Democracy, Free trade, and other Fictions

demcracy_good

The Set Up

WikiLeaks exposed a series of secret free-trade negotiations among the world’s largest economies.  These free-trade agreements, or FTAs, are known and organized under three separate but related acronyms: TPP, TTIP, and TISA[i].  The trade agreements were held in secret, outside of open democratic review. The talks, some of which have already concluded, began in 2012. As WikiLeaks discovered, states that have agreed to these new secret FTAs are prohibited from releasing the details of the agreements for five years.

So where did these agreements come from? All the evidence is anecdotal and inferred but nearly all the commentary on the FTAs points to the World Trade Organizations (WTO) Doha negotiations. Here’s a simplistic picture of the situation: During the talks, the large economies U.S, E.U, etc, who have similar trade goals, ran into increased push-back from BRIC nations[ii] and nations within the global south.[1],[iii] This pushback stalled the trade negotiations. A group of nations known as the ‘really good friends’[iv] broke from the talks and staged backroom negotiations, outside the WTO mainstream, resulting in the creation of TPP, TTIP, and TISA.[v]

On Method

Unfortunately, I didn’t have access to too many primary sources. It’s difficult to gain documentation from a clandestine global organization. The primary sources I reviewed for this article were obtained from the WikiLeaks site. This is more of an investigative journalism piece. I follow the statements made by E.U and American officials. I’ve read the reports made on TISA, TPP, and TTIP. I view these trade agreements as attempts to enshrine corporate rights and this piece attempts to support that claim. The following will demonstrate the extra-legal rights given to the private sector under the FTAs and global capital’s access to industries that were, traditionally, publicly held. I won’t be arguing the benefits of liberalized trade, though it certainly has pundits, and some-albeit-good arguments. If you think these FTAs are about job growth and greater freedom for the consumer-I invite you to try and prove it.

Terms & Concepts

The word ‘commons’ comes up once in this paper-maybe twice. It is a politically motivated term that not only means something common, literally, but also the idea that the ocean, the quality of the land, the air, etc is too precious and too conceptual to belong to any one person. Instead, they belong to the collective human community- our commons. This document is not tailored to discuss the 3-Ts and distinguish their differences. I use Free-Trade-Agreement or FTAs interchangeably when discussing all of the trade agreements, TTIP, TPP, and TISA together, and when I am speaking about them individually. I do this for stylistic reasons. The three trade agreements are known as the 3-T’s since they were designed to overlap and function together. For the purpose of this paper, and its scope, when speaking about one of them I refer to all.

Thesis

The TTIP, TISA, and TPP make up the largest trade deal ever. To speak about them exclusively in broad terms is another project. The following will provide a cursory analysis of the trade agreements and attempt to address two particular salient points of these FTAs. The first, and most discussed, is the Investment-State Dispute Settlement or ISDS mechanism within trade agreements. The other is the limitation of states to protect domestic industry and public companies under the changing ‘listing approach.’ My goal is to demonstrate the pernicious nature of the ISDS and the listing approach within the FTAs and argue how they, along with the bulk of the trade negotiations, threaten Democracy, state sovereignty, and the baseline of our social safety.

The Bulk of it 

The ISDS or Investment-state dispute settlement is a mechanism within trade agreements that allows foreign investors to sue a sovereign nation if investors experience an “unreasonable loss” or down-turn in profits as a result of a state’s policy decisions. In the simplest of terms, ISDS was created as a measure to boost investor confidence and provide additional guarantees that a newly formed government would not suddenly nationalize/penalize/etc the foreign investment and its assets within that state. The ISDS acts as an international-monetary court, defined and governed by the private sector, where companies can enter litigation against a state to sue and recuperate financial losses. From ISDS creation in 1959 to 2002 less than 100 cases of foreign investors suing a host state existed. In 2012 alone there were 58 cases of companies in litigation with states under ISDS[2].

Here’s how it works. Under these trade rules countries have to provide complete, 100%, neutral access to all markets within their borders to foreign investment. So no special treatment to a waste disposal company founded and located in New York over a Turkish investment group looking to dump some money in the garbage game. Each party would receive the same treatment: no special tax cuts for the local company and no “entry fee”[vi] into the market for foreign investment. In fact, the extra-legal courts of ISDS have decided that benefits for local businesses that aren’t clear, but still favor domestic providers, can be challenged within these investment courts[3]. An example of the unclear-implicit regulations that help small/local business include: city zoning laws that limit the size of box stores like Target, Home Depot etc[vii].  Small business can operate knowing that competition from the large franchises will be limited by the zoning laws. The National Retail Federation has challenged such zoning policies, stating while not explicitly discriminatory, zoning regulations “affect their ability to achieve operational efficiency.”[4] The ISDS mechanism will allow the NRF to challenge local policy decisions.

States have the option to exempt certain industries from the FTA agreements. While settling trade agreements, countries ‘list’ the specific industries to be included or excluded from the trade deal. Under these trade laws countries can stipulate, in specific circumstances, to reserve or exempt specific industries from foreign competition. There are two types of listing methods: negative and positive listing. The negative approach works like this: ‘All markets are equally open unless you, the sovereign state, say specifically which ones that are to be left out.’ So the negative approach can be summarized as everything is open to foreign investment except what you have listed. Under the positive approach full market access is accessible only to the sectors listed. So if the U.S. agrees with Canada, under the positive approach, to liberalize trade in automotive, bio-tech, and information software; all other industries are left out and states can erect any barrier and stipulations on foreign investment seeking to break into domestic markets[5].

The trick comes when trying to amend or change any of these agreements. Any changes to trade rules under the 3-TS that does not result in more liberalized trade may be brought into litigation under the ISDS. The FTA agreements seek to liberalize trade; that is their core objective. The TTIP and TISA both stipulate that any future changes within trade agreements have to move toward increased liberalization. This stipulation, especially under the negative listing approach creates a ‘ratcheting up effect.’[6] The ratcheting up effect can be understood as a synergy within the trade policy that necessarily increases liberalized trade. The negative listing approach best demonstrates the effect. In plain speak, it works like this: Under the negative list approach a state has already committed all its sectors to these FTA’s. The only exception are the handful of industries they have specifically listed as exempt when agreeing to the trade agreements. However, any changes, whatsoever, made in the trade policy to these exempt sectors has led to increased liberalization and at no point can countries roll back to a more protectionist policy.  Under the new FTA agreements, industries that are listed as exempt cannot be amended in any way that conforms less to the core of the trade agreement. If states fail to do so they may be sued in the extra-legal ISDS court.

What happens if a country decides to exercise its right to re-municipalize its water services, raise the minimum wage, or make energy policy decisions that threaten an industry? Under new stipulations within TISA, TPP, and TTIP, large corporate interests now have extra-legal courts to bring entire nation states into litigation.

There are several examples of foreign investment suing a state over a loss of profits as a result of the democratic and/or national policy decisions of a state. The Swedish power corporation, Vattenfall, brought Germany into arbitration. Vattenfall, under ISDS, is attempting to sue Germany over its decision to phase out nuclear power from its long term energy policy[7]. Egypt is being sued for raising its minimum wage. The French utility company Veolia is suing Egypt based on a breach contract in waste disposal for 82 Million euros. In short, the city of Alexandria refused to make changes to their contract demanded by Veolia to meet higher costs-driven by a raise in the minimum wage[8]. The list goes on.[viii]

Some basic theory for those who spent too much on a Humanities degree

The FTAs threaten public services, our rights to enact our public will, and the very notion of public reason. The effect of FTAs and public institutions is both implicit and explicit. The example of Veolia suing Egypt for a raise in the minimum wage, cutting into their bottom line, demonstrates an explicit example. The following passage address the implicit effect the three T’s have on our mutual commons.

The major challenge of all definitions of public services in trade agreements concerns the dynamic and flexible nature of the concept of public services. Public services are determined by a particular society in a distinct historical, social and economic context based on the values of that society. As pointed out above, this involves social and policy choices which may be different in different parts of the world and at different moments in time. The variety and flexibility is therefore a key element of the concept of public services[9]

The passage above demonstrates the tentative relationship between the demands of global capital and the ‘will of the public.’ The passage implies a certain deadlock between the two. What happens when global capital; seeking to liberalize a protected market or change an existing institution confronts a populace, bound by a shared history, time, and space-does not want to surrender the edifice of their common vision?

These trade agreements usurp a population’s rights to enact a public desire. To meet the demands of international capital a populace must agree to a precarious relationship with their community and institutions. The legal mechanism that once protected the shared vision of a safe and fairly priced water supply is now challenged. The trade agreements, even if not enacted directly at utilities, creates a climate of uncertainty; the knowledge that the most basic, and communally agreed upon institutions and utilities may be altered to increase the wealth of persons across the globe.[ix]

Opposition to the 3-T’s is growing and coming from different sectors of the political spectrum. However, discussion of the 3-T’s remains outside mainstream political discourse. Senator Elizabeth Warren penned an op-ed piece in the Washington Post that calls for unity in opposition to these trade agreements, citing a libertarian think tank as a potential ally in opposing the 3-T’s. This particular Libertarian group, the CATO institute, opposes the 3-T’s for a several reasons. The most salient and non-political are the legal ramifications of such wide sweeping trade deals. They argue that these international trade laws trump U.S trade laws and create a legal frame work where large business have two options for legal mediation, while ordinary citizens are confined to one. The article argues that international business can essentially ‘try their luck’ in the legal system of the host country, and then turn to the ISDS if the decisions is not favorable to business[10].

Senator Warren is head of the consumer financial protection bureau. A center piece of her political career is greater restraint on Wall Street. It is significant to highlight the political solidarity of pro-trade Libertarians and regulatory policies of the Warren camp. Of course the radical left has plenty to say on the issue. Not that they are too radical but the Young Turks media outlet has covered these trade agreements, along with Democracy Now and so on[11].

Conclusion?

One of the largest trade deals in history was drafted, signed, and implemented in secret. No democratic review, no legal scrutiny, or any other public input influenced the negotiations. Our financial destiny has been crafted by the corporate interests who wanted increased access to protected markets and now have extra-legal rights to seek compensation that usurp the sovereign rights of partner states.

TISA, TPP, and TTIP will make the flow of goods, services, and capital easier across the borders of partner states. However, as some commentators have pointed out, tariffs between U.S and trade partner states is as low as 3%. Furthermore, the expansion of ISDS and the ‘ratcheting effect’ of the trade deals demonstrate a planned and/or implicit effect of the trade deals. The results are extra legal rights granted to private investors through the ISDS and the agreement of partner states to increasingly liberalize their markets. I claim this investor friendly trade policy in effect, enshrines the rights of private investment while diminishing the protection of publicly held industry.

So what can we do about it? We can talk about it, and generate curiosity and concern until it becomes a mainstream issue. We can consciously change our language about trade deals and stop calling them trade deals all together. My first suggestion would be to start the long and difficult process of building a sustained political alternative in the U.S that center-stages economic policy and civil rights. Another step would be to look for solutions outside the state apparatus. Of course none of these are likely. I’d say dust off that Bible you got laying around or tune into some WWE or read-up on that madman Elon Musk. I say these things not only to be provocative but because I believe it will take an act of God, the adoption of a new fiction and leaving the old democracy behind, or the charisma and madness of a brave leader to get us out of the shit we are in.

Thanks for reading,

Dustin Burden

[1] Martin Khor. “Analysis of the Doha Negotiations and the Functioning of the World Trade Organization.” South Centre. Research paper 30, May 2010. South Centre Ch du. Champ-d’Anier 17 POB 228, 1211 Geneva 19 Switzerland.

[2] Senator Elizabeth Warren, “the Trans-Pacific Partnership Everyone should Oppose.” Washington Post. Feb 2015. https://www.washingtonpost.com/opinions/kill-the-dispute-settlement-language-in-the-trans-pacific-partnership/2015/02/25/ec7705a2-bd1e-11e4-b274-e5209a3bc9a9_story.html access April 2016

[3] Markus krajewski,  “The politics of Globalization and public services: putting EU´s trade and investment agenda in its place”  Public Services in EU Trade and Investment Agreements. University of Erlangen-Nürnberg. PG 27-28 Paper/seminar. http://www.epsu.org/IMG/pdf/Draft_report_Markus_Krajewski_mtg14Nov2013.pdf   April 2016

[4] Ellen Gould “TISA-Trade in Services Agreement: The Really Good Friends of Transnational Corporation Agreement” Public Services International Special Report Pg 17 http://www.world-psi.org/sites/default/files/eng_the_really_good_friends_report_tisa.pdf access May 2016

[5] Public Services in EU Trade and Investment Agreements

[6] Public Services in EU Trade and Investment Agreements

[7] Senator Elizabeth Warren, “the Trans-Pacific Partnership Everyone should Oppose.” Washington Post. Feb 2015. https://www.washingtonpost.com/opinions/kill-the-dispute-settlement-language-in-the-trans-pacific-partnership/2015/02/25/ec7705a2-bd1e-11e4-b274-e5209a3bc9a9_story.html access April 2016

[8] Pia, Eberhardt “Investment Protection at a Crossroads: The TTIP and the Future of International Investment Law.” International Policy Analysis p.g 6 July 2014 http://library.fes.de/pdf-files/iez/global/10875.pdf accessed April 2016

[9] Markus krajewski,  “The politics of Globalization and public services: putting EU´s trade and investment agenda in its place”  Public Services in EU Trade and Investment Agreements. University of Erlangen-Nürnberg. PG 27-28 Paper/seminar. http://www.epsu.org/IMG/pdf/Draft_report_Markus_Krajewski_mtg14Nov2013.pdf   April 2016

[10] Daniel Ikenson. “A Compromise to Advance the Trade Agenda: Purge Negotiations of the Investor-State Dispute Settlement.” CATO institute. Free trade Bulletin no 57 March 4, 2014 http://www.cato.org/publications/free-trade-bulletin/compromise-advance-trade-agenda-purge-negotiations-investor-state accessed May 2016

[11] Daniel Ikenson “A Compromise to Advance the Trade Agenda: Purge Negotiations of Investor-State Dispute Settlement.” Free Trade Bulletin no 57 March 2014 http://www.cato.org/publications/free-trade-bulletin/compromise-advance-trade-agenda-purge-negotiations-investor-state access April 2016

[i] TISA: Trade in services agreement. TPP: Trans-Pacific Partnership. TTIP: Transatlantic trade and Investment Partnership

[ii] BRIC=Brazil, Russia, India, China, and South Africa.

[iii] See “Analysis of Doha talks,” for a better understanding of the global south in this context.

[iv] Australia, Canada, Chile, Chinese Taipei (Taiwan), Colombia, Costa Rica, European Union, Hong Kong, Iceland, Israel, Japan, Liechtenstein, Mexico, New Zealand, Norway, Pakistan, Panama, Paraguay, Peru, South Korea, Switzerland, Turkey, and the United States

[v] See “Analysis of Doha talks” to see the uphill battle smaller states and members of the global south face when attempting to bargain for better trade deals. The article does mention a victory by the global south and its partners to ban ‘back-door deals’ which WTO moved to enforce. I believe this policy shift and enforcement by the WTO contributed to the backdoor deals of the RGF that created the 3-Ts.

[vi] Part of the logic of the 3-T trade logic is that standards: safety, environmental, health etc all differ state to state. These regulations would smooth out the wrinkles and standardize everything. However, in my view and many commentators, it is a law that is un-enforceable.

[vii] Cities can also implement hours of operation for stores. Cities may elect to prohibit 24 hour retail stores. ISDS may also challenge these decisions.

[viii] Literally it goes on. Take a look at the litigations allowed under ISDS. You be the judge. Page 6 is what yer look’in for. http://library.fes.de/pdf-files/iez/global/10875.pdf

[ix] Kant described two uses of reason-the public and private. For Kant, public uses of reason are moments where citizens unbound by their vocations or obligations to society are free to discuss and ponder any subject. The public use of reason is utilized as a reason that fulfills the will of a state, a rule, a set of conventions etc. Kant didn’t see these two as mutually exclusive. I would argue that the mutual agreement between citizens to create a ‘not-for-profit’ water service to provide clean water as a moment when public and private reason intersect.

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