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Only bottom line matters in trade

WHEN trade becomes ideology, your supplier will want to state the colour of your kitchen sink.

It sounds like Alice in Wonderland but that is happening to so-called free trade agreements that benefit multinational corporations.

Think of Monsanto trying to damp down national legislations for GMO labelling, think of the tobacco industry’s threat of legal action against Australia for wanting to introduce dire warnings on cigarette packaging which, by the way, is a recommendation of the World Health Organisation (WHO).

Well, you may think that national sovereignty is at stake, and you are right. But national sovereignty is the last thing that powerful multinationals want to keep when they sell cigarettes, do fracking work in your backyard and pay workers the lowest they can. They resort to international arbitration, which has been at the core of every international trade and investment agreements since 1990. Arbitration lawyers celebrate this as the Investor State Dispute Settlement (ISDS) mechanism, and I did say celebrate advisedly because in legal fees alone they are sure to rake in billions.

ISDS has been around for about 50 years but few states have been dragged by it for claims. In fact, in the last 50 years there has been very few cases and virtually no awards, according to Gus Van Harten, associate professor of law at the Osgoode Hall Law School in Toronto. “Now there are several hundreds. That’s a very large number in the context of international law and international adjudication,” he says.

In 2012 alone, there were 58 new claims filed against states, the highest ever filed in one year.

What are states dragged to ISDS for? Here are some typical cases: Philip Morris is suing the government of Uruguay for US$2 billion (RM6.7 billion) for introducing health warnings on cigarette packs. Swedish energy company Vattenfall is suing Germany for €2 billion (RM8.4 billion) for wanting to phase out nuclear energy after the Fukushima experience of Japan.

You would have thought that nations would have some freedom to determine national policy rather than have it dictated by foreign firms, but no. Under new trade agreements, foreign companies can sue a state if its action is detrimental to their profit-making. Egypt found this out when it wanted to raise minimum wages for its workers. It was taken to international arbitration by Veolia and may have to pay €82 million in fine.

The complaint against Australia in the cigarette pack case above was taken to the World Trade Organisation (WTO) within hours of the cigarette company's case bing dismissed by the Australian High Court, action continued against the country in a two-prong attack by Philip Morris in Ukraine under the Trade Related Intellectual Property Agreement (TRIP) under the World Trade Organisation, and its Singapore subsidiary, under Australia's bilateral trade treaty with the city state.

Garnering greater force and influence in international trade is now part of the United States' foreign policy commitment which it is pursuing aggressively in Europe through the Trans-Atlantic Trade and Investment Partnership (TTIP), and in the Pacific Rim through the Trans-Pacific Partnership Free Trade Agreement. The difference between now and the UNCTAD-style mixed global trade vision is that under the present regime trade and ideology become intertwined. There is lack of transparency in the negotiations and foreign governments are under heavy pressure to introduce laws that may work against its national direction.

In Europe there is fear about the future of the public-funded National Health Service in Britain, the public sector, and, as in Germany, the curb on its energy policy choice. For countries in other regions, the lesson from Egypt is significant, the attack on Australia's cigarette packaging is an unhealthy sign for both national sovereignty and the well-being of its citizens.

What if there's a financial crisis in a state? Greece is a case in point where stringent measures have to be enforced, but they are being challenged by parties that have only trade and profit in mind.

The sweep is very broad indeed, and no self-respecting country or government can afford to surrender the rights that are under threat just to obtain a place at the dining table where they are mere contributors to the enrichment of foreign corporations.

Under these treaties, say Gus Van Harten, investment covers not just land and factories but to more creative concepts such as derivatives, swaps, permits and patents.

"Foreign investors unlike anyone else have been given the right to sidestep domestic courts when they bring an international claim. Thus, they can have their claim decided in an advantageous non-judicial forum that is closed to other actors whose rights or interests are affected. Foreign investors are also freed from the prospect of an equivalent claim by the state where a company is alleged to have behaved badly," he says in an interview with the Oxford University Press blog.

There is no rule for judicial independence or fairness for arbitrators and they are above judicial review. Governments wanting out find they are locked in. So what to do? Follow Brazil, says Van Harten. They turned it down about a decade ago, yet they are doing fine with foreign investments.

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