Vol. XII, Bulletin No. 8                                                     August 2007
Debates Ignoring Globalization Issues

Too hot to handle?  Strangely, free trade is getting almost no attention in the U.S. Presidential debates. The silence favors those with an interest in preserving the present system of globalization. 

Discontent with the system, a puzzling patchwork of trade and investment rules stitched together over the past 60 years, is widespread. In the United States, despite repeated White House requests, the Congress declined to renew the law on U.S. trade and investment policies and procedures, which expired on June 30. On the global level, the six-year-old "Doha" round of global trade talks under the World Trade Organization is stalemated.

Voices for reform are growing.  In Geneva last month, representatives of over 90 civil society organizations from 35 countries, developed and developing, urged the world's trade ministers to recognize that the Doha round is dead and that a moratorium is needed to develop a new framework of multilateral trade rules.  In the United States, the International Relations Center, a policy institute based in New Mexico, this May said that Congress must take the time to "take a deep look at the way [present and proposed] agreements are restructuring our economy, our communities, and our foreign policy" (see "Moratorium Urged for New Trade Laws").

Protection for Business under the Guise of 'Free Trade'

But these and other demands for reform are being ignored, even in the Presidential campaign. Public debate would bring to light the evils of the present system -- for example, that it is strongly protectionist and mercantilist in protecting the global power and profits of the U.S.-based multinational pharmaceutical and banking industries, all under the banner of "free trade."

Economist Thomas I. Palley makes an economic case for "Rethinking Trade and Trade Policy" in a public policy brief of that name published by the Levy Economics Institute of Bard College.  He argues for a "new policy agenda" that, among other things, would bring corporate interests into alignment with the national interest.  At present, the two are divergent, as he explains:

"Profit maximization by firms contributes toward the maximization of global output, but it does not necessarily maximize [U.S.] national output. This divergence between the national interest and interests of the corporations is not yet understood by national policymakers."

A new U.S. policy agenda, he adds, should also take into account important differences across countries, in order to avoid the danger of being "outgamed by other countries."  For example:

"American corporations are free to choose business strategies on a global basis, without regard to the national interest.  In contrast, the Chinese government exerts significant control over corporations, and the national interest is factored into business strategy.  From a national perspective, that means China is advantaged relative to the United States...."

A public debate would promote greater understanding of such pressing trade issues, and could lead to reforms that are fiercely resisted by corporate lobbyists who contribute heavily to both political parties.

Rethinking Censorship, Google, and Free Trade
Should  U.S. trade policy be modernized to cover the Internet?  Yes, says Google Inc. Under Beijing’s orders, Google's self-censors its Website in China. Embarrassed by criticism of its collaboration with China's repression, Google is lobbying Congress and the U.S. Trade Representative (USTR) to make government censorship of the Internet illegal under international trade laws. 

"It's fair to say that censorship is the No.1 barrier to trade that we face," says Andrew McLaughlin, Google's director of public policy and government affairs. A Google spokesman told AP in June that McLaughlin met with USTR officials several times this year to urge them to regard government-enforced censorship as a prohibited restriction on free trade.

USTR spokeswoman Gretchen Hamel's response, according to AP, was: "If censorship regimes create barriers to trade in violation of international trade rules, the USTR would get involved." Translation: censorship doesn't violate existing trade rules.

Technology Has Advanced Beyond What WTO Pacts Assume

But it should, insists a scholar on telecommunications and trade law. In a 2006 paper on "The World Trade Law of Internet Filtering [Censorship]," Timothy Wu, associate professor of law at Columbia University, wrote: "As a condition to accession to the WTO, [China] agreed to what has been called a 'radical' reform of its service practices. Yet at the same time China is among the world's more active filterers of Internet services....These two positions are in tension, and while WTO law leaves much room for exceptions, some of China's restrictions may not be easily justifiable under the GATS [General Agreement on Trade in Services]."

Yet those restrictions are being justified, as Dr. Wu recognizes. "Internet services have leapt beyond what was contemplated in GATS or subsequent telecommunications agreements," he noted in his paper. "The universalization of a network that is a platform for any type of service requires new thinking about how barriers may come about, and how sectoral commitments are interpreted." 

New thinking. That is exactly what is desperately needed about all the international trade and investment policies patched together since the end of World War II.
   
Congress did the world a favor by refusing the repeated requests of President Bush and his Cabinet to renew the 2002 law on "Trade Promotion Authority" (TPA) and letting it lapse at midnight on June 30.  For the past five years TPA served as the guide for international trade and investment negotiations, impacting first of all the U.S. government's own bilateral, regional,  plurilateral, and multilateral negotiations but also far-flung U.S. negotiating partners, including the WTO’s 150 member countries. 
   
That important guide is outdated.  What it does, and what it does not do, both need modernization.  Government censorship of the Internet is just one example among many new developments that require attention. There are so many, in fact, that they add up to a strong case for comprehensive trade reform, but not in the frenetic mode of the failed attempt at comprehensive immigration reform -- and not in one large, cumbersome package.

A Myriad of Issues: Unbundling Necessary
   
The various issues, unbundled, should be examined more or less separately, and reformed in stages. Where to start? 
   
Although the constitution (article 1, section 8) assigns the power to regulate foreign commerce to Congress, primacy in that role has gradually slipped over to the White House. TPA, once called "fast track," gave the Bush White House the dominant role through a tightly orchestrated procedure whereby it negotiated and signed trade agreements running thousands of pages each, and presented them to Congress for passage under a limited time frame, bypassing normal committee hearings, and without the right to make amendments, only to vote yes or no.  
   
Apart from influential people who believe that universalizing the U.S. model of free trade is a goal so noble that it justifies any means, "fast track," or TPA, has long been controversial. Congress repeatedly withheld it from President Clinton.  Even the Republican House of Representatives approved it for President Bush by only 215-212, and only after intensive administration lobbying that lasted until 3:30 o’clock one morning in late July 2002.

Re-thinking that trade-making role is a priority. Keeping the executive branch in charge of so much power -- the power to wrap up a trade deal and ship it over to Congress, telling the legislative branch hurry, take it or leave it -- is absurd.  (See "'Trade Promotion' as a Lever of Power.")

A Global Reversal of Real Values
"Initially, in the 1970s, it was changes in the real economy, in the form of multinational manufacturing enterprises aggressively expanding their international presence, that drove changes in the financial sector.  Banks responded...by following their corporate customers abroad, establishing overseas branch networks, and expanding their cross-border capabilities....More recently, the causality of the relationship reversed itself somewhat, with the rapid globalization of financial markets driving many of the changes in the real sector." -- Global Public Policy by Wolfgang H. Reinicke.

That reversal, as described by Reinicke, an economist then at Brookings Institution, has greatly accelerated since he published his book in 1998.  General Motors and General Electric, and their corporate peers in Japan and Germany, are still Big Names on the international landscape, but more and more of the movers and shakers today are a new breed of corporate collectives -- private equity funds.  Under names such as Carlyle Group, the Blackstone Group, and General Atlantic, they are known to diligent readers of financial news but remain a mystery to most people.

A large global labor federation, the International Union of Food and Hotel Workers (IUF), has a very direct reason to demystify them. The IUF's 12,000,000 members world-wide work in industries whose companies are prime targets for disruptive buy-outs.

A new 36-page IUF report, "A Workers' Guide to Private Equity Buyouts," describes the sheer volume of money deployed.  In 2006 the funds spent over $725,000,000,000 buying out companies -- an amount equivalent to buying the national economies of Argentina, Poland, and South Africa combined.  In just five years, the funds "have established themselves as major short-term owners of companies employing hundreds of thousands of IUF members."  Moreover, with the size of buy-outs growing, "virtually no company in which our members work is immune from takeover by private equity funds."

Corporate Structure Expands, Corporate Responsbility Shrivels

But isn't change -- constant change, even massive change -- a healthy sign in the global economy?  No, not this radical change, the IUF argues. That's because a private equity buyout creates a weird corporate structure that has no stake or responsibility in an acquired company except to suck the most cash out of it in the shortest period of time. The IUF report explains how this is accomplished.  For example:
"Reversing and re-regulating the deregulation of past years can choke off the more destructive destinations for investor capital and channel it back to useful investment which benefits society as a whole," the IUF report states.  "Regulating the buyout business and its financial workings is an urgent task of social self-defense.  Meeting this task will take trade union action, at national and international levels, to ensure that the funds are curbed and rolled back."

(For examples of how this "financial re-engineering" works, check the IUF's Private Equity Buyout Watch.")

Making Things Vs. Manipulating Money
Gretchen Morgenson, a Pulitzer-Prize winning financial columnist for the New York Times and a former stockbroker, was a guest on Bill Moyers'  June 29 broadcast on PBS.  Among other things, they discussed the growing inequality in the United States and how Wall Street policies contribute to it.  Here is an excerpt from that dialogue:

Moyers:  Are we living in a Gilded Age?

Morgenson:  Absolutely.  A new Gilded Age.  Except this time around, instead of when we had Vanderbilts and Goulds and Morgans and -- pick your name --

Moyers: ... Rockefellers...

Morgenson:  ...building physical assets that produced goods that people bought or transported....

Moyers:  ... railroads, steel firms...

Morgenson: ...goods.

Moyers:  ....right, right.

Morgenson:  Now, this Gilded Age is all about pushing paper around and making money on money.

Moyers:  Financial engineering.

Morgenson: Financial engineering.  Exactly.

U.S. Multinationals Boost Trade Deficit with China
"The U.S. trade deficit in goods and services was $60 billion in May. A third, or $20 billion, was with China."  Compare that statement (from July 12 and 13 press reports) with:  The U.S. trade deficit in good and services was $60,000,0000,000 in May.  A third, or $20,000,000,000, was with China.

Same data, but which of those two statements is more revealing?  

Even more revealing is the size of intrafirm trade -- trade within two branches of the same multinational corporation -- and how much it contributes to the huge U.S. trade deficit with China.  Take a look at a U.S. Census Bureau report providing detailed data on U.S. merchandise trade, including on intrafirm goods imports from China.

In 2006 the United States imported $287,052,000,000 in goods from China, a total exceeded only by Canada.  Of that, $70,701,000,000, or 24.6% of the total, consisted of imports by U.S. multinationals from their subsidiaries in China as well as imports by U.S. subsidiaries from their parent companies in China. 

So why are U.S. cabinet secretaries journeying to Beijing so often to complain about the ever-increasing U.S. trade deficit with China?  They would be smart to start at home by investigating how U.S.-China corporate partnerships facilitate the one-way mass movement of dollars and jobs across the Pacific.

Warning Label for Products of Economists

In his debut as a periodic columnist for the New York Times business section, N. Gregory Mankiw, Harvard economist and Republican policy advisor, made this pointed observation in the paper's July 15 issue:

"Fairness is not an economic concept.  If you want to talk fairness, you have to leave the department of economics and head over to philosophy."

Outside of academia, however, strict compartmentalization of that kind is uncommon.  In the real world, people are often led to believe that judgments of economists have normative value.  In accordance with Mankiw's cautions, they ought to carry a label like this: "WARNING: This statement is purely economic, not about fairness or unfairness."

Costa Rica's Referendum on Trade Agreement

Disputes about fairness haunt almost all trade agreements, and none more so than the U.S.-Central American Free Trade Agreement (CAFTA), which the U.S. House of Representatives narrowly approved by two votes early one morning two years ago.  Meanwhile, four of the five Central American countries have ratified CAFTA. 

The exception is the most prosperous and most democratic among them, Costa Rica. The country is so sharply divided on CAFTA's fairness that the decision on ratifying it has finally been put up to the Costa Rican people.  Nowhere has a national referendum decided the fate of a trade agreement.  It will happen in Costa Rica on October 7.

The government, led by President Oscar Arias, supports CAFTA, as does organized business and the press.  Otton Solis, head of the Citizen's Action Party, who lost to Arias by 18,169 votes in last year's elections, is leading an opposition campaign that includes unions, community associations, and other groups, including much of the Catholic Church. 

Arias himself made a trip to Rome a year ago in hopes of getting the Vatican to intervene on the pro-CAFTA side.  Two weeks later the Costa Rican Bishops issued a letter saying they would support a free trade agreement only if it included a "social agenda" dedicated to protect the poorest sectors of society -- a position consistent with the Solis campaign slogan: "No to THIS free trade agreement."

Imposing Single Model on Many Diverse Countries

"No to this CAFTA" was the title of a talk that Solis gave in Washington on July 25 at a debate organized by the Economic Policy Institute.  Solis argued that, instead of CAFTA, Costa Rica wants an FTA fit "for the age of democracy,...[in which countries] design and agree upon their OWN strategy of development."  CAFTA, he charged, turns this upside down, and imposes an identical model on countries as diverse as Nicaragua, Peru, Morocco, and Costa Rica.

"Are the rules for economic development as absolute and universal as [those for] human rights, sports, and religion?" he asked.

In a litany of specific complaints against CAFTA, Solis identified CAFTA's protection of foreign investment rights as "the most serious problem" because it places foreign capital, or the rights of multinational corporations, above all else -- above the people, the environment, and labor, even above the Costa Rican government. The rights granted to foreign capital, he said, would unravel the institutional fabric responsible for Costa Rica's progress. Example: CAFTA-enabled opportunities for privatization would endanger the country's Social Security system. 

Moreover, in a dispute, foreign businesses in Costa Rica could by-pass the country's courts and demand that a World Bank-associated tribunal make and enforce a ruling that has no appeal.  (This procedure was criticized in a recent Oxfam International report.  See "Why Investment Protection Agreements Need Reform.")

Okay, You Do Your Protection, We'll Do Ours

Another major problem cited by Solis: in agriculture, CAFTA would enforce an "asymmetrical" position on Costa Rica, greatly harming its rural society.   The  agreement's "one-sided" nature would, for example, drastically affect a major commodity, sugar, by requiring Costa Rica to remove sugar import barriers even though the U.S. continues heavy subsidies for sugar production.  Protection of American sugar growers is America's business; Solis said; Costa Rica's is to protect the many farmers who would be driven into bankruptcy and poverty by cheap sugar imports.

In his talk at the debate, John Murphy, vice president of international affairs of the U.S. Chamber of Commerce, said it would "send up alarm bells" among foreign investors if Costa Rican referendum failed to approve CAFTA.

For more on the dramatic struggle underway in Costa Rica, check the EPI Website for links to Solis' slide presentation and an audio recording of the debate.  For other Catholic criticism of CAFTA, see "The Ethical Gap in Trade Agreements."

Seeking Justice Abroad Through U.S. Courts

It was an important story, 300 words long, that I had already written for this issue of Human Rights for Workers.  It might have been the lead story, because for the first time a jury was hearing a case against a U.S. multinational corporation charged with egregious human rights violations abroad under the Alien Tort Claims Act.  But that article became outdated at the end of July.  A jury in federal court in Birmingham, Alabama, exonerated the corporation, the Drummond Company of Alabama, of any complicity in crimes committed in its mining operations in Colombia.

Crimes, including murders, were indeed committed against Drummond workers, their families, and their union.  About that, no question.  But lawyers of the International Rights Advocates, an offspring of the International Labor Rights Fund, which filed the complaint in 2002, could not persuade the jury that Drummond itself was responsible.

A guilty verdict would have had a positive effect on corporate social responsibility in Colombia and beyond.  Undeterred, IRAdvocates continues to concentrate on that overall goal.  A new initiative is a lawsuit filed in Federal district court in Washington, D.C., in June, charging Chiquita Brands International with complicity in the murders of 173 people  -- husbands, wives, and children -- in the banana-growing regions of Colombia.  Still working their way through the U.S. court system are IRA lawsuits against ten other multinationals, including two, Coca Cola and Occidental Petroleum, in Colombia.


Human Rights for Workers: Bulletin No. XII-8      August 2007           

http://www.senser.com
Robert A. Senser, editor
Copyright 2007
(Send e-mail)

Back to Home Page