Planet Not For Sale

On February 3, the WTO issued a document that many in Geneva call the “non-response” to over a year of growing questions from WTO member countries and others about the connection between the rules of the General Agreement on Trade in Services (GATS) on financial services and the global economic crisis.  Indeed, this was the Secretariat’s first major study  in nearly 12 years about the WTO’s financial service rules. This paper has been discussed in a hot debate on the IELP blog, and in a recent OECD-WTO study.

The new paper is a disappointment to anyone hoping for a convincing rebuttal to charges that the WTO’s General Agreement on Trade in Services (GATS) promotes financial services deregulation. The 76-page document includes a lengthy discursion on the GATS treatment of corporate branches versus subsidiaries, as well as a very defensive discussion of the causes of the crisis (bottomline, in their estimation: WTO rules are in no way implicated). The paper avoids altogether the question of WTO compatibility of the types of measures that member countries have implemented in response to the crisis. This is despite the formal demand via a paper tabled September 17, 2009 in the WTO’s Committee on Trade in Financial Services,  and via subsequent requests at the General Council in December. 

And, with respect to the question of how GATS rules promoted past financial deregulation and could conflict with reregulation, several points are especially worth highlighting:

1.    The Secretariat does not rebut any of the main concerns about the GATS rules’ deregulatory requirements raised in recent years.
2.    In fact, the Secretariat confirms many of these concerns.
3.    When dealing with a controversial issue where there is no record of official interpretation at the WTO, the Secretariat cites only unofficial sources making “don’t worry, be happy” arguments rather than reviewing all of the international law review and other analyses, or offering an official interpretation.

Here’s a Top 13 list of claims the WTO’s defenders would have liked the Secretariat to make, but which it did not, because it cannot: 

1.    That GATS rules only require that foreign firms be treated like domestic firms, and that a WTO panel would never rule against a non-discriminatory domestic regulation.
2.    That WTO panels have already established that countries are free to adopt non-discriminatory financial services regulations without risking GATS challenges.
3.    That any policy that is ruled kosher by the so-called “international financial regulatory bodies” (like the Basel Committee for Banking Supervision, the International Monetary Fund (IMF), etc.) is automatically allowable under the GATS, and that the WTO just imports the definitions and disciplines of these more knowledgeable bodies.
4.    That countries that fear that past governments overcommitted domestic financial service sectors to GATS rules at the height of the deregulation craze can withdraw those sectors without having to pay out compensation to other WTO members.
5.    That anytime a country adopts a financial services policy for prudential reasons, then there is no way that this policy can be challenged at / ruled against by a WTO panel.
6.    That the GATS has been determined by a WTO panel to not restrict countries from adopting firewalls between commercial and investment banks (as the United States did under the Glass-Steagall Act and later amendments).
7.    That the GATS has been determined by a WTO panel to not apply to policies limiting the size of individual firms.
8.    That countries can ban financial services they fear are toxic, even if past governments signed up these sectors (perhaps inadvertently) to the GATS.
9.    That GATS contains no disciplines for capital controls that many developing countries are now seeking to use, and that countries now desiring to restrict capital flows (through financial transaction taxes or other means) can simply add these as limitations to their schedule in the Doha Round negotiations.
10.    That the Doha Round does not entail deeper financial services commitments.
11.    That the bank bailouts of the last two years present no GATS conflicts.
12.    That the Standstill provision in the Understanding on Commitments on Financial Services does not amount to a lock in of the regulatory status quo in place in the 1990s.
13.    That policies of the Treasury Department or Federal Reserve are not subject to GATS disciplines.

Indeed, the Secretariat would not have been able to support the above points, even had it wished to.

If you want to delve more into the nuts and bolts of this study, check out a new memo that I just posted.

 

 

Obama’s trade policy opportunity

By Lori Wallach

Contrary to the clamor from the U.S. Chamber of Commerce and newspaper editorials, the Obama trade agenda is not stalled - it is in formation.

This week, negotiations started on President Barack Obama’s first potential trade agreement - the Trans-Pacific Partnership. Will the administration transform the TPP process that Bush initiated in 2008, so as to translate Obama’s campaign trade reform commitments into a new approach that that works for more people and thus rebuild bipartisan consensus for trade expansion? Or, will the administration revert to the Bush-Clinton-Bush trade pact model, and intensify the associated economic and political damage?

Creating a new policy is necessary in this era of globalization, if Americans are to enjoy the economic security of good jobs and an end of the crisis-inducing financial casino, a clean environment, and safe food and products.

Indeed, creating a new trade policy will determine the success of much of the Obama administration’s domestic agenda given that today’s agreements extend far beyond tariffs and quotas to set parameters for numerous non-trade polices. Trade-pact investment and procurement rules will affect whether the billions being invested in the Green Economy will translate into American jobs. Trade-pact service sector rules define the policy space available to re-regulate finance and reform health insurance. Trade-pact rules implicate efforts to combat climate chaos.

The large agribusiness firms and job-offshoring multinationals who claim Obama’s trade agenda is stuck were the few beneficiaries of the 1990s pacts like the North American Free Trade Agreement and World Trade Organization. They oppose establishment of an Obama trade policy. They seek continuation of the status quo, starting with adoption of Bush’s leftover NAFTA-style pacts with Colombia, Korea and Panama. To revive this failed model - most recently rebuffed when a majority of House Democrats opposed Bush’s Peru agreement that mirrors the remaining three - would be a grievous policy and political mistake.

The goods news is that a diverse bloc in Congress has built consensus around a new approach designed to achieve trade expansion that can deliver U.S. job creation, consumer safety and environmental protection. A majority of House Democrats, including 12 full committee and 56 subcommittee chairs, have sponsored the Trade Reform, Accountability, Development and Employment (TRADE) Act, as have 23 Blue Dogs, 19 New Democrats and 30 Congressional Black Caucus members. The bipartisan legislation sponsored by Rep. Mike Michaud (D-Maine) and Sen. Sherrod Brown (D-Ohio) translates Obama’s trade reform commitments into a new trade-pact model - building on the initial reforms Democratic trade committee leaders extracted from Bush in 2007.

The TRADE Act’s provisions on what future pacts should and should not include provide a roadmap for trade expansion at a time when the damage wrought by the NAFTA-WTO model has transformed trade politics. In the past two elections, 72 congressional candidates that campaigned against the trade status quo and for a new approach replaced those who voted for NAFTA, CAFTA, and China’s WTO entry. GOP and Democratic 2008 candidates ran over 140 campaign ads on trade, as did the Democratic House and Senate national campaign committees. This reflects the strong public demand for a new American trade policy.

Not surprisingly, polling shows bipartisan opposition to the old trade regime across diverse demographics. Since NAFTA and WTO went into effect, the U.S. lost net 5 million manufacturing jobs (one out of four in that sector) while American median wages remained stagnant despite productivity gains as corporations used the pacts’ investor protections to relocate and arbitrage their labor costs absent a floor of labor standards. Various environmental and health laws were attacked before trade tribunals. Unsafe food and product imports swelled. The trade deficit exploded from $102 billion to a height of $807 billion, with dire consequences for global economic stability. Quite simply, the old model has not worked for most Americans - nor for most in other nations, as is highlighted by the Doha Round WTO expansion deadlock.

For the Obama administration to succeed, it must not only update the trade-pact model, but also remedy our China trade disaster and update the 2001 Doha Round agenda. Treasury’s April 15 decision on China’s currency manipulation will be critical in determining the success of Obama’s goal of creating 2 million net new jobs from expanded exports. We would suffer net job losses and an enormous trade deficit were imports - to which China is the largest single contributor - to follow their current trend.

Time is overdue to dispense with the claim that critics of the past model are anti-trade. The question is trade under what terms. The bipartisan consensus that marked decades of U.S. trade votes was shattered with the 1990s advent of the NAFTA trade agreement model. Replacing the failed 1990s trade-pact experiments with the new American trade policy Obama promised and Americans expect is the way forward.

Wallach is director of Public Citizen’s Global Trade Watch.

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Lori Wallach, director of Public Citizen's Global Trade Watch, sets the scene for the Trans-Pacific Partnership and briefly details what's at stake:

Pressure is on for Administration's Trade Foray to Deliver the New American Trade Policy Obama Promised, not Continue Bush's NAFTA-With-Vietnam Model for TPP

 

The policy and political stakes are high as administration officials today begin negotiations for President Barack Obama's first potential trade agreement - the eight-nation Trans-Pacific Partnership (TPP). Negotiations will be held March 15-19 in Melbourne, Australia, with three additional rounds of negotiations scheduled for 2010, including a June session to be held in the United States.

 

The TPP negotiations are being closely watched because they have become the venue in which the Obama approach to trade pacts will be revealed. Broadly at issue is whether the new administration will use the TPP process to translate Obama's many specific campaign trade reform commitments into a new approach - or whether the administration will fall back on the trade agreement model used by the previous George H.W. Bush, Bill Clinton and George W. Bush administrations. TPP talks were initiated by the Bush administration, which engaged in three rounds in 2008. A majority of House Democrats, including 12 full committee chairs and 58 subcommittee chairs, have made clear their expectations for any future trade pacts by sponsoring the Trade Reform Accountability Development and Employment (TRADE) Act. The legislation translates Obama's trade reform commitments into a new model for American trade pacts that are designed to achieve trade expansion under terms more consistent with Democrats' core policy goals of job creation, consumer safeguards and environmental protection.

 

Limited Prospects for Increased Exports? 

Policywise, a key question is how the TPP talks connect to Obama's trade policy goal of doubling exports - and the linked goal of creating 2 million jobs. The U.S. already has free trade agreements (FTA) that zero out tariffs and maximize access for U.S. exports with the four countries (Australia, Singapore, Chile and Peru) that comprise more than 85 percent of the combined 1.6 trillion GDP of countries involved in TPP talks. Some in Congress have inquired why TPP talks are the best use of the limited resources of the Office of the U.S. Trade Representative (USTR). USTR hopes other countries would join the any TPP pact that results. However this would require such a TPP agreement to contain significantly altered terms relative to past U.S. FTAs; past attempts to directly negotiate pacts with Malaysia and Thailand and approaches to Indonesia failed over objections in those nations to NAFTA-style investment, intellectual property and procurement terms.

 

And what is the prospect for U.S. job creation from zeroing out tariffs with the other three remaining TPP nations (Vietnam, Brunei and New Zealand)? On the export demand side, Vietnam's GDP is $91 billion with a per capita annual income of $1,024; while on the import side, Vietnam is increasingly becoming a lower-wage-than-China export platform for multinational firms' production. The population of Brunei is 388,000 - half that of Milwaukee - with a GDP of $11.5 billion. The population of New Zealand is 4,359,000 - half that of New York City - with a GDP of $112 billion, which equates to the GDP of Utah or less than half of Maryland.

 

Vietnam and Brunei Labor and Human Rights Problems

Moreover, two prospective TPP countries - Vietnam and Brunei - are undemocratic and have serious human and labor rights problems - a point noted by Ways and Means Committee Democrats, among others. The State Department's 2009 Report on Human Rights Practices noted that workers in Vietnam are prohibited from joining or forming any union that is not controlled by the government.  On political freedoms, the State Department reported that "[t]he government [of Vietnam] continued to crack down on dissent, arresting political activists and causing several dissidents to flee the country." In Brunei, there is virtually "no trade union activity in the country and there is no legal basis for either collective bargaining or strikes," according to the International Trade Union Confederation. Some observers have suggested that the TPP must include a democracy clause that would require parties to have democratic forms of government. The imperative for effective labor standards in any Obama trade pact will be complicated not only by Vietnam and Brunei's inclusion in the talks, but by the reality that Singapore's leaders and Chile's new conservative government may not be willing to improve on the lax labor provisions in their existing U.S. FTAs.

 

TPP "Spaghetti Bowl" of 11 Existing FTAS With Different Terms  

The first issue the Obama team will face in TPP talks is what form a possible TPP would take. The context of the TPP is that the United States, Australia, Vietnam and Peru are seeking to join negotiations on the expansion of an existing 2006 pact between Singapore, New Zealand, Chile and Brunei called the P-4. However, the existing P-4 text is a NAFTA-style pact, minus even NAFTA's unenforceable labor and environmental terms, that does not reflect Obama's campaign commitments to trade reform[1] or the position of many congressional Democrats. Thus, many congressional Democrats and base groups are calling for TPP talks to begin with a clean slate - creating a new agreement that would replace the P-4. The USTR has stated that this is its intention. However, there are 11 other trade agreements between the various proposed TPP partners - a "spaghetti bowl" of differing rules - that include various provisions to which various countries are wed. For instance, extremely controversial immigration provisions in the existing agreements with Chile and Singapore provided new "FTA visas" (5,400 per year from Singapore and 1,400 for Chile) that Congress insisted never be replicated in future pacts. The Australia FTA does not include the controversial investor-state enforcement system that allows private investors and firms to directly demand compensation from governments in foreign tribunals over domestic regulations they believe undermine their FTA investor rights.

 

 

Plus, the P-4 was envisioned as a "docking agreement" that other countries could join after the agreement went into force. Might the TPP be structured similarly? And, if so, what would be Congress' future role in approving countries seeking TPP accession?

 

Continuing Bush's TPP Approach? Or A New Model? 

The United States has FTAs with four of the prospective TPP countries - Australia, Chile, Peru and Singapore - that have varying terms. Only the Peru FTA includes certain initial reforms to labor, environmental and access-to-medicine patent rules made in 2007 after a deal with then-President Bush and some congressional Democrats. Yet a majority of Democrats opposed the Peru FTA because its labor provisions explicitly forbade reference to the International Labor Organization's (ILO) Conventions and it still contained NAFTA-style investment, procurement and other terms. The U.S.-Australia FTA is alone among the four in not having private investor-state enforcement, a reform that many congressional Democrats have demanded of all trade agreements. Yet, all four pacts contain the substantive foreign investor terms that many congressional Democrats have opposed. The TRADE Act provisions laying out what American trade pacts must and must not include provide a guide for negotiating any prospective TPP that could obtain wide support. Congressional Democrats and their constituents have been clear in their demand for a new trade model that it must build upon past trade pact improvements. That is to say it must build upon the labor and environmental standards reforms and access-to-medicines patent rules improvements included in the text of the Peru FTA. In addition to extending to other countries the Australia FTA's standard of not including private investor-state enforcement of foreign investor privileges, a prospective TPP pact must provide for substantive reforms to investment rules - and deal with the procurement, service sector regulation, import safety and other issues that have been the basis for Democrats past opposition to NAFTA-style pacts.

 

Politically, A New Model Is Needed To Rebuild Democratic Support 

At issue for an administration that promotes bipartisanship is whether the administration can formulate a new trade pact model that can garner support from congressional Democrats and key environmental, labor, family farm and consumer constituencies. The need to break from the past is made more pointed because TPP talks were initiated by the George W. Bush administration, which engaged in three rounds of negotiations in 2008.  The bipartisan consensus marking decades of U.S. trade agreement votes was shattered with the 1990s advent of the NAFTA model of trade pacts. The NAFTA model newly included foreign investor rights that promote offshoring of production, caps on import safety and inspection standards, limits on domestic procurement policies and mandates for the deregulation of financial and other services. Since then, trade pacts have been passed by overwhelming GOP majorities and an increasingly limited number of Democratic votes - an approach that has serious negative political and policy ramifications that the Obama administration seems keen to avoid.

 

TPP Cannot Be A NAFTA With Vietnam 

That polling results show bipartisan opposition to the current trade regime is not surprising, given since NAFTA and the World Trade Organization went into effect the U.S. has lost net five million manufacturing jobs (one of four in that sector), median wages have remained flat despite productivity gains, and unsafe food and product imports have flooded the U.S. market as the trade deficit has exploded. Senior White House officials quashed 2009 efforts by the USTR to push through Congress several trade pacts left over from the Bush era that are based on the NAFTA model. Democrats in Congress have worked to formulate a new trade pact model, presented in the TRADE ACT now sponsored by a majority of House Democrats, including most full committee chairs. That the Bush administration initiated the TPP talks creates a special imperative for the Obama administration to create a new approach to the TPP, in cooperation with Congress and interested Democratic constituencies.

 

Background and Timeline: TPP and U.S. Participation

Shortly after the passage of NAFTA in 1993, the Clinton administration launched initiatives to establish NAFTA-style "free trade" blocs that would encompass the Western Hemisphere and the Asian-Pacific region. Negotiations for an Asian Pacific regional FTA were proposed at the Asian Pacific Economic Cooperation (APEC) summit in Bogor, Indonesia, in 1994. However, the plans for both the Free Trade Area of the Americas (FTAA) and the APEC FTA unraveled, as major countries in each region came to loggerheads over the agreements' scopes and the model on which the pacts should be premised. With respect to APEC, this included Japan, Malaysia, Indonesia and others.

In late 2000, three of the APEC countries (Singapore, New Zealand and Chile) that were interested in pursuing the APEC concept of a regional Asian-Pacific FTA launched talks to establish what was formally called the Trans-Pacific Strategic Economic Partnership Agreement, or the Pacific-3 (P-3). Brunei later joined the P-3 talks. In 2006, an FTA, sometimes called the P-4 but formally named the Trans-Pacific Strategic Economic Partnership Agreement took effect. Its text was similar to NAFTA except it did not even include labor and environmental side pacts and did not include chapters on financial services and investment.

 

The U.S. Joins, and P-4 becomes TPP under Bush in 2008: Built into the P-4 text was an agreement to restart talks started in 2008 on financial services and investment issues. The Bush administration entered these talks and participated in three rounds of negotiations.[2] In September 2008, the Bush administration notified Congress that it would expand its participation beyond the two sectoral issues and start negotiations to become a full member of the agreement, which was identified as the Trans-Pacific Partnership.[3] The Bush USTR sent a second TPP notice to Congress in December 2008, expanding the list of partners to include Australia, Vietnam, and Peru.[4] 

 

Obama administration and TPP: On Jan. 26, 2009, shortly after Obama's inauguration, the USTR published in the Federal Register a "Notice of intent to initiate negotiations on a Trans-Pacific Partnership (TPP) free trade agreement with Singapore, Chile, New Zealand, Brunei Darussalam, Australia, Peru and Vietnam, request for comments, and notice of public hearing."[5] Shortly thereafter, on Feb. 24, the Obama administration asked the TPP negotiating parties to delay indefinitely the negotiations that were scheduled for March 30, so that the new administration could appoint officials to the USTR and then review its trade policy.[6] On May 18, following a speech at the U.S. Chamber of Commerce, USTR Ron Kirk told reporters that, at a minimum, the USTR would pursue a TPP agreement in the Obama administration.[7] After Kirk's comment, however, the Office of the USTR made it clear that no decision had formally been made and the White House offered "no comment" to reporters regarding the matter.[8] On Nov. 14, Obama announced during a speech in Japan: "The United States will also be engaging with the Trans-Pacific Partnership countries with the goal of shaping a regional agreement that will have broad-based membership and the high standards worthy of a 21st century trade agreement."[9] On Dec. 14, Kirk sent letters to House Speaker Nancy Pelosi and Senate President Pro Tempore Robert Byrd notifying them of plans to initiate negotiations to form a TPP.[10]

 

 

ENDNOTES

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[1] Public Citizen, "Selected Campaign Statements by President Barack Obama on U.S. Trade and Globalization Policy," 2008.

[2] Office of the USTR, "United States to Negotiate Participation in Trans-Pacific Strategic Economic Partnership," Fact Sheet. September 2008.

[3] "Letter from Susan C. Schwab to the Hon. Nancy Pelosi, Speaker, U.S. House of Reps.," Sept. 22, 2008.

[4] Susan Schwab, "Letter from Susan C. Schwab to the Honorable Nancy Pelosi, Speaker, U.S. House of Representatives", December 30, 2008.

[5]  USTR, "Request for Comments and Notice of Public Hearing: Proposed Trans-Pacific Partnership Free Trade Agreement," Fed. Reg., (Vol. 74, No. 15), Jan. 26, 2009.

[6] Inside U.S. Trade, "U.S. Delays TPP Talks to Allow Obama Cabinet Members to Take Office,"  Feb. 24, 2009.

[7] Inside U.S. Trade, "Kirk TPP Endorsement Precedes Formal Administration Decision, Panama FTA Efforts Slowing", May 20, 2009.

[8] Ibid.

[9] The White House, "Remarks by President Barack Obama at Suntory Hall," Nov. 4, 2009.

[10] Ron Kirk, "Congressional notifications of intent to negotiate a TPP," U.S. Trade Representative, Dec. 14, 2009. See also: Mark Drajem, "Obama Tells Congress U.S. Will Pursue Asia Trade," Bloomberg, Dec. 14, 2009.

Check out Lori's interview on Bloomberg Television about January's trade deficit numbers and President Obama's National Export Initiative: