Eyes on Trade

Trying to Inch the WTO Away from Extreme Financial Deregulation

2012-01-26T12:29:52-05:00

As regulators and legislators have wrestled with reforming the financial system in the wake of the crisis, one quiet corner of the debate has received less notice. As we have reported in past posts, The World Trade Organization’s General Agreement on Trade in Services limits the kinds of financial regulations countries can impose.

These rules were hashed out during the 1990s – before the lessons of the financial crisis, and when deregulation was in vogue. Documents we obtained under the U.S. Freedom of Information Act show that, in the late 1980s and 1990s, U.S. government officials worked closely with Wall Street executives to sell these rules to wary developing nations.

Unlike the re-regulation being discussed in the G-20 or the Bank of International Settlements, these rules at the WTO are highly enforceable. While the near-total absence of re-regulation over the last 15 years has presented few opportunities to road-test this services agreement, tax havens like Panama have already threatened to use them against the tax transparency initiatives of cash-starved countries like Ecuador. The U.S. lost a high-profile services trade case related to its ban on Internet gambling. Regulatory bans – even of questionable services – are prohibited under the WTO. And a European Commission staff paper about a potential financial transactions tax noted that it would be necessary to assess whether such a tax might conflict with the EU’s WTO commitments.

But the U.S., EU and the WTO Secretariat have spent the last 18 months trying to quash any discussion of these problems, much less consideration of possible updates to the old rules.

WTO Member States Try to Raise Issue at Ministerial Conference

Last fall, a group of countries led by Ecuador tried to get this problem on the formal agenda. Their modest objective was for Trade Ministers at last December’s WTO Ministerial Conference to acknowledge the need to review the WTO rules covering financial services in light of the financial crisis and the efforts internationally and domestically to strengthen regulation.

Ecuador presented its proposal at the WTO’s Committee on Trade in Financial Services (CTFS) in late October in order to get the item on the agenda for December’s meeting. A powerful bloc of countries – including India, Argentina, Turkey, Brazil, and South Africa – supported the proposal. However, the skewed “consensus” process in the WTO allowed the U.S., EU and Canada to block the discussion from moving forward at the Ministerial Conference, where Ministers would have been forced to recognize that there is a potential conflict between the WTO rules and the global consensus toward financial re-regulation.

As is often the case in flawed WTO processes, it appears that Ecuador’s proposal was unfairly downplayed, perhaps to ensure that it would not be noted in the Ministerial Conference. Because the CTFS finalized its Annual Report at the beginning of their October 31 meeting (the last meeting of the Committee in 2011), the discussion on Ecuador’s proposal that occurred later in the meeting was not included in the Annual Reports of the Committee on Trade in Financial Services or of the Council on Trade in Services. The minutes from the October 31 CTFS meeting state that the Chair of the Committee noted that there was “some” interest in discussing the substantive issues raised by Ecuador. An observer in the meeting, however, shared with us that the Chair had actually said that there was “broad” support. The minutes also failed to take note that China and Venezuela supported the proposal, though the representatives from both countries joined the many others present in expressing support for the proposal.

Ecuador reserved its right to raise the issue at the General Council meeting where the Ministerial Conference’s agenda was finalized. Despite the fact that there was not consensus on any agenda items for the Ministerial, Ecuador’s proposal was blocked from the agenda, while other agenda items proposed by developed countries remained on the General Council agenda. Ecuador was forced to raise its proposal under the “Other Business,” section of the agenda, which was dealt with after 11 pm. Despite this marginalization, again, a number of countries – including Argentina and Turkey - spoke in favor of Ecuador’s proposal, and no countries opposed. In the end, a brief statement about Ecuador’s proposal was included in the General Council’s Annual Report to the Ministers in the documents circulated at Ministerial Conference, but, unfortunately, the summary only lists the countries that spoke, but does not note their support, nor the fact that no country spoke in opposition.

Activities at the Ministerial Conference

Since the efforts of Ecuador and its allies to include this issue on the agenda of the Ministerial Conference were thwarted, the government of Ecuador hosted a side event “Future of Trade in Financial Services: Safeguarding Stability” to raise this issue during the Ministerial.

During the side event, the Honourable Francisco Rivadeneira, Ecuador’s Vice Minister of Trade and Integration, strongly made the case for why Ecuador proposed a review of the WTO’s financial services rules - to ensure that WTO members, particularly small countries like Ecuador, have sufficient policy space to engage in the regulation needed to ensure stability of the financial system. Alfredo Calcagno from UNCTAD’s Division on Globalization and Development Strategies described in detail the concerns raised by UNCTAD’s 2011 Trade and Development Report, particularly how the ambiguities in the WTO’s General Agreement on Trade and Services (GATS) could restrict policy space for capital controls and other financial regulatory tools. Lori Wallach, Director of Public Citizen’s Global Trade Watch division, laid out the potential conflicts between GATS rules and needed financial regulations, based on a review of the legal literature. Finally, Kavaljit Singh Director of Public Interest Research Centre in India gave a rousing presentation about how the financial sector must be properly regulated to ensure financial stability and inclusion, using examples from the Indian context.

Unfortunately, the official proceedings of the Ministerial Conference went on in Alice-in-Wonderland - style as if no financial crisis had ever happened. Without anything real to deliver after more than ten years of negotiations on the Doha round, the WTO struggled to demonstrate its continued relevance by trumpeting the accessions of Russia and Samoa – even though accessions are rarely considered to be news at the Ministerial Conference level. If the powerful countries in the WTO – and its Secretariat – continue to refuse to acknowledge that its extreme deregulation rules require revision, the WTO will continue to lose legitimacy on the international stage.

The good news is that Ecuador’s efforts did raise the profile of the issue among important WTO countries and that the Chair of the WTO’s Committee on Trade in Financial Services has agreed to keep Ecuador’s proposal for a review of the rules on the agenda for the Committee in 2012. It will be important to watch closely to make sure that the U.S. and EU allow a robust review of the rules to go forward.

Public Citizen Applauds Obama Administration’s Appeal of Trade Ruling Against U.S. Dolphin Protection Measures

2012-01-20T11:00:14-05:00

Public Citizen commends the Obama administration for taking the necessary step of appealing today the harmful World Trade Organization (WTO) ruling against U.S. consumer and dolphin protection measures.

In September 2011, a WTO panel ruled that the U.S. dolphin-safe tuna labeling law violates WTO rules. The labels have been enormously successful in reducing dolphin deaths by tuna fishers – a major problem in the past, when tuna fleets set upon dolphins to catch tuna, since the two species associate with one another in the Eastern Pacific Ocean. The label allows consumers to “vote with their dollars” for dolphin-safe methods. Mexico successfully challenged the U.S. standard after decades of refusing to transition its fishing fleet to more dolphin-safe fishing methods.

The ruling’s implications are dire, especially in the context of a decades-long battle to save dolphins. This struggle has been beset by countless trade-related obstacles: 1991 and 1994 rulings under the WTO’s predecessor organization led to the U.S. eliminating the more potent import ban of dolphin-unsafe tuna, and environmentalists fighting successfully in U.S. court to block the Clinton and Bush administrations from also watering down the voluntary labeling policy. These groups narrowly blocked this executive branch effort, which U.S. courts deemed “Orwellian” and “a compelling portrait of political meddling.” The legitimacy of the WTO is likely to be further undermined if the WTO’s Appellate Body upholds the lower panel ruling. Consumer and environmental groups will see that the WTO allows anti-environmental forces a second (or third) bite at the apple, even when such forces fail in their U.S. legal and political efforts to undermine a domestic policy to which they object.

The Obama administration is considering expanding some of these anti-consumer and environmental rules in the first trade deal it is negotiating: the nine-nation Trans-Pacific Free Trade Agreement. The WTO ruling – and two others in 2011 against country-of-origin labels on meat and a ban on sweet cigarettes used to entice teens into smoking – show that a new approach to trade policy is needed, one that puts consumers, the environment and communities first.

NAFTA a way to restart Keystone Pipeline?

2012-01-19T14:07:52-05:00

The Obama administration made a lot of us environmentalists happy with yesterday's decision to reject the Keystone XL pipeline.

Given that the Canadian government and corporations appear to be steaming mad about this, it's worth all of us reflecting on what their next move could be. A NAFTA case, for one, does not seem out of the question.

(If it seems far-fetched that Canadian entities might pursue these options, think of how much energy they've put into this pipeline. Compare this with how relatively little energy they've put into opposing U.S. financial regulations, yet in that case, they've already threatened to invoke NAFTA to derail the Dodd-Frank financial reform legislation.)

On what basis might a Canadian corporation, say, challenge the decision to reject the pipeline? The pending case against the Sultanate of Oman brought by U.S. investor Adel A Hamadi Al Tamimi under the US/Oman FTA is instructive. (That FTA is modeled on NAFTA.)

Mr. Al Tamimi is a UAE native, naturalized U.S. citizen and real estate developer in New England who invested in Oman through two UAE shell companies. In 2006, his companies concluded ten-year lease agreements with the Oman Mining Company LLC (OMCO, a state-owned enterprise) related to a limestone quarrying/crushing operation. OMCO committed to “use its best endeavors” to obtain “the necessary environmental and operating permits.” In August 2007, OMCO told al Tamimi’s companies that the permits had been obtained, and that he was contractually required to commence operations, which he did in September. Within weeks, officials from the Commerce and Environmental Ministries told al Tamimi that the final permits had not been obtained, and various stop-work orders were issued.

As al Tamimi states, “OMCO now had to make a choice: it could fulfill its obligations under the Lease Agreements, which would mean disobeying or confronting the Environmental and Commerce Ministries, or it could use whatever leverage it had over the Companies and exert every effort to get them to suspend their operations until a solution could be found to the permitting issues. It chose the latter.”

By April 2008, al Tamimi had ceased operations. Al Tamimi racked up various environmental fees, which he apparently did not pay. In April 2009, OMCO told al Tamimi that he was in violation of environmental laws, and in May 2009, he was arrested. After being convicted of stealing and breaking environmental laws by a criminal court in November 2009, his conviction was overturned by an appeals court in June 2010.

Tying this back into the FTA rules... In 2011, al Tamimi launched an investor-state case under the Oman-U.S. FTA. He alleges that Oman expropriated his property rights by terminating the leases and bringing “the full force of the police power of the State to ensure cessation of all activities…” He additionally claims that Oman undermined “his legitimate expectations” that he would be able to conduct quarrying operations and failed to provide “protection and security,” in violation of the U.S.-Oman FTA’s fair and equitable treatment (FET) standard. He also says that other quarrying operations which he “believes to be owned and controlled by nationals of Oman” have been allowed to operate quarrying operations, in violation of the FTA’s national treatment obligations.

Similar arguments could be constructed in the Keystone case under NAFTA. TransCanada could point to a long string of overtures by the U.S. government that led it to develop "legitimate expectations" (as that is defined under trade law) that it would be able to build the pipeline, going from the private assurances in favor of the pipeline (recently revealed by FOIA documents to Friends of the Earth) and ending in the December 2011 payroll tax cut (which included Keystone-related provisions).

Those "expectations" could be then measured against what could be characterized under the FET standard as an arbitrary decision-making process, as when the Obama administration delayed the pipeline decision in November 2011 until after the presidential election.

TransCanada could point to some domestic pipeline operators that have not confronted similar hurdles as a basis for a National Treatment claim under NAFTA, while they could point to any lost expected future earnings as a basis for an "indirect expropriation" claim.

Stranger cases over much smaller sums of money have been launched before. There's been an outrageous string of cases against El Salvador over mining permitting issues. Over $350 million in compensation has already been paid out to corporations in a series of investor-state cases under NAFTA-style deals. This includes attacks on natural resource policies, environmental protection and health and safety measures, and more. In fact, of the over $12.5 billion in the 17 pending claims under NAFTA-style deals, all relate to environmental, public health and transportation policy – not traditional trade issues. For a full rundown of these NAFTA-style cases up until now, see this link.

If all of this seems like an outrage, it is. And what's worse is that the Obama administration is considering putting similar investor rules in a NAFTA-style deal with nine nations, called the Trans-Pacific FTA. Stay tuned for more on this!

Good and bad news from your corporate rulers

2012-01-18T11:56:40-05:00

There's been a flurry of activity recently in the world of investor-state arbitration.

For the uninitiated, these are the foreign tribunals where corporations can directly sue governments for environmental and other policies. These proceedings take place outside of national judicial systems, where corporations can demand compensation from taxpayers for alleged interferences with future expected profits.

This very controversial system has generated some good and some bad news of late.

First, the good news. Last night, the U.S. Court of Appeals for the D.C. Circuit overturned a 2007 investor-state ruling under the U.K.-Argentina Bilateral Investment Treaty (BIT). [HT to Investment Arbtiration Reporter for catching this very quickly.]

Argentina has been hit by dozens of investor-state claims from U.S. and European companies following its 2001-03 financial crisis. (We detail some of these happenings here.)

In the 2007 ruling, Alejandro Garro (U.S./Argentina), Albert van der Berg (Netherlands) and Guillermo Aguilar-Alvarez (Mexico) comprised the panel of three unelected tribunalists that ruled in BG Group's (a U.K. corporation) favor. The panel wrote:

"Argentina adopted certain measures to address its economic, political and social crisis. It is not for this Tribunal to pass judgment on the reasonableness or effectiveness of such measures as a matter of political economy."

Such loving nods to sovereignty are but the preface for the slap-down. The panel wrote that Argentina guaranteed that the energy companies would be paid in dollars at a set rate. When the 2001-03 economic crisis forced revision of the dollar-peso peg (a key recommendation of neoliberal advisors), Argentina was acting "unreasonably" and therefore in violation of the BIT obligation to provide "fair and equitable treatment" (FET).

The panel ordered Argentine taxpayers, many of whom had been pushed into poverty after following the policy advice of the IMF, to cough up roughly $200 million. (This included paying the fees of the company's lawyers. Awesome.)

A U.S. court had jurisdiction to hear an appeal of the investor-state ruling under the U.S. Federal Arbitration Act. National courts hardly ever overturn these investor-state rulings, but the U.S. court wrote:

"Although the scope of judicial review of the substance of arbitral awards is exceedingly narrow, it is well settled that an arbitrator cannot ignore the intent of the contracting parties. Where, as here, the result of the arbitral award was to ignore the terms of the Treaty and shift the risk that the Argentine courts might not resolve BG Group’s claim within eighteen months pursuant to Article 8(2) of the Treaty, the arbitral panel rendered a decision wholly based on outside legal sources and without regard to the contracting parties’ agreement establishing a precondition to arbitration. Accordingly, we reverse the orders denying the motion to vacate and granting the cross-motion to confirm, and we vacate the Final Award."

This is is a positive sign that there are some limits on obscene investor-state rulings. However, U.S. trade and investment agreements don't even have this 18-month requirement, so don't expect any similar overturnings of rulings under NAFTA-style deals anytime soon.

Speaking of which, there was a ruling over very similar issues under the U.S.-Argentina BIT that was just recently released to the public. That award came down in favor of U.S. investor El Paso Energy International Company, which ordered Argentine taxpayers to pay out over $43 million.

Perhaps taking note of some of the skepticism about these awards against Argentina, the panel of Piero Bernardini (Italy), Brigitte Stern (France) and Lucius Caflisch (Switzerland) dialed back some of the rhetoric, stating:

“As far as the relation between FET and the minimum standard of international law is concerned, two main approaches have been adopted by ICSID tribunals, to which one may add an intermediate, undecided position. … Under the first approach, FET has to be equated with the minimum standard of treatment provided for by general international law. … The second approach deals with FET as an autonomous concept, considered in general as more demanding and more protective of investors’ rights than the minimum standard of treatment provided for by general international law. … The Tribunal considers this discussion to be somewhat futile, as the scope and content of the minimum standard of international law is as little defined as the BITs’ FET standard, and as the true question is to decide what substantive protection is granted to foreign investors through the FET."

But, then comes the slap:

"it could be said that the foreign investor is entitled to the most favourable treatment, be it national law, rules applied to some foreigners or the international minimum standard embodied in FET. The Tribunal thus considers that the FET of the BIT is the international minimum standard required by international law, regardless of the protection afforded by the national legal orders.”

Okay, we started hoping a little too soon.

The panel also went through every one of the specific complaints raised by the investor, and found that none of them violated the BIT. Just as my mood started to pick up a bit, I get to the punchline:

"The Tribunal considers that, in the same way as one can speak of creeping expropriation, there can also be creeping violations of the FET standard. According to the case-law, a creeping expropriation is a process extending over time and composed of a succession or accumulation of measures which, taken separately, would not have the effect of dispossessing the investor but, when viewed as a whole, do lead to that result. A creeping violation of the FET standard could thus be described as a process extending over time and comprising a succession or an accumulation of measures which, taken separately, would not breach that standard but, when taken together, do lead to such a result. 519. The Tribunal, taking an all-encompassing view of consequences of the measures complained of by El Paso, including the contribution of these measures to its decision to sell its investments in Argentina, concludes that, by their cumulative effect, they amount to a breach of the fair and equitable treatment standard."

Dang. What creeps.

Then, the panel just got silly. Argentina reasonably argued that the economic crisis should excuse some of the alleged infractions (the so-called "necessity" defense in Article XI of the BIT). After the panel ran through a bunch of editorial comments from Domingo Cavallo and other architects of Argentina's failed neoliberal strategy that blamed Argentina for causing the crisis (which they characterize as "evidence"), Bernardini and Caflisch write:

"While accepting that 'in economic matters, the analysis of causation … does not lend itself to the same scientific analysis as in the domain of the so-called exact sciences and of natural phenomenon,' the evidence presented by the Claimant regarding the actions and omissions by Argentina until the end of 2001, and Argentina’s own admission of its 'inability to maintain a fiscal discipline,' support the conclusion of a majority of the Tribunal that Argentina contributed to the crisis to a substantial extent, so that Article XI cannot come to its rescue."

Yeah, social science is hard. But if you're looking for causation in this case, why not give it a name? How about Domingo Cavallo, the "expert" now cited as an objective observer of the Argentine scene?

Thankfully (but of little practical consequence), Stern took an opposing view:

"666. Arbitrator Stern, while she agrees, as a matter of principle, with the theoretical analysis of the role played by the contribution by a State to a situation of necessity as expressed in paragraphs
613-626, does not consider that, on the concrete level, the contribution of a State to an economic crisis should be lightly assumed – should the US be held responsible of the worldwide sub-prime crisis as it contributed to it, because the SEC did not monitor the banks closely enough? Moreover, she is of the view that, considering the facts of this case, the substantial contribution of the Argentine authorities to the crisis has not been sufficiently proven by strong and uncontroverted evidence presented by the Claimant.

667. Arbitrator Stern disagrees with the far-reaching conclusion by the majority, which is not based, in her view, on an in-depth understanding of the intricacies of economic development. It should not lightly be assumed that a State is responsible for an economic collapse in a liberal market economy, where the invisible hand of the market is more powerful than the hand of the State. The majority, after having presented the experts’ evidence on both sides and concluded that the latter diverged on the analysis for the responsibilities of the economic crisis, the Claimant expert considering, not surprisingly, that the crisis was primarly self-induced and the Respondent’s expert holding, unsurprisingly too, that the essential factors of the crisis were external shocks. The experts have presented contradictory analyses. The IMF itself recognised that it made mistakes in monitoring Argentina’s problems, as can be seen in the citation of one of its reports in paragraph 657 of this Award, where it is recognised that “the IMF on its part erred in the precrisis period.”

668. Economics is a complicated science or, better, a complicated art; the mere reading of the analyses of the experts of both Parties show that there is little certainty. In Arbitrator Stern’s view, the conclusion reached by the majority is based essentially on a comparative analysis of the expert reports, the Edwards’ Report being described as “comprehensive, very detailed and well documented,” while the Frenkel/Damil report is said to be “rather polemical and only in part based on data from external sources.” In her view, the situation of the Argentine economy was extremely serious and out of control by any definition. Many publicly well known events support this conclusion, and there is no reason to doubt the statement, made by Argentina, that it was “the worst economic crisis (which later became a political and institutional crisis) ever experienced by the Argentine Republic as from its onset in 1810.” A serious clue to the gravity of the crisis was the decrease of Argentina’s contribution to the United Nations: “In May 2002, the critical situation caused the United Nations Organization General Assembly to reduce Argentina’s contribution to such organization. It was the first time in history that the organization decreased the contribution to be made by a member state and the decision was taken unanimously by its members.”

669. Moreover, according to Arbitrator Stern, the measures adopted were necessary to prevent the crisis from resulting in anarchy and social disintegration and they constituted a suitable means to overcome the chaos. It should also be recorded that the policies followed by Argentina before the crisis were generally supported by the World Bank and that the measures taken to address the crisis had the support and encouragement of the IMF. This has been stressed, for example, in Continental: “In its Second Review of January 2001, the IMF staff noted that “the external environment worsened in the subsequent months, with external financing to emerging markets nearly drying up. This was compounded by domestic political uncertainties, which raised doubts about the political governability of the country. (…) The authorities have responded to these adverse developments by strengthening the growth orientation of their economic program, through measures aimed at promoting a recovery of investment, and an accelerated implementation of structural reforms…. “In view of the staff, this strategy is appropriate, and deserves the increased financial support of the international community … A recovery of confidence hinges, in turn, not only on a relatively benign international environment, but perhaps more importantly, on a demonstrated, unwavering commitment by the authorities to a rapid and full implementation of their announced policies.”

670. In other words, Argentina adopted mainstream policies, following the Washington consensus, and earned praise for its conduct from the international financial community. Therefore, Arbitrator Stern is inclined to adopt the same conclusion as in Continental, i.e. that the evidence is insufficient to conclude that the policies adopted by the GOA before the crisis were mainly responsible for the crisis."

Will there be any basis for a national court overturning this ruling? I wouldn't hold your breath.

[Update 1/19: Just to be clear on this last point, the El Paso case was brought under the World Bank's ICSID rather than the UNCITRAL rules (which were operative in the BG Group case). There is a limited basis within ICSID for annulment of a tribunal ruling. So a national court would be unlikely to overturn the El Paso ruling for two reasons: because of the differing ICSID rules, and because the U.S.-Argentina BIT (unlike the UK-Argentina BIT) doesn't have an 18-month exhaustion requirement. HT to an alert reader for catching the fuzziness of my statement here.]

Japanese lawmakers opposed to Trans-Pacific trade deal visit Washington

2012-01-13T17:18:59-05:00

On the streets of Chicago, Lima, Honolulu and Kuala Lumpur this year, it was pretty clear that the 99 percent oppose the proposed Trans-Pacific Free Trade Agreement (FTA).

But it will be news to many that the majority of Japanese Members of Parliament (the Diet) also oppose Japan’s joining the NAFTA-style deal.

Last November, Japanese Prime Minister Yoshihiko Noda announced that Japan would begin discussions with related countries toward joining the Trans-Pacific deal. Prior to his announcement, a so-called “Parliamentary Caucus to Cautiously Consider the TPP” – led by Masahiko Yamada, the former Minister of Agriculture, Forestry and Fisheries,- adopted a resolution against such a “pre-mature pledge”. Later, 365 of 722 Diet members signed a petition that states the government should not join the TPP.

This majority Parliamentary Caucus sent a delegation of six Members of Parliament from Japan’s ruling party (DPJ), led by former Minister Yamada, to Washington DC from January 8 to 12.

At a press conference on January 11, they shared some of their perceptions from the visit. Eyes on Trade was there to report on what they said.

Representative Nubuhiko Suto explained that the purpose of the delegation’s was to explain the Diet’s and Japanese position on the Trans-Pacific FTA to U.S. government and other stakeholders, and also to engage in discussions on intellectual property, agriculture and health care to see if the two countries could come to a mutually agreeable understanding moving forward. They visited the USTR and State Department; the offices of 11 members of Congress to exchange views with fellow parliamentarians; 13 trade/business associations, including rice, beef, farmers, pharmaceutical organizations; the World Bank’s International Center for Settlement of Investment Disputes (ICSID), to discuss more about the investor-state resolution system in FTAs; civil society organizations; and U.S. scholars.

Former Minister Yamada opened by saying he had expected that nearly everyone in the U.S. would be supporting “free trade,” but he was surprised by the polling numbers he had seen: that 69% of Americans believe that “free trade” has led to job loss and that 53% of Americans believe that “free trade” has hurt the U.S. During the delegation’s meetings with 31 stakeholders during their 3 day visit, he was surprised to learn that many in the U.S. are concerned about current trade policy, including some of the U.S. Members of Congress. He noted that they certainly met with organizations and individuals that supported the TPP, but he also noted that some of them did not seem very familiar with some of the provisions, such as the investor-state dispute system, and therefore believed that once there was more of a debate on the substance of the agreement, more opposition in the U.S. may be forthcoming.

Minister Yamada stated that at one point in Japan, there was the impression that the TPP would only be bad for agriculture, but now the public is concerned about more issues, such as how it could undermine public health and the implications of the investor-state provisions. After conversations in the U.S., his two biggest concerns are intellectual property provisions and investor-state issues. The Minister was very concerned when, during a visit with a pharmaceutical trade association, the delegation was told that patent and data exclusivity periods could be extended (they weren’t told how long). Given Japan’s different patent system, the delegation was concerned that Trans-Pacific FTA could require changes to their regulatory standards and negatively impact their pharmaceutical industry and public health.

Both Councillor Masako Ookawara, a member of Japan’s Upper House, and Minister Yamada made strong points about Japanese consumers’ keen interest in food safety and food labeling. The delegation met with representatives of the biotech industry and was very disturbed to learn that the Trans-Pacific FTA might lead to reversal of GMO labeling. She explained that Japan is currently in the process of consolidating their GMO labeling laws, which leads to concern that Japan’s entrance in the Trans-Pacific FTA could interfere with that process. Minister Yamada expressed that, given Japan’s high pesticide and chemical standards, he believed that it would be a big problem in Japan to have to implement U.S.-based standards. Ookawara also noted her surprise that there seemed to be much less public debate about the Trans-Pacific FTA currently occurring in the U.S. than in Japan, where every day there is coverage about the Trans-Pacfic FTA in the mainstream press.

While the Noda administration had been assuring the Diet that Japan could achieve exclusions in the negotiations, the delegation was disturbed by the confirmation they received from Deputy US Trade Representive Demetrios Marantis and colleagues that there would be no exclusions in the Trans-Pacific FTA – that the goal was zero tariffs on all products (with a potential phase-in period) and conformity in rules and regulations in all TPFTA countries. In such a form, Minister Yamada asserted that the Trans-Pacific FTA would not pass the Japanese parliament.

The delegation was also concerned about the lack of information with regard to the substance of the Trans-Pacific FTA negotiations. Representative Suto noted that the only portion of the text they had seen had been the leaked texts of the U.S. proposal for the intellectual property chapter. The delegation, therefore, asked U.S. government officials and trade associations to provide more information about the U.S. positions in this and other areas, and were quite shocked that the response was that Diet members should refer to the U.S-Korea Free Trade Agreement. Knowing that this FTA has been such a divisive domestic issue in Korea, the delegation was disturbed that the U.S.-Korea FTA would be the model.

Finally, the delegation warned U.S. officials at the State Department that it is important for both countries to examine the TPP through the lens of security as well as trade. Minister Yamada stated that he informed the Deputy Assistant Secretary that 365 Diet members (more than half) are opposed to the Trans-Pacific FTA, and that if the Japanese government proceeds with the negotiations, the Diet will not ratify it. He also told the State Department officials that many Japanese and particularly young people feel that the deal is being imposed on them by the U.S., and that he feared that this could give rise to anti-American sentiment. Therefore he advised the U.S. to proceed cautiously and to make sure that the Japanese people feel that they are equal partners and receive the information necessary for them to feel comfortable.

Tuna, meat labeling disputes highlight WTO control

2012-01-10T15:26:09-05:00

Washington Post food reporter Tim Carnan writes about the controversial WTO rulings against U.S. dolphin-safe tuna labels and country of origin labeling for beef, quoting the Eyes on Trade Blog and Lori Wallach, Director of Public Citizen's Global Trade Watch.

Read the full Washington Post article here.

By Tim Carman, Tuesday, January 10, 10:06 AM

You might have missed this while you were busy taking the kids to school and preparing for the holidays, but last fall, two U.S. food labeling programs suffered serious legal setbacks that threaten to confuse consumers and thwart the intentions of the “dolphin-safe” tuna and “country-of-origin” labels.

The details are complicated, but in September and November, two dispute panels for the World Trade Organization in Switzerland sided in part with Mexico and Canada on complaints against the voluntary dolphin-safe label and the U.S. Department of Agriculture’s mandatory country-of-origin labeling (COOL). Mexico argued that U.S. dolphin-safe standards are misleading and discriminate against the controversial fishing techniques that Mexico employs to catch tuna. Canada argued that the COOL program discriminates against imported cattle and hogs.

Reactions to the WTO rulings have ranged from tranquil to concerned to downright outraged. Major U.S. tuna producers say they won’t change their dolphin-safe sourcing standards even if they have to change their labels. Pork and beef producers worry that Mexico and Canada might apply tariffs to U.S. meat imports if the U.S. government doesn’t comply with the WTO rulings on COOL, a regulation the meat industry has had mixed feelings about since its implementation in early 2009.

And some nonprofit groups are frustrated that the United States finds itself in this position at all. They’ve long predicted that America’s binding membership in the WTO could lead to this: sacrificing important U.S. environmental and public-safety laws in the name of free international trade.

“There has been widespread concern,” wrote the nonpartisan advocacy group Public Citizen after the dolphin-safe ruling in September, that the WTO could “second guess the U.S. Congress, courts or public by elevating the goal of maximizing trade flows over consumer and environmental protection.”

Click here to read the rest of the article.

Public Citizen Applauds Obama Administration’s Continued Efforts to Reduce Teen Smoking

2012-01-06T13:07:54-05:00

Appeal of Trade Pact Ruling Necessary First Step

Statement of Todd Tucker, Research Director, Public Citizen’s Global Trade Watch

Public Citizen commends the Obama administration for taking the necessary step of appealing the harmful World Trade Organization (WTO) ruling against U.S. efforts to reduce teen smoking.

In September 2011, a WTO panel ruled that the U.S. ban on flavored cigarettes – which are used to entice teens into smoking through cola, strawberry and clove flavors – violated WTO rules because one of these flavors (clove) is predominantly found in imports from Indonesia, another WTO member.

It would pose an unacceptable barrier to public health if any time a good is imported it has to be excluded from regulation, so this appeal is necessary both to defend the law and discourage further WTO attacks on consumer protection policies.

Corporate interests have been relentless in attacking anti-smoking measures, which took a giant leap forward with the signing into law of the 2009 Family Smoking Prevention and Tobacco Control Act (FSPTCA). The flavored cigarette ban was a key plank of the FSPTCA, which envisions a possible future ban on other flavored cigarettes such as menthols. One of the other major planks of the FSPTCA – enhanced warning labels – is currently being attacked by tobacco companies in federal courts. The legitimacy of the WTO is likely to be further undermined if the agency’s Appellate Body upholds the lower panel ruling.

Consumer and public health groups will see that their policy priorities are being undermined by industry in domestic courts when there is a U.S. law basis for a claim, and in the WTO when there is not. The combined effect is fatal to the viability of public interest regulation.

The Obama administration is considering expanding some of these anti-consumer rules in the first trade deal it is negotiating – the nine-nation Trans-Pacific Free Trade Agreement. The WTO ruling (and two others in 2011 against country-of-origin labels on meat and dolphin-safe labels on tuna) shows that a new approach to trade policy is needed – one that puts consumers, the environment and communities first.

Bankers Trying to Use NAFTA to Kill Financial Reform

2012-01-03T14:59:02-05:00

Remember the Volcker Rule? Proposed by former Federal Reserve Chairman Paul Volcker and endorsed by five former Secretaries of the Treasury, it aims to prohibit commercial banks from trading stocks, bonds, currency, and derivatives for their own profit. (Customers of banks could still ask their banks to buy and sell these financial instruments if the customers front the cash.) Banks' risky trades played a huge role in the development of the 2008 financial crisis and precipitated the bailout for these overextended banks.

A form of the Volker Rule made it into the Dodd-Frank financial reform bill that became law in 2010, but bankers are trying to cripple the rule as regulatory agencies write the details of how the rule will work. The Investment Industry Association of Canada has raised the possibility of attacking the Volker Rule with NAFTA. In a letter sent to the Federal Reserve last month, the Association claims:

[T]he Volcker Rule will clearly interfere and raise the costs of cross-border dealing in Canadian securities. As a result, the Volcker Rule may contravene the NAFTA trade agreement.

The Investment Industry Association of Canada perfectly illustrates how "trade" agreements can reach inside nations' borders and interfere with public interest regulations that have nothing to do with the flow of goods between countries. Since NAFTA was enacted, bankers have gotten much more aggressive in their attempts to block regulation through trade deals. For example, the Korea FTA, passed by Congress in October, included much worse restrictions on financial sector regulations than NAFTA. On top of that, the General Agreement on Trade in Services of the WTO has its own set of rules that conflict with policies on capital controls, bans on risky financial services, size limits on banks, and “firewalls” between banking and investment services.

Necessary efforts to make our financial system stable like the Volker Rule may continue to run into obstacles unless we have a turnaround in trade policy to protect, rather than restrict, the right of governments to regulate in the public interest.

Program to Give Access to NAFTA Trucks Violates the Law

2011-12-23T11:28:06-05:00

Public Citizen, the Teamsters, and the Sierra Club filed an opening brief earlier this week on our lawsuit to stop the Obama administration's illegal program to allow unsafe Mexico-domiciled trucks to travel throughout the United States. It's the latest development in the story about how NAFTA may force the United States to lower its highway safety standards by permitting Mexico-domiciled trucks on its roads.

NAFTA included a requirement that all three countries’ highways be fully accessible to trucking companies based in any NAFTA nation by 2000, an item pushed by large U.S. trucking firms seeking deregulation and lower wages. However, the Department of Transportation studies have found that Mexico-domiciled trucks have much worse safety records than U.S. trucks, so public opposition has stymied attempts to open all U.S. highways to these trucks. In 2007, Congress put strict conditions on any pilot program that would evaluate the performance of Mexico-domiciled trucks on U.S. highways.

The Obama administration chose to ignore some of Congress’s conditions when it initiated a pilot program this October. Under the program, Mexico-domiciled trucks entering the United States do not need to show that they are built to U.S. safety standards, nor do drivers of these trucks need to meet all physical standards required of U.S. drivers. Furthermore, the administration did not follow proper procedures when conducting an environmental impact assessment. The program does not even serve its stated purpose of evaluating the ability of Mexico-domiciled trucks to operate safely in the United States, since there is no plan to collect a statistically valid sample of program participants. Finally, Congress insisted that any pilot program achieve comparable access for U.S. trucks in Mexico, but due to the limited availability of certain fuels, the program does not guarantee reciprocal access to Mexico for U.S. trucks.

For more background on NAFTA trucks, visit our landing page on the issue.

(Image courtesy of the Missouri Department of Transportation)

99 Percent Asked to Leave While the 1% Takes Center Stage At Trans-Pacific FTA Hearing

2011-12-22T09:56:33-05:00

The Occupy movement was in full force in Washington last week, as local activists and members of Trade Justice New York Metro attended the Trans Pacific Free Trade Agreement (FTA) hearings. The activists wanted to tell members of Congress as well as officials from the Office of the U.S. Trade Representative (USTR) that the Trans-Pacific FTA needs to live up to the high standards the Obama administration promised the American people.

The activists donned t-shirts, with the messages “Don’t Trade Our Lives Away,” “Make Trade Fair for the 99 percent,” and “Got Text?” to represent their opposition to the way the Trans-Pacific FTA has been negotiated thus far. During an intermission between panelists, the activists linked arms and stood by the door to allow the press and members of Congress to read their messages of dissent. The Capitol police photographed the activist attending the hearing and then promptly asked them to leave. While it was clear that the 99% was not wanted at the hearing, the 1% took center stage before the powerful Ways and Means Committee, which oversees trade deals.

First, the panel heard the testimony of Deputy U.S. Trade Representative, Ambassador Demetrios Marantis.

Angela Hoffman, Vice President of Global Integrated Sourcing and Trade for Wal-Mart Stores, also testified in favor of some very one-percenter policies. The Wal-Mart representative stated, “USTR should consider alternative approaches to yard forward provision.” The “yard-forward rule of origin” provisions was presented by members of Congress trying to protect over 470,000 American workers in their districts, who are employed in the US textile industry and cannot compete with the low wages paid to workers in Vietnam and China. Wal-Mart also pushed for greater liberalization of non-tariff regulations such as “limitations on size, geographic locations and merchandise assortment.

One of the concerns presented by the activists is the lack of transparency. While Obama and the USTR stated that they would usher in a new era of transparency, this has not been the case. Instead, the only text of the negotiations that has been released is a memo of understanding signed by the Obama administration and negotiating parties that they will not release the text of the negotiations until 4 years after the deal is concluded or the talks have ended. Activists were also concerned with troubling limitations on access to medicines, which may occur if trade negotiators extend intellectual property rights as well as data exclusivity beyond the May 10, 2007 agreement, which helped to increase access to medicine by allowing low income countries to produce generic medicines under more flexible arrangements.

Members of Congress have also issued letters to the United States Trade Representative, Ron Kirk, to ensure that the new TPP negotiations do not worsen access to medicines for critical programs to combat AIDS, malaria, tuberculosis, and other life-threatening diseases. Yet, it seems as if US trade negotiators hear the voices of the 1% far louder than those of the 99%, and are now considering a medical pricing proposal brought to them by Big Pharma. We have not forgotten the words made when President Obama was simply the Senator from Illinois, fighting for the 99% “Together, we must forge trade that truly rewards the work that creates wealth, with meaningful protections for our people and our planet.” We will fight to keep this promise even if the 1% do not.