A war between the states: home-grown US trade barriers costly

The shooting war between the Union and the Confederacy ended in 1865. But something of an ''invisible'' trade war between states continues today. According to two University of Houston-University Park economists, the United States of America is not as united a market as many believe. In fact, they calculate that ''fantastic numbers'' of interstate trade barriers could cost consumers as much as $150 billion a year in higher prices for goods and services.

For instance, one study found more than 1,500 agriculture restrictions on interstate trade in 11 Western states alone, Steven G. Craig and Joel Sailors note in a paper done for their school's Center for Public Policy.

''We don't have a complete catalog of interstate trade barriers,'' Mr. Craig said in a telephone interview. He figures there are many more restrictions they haven't counted.

Craig admitted that his $150 billion figure is a ''rough guesstimate.'' Since interstate trade is some 15 times as large as international trade, however, the impediments to a unified American trading market are important. Here are some examples:

* State and local governments often give preference to products or services from their own state or town. The usual restriction says local contractors or manufacturers win the bid if their price comes within 5 percent of an out-of-state offer. Since state and local governments purchase around $400 billion of goods and services each year, the preference is costly to taxpayers.

* In the agricultural area, some of the restrictions on interstate trade may be legitimate.

Other restrictions are purely protectionist. For example, since 1967 Texas has not allowed its consumers to eat Florida grapefruit, since Texas maturity standards require that grapefruit must test out at nine parts of sugar to one part acid. Since Florida grapefruit tests out at 7.5 to 1, it is banned from sale in Texas.

Eight states tax imported wine more heavily than wine produced in-state. Or they impose arbitrary licensing, storage, and marketing regulations on imported wine.

* The mobility of professional labor services is sharply restricted through the use of local licensing and certification. One study cited by the two Houston economists found 2,800 state laws affecting more than 7 million workers, including doctors, lawyers, dentists, others in medical professions, and teachers.

Another study calculated that a dentist's income is 12 percent higher than it would be in a free market where professionals could move about without restriction.

* Texas severely restricts insurance sales by out-of-state firms through complicated sets of reserve requirements on firms.

* States have various laws aimed at discouraging competition from out-of-state or foreign banks.

The Supreme Court has stopped some protective measures, invoking the commerce clause of the United States Constitution, with its prohibition of barriers to interstate commerce. For example, it prevented North Carolina from restricting the import of soft drinks bottled out of state with tax and administrative burdens. It blocked Louisiana from attempting to tax oil-field equipment made out of state.

But the commerce clause has not barred administrative restrictions to trade between the states. Craig says the Supreme Court set federal interstate trade policy on a case-by-case basis without clear legislative mandate from Congress. ''They (Congress and the court) haven't really defined what is and what is not an illegal trade restriction.''

State barriers have been upheld by the Supreme Court about 50 percent of the time, Craig notes.

Usually, the result of these barriers is higher prices for goods and services to consumers within the protective state. These consumers usually get no offsetting benefit.

In other words, Craig and Sailors write, ''The home state is not exploiting its neighbors to make itself better off, but is redistributing income from consumers to producers'' within the state. This also hurts out-of-state producers who cannot sell in the home state.

There are other forms of these interstate beggar-thy-neighbor policies. States compete to attract industry - especially high-tech business - to their state from other states, using special tax or other incentives. They try, with some success, to dump their tax burden on other states with such techniques as the corporate unitary tax (which taxes a company's income from all areas of the US and even abroad), or through severance taxes (a direct tax levied on minerals as they come out of the ground) on petroleum, coal, or other minerals.

But, Craig concludes, ''What may be good for one state industry may be bad for the economy as a whole. Congress needs to look at the problem seriously. If we did not have so many of these trade restrictions, the gross national product would expand, and the nation would be better off.''

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