays an utter lack of character to loudly pontificate on such only to forget them the moment money is dangled before our eyes.


WTO DSB adopts Panel and AB reports for DS371

From the WTO:

DS371: Thailand — customs and fiscal measures on cigarettes from the Philippines.

The DSB adopted the Panel and Appellate Body reports (WT/DS371/R and WT/DS371/AB/R) which examined Thai fiscal and customs measures affecting cigarettes from the Philippines.

The Philippines expressed its deep satisfaction with the outcome of the reports and noted that it prevailed on virtually all the claims it made. The Philippines said that this case was about exports that directly or indirectly benefited many Filipinos from leaf-growing to manufacturing. The Philippines added that its exports continued to suffer arbitrary and discriminatory treatment at a tremendous cost not only in economic terms. The Philippines said that the objective of this dispute was to end such treatment and to put exports back on the secure and predictable ground of the rule of WTO law. The Philippines stated that this was the first dispute to interpret in detail the substantive rules on custom valuation and added that the panel set out in clear and concise terms the obligations imposed on an importing member in a situation where buyers and sellers were related. The Philippines expected Thailand to promptly and fully implement the DSB ruling affording its goods the treatment required under WTO rules.

Thailand said it was puzzled by the Appellate Body's statement which affirmed that it was not appropriate for Thailand to refer to the panel's interim report in its appeal, given that the interim report formed part of the record of the panel proceedings. Thailand was also concerned regarding the Appellate Body's view that a panel could make an objective finding on the basis of evidence which one party had not had the opportunity to comment. Thailand said that the Appellate Body could have addressed its arguments in more detail regarding its VAT system. Thailand added that it was strongly supportive of the binding dispute settlement system in the multilateral trading system, on which it had successfully relied in the past to vindicate its rights under WTO law. Thailand looked forward to working cooperatively with the Philippines.

The EU was very satisfied with the findings of the panel regarding certain obligations enshrined in the Custom Valuation Agreement. The EU added that the panel set in stone that this agreement imposed an obligation on national authorities to determine the customs value of imported goods on the basis of their transaction value and, if this was not possible, to sequentially apply the other customs valuation method. The EU welcomed the clarification from the panel about the respective responsibilities of the customs authorities and the importers.

Australia had reservations about the reasoning applied by the Appellate Body in its application of the necessary test under Article 20 of GATT 1994. According to Australia, the Appellate Body indicated that the analysis of an Article 20(d) exception should focus on whether the differential treatment applied to imported versus domestic cigarettes under the measure was “necessary”, rather that considering whether the measure as a whole was “necessary”. Australia also pointed out that in no case should the Appellate Body proceedings exceed 90 days (Article 17.5 of the Dispute Settlement Understanding (DSU)) except in circumstances where the legal and factual complexity of an appeal required additional time. Australia said that where the facts and legal issues of an appeal were limited in complexity, efforts should be made to respect the time-frame provided under the DSU.

According to the US, in its analysis of Article 20(d) of GATT 1994, the Appellate Body stated that it was the differential treatment that must be “necessary” to secure compliance. For the US, this seemed to be at odds with prior reports in which it was found that it was the “measure” that must be necessary. The US noted that the Appellate Body report was circulated outside the 90-day period stipulated in Article 17.5 of the DSU. The US noted that the parties accepted the report would be circulated outside the 90-day period. The US regretted that this agreement was not mentioned by the Appellate Body contrary to past practice. The US said that the approach in this dispute resulted in less transparency.

Mexico said that the Appellate Body report was issued 115 days following the notice of appeal and that no reference was made on this issue in the report. Mexico noted that the time-frame was extended from beyond 90 days as required by the DSU.

Japan shared the concerned expressed by the US and Mexico about the lack of transparency of the Appellate Body which deviated from its practice.


A question of experts

is the subject of my Trade Tripper column in this Friday-Saturday issue of BusinessWorld:

One of the bigger tragedies played out in the domestic scene relating to trade was when a local industry got the idea of filing a safeguards measure petition. The problem was that the lawyers consulted weren’t really knowledgeable about trade law. As the product in question wasn’t even subject to a “bound” tariff rate, the safeguards petition then was unnecessary to protect the industry and the latter just wound up needlessly paying millions of pesos to those consulted. Expertise does matter.

However, experts have been getting a bad rap lately. Several (very good) books have come out questioning the merit (in varying degrees) of experts. One of the best books on the subject is The Wisdom of Crowds: Why the Many Are Smarter Than the Few and How Collective Wisdom Shapes Business, Economies, Societies and Nations. Written by James Surowiecki, the book argues that accumulated information by a group resulted in decisions made that are far superior to those of individuals, even if such individuals be experts.

David Freedman’s Wrong: Why Experts Keep Failing Us -- and How to Know When Not to Trust Them is another very good book. The book starts with him relating that around 30% of the findings published in the top medical journals are reversed within just a few years. He then goes on to find that around 90% of doctor’s medical knowledge are eventually found to be entirely wrong. In fact, there is allegedly an 8.33% chance that every doctor’s diagnosis will actually harm a patient. Freedman doesn’t single out doctors, mind you. He goes on to examine the experts of many fields, from accountants preparing tax reports to newspaper reporting to the fact that most studies made by economists turn out to be wrong (well, the last one we know!).

Finally, there’s this book by one of my favorite writers, Tim Harford of the Financial Times (and of The Naked Economist). His latest book, Adapt: Why Success Always Starts With Failure, dwells again on the theme that the world’s problems are so complex that the combined thinking of our leaders and experts would always be found wanting compared to the collective decision of the many. The book starts by relating an experiment done whereby experts from various fields were asked “to make specific, quantifiable forecasts -- answering 27,450 of his questions between them -- and then waited to see whether their forecasts came true.” The outcome was disappointing, with the experts doing just a little better than mere college undergraduates.

So, with all such findings, does this mean the irrelevance of experts? The answer is complex, and for the Philippines the answer even more so. One thing that should be noted is that the studies or findings made in those books were taken from the context of decisions made by societies that had a high degree of education, free exchange of information, and cultures that allowed for spirited and objective (as opposed to emotional) debates. This can be seen from Surowiecki’s book, which actually makes a distinction between “wise” crowds and “irrational” ones. Thus, a “wise” crowd is composed of persons with adequate private information, with individual opinions not determined by the opinions of the people surrounding him, with the ability to specialize and yet tap on local information, and institutions exist that can effectively utilize such private judgments and translate them to collective action.

Surowiecki therefore discards the idea of an infallible crowd and instead bolsters an idea we all already know: a deliberate and studied decision by an informed people will always be better than one made out of the emotional unthinking actions of the many. Our history is replete with the latter. Surowiecki talks about crowds that made very bad decisions because the individual members of the crowd were not thinking, letting their own judgment be determined by those around them, to the point that a bandwagon is produced but of which everyone is simply imitating and conforming to the sloppy or emotionally impaired thinking of others (or of those sufficiently loud enough to let their positions known). The tragedy in such situations of “irrational’ crowds is that any good, studied, and learned thinking by individuals become lost and are discarded. In this regard, Andrew Keen’s The Cult of the Amateur: How Today’s Internet Is Killing Our Culture would be good to read.

The necessity, therefore, for an educated, mature, objective crowd (or people) is obvious. All the more so if Harford is right: that today’s problems are so complex that a fixed solution will simply not do the trick and that such problems can only be tackled by a great deal of improvisation, dealt from varied sources of information, by a people that is willing to select the best (either of people or ideas) and adapt as needed.

Until that happens, the need of the Philippines for more knowledgeable, expert individuals is all the greater.


When spirits are willing ...

is the subject of my Trade Tripper column this Friday-Saturday issue of BusinessWorld:

As mentioned last week, after the country’s historic WTO Appellate Body win in our Thai Cigarettes case, news came that the Philippines disappointingly lost in Philippines -- Taxes on Distilled Spirits (docketed as DS396 and DS403). As reported by BusinessWorld, a WTO panel, “in a confidential report circulated to the parties involved in the dispute, had ruled that the Philippines’ taxes discriminate against brands such as Jack Daniel’s and Jim Beam as well as Spain’s Brandy de Jerez, while favoring domestic producers catering to the country’s $3-billion spirits market.”

Following WTO practice, the panel ruling itself is confidential until its formal release in August. This is to “provide sufficient time for the Members to consider panel reports,” which shall be considered for adoption by the Dispute Settlement Body only after 20 days from the date of circulation to the WTO members. After which, WTO members objecting to the panel report “shall give written reasons to explain their objections” at least 10 days prior to the DSB meeting.

In any event, the reactions of the disputants were quite predictable. US Ambassador Henry K. Thomas “welcomed” the panel ruling. The Distilled Spirits Association of the Philippines (DSAP) was reported by BusinessWorld as urging the government to immediately appeal the case to the WTO’s Appellate Body. In its statement, DSAP bravely declared that “the battle isn’t over for the local distilled spirits industry ... The Philippines needs to appeal WTO’s findings because of its adverse impact on local manufacturers, allied industries, Filipino consumers and the economy in general.”

An appeal would certainly be quite interesting. There have been three (only three, although there is also the ongoing DS423, Ukraine -- Taxes on Distilled spirits, filed by Moldovia) previous liquor tax disputes that went through the gauntlet of the WTO dispute system and all three were resolved in favor of the complainants. Theoretically, stare decisis is not followed in international law. Nevertheless, recent empirical studies have disturbingly shown that complainants in WTO disputes remarkably win almost 90% of the cases that go into litigation. This is a win-rate far above that of any domestic tribunal.

In a 2010 paper by New York University’s Mathew Turk (“Why Does The Complainant Always Win At The WTO: A Reputation-Based Theory of Litigation at the World Trade Organization”), he found that “the tendency towards complainant success is also not reversed under any subset of disputes. Maton and Maton found an 81.9 percent success rate in Panel rulings, and a 78.4 percent success rate in Appellate Body rulings. xxx In summary, while statistical studies of WTO outcomes use a variety of methods, their results are all substantially the same: the complainant almost always wins. Colares’ study, which coded its data most analogously to research on civil litigation, reported win-rates approaching 90 percent. Furthermore, these win-rates did not significantly decline for any subset of complainants or substantive area of dispute. Thus, the threshold counterargument -- that there is no empirical puzzle to explain because studies use the label ‘win’ incorrectly and fail to capture the true significance of litigation outcomes should be rejected.” Significantly, the foregoing corroborates the findings of Andrew Guzman of the University of California (“The Political Economy of Litigation and Settlement at the WTO”) and Juscelino Colares of Syracuse University (“A Theory of WTO Adjudication”).

Going back to the previous liquor cases, the first dispute, Japan -- Alcoholic Beverages (DS8, 10, 11), concerned the Japanese Liquor Tax Law’s system of internal taxes. The AB agreed -- ruling, amongst others, that the panel’s finding that vodka was taxed in excess of shochu was correct. It also accepted the panel’s interpretation that Art. III:2, first sentence, requires a determination of the presence of two elements: (i) whether the taxed imported and domestic products are like; and (ii) whether the taxes applied to the imported products are in excess of those applied to the like domestic products.

The second case, Korea -- Alcoholic Beverages (DS75, 84), relates to Korea’s multi-tiered taxation regime (the Liquor Tax Law of 1949 and the Education Tax Law of 1982) on the sale of alcoholic beverages. The complaint centered on GATT Article III:2. In this case, the AB held, amongst others, that evidence of “present direct competition” and the panel’s approach of grouping the liquor products were appropriate.

Finally, Chile -- Alcoholic Beverages (DS87, 110) dealt with the “Additional Tax on Alcoholic Beverages” (“Impuesto Adicional a las bebidas Alcoholicas”), levying an excise tax on the sale and importation of alcoholic beverages. The complaint again looked at GATT Art. III:2, second sentence. The AB found that an examination of the design, architecture, and structure of Chile’s tax law tended to reveal that the application of dissimilar taxation of directly competitive or substitutable products would “afford protection to domestic production.”

A more accurate analysis of this case would have to wait for August. In the meantime, nevertheless, it still boils back to that old dictum: in vino veritas.