Is TTIP a Zombie Agreement?

                                                   ( Comments due by Oct. 5, 2014 )

The dispute over the planned TTIP transatlantic free trade agreement between the European Union and the United States goes far beyond the treaty itself, the reason being the tradition in which TTIP is grounded.

It is merely the most recent acronym in a constantly expanding family of abbreviations, its best known members including GATT, TRIPS, GATS, MAI, ACTA, CETA and TPP*.

The kinship between these and other international agreements of the past quarter century is obvious from a number of common factors.

More than forty years have passed since the collapse of the Bretton Woods system for the regulation of international capital transactions.

Since then, the belief in free trade has dominated not only economic scholarship, but also economic policy in practice. This has led to growing inequality and numerous economic and currency crises.

Instability has become a permanent state. These consequences, and the fact that protectionist China and Lula da Silva’s free-trade-sceptical Brazil have managed to become industrial nations, have done nothing to alter the dominant free trade dogma.

The lack of theoretical prerequisites for a “comparative advantage” of international trade relations such as full employment and the absence of capital mobility have not led to a rethink.

Following the abandonment of the Bretton Woods coordination, international treaties have been used to implement free trade policy as extensively as possible. Once again, we can see – as Karl Polanyi described it in The Great Transformation – that the establishment and intensification of market relations is a politically motivated project.

One of the reasons for the popularity of international agreements is the possibility for discreet negotiations. Consultations and resolutions on free trade agreements are undertaken in elite circles and arranged outside the daily business of parliamentary politics.

Diplomacy, expertocracy and corporate lobbyism dominate the formulation of international agreements.

Liberated from already much maligned party politics and without direct democratic control, the stakes are hammered in in the field of summit diplomacy. It is only at the very end, once all the important decisions have been taken, that national parliaments give these agreements their blessings.

The task of the elected democratic organs is thus essentially that of adopting secretly negotiated contracts into national law.
 

For the financial big-hitters of corporate lobbying in particular, international free trade agreements offer the perfect stage. They are practically handed a one-stop-shop for their interests, and they profit from a favourable emphasis on the relevant agendas.

The strong focus on trade, economic and investment issues, for instance, means that subjects such as human rights, environmental protection and cultural policy are considered and discussed solely from this perspective.

In the context of TTIP, for example, references are made to “non-tariff barriers” inhibiting trade when discussing various social, environmental and human rights standards, or a “cultural exception”, meaning provisions for the promotion of cultural tradition and diversity.

Of course, such an approach will not necessarily lead per se to a levelling of these types of standards – however, the practical implementation dominated by corporate lobbying generally has exactly this consequence.

The kinship in terms of content and form between TTIP and its aforementioned predecessors makes the agreement an un-dead treaty returned from the grave.

Zombie clauses such as investment protection measures, which did not make their way into previous agreements due to widespread resistance, have reappeared in and around the TTIP negotiations. We are looking at a “recurring dynamic of progressing liberalization projects, their partial weakening after protests, and their repeated adoption” (Oliver Prausmüller and Alice Wagner, Reclaim Public Services, 2014).

A straightforward rejection of TTIP or even of individual clauses and regulation areas is therefore not a sustainable strategy, but merely fights the symptoms.

Equally, turning our backs on multilateralism and returning to our national comfort zones is of just as little use. What we need instead is an end to this type of agreement developed under the banner of free trade and under exclusion of the public.

What we are lacking is ecological, social, cultural and tax-justice agreements drawn up with broad democratic participation.

Free trade could well be a subject in this context, for instance as a non-tariff barrier inhibiting justice.

*GATT stands for General Agreement on Tariffs and Trade (and led to the foundation of the World Trade Organization); TRIPS is a separately negotiated treaty in the GATT context on Trade-Related Aspects of Intellectual Property Rights; GATS stands for General Agreement on Trade in Services; MAI stands for Multilateral Agreement on Investment (an ultimately failed attempt at a multilateral investment protection agreement); ACTA for the failed Anti-Counterfeiting Trade Agreement; CETA stands for Comprehensive Economic and Trade Agreement (between Canada and the EU); TTP refers to the Trans-Pacific Partnership, a free trade agreement between states in the Asia-Pacific region.

Furniture Offshoring

A popular OpEd that speaks to the controversy about off shoring. Read it with an open mind.

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The subtitle of Beth Macy’s new book, “Factory Man” — “How One Furniture Maker Battled Offshoring, Stayed Local, and Helped Save an American Town” — gives every impression that it is going to be an upbeat read, a capitalistic feel-good story.

And, indeed, Macy, a former longtime reporter for The Roanoke Times in Virginia, doesn’t skimp on the story of a furniture baron named John Bassett III, her colorful main character, a Southern charmer with a fondness for quoting General Patton. After being pushed out of his family’s furniture company in (where else?) Bassett, Va., JBIII, as Macy calls him, buys into another, smaller company, Vaughan-Bassett, in the nearby town of Galax, right around the time that Chinese furniture manufacturers began to move seriously into the American furniture market with low-priced knockoffs of American furniture designs.

As furniture manufacturers all around him — including his family’s company — begin shuttering plants and start marketing and selling the Chinese imports, Bassett decides to fight back. Although he, too, has had to shrink his work force, he refuses to shut down his company, and he mobilizes others in the industry to charge the Chinese with dumping their goods on the market — that is, selling them below the cost of manufacturing them.

In 2005, the government did indeed conclude that the Chinese had been dumping furniture, and it put tariffs on Chinese furniture that helped make the Americans a little more competitive. Thanks to something called the Byrd amendment, some of the money from the Chinese went directly to Bassett’s company, which “invested $23 million in new plant equipment, put some in the employee profit-sharing plan, and used some of it to start a companywide free health clinic for families,” writes Macy. “The money saved upwards of 700 jobs in Galax, which, in turn, as some have argued, have saved the town.” Vaughan-Bassett has since become the largest wooden bedroom furniture maker in the country.

Surely, if they make a movie out of “Factory Man” — and I think there is a pretty decent chance they will — that will be the story line.

What is striking about Macy’s first book, though, is how little she does to make that made-for-the-movies plot stand out. Her wonderful central character notwithstanding, she’s really after something else: the effects of globalization on her little corner of the world, that is, the regions of North Carolina and Virginia where furniture making was once king. From her point of view, that story is anything but upbeat.

Nor does she miss the historic twist in her tale: as she notes early on, in the years after the Civil War, Southern entrepreneurs like Bassett’s grandfather capitalized on “cheap, hungry labor and all those tree-stocked hills” to shift furniture manufacturing from places like Grand Rapids, Mich., to the South, where it thrived for a century or more before the Chinese began doing the same thing to them.

But again and again, she comes back to the factories that have been closed, the jobs that have been lost. “Between 2002 and 2012, 63,300 American factories closed their doors and five million factory jobs went away,” she notes. She finds people who, having been laid off, do exactly what you would hope they might do: go to college and become well-paid knowledge workers.

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But far more often she introduces us to people who have been displaced by the Chinese furniture manufacturers and can’t see a better future. It is especially difficult for people who have lost their jobs in what amount to company towns — where there really isn’t any other work to be had. She asks, “What good did it do to have access to cheap consumer goods if you had no money to buy themI happen to think Blonigen is right — that is exactly what we should be doing to make globalization work for us instead of against us. But I also find myself deeply sympathetic to Macy’s essential point, which is that globalization inflicts a great deal of suffering on millions of people, something the news media should do a better job of acknowledging and the government should do a better job of mitigating.She quotes the University of Oregon economist Bruce Blonigen, who tells her, “In reality, we shouldn’t be making bedroom furniture anymore in the United States. Shouldn’t we instead be trying to educate these workers’ kids to get them into high-skilled jobs and away from what’s basically an archaic industry?”

Toward the end of her book, Macy travels to Indonesia, where she talks to a factory executive. “What I do worry about every year is the future of the factory,” he tells her. “I worry that someone somewhere else, somewhere cheaper, will start to make furniture, and that will be that for us.”

It never ends.

Can the BRIC's establish a new development bank bank?

The eyes of the world has focused recently on Brazil,which hosted an event that may prove in time to be the beginning of a grand project in global affairs. It wasn’t the World Cup, though. On July 15, Brazil organized the sixth meeting of leaders of the BRICS nations – Brazil, Russia, India, China and South Africa – and, following that, a meeting among the BRICS and the leaders of South America.

Since 2009, BRICS leaders have been gathering in what has primarily been a symbolic exercise, highlighting and promoting the idea that a strategic shift is underway in the global economy from the developed to the largest and fastest growing developing economies, which will require recalibrating global governance and political leadership. However, as developed economies have slowly recovered from the financial crisis and the BRICS nations have slowed, the utility of largely symbolic meetings has been questioned to the point where the importance of the BRICS itself is unclear to many but the most dedicated advocates.

This changed recently in Fortaleza, Brazil, as the BRICS leaders advanced an agenda of concrete actions, including the establishment of a $50 billion BRICS “New Development Bank” and a $100 billion contingent reserve arrangement designed initially to address global balance of payments pressures within the bloc. Operations are planned to begin in 2016. Given China’s overwhelming economic size vis-à-vis its BRICS partners (some 70 percent of overall GDP), Beijing’s voice will carry greater weight on issues of highest importance. For example, after much debate, the location of the new BRICS bank will be Shanghai; compromise was reached on the leadership, which will rotate among the founding five members.

At the same time, the implications of an international financial institution underwritten by the BRICS are uncertain but potentially significant. It is unclear whether the bank will directly compete with the World Bank or IMF, which are much larger, or regional development banks, or even existing national development banks. But it’s worth noting that China’s initial contribution to the new bank will be only a little less than its paid in capital at the World Bank, and the other BRICS nations will actually contribute more to the new entity than they do to the World Bank.

A key question is the value added for potential borrowers of using the BRICS bank rather than existing global financial institutions. Until the charter of the bank and the procedures are finalized, there is no clear answer. But from a borrowing perspective, one of the most onerous aspects of going to international financial institutions for assistance is the conditionality that goes with lending programs. Over the years, the World Bank, IMF and others have added numerous additional layers of obligations that go well beyond straight financial obligations for repayment and, often, economic restructuring. Now, conditionality often includes social development requirements including poverty alleviation, environmental protection, human rights and gender equality, anti-corruption and other topics in addition to the traditional financial and economic requirements. This is on top of politically sensitive steps which may be required as part of any economic restructuring such as the reduction or elimination of certain subsidies, improved competition policy, central bank independence and the like.

These obligations can be highly intrusive and are often resented by borrowers. At the same time, they are a primary means by which the Westernized international community has promoted the broader dissemination of a vision consistent with its values. To the extent borrowing nations have the option to approach the BRICS bank for assistance that is not conditioned with non-financial obligations, they may find it to be a more attractive proposition. That will both enhance the importance of the BRICS, while also potentially undercutting one of the most important and effective tools that the international community has relied upon in the post-war era to promote policies designed for good governance and economic development. This could become most readily apparent in sectors that the BRICS nations deem strategic, such as the energy and extractive sectors, which are among the sectors worldwide most fraught with environmental, social and local community complications. Established international financial institutions normally consider these matters; the BRICS bank might not.

Even if this scenario is overblown, the existence of new lending options may nonetheless encourage existing development banks, including the World Bank, to soften or reduce their conditionality requirements in order to promote their own lending in certain instances. Such “conditionality arbitrage” might suit the leaders of borrowing nations but it will ultimately blunt the development prospects of their people.

From the lenders’ perspective, they will have to determine whether the political advantages of engagement with nations that may have been shut out of the international financial system or may otherwise be unreliable borrowers outweighs the risks of non-performance of loaned capital.

As the outlines of the BRICS financial facilities are being established, the project architects will have to keep these difficult but relevant issues very much in mind.