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Free Trade Agreements and the Dynamics of Capitalism

The new Trump Administration has officially pulled out of the TPP and announced plans to renegotiate NAFTA. Are these the first signs of a reconfiguration of the neoliberal world order?

Pete Dolack

January 30, 2017
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Now that the new Trump administration has officially pulled the United States out of the Trans-Pacific Partnership and has announced an intention to renegotiate the North American Free Trade Agreement, it might appear as if the global neoliberal order has suffered a pair of blows.

We nonetheless can be forgiven for harboring strong doubts that much, if anything, in the realm of global trade will change.

The Trans-Pacific Partnership (TPP) has faced strong popular opposition for years, thanks to the work of activists on both sides of the Pacific, North and South, who labored to drag this secret corporate power grab into the light of day. Negotiating governments, including that of the now departed Obama administration, which consistently pressed for the most draconian terms, were fond of declaring the TPP a wonderful deal that would lead to jobs and higher wages. If so, you would think they would have been happy to share the details, but that the text was kept from not only the general public but also national legislatures paints a far different picture. Make no mistake: it is the work of activists who stopped the TPP, not a stroke of the pen by a president.

But we have no room for complacency, for the Transatlantic Trade and Investment Partnership, the Trade In Services Agreement and the Regional Comprehensive Economic Partnership are still being negotiated. And of course a myriad of bilateral agreements remain in place around the world, as does North American Free Trade Agreement (NAFTA) for Canada, Mexico and the United States. The TPP was an attempt to go beyond the already heavily pro-multinational capital, anti-worker, anti-farmer prescriptions of NAFTA, and the above multilateral agreements still being negotiated are modeled on the TPP.

Make no mistake: it is the work of activists who stopped the TPP, not a stroke of the pen by a president.

For now, as the world’s governments jostle for new position in newly unsettled terrain, the Trump administration has given no signals of how it intends to renegotiate existing “free trade” deals or what it will propose in place of the TPP. The only concrete statement it has made is this passage in the January 23 order to withdraw from the TPP: “[I]n order to ensure these outcomes, it is the intention of my Administration to deal directly with individual countries on a one-on-one (or bilateral) basis in negotiating future trade deals.”

The first step, perhaps, in relation to Mexico is the January 26 announcement that the Trump administration is considering imposing a 20 percent tariff against Mexican imports to finance a border wall, but this appears to be a fit of pique after Mexico’s president, Enrique Peña Nieto, canceled a planned summit meeting. There are provisions in U.S. law that allow temporary tariffs to be imposed in the name of “national security,” with Richard Nixon’s imposition of tariffs against Japan in the 1970s put forth as a past example, but that was before the current World Trade Organization and NAFTA regimes that disallow such measures. Capitalists on both sides of the border are sure to vigorously oppose any such tariff.

Otherwise, the Trump administration has issued blustery calls for “fair deals” and braggadocio puffing up Donald Trump’s supposed negotiating prowess. A typical White House passage reads, “To carry out his strategy, the President is appointing the toughest and smartest to his trade team, ensuring that Americans have the best negotiators possible. For too long, trade deals have been negotiated by, and for, members of the Washington establishment.”

Capitalists, not governments, drive trade policy

Trade deals, in fact, have been negotiated on behalf of corporate executives and industry trade-association leaders. European Union officials have done little to disguise the fact that they are negotiating the Transatlantic Trade and Investment Partnership on behalf of corporate interests. The public-interest group Corporate Europe Observatory, upon successfully petitioning to receive documents from the European Commission, found that that of 127 closed meetings preparing for the Transatlantic Partnership talks, at least 119 were with large corporations and their lobbyists.

If the rest of the world harbors hope that, despite the Trump administration’s naked nationalism, the United States will cease taking hard lines in favor of the most draconian pro-corporate language in trade deals, a quick glance at the new team should counsel otherwise.

That’s not unique — although the U.S. Congress was long blocked from seeing the text of the TPP, there were 605 corporate executives and lobbyists who did have access as “trade advisers.” Even in Chile, where President Michelle Bachelet allowed “select” businesses and non-governmental organizations some access during negotiations, the public remained shut out and citizen groups were not granted consultation. Chile already has trade deals with all other TPP countries, so why should Santiago hand over more of its sovereignty?

If the rest of the world harbors hope that, despite the Trump administration’s naked nationalism, the United States will cease taking hard lines in favor of the most draconian pro-corporate language in trade deals, a quick glance at the new team should counsel otherwise. The commerce secretary nominee, Wilbur Ross, isn’t promising. He’s an investment banker who buys companies and then takes away pensions and medical benefits so he can flip those companies for a big short-term profit. Then there is labor secretary nominee Andrew Puzder, who opposes labor regulations while his restaurants have been flooded with complaints of wage theft and sexual harassment. Not to mention President Trump himself, who amassed billions of dollars while leaving behind a trail of laid-off workers in his casinos and ripping off his working-class contractors.

And although the nationalist rhetoric of President Trump seeks to claim that Mexicans are the big winners from NAFTA, in fact Mexico’s farmers and workers have been hurt badly by it.

During the first 20 years of NAFTA, about five million Mexican family farmers were displaced. Subsidized corn from the United States flooded Mexico, sold below the costs of small Mexican farmers. Corn imports from the U.S. increased fivefold and pork imports from the U.S. increased by more than 20 times. Mexican farmers forced off their land either became seasonal workers on growing agribusiness farms, sought work in the cities or migrated north. Seasonal agricultural workers (those working less than six months per year) grew by almost three million — more than doubling their ranks — during the same period that those five million family farmers were displaced. A Mexican worker who earns the minimum wage could buy 38 percent fewer consumer goods in 2014 compared to when NAFTA took effect.

When people are driven off the land and/or can’t find work at home, what do they do? Having to find the means to feed their family, people migrate to where jobs might be found. In many cases, displaced Mexicans are forced to migrate north to find work, often doing so without documentation. They often take the lowest-paid, most marginal work. In the meantime, manufacturing north of the border is shuttered, moved to countries with far lower wages and weaker regulations.

The twin pressures of workers laid off from closed factories and migration from the south puts considerable downward pressure on wages north of the border. And as competing corporations move production overseas, those remaining face competitive pressure to do the same, and when they do the size of the reserve army of labor grows larger and the downward pressure on wages further intensifies.

Capitalist competition drives movement of production

The movement of production to low-wage havens is a direct product of capitalist competition — the relentless drive to fatten profits by cutting costs by any means necessary (wage cuts, work speedups and automation the fastest routes) is the inevitable result. Building a wall and deporting immigrants will do nothing to ameliorate these conditions.

Demonizing immigrants from Mexico is demagoguery, yes, but if President Trump truly believes that immigrants are the cause of job losses in the United States, then he knows little about how capitalism actually operates.

And given Wall Street demands for ever higher profits, and ever more money diverted to speculators, the industrialists of the United States are not about to countenance a reversal of the policies that benefit their bank accounts — policies that they themselves have done so much to have implemented. (Nor will capitalists anyplace else.) Given that the Trump administration is stocked with billionaires, that the capitalist rulers of the U.S. have many levers to pull, and that every indication given by the new administration is an all-out sprint to get as much of a corporate wish list in place before voters realized they’ve been had yet again, any changes to NAFTA are very unlikely to benefit working people.

Working people in all three NAFTA countries have suffered from the deal. Canadian workers have suffered significant losses to their social safety net, as unemployment benefits were cut; government transfers to individuals declined; and Canadian big business interests demanded and received tax cuts on the ground that Canada could not be competitive otherwise. In the United States, the Economic Policy Institute estimates that 850,000 jobs have been lose directly due to NAFTA while, overall, more than five million manufacturing jobs were lost between 1997 and 2004 due to “free trade” deals. Two-thirds of displaced manufacturing workers who were rehired in 2012 experienced a wage cut; the reduction in the majority of cases was at least 20 percent.

The environmental cost of NAFTA has also been disastrous. For example, a U.S. company, Metalclad, sued Mexico because a city government refused to grant it a permit for a waste dump (similarly denied to a Mexican company that previously wanted to use the site).

Mexico lost, and had to grant the permit despite environmental concerns and pay $15.6 million to Metalclad. Another U.S. company, Ethyl Corporation, sued Canada for $250 million because of a ban on a gasoline additive known as MMT, a chemical long believed to be dangerous to health. Ethyl claimed the Canadian ban was an “expropriation” of its “investment” and a violation of the principal of “equal treatment” even though, had a Canadian producer of MMT existed, it would have had the same standard applied. Canada settled to avoid a total defeat, paying Ethyl a smaller amount and reversing its ban.

When corporations sue, they don’t do so in regular court systems. Instead, they sue in secret tribunals in which the judges are corporate lawyers who specialize in representing multi-national corporations!

Yet another U.S. company, S.D. Myers, sued Canada because of a ban on the transportation of PCBs that conformed with both a Canada-United States and a multi-lateral environmental treaty. A tribunal ordered Canada to pay $5.6 million and reverse the ban, negating the two environmental treaties and ignoring the fact that PCBs are known carcinogens banned since 1979 in the U.S. The tribunal ruled that, when formulating an environmental rule, a government “is obliged to adopt the alternative that is most consistent with open trade.” More recently, TransCanada sued the U.S. government over the cancelation of the Keystone XL pipeline.

What causes such results is that corporations are allowed to sue governments to overturn any law or regulation that they claim will hurt profits or even potential future profits. Governments and people are not allowed to sue. When corporations sue, they don’t do so in regular court systems. Instead, they sue in secret tribunals in which the judges are corporate lawyers who specialize in representing multi-national corporations! There are no ethics or conflict-of-interest rules, there are no appeals and the public often is not even notified of hearings. On top of this, a government has to pay millions of dollars in costs even in the rare instances when they win one of these cases.

A weapon aimed at developing countries

El Salvador recently won a case brought against it by an Australian mining company that demanded it be allowed to open a gold mine that would poison a critical source of drinking water on which millions depend. The company had sued for $301 million even though it had invested only a small fraction of that amount. Although the company had to pay some of El Salvador’s costs after losing this case, that is a rarity; the case dragged on for years, a burden itself. Much more often costs of millions of dollars must be borne by governments, plus the risk of losing. Such payment obligations can be a hardship for developing countries, leading to frequent settlements on disadvantageous terms.

The leverage that these one-sided tribunals grant multi-national corporations is also used by hedge-fund speculators. Argentina, for example, was hounded for years by holdout vulture capitalists who refused to settle claims on Argentine government debt that had been bought for pennies on the dollar. Their wait paid off when a new neoliberal president, Mauricio Macri, decided to hand over what sovereignty his country had to Wall Street, agreeing to pay large sums to the holdouts and guaranteeing them profits of more than ten times what they paid for the purchased debt.

The “special master” who oversaw this negotiation is a veteran corporate lawyer who specializes in representing financiers and banks opposed to regulation.

“Free trade” agreements — which in actually have very little to do with trade and much to do with imposing corporate agendas — invariably have iron-clad clauses that require corporate profits to be elevated to the highest principle, using words like “must” and “shall.” On the other hand, language purporting to safeguard health, safety, labor and environmental standards use provisional words like “may” that have no force.

That corporate lawyers who switch hats between corporate advocacy and judging interpret this language adds to the one-sided nature of trade deals. When a secret tribunal hands down a decision favoring a corporation, that becomes a precedent that gets pushed further the next time a similar dispute arises.

Each “free trade” agreement has a key provision elevating corporations above governments. NAFTA’s is Chapter 11, which codifies the “equal treatment” of business interests in accordance with international law and enables corporations to sue over any regulation or other government act that violates “investor rights,” which means any regulation or law that might prevent the corporation from extracting the maximum possible profit.

Under these provisions, taxation and regulation constitute “indirect expropriation” mandating compensation — a reduction in the value of an asset is sufficient to establish expropriation rather than a physical taking of property as required under customary law. Older decisions become precedents for further expansions of investor “rights” and thus constitute the “evolving standard of investor rights” required under “free trade” agreements.

Regardless of the fate of current “free trade” deals, people around the world must be vigilant about deals currently under negotiation. The biggest is the Trade In Services Agreement (TISA). This is the backup plan in case the Trans-Pacific or Transatlantic deals don’t come to fruition. Under TISA, regulation of the financial industry would become illegal. TISA is being negotiated in secret by 50 countries, with the unaccountable European Commission representing the 28 EU countries. Among the other countries negotiating are Australia, Canada, Chile, Colombia, Mexico, Panama, Peru, Switzerland, Turkey and the United States.

Thanks to WikiLeaks, we know that Internet privacy and net neutrality would be history if TISA is implemented, and the dominance of U.S. technology companies would be locked in because any rule that in any way mandates local content or provides any advantage to a local technology would also be illegal. TISA’s language, if passed, would mandate that signatory governments allow any corporation that offers a “financial service” — that includes insurance as well as all forms of trading and speculation — to expand operations at will and would prohibit new financial regulations. Social security systems would be at risk of forced privatizations, the greatest wish of finance capital.

It would be folly indeed to believe that the world’s governments are suddenly going to decide, on their own, to reverse their neoliberal course. As they are captured by the corporate interests that dominate societies around the world and under the sway of the corporate ideology that suffuses into every corner, governments will turn their face toward working people only when mass movements force them to do so, and even then the idea that there is some permanent solution within capitalism is a chimera.

Pete Dolack has been an activist with several groups, currently working with Trade Justice New York Metro. His book, It’s Not Over: Learning From the Socialist Experiment, is available from Zero Books, and he writes about the global economic crisis on the Systemic Disorder blog.

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