Vol. XII, Bulletin No. 5 May 2007
Moratorium Urged for New Trade Laws
It is time to put all trade legislation on Congress' slow track for much-needed study and discussion of where we go from here. That is the message of a paper issued on April 6 by the International Relations Center, a policy studies institute based in Silver City, New Mexico.
Discontent with the present U.S. trade model is widespread, argues Laura Carlsen, director of the Center's Americas program, but not enough work has yet been done on how to replace it. The Bush Administration and its business allies, however, are pressing Congress to hurry up and approve four complex free trade agreements (FTAs with Colombia, Panama, Peru, and Korea) and even more complex "fast track" legislation extending the President's power to present Congress with trade agreements he has already signed and restricting Congress to a simple Yes or No vote.
"By declaring a moratorium on FTAs and not renewing presidential fast track authority, Congress can heed the message of the majority of the people and take a deep look at the way these agreements are restructuring our economy, our communities, and our foreign policy," Carlsen writes
Controversy Sparked by Far More That Labor Rights Issue
Contrary to fears raised by free trade enthusiasts, "U.S. international trade would not come grinding to a halt if Congress stopped passing unfair trade agreements," she points out. "Indeed, many of the most controversial provisions of the FTAs, including the provision of supra-national investment guarantees and intellectual property exclusivity, have little to do with trade."
Carlsen calls for enforceable labor rights and environmental standards, not as an isolated element in trade pacts, but integrated into a new model of "responsible trade policy" that differs sharply from that of the North American Free Trade Agreement (NAFTA), which serves as the discredited template for the legislation now under consideration in Congress.
Media reports have misrepresented the trade controversy as revolving only around disagreements over worker rights provisions. Not true. As an AFL-CIO letter to Charles Rangel, chairman of the House Ways and Means Committee, pointed out in January, labor concerns involve a wide range of other important provisions, including those on:
(For more on what is at stake, read "NO To Staying the Course On Trade.")
- Investment. Large loopholes allow foreign investors to claim rights above and beyond those that domestic investors enjoy.
- Government procurement. Governments are restricted in their ability to invest tax dollars in domestic job creation and to pursue other legitimate social objectives.
- Services. Governments at all levels are now restricted in their ability to regulate public services.
Workers Don't Count in New Global Sector
Powerful new financial entities -- especially private-equity funds -- have moved massively into the global marketplace and "are subjecting workers to continuous [corporate] restructuring and constant employment instability." So says a report issued by a global union, the International Union of Food, Agricultural, Hotel, Restaurant, Catering, Tobacco and Allied Workers Union (IUF).
The report, co-authored by two IUF officials, throws light on what they call "a fundamentally changed [global] environment" that has attracted little notice outside financial circles, and that is not yet reflected in employment statistics.
In the new global environment, private equity funds are adding more and more corporations to their portfolios, and thereby creating this weirdity: hotels, restaurants, candy manufacturers, supermarkets, pay-TV firms, and countless other businesses, including those in manufacturing, are now owned by large financial entities that are not at all interested in those businesses, their customers, or their employees, except as chips they buy and sell in international financial markets.
Size and Power of These Giants Going Unrecognized
Despite their extensive control over manufacturing and service companies globally, these investment funds are not recognized as multinationals by UN Conference on Trade and Development (UNCTAD). If they were, "they would easily displace the top 10 corporations" on UNCTAD's top 100 non-financial multinationals, the IUF's Peter Rossman and Gerard Greenfield write, adding:
"General Electric, ranked first in UNCTAD's list, controls less foreign assets and employs fewer workers overseas than either Blackstone, Carlyle Group, or Texas Pacific Group [three leading investment funds]."
Further, employment figures are also incomplete in national data, since statistical agencies still have no category for the relatively new financial institutions. "Up to one-fifth of non-public sector workers in the United Kingdom, for example, are now employed in companies controlled by private-equity funds," Rossman and Greenfield report.
Their study, "Financialization: New Routes To Profit, New Challenges for Trade Unions," published recently in "Labour Education," a quarterly of the ILO Bureau for Workers' Activities, is an initial step in analyzing this global phenomenon and its impact on workers and their unions. A section of the IUF Website, Buyout Watch, is devoted to specific cases of how investment funds buy up companies, strip them of much of their assets, fire workers, sometimes close down even profit-making firms, and otherwise carry corporate irresponsibility to new extremes.
In short, this revolutionary change is quietly transforming the leadership role of corporate executives. They now must act less like managers and more like frantic traders on the floor of the New York Stock Exchange.
The world's trade and investment regime promotes this revolutionary change. To help reverse it, Congressional lawmakers must revise U.S. trade and investment policy, but first they will have to hold hearings to inform themselves and the public on what is going on.
Making Firms Behave Away from Home
Imagine living in a community that has a mine owned by a global corporation. The corporation forcibly evicts many of your neighbors from their homes. It contaminates or depletes your water supply. It strips your woodland. It pollutes the air enough to endanger the health of your children. If you get together with your neighbors to protest such abuses, you find yourself facing reprisals, even death threats.
That could be your fate if you lived in a poor country that has opened its borders to a large Canadian mining corporation. So says Grahame Russell, co-director of a Canadian NGO, Rights Action, drawing largely on the experiences encountered by mining-affected communities in southern Mexico and Central America.
Poor Countries Powerless To Hold Foreign Investors Accountable
"In the exploited countries of the global south," he explains in the April issue of his monthly newsletter, "peoples and communities harmed by multinational mining companies have no way to prevent or remedy environmental and development harms and human rights violations caused by mining. They have no way to hold the companies and investors accountable, neither in the country where the harms and violations occur, nor in the home country of the companies and investors."
As a result, a Canadian parliamentary committee in 2005 proposed legislation that would hold Canadian corporations accountable for the environmental and human rights violations caused by their mining operations. Now an influential advisory group is opposing that legislation. It recommends developing a Canadian Corporate Social Responsibility Framework without any enforceable or binding rules..
"A complete abandonment of responsibility," Russell writes. "Binding legislation -- criminal and civil -- must be passed in Canada so that persons and communities negatively affected [by multinational extractive industries] can initiate or support criminal legal cases in Canada against the companies and investors."
* * *Yahoo Sued in U.S. For Human Rights Violations in China
In a lawsuit filed April 18 in U.S. District Court San Francisco, a Chinese imprisoned in China accused Yahoo of abetting his arrest and torture by giving Chinese police information that identified him as a published advocate of democratic reforms. Wang Xiaoning, now in a forced labor camp, filed the complaint in behalf of himself, his wife, and other pro-democracy activists under American laws, including the Federal Alien Tort Claims Act (ATCA) and the Torture Victim Protection Act.
ATCA, according to a UN report on human rights and business, is "the largest body of domestic jurisprudence [anywhere] regarding corporate responsibility for international crimes." The Bush administration and large business organizations have tried to persuade Congress to repeal it, so far without success. (See "Multinationals Fight Human Rights Law.")
Investment Agreements 'Unbalanced': Stiglitz
The debate about free trade today is not just about trade but about a bundle of issues packaged under that label. Unbundling them contributes much to clarifying the controversy and opening the way to solutions serving the common good. A leading economist, Joseph E. Stiglitz, has made a large contribution by highlighting international investment rules and their lack of balance.
Global rights granted to multinational corporations must be balanced by enforceable responsibilities, a top-ranking U.S. economist said on March 28 in an address to the annual convention of the American Society of International Law in Washington, D.C. Joseph E. Stiglitz, Nobel laureate in economics and professor of economics at Columbia, developed that theme in a lecture pointedly titled "Multinational Corporations: Balancing Rights with Responsibilities."
Since multinationals have brought "enormous benefits" to the world, "why then are [they] subject to such vilification?" Stiglitz asked. His answer: because of a gap in international law, multinationals have been free to exploit their economic power to get special treatment. General Motors' revenues are greater than the combined GDP of 148 countries, Wal-Mart's are larger than the combined GDP of sub-Saharan Africa, he pointed out.
'Abroad, They Act in Ways They Wouldn't at Home'
Many multinationals, Stiglitz said, use their great power
From a perspective generally ignored, Stiglitz blamed those problems largely on weaknesses in international investment rules. He noted that it is "hard to think of a successful American economy with only state laws, with no way of dealing with cross-border disputes." On the global level, that "gap has begun to be filled by a series of investment agreements," both bilateral investment treaties (BITs) and investment sections of free trade agreements.
- to get legislation that "benefits themselves, short-circuiting environmental, health, and worker regulations," or "simply persuading governments not to enforce existing regulations."
- to get other types of special treatment (notably in taxes), thereby creating an "unlevel playing field, disadvantaging domestic businesses."
- to hide behind national boundaries to "engage in practices abroad that they would not engage in at home" and to escape penalties that they would face at home.
- to sometimes "engage in massive cheating in hard-to-detect ways."
These treaties and agreements are "more concerned with [foreign investor] rights than responsibilities," Stiglitz charged, and they often "provide foreigners with more rights than domestic investors." He blamed the lack of balance in U.S. agreements on legislation "pushed through Congress in a fast track process, without adequate debate either [by] the Administration, Congress, or the public."
Stiglitz urged that both existing and future investment agreements be shaped within a legal framework that would, among other things, protect workers and the environment, permit the extradition of corporate officials for grievous violations of law, and replace the present secret method of arbitrating investment disputes with a system that is open and fair.
Spotlighting Little-Known Non-Trade Features of 'Trade' Agreements
The significance of his lecture, co-sponsored by American University's Washington College of Law, is that it spotlights little publicized non-trade provisions in "trade" agreements that protect the rights of investors and intellectual property owners.
You may argue that, all things considered, the good that multinational corporations do far outweighs the bad. Perhaps. But that misses a crucial point. The current global trade/investment system bestows on multinational corporations global rights (and thus global powers) that are not matched by corporate responsibilities or accountability. That is a fact. Undeniable, and, if you believe that laws must be just, it is unacceptable.
Applying Principles To The Real World
According to a Chinese proverb, good seeds not planted grow not. Or, to make the point another way, moral principles are not self-implementing.
That wisdom certainly applies to the principle enunciated (above) by Joseph Stiglitz. Fortunately, serious efforts are underway to implement the principle that global rights granted to multinational corporations need to be matched with obligations, particularly in the area of international investments. Here are the leading examples of such efforts:
Of course, to have a significant effect on the real world, there's still a long, long way to go. Check "Making Mining Companies Behave Away from Home" above.
- The Canada-based Institute for Sustainable Development is developing and promulgating a "model international agreement for sustainable development," whose preamble calls for "an overall balance of rights and obligations in international investment between investors, host countries, and home countries." The current and proposed U.S. trade agreements are notoriously unbalanced, one-sidedly loaded in favor of investors. (See "Linking Global Rights with Responsibilities.")
- In a pioneering move for a human rights organization, Amnesty International is focusing attention on the human rights implications of international investment agreements. Its 56-page report, "Human Rights, Trade and Investment Matters," is must reading for everyone involved in trade policymaking, as well as for economists in academia.
- In his UN-mandated study of the human rights responsibilities of corporations (see "Global Permissiveness toward Corporations"), Professor John Ruggie of Harvard so far has "neglected the immense role that trade and investment agreements (and treaties) perform in shaping the human rights responsibility of business," as I pointed out to him in an April 9 email calling attention to Stiglitz's talk on balancing corporate rights and responsibilities. Ruggie replied: "I've got someone working full time on the subject."
- The International Finance Corporation, the arm of the World Bank that lends to the private sector, last year adopted new social and environmental standards for the billions of dollars in financing it provides each year for development projects carried out by the private sector. (See "Labor Standards for World Bank's Private Sector Loans.")
- Launched in 2004, Corporation 20/20 draws on 170 leading theorists and practitioners from business, law, labor, civil society. and government to develop ideas and a strategy to "embed social purpose" into the DNA of corporations. In six workshops thus far, the latest in San Francisco in November, this Boston-based initiative has examined redesign issues such as corporate law and charters, corporate personhood, shareholder primacy, and international human rights norms.
- A Senate bill, "Decent Working Conditions and Fair Competition Act," would outlaw imports of clothing and other goods made under sweatshop conditions. It is an example of an action that the United States itself can take instead of relying exclusively on international organizations and petitions to foreign governments.
Business Codes 'Too Weak for the Job'
In response to campaigns to eliminate sweatshops, multinationals have adopted corporate codes of conduct and monitoring systems in a wide range of industries, including toys, apparel, sporting goods, mining, coffee, diamonds, and mining. In an article titled "Too Weak for the Job," Don Wells, political science professor at McMaster University, draws on extensive research in two of those global industries -- athletic footwear and garments, both sweatshop-afflicted -- and finds that their codes and monitoring systems have produced "little progress in improving labor standards."
Wells distinguishes three types of "third-party" code monitoring systems: 1) for-profit accounting firms offering services to multinationals, 2) non-profit, business-controled organizations created by corporations serving member multinationals (e.g., the Global Alliance for Workers and Communities), and 3) non-profit, "multi-stakeholder" nongovernmental groups (such as Fair Labor Association and Social Accountability International), which he says "have a degree of autonomy" from the multinationals. He find all three seriously ineffective because of internal and external constraints.
'Soft Power' of Codes Needs Hardening
Does it follow that the corporate code of conduct approach should be abandoned? No, and Wells himself does not say so. His catalog of constraints amount to a list of deficiencies ("structural limits") that are not inherently the fault of the codes themselves. For example:
In the final sentence of his article, published in the academic journal Social Policy, Wells writes that "the 'soft-power' of the 'NGO-industrial complex' [the present code of conduct system] is too weak to regulate international labor standards effectively." Very true. But it does not follow that this "soft power" is worthless and needs to be abandoned. Instead, in my view, it needs to be hardened.
- At present the codes cover a very small part of the global production and distribution chain of goods and services. In the global apparel export industries, with at least 200,000 factories, the monitoring capacity is "picayune," limited to companies with brand names to protect. But should that weakness lead to junking the system or to strengthening it?
- Code monitoring is now largely confined to multinationals with the brand names of consumer products to protect. But what about extending the code movement to multinationals with no brand name products but with corporate reputations to protect?
Ironically, one way of doing so is to sharpen criticism of corporations with weak labor codes or none at all. Beyond that, the instruments to promote change are legion. Some are mentioned in this issue. A vital one is changing U.S. investment legislation so that, instead of promoting sweatshops, it discourages them.
How To Protect Our Children's World
"Some of the worst consequences of environmental damage, such as global warming and the death of the oceans, we once believed would not occur in our lifetime. But today we realize that many of these problems are upon us now and, if we do nothing, will devastate the world of our children....An essential part of our moral responsibility as union leaders is to defend the long-term interests of working people. It has been said that we inherit the earth from our parents. But, in reality, we borrow it from our children. It is our children's world. We must not fail to protect it."
-- from "Securing Our Children's World: Our Union and the World," a report by the United Steel Workers, which has 850,000 members in the United States and Canada
Human Rights for Workers: Bulletin No. XII-5 May 2007
Robert A. Senser, editor
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