Welfare and Social Issues

The Free Trade Fairytale

Industrial or emerging countries, with national markets being opened or protected, whether it’s about trade in or between individual countries or state communities: It’s always about interests, power, influence, yield and questions of distribution. This is exactly why the trade system is able to define the national and international balance of power. When trade structures are re-shaped or changed, there are always winners and losers. The only question is: who will be on which side in the end?

Currently we are experiencing multiple fights of this kind. The planned trade agreement between the EU and the US (“Transatlantic Trade and Investment Partnership” – TTIP) and a similar agreement between the EU and Canada (“Comprehensive Economic and Trade Agreement” – CETA) are the best known of these. Negotiations by over 50 states about TiSA (“Trade in Services Agreement”), so far entirely secret, have received only little attention. Behind closed doors, the EU commission is leading numerous additional negotiations on behalf of its member states, for example with Singapore, China, Vietnam, and more or less all African countries and economic regions (such as ECOWAS and SADC), in the context of the Economic Partnership Agreement (EPA).

Bypassing Democracy

However, the EU’s many parallel negotiations are only one part of a global development: Other world regions, too, want to have trade agreements. For example, why should TTIP have top priority in the US over an agreement with their pacific adjacent states (“Trans-Pacific Partnership”, TPP). Wouldn’t an agreement for all make much more sense? Couldn’t the international community not simply get together and negotiate an agreement for everyone? There currently is an attempt but it’s stuck. The WTO’s so-called “Doha Round” has been going round in circles for nearly 15 years now. From a democratic perspective, the reason for this is as plausible as it is shocking: There’s too much democracy in the WTO – a grotesque finding, given the anti-globalisation protests of the past. The WTO follows the rule “one country, one vote” and everything happens in a more or less transparent way.

The supposedly weak developing countries no longer wanted to subordinate themselves to the industrial countries’ demands – and thanks to “One country, one voice” they didn’t have to, either. This is why there are now bi- and multilateral negotiations taking place outside the WTO, in which a dominant partner can easily push for its aims. The potential for blackmailing is a lot bigger here, as seen for example in the EPAs of the EU with African countries, which even the German Commissioner for Africa, Günther Nooke, publicly criticised. Through the treaties, the EU wants to develop new markets for its industries and at the same time secure permanent cheap access to resources. Only then can Africans receive access to the EU market, which, at the moment, is still essential for them.

The freedom of action of sovereign states vs free trade

At its core, free trade is a fairy tale because, with or without state influence, the interests and power differences between the actors, which lead to a lack of freedom for some, remain. Therefore trade needs strong, transparent rules to balance out this conflict of interest. Today, “survival of the fittest” must not be an option anymore. TTIP, CETA, TiSA, the EPAs and all the other treaties only ostensibly bring free trade, while in fact they limit our freedom to shape trade and thus the freedom of sovereign states.

As tempting as the label “free trade“ might sound, it is misleading and covers up the accompanying redistribution of power and influence. It is these redistribution effects that we need to turn our attention to. Economist Joseph Stiglitz doesn’t shy away from unmasking the real motivation: corporations are trying to push for their interests, which they could never implement in open and transparent processes, in secret negotiations. The dogma that more trade (and free trade in particular) is good per se, isn’t valid: trade severely limits governments’ freedom to act for the common good.

The big lie of jobs and growth

The promises that German Chancellor Angela Merkel and her economics and Vice-Chancellor Sigmar Gabriel keep making are interesting: growth and jobs. However, this focus on growth is worth finally being questioned by politics too. The North Atlantic Free Trade Agreement between Mexico the US and Canada (1994) clearly shows what we should expect from such promises. Mexico was promised industrialisation and the creation of an enormous number of jobs. However, in the agricultural sector alone, Mexico has lost two million jobs while there was no sign of industrialisation. Mexico has become the United States’ extended workbench. Social structures that had been fragile before continued falling apart, followed by an enormous mass exodus. This also had a negative effect on the US economy because the influx of migrants significantly lowered the average salary in some sectors. NAFTA also increased the process of industrial concentration, which is already per se destroying jobs. Thus the agreement also had negative effects on the US – only the corporations benefitted.

Apart from further foreign direct investment, Canada was mainly promised a more diversified, more efficient and more knowledge-based economy that was supposed to close the productivity gap to the US-American economy. Foreign direct investment has, in fact, increased but particularly in the form of acquisitions that have been accompanied by concentration processes too and therefore also had a negative impact on the job market.

Today, Mexico’s economy is growing comparatively quickly, from which the middle class is also benefitting. However: A country that has reached the bottom both economically and socially, like Mexico, can easily reach positive economic growth. But social tensions and the fast-paced development of the corrupt Mexican system (that is the drugs and arms trade under state supervision), going along with the dissolution of functioning state structures, have been enhanced by NAFTA.

The free trade agreement between Peru and the US is another widely analysed example, in which reality falls short of the promises. Up until 2011, Peru had a positive trade balance sheet towards the US – today it is negative. Imports from the US have increased rapidly; the impact on the job market is therefore negative. Labour rights have been reduced, to the disadvantage of Peru’s social structure. In the health sector, there was a huge concentration process of the pharmaceutical companies. Protected by the patent law, they increased prices for their medicaments, some of which have multiplied by twenty. Until today, Peru refuses to publish an official evaluation report of the free trade agreement.

In both cases, it was not the US citizens that have gained, but mostly the US corporations.

It’s all about profit

Other countries are interested in not only serving as new markets but also as production location. Private investors on the other hand are asking for an as high as possible protection of investment, which is alright to do. However, its implementation doesn’t work. The arbitration courts only serve one purpose: investment share protection. Other aspects, such as health, preservation of the ecosystem or social balance don’t play a role here because they aren’t part of private trade and investment agreements. Hence there is no weighing of interest. It’s all about profit; ecological and social rights are being subordinated to it. As a result, investment and profit become the top values of our social order. And exactly this is the step backwards into the 19th century. Ever since the age of industrialisation, labour unions and political parties, too, have been fighting against this social dominance of the capital.

Today we can see a clear increase of the corporations’ enforcement power at the expense of states and their citizens again. This tendency will be further enhanced by the upcoming treaties and arbitral jurisdiction.

The arbitration court process is a private legal system that has been established outside of state courts and even discriminates against national companies in favour of foreign ones. This problem can’t be solved by more transparency or the introduction of a second instance. Any reform is doomed to failure because it can’t tackle the core of the arbitrary courts. Accordingly, the only option is to get rid of them, referring to national jurisdiction and, as a final instance, the establishment of an international, standing arbitration court.

“Regulatory cooperation”

Even though it receives less attention, the planned construct of „regulatory cooperation“ has an enormous anti-democratic potential. The current proposal for TTIP defines how future regulations and standards should be enacted in the context of “regulatory cooperation”. Affected corporations will be given exclusive and even institutionalised access to influence the legislation process – maybe before or even without the European and US-American parliaments.

While today in the EU, any kind of regulation is accompanied by legal consultation of the European Parliament and the Council of Ministers (and therefore indirectly of the national parliaments), it is questionable if this will remain the case following the negotiations on TTIP. Here, too, one can see an intended shift of power and influence away from the citizens and their elected representatives in the parliaments towards corporations. This would be tantamount to an enormous cutback of democratic principles.

Public supply – guaranteed demand with guaranteed gains

Also very close to the citizens yet completely underrepresented in public discourse is the possible impact of TTIP and CETA on the public service sector. Water, wastewater treatment, waste collection, street cleaning, hospitals and nurseries: transatlantic trade agreements and particularly TiSA make these public services subject to privatisation. Having some of these services carried out by private companies isn’t a huge problem but these agreements would make the process irreversible. Re-communalisation of i.e. formerly privately organised water supply wouldn’t be possible.

It is undisputed that in this area, transparency of public services, too, needs to be improved. However, also in future the democratically legitimised right of parliaments and councils to decide who should offer which services must not be touched. The citizens’ public welfare interest needs to be of top priority in that decision.

Scaring people doesn’t count

Gabriel’s and Merkel’s threats are ludicrous: If we don’t set standards with the US, they will do it with China. This is not about red direction indicators or standardised electric sockets; we don’t have them in Europe either. Germany’s Chancellor and Vice-Chancellor are trying to scare people with a phantom discussion. Unfortunately this partly works because they hardly explain the necessity of international standards and thus create something mystic and threatening about it.

It is a fact that has a huge power of demand, with a vast industry and over 500 million consumers. If this market asks for machines with this or that function or feature, then neither US-American nor Chinese producers will refuse to produce and deliver them and vice versa.

Our system relies on competition, which is based on a permanent advancement of standards. Products should be more durable and easier to fix, be produced in a resource-conserving way and use less and less energy. This is market competition. Together with the introduction of an efficient recycling system, price competition will gain momentum in the future. Standards are defined by exactly these and further criteria, such as reliability, quality of service, introduction of new technologies, pace, precision technology and usability – and not by yellow or red direction indicators.

What is the politician’s responsibility?

One basic question remains: Why are there members of parliament who don’t want to fulfil their duty of politically shaping their country’s social structure? There are many possible answers to this. Some don’t grapple with it at all and adopt what the party hierarchy tells them. Many are still convinced of a positive impact of a free – and thus interest and power dominated – market, too. They believe that “the market will sort it out” and have a dim-wittedly devoted relationship to the neoliberal economics message.

However, these members were elected and have taken on a clear task that was defined by the voters. Representatives who sign TTIP & Co. don’t only give away rights; they discharge heir duty to take social responsibility, too. They also make it impossible for future representatives to fulfil these rights and duties. Once the treaties are signed, they cannot be taken back. However, this would be a clear transgression of their competences because they need to deal with societal development and don’t have the right to rid themselves of this task through treaties. While it is possible in some cases to transfer decision making and development tasks onto third parties, these decisions must be reversible. It is against democratic principles when future representatives’ competences are being cut by the signing of a treaty.

And finally…

Until recently we were under the impression that the protest was mostly based in Germany while other countries remain rather neutral towards this issue. However, the past weeks have proven this wrong. In many European countries, and also in the US, considerable resistance has risen. Some countries, amongst them the often trade-sceptic France but also the traditional trade nation Netherlands, have expressed their concerns about the treaties in parliamentary votes. And even the self-organised European Citizens’ Initiative against TTIP managed to raise the required number of signatures in nine EU member states in less than three months. In future, neither Gabriel nor Merkel will be able to point that that it wouldn’t suit Germany well to be the only country voting against TTIP. The opposite is correct. It becomes clear that Germany again is spearheading privatisation on a European level.

 

This article was first published on the website of the Heinrich Boell Foundation.

Newsletter

Sign up to the newsletter for handpicked highlights of articles, interviews and translations published each month.

Select the language(s) for which you would like to receive notification :

Select the theme(s) for which you would like to receive notification :

Cookies on our website allow us to deliver better content by enhancing our understanding of what pages are visited. Data from cookies is stored anonymously and is never shared with third parties.

Find out more about our use of cookies in our privacy policy.