Vol. VI, Bulletin No. 5. April 3, 2001
How Property-Rights Protection Reaches Across National Borders
The Secrets Hidden in 'Trade' Agreements
An article on the front page of the March 11 New York Times' business section bore this headline: "NAFTA's Powerful Little Secret." The article's opening paragraph:
"Their meetings are secret. Their members are generally unknown. The decisions they reach need not be fully disclosed. Yet the way a small group of international tribunals handles disputes between investors and foreign governments has led to national laws being revoked, justice systems questioned, and environmental regulations challenged. And it is all in the name of protecting the rights of foreign investors under the North American Free Trade Agreement [NAFTA]."Under NAFTA, as the Times pointed out, corporations in the United States, Canada, and Mexico have some unusual transnational powers. They can reach across borders into a neighboring country, mount legal challenges against the government for laws, regulations, and even jury verdicts, and gain fines or policy reversals in cases deemed in violation of NAFTA's rules on property rights.
Examples of How Transnational Rights Are Invoked
Here are three of the specific cases cited by the Times (the sentences in quotes are taken from the Times story; the sentences in parentheses, from other sources):
- "The Canadian government lifted restrictions on manufacturing an ethanol-based gasoline additive that it considered hazardous after an American manufacturer said that the ban hurts its business." (The Ethyl Corporation, claiming the additive ban had in effect expropriated its assets in Canada, sued the Canadian government for $250 million, and won an out-of-court settlement for $13 million, plus withdrawal of the ban.)
- "A tribunal ordered [the government of ] Mexico to pay an American company [Metalclad] $16.7 million after finding that local environmental laws prohibiting a waste-processing plant that the company was building were tantamount to expropriation....Mexico has recently filed [an appeal]."
- "United Parcel Service, the package-delivery company, has filed a complaint contending that the very existence of the publicly financed Canadian postal service represents unfair competition that conflicts with Canada's obligations under NAFTA." (While seeking $156 million in damages from the Canadian government, UPS concedes that under U.S. law it cannot file suit against such "anti-competitive" practices within the United States--an illustration of how NAFTA exceeds national law, and a not-so-little secret not revealed by the Times.)
Better than anything else I've read, a report issued by the Canadian Auto Workers describes the "incredible new rights and powers" that NAFTA, in its Chapter 11, gives to private corporations, regardless of their nationality. Because of the new corporate legal right "to sue governments of other countries for passing laws which affect their actual or future business activities and profits,...governments can no longer implement legislation to protect environmental, health, and social standards without risking one of these investor-to-state lawsuits," the report says.
If the present plans of the U.S. government prevail, such cross-border protection of individual and corporate property rights will be extended to the whole 34-nation Free Trade Area of the Americas (FTAA). An early draft of an FTAA agreement will be reviewed April 20-22 at a Summit of the Americas in Quebec City, Canada. Demonstrators there will probably outnumber those at the World Trade Organization summit in Seattle in late 1999. Their chief theme at Quebec, as at Seattle: trade-agreement bias in favor of property rights to the detriment of worker rights and other human rights.
U.S. Trade Official Favors Adding 'Values' to Trade Agreement
In an interview last month with the Washington Post, Robert B. Zoellick, the new U.S. Trade Representative and thereby the lead official in negotiating and implementing trade and investment agreements for the Bush Administration, gave some clues to his approach. The resulting article in the March 13 Post was headlined "Getting Out in Front on Trade: New U.S. Representative Adds 'Values' to His Globalization Plan." The sections of the article that support the headline:
- "Trade policies, he said, 'must be fully aligned with our values,' lest the cause of free trade be undermined."
- "I'm convinced, whether it relates to child labor, forced labor, or HIV/AIDS--and I'm sure there will be others--that to be successful, I and my compatriots have to get out front on these issues."
Is the U.S. position on labor issues more "out front" and more "fully
aligned with our values" when it is presented in private negotiating sessions?
No, not according to a non-journalist who has heard an insider describe
it face to face.
The IMF's Bias Against Worker Rights
Despite U.S. legislation urging the International Monetary Fund to incorporate basic labor standards in its programs, "the predominant view at the IMF is that a country's adherence to those standards is usually not relevant to its macroeconomic condition and thus not directly relevant to the IMF's mission." So says a recent report of the U.S. General Accounting Office.
What explains this "predominant view"? The GAO writes:
"Conventional economic theory treats certain social policies, such as labor and environmental standards, as government interventions that can inhibit the efficient operation of markets and, in turn, overall economic growth. According to Treasury officials, since most IMF staff and country representatives are trained as economists, they are reluctant to pursue policies that their training tells them could be counter to IMF's goal of encouraging economic growth. As one Executive Director at the IMF expressed [it], the implication of promoting social standards in a country is higher unemployment."The GAO report, titled "Efforts to Advance U.S. Policies at the Fund" (GAO-01-214), examines three Congressionally mandated U.S. policies: 1) sound banking principles, 2) audits of military expenditures, and 3) labor policies. Of those three, the U.S. efforts to advance policies had the poorest results in the labor area, according to evidence provided in the report. The U.S. Treasury, the U.S. agency responsible for dealing with the IMF, and the U.S. Executive Director at the IMF "have not had much success in incorporating labor standards issues within Fund programs," in the words of the report. In plain language, the efforts have been a failure.
Labor Standards None of IMF's Business, Except to Undermine Them
GAO experts examined whether the IMF included labor standards issues in the programs of five borrowing countries: Argentina, Ghana, Kazahkstan, Mexico, and Thailand. It had not. Nor had its staff even discussed adherence to core labor standards with those governments. To the contrary, in at least the case of Argentina, the IMF "discussed reforms to enhance labor market flexibility," and as a result Argentina agreed on the need to decentralize collective bargaining.
In a footnote, the GAO report says: "In certain countries, the Fund has focused on increasing the flexibility of members' labor markets. Such conditions [in IMF programs] have been viewed by some as possibly counter to the goals of the U.S. labor standards mandate." As indeed they are. In other words, for the IMF promoting labor standards is not within its proper scope of work, but undermining them is. The GAO report passes over this contradiction.
According to a Treasury official quoted by the GAO, the Fund's policy "is due in part to conflicting academic literature on whether certain labor standards have beneficial or detrimental effect on economic growth." Note the qualifier: conflicting academic literature. But in face of this disagreement, the Fund clearly has its preference, and it is not on the side of labor standards. Usually that kind of preference is called a bias.
At a conference sponsored by the Washington College of Law and the AFL-CIO
in late February, a leading economist, Joseph Stiglitz, speaking from his
own first-hand observation of international financial institutions, charged
that they too frequently are guilty of an "imbalance" in how they evaluate
research. Since there's seldom "an open and shut case on anything," he
said, the important question is "What is the weight of the evidence?"
He criticized "the selective use of data on one side or other" to justify
predetermined decisions, particularly in regard to policies that inhibit
unions and collective bargaining.
Email from Head of Garment Workers International
'Be Relentless in Exposing Their Hypocrisy'
Nobody in the world has visited more sweatshops than Neil Kearney, general secretary of the International Textile, Garment, and Leather Workers Federation, headquartered in Brussels. After reading HRFW's March 8 article, "Enough! One Nike Scandal Too Many," he wrote: "Good to see your most recent comments." He added these comments of his own:We are increasingly finding suppliers saying they cannot meet the standards set down in most good codes given the prices they are being paid by clients in the US and Europe and given the delivery timelines demanded. Recently in China one manufacturer told me he was under constant pressure from overseas buyers to break the law on working time. From my own observations, I believe him.
Most merchandiser and retailers have now adopted codes of conduct. Some are not very good but others demand respect for the core conventions of the ILO and set limits on working time and provide for the payment of a living wage. However, demanding first-class standards cannot work when the same merchandisers and retailers are only willing to pay fifth-class prices and want delivery yesterday.
Very few are any different. Nike, Reebok, Adidas, the Gap, H and M [a large European retailer]--all are constantly pushing down prices [they pay for products] and giving shorter and shorter lead times. They cannot have it both ways.
One executive of a leading merchandiser recently told me that the delivery
schedule problem could easily be solved by the designers producing their
blueprints a couple of weeks earlier. But, it appears nobody in these companies
considers it sufficiently important to tackle this issue. Until they do,
I think we have to be relentless in exposing their hypocrisy.
--Neal Kearney, March 15