Opinion

Free Trade Deals Put Profits over Public Interest

'Poison pill' strategy ties hands of future governments.

By Murray Dobbin 29 May 2015 | TheTyee.ca

Murray Dobbin contributes his State of the Nation column to The Tyee and Rabble. Find his previous columns here.

Opponents of so-called free trade deals have always struggled with the question of why these international treaties don't generate more alarm and vocal opposition from Canadians. These treaties, after all, trump all other Canadian authority to make laws -- provincial legislatures, Parliament, the courts and even the Constitution. If, instead of being bored by news of another ho-hum "trade deal," Canadians were told that a panel of three international trade lawyers would be reviewing all new laws and determining, in secret, which ones passed muster by meeting with the approval of their giant corporate clients, would they react differently?

That is effectively what all of these corporate rights treaties establish: extra-judicial rulings whose objective is to protect the profits against laws passed in the public interest. The clauses that allow such suits are referred to as investor-state dispute settlement (ISDS). This is not hyperbole -- that is the actual, stated objective of ISDS: if a new law affects the expected future profits of a foreign owned company, it can sue the federal government for damages. And the decision is made by a panel of trade lawyers whose bias is, naturally, in favour of facilitating corporate interests -- because that is who they normally work for. They aren't environmental lawyers or labour lawyers or human rights lawyers. They're trade lawyers. Foxes judging the right of other foxes to kill chickens.

Twenty years after NAFTA -- the first free trade agreement to include ISDS -- came into effect there are many examples of laws duly passed by legislatures in the public interest that have been ruled in violation of NAFTA. Some are more egregious than others -- but they all challenge and assign financial penalties against laws that one government or another thought were important enough to implement.

According to Scott Sinclair with the Canadian Centre for Policy Alternatives, "Canada has been the target of over 70 per cent of all NAFTA claims since 2005. Currently, Canada faces eight active claims… Foreign investors are seeking several billions in damages from the Canadian government. These include challenges to a ban on fracking by the Quebec provincial government…" Canada has never won a case against the U.S.

The rate of challenges is increasing and the rulings are actually getting worse. In 2007, the Nova Scotia and federal governments rejected a proposal to create a huge quarry in an environmentally sensitive area important to local communities. The company won before a NAFTA tribunal and is seeking damages of over $300 million. But the reasoning was even more outrageous than usual. The company successfully argued that an environmental review panel relied on "community core values," which company lawyers argued was unacceptable. Adding insult to injury, the panel ruled on the basis that there was a "possibility" the review panel's decision might have been overturned in federal court. Effectively, the company just did an end run around Canadian environmental laws and the Canadian judicial system by going straight to NAFTA.

Thousands of jobs lost

And what did we get for all this pain? By the late 1990s Canada had lost hundreds of thousands highly paid industrial jobs due to NAFTA. The trade numbers look even worse today. In our largest export market -- the three NAFTA countries -- Canada has steadily lost ground to Mexico. According to data from Bloomberg:

"In 1997, the United States imported twice as many goods from Canada than Mexico -- an $82 billion gap. For the month of February 2015, this gap has narrowed to just $781.5 million."

If the medicine doesn't work, increase the dose. That seems to be the position of the Harper government on these corporate rights agreements. He has signed one with South Korea, and another with China (FIPA), shoe-horned his way into another, the Trans Pacific Partnership (not yet signed) and is still waiting for the European Union to decide on yet another, Harper's most ambitious -- the Comprehensive Economic and Trade Agreement or CETA. Harper also wants one with Japan but that country has apparently lost interest in continuing negotiations.

Trade and investment agreements were designed to be the quintessential globalization mechanism aimed at effectively erasing borders and making the nation state increasingly irrelevant -- and impotent. But something happened to the globalization imperative in 2008. The economic meltdown suddenly challenged the notion that the only entity that could efficiently allocate capital (that is, make economic decisions for all of us) was the "market place" - a.k.a. global finance and its international institutions, the World Trade Organization (WTO), World Bank and International Monetary Fund (IMF).

The crisis demonstrated decisively that globalization and its neoliberal ideology simply could not deliver the goods. But there was no one with power willing to declare that the emperor had no clothes. Globalization has failed spectacularly but its momentum carries it forward despite the fact that for capitalism to actually succeed (that is, to grow) it needs the check on financial power that the states can provide. The continued lack of accountability of global finance weakens nation states' capacity to respond to economic fall-out.

There are signs that at least a few countries are trying to get some of their governing power back from transnational corporations. The deal that Harper has pinned so much of his economic reputation on, CETA, is in trouble. Germany and France were the first to express grave reservations about the investor state dispute settlement provisions. They have now been joined by Austria, Hungary, the Netherlands (where the Parliament passed a resolution condemning ISDS) and the new left-wing government of Greece. The Harper government has implied that without ISDS the deal is off. We can only hope: CETA would give enormous anti-regulatory power to the oil and gas industry, increase Canadian drug costs by $2 billion a year and make it almost impossible for local governments to give preference to local suppliers.

Another deal may fail

The Trans Pacific Partnership may also be in trouble. In order to pass in the U.S., it has to be given "fast track" status by both the Senate and the House of Representatives. Fast track means that the deal goes to an "up or down" vote -- it is either passed or defeated exactly as negotiated. Without fast track it is subject to hundreds of amendments, which would almost certainly kill it. The senate has passed fast track. The upcoming House vote is too close to call.

There are cracks appearing, however tentative, in developed nations' free market consensus with some returning to the use of state powers. But no country seems as determined as Canada to jettison the powers of government. Unlike Australia, for example, whose previous Labour government stated it will not sign any trade and investment agreements containing an ISDS clause, Canada stipulates it won't sign one without it. Given its appalling record of losses and even worse future challenges under NAFTA it seems that weakening state power is precisely what the Harper government intends. Canada loses against the U.S. on NAFTA challenges in part, simply, because the U.S. is an empire and Canada is not. Demanding an ISDS clause with Europe invites even more challenges from states that are far more powerful and will be investing more in Canada than vice versa.

The same is true in spades with the deal Canada has already ratified with China -- the Foreign Investment Promotion and Protection Agreement (FIPA). This agreement breaks the mold by being even more lop-sided than other agreements in several respects -- all of them making it more difficult for future governments to regulate investment by what will soon be the most powerful economy on the planet.

Unlike NAFTA, which can be exited with six-month notice, FIPA lasts for 31 years binding governments for the next seven elections. China will have an enormous advantage because the deal locks in existing restrictions and China's "rules" are so arbitrary it will be extremely difficult for Canadian companies to navigate them or successfully challenge them.

As trade expert Gus Van Harten points out, given the size differential, FIPA is basically a capital-importing agreement as Canadian investment in China will be minimal. That means potentially dozens of huge Chinese state enterprises gaining access to the ISDS clause and challenging environmental regulation, First Nations rights and labour rights.  

There are already many such investment protection agreements in place and there have been many dispute panel awards of over $100 million and two billion dollar-plus awards. These could make awards paid by Canada under NAFTA (approximately $190 million to date) look like stamp money.

Companies targeted with a hostile takeover often use a "poison pill" strategy to make their stock less attractive to the acquirer. What better poison pill for a right-wing libertarian prime minister than to tie the hands of future governments with a string of corporate rights agreements.  [Tyee]

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