Credit: Amantha Perera/IPS

By Martin Khor
PENANG, Dec 5 2016 (IPS)

What kind of trade policy will the United States have under President Donald Trump? This is a hot issue, as Trump has made unorthodox pronouncements on trade issues during and after the election campaign. If he acts on even some of the positions he took, it will create a sea change in trade policy in the US and possibly the world.

Trump has recently emphasised that he will take the US out of the Trans Pacific Partnership  Agreement (TPPA) on his first day of office, and renegotiate the North American Free Trade Agreement (NAFTA).

He called them a disaster for the US.   He was probably referring to the claim that many of manufacturing jobs lost in the US in recent years were due to free trade agreements (FTAs) and the overseas relocation of US companies.  He is also probably blaming trade agreements for the US’ huge trade deficits.

Most economists however have a different view.  They attribute US job losses mainly to technological change.

There are legitimate fears that Trump’s “Put America First” slogan, when applied to trade, will lead to an increase in trade protectionism.

Trump has threatened to raise tariffs on products from China and Mexico by as much as 45%.   Trump in his campaign accused China of being a “currency manipulator”.    If a country is so labelled by the Treasury Department it could be grounds under US law to slap extra tariffs on its products.

President Obama came under pressure from many Congress members and economists to do just that, but he smartly resisted as he realised it would trigger a very nasty trade war with China.

Martin Khor. Credit: Nic Paget-Clarke

It is possible Trump will also climb down from this populist stance once he is President.  For a start, China’s currency is not under-valued and currently its government is trying to prevent (not encourage) its currency from further sliding.

Secondly, taking trade action against China on currency grounds would be against the rules of WTO, and China should be able to successfully take a WTO case against the US for any such action.

Finally, China has warned it will retaliate if the US were to take protectionist actions.  An article in the Beijing-based Global Times spelled out how the  country would cancel its orders of Boeing aircraft, restrict US auto and I-phone sales in China and halt US soybean and maize imports, while a number of US industries would be impaired.

But if an across-the-board tariff hike is out of the question, the Trump administration is likely to consider taking more trade-remedy action on a range of products from China and other countries by claiming they are being dumped or unfairly subsidised.

There are loopholes in the WTO rules on trade remedies which have made these a favourite protectionist tool.  A country can slap on high tariffs against an imported good from another country by claiming its price is artificially low because it has been “dumped” (exported at a price lower than the domestic price) or unfairly subsidised by the state.

But if the exporting country complains and a WTO panel rules that the actions were wrongly taken, there is no penalty imposed against the offending country which is only asked to lift the tariff.  Meanwhile the aggrieved country has lost many years of export earnings.  Moreover, the same actions can again be taken against the same country, thus perpetuating the protection.

We may see a rise in such trade-remedy actions under President Trump, especially if he is counselled against taking the more blatant route of imposing an all-out tariff wall.

But we can also expect tit-for-tat counter-action of the same type by the affected countries, in a global spiral of protectionism.  That will be in nobody’s interest.

The new Trump presidency is also expected to usher in a major change in how the US (and eventually many other countries) will perceive free trade agreements.   Trump’s objection to the TTPA and NAFTA seems to be based on the issue of goods trade, that the template of these agreements seems to favour the exports of the partner countries at the expense of the US.

Trump said he would instead “negotiate fair bilateral deals that bring jobs and industry back.”  This appears to be neo-mercantilist and against the free-trade principle, but it is this kind of “America-first” populism that helped propel him to power.

If the new US policy moves in this direction, what is to prevent other countries from doing likewise?   “Free trade” or “fair trade” will be interpreted by each country in ways that favour it, and many of the present rules will have to be set aside.

However the FTAs are much more than trade, and they became unpopular with the public in the US and elsewhere not only because of the threat of cheap imports taking over the market of local producers, but also because of the non-trade issues that are embedded in most recent FTAs, including FTAs between developed countries, and those between developed and developing countries.

If the new US policy moves in this direction, what is to prevent other countries from doing likewise? “Free trade” or “fair trade” will be interpreted by each country in ways that favour it, and many of the present rules will have to be set aside.


One of these issues include investment rules aimed at liberalising foreign investment and financial flows, with an especially controversial section that gives rights to foreign investors to take cases and make claims against the host government in an international tribunal.

Another issue is the strengthening of intellectual property rules that favour multinational companies at the expense of local consumers.  A most unpopular effect is a tremendous rise in the cost of some patented medicines through the additional curbing of competition from cheaper generic drugs.

Other issues include the opening up government procurement to foreign firms on a national-treatment basis, thus reducing the share of local businesses in this huge sector;  the liberalisation of the services sectors, which for some countries may affect the cost of basic services that are normally performed by the public sector;  and, in the most recent FTAs, the establishment of new rules overseeing the policies and behaviour of state-owned enterprises.

The structure of this kind of North-South FTAs is mainly unfavourable to developing countries in general.  While a developing country can get some benefits on the trade component through better market access to the developed country, the non-trade issues are usually against their interests as the developed countries are far stronger and have the upper hand in the areas of investment, intellectual property, services and procurement.

However, civil society groups in the developed countries also find the non-trade issues against the public interest.  For example, the investor-state dispute system undermines the ability of these countries to set their own environmental or health policies, and the tighter intellectual property rules impede access to medicines and knowledge in these advanced countries as well.

Through the recent FTAs, sensitive areas and issues that were previously under the purview of the national government are now subjected to new and intrusive rules that cramp the space that countries (whether in the South or North) normally have to set their own policies.

Both the trade and non-trade issues have made the “trade agreements” highly controversial.  Civil society groups in developing countries have been expressing their concerns that the public interest and national sovereignty are being undermined.

At the same time, the public in developed countries, including in the US, Europe, Canada, Australia, New Zealand and Japan, have become disillusioned and even outraged by the effects of the FTAs their governments signed or proposed.

The anti-FTA movement became so strong in the US that it helped boost the unexpectedly good showing by Bernie Sanders in the Democratic primaries, pressurised Hillary Clinton to pledge her  opposition to the TPP, and enabled Trump to ride on and add to the “anti-trade” emotions in his  campaign.

The heightened focus on trade policy during and after the US elections is a good time to review what works and what does not work for the public interest in trade agreements.

It is becoming clear that trade agreements have become overloaded with many issues that do not  belong to an agreement originally designed for trade in goods.

For example, there is a history and logic to the “non-discrimination” and “national treatment” principles established for trade in goods among countries, and even then there is a debate on the conditions under which the  application of these principles bring about mutual benefits  in trade.

The same principles and template are often inappropriate when applied to non-trade issues for which they were not designed.  Creating rules based on these principles and including them in trade agreements can lead to imbalances and unequal outcomes among the partners, and even adverse consequences for all the partners.

However in recent years the scope of trade agreements has grown to include more and more issues, to which the original trade principles have been applied, leading to more and more contention and unpopularity.

The overloaded agenda in FTAs gives trade a bad name, with people being confused between trade, trade policy and trade agreements.  Many people who are disgruntled with trade agreements also become unhappy with trade per se, and the benefits that trade can bring get mixed up with and overwhelmed by the contentious non-trade issues, and trade ends up being condemned as well.

It is important, at this moment of an imminent Trump presidency, to clarify the difference between trade and trade agreements, and to review the whole issue of trade policy.

A good outcome would be to design new agreements that are mutually beneficial in the trade aspect to all partners, whilst removing the controversial non-trade issues from the agenda.   And this could be part of a broader pro-development trade agenda.

But this is not likely to be the new agreements being envisaged by the Trump team. The danger is that these may be even worse than the existing ones.

We risk entering a new era where the US, and maybe some other developed countries as well,  are tempted to promote extreme trade protectionism, whilst retaining or expanding the unpopular non-trade issues in the trade agenda because it is in the interest of their corporations.

We might end up with a new type of “America first” agreements, in which a Trump administration  ensures that the US can curb imports whilst championing its exports, thus reducing the trade benefits to its  partners;  while at  the same time strengthening the rules in non-trade issues like intellectual property and liberalising financial services that favour US corporations but are against the partners’ interests.

That would be the worst of both worlds, at least for developing countries.

It is thus crucial for policy makers and thinkers in developing countries  to rethink what kind of trade is good for their economies, what kind of trade policy would correspond to that positive trade performance, and what kind of trade agreements would be good to have and which types should be avoided.

It is also time to rethink the role of the World Trade Organisation and reaffirm the priority of developing a balanced and pro-development multilateral trading system.  If (and that is a big if) the WTO could evolve into such an ideal system, there would be no need or less need for bilateral trade agreements.

Excerpt:

By Martin Khor
PENANG, Aug 17 2016 (IPS)

No country was more active in pushing for the Trans Pacific Partnership (TPP).  In the five years of negotiations, the United States cajoled, persuaded and pressurised its trade partners take on board its issues and positions.

Finally, when the TPP was signed in February by 12 countries, it was widely expected the agreement will come into force within two years, after each country ratifies it.

But now there are growing doubts if the TPP will become a reality. Ironically it may become a victim of US political dynamics as the TPP has become a toxic issue in its Presidential elections.

Opposing the TPPA is at the centre of Republican nominee Donald Trump’s campaign.He has declared the TPP would be a disaster, it would encourage US companies to move their production abroad and weaken domestic jobs, and called for the US to withdraw from the agreement.  In his typical extreme style, Trump said at a recent rally that the TPP “is another disaster, done and pushed by special interests who want to rape our country.”

Martin Khor

Bernie Sanders, the Democrat Presidential candidate who ran a surprisingly close contest with Hillary Clinton, championed the anti-TPP cause, saying:  “We shouldn’t re-negotiate the TPP. We should kill this unfettered FTA which would cost us nearly half a million jobs.”

Hillary Clinton also came out against the TPPA, a turn-around from her position when she was Secretary of State and decribed it as a gold-standard agreement.  To counter suspicions that she would again switch positions if she becomes President, Clinton stated: “I am against the TPP, and that means before and after the elections.”

They may all be reflecting popular sentiment that trade agreements have caused the loss of millions of manufacturing jobs, stagnation in wages and contributed to the unfair distribution of benefits in US society, much of which has accrued to the top 1 or 10 per cent of income earners.

An article in New York Times (29 July 2016) began as follows:  “Democrats and Republicans agreed on almost nothing at their conventions this month, except this: free trade, just a decade ago the bedrock of the economic agendas of both parties, is now a political pariah.”

Besides the Presidential candidates, two other players will decide the TPPA’s fate:  President Obama and the US Congress.

Obama has been the TPPA’s main champion, passionately arguing that it will bring economic benefits, raise environmental and labour standards and give the US an advantage over China in Asian geo-politics.

Considering the TPP to be a key legacy of his presidency, Obama wants Congress to ratify the

agreement before his term ends.  But till now he has been unable to get the bill tabled because it would be certainly defeated in the election season, given the TPP’s unpopularity.

His last opportunity is to get the TPP passed during the lame-duck Congress session after the election on 8 November and before mid-January 2017.

“I am against the TPP, and that means before and after the elections.” Hillary Clinton
However, it is unclear whether there is enough support to table a lame-duck TPP bill, and if tabled whether it will pass.

Last year, a related fast-track trade authority bill was adopted with only slim majorities. Now, with the concrete TPPA before them, and the swing in mood, some Congress members who voted for fast track are indicating they won’t vote for TPP.

For example, Clinton’s running mate for Vice President, Senator Tim Kaine, who supported had fast track has now proclaimed his opposition to TPP.  Other leading Democrats who have publicly denounced TPP include  House Minority Leader Nancy Pelossi, and House Ways & Means Committee Ranking Member Sandy Levin who said:“It is now increasingly clear that the TPP agreement will not receive a vote in Congress this year, including in any lame duck session, and if it did, it would fail.”

Congress Republican leaders have also voiced their opposition.  Senate Majority Leader Mitch McConell said that the presidential campaign had produced a political climate that made it virtually impossible to pass the TPP in the “lame duck” session.

House Speaker, Republican Paul D. Ryan (R-Wis.) who played a leading role in writing the fast-track bill, said he sees no reason to bring TPP to the floor for a vote in the lame duck session because “we don’t have the votes.”

Meanwhile, six House Republicans  sent a letter to President Obama in early August last week asking him not to try to move TPP in a “Lame Duck”.

Though the picture thus looks grim for Obama, he should not be under-estimated. He said when the elections are over he will be able to convince Congress to vote for TPP.

“I will actually sit down with people on both sides, on the right and on the left,” he told the media. “We’ll go through the whole provisions….I’m really confident I can make the case this is good for American workers and the American people.”He added many people thought he would fail to obtain the fast track legislation, but he succeeded.

On  12 August, the Obama administration submitted a draft Statement of Administration Action, as required by the fast-track processfor introducing a TPP bill.  The document describes the steps the administration will take to implement changes to U.S. law required by the TPP.  Obama can later send a final statement and the draft of the implementing bill describing the actual changes to US law needed to comply with the TPP agreement.

Following that, a lot of deal-making is expected between the President and Congress members.  Obama will doubtless offer incentives or privileges to some of the demanding Congress members in order to obtain their votes, as was seen in the fast-track process.

To win over Congress, Obama will have to respond to those on the right and left who are upset on specific issues such as the term of monopoly for biologic drugs, or the inclusion of  ISDS (investor-state dispute settlement) in  the TPP.

To pacify them, Obama will have to convince them that what they want will anyway be achieved, even if these are not legally part of the TPP because the TPP text cannot be amended..

He can try to achieve this through bilateral side agreements on specific issues.  Or he can insist that some countries take on extra obligations beyond what is required by the TPP as a condition for obtaining a US certification that they have fulfilled theirTPP  obligations.  This certification is required for the US to provide the TPP’s benefits to its partners, and thus the US has previously made use of this to get countries to take on additional obligations, which can then be shown to Congress members that their objectives have been met.

Obama could theoretically also re-negotiate to amend specific clauses of the TPP in order to appease Congress.  But this option will be unacceptable to the other TPP countries.

In June, Malaysia rejected any notion of renegotiating the TPPA.  The question of renegotiating the TPPA does not arise even if there are such indications by US presidential candidates, said Tan Sri Dr Rebecca Fatima Sta Maria, then the secretary general of the International Trade and Industry Ministry.

“If the US does not ratify the TPPA then it will not be implemented,”  she said.  The other TPP members would have to resort to a ”different form of cooperation.”

Singapore Prime Minister Lee HsienLoong, on a recent visit to Washington, dismissed any possibility of reopening parts of the TPP as some Congress members are seeking. “Nobody wants to reopen negotiations,” he said. “We have no prospect of doing better and every chance of having it fall apart.”

In January, Canadian Trade Minister Chrystia Freeland said a renegotiation of the TPP is not possible. Japan also rejected renegotiations, which it defined as including changing existing side agreements or adding new ones.  This is not going to happen, said Japan’s Deputy Chief of Missions Atsuyuki Oike.

What happens if the US Congress does not adopt the TPP during the lame-duck period?  The 12 countries that signed the agreement in February are given 2 years to ratify it.

Enough countries to account for 85% of the combined GNP of the 12 countries must ratify it for the TPP to come into force.  As the US accounts for over 15% of the combined GNP, a prolonged non-ratification by it would effectively kill the TPPA.

Theoretically, if the TPP is not ratified this year, a new US President can try to get Congress to adopt it in the next year.  But the chances for this happening are very slim.

That’s why the TPP must be passed during the lame duck session.  If it fails to do so, it would mark the dramatic change in public opinion on the benefits of free trade agreements in the United States, the land that pioneered the modern comprehensive free trade agreements.

Excerpt:

The United States is not really a democracy. That’s the (simplified) conclusion of a recent study from Princeton University. Instead, economic elites and special interest groups enjoy tremendous sway in Washington, while “the preferences of the average American appear to have only a minuscule, near-zero, statistically non-significant impact upon public policy.”

Indeed, the institutions of democracy and sovereignty exist in tension with another powerful institution: the global market and its free trade regimes.Contemporary trade agreements actually have very little to do with trade. Rather, the TPP will probably have its greatest impact on domestic regulations and standards.

In one sense, the free-market system sustains democracy. It generates wealth and tempers the centralisation of power — two preconditions for democracy. But in another sense, global free-market capitalism conflicts with popular self-governance.

This is particularly true for the “neoliberal” variety of capitalism, which has been on the rise since the 1980s. It one-sidedly promotes the principles of global deregulation, liberalisation, privatisation, and the rollback of the welfare state — all of which increase inequality and redistribute economic and political power to corporations and wealthy individuals.

The Trans-Pacific Partnership

One of the most vivid recent examples of the conflict among democracy, sovereignty, and global capitalism is the Trans-Pacific Partnership (TPP) — the so-called “free-trade” agreement among 12 states bordering the Pacific Ocean. They include the United States, Chile, Vietnam, Malaysia, and Japan, among others.

According to U.S. president Barack Obama, who strongly supports the agreement, “the TPP will boost our economies, lowering barriers to trade and investment, increasing exports, and creating more jobs for our people.”

In sharp contrast to the president’s enthusiastic endorsement, however, many critics view the TPP as deceptive and dangerous. Lori Wallach of Public Citizen has called the agreement a “Trojan horse” — a trap disguised as a gift, which will in reality serve the interests of few multinational corporations and the executive branch rather than the public at large.

First, let’s look at the process.

In democracy, binding rules gain legitimacy through a process of collective bargaining and compromise — a way of balancing power among all interest groups in a country. For that to happen, citizens and legislators need to know the content of the laws being discussed.

In the TPP, the opposite has been true. Very little detailed information has been made available to the public, or even to Congress, to enable them to discuss the pros and cons of the treaty. Much of what we do know has only emerged through leaks.

This level of secrecy has not always been the norm. As recently as the Bush era, agreements were treated with more transparency. For example, the governments involved in negotiations for the Free Trade Area of the Americas (FTAA) — the proposed extension of the North American Free Trade Agreement (NAFTA) throughout most of the western hemisphere — released drafts of the agreement, albeit with some portions withheld.

Not coincidentally, after civil society summits and massive protests conveyed widespread opposition, the parties ended their efforts to create the FTAA in 2004. In contrast, and despite its stated commitment to transparency in government, the Obama administration has thus far opposed revealing the TPP drafts.

While a small number of labour unions and NGOs appear to have some involvement in the process, critics note that many relevant actors have been shut out. As renowned economists Joseph Stiglitz and Dean Baker contend, it is mostly the executive branch and some privileged big corporations that are involved in the process, and are therefore able to shape the treaty to fit their narrow interests.

And the obstruction to public input may go even further. In the United States, Congress must approve any deal that the executive branch negotiates. However the Obama administration is seeking to have this done under “fast-track” trade authority, which will allow only limited time for debate and permit no amendments.

It’s not actually about trade

Contemporary trade agreements actually have very little to do with trade. Rather, the TPP will probably have its greatest impact on domestic regulations and standards. While the details remain unclear, countries will likely face increased pressure to roll back food safety rules, environmental standards, internet freedom, and even recently enacted financial regulations.

And what happens if a country refuses to comply? Private investors can sue governments if, for example, they believe that environmental regulations have reduced their projected profits — even if those regulations were democratically enacted and apply equally to all businesses in the country. These cases will be decided by unelected international tribunals that are not accountable to any nation’s citizens.

With all this in mind, it becomes apparent that so-called “free trade” agreements like the TPP are at serious odds with democracy and national sovereignty.

Dani Rodrik, former professor of international political economy at Harvard University, calls this inherent tension among democracy, national sovereignty, and radical economic globalisation the “globalization paradox.”

He contends that it is impossible to uphold these three elements simultaneously — only two can co-exist at the same time. He therefore argues that we must curb extreme economic liberalisation and deregulation (what he calls “hyper-globalisation”) in order to uphold democracy and sovereignty.

So far, that’s not the direction we’re heading in. As President Obama has said, “the TPP has the potential to be a model not only for the Asia Pacific but for future trade agreements.”

We already have 20 years of bad experience with NAFTA to go by. Meanwhile, Europe and the United States are currently negotiating the Trans-Atlantic Free Trade Agreement (TAFTA — also known as the Transatlantic Trade and Investment Partnership, or TTIP), which has similar provisions.

So what will it be: Our right to control decisions that affect us? Or the rights of corporations and the executive branch to make secret decisions that undermine checks and balances? If we don’t make the choice, it will be made for us.

Morris Sanchez is a contributor to Foreign Policy In Focus, where this article originally appeared.

By Martin Khor
GENEVA, May 12 2014 (Columnist Service)

The tide is turning against investment treaties and free trade agreements that contain the controversial investor-state dispute system, which allows foreign investors to take up cases against host governments and claim compensation of up to billions of dollars.

Recently, Indonesia has given notice that it will terminate its bilateral investment treaty (BIT) with the Netherlands, and says it will cancel all of its 67 bilateral investment treaties.

Indonesia joins South Africa, which last year announced it was ending all its BITS.

Several other countries are also reviewing their investment treaties. This was prompted by increasing numbers of cases being brought against governments by foreign companies which claim that changes in government policies or contracts affect their future profits.

Martin Khor

Many countries have been asked to pay large compensations to companies under the treaties. The biggest claim was against Ecuador, which has to pay a U.S. oil company 2.3 billion dollars for cancelling a contract.

The system empowering investors to sue governments in an international tribunal, thus bypassing national laws and courts, is a subject of controversy in Malaysia because it is part of the Trans-Pacific Partnership Agreement (TPPA) which the country is negotiating with 11 other nations.

The investor-state dispute settlement (ISDS) system is contained in free trade agreements (especially those involving the United States) and also in BITS which countries sign among themselves to protect foreign investors’ rights.

When these treaties containing ISDS were signed, many countries did not know they were opening themselves to legal cases that foreign investors can take up under loosely worded provisions that allow them to win cases where they claim they have not been treated fairly or expected revenues have been expropriated.

South Africa had been sued by a British mining company which claimed losses after the government introduced policies to boost the economic capacity of blacks to redress apartheid policies.

India is also reviewing its BITS, after many companies filed cases when the Supreme Court cancelled their 2G mobile communications licenses in the wake of a high-profile corruption scandal linked to the granting of the permits.

But it is not only developing countries that are becoming disillusioned by the ISDS. Europe is getting cold feet over the investor-state dispute mechanism in the Transatlantic Trade and Investment Partnership (TTIP) it is negotiating with the U.S., similar to the mechanism in the TPPA.

Several weeks ago, Germany told the European Commission that the TTIP must not have the investor-state dispute mechanism.

Brigitte Zypries, a Parliamentary State Secretary at the Ministry for Economic Affairs and Energy, told the German parliament that Berlin was determined to exclude arbitration rights from the TTIP deal, according to the Financial Times. “From the perspective of the [German] federal government, U.S. investors in the European Union have sufficient legal protection in the national courts,” she said.

The French trade minister had earlier voiced opposition to ISDS, while a report commissioned by the United Kingdom government also pointed out problems with the mechanism.

The European disillusionment has two causes. In first place, ISDS cases are also affecting EU countries.

Germany has been taken to the International Centre for Settlement of Investment Disputes (ICSID), an international arbitration institution that is a member of the World Bank Group, by the Swedish company Vattenfall which claimed it suffered over a billion euros in losses resulting from the government’s decision to phase out nuclear power after the Fukushima disaster.

And the European public is getting upset over the investment system. Two European organisations last year published a report showing how the international investment arbitration system is monopolised by a few big law firms, how the tribunals are riddled with conflicts of interest, and the arbitrary nature of tribunal decisions.

In January, the European Commission suspended negotiations with the U.S. on the ISDS provisions in the TTIP, and announced it would hold 90 days of consultations with the public over the issue.

In Australia, the previous government decided it would not have an ISDS clause in its future free trade agreements and BITs, following a case taken against it by Philip Morris International which claimed loss of profits because of laws requiring only plain packaging on cigarette boxes.

So far the U.S. has stuck to its position that ISDS has to be part of the TPPA and TTIP. However, if the emerging European opposition affects the TTIP negotiations, it could affect the TPPA as this would strengthen the position of those opposed to ISDS.
(END/COPYRIGHT IPS)

Excerpt:

President Barack Obama talks with Vice President Joe Biden before boarding Air Force One at Pittsburgh International Airport for a domestic trip, April 16, 2014. Credit: Official White House Photo by Pete Souza

By Jim Lobe
WASHINGTON, Apr 22 2014 (IPS)

As he embarks Tuesday on a major trip through East Asia, U.S. President Barack Obama will be focused on reassuring anxious – albeit sometimes annoying – allies that Washington remains determined to deepen its commitment to the region.

Just how annoying some allies can be was underlined on the eve of his departure as Japan’s premier, Shinzo Abe, provoked renewed protests from both China and South Korea over his sending a ceremonial offering to the Yasukuni Shrine, the temple which honours Tokyo’s war dead, including senior officers responsible for atrocities committed by Japan in both countries during World War II.There is little question that security concerns, particularly those aroused by China’s recent assertiveness, will loom large.

As for anxiety, Asian commentators have made little secret of their concern that Russia’s annexation of Crimea and continuing tensions with Ukraine could set a precedent for a resurgent China, whose increasingly assertive behaviour in pressing its territorial claims in the East and South China seas has provoked a number of its neighbours to upgrade military ties to the U.S., as well as increase their own military spending.

Moreover, Obama, whose extrication from the deep hole his predecessor dug for him in the Greater Middle East has gone more slowly than had been hoped, has necessarily been distracted by the ongoing Ukraine crisis which, in turn, has prompted the U.S.’s NATO allies – especially the alliance’s newest member along Russia’s western periphery – to seek reassurances of their own.

“Can Mr. Obama afford to invest more time in Asia when he is bogged down with crises in Ukraine and Syria?” asked the New York Times’ “editorial observer”, Carol Giacomo, Monday.

Obama was originally scheduled to make this trip last fall, but he opted instead to stay home to deal with the Republican shutdown of the government – the latest example of the kind of partisan-driven action that has also sown doubts among Asian allies, as well as others, about the ability of Washington to follow through on its foreign commitments.

This week’s tour will begin with a state visit to Japan, during which he will meet with the troublesome Abe, whose personal visit last year to the Yasukeni Shrine drew a harsh public rebuke from Washington.

The main substantive agenda item on that leg of the trip, according to administration officials, will be to try to narrow differences on agricultural and automobile provisions in the pending 12-nation Trans-Pacific Partnership (TPP) trade agreement, the main pillar of the administration’s non-military “pivot” or “rebalancing” toward the Asia/Pacific launched in 2010.

From Tokyo, Obama will fly to Seoul where he will take up both trade and security issues, including a visit to the Combined Forces Command to address U.S. troops charged with helping defend South Korea against the nuclear-armed North.

Obama will then become the first U.S. president to visit Malaysia since Lyndon Johnson nearly 50 years ago, in part to launch a “Young Southeast Asian Leaders Initiative” and meet with Malaysia civil society activists.

His last stop will be the Philippines where, among other events, he will attend a state dinner hosted by President Benigno Aquino III and meet U.S. and Filipino soldiers and veterans to underline Washington’s longstanding military relationship.

While Obama and his entourage will emphasise the growing economic links that tie the U.S. to the region – if, for no other reason than to counter the widespread impression that Washington’s “pivot” is primarily aimed at increasing its military presence to “contain” China – there is little question that security concerns, particularly those aroused by China’s recent assertiveness, will loom large.

Indeed, China’s territorial claims in the South China Sea conflict with those of both Malaysia and the Philippines with which the U.S. has a 63-year-old mutual defence treaty and which has not been shy about contesting Beijing claims – both through Law of the Sea Convention and most recently by successfully resupplying a long-stranded Filipino naval vessel blockaded by Chinese naval forces.

Nor has Aquino been shy about tightening military links with Washington, inviting it to enhance its military presence in the archipelago and negotiating an “access agreement” that could eventually return U.S. forces to Subic Bay naval base from which they were essentially evicted in 1991 at the end of the Cold War.

Security concerns are likely to play at least as strong a role in the early part of Obama’s tour.

While North Korea’s nuclear arms programme and missile launches remain a major preoccupation for both South Korea and Japan, China’s claims in the East China Sea – and most recently its declaration last fall of an Air Defence Identification Zone (ADIZ) – increased tensions with both countries, especially Japan which has scrambled warplanes in response to Chinese aircraft that entered the zone near the disputed Senkaku Islands, which China claims as the Diaoyu Islands.

Although Washington responded to Beijing’s declaration with its show of force – an overflight by B-52 bombers – it disappointed Tokyo, with which it signed a mutual-security treaty in 1952, by instructing U.S. commercial airliners to comply with China’s identification requirements.

Some Japanese officials and analysts have publicly criticised what they regard as an insufficiently assertive U.S. response to Russia’s absorption of Crimea despite a 1994 agreement between Washington, Kiev, London, and Moscow guaranteeing Ukraine’s territorial integrity.

They worry that Beijing may now be tempted to make a similar move on the Senkaku/Diaoyu Islands, just as some in Southeast Asia have expressed similar concerns about China’s intentions in the South China Sea.

But most U.S. analysts, including the administration, reject the analogy.

“We have longstanding alliances in Asia with most of the countries where the maritime territorial disputes with China are most severe, and we have stated time and again that we will meet our alliance commitments,” said Kenneth Lieberthal, a Brookings Institution expert who served as President Bill Clinton’s senior Asia adviser, last week.

“We don’t have any such commitments to Ukraine. We don’t have an alliance. We have never assured Ukraine’s territorial integrity by threatening the use of force…It’s a different situation, and I think the Chinese are very clear about those differences.”

Alan Romberg, a former top State Department expert who now directs the East Asia programme at the Stimson Centre here, agreed. “It’s a totally different situation,” he told IPS.

Besides the lack of any defence agreement, “if you look at the overall importance of East Asia to the U.S. and global peace and security,” he added, “there’s also no comparison.”

Obama, who will travel to China in the fall, has made clear that he nonetheless wants to avoid unnecessarily antagonising Beijing and has tried to tamp down tensions between it and Tokyo, in part by trying to dissuade leaders in both countries from stoking growing nationalist sentiments among their citizens.

Washington has also tried hard in recent months to reconcile Abe and South Korean President Park Geun-Hye – to the extent of personally convening a summit with the two nationalist leaders on the sidelines of a nuclear security conference at The Hague last month.

But Abe’s latest bequest to the notorious shrine, particularly coming on the eve of Obama’s trip, is unlikely to help matters.

“The U.S. can be a leader, a catalyst, and a stabiliser in the region, but it can’t do it all by itself,” noted Romberg. “It’s important that other countries, particularly allies, coordinate and cooperate, and not spend their time nattering at each other all the time.”

Jim Lobe’s blog on U.S. foreign policy can be read at Lobelog.com.

Illegally logged timber seized by the Ayun villagers in Pakistan's Chitral district. A ban on trade in illegally harvested timber, wildlife and fish is omitted from the current fast-track legislation in the U.S. Congress. Credit: Imran Schah/IPS

By Carey L. Biron
WASHINGTON, Jan 16 2014 (IPS)

An accord that would be the largest trade agreement ever negotiated appears to be rolling back environmental safeguards that have been a key part of U.S.-led trade deals for much of the past decade.

For four years, negotiators for 12 proposed Pacific-area member countries have been trying to come to agreement on a sweeping deal for what is being called the Trans-Pacific Partnership (TPP). While few details of the talks have been made public, WikiLeaks on Wednesday released a negotiating text for the environment chapter as well as a round-up of related country-level positions.“We’ve been pushing for safeguards around three things – fish stocks, wildlife trafficking and illegal logging – and the current draft falls short." -- Jake Schmidt

The documents allow the public a first-time glimpse of where talks stand on green issues, and some of the details have worried civil society. WikiLeaks’ publisher Julian Assange suggested Wednesday that the environment chapter is little more than a “toothless public relations exercise”.

The U.S. Trade Representative (USTR) “may be forced to back down from historic negotiating positions on environmental protections,” Larry Cohen, president of Communications Workers of America, a trade association, told a Senate hearing on Thursday, referring to media analysis of the leaked documents.

“At this point in our history, we should be making improvements, not negotiating a retreat on global environmental issues.”

Cohen appeared before the Senate Finance Committee to offer testimony on new legislation that would transfer significant power, known as “trade promotion” or “fast track” authorities, to President Barack Obama to move the TPP into its final stages. While such authorities have been a key component of past U.S. trade deals, critics say that they are undemocratic, barring the Congress from tweaking any eventual agreement.

On Thursday, Cohen told lawmakers that the new legislation would do nothing to ameliorate concerns about the TPP’s weaknesses on environmental safeguards. (Thus far, almost all Democratic members of Congress have refused to formally support the new fast track authorities.)

“Key negotiating objectives that would help ensure that natural resources are protected, such as a ban on trade in illegally harvested timber, wildlife and fish, are completely omitted from the current legislation,” he warned.

“It also does nothing to protect our environmental and climate policies from attack by foreign corporations or to put less stress on our scarce natural resources. More must be done to ensure that trade agreements don’t become a global race to the bottom on the environment.”

Unenforceable

The newly leaked environment chapter likely dates to November, and so may have changed by this week. If not, however, it appears to fail to include strong enforcement provisions – in a way that could directly contravene U.S. law.

The issue goes back to a 2007 agreement between the Congress and then-President George W. Bush, which set out a series of minimum standards for future trade agreements, including for the environment.

Congress stipulated that countries signing trade agreements with the United States would need to fulfil any international treaties they had signed. It also moved to ensure that agreed-upon environmental safeguards were not afterthoughts, requiring that such obligations be fully legally enforceable.

Green groups and others saw the agreement as an important step, and these requirements have been in place in subsequent trade accords between the United States and Panama, Colombia, South Korea and Peru. Yet while this U.S. law has not changed since then, the leaked TPP environment chapter contains weak requirements that critics say would be unenforceable.

“We’ve been pushing for safeguards around three things – fish stocks, wildlife trafficking and illegal logging – and the current draft falls short on all of these principles,” Jake Schmidt, international climate policy director for the Natural Resources Defense Council (NRDC), a watchdog group, told IPS.

“The current obligations for each of these give lots of wiggle room for countries not to enforce them. Effectively, there’s a reporting requirement for countries to say that they’re not enforcing these provisions, but no ability to actually apply trade sanctions. That’s like say it’s illegal to speed but then not funding any cops.”

(On Wednesday, NRDC and two other environment groups released a full analysis of the leaked TPP chapter.)

The leaked chapter, for instance, stipulates that member countries “recognize the importance of taking measures aimed at the conservation and the sustainable management of fisheries”. But governments are not required to do so.

Similarly, each country “shall seek to operate a fisheries management system … designed to prevent overfishing”. But, again, members are not required to do so.

“If passed without the proper enforcement, the current draft would be a major step back form previous trade agreements, even those passed by George Bush,” Schmidt says. “We know from lots of previous experience that if you have good laws on the books but no strong enforcement mechanisms, they don’t have any meaning.”

In fact, experience from the four trade agreements that have included the post-2007 environment safeguards has been mixed, as the USTR has never formally imposed sanctions on a country for failure to comply with environment-related provisions. Yet supporters note that the mere threat of trade repercussions has offered an important diplomatic tool in behind-the-scenes talks.

U.S. demands

As the TPP talks have progressed, the Obama administration has been roundly criticised by civil society groups who feel they have shut out of the negotiations, even as major multinational corporations have reportedly been given access to both the talks and certain negotiating texts.

On the environment chapter, however, the sense is that U.S. negotiators have indeed been working to ensure that the congressionally mandated safeguards are ultimately in place. In the aftermath of the leak, the office of the U.S. Trade Representative took the rare step of directly addressing the issue.

“The United States’ position on the environment in the Trans-Pacific Partnership negotiations is this,” the USTR stated in the first sentence of a blog post released Wednesday, “environmental stewardship is a core American value, and we will insist on a robust, fully enforceable environment chapter in the TPP or we will not come to agreement.”

Yet NRDC’s Schmidt notes that the TPP remains a U.S.-driven agreement, and thus Washington negotiators have a key opportunity to insist on strong enforcement.

“They may be pushing hard,” he says, “but we’ll see if they now follow through and signal to other countries that this is a requirement that must be met before they can bring home any trade agreement.”

NAFTA has become an engine of poverty in the country, forcing millions of Mexicans to migrate to the United States in search of jobs. Credit: Jim Winstead/cc by 2.0

By Manuel Pérez-Rocha
WASHINGTON, Dec 29 2013 (IPS)

Twenty years after it took effect, NAFTA has failed the vast majority of Mexicans.

Of course, hundreds of thousands of U.S. jobs have vanished since automotive and tech companies moved their production across the border in search of much lower wages.NAFTA not only decimated many Mexican small businesses, it also helped to destroy entire national industries.

This was supposed to boost employment in Mexico. Instead, NAFTA has become an engine of poverty in the country, forcing millions of Mexicans to migrate to the United States in search of jobs.

Why? Under NAFTA, cheap subsidised corn from the United States flooded Mexico, making it impossible for millions of Mexican farmers to compete. Government support previously given to small farmers was withdrawn and directed to big agricultural exporting corporations instead.

“Before NAFTA, Mexico was a developing country,” says Victor Suarez, who leads an association of Mexican small farmers. “But now it’s an underdeveloping country, with 70 percent of people in rural areas and 85 percent of the indigenous population living in poverty.”

Still, even with hard times in the countryside, the trade deal’s architects promised that Mexico would industrialise. That transformation would, according to the promises that propelled NAFTA two decades ago, generate job growth.

Unfortunately, most factories that opened in Mexico are merely assembly plants, not production sites.

Parts arrive from the United States, China, and other countries. Once assembled, the products are exported. Without much local or national content, these industries require fewer workers than locally based manufacturing plants, which closed down when they could not compete.

Adán Rivera, who leads an association of small and medium-sized companies in Mexico, points out that because NAFTA caused “the destruction of thousands of small productive units,” it has resulted in “the elimination of millions of jobs.”

NAFTA not only decimated many Mexican small businesses, it also helped to destroy entire national industries. Before NAFTA, Mexico produced trains, tractors, and other industrial goods. They generally weren’t exported, but that production made the economy more self-sufficient.

Many of these industries have wasted away. During the 2008 financial crisis, Mexico’s economy shrank 6.6 percent — Latin America’s steepest decline — because of its chronic dependence on the U.S. market.

Meanwhile, Mexican consumption of U.S. goods has skyrocketed, with Mexicans shopping in big box stores like Walmart and Costco. At these stores, even food items emblematic of Mexico like tortilla chips and salsa are brought in from the United States.

The result? Millions of small-scale producers, mom and pop shops, and other traditional Mexican employers were scrapped, and the national diet went downhill. The gusher of processed foods and beverages from the North has made Mexico the world’s most obese nation, with diabetes its top cause of death.

Not everyone is a loser, of course. Mexico boasts the richest man in the world, Carlos Slim — who amassed his fortune from privatisation schemes related to NAFTA. Mexico’s economic elite, with its wealth securely deposited in banks in the United States and elsewhere, finds a lot to like in NAFTA.

But for the rest of the population, Mexico’s experience with NAFTA shows why free trade and investment deals are bad not only for America’s working families, but for working families all over the world.

That’s why the wide-ranging Trans-Pacific Partnership President Barack Obama is now championing faces growing global resistance. After 20 years of NAFTA, the predictions we made that the agreement would cause massive social problems have proven true. It’s become clear that these pacts can hurt people in every possible way.

Manuel Pérez-Rocha is an Institute for Policy Studies associate fellow. This article originally appeared on Other Words.

Members of the Trans-Pacific Partnership in 2010. Credit: Gobierno de Chile/CC by 2.0

By Carey L. Biron
WASHINGTON, Dec 10 2013 (IPS)

Internal government documents leaked Monday offer a sombre picture of ongoing negotiations towards a major free-trade area covering much of the Pacific Rim. The area is a key objective for the administration of President Barack Obama but has been harshly criticised by a broad spectrum of global civil society.

While U.S. trade officials have insisted on December as a deadline for agreement on the 12-member Trans-Pacific Partnership (TPP), a new briefing written by one of those 12 governments suggests that negotiators remain far apart on several notable policy areas. The picture that emerges is one of an intransigent U.S. Trade Representative (USTR) being increasingly isolated in the negotiations.

“[T]he U.S. is exerting great pressure to close as many issues as possible … However the Chapters that were reviewed by the [chief negotiators] did not record much progress,” the memo, reportedly written within the past two weeks by one of the governments party to the TPP negotiations and published on Monday by WikiLeaks, stated.

The U.S. chief negotiator “met with all 12 countries and said that they were not progressing according to plan. One country remarked that up until now there had not been any perceivable substantial movement on the part of the U.S., and that is the reason for this situation.” "It’s clear who’s behind the U.S. agenda: large corporate interests."
-- Arthur Stamoulis

TPP negotiators are currently in Singapore for what has been widely seen as a closing round of talks towards the TPP, which has been seriously debated for almost four years.

The narrative of looming success received additional momentum following Saturday’s small but significant agreement under the World Trade Organisation (WTO), the global body’s first accord since its creation in 1995. Following that success, seen as an important fillip for multilateral trade mechanisms, ministers from the TPP countries flew straight to Singapore, where they’re holding talks through Tuesday.

“The latest leaks reveal the USTR continues to bully Asian countries into accepting some of the worst corporate expansions in any international agreement,” Arthur Stamoulis, executive director of the Citizens Trade Campaign, an advocacy group here, told IPS.

“It’s good to see that many countries are continuing to resist these provisions, but it’s discouraging to see the U.S. going to the mat so strongly for this corporate power rush. It will be interesting to see whether they do the same for labour rights, human rights and the environment.”

No inevitability

The memo’s authenticity has not been substantiated, nor is it known which government’s views it may reflect. A spokesperson for the USTR on Monday told the media that some elements of the document are “outdated” or “totally inaccurate.”

Either way, the document’s substance depicts a pessimistic narrative and calls the possibility of meeting an end-December deadline “very difficult” to imagine.

“This leak guts the sense of inevitability about TPP that the negotiators have been so relentlessly building,” Lori Wallach, director of Public Citizen’s Global Trade Watch, a consumer watchdog group, said Monday. “It shows, thankfully, how far from agreement the countries are and it puts people in all of the involved countries on notice about just how dangerous this deal would be for them.”

The TPP negotiations process has been pilloried by civil society due to its secrecy, with much of the public’s knowledge of the substance of the talks coming from leaks such as Monday’s.

On the other hand, some of the world’s largest multinational companies have reportedly been given prime access to the discussions, and critics have warned that corporate interests have had an irrevocable impact on the broad sweep of the TPP’s evolving outline. The U.S. Chamber of Commerce, the country’s largest business lobby group, has wholeheartedly embraced the TPP’s opportunity, stating it would “pay huge dividends for the United States.”

But supporters and opponents alike agree that the stakes are high. If eventually signed, the TPP would provide a blueprint for U.S. trade arrangements for the foreseeable future, and as an open-ended agreement, it could also expand as required.

Still, the new leaked memo outlines dozens of outstanding disagreements, many substantive and most involving the United States, in at least 15 broad chapters. On several important issues, such as environmental and labour safeguards, it appears that the discussion has barely even begun.

Sovereign investors

One of the most controversial issues appears to be a strong push by the United States to require the creation of an independent mediation mechanism for disputes between investors and states. Such “investor-state tribunals” have been a regular part of bilateral U.S. trade deals since the 1990s, particularly in Latin America, and allow foreign investors to sue governments outside of the national legal system for policies seen as impinging on profits.

U.S. negotiators are now seen as pushing an even more stringent tribunal proposal and refusing to back down in the face of opposition. The memo noted that this is “the most important issue for the majority of members” but complained that the United States “has shown no flexibility on its proposal, being one of the most significant barriers to closing the [investment-related] chapter.”

Reportedly, the tribunal proposal is being supported only by the United States and Japan, with the rest objecting to the fact that the provision would apply to “nearly all significant contracts that can be made between a State and a foreign investor.”

“Apparently this proposal would go beyond existing pacts in terms of the powers given to corporations, which would apply to contracting in mining, oil exports, public works and more,” Citizen Trade’s Stamoulis said. “The fact that all TPP countries except Japan appear to be resisting USTR’s worst pushes on investor-state disputes is encouraging, but the document suggests the United States is being completely inflexible – to the point of threatening the agreement.”

Still, it is unclear whether deadlock over the investor-state tribunal issue could actually scupper the broader TPP talks in which the Obama administration is deeply invested.

“Other countries are still holding strong, but it’s an open question how long they will be able to hold out as negotiations shift into the political realm,” Stamoulis said. “At the same time, it’s clear who’s behind the [U.S.] agenda: these large corporate interests. If they don’t get their way, they might take their ball and go home.”

In the Philippines, under regulated advertising for tobacco products, cigarette brands have developed more creative products like packets of 10 sticks instead of the standard 20 to make them cheaper for consumers. Credit: Kara Santos/IPS

By Carey L. Biron
WASHINGTON, Sep 7 2013 (IPS)

Between concluding rounds of negotiations towards the Trans-Pacific Partnership (TPP), a major U.S.-proposed free trade agreement, a divisive fight has heated up over the extent to which countries should be allowed to regulate the sale of foreign – potentially far cheaper – tobacco products.

In duelling proposals offered during the latest round of negotiations, in Brunei late last month, the United States and Malaysia put forward starkly different approaches. While Washington is urging that tobacco products be given no special consideration, the Malaysian government has countered that these items should receive a special “carve-out”, exempting them from a broader lifting of trade restrictions.“When you lower tariffs on cigarettes, prices become cheaper, greater numbers of kids and poor people become addicted, and overall health gets worse.” -- Ellen R. Shaffer of the Centre for Policy Analysis

Now, critics of the U.S. proposal are hoping to emphasise the health implications of these proposals ahead of the next 12-country TPP talks, slated to take place here in Washington starting Sep. 18. The administration of President Barack Obama had initially hoped to have a final agreement text by October, but that now looks extremely unlikely.

“Under other trade agreements, tobacco companies are currently using their investment provisions to attack public health regulations,” Arthur Stamoulis, director of the Citizens Trade Campaign at Public Citizen, a Washington-based consumer watchdog, told IPS.

“For this reason, many feel there needs to be a broad carve-out in this agreement for tobacco, if public health is going to be protected. Fortunately, as negotiations get further along and the negotiators get into thornier issues, there’s a lot more people paying attention to these talks.”

New York Mayer Michael Bloomberg, a long-time proponent of greater tobacco control, recently suggested that the U.S. proposal could directly contribute to “tens of millions” of deaths globally.

The potential results of the U.S. proposal are fairly clear, with repeated evidence going back to at least the 1980s. For instance, according to findings by the Government Accountability Office, the U.S. Congress’s main watchdog, after international tobacco companies moved into South Korea in 1989, teenage smoking increased fourfold within the first year.

“There’s no question about it,” Ellen R. Shaffer, co-director of the Centre for Policy Analysis, a group focused on trade and health issues, told IPS. “When you lower tariffs on cigarettes, prices become cheaper, greater numbers of kids and poor people become addicted, and overall health gets worse.”

Chilling effect

Advocates of tougher restrictions are warning that the U.S. scheme would be particularly dangerous to developing countries. Not only could the proposal open these economies to potentially cheap cigarettes coming from other countries, but it would also make them vulnerable to expensive litigation from powerful tobacco interests if these countries try to impose trade restrictions.

Smoking rates in the United States and many other developed countries have come down dramatically in recent years, in part on the back of a unique wave of international agreement about tobacco’s deleterious health effects. Indeed, the world’s only international health accord, the Framework Convention on Tobacco Control, which entered into effect in 2005, has been ratified by 176 countries – including each of the dozen in the TPP negotiations, except for the United States.

Yet smoking rates are rising in many developing countries. With tobacco use having led to roughly 100 million deaths during the last century, experts now estimate that it could cause upwards of a billion deaths this century – more than 80 percent of which will likely be in developing and middle-income countries, according to the World Health Organisation.

In the TPP negotiations, the new U.S. position rescinds an earlier draft proposal that included an exemption for tobacco-control measures. Instead, the new proposal simply recognises that countries are allowed to put in place health regulations, similar to other treaties.

It also offers a compromise of sorts. If any tobacco-related trade dispute were to arise due to the imposition of health-related regulations, health officials would be encouraged to engage in consultations before any settlement process goes forward.

The U.S. Department of Health and Human Services has signed off on the new proposal, with the agency’s deputy secretary, Bill Corr, stating that the “proposed language … will make a difference for tobacco control and public-health efforts”.

Yet such provisions still constitute a “retreat … and fail to prevent tobacco control measures from being challenged as violations of trade agreements,” according to Susan M. Liss, executive director of the Campaign for Tobacco-Free Kids, a U.S. advocacy group, reflecting similar sentiments recently expressed by several U.S. health associations.

On the other hand, Liss said in a statement, the Malaysia proposal “is appropriate and necessary to stop the tobacco industry from continuing to challenge tobacco control measures as trade violations, a tactic the industry increasingly has used around the world to fight efforts to reduce tobacco use.”

Indeed, not only are countries such as the United States and Australia currently fighting lawsuits brought by tobacco companies against various tobacco-control laws, but such suits are increasingly being aimed at developing countries. Uruguay, for instance, is currently battling former tobacco giant Phillip Morris over a law that requires particular packaging for cigarettes.

“Developing countries are particularly at risk from these trade rules and challenges simply because they do not have the financial and legal wherewithal to defend against trade suits brought against governments,” the Center for Policy Analysis’s Shaffer says.

“The international tobacco industry has changed dramatically in recent years, and this constitutes a two-pronged strategy: first, to shoot down existing tobacco-control regulations and, second, to have a chilling effect on countries that may be thinking about instituting regulations.”

Shaffer, too, lauds the Malaysian government’s proposal, which she says has reportedly met with “some favourable reception, including reportedly from Japan, which would be encouraging given that country’s economic strength.”

Slippery slope?

Although tobacco no longer makes up a large percentage of the U.S. economy, pressure on the Obama administration surrounding the TPP negotiations has come from business interests worried about a “slippery slope” effect – that an exemption for cigarettes would eventually lead to additional exemptions for a range of other products.

The U.S. Chamber of Commerce, the country’s largest business lobby group, has been increasingly vocal in recent days on the TPP tobacco proposals.

“[We risk] opening Pandora’s box by setting a precedent that others will try to follow for additional ‘unique’ products in ways that could be very damaging to American workers, farmers, and companies,” John Murphy, the Chamber’s vice president for international affairs, wrote last week.

“Following this example, other governments may seek similar treatment for alcoholic beverages, snack foods, genetically-modified organisms (GMOs), or a range of other products – the export of which supports many American jobs.”

By Martin Khor
GENEVA, Aug 17 2013 (IPS)

Two new trade agreements involving the two economic giants, the United States and the European Union, are leading a charge against the role of the state in the economy of developing countries.

Attention should be paid to this initiative as it has serious repercussions on the future development plans and prospects of developing countries.

The two latest attempts towards this are through the Trans-Pacific Partnership Agreement (TPPA) and the Trans-Atlantic Trade and Investment Partnership (TTIP). A new feature of both, as compared to other FTAs, will be discipline on the operations of state enterprises and a reduction of the state’s role in development.

Martin Khor. Credit: Nic Paget-Clarke

The latter is a subject of long-standing discussion. The immediate post-colonial period saw a tendency towards a strong state, including government ownership of some key sectors, such as industry and banking.

Past decades witnessed a wave of privatisation across both rich and developing countries. But the state still owns or controls utilities, infrastructure, public services, banks and a few strategic industries in many developing countries.

Countries provide incentives for foreign companies, such as tax-free status. However, the state also offers special treatment to local companies, such as grants, cheaper-than-normal credit, subsidies, and government contracts.

The developmental role of the state in developing countries is now coming under attack from developed countries.

This is promoted by the big companies in the U.S., Europe and Japan, which seek to enter the markets of developing countries – the source of their future profits.

The support given by the state to domestic companies is seen by multinational companies as a hindrance to their quest for expanded market share in developing countries.

They are thus seeking to change the worldview and policy framework in developing countries, to get them to reduce the role of state enterprises as well as to curb the governments’ promotion of local private companies.

A sub-chapter on state-owned enterprises is a prominent part of the TPPA, which is being negotiated by the U.S. and Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. Japan has just joined too.

The U.S. and Australia are leading the move to have rules to discipline the role of the government in the economy, through a two-pronged approach.

First, to get government or other monopolies to behave in a “non-discriminatory” way, including when they buy or sell goods and services. For example, they are not allowed to give preferences or incentives to local firms.

Second, companies that are linked to the government (including through a minority share) should not get advantages vis-à-vis other firms in commercial activities. Of course, the developed countries that are proposing this are thinking of their companies -how they can get more access to developing countries’ markets.

In the TTIP, a U.S.-European Union agreement, negotiations for which started in July, the EU has prepared a sub-chapter on state-owned enterprises, with rules that seem quite similar to what the U.S. and Australia are proposing in the TPPA.

Although the TTIP only involves Europe and the U.S. directly, the rules it sets are intended to have consequences for other countries.

According to press reports, the two economic giants are planning for the rules they set in the TTIP to become the standard for future bilateral agreements that also include developing countries.

They also hope that these rules will eventually be internationalised in the World Trade Organisation, which has over 130 member states.

The EU position paper on state-owned enterprises says that its aim is to “create an ambitious and comprehensive standard to discipline state involvement and influence in private and public enterprises” and for this to “pave the way to other bilateral agreements to follow a similar approach and eventually contribute to a future multilateral engagement.”

In other words, the constraints on the role of the state, and the reduction of the space for behaviour or operations of state-linked companies, will become the way of the future for all countries, if the U.S. and European plans succeed.

These attempts to curb the role of the state in the economy are worthy of serious study and counter-action.

Developing countries that succeeded in economic development were able to combine the roles of the public and private sectors in a partnership that advanced overall national development.

Asian countries, including Japan, South Korea, Malaysia, Singapore and China, have pioneered this model of public sector collaboration with the private sector.

Those few developing countries that managed to get development going were all driven by the “developmental state”, or the leadership role of government in establishing the framework of economic strategy, and the collaboration between the state, state enterprises, and commercial companies.

Ironically, agricultural subsidies, the main trade-distorting practice of developed countries and regions like the U.S., Europe or Japan, have been kept off the agenda of the FTAs negotiated by the U.S. and EU with developing countries, including the TPPA.

The developed countries are clever not to include what would be more damaging to them. Thus the developing countries are deprived of what would have been the major trade gain for them.

Naturally, there are pros and cons to any agreement, including the FTAs. Any potential gain for a country in exports or investments should be weighed against potential losses to domestic producers and consumers, and especially the loss to the government in policy space and potential pay-outs to companies claiming compensation under the FTAs’ investment rules.

But if developing countries have to come under new international rules that curb the role of the state and that re-shape the structure of their economy, then the prospects for future development will be adversely affected.
(END/COPYRIGHT IPS)

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