TTIP: International Mega-corporations prevent social and ecological globalization

In the reality of international monopolist competition, narrow economic profit interests dominate to the disadvantage of broad prosperity gains. Protection of foreign mega-investors before indirect expropriation leads to a dispossession of nation state democracy. The losers are employees, customers, the environment and the public sector.

[This article is translated from the German publication on the Internet: TTIP: Internationale Megakonzerne verhindern die soziale und ökologische Gestaltung der Globalisierung. Rudolf Hickel is an economist at the University of Bremen]

The planned "Transatlantic Trade- and Investment Partnership" between the US and the EU is intensely controversial. The abbreviation TTIP (Transatlantic Trade- and Investment Partnership) already appears on placards not only of globalization critics. Two positions face one another rather irreconcilably. The supporters of a deregulated free trade emphasize the prosperity gains for everyone through falling prices, more economic growth and new jobs. The critics of this globalization with melting labor-, consumer-, social and ecological minimum standards fear international conglomerates gaining power against the protection of consumers and employees.

EU-secretdeals.info - new website reveals texts from Europe's US and Canadian trade negotiations (TTIP, CETA)
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From my earlier diary - TTIP Treaty to be Signed - Super NAFTA Undermines Democracy.

'Sapere aude'

Reading the consultation document:

Explanation of the issue

Under the standards of non-discriminatory treatment of investors, a state Party to the agreement commits itself to treat foreign investors from the other Party in the same way in which it treats its own investors (national treatment), as well in the same way in which it treats investors from other countries (most-favoured nation treatment). This ensures a level playing field between foreign investors and local investors or investors from other countries.

So far, so good. Now for the nonsequitur

For instance, if a certain chemical substance were to be proven to be toxic to health, and the state took a decision that it should be prohibited, the state should not impose this prohibition only on foreign companies, while allowing domestic ones to continue to produce and sell that substance.

Hoe to illustrate an explanation with an example having nothing whatsoever to do with the issue.

And I'm just on page 4...

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman

I have no philosophical objection to free trade, as such. However, I have a philosophical, social and ecological preference for goods and services which are produced as close as possible to the consumer.

These two positions are not contradictory; everything is in the definition of the "level playing field".

To wit: In many situations, transnational corporations have huge unfair advantages over locally- or nationally-based enterprises. They will naturally have advantages in terms of economy of scale, sourcing, vertical integration etc, but the absence of any effective international tax regime gives them the opportunity for "fiscal optimisation" i.e. tax avoidance, thereby making them more profitable than (and capable of underbidding) any enterprise working within a given national fiscal structure.

Insofar as the treaty proposes giving supplementary rights to transnational entities (whether they be European-based entities trading in the US, US-based entities trading in the EU, or third parties), I oppose any such concessions being made, at least until such time as an adequate international tax code has been implemented. If not, then the treaty will have the effect of allowing transnationals to crowd out local operators, offshoring their profits and thus avoiding contributing their share to the communities in which they do business.

Increasing penetration of foreign-based and particularly transnational enterprises into any national economic space inevitably leads to increasing pressure from local businesses for lower rates of company tax. This demand is only natural, and perfectly just; they are in competition but the playing field is not level.

Therefore, treaties which favour such increased penetration will inevitably place downward pressure on national governments' tax resource, both directly from a reduced tax take (through international tax avoidance) and indirectly, by increasing political pressure for lower rates on national enterprises.

_{It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II}

Pt. 3 in the section on expropriation is highly problematic, in that it effectively commits signatory states to uncontrolled hard-currency liabilities. The obligation to compensate expropriated properties of foreign residents in foreign currency is (a) discriminatory against own residents (who are generally required to accept the coin of the realm in settlement - this being the entire point of having a coin of the realm), and (b) severely destabilizing of the foreign exchange in the event that compelling public interest requires expropriation of more property than can be covered by the strategic foreign currency reserve.

For smaller countries, who all else being equal will have higher foreign investment relative to the size of their economy, maintaining an adequate strategic currency reserve to buy out all foreign direct investment would impose a non-trivial real cost, which the country in question would have no legal means to recover from the principal beneficiaries (the foreign residents owning the properties in question).

Further, it is unclear what public purpose is served by shielding foreign investors from currency risk in the event of expropriation. In the ordinary course of business, people who invest in currencies outside their own must themselves bear the risk that said currencies depreciate or are deliberately devalued. Carving out an exemption (at public expense) from the ordinary currency risk assumed by any firm or individual doing business in a currency not his own seems like it should require some non-trivial amount of justification.

The definition of indirect expropriation in the Annex to same chapter is potentially problematic, in that an expansive reading of this definition could be said to cover any sufficiently large tax increase on a particular sector, or even sovereign default on treasury bonds outstanding. It behooves the treaty to dispel such concerns by stating explicitly that it is not a "reasonable expectation" for an investor that he be exempt from such changes in tax structure as may happen to happen from time to time, nor can there ever be a "reasonable expectation" (as applied in this article) that sovereigns will not default.

- Jake

Friends come and go. Enemies accumulate.

The prudential exemption for registration of financial service providers, while a step in the right direction, is completely insufficient to maintain an adequate level of macroprudential financial regulation. An adequate level of macroprudential financial regulation requires that all foreign (and domestic) financial service providers comply with all local prudential measures in their entirety, most critically including

• Membership of local deposit insurance.
  
• Compliance with local solidity requirements.
  
• Compliance with the strictest local solidity requirements of all the countries an entity operates in, unless airtight compartmentalization is established between the balance sheets of business units in different countries.
  
• Adherence to whatever other rules and regulations that the local financial regulator might promulgate from time to time.

Ultimate sentence of Article 4 in the same section needs to go away. The history of financial folly is replete with accounts of entire sectors of the financial system that it is in the public interest to shut down with extreme prejudice.

The duration of exceptional safeguard measures should be improved to 36 months. The historical experience is that a major reorganization of a country's financial infrastructure puts the foreign exchange and international credit markets in a state of irrational excitability for 18 to 24 months. Since nobody will want to shave as close to the historical norm as possible, a 50 % security buffer would be advisable.

Section 2 on balance of payment safeguards should contain a clause permitting discrimination which is solely on grounds of different levels of current account imbalances - it should be permissible to discriminate against countries running overtly predatory CA surpluses.

Section 5 on balance of payment safeguards should allow for the time table to be revised, both upward and downward, based on factual disagreements between reality and the expected course of events the time table is based upon.

Section 6 on balance of payment safeguards should strike all mention of the IMF, as the IMF's estimates and projections have been repeatedly and recently demonstrated to be at a substantial divergence with observable reality.

In general, the selected text only deals with financial- and macroprudential regulation. However, there is a wide divergence between the prospective treaty parties matters of consumer protection, environmental protection, data protection, health care provision, workplace safety and collective bargaining (the list is not intended to be exhaustive).

On such matters, the treaty should ideally standardize on the most restrictive standard of regulation, rather than the most sloppy. Where this is infeasible, the above reasons (and any other compelling public interest) must always be acceptable justifications for imposing regulation of a reasonable and proportional nature (as determined by the courts of the imposing signatory, as it is their citizens who have to live with the worsened regulatory protection should it be struck down).

- Jake

Friends come and go. Enemies accumulate.

Public online consultation on investor protection in TTIP - tradoc_152280.pdf

The "legitimate expectations" of the investor may be taken into account in the interpretation of the standard. However, this is possible only where clear, specific representations have been made by a Party to the agreement in order to convince the investor to make or maintain the investment and upon which the investor relied, and that were subsequently not respected by that Party. The intention is to make it clear that an investor cannot legitimately expect that the general regulatory and legal regime will not change. Thus the EU intends to ensure that the standard is not understood to be a "stabilisation obligation", in other words a guarantee that the legislation of the host state will not change in a way that might negatively affect investors.

But this still means that a government can't back out from a commitment made by a previous government, and will push corrupt governments into such commitments.

_{*Lunatic*, n.
One whose delusions are out of fashion.}

The dispute resolution system should also permit companies and NGOs to sue states who willfully violate good governance or the human rights of their citizens in order to obtain a competitive advantage. Potential infringements include:

*Restrictions on the right to organize and bargain collectively.
*Restrictions on the right to strike.
*Disproportionate restrictions on the right to blockade.
*Arbitrary restrictions on access to health care (such as restricting access based on medically irrelevant criteria like race, creed, or ability to pay for the treatment).
*Willful and wanton destruction of environmental commons.
*Enabling of tax fraud and shadow finance.
*Willful disregard for proven or materially suspected harmful impacts of consumer products.

Establishing this symmetry between the right of investors to sue over re-regulation and the right to civil society (and investors in other countries who are negatively impacted by regulatory dumping) sue over deregulation will go a long way towards restoring the neutrality of this treaty on the question of overall levels of regulation.

- Jake

Friends come and go. Enemies accumulate.

Tomgram: Noam Chomsky, America's Real Foreign Policy | TomDispatch

Another concern is security for private power.  One current illustration is the huge trade agreements now being negotiated, the Trans-Pacific and Trans-Atlantic pacts.  These are being negotiated in secret -- but not completely in secret.  They are not secret from the hundreds of corporate lawyers who are drawing up the detailed provisions.  It is not hard to guess what the results will be, and the few leaks about them suggest that the expectations are accurate.  Like NAFTA and other such pacts, these are not free trade agreements.  In fact, they are not even trade agreements, but primarily investor rights agreements.

h/t melo.

It should be possible for any member of parliament, as well as any list eligible to run for parliament, at the time of a potentially enforceable promise made to an investor or group of investors, to dissent, publicly, in writing.

The ISDS system should not have jurisdiction over decisions made by governments or parliaments which do not contain any persons or members of parties who were eligible to sign a dissent but failed to do so.

This will ensure that a transparent process exists for gaging the general sentiment of a polity, permitting investors to take an educated stance on the potential political risk associated with his investment. That should be sufficient to protect investors from arbitrary, mendacious or capricious government intervention, without infringing on the fundamental right of popular self-determination.

- Jake

Friends come and go. Enemies accumulate.

A rough copy-paste to attempt to pull together what's been said so far:

Question 1: Scope

JakeS:

Establishing this symmetry between the right of investors to sue over re-regulation and the right to civil society (and investors in other countries who are negatively impacted by regulatory dumping) sue over deregulation will go a long way towards restoring the neutrality of this treaty on the question of overall levels of regulation.

rz:

Governments, Trade Unions and private citizens should be able to sue companies who violate any of the points you make above.

JakeS:

The dispute resolution system should also permit companies and NGOs to sue states who willfully violate good governance or the human rights of their citizens in order to obtain a competitive advantage. Potential infringements include:

*Restrictions on the right to organize and bargain collectively.
*Restrictions on the right to strike.
*Disproportionate restrictions on the right to blockade.
*Arbitrary restrictions on access to health care (such as restricting access based on medically irrelevant criteria like race, creed, or ability to pay for the treatment).
*Willful and wanton destruction of environmental commons.
*Enabling of tax fraud and shadow finance.
*Willful disregard for proven or materially suspected harmful impacts of consumer products.

In other words, human and social rights to be clearly stated as limits on scope.

I'd add that, in the Scope Annex, the CETA clauses on what an Investor is not, seem useful to me.

Question 3: Fair and equitable treatment

The question of "legitimate expectations":

DoDo:

a government can't back out from a commitment made by a previous government, and will push corrupt governments into such commitments.

JakeS:

there are certain commitments that an investor should know a state cannot make

 Specifically, sovereign default must always remain outside the jurisdiction of any ISDS system. Likewise, regulation in pursuit of macroeconomic stability, environmental protection, consumer protection, protection of the right to organize and bargain collectively, and a number of other core state functions and core human rights must be categorically exempt from becoming the subject of such disputes.

Governments cannot sign away their citizens' right to strike, nor their right to breathe unpolluted air.

In other words, the human and social rights point made re Scope should be repeated here. Plus possibly

JakeS:

It should be possible for any member of parliament, as well as any list eligible to run for parliament, at the time of a potentially enforceable promise made to an investor or group of investors, to dissent, publicly, in writing.

Question 4: Expropriation

Jake's entire comment

Qestion 5: Right to regulate

Jake's entire comment

General points in conclusion: the major items above, plus eurogreen's points on taxation.

And whatever else now comes along.

It may be useful to bring up the (much-loved by EC communications) notion of the stakeholder. It's an important general point that corporations and governments are not the only stakeholders.

A more general point is that it would be desirable to make investors who are under reasonable suspicion of corrupt practices or violation of human rights (including labour rights) ineligible to use the ISDS system. Regardless of whether the activities in question are directly related to the case - association with corrupt practice in one time and place taints the investor in general.

Likewise, guarantees issued by governments, current and former, who are under reasonable suspicion of corrupt practices or human rights violations should be discounted for ISDS purposes. Likewise, the corrupt practices should not need to relate directly to the case at hand - reasonable suspicion of corrupt practices in one area are sufficient to raise reasonable suspicion that corrupt practices are also taking place in other areas.

The standard advocated here is "reasonable suspicion" because actual convictions for corrupt practices basically don't happen in the real world. So a standard of "convicted of corrupt practices" would be little more than a rubber stamp.

- Jake

Friends come and go. Enemies accumulate.

Here's a proposed structure for Q.1, Scope:

Their general language simply defines "Investment", "Investor", and "Scope".

Scope
The provisions in this Treaty shall apply to investments made by investors of one Party in the territory of the other Party, in accordance with the applicable laws, whether made before or after the entry into force of this Treaty.

Point 1: not just the investment, but the investor must be, beyond reasonable doubt, respectful of "applicable laws";

Point 2: the "applicable laws" must be stated explicitly to include, beyond financial regulation, those on human rights, social rights, labour rights.

Conclusion: No investor with a record of corrupt practice, tax evasion, or violation of human and social rights, within the territories of the Parties or elsewhere, should be allowed to sue under an ISDS system.

Bad storms coming through, I'll be back later.

Q.3, Fair and equitable treatment

Concerning the question of "legitimate expectations":

The EU's intention "to make it clear that an investor cannot legitimately expect that the general regulatory and legal regime will not change...that the standard is not understood to be a "stabilisation obligation", in other words a guarantee that the legislation of the host state will not change in a way that might negatively affect investors" is entirely in the right direction.

But clear and specific language should recall on this matter that expectations (notwithstanding "clear, specific representations ... made by a Party to the agreement in order to convince the investor to make or maintain the investment and upon which the investor relied") cannot be deemed legitimate in certain cases.

Specifically, sovereign default must always remain outside the jurisdiction of any ISDS system. Likewise, regulation in pursuit of macroeconomic stability, environmental protection, consumer protection, protection of the right to organize and bargain collectively, and a number of other core state functions and core human rights must be categorically exempt from becoming the subject of such disputes.

No government can offer an investor legitimate promises of exemption with regard to these fundamental principles, and therefore no investor should be able to claim legitimate expectations as a consequence of any such promises.  

Q.4, Expropriations

We support the EU's wish to "make it clear that non-discriminatory measures taken for legitimate public purposes, such as to protect health or the environment, cannot be considered equivalent to an expropriation," and "to clarify that the simple fact that a measure has an impact on the economic value of the investment does not justify a claim that an indirect expropriation has occurred."

However, the provision of paragraph 3 of the CETA example: "...in the currency of the country of which the investor is a national or in any freely convertible currency accepted by the investor," opens the paying country to considerable risk, in that it effectively commits signatory states to uncontrolled hard-currency liabilities. The obligation to compensate expropriated properties of foreign residents in foreign currency is (a) discriminatory against own residents (who are generally required to accept the coin of the realm in settlement), and (b) severely destabilizing to foreign exchange policy in the event that compelling public interest requires expropriation of more property than can be covered by the strategic foreign currency reserve.

For smaller countries, who all else being equal will have higher foreign investment relative to the size of their economy, maintaining an adequate strategic currency reserve to buy out all foreign direct investment would impose a non-trivial real cost, which the country in question would have no legal means to recover from the principal beneficiaries (the foreign residents owning the properties in question).

Further, it is unclear what public purpose is served by shielding foreign investors from currency risk in the event of expropriation. In the ordinary course of business, people who invest in currencies outside their own must themselves bear the risk that said currencies depreciate or are deliberately devalued. Carving out an exemption (at public expense) from the ordinary currency risk assumed by any firm or individual doing business in a currency not his own seems hardly justified.

Similarly, the CETA language on indirect expropriation:

"c) the extent to which the measure or series of measures interferes with distinct, reasonable investment-backed expectations"

seems at odds with the EU's stated standpoints (above, "the simple fact that a measure has an impact on the economic value of the investment does not justify a claim that an indirect expropriation has occurred", and with regard to "legitimate expectations", "an investor cannot legitimately expect that the general regulatory and legal regime will not change").

We suggest that the CETA provisions on expropriation should not form the basis of TTIP language.

Q.5, Right to regulate

With regard to CETA Article X, Prudential Carve-out:

The prudential provision for registration of financial service providers, while a step in the right direction, is completely insufficient to maintain an adequate level of macroprudential financial regulation, which requires that all foreign (and domestic) financial service providers comply with all local prudential measures in their entirety, critically including

    Membership of local deposit insurance.
    Compliance with local solidity requirements.
    Compliance with the strictest local solidity requirements of all the countries an entity operates in, unless airtight compartmentalization is established between the balance sheets of business units in different countries.
    Adherence to whatever other rules and regulations that the local financial regulator might promulgate from time to time.

This provision of paragraph 4: "Such a prohibition may not apply to all financial services or to a complete financial services sub-sector, such as banking," seems hard to justify in the light of the record of entire sectors of the financial system that have joined in episodes, including recently, of financial folly.

On Safeguard measures:

The duration of exceptional safeguard measures should be improved to 36 months. The historical experience is that a major reorganization of a country's financial infrastructure puts the foreign exchange and international credit markets in a state of irrational excitability for 18 to 24 months. A 50 % supplementary security buffer would be advisable.

On Balance of Payments:

Discrimination should be permitted on grounds of different levels of current account imbalances - it should be permissible to discriminate against countries running overtly predatory CA surpluses.

Paragraph 5 on the time schedule should allow for the timetable to be revised, both upward and downward, based on the difference between reality and the expected course of events the timetable is based on.

Paragraph 6 is mistaken in calling on the IMF. The IMF's estimates and projections have been repeatedly and recently demonstrated to be at a substantial divergence with observable reality.

Q.6 Transparency

We support the EU's approach.

Q.10 Filter mechanisms

Once again, the greatest emphasis must be placed on states' rights to regulate in essential policy areas. The prudential carve-out must again be asserted in clear language.

If there is not to be a filter in advance of ISDS proceedings, then it should be clear that complaints against regulation, particularly macro-prudential, would not be successful. The result would be the same.

OK you guys, since nobody seems to be around, I'm going to get something to eat.

Q.13 General assessment

Whatever the supposed benefits of the TTIP, it seems evident that the core of any such treaty consists of investor rights agreements. Indeed, the overall trend in international economic and trade affairs for many years now has been increasing rights for investors, in other words, principally transnational commercial and financial corporations - to the point where national sovereignty (or supra-national in the case of EU prerogatives) may be weakened or in doubt.

Insofar as the TTIP proposes giving supplementary rights to transnational entities (whether they be European-based entities trading in the US, US-based entities trading in the EU, or third parties), we cannot support any such concessions being made, at least until such time as an adequate international tax code has been implemented. If not, then the treaty will have the effect of allowing transnationals to crowd out local operators, offshoring their profits and thus avoiding contributing their share to the communities in which they do business.

Increasing penetration of foreign-based and particularly transnational enterprises into any national economic space inevitably leads to increasing pressure from local businesses for lower rates of company tax. This demand is only natural, and perfectly just: they are in competition but the playing field is not level.

Therefore, treaties which favour such increased penetration will inevitably place downward pressure on national governments' tax resource, both directly from a reduced tax take (through international tax avoidance) and indirectly, by increasing political pressure for lower rates on national enterprises.

Further, ill-advised concessions would bring downward pressure on government's capacity to regulate in the public interest on matters such as human and social rights, the environment, consumer protection, labour rights.

Rather than concede further rights to transnational corporations, the TTIP should unambiguously state and protect the fundamental rights of sovereign states and of their citizens. It should be clearly recalled, moreover, that corporations and governments are not the only stakeholders in society.

To this end, the dispute resolution system proposed should also permit counter-suits (by governments, corporations, trade unions, NGOs, private citizens) against states who violate good governance or the human rights of their citizens in order to obtain a competitive advantage. Potential infringements include:

*Restrictions on the right to organize and bargain collectively.
*Restrictions on the right to strike.
*Disproportionate restrictions on the right to blockade.
*Arbitrary restrictions on access to health care (such as restricting access based on medically irrelevant criteria like race, creed, or ability to pay for the treatment).
*Wilful and wanton destruction of environmental commons.
*Enabling of tax fraud and shadow finance.
*Wilful disregard for proven or materially suspected harmful impacts of consumer products.

Establishing symmetry between the right of investors to sue over re-regulation and the right of civil society (and investors in other countries who are negatively impacted by regulatory dumping) to sue over deregulation would go a long way towards restoring the neutrality of the proposed treaty with regard to overall levels of regulation.

Since, on most questions offered, CETA provisions were cited as an example of treaty language, it seems necessary to point out that those provisions are in our view inadequate, above all because the Party in negotiation with the EU concerning the TTIP is very considerably larger and more powerful than Canada. In other words, if the treaty offers concessions rather than obtaining guarantees, in our view it should not be signed.

 

OK you have five or ten minutes to quibble.

this treaty?  

A bit like playing Russian roulette with an automatic pistol instead of a revolver.  

--Gaianne  

The Fates are kind.