Planet Not For Sale
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Obama Mexico Visit Spotlights 20-Year Legacy of Job Loss from NAFTA, the Pact on Which Obama’s TPP Is Modeled
New Public Citizen Report Catalogs the Negative NAFTA Outcomes That Are Fueling Opposition to Obama Push to Fast Track TPP
The 20-year record of job loss and trade deficits from the North American Free Trade Agreement (NAFTA) is haunting President Barack Obama’s efforts to obtain special trade authority to fast track the Trans-Pacific Partnership (TPP), said Public Citizen as it released a new report that comprehensively documents NAFTA’s outcomes. Next week’s presidential trip to Mexico for a long-scheduled “Three Amigos” U.S.-Mexico-Canada summit will raise public attention to NAFTA, on which the TPP is modeled, which is not good news for Obama’s push for the TPP and Fast Track.
Numerous polls show that opposition to NAFTA is among few issues that unite Americans across partisan and regional divides. Public ire about NAFTA’s legacy of job loss and policymakers’ concerns about two decades of huge NAFTA trade deficits have plagued the administration’s efforts to obtain Fast Track trade authority for the TPP. The TPP would expand the NAFTA model to more nations, including ultra-low-wage Vietnam. In the U.S. House of Representatives, most Democrats and a bloc of GOP have indicated opposition to Fast Track, as has Senate Majority Leader Harry Reid (D-Nev.).
Public Citizen’s new report, "NAFTA’s 20-Year Legacy and the Fate of the Trans-Pacific Partnership", compiles government data on NAFTA outcomes to detail the empirical record underlying the public and policymaker sentiment. It also shows that warnings issued by NAFTA boosters that a failure to pass NAFTA would result in foreign policy crises – rising Mexican migration and a neighboring nation devolving into a troubled narco-state – actually came to fruition in part because of NAFTA provisions that destroyed millions of rural Mexican livelihoods.
“Outside of corporate boardrooms and D.C. think tanks, Americans view NAFTA as a symbol of job loss and a cancer on the middle class,” said Lori Wallach, director of Public Citizen’s Global Trade Watch. “If you are a president battling to overcome bipartisan congressional skepticism about giving you special trade authority to fast track a massive 12-nation NAFTA expansion, it is really not helpful to be visiting Mexico for a summit of NAFTA-nation leaders.”
The Public Citizen report shows that not only did projections and promises made by NAFTA proponents not materialize, but many results are exactly the opposite. Such outcomes include a staggering $177 billion U.S. trade deficit with NAFTA partners Mexico and Canada, one million net U.S. jobs lost in NAFTA’s first decade alone, slower U.S. manufacturing and services export growth to Mexico and Canada, a doubling of immigration from Mexico, larger agricultural trade deficits with Mexico and Canada, and more than $360 million paid to corporations after “investor-state” tribunal attacks on, and rollbacks of, domestic public interest policies.
“The data have disproved the promises of more jobs and better wages, so bizarrely now NAFTA defenders argue the pact was a success because it expanded the volume of U.S. trade with the two countries without mentioning that this resulted in a 556 percent increase in our trade deficit with those countries, with a flood of new NAFTA imports wiping out hundreds of thousands of American jobs,” said Wallach.
The study tracks specific promises made by U.S. corporations like Chrysler, GE and Caterpillar to create specific numbers of American jobs if NAFTA was approved, and reveals government data showing that instead, they fired U.S. workers and moved operations to Mexico.
“The White House and the corporate lobby sold NAFTA with promises of export growth and job creation, but the actual data show the projections were at best wrong,” said Wallach. “The gulf between the gains promised for NAFTA and the damage that ensued means that the public and policymakers are not buying the same sales pitch now being made for theTPP and Fast Track.”
The report also documents how post-NAFTA trade and investment trends have contributed to middle-class pay cuts, which in turn contributed to growing income inequality; how since NAFTA, U.S. trade deficit growth with Mexico and Canada has been 50 percent higher than with countries not party to a U.S. Free Trade Agreement, and how U.S. manufacturing and services exports to Canada and Mexico have grown at less than half the pre-NAFTA rate.
Among the study’s findings:
- Rather than creating in any year the 200,000 net jobs per year promised by former President Bill Clinton on the basis of Peterson Institute for International Economics projections, job loss from NAFTA began rapidly:
- American manufacturing jobs were lost as U.S. firms used NAFTA’s foreign investor privileges to relocate production to Mexico, and as a new flood of NAFTA imports swamped gains in exports, creating a massive new trade deficit that equated to an estimated net loss of one million U.S. jobs by 2004. A small pre-NAFTA U.S. trade surplus of $2.5 billion with Mexico turned into a huge new deficit, and a pre-NAFTA $29.6 billion deficit with Canada exploded. The 2013 NAFTA deficit was $177 billion, representing a more than six-fold increase in the NAFTA deficit.
- More than 845,000 specific U.S. workers, most in the manufacturing sector, have been certified for Trade Adjustment Assistance (TAA) since NAFTA because they lost their jobs due to offshoring to, or imports from, Canada and Mexico.The TAA program is narrow, covering only a subset of jobs lost at manufacturing facilities, and is difficult to qualify for. Thus, the TAA numbers significantly undercount NAFTA job loss. A TAA database searchable by congressional district, sector and more is available here.
- NAFTA has contributed to downward pressure on U.S. wages and growing income inequality.There is broad consensus among economists that recent trade flows have been a significant contributor to growing income inequality; the only debate is about the degree of trade’s responsibility. NAFTA’s broadest economic impact has been to fundamentally transform the types of jobs and wages available for the 63 percent of American workers without a college degree. Most of those who lost manufacturing jobs to NAFTA offshoring and import competition found reemployment in lower-wage service sector jobs.
- According to the U.S. Bureau of Labor Statistics, two out of every three displaced manufacturing workers who were rehired in 2012 experienced a wage reduction, most of them taking a pay cut of greater than 20 percent.
- As increasing numbers of workers displaced from manufacturing jobs have joined those competing for non-offshorable, low-skill jobs in sectors such as hospitality and food service, real wages have also fallen in these sectors under NAFTA. The resulting downward pressure on middle-class wages has fueled recent growth in income inequality.
- Scores of environmental and health laws have been challenged in foreign tribunals through NAFTA’s controversial investor-state dispute resolution system. More than $360 million in compensation to investors has been extracted from NAFTA governments via “investor-state” tribunal challenges against toxics bans, land-use rules, water and forestry policies, and more. More than $12.4 billion is pending in such NAFTA claims, including challenges of medicine patent policies, a fracking moratorium and a renewable energy program.
- The average annual U.S. agricultural trade deficit with Mexico and Canada in NAFTA’s first two decades reached $975 million, almost three times the pre-NAFTA level. U.S. beef imports from Mexico and Canada, for example, have risen 133 percent. Over the past decade, total U.S. food exports to Mexico and Canada have actually fallen slightly while U.S. food imports from Mexico and Canada have more than doubled. This stands in stark contrast to projections that NAFTA would allow U.S. farmers to export their way to newfound wealth and farm income stability. Despite a 239 percent rise in food imports from Canada and Mexico under NAFTA, the average nominal U.S. price of food in the United States has jumped 67 percent since NAFTA.
- The reductions in consumer goods prices that have materialized have not been sufficient to offset the losses to wages under NAFTA; U.S. workers without college degrees (63 percent of the workforce) likely have lost a net amount equal to 12.2 percent of their wages even after accounting for gains from cheaper goods.This net loss means a loss of more than $3,300 per year for a worker earning the median annual wage of $27,500.
- The export of subsidized U.S. corn did increase under NAFTA’s first decade, destroying the livelihoods of more than one million Mexican campesino farmers and about 1.4 million additional Mexican workers whose livelihoods depended on agriculture. The desperate migration of those displaced from Mexico’s rural economy pushed down wages in Mexico’s border maquiladora factory zone and contributed to a doubling of Mexican immigration to the United States following NAFTA’s implementation.
- Facing displacement, rising prices and stagnant wages, more than half the Mexican population, and more than 60 percent of the rural population, still falls below the poverty line, despite the promises that NAFTA would bring broad prosperity to Mexicans. Real wages in Mexico have fallen significantly below pre-NAFTA levels as price increases for basic consumer goods have exceeded wage increases. A minimum wage earner in Mexico today can buy 38 percent fewer consumer goods than on the day that NAFTA took effect. Despite promises that NAFTA would benefit Mexican consumers by granting access to cheaper imported products, the cost of basic consumer goods in Mexico has risen to seven times the pre-NAFTA level, while the minimum wage stands at only four times the pre-NAFTA level. Though the price paid to Mexican farmers for corn plummeted after NAFTA, the deregulated retail price of tortillas – Mexico’s staple food – shot up 279 percent in the pact’s first 10 years.
“Given NAFTA’s damaging outcomes, few of the corporations or think tanks that sold it as a boon for all of us in the 1990s like to talk about it, but the reality is that their promises failed, the opposite occurred and millions of people were severely harmed and now this legacy is derailing President Obama’s misguided push to expand NAFTA through the TPP,” said Wallach.
2013 Trade Data: USITC Corrections of Last Week’s Census Data Show Why Obama’s TPP, Fast Track Quest Is in Trouble
This weekend’s U.S. International Trade Commission (USITC) release of corrected 2013 year-end trade data goes a long way in explaining broad congressional and public opposition to the Obama administration’s trade agenda, which is premised on expanding to additional nations a model of trade pacts that the data show are failing most Americans. The data (graphs below) show:
A stunning decline in U.S. exports to Korea, a rise in imports from Korea, and a widening of the U.S. trade deficit under the Korea Free Trade Agreement (FTA).
- In 20 out of 21 months since the Korea FTA took effect, U.S. goods exports to Korea have fallen below the average monthly level in the year before the deal.
- U.S. average monthly exports to Korea since the FTA are 12 percent lower than the pre-FTA monthly average, while monthly imports from Korea are up 3 percent.
- The monthly trade deficit with Korea has ballooned 49 percent compared to the pre-FTA level. These losses amount to tens of thousands of lost U.S. jobs.
Zero growth in U.S. goods exports relative to 2012, placing the United States decades behind in Obama’s stated goal to double exports in five years.
- Total U.S. goods exports in 2013 actually dropped slightly from 2012 after adjusting for inflation, revealing a negative 0.1 percent growth rate.
- The data show there is no chance to meet President Obama’s stated goal to double 2009’s exports by the end of this year. At the paltry 1 percent annual export growth rate seen over the past two years, the export-doubling goal would not be reached until 2054, 40 years behind schedule.
A staggering U.S. trade deficit with Canada and Mexico after 20 years of the North American Free Trade Agreement (NAFTA).
- The 2013 U.S. goods trade deficit with Mexico and Canada was $177 billion - a nearly seven-fold increase above the pre-NAFTA level, when the United States enjoyed a small trade surplus with Mexico and a modest deficit with Canada.
- Even worse for U.S. workers, the non-oil NAFTA deficit has multiplied more than 13-fold, costing hundreds of thousands of U.S. jobs. Indeed, the share of the combined U.S. trade deficit with Mexico and Canada that is comprised of oil has declined since NAFTA.
Today’s USITC data correct last week’s Census Bureau trade data to remove re-exports – goods made elsewhere that pass through U.S. ports en route to final destinations. The corrected data only heaps further doubt on Obama’s prospects for getting Fast Track trade authority, now publicly opposed by most House Democrats, a sizeable bloc of House Republicans, and Senate Majority Leader Harry Reid. Obama has asked for Fast Track to push through Congress the Trans-Pacific Partnership (TPP), a controversial deal modeled on the Korea FTA and NAFTA.
Statement of Lori Wallach, Director of Public Citizen’s Global Trade Watch
“Many in Congress and the public oppose NAFTA-on-steroids “trade” agreements like the TPP and Fast Track authority to expedite them because past trade deals have proved to be so damaging. Just like today for TPP, in the past we were sold on glorious projections of these deals’ benefits but the actual data show an ever-larger drop in U.S. exports to Korea since that pact and a growing trade deficit, a massive NAFTA trade deficit and overall zero growth for U.S. goods exports relative to last year despite implementation of more-of-the-same trade deals. The White House and the corporate lobby are trying to sell Congress the TPP and Fast Track with the same old promises about export growth and job creation, but today’s data show that under Obama’s only past major trade deal with Korea on which TPP is modeled, U.S. exports dropped dramatically, imports soared and the U.S. lost more jobs to a trade agreement.”
Obama Downplays Trade Authority, Trans-Pacific Partnership: Fleeting Mention Doesn’t Even Reference Recently Introduced Camp-Baucus Fast Track Bill
Statement of Lori Wallach, Director Public Citizen’s Global Trade Watch
“Corporate interests were fiercely lobbying for President Obama to dedicate serious time in this State of the Union speech to pushing Fast Track and the Trans-Pacific Partnership in order to try to overcome broad congressional and public opposition to both, but instead he made only a passing reference that largely repeated his past statements.
With almost no House Democratic support for Fast Track, a bloc of GOP “no” votes and public opposition making congressional phones ring off the hook, high-profile treatment of the issue was considered necessary to revive any prospect that Fast Track could be passed in this Congress.
“Opposition has been growing to the massive Trans-Pacific Partnership deal. Implementing this NAFTA-on-steroids deal would undermine Obama’s efforts to battle income inequality. It would be like drilling a hole in a boat just as you are trying to seal the cracks that are letting the water in.”
Background: President Obama’s references to trade in tonight’s speech were similar to his 2013 SOTU trade mentions: “To boost American exports, support American jobs and level the playing field in the growing markets of Asia, we intend to complete negotiations on a Trans-Pacific Partnership. And tonight, I’m announcing that we will launch talks on a comprehensive Transatlantic Trade and Investment Partnership with the European Union – because trade that is fair and free across the Atlantic supports millions of good-paying American jobs.” Tonight’s speech also replayed the administration’s standard statement on Fast Track, for instance in the 2013 Annual Trade Policy Agenda: “To facilitate the conclusion, approval, and implementation of market-opening negotiating efforts, we will also work with Congress on Trade Promotion Authority. Such authority will guide current and future negotiations, and will thus support a jobs-focused trade agenda moving forward.”
A letter released Monday by more than 550 Democratic base organizations and a news conference today by Tea Party leaders against Fast Track reiterates the breadth of grassroots opposition. The letter included organizations such as MoveOn, SEIU, AFSCME and the American Federation of Teachers, that have not been involved in past “trade” fights and who are strong Obama supporters.
Past trade pacts’ role in fueling the growth of U.S. income inequality is animating new entrants into the Fast Track debate. Over the weekend, former Clinton Labor Secretary Robert Reich called for opposition to Fast Track and the TPP. The failure of Obama’s past SOTU trade promises is feeding skepticism. In his 2011 SOTU, Obama promised the pact would expand U.S. exports to Korea. In the pact’s first year, exports dropped 10 percent, imports soared and the U.S. trade deficit with Korea grew 37 percent, equating to a net loss of approximately 40,000 more U.S. jobs.
Democratic and GOP presidents have struggled to persuade Congress to provide Fast Track authority, which Congress has authorized for only five years (2002-07) of the past 20. In late 2013, 151 House Democrats signed a letter opposing Fast Track. Two weeks ago, when U.S. Rep. Dave Camp (R-Mich.) and U.S. Sens. Max Baucus (D-Mont.) and Orrin Hatch (R-Utah) introduced legislation to establish Fast Track, 17 Senate Democrats sentletters opposing the bill, which did not have a single House Democratic sponsor. Two groups of GOP representatives have also sent letters opposing Fast Track.
This is a reposting of a blog post written by Mary Bottari for the Center for Media and Democracy's PR Watch on January 21.
Rep. Dave Camp (R- MI) and Sen. Max Baucus (D-MT) have introduced "Fast Track" legislation in Congress. It's been 15 years since a U.S. president sought Fast Track authority, which strips Congress of its Constitutional authority to have a meaningful role in U.S. trade policy. If the Fast Track bill passes, the Trans-Pacific Partnership (TPP), a trade deal involving 11 Pacific Rim countries could be completed and signed before it is sent to Congress for a vote. Then the far-reaching trade deal will be railroaded through with no amendments and only 20 hours of debate.
The original Fast Track was cooked up by Nixon, served up again by Clinton to pass the NAFTA and WTO agreements, and stirred up again in 2000 to jam China free trade through Congress. That all worked out well, didn't it? The United States lost 5.7 million manufacturing jobs in the NAFTA/WTO era, and our trade deficit with China is now one of the largest in history.
Today, President Obama is seeking Fast Track to get the TPP and the 27-nation Transatlantic Trade and Investment Partnership (TTIP) through Congress. His road is a rocky one. His trade team could not convince a single Democrat to author the bill in the House, and with hundreds of groups across the political spectrum -- from progressive environmental and consumer groups to various Tea Party patriots -- lined up against it, it's possible Fast Track can be defeated."When Will We Start to Measure the Results?"
The long, controversial history of fast tracked trade agreements hardly came up in the first Senate hearing on the Baucus-Camp bill on January 16.
Chairman Baucus, the only Democrat to author the legislation in either house, rambled on about the fact that 95 percent of the world's consumers live outside the United States. According to Baucus, we need more trade deals to reach those consumers. But he forgot to mention that the United States is already part of the WTO trade pacts on goods and services encompassing some 159 member countries, so our products already have privileged access around the globe.
This line of argument was also supported by the ever-present Honeywell CEO David Cote, last seen pushing Social Security and Medicare cuts on behalf of the Business Roundtable and the "Fix the Debt" gang. Cote dubbed Fast Track "a key enabler for trade agreements," invoking the wrong kind of chuckle.
Larry Cohen, President of the Communication Workers of America, injected a refreshing dose of reality to the proceedings. Cutting through blather about "leveling the playing field," Cohen looked Baucus in the eye and demanded answers to a few pointed questions.
After 20 years of NAFTA, Cohen demanded, when are we going to start to actually measure the results? "No other nation has trade deficits like ours," said Cohen. Since 1993, the year before NAFTA, our trade deficit in goods was $132 billion or 1.9 percent of GDP. By 2012, our trade deficit ballooned to $741 billion or 4.6 percent of GDP, Cohen detailed in his written testimony.
When, asked Cohen, will we start to document the net effect of these trade deals on employment? "What has happened to our jobs, our communities, the North Philadelphia that I grew up in? The Cleveland that I can picture now? The devastation throughout those communities, no replacement for those jobs," said Cohen. The Economic Policy Institute estimates that between 1998 and 2012, the United States lost one third of its manufacturing base largely due to growing U.S. trade deficits.
When, asked Cohen, will we document the effect of trade on pay and standards of living? "I can tell you story after story where CEOs say to me -- it's gravity, we have to move the jobs or you have to cut the pay," says Cohen. When U.S. workers are put in competition with workers like those in Vietnam making 28 cents an hour, U.S. wages have no where to go but down. Cohen pointed out that average weekly take home pay for an American worker today is $637 compared to $731 40 years ago.
The Senators shifted uncomfortably in their seats, but had no answers for the CWA chief, who pushed to bring thousands of call center jobs back to the United States. Telecom firms, however, demanded that the salaries "be competitive" with those of overseas workers.Congress Is Targeting the Wrong Deficit
Just days before, Senate Republicans shot down unemployment benefits for 1.3 million Americans, because, to the Republican caucus, nothing matters more than the United States federal account deficit.
But many economists say Washington has the calculus backwards -- they are targeting the wrong deficit. As Dean Baker and Jared Bernstein explain in the New York Times, Washington's obsession with lowering the budget deficit by slashing spending and supports for the economy will only lead to slower growth, whereas "reducing the trade deficit would have the opposite effect. Not only that, but by increasing growth and getting more people back to work in higher-than-average value-added jobs, a lower trade deficit would itself help to reduce the budget deficit." EPI projects that reducing the trade deficit could generate a "manufacturing-based recovery" for the United States.
The two trade agreements in the works right now, the TPP and the TTIP, will only add to our job-killing trade deficit.Corporate Courts Facilitate Attacks on Consumer, Health, and Environmental Protections
Senator Sherrod Brown (D-OH) turned the conversation at the Fast Track hearing in a completely new direction by asking David Cote if he thought trade agreements should be used to attack consumer and environmental laws democratically enacted around the globe. Brown referenced the so-called "investor-state" provisions that have been included in U.S. trade agreements that allow corporations to directly sue governments for cash damages outside of domestic court systems and in friendly trade tribunals if they believe consumer, health, or environmental regulations harm their products.
Brown pointed to a new case in Australia, where U.S. firm Phillip Morris is suing Australia over a new plain packaging rule for cigarettes designed to reduce cigarette smoking among teens and other new users. Phillip Morris battled the rule in Australian courts and lost, so is taking it to a corporate-friendly trade tribunal. The rulings of these tribunals are binding, and there is no appeal.
Cote, who is no doubt perfectly aware of the perverse system and its history of successful attacks on a range of public interest laws (detailed by Public Citizen here), used the "I am not a lawyer" dodge.
The list of these investor attacks is growing. U.S. pharmaceutical firm Eli Lilly is attacking Canada's system for approving generic drugs under NAFTA, and a U.S. fracking firm is attacking Quebec's moratorium on fracking as a "trade barrier."Wikileaks Takes on Trade
The range of public interest policies implicated in the trade agreements is enormous. TPP "includes chapters on patents, copyright, financial regulation, energy policy, procurement, food safety and more -- it would constrain the policies on these matters that Congress and state legislatures could maintain or establish," says Public Citizen.
As if that wasn't enough, the TPP's draft environment chapter, published by Wikileaks last week, would undermine protections for oceans, forests, and wildlife. "If the environment chapter is finalized as written in this leaked document, President Obama's environmental trade record would be worse that George W. Bush's," said Michael Brune, executive director of the Sierra Club.
This is Wikileaks' first foray into trade, but it makes consummate sense. Not only are the agreements being negotiated behind closed doors with classified input from 600 U.S. corporate advisors, but the issues on the table include internet freedom and access to medicines around the globe.
The draft intellectual property chapter obtained by Wikileaks "would trample over individual rights and free expression, as well as ride roughshod over the intellectual and creative commons," says Julian Assange. "If you read, write, publish, think, listen, dance, sing or invent; if you farm or consume food; if you're ill now or might one day be ill, the TPP has you in its crosshairs," he told Politico. The U.S. government's pro-PhRMA position "will severely restrict access to affordable medicines for millions of people," says Doctors Without Borders.Another World Is Possible
The last time the United States used Fast Track to pass a trade agreement, it was with South Korea. Senator Baucus and crew trotted out all the same talking points about how our exports would boom. But it was our trade deficit that boomed, increasing by $5.5 billion or 46 percent since 2012.
With the U.S. recovery staggering and with the wide range of issues caught up in the trade negotiation, it is no wonder that a coalition of those opposing free trade agreements is growing more diverse and powerful every day.
Fast Track will not pass without a sustained effort by the President himself. Yet, when his top trade representative did not bother to show up at the Senate hearing last week, Obama left everyone wondering if he had the appetite for the fight or if another world was possible.
Studies Reveal Consensus: Trade Flows during “Free Trade” Era Have Exacerbated U.S. Income Inequality
Recent Studies: Trade’s Contribution to Inequality Has Increased since the 1990s and Is Likely to Increase Further
Tonight President Obama is expected to address two linked subjects in his State of the Union address: the historic rise in U.S. income inequality and a trade policy agenda that threatens to exacerbate inequality. As we've repeatedly pointed out, Obama cannot have it both ways: he cannot propose to close the yawning income gap while pushing to Fast Track through Congress a controversial Trans-Pacific Partnership (TPP) "free trade" deal that would widen the gap. The TPP would expand the status quo "free trade" model that study after study has found to be an increasingly significant contributor to U.S. income inequality.
As unfair trade deals have been Fast Tracked into law, U.S. income inequality has jumped to levels not seen since the robber baron era. Today, the richest 10 percent of the U.S. is taking over half of the economic pie, while the top 1 percent is taking more than one fifth. Wealthy individuals’ share of national income was stable for the first several decades after World War II. But that share has shot up 51 percent for the richest 10 percent and 146 percent for the richest 1 percent since the passage of Fast Track in 1974, a time period characterized by a series of unfair trade deals. The income share of the richest 10 percent escalated particularly abruptly after the 1994 enactment of the North American Free Trade Agreement (NAFTA), as indicated in the graph below.
Since 1941 standard economic theory has held that trade liberalization will contribute to greater income inequality in developed countries like the United States. In the early 1990s, as U.S. income inequality soared amid the enactment of U.S. “free trade” deals, a spate of economic studies put the theory to the test, aiming to determine the relative contribution of trade flows to the rise in U.S. income inequality. The result was an academic consensus that trade flows had, in fact, contributed to rising U.S. income inequality. The only debate was the extent of the blame to be placed on trade, with most studies estimating that between 10 and 40 percent of the rise in inequality during the 1980s and early 1990s stemmed from trade flows.
More recent studies have concluded that trade’s role in exacerbating U.S. income inequality has likely grown since the 1990s, as U.S. imports from lower-wage countries, and U.S. job offshoring to those countries, have grown dramatically, impacting an increasing swath of middle-class jobs. Further, an array of studies now project future increases in the offshoring of U.S. jobs, suggesting that even under current U.S. trade policy, trade flows will soon be responsible for an even greater share of rising U.S income inequality. Attempts to Fast Track through Congress controversial deals like the TPP, which would incentivize further offshoring, would only exacerbate the historically high degree of U.S. income inequality.
Recent studies examining trade’s current and projected future contribution to U.S. income inequality:
Florence Jaumotte, Subir Lall, and Chris Papageorgiou; International Monetary Fund; September 30, 2009
The International Monetary Fund authors find that the rise in income inequality from 1981-2003 in 20 developed countries, including the United States, is primarily attributable to trade and financial globalization trends. They conclude that globalization’s contribution to inequality has outweighed the role of technological advancement: “Among developed countries…the adverse impact of globalization is somewhat larger than that of technological progress” (p. 19).
Paul Krugman; The Brookings Institution; Spring 2008
In a Brookings Institution study, Nobel-winning economist Paul Krugman finds that trade flows likely now account for an even greater degree of U.S. income inequality than that found in a series of studies from the early 1990s, which had already concluded that trade liberalization had a negative, but modest, impact on income inequality in developed countries like the United States. In particular, Krugman notes that U.S. manufacturing imports from low-wage developing countries have grown dramatically in the last two decades, suggesting that the role of trade flows in spurring U.S. income inequality growth is “considerably larger” than before (p. 106). Krugman concludes, “…there has been a dramatic increase in manufactured imports from developing countries since the early 1990s. And it is probably true that this increase has been a force for greater inequality in the United States and other developed countries” (p. 134).
Josh Bivens; Economic Policy Institute; September 6, 2007
In this study Josh Bivens of the Economic Policy Institute updates an early-1990s model estimate of the impact of trade flows on U.S. income inequality and finds that, using the model’s own conservative assumptions, the degree of U.S. income inequality attributable to trade with lower-wage countries increased more than 40 percent from 1995 to 2006. In addition, Bivens cites an array of recent economic studies that project that the offshoring of U.S. jobs will increase under current trade policy, suggesting a substantial rise in the impact of trade flows on U.S. income inequality. For example, Princeton economist and former Council of Economic Advisors member Alan Blinder estimates that about one in every four U.S. jobs, including higher-paying service-sector jobs, could be offshored in the foreseeable future. While such studies differ in the projected extent of future U.S. job offshoreability, all imply an increase in the impact of trade flows on U.S. income inequality. Bivens finds that the range of projections for increased offshoring suggest a further 72 to 262 percent increase in U.S. income inequality attributable to trade with lower-wage countries, compared to the level seen in 2006. Bivens concludes, “The potential level of redistribution caused by offshoring is vast, and, so should be the policy response” (p. 8).
On Eve of State of the Union Address, Powerful Message from Obama’s Base about Fast Track for the Trans-Pacific Partnership: Don’t Even Think About It
Prepare for a State of the Union oddity: Democratic members of Congress sitting in silence while Republicans rise to cheer President Obama’s call for Congress to grant him new powers.
A letter released today signed by a stunning array of more than 550 Democratic base organizations reiterates the perverse situation. Despite widespread opposition from congressional Democrats, Obama is expected to call on Congress to delegate Fast Track authority to him. The extraordinary trade authority, which Congress has refused to grant for 15 of the past 20 years, would suspend normal congressional procedures for consideration of the controversial Trans-Pacific Partnership (TPP), which Obama hopes to sign soon.
Today’s letter is signed by a veritable who’s who of the organizations that worked their tails off to elect Obama and/or who provide his policy initiatives the support to pass: from MoveOn and CREDO to the AFL-CIO, SEIU, AFSCME, UAW, Teamsters, Carpenters, United Steelworkers, American Federation of Teachers, and the Communications Workers of America to the Sierra Club, 350.org, and Greenpeace to the National Farmers Union, National Consumers League, Public Citizen and TransAfrica – and the policy shops of the Presbyterians, Methodists, Episcopalians and numerous Catholic orders. The letter is notable for the number of signatory organizations that have not been involved in past “trade” fights.
This gets to the major policy collision that only adds to the incongruity of the political situation: the TPP would worsen income inequality. Yup, the main theme of Obama’s SOTU has been widely advertised to be his battle against growing American income inequality. But economists of all stripes agree that U.S. trade policy has been a major contributor to growing inequality. A study by the Peterson Institute for International Economics, which supports the TPP, has estimated that as much as 39 percent of the observed growth in U.S. wage inequality is attributable to trade trends.
The latest – and stunning – addition to that chorus: Clinton Labor Secretary Robert Reich, who yesterday urged his massive Facebook following to battle Fast Track and TPP, which he called NAFTA-on-steroids. “[T]his massive deal [TPP] would further erode the jobs and wages of working and middle-class Americans while delivering its biggest gains to corporate executives and shareholders.”
Today’s letter, organized by the Citizens Trade Campaign, shows the political muscle behind the campaign to make sure TPP is not Fast Tracked: “After decades of devastating job loss, attacks on environmental and health laws and floods of unsafe imported food under our past trade agreements, America must chart a new course on trade policy. To accomplish this, a new form of trade authority is needed that ensures Congress and the public play a much more meaningful role in determining the contents of U.S. trade agreements...”
And, don’t expect ALL of the GOP to stand and cheer Fast Track. Already several dozen Republican House members have announced their opposition to new Fast Track powers for Obama. A conservative grassroots campaign is gearing up against Fast Track and TPP.
What could unite the A-Z of the Democratic base and conservative grassroots activists? Um, could be the 20 devastating years of NAFTA damage experienced by American workers and communities across the political spectrum. Fast Tracking NAFTA-on-steroids is a hard sell after NAFTA fueled an explosion of the U.S. trade deficit with Mexico and Canada to $181 billion by 2012, resulting in a net American loss of one million jobs. And it is not news that NAFTA increased income inequality by transforming the composition of jobs available to the 63 percent of American workers without college degrees from higher wage manufacturing to low-wage service sector.
And, then there is the inconvenient mess of Obama’s only major trade deal to date, the U.S.-Korea Free Trade Agreement. That deal was premised on the same NAFTA model as TPP. In his 2011 SOTU, Obama promised the pact would expand U.S. exports to Korea. In the pact’s first year, exports dropped ten percent, imports soared and the U.S. trade deficit with Korea grew 37 percent, equating to a net loss of approximately 40,000 more U.S. jobs.
Will President Obama choose to mount what will need to be a massive campaign to overcome widespread opposition to Fast Track authority for the Trans-Pacific Partnership? And probably fail even so?
Or, will he choose to focus his efforts on reducing income inequality for millions of Americans?
It remains to be seen what his legacy will be. But one thing is clear: President Obama can’t have it both ways.
Article by Lori Wallach, director of Public Citizen's Global Trade Watch, published in The Huffington Post on January 24, 2013
In his upcoming State of the Union speech, President Barack Obama is expected to prioritize what is emerging as his legacy issue: combatting America's growing wealth inequality. Expect him to promote policies to create new middle-class jobs, especially in manufacturing, and counter the erosion of wages now undermining workers economy-wide.
But in the speech, Obama is also expected to highlight several major trade initiatives, including his priority Trans-Pacific Partnership (TPP) deal, a massive pact with 11 Asian and Latin American nations that Obama hopes to sign quickly. The business lobby is at full tilt pushing Obama to use the SOTU to call on Congress to pass Fast Track trade authority for the TPP.
The thing is that economists of all stripes agree that U.S. trade policy has been one of the major contributors to growing U.S. income inequality.
There really is no disagreement about that -- the only debate is about the degree of the effect. A study published by the Peterson Institute for International Economics -- an early supporter of the North American Free Trade Agreement (NAFTA) on which TPP is modeled -- estimated that as much as 39 percent of the observed growth in U.S. wage inequality is attributable to trade trends. Other studies have posited greater and lesser contributions.
The TPP would replicate and expand to additional countries the trade agreement model established in the NAFTA. Twenty years of evidence of NAFTA's contribution to U.S. income inequality has become a major problem for Obama's push to get Congress to provide Fast Track authority for the massive TPP deal, described as NAFTA on steroids.
Not a single House Democrat would sponsor the legislation submitted two weeks ago to establish Fast Track. Last week, 17 Senate Democrats made their feelings known in letters to Majority Leader Harry Reid (D-Nev.). And last November, 151 House Democrats signed a letter saying they oppose Fast Track, arguing that lawmakers have been cut out of negotiations.
Congressional opposition to more-of-the-same trade deals has intensified as Obama's past SOTU trade promises have fallen flat. In contrast to Obama's 2011 SOTU promise that his only major past trade deal, the U.S.-Korea Free Trade Agreement, would boost exports, in the agreement's first year, U.S. exports to Korea fell 10 percent, imports from Korea rose and the U.S. trade deficit with Korea exploded by 37 percent. This equates to a net loss of approximately 40,000 U.S. jobs.
The drop in exports to Korea added to last year's sluggish overall two percent U.S. export growth rate. Given current trends, the U.S. will not achieve the president's export-doubling plan until 2032 -- 18 years behind the 2014 deadline Obama set in his 2010 State of the Union speech.
This follows on the recent 20th anniversary of NAFTA, which fueled an explosion of the U.S. trade deficit with Mexico and Canada to $181 billion by 2012, resulting in a net American loss of one million jobs. (The net job loss figure is derived from the U.S. government methodology employed to calculate the employment effects of trade flows.)
U.S. government data show that the average annual growth of our trade deficit has been 45 percent higher with Mexico and Canada than with countries that are not party to a NAFTA-style pact. U.S. manufacturing exports have grown at less than half the rate to Mexico and Canada since NAFTA than in the years before it. Before NAFTA, the U.S. had a small trade surplus with Mexico and a modest deficit with Canada.
While many focus on the number of U.S. jobs lost from NAFTA and similar pacts, the most significant effect has been a fundamental alteration in the composition of jobs available to the 63 percent of American workers without a college degree. And this has had a direct impact on income inequality.
Trade pact investment rules remove many of the risks otherwise associated with sending jobs offshore to where labor costs are drastically cheaper. The United States has lost millions of manufacturing jobs during the 20 years of NAFTA and decade-plus since Congress approved China's entry to the World Trade Organization. As a result, the wages most U.S. workers can earn have been severely degraded even as overall unemployment has been largely stable (excluding the Great Recession) as new low-paying service sector jobs have been created.
According to the U.S. Bureau of Labor Statistics, two of every three displaced manufacturing workers who were rehired in 2012 experienced a wage reduction, most of them more than 20 percent. The list compiled by the Department of Labor's Trade Adjustment Assistance program of more than 845,000 specific American jobs lost to NAFTA and similar pacts reads like the funeral program for the middle class.
The implications for growing income inequality are broad. It is not only those American workers who lost a job to NAFTA or China trade who face downward wage pressure; as increasing numbers of workers displaced from manufacturing jobs joined the glut of workers competing for non-offshorable, low-skill jobs in sectors such as food service and retail, real wages have fallen in these growing sectors as well.
The U.S. government data is striking: The shift in employment from high-paying manufacturing jobs to low-paying service jobs has contributed to overall wage stagnation. The average U.S. wage has grown less than one percent annually in real terms since NAFTA was enacted even as worker productivity has risen more than three times. Since the January 1, 1994, implementation of NAFTA, the share of national income collected by the richest 10 percent has risen by 24 percent, while the top 1 percent's share has shot up by 58 percent.
Offshoring of American jobs is rapidly moving up the skills ladder, expanding the income inequality effect. Alan S. Blinder, a former Federal Reserve vice chair, Princeton economist and NAFTA supporter, says that one out of every four American jobs could be offshored in the foreseeable future. A study he co-authored found that the most offshorable industry is finance and insurance, not manufacturing. According to Binder's study, American workers with a four-year college degree and an annual salary above $75,000 are among those most vulnerable to having their jobs offshored.
The grandfather of modern free trade economics, Paul Samuelson, published a startling 2004 academic paper in the Journal of Economic Perspectives that shows mathematically how the offshoring of higher-paid jobs to low-wage countries can cause U.S. workers to lose more from reduced wages than they gain from cheaper imported goods. Trade theory states that while those specific workers who lose their jobs due to imports may suffer, the vast majority of us gain from trade "liberalization" because we can buy cheaper imported goods. Except, as job offshoring has moved up the wage level, this is no longer necessarily true.
When the Center for Economic and Policy Research applied the actual data to the trade theory, they discovered that when one compares the lower prices of cheaper goods to the income lost from low-wage competition under our current policy, the trade-related losses in wages hitting the vast majority of American workers outweigh the gains in cheaper priced goods from trade. U.S. workers without college degrees (the vast majority) lost an amount equal to 12.2 percent of their wages, so for a worker earning $25,000 a year, the loss would be more than $3,000 per year.
The 20-year record of NAFTA shows that deals like the Trans-Pacific Partnership would contribute to income inequality as more middle-class jobs are lost. Either Obama can prioritize a battle against income inequality or he can push more NAFTA-style trade agreements and the trade authority to railroad them through Congress, but he cannot do both.
More information is available at http://www.citizen.org/fast-track.
The US Trade Representative (USTR) declined an invitation to testify at the Senate Finance Committee opening hearing on the controversial “Fast Track” legislation – leaving an Ohio Republican, Sen. Rob Portman, in the position of representing the White House by reading from an Administration press release.
Several committee members said they were puzzled and disappointed that USTR Michael Froman passed on an opportunity to convince some skeptical lawmakers they need to establish Fast Track authority for President Barack Obama’s priority Trans-Pacific Partnership (TPP) agreement.
“I wish they were here,” said Portman, a member of the committee and a former US trade representative under President George W. Bush. “It’s important.”
Sen. Orrin Hatch of Utah, the ranking Republican on the committee, said renewing Fast Track for Obama is "not an issue where the president can lead from behind."
The hearing was a crucial early test for Obama’s ability to obtain Fast Track authority and complete the Trans-Pacific Partnership, priorities on his second-term wish list. But it comes in the shadow of the 20th anniversary of NAFTA – a sweeping free trade agreement that took effect Jan. 1, 1994, and which many experts cite as a factor in the widening gap between rich and poor in the United States.
The Trans-Pacific Partnership is like NAFTA on steroids. And that is one reason for the noticeable divide between the president and members of his own party in Congress – many of whom have been openly skeptical of TPP and have already announced opposition to Fast Track. This week, a group of Democratic senators sent a letter to leader Reid opposing the Camp-Baucus bill. This follows on five Finance Committee members coming out against Fast Track last week and 160 House Democrats signaling opposition at the end of last year.
The rarely-used Nixon-era procedure would allow Obama to sign the TPP before Congress votes to approve it with a guarantee that the White House could write expansive legislation to implement the pact that would not subject to committee or floor amendment and get House and Senate votes on such legislation in 90 days with only 20 hours of debate allowed.
Meanwhile, with not a single House Democrat sponsoring the Fast Track bill, the GOP House leadership has insisted that the White House present a list of 50 House Democratic votes for the bill before a vote will be scheduled. Some Republicans are urging the president to do some arm-twisting for a bill embraced by the Chamber of Commerce but rejected by labor unions and progressive groups, mindful of the damage NAFTA has done.
One of the few things economists agree on is that our current trade policy is a major contributing factor to growing U.S. income inequality. Obama is expected to dedicate much of his State of the Union address to plans for battling income inequality while he is also pushing for Congress to Fast Track the TPP, which would expand the NAFTA model to more nations.
A study published by the Peterson Institute for International Economics estimated that as much as 39 percent of the observed growth in U.S. wage inequality is attributable to trade trends. Since the January 1, 1994, implementation of NAFTA, the share of national income collected by the richest 10 percent has risen by 24 percent, while the top 1 percent’s share has shot up by 58 percent.
Communication Workers of America President Larry Cohen said the US was negotiating with countries that have no interest in fair wages for their workers. If TPP is approved, “American workers will compete against workers in Vietnam who are earning 75 cents an hour” and who are rioting for better wages, Cohen said. If Americans complain, he said, the Vietnamese government has a simple answer, he added: “They say, ‘We’re a communist country. We don’t need higher labor standards.’”
Senator Sherrod Brown raised concerns about the proposed TPP provisions that would allow foreign corporations to attack U.S. law before foreign tribunals to demand compensation from the U.S. Treasury for our laws that undermine their expected future profits. He discussed the challenge that Philip Morris brought before a trade agreement investor tribunal against the government of Australia for its policies protecting the public from the health problems of tobacco.
Witnesses supportive of Fast Track included David Cote, CEO of Honeywell, Inc., Jim Allen, president of the New York Apple Growers Association, andElena M. Stegemann, of NuStep, a small business that manufactures high-tech exercise machines.
Uninvited participants included the protestors that Committee Chairman Senator Max Baucus threatened to remove unless they put down their signs. One accused Senator Baucus -- Obama’s nominee to be ambassador to China -- of being a “Benedict Arnold” who was ceding Congress’ constitutional trade authorities through Fast Track. Other signs read, “Fast Track: Race to the Bottom,” “TPP: How Low Can Wages Go?”
Fast Tracking the Trans-Pacific Partnership Conflicts with the President’s Efforts to Counter Income Inequality, a Key Focus of the State of the Union Address
Note: At 10 a.m. Thursday, the Senate Finance Committee is holding a hearing on a bill (3830) to give the president Fast Track trade authority.
Thursday’s hearing on the long-delayed legislation to establish Fast Track authority for President Barack Obama’s priority Trans-Pacific Partnership (TPP) agreement could be a donnybrook, Public Citizen said today. Five Finance Committee Democrats announced opposition when it was introduced last Thursday.
“Democrats want to talk about job creation and tackling income inequality, which are also expected to be the main themes in President Obama’s State of the Union speech, but the 20-year record of NAFTA shows that deals like the Trans-Pacific Partnership would only contribute to income inequality as more middle-class jobs are lost,” said Lori Wallach, director of Public Citizen’s Global Trade Watch.
One of the only things that economists agree on regarding the North American Free Trade Agreement (NAFTA), which marked its 20th anniversary of being in effect on New Year’s Day, is that such trade pacts are a major contributing factor to growing U.S. income inequality. Obama is expected to dedicate much of his State of the Union address to plans for battling income inequality while he is also pushing for Congress to Fast Track the TPP, which would expand the NAFTA model to more nations.
This conflict is likely to be among the problems raised by committee Democrats with U.S. Sen. Max Baucus’ (D-Mont.) Fast Track bill. A study published by the Peterson Institute for International Economics estimated that as much as 39 percent of the observed growth in U.S. wage inequality is attributable to trade trends. Since the January 1, 1994, implementation of NAFTA, the share of national income collected by the richest 10 percent has risen by 24 percent, while the top 1 percent’s share has shot up by 58 percent.
“Many members of Congress are asking why we would agree to give up our authority to make sure the Trans-Pacific Partnership is not NAFTA on steroids, particularly when we’ve seen what NAFTA has done to American workers,” Wallach said.
Not a single House Democrat agreed to co-sponsor the Fast Track bill. The “Bipartisan Congressional Trade Priorities Act of 2014” had imminently departing Baucus (D-Mont.) as its only Democratic sponsor, along with U.S. Rep. Dave Camp (R-Mich.) and Sen. Orrin Hatch (R-Utah.)
But getting Fast Track for TPP is a top priority of President Obama. The legislation replicates the Fast Track mechanism found in the 2002 grant of Fast Track, which more than 150 House Democrats announced in a November 2013 letter that they would oppose, as did several dozen House GOP.
“The Trans-Pacific Partnership is a Trojan horse for a host of awful measures that have nothing to do with trade and would never get through Congress in the light of day. Only five of the draft trade pact’s 29 chapters are about international trade. This grab bag should not be pushed through Congress without a real debate over each of its impactful measures. The trade pact would threaten food safety, raise medicine prices and roll back Wall Street reforms. The Trans-Pacific Partnership would offshore millions of American jobs, ban Buy American policies and sneak in threats to Internet freedom,” Wallach said.
Democratic and GOP presidents have struggled to persuade Congress to delegate its constitutional trade authority via Fast Track. Fast Track has been in effect for only five years (2002-2007) of the 19 years since passage of NAFTA and the agreement that created the World Trade Organization (WTO).
“Democrats are saying, ‘No more Fast Track process that sidelines Congress from determining trade agreements’ contents,’ because today’s pacts like the Trans-Pacific Partnership invade Congress’ domestic policymaking authority and set binding rules on food safety, medicine patents and pricing, copyright and Internet freedom, immigration and much more,” Wallach said.
While many focus on the number of jobs lost from NAFTA and similar pacts, the most significant effect has been a fundamental alternation in the composition of jobs available to the 63 percent of American workers without a college degree. The United States has lost millions of manufacturing jobs during the NAFTA era, even as overall unemployment has been largely stable (excluding the fallout of the Great Recession) as new low-paying service sector jobs have been created.
The qualityof jobs available, and the wages most U.S. workers can earn, have been severely degraded. According to the U.S. Bureau of Labor Statistics, two out of every three displaced manufacturing workers who were rehired in 2012 experienced a wage reduction, most of them more than 20 percent. It is not only those who lost a job to NAFTA who face downward wage pressure: as increasing numbers of workers displaced from manufacturing jobs joined the glut of workers competing for non-offshorable, low-skill jobs in sectors such as hospitality and food service, real wages have also fallen in these growing sectors under NAFTA.
The shift in employment from high-paying manufacturing jobs to low-paying service jobs has contributed to overall wage stagnation. The average U.S. wage has grown less than one percent annually in real terms since NAFTA was enacted even as worker productivity has risen at more than three times that pace.
Twenty years of evidence of NAFTA’s contribution to U.S. income inequality makes fast tracking a massive TPP NAFTA expansion a hard sell among Democrats, Public Citizen said. Passing Fast Track in the first half of 2014 before lawmakers’ attention turns to midterm elections would require a full court press by Obama in addition to the massive corporate campaign that is already gearing up. How Obama handles Fast Track in his State of the Union address will be one sign of whether such a White House campaign is forthcoming.
What happens at the Finance Committee hearing could be a preview of the coming battle.
Meanwhile, proponents of the Camp-Baucus Fast Track bill are trying to highlight the bill’s inclusion of some new negotiating objectives for trade pacts that were not included in the 2002 Fast Track. But the underlying Fast Track process included in the bill ensures that these objectives are entirely unenforceable. Whether or not the president obtains the listed negotiating objectives, the Camp-Baucus bill would empower the president to sign a trade pact before Congress votes on it, with a guarantee that the executive branch could write legislation to implement the pact and alter wide swaths of existing U.S. law, obtaining both House and Senate votes within 90 days. That legislation would not be subject to markup and amendment in committee, all amendments would be forbidden during floor votes and a maximum of 20 hours of debate would be permitted in the House and Senate.
Democratic and GOP presidents alike have historically ignored negotiating objectives included in Fast Track. The 1988 Fast Track used for NAFTA and the pact that established the WTO included a negotiating objective on labor standards, but neither pact included such terms. The 2002 Fast Track listed as a priority the establishment of mechanisms to counter currency manipulation, but none of the pacts established under that authority included such terms.
Congress’ willingness to support Fast Track has also declined markedly because “trade” agreements have increasingly invaded Congress’ domestic policymaking prerogatives. The TPP includes chapters on patents, copyright, financial regulation, energy policy, procurement, food safety and more – it would constrain the policies on these matters that Congress and state legislatures could maintain or establish. Fast Track is outdated 1970s technology being applied to 21st century pacts.
Prior to Fast Track and starting with Franklin Roosevelt’s presidency, Congress gave Tariff Proclamation Authority (TPA) to presidents. But it covered only tariffs, not the broad subject matter included under Fast Track. The mechanism allowed the executive branch to implement reciprocal tariff cuts only within bounds set by Congress. Notably, this “TPA” was entirely different than Fast Track, which is sometimes called Trade Promotion Authority (TPA), as it pertained only to tariffs. (Public Citizen's 2013 book, “The Rise and Fall of Fast Track Trade Authority,” provides an in-depth history of Fast Track and U.S. trade authority.)
Due to Fast Track’s controversy, President George W. Bush spent two years and extraordinary political capital to obtain the 2002-2007 Fast Track grant, which passed a Republican-controlled House by one vote and expired in 2007. A two-year effort by President Bill Clinton to obtain Fast Track trade authority during his second term in office was voted down on the House floor in 1998 when 171 Democrats were joined by 71 GOP who bucked then-Speaker Newt Gingrich.
- The president would be empowered to unilaterally select trade negotiating partners and commence negotiations. Like the 2002 Fast Track, in the Camp-Baucus bill this authority is conditioned only on pro forma consultations and 90 calendar days’ notice being given to Congress before negotiations begin. The Camp-Baucus bill provides no mechanism for Congress to veto a president’s decision to enter into negotiations on a trade pact that would be subject to expedited floor procedures, nor any role in selecting with which countries such pacts are initiated. (Sec. 5(a))
- The president would be empowered to unilaterally control the contents of an agreement. As with the 2002 Fast Track, congressional negotiating objectives in the Camp-Baucus bill are not enforceable. Whether or not U.S. negotiators obtain the listed negotiating objectives, the Camp-Baucus bill would empower the president to sign a trade pact before Congress votes on it, with a guarantee that the executive branch could write legislation to implement the pact and obtain House and Senate votes within 90 days, with all amendments forbidden and a maximum of 20 hours of debate permitted. (Sec. 3(b)(3))
- Democratic and GOP presidents alike have historically ignored negotiating objectives included in Fast Track. The 1988 Fast Track used for the North American Free Trade Agreement (NAFTA) and the establishment of the World Trade Organization (WTO) included a negotiating objective on labor standards, but neither pact included such terms. The 2002 Fast Track listed as a priority the establishment of mechanisms to counter currency manipulation, but none of the pacts established under that authority included such terms.
- The president would be authorized to sign and enter into an agreement subject to expedited consideration conditioned only on pro forma consultations and providing Congress 90 calendar days’ notice prior to doing so. (Sec. 6(a)(1)) The executive branch alone would determine when negotiations are “complete.” The congressional “consultation” mechanisms in the Camp-Baucus bill do not provide Congress with any authority or mechanism to formally dispute whether negotiations have indeed met Congress’ goals and thus are complete, much less any means for Congress to certify that its objectives were met before an agreement may be signed.
- The president would be authorized to write expansive implementing legislation and submit it for consideration. (Sec. 6(a)(1)(C)) As with the 2002 Fast Track, such legislation would not be subject to congressional committee markup and amendment. The 2002 Fast Track states that this legislation can include any changes to U.S. law that the president deems “necessary or appropriate to implement such trade agreement or agreements.” (19 USC 3803(b)(3)(B)(ii)) Inclusion of the term “appropriate” in this section of past Fast Track authorities has been controversial, because it provides enormous discretion for the executive branch to include changes to existing U.S. law that Congress may or may not deem necessary to implement an agreement. Indeed, inclusion of the term “appropriate” has enabled Democratic and GOP administrations alike to insert extraneous changes to U.S. law into legislation that skirts committee mark up and is not subject to floor amendment. Rather than remove the term “appropriate,” the Camp-Baucus bill merely adds the superfluous modifier “strictly” in front of the same “necessary or appropriate” language found in the 2002 Fast Track. (Sec. 3(b)(3(B)ii)) As with the 2002 Fast Track, there is no point of order or other mechanism to challenge inclusion of overreaching provisions in the implementing bill.
- Like the 2002 Fast Track, the Camp-Baucus bill would require the House to vote on such legislation within 60 session days, with the Senate having an additional 30 days to vote thereafter. (Sec. 3(b)(3))
- Like the 2002 Fast Track, the Camp-Baucus bill would forbid all amendments and permit only 20 hours of debate on such legislation in the House and Senate. Voting, including in the Senate, would be by simple majority. (Sec. 3(b)(3))
- The Camp-Baucus bill replicates the 2002 Fast Track with respect to limitations that could be placed on the application of the Fast Track process to a specific trade agreement. While the factsheet on the bill released by the Finance Committee suggests that it includes a “strong, comprehensive” disapproval process, in fact it replicates the 2002 Fast Track’s limited grounds for which a resolution to disapprove Fast Track can be offered. The Camp-Baucus bill also replicates the 2002 Fast Track’s procedures for consideration of such a resolution, which curtail the prospect that such a resolution would ever receive a vote. To obtain floor action, a resolution would have to be approved by the Ways and Means and Finance committees, and then the House and Senate would have to both pass the resolution within a 60-day period. (Sec. 6(b))
The Camp-Baucus bill includes several negotiating objectives not found in the 2002 Fast Track. However, the Fast Track process that this legislation would reestablish ensures that these objectives are entirely unenforceable:
- In addition, some of the Camp-Baucus bill negotiating objectives advertised as “new” are in fact referenced in the 2002 Fast Track. For example, the 2002 Fast Track included currency measures: “seek to establish consultative mechanisms among parties to trade agreements to examine the trade consequences of significant and unanticipated currency movements and to scrutinize whether a foreign government engaged in a pattern of manipulating its currency to promote a competitive advantage in international trade.” (19 USC 3802(c)(12)) The so-called “new” text in the Camp-Baucus bill is: “The principal negotiating objective of the United States with respect to currency practices is that parties to a trade agreement with the United States avoid manipulating exchange rates in order to prevent effective balance of payments adjustment or to gain an unfair competitive advantage over other parties to the agreement, such as through cooperative mechanisms, enforceable rules, reporting, monitoring, transparency, or other means, as appropriate.” (Sec. 2(b)(11))
What is touted as “enhanced coordination with Congress” is actually the mere renaming of the Congressional Oversight Group from the 2002 Fast Track as “Congressional Advisory Groups on Negotiations,” while provisions ostensibly improving transparency merely formalize past practice:
- The 2002 Fast Track established a Congressional Oversight Group (COG) comprised of members of Congress appointed by congressional leaders who were to obtain special briefings from the U.S. Trade Representative’s (USTR) office on the status of negotiations and to attend negotiations on an advisory basis. The Camp-Baucus bill renames the COG – delineating a “House Advisory Group on Negotiations” and a “Senate Advisory Group on Negotiations” and describing joint activities of the two – but includes the same appointment process and limited role for congressional trade advisory groups as found in the 2002 Fast Track. (Sec. 4(c))
- The Camp-Baucus bill instructs USTR to write guidelines for its consultations with Congress, the public and private sector advisory groups. In effect, this provision merely requires USTR to put into writing how it will (or will not) relate to these interested parties. (e.g. Sec. 4(a)(3) and Sec. 4(d)(1))
- The Camp-Baucus bill simply formalizes the past practices of USTR by requiring that any member of Congress be provided access to trade agreement documents. For instance, during NAFTA negotiations, members of Congress had open access to the full draft NAFTA texts with a new version placed into a secure reading room in the U.S. Capitol after each round of negotiations. In the summer of 2013, the Obama administration finally responded to growing pressure by members of Congress for access to draft TPP texts by bringing requested specific chapters to members’ offices for review when a member asked for such access. Rather than specifying that USTR must resume the practice of providing standing access for members of Congress to full draft trade agreement texts, the Camp-Baucus bill leaves to the discretion of USTR how it will provide text access to members of Congress if a member requests access. (Sec. 4(a)(1)(B))
- The Camp-Baucus bill also replicates the problematic language of the 2002 Fast Track that limits access to confidential trade agreement proposals and draft texts for congressional staff with the necessary security clearances to only committee staff, excluding personal staff with clearances. (Sec. 4(a)(3)(B)(ii))
The Camp-Baucus bill faces long odds for approval in the 113th Congress:
- With a large bloc of House Democrats and Republicans already having announced opposition to the old Fast Track process at the heart of Camp-Baucus bill, the prospects are limited for the Obama administration to secure passage in the first half of 2014 before lawmakers’ attention turns to midterm elections.
- A letter sent to President Obama in November by 151 Democrats opposed Fast Track authority and called for the creation of a new mechanism for trade agreement negotiations and approval.
- Most Democratic Ways and Means Committee members joined an additional letter in November noting that the old Fast Track process enjoys little support.
- Even after repeated delays in introduction, the Camp-Baucus Fast Track bill failed to gain a House Democratic cosponsor. Ways and Means Ranking Member Sandy Levin (D-Mich.) has announced that he does not support the Camp-Baucus bill. Levin’s demands for changes to the 2002 Fast Track procedure to enhance Congress’ role in determining the contents of trade pacts were rebuffed by Ways and Means Committee Chair Dave Camp (R-Mich.), Finance Committee Chair Max Baucus (D-Mont.) and Finance Committee Ranking Member Orrin Hatch (R-Utah).
- The Camp-Baucus Fast Track grandfathers in the Trans-Pacific Partnership (TPP) and U.S.-EU Trans-Atlantic Free Trade Agreement (TAFTA) negotiations. (Sec. 7) Fast Track for the TPP and TAFTA is especially controversial because these pacts would include chapters on patents, copyright, financial regulation, energy policy, procurement, food safety and more, constraining the policies that Congress and state legislatures could maintain or establish on these sensitive non-trade matters. Fast Track was designed in the 1970s when trade negotiations were narrowly focused on cutting tariffs and quotas, not the sweeping range of non-trade policies implicated by today’s pacts.
Fast Track is an anomaly. It has only been in effect for five of the past 19 years:
- Both Democratic and GOP presidents have struggled to convince Congress to delegate its constitutional trade authority via the Nixon-era Fast Track scheme. Fast Track has been in effect for only five years (2002-2007) of the 19 years since passage of NAFTA and the agreement that created the WTO.
- A two-year effort by President Bill Clinton to obtain Fast Track trade authority during his second term in office was voted down on the House floor in 1998 when 171 Democrats were joined by 71 GOP members who bucked then-Speaker Newt Gingrich. Clinton did not have Fast Track for six of his eight years in office, but still implemented more than 130 trade agreements.
- President George W. Bush spent two years and extraordinary political capital to obtain the 2002-2007 Fast Track grant, which passed a Republican-controlled House by one vote, and expired in 2007.
Legislation to Provide Fast Track Trade Authority for President Obama Finally Introduced, But Can It Pass?
Considerable House Opposition on Day One, Tight Calendar in Election Year
Legislation introduced today by U.S. Sen. Max Baucus (D-Mont.) and U.S. Rep. Dave Camp (R-Mich.), which would revive the controversial Fast Track trade authority, faces long odds for approval in the 113th Congress, Public Citizen said today. The legislation replicates the Fast Track mechanism found in the 2002 grant of Fast Track; however, the new legislation alters some previous negotiating objectives.
Both Democratic and GOP presidents have struggled to persuade Congress to delegate its constitutional trade authority via the Nixon-era Fast Track scheme. Fast Track has been in effect for only five years (2002-2007) of the 18 years since passage of the North American Free Trade Agreement (NAFTA) and the agreement that created the World Trade Organization (WTO).
With a large bloc of House Democrats and Republicans already having announced opposition to the old Fast Track process at the heart of Camp-Baucus bill, the prospects are limited for the Obama administration to secure passage in the first half of 2014 before lawmakers’ attention turns to midterm elections. The first session of the 113th Congress was consumed with negotiations among Ways and Means and Finance Committee leaders that could not produce a consensus bill. Ways and Means Ranking Member Sandy Levin (D-Mich.) has announced that he wants changes to the old process to enhance Congress’ role.
The legislation includes several negotiation objectives not found in the 2002 Fast Track; however, the underlying Fast Track process included in the bill ensures that these objectives are entirely unenforceable. Whether or not the president obtains the listed negotiating objectives, the bill would empower the president to sign a trade pact before Congress votes on it with a guarantee that the executive branch can write legislation to implement the pact and alter wide swaths of existing U.S. law and obtain both House and Senate votes within 90 days. That legislation is not subject to markup and amendment in committee, all amendments are forbidden during floor votes and a maximum of 20 hours of debate is permitted in the House and Senate.
“Congress’ willingness to support Fast Track has declined markedly because ‘trade’ agreements have increasingly invaded Congress’ domestic policymaking prerogatives,” said Lori Wallach, director of Public Citizen’s Global Trade Watch. “On top of that, Democratic and GOP presidents alike have consistently ignored the negotiating objectives included in Fast Track, but the way the process is structured, Congress has given away its authority to do anything about it.”
The Trans-Pacific Partnership, for which President Barack Obama seeks Fast Track authority, includes chapters on patents, copyright, financial regulation, energy policy, procurement, food safety and more that would constrain the policies on these matters that Congress and state legislatures can maintain or establish.
President George W. Bush spent two years and extraordinary political capital to obtain the 2002-2007 Fast Track grant, which passed a Republican-controlled House by one vote and expired in 2007.
A two-year effort by President Bill Clinton to obtain Fast Track trade authority during his second term in office was voted down on the House floor in 1998 when 171 Democrats were joined by 71 GOP who bucked then-Speaker Newt Gingrich. Clinton did not have Fast Track for six of his eight years in office, but still implemented more than 130 trade agreements, including granting Most Favored Nation status to China, which led to China’s WTO access.
“Fast Track is outdated 1970s technology being applied to 21st century realities, which is causing serious damage,” said Wallach. “It’s rare these days that across the aisle, Congress agrees on anything, so it’s notable that a large bipartisan bloc insists on maintaining the exclusive constitutional authority over trade that the Founding Fathers wisely granted to Congress.”
Fast Track allowed a president to determine the contents of trade pacts, sign them before Congress votes and write expansive implementing legislation that is not subject to congressional committee amendment – all with a guarantee that Congress would vote on a completed agreement and the legislation within 90 days, with no floor amendments and limited debate.
A letter sent to Obama in November by 151 Democrats called for creation of a new mechanism for trade agreement negotiations and approval: “Congress, not the Executive Branch, must determine when an agreement meets the objectives Congress sets in the exercise of its Article I-8 exclusive constitutional authority to set the terms of trade,” the letter said. “For instance, an agreement that does not specifically meet congressional negotiating objectives must not receive preferential consideration in Congress.”
Further, “A new trade agreement negotiation and approval process that restores a robust role for Congress is essential to achieving U.S. trade agreements that can secure prosperity for the greatest number of Americans, while preserving the vital tenets of American democracy in the era of globalization,” the letter stated. “Twentieth Century ‘Fast Track’ is simply not appropriate for 21st Century agreements and must be replaced.”
Opposition to Fast Track authority in Congress has increased significantly since the time of NAFTA and the WTO.
Under President George H.W. Bush in 1991, Fast Track authority passed a Democratic-led House by a 27-vote margin. Clinton had Fast Track authority for only two of his eight years in office, and in 1998, the Democratic-led House emphatically rejected his request, with 71 GOP representatives joining 171 in the majority to vote “no.” Bush managed to obtain Fast Track authority by only one vote in the House after two years of effort, and Congress rebuffed Bush’s request for an extension when that delegation expired in 2007.
In 2008, during his presidential campaign, Obama promised to replace Fast Track with a more inclusive process. History seemed with him: A new system of trade authority delegation has been created every few decades since 1890.
But since capturing a second term in the White House, Obama has ramped up his demand that Congress once again cede its constitutional trade authority via Fast Track.Prior to Fast Track and starting with Franklin Roosevelt’s presidency, Congress gave Tariff Proclamation Authority (TPA) to presidents. But it covered only tariffs, not the broad subject matter included under Fast Track. The mechanism allowed the executive branch to implement reciprocal tariff cuts only within bounds set by Congress. (Notably, this “TPA” was entirely different than Fast Track, which is sometimes called Trade Promotion Authority (TPA), as it pertained only to tariffs.)
Before that, trade agreements were often approved as treaties by the Senate, with both chambers later also required to pass implementing legislation. Public Citizen’s 2013 book, “The Rise and Fall of Fast Track Trade Authority,” provides an in-depth history of U.S. trade authority.
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NAFTA at 20: Two Decades of Job Loss, Record Inequality, Mass Displacement, and Corporate Attacks on Environmental and Health Laws
Today marks the 20th anniversary of the implementation of the North American Free Trade Agreement (NAFTA). The promises made by NAFTA proponents and warnings issued by its opponents during the fierce 1993 debate over congressional approval of the pact can now be measured against two decades of actual outcomes. For a detailed analysis of NAFTA's two-decade legacy, check out our new NAFTA at 20 report.
NAFTA was an experiment, establishing a radically new “trade” agreement model. Despite the documented damage caused by 20 years of NAFTA, the Obama administration is now seeking to deepen the NAFTA model and expand it to additional countries through the Trans-Pacific Partnership (TPP), a massive agreement with 11 Asian and Latin American countries. The Clinton administration’s efforts to do the same – through a Free Trade Area of the Americas and an Asia-Pacific Economic Cooperation (APEC) Free Trade Agreement (FTA) – were rejected by negotiating partners as the damaging results of NAFTA became apparent.
NAFTA was fundamentally different than past trade agreements in that it was only partially about trade. Indeed, it shattered the boundaries of past U.S. trade pacts, which had focused narrowly on cutting tariffs and easing quotas. In contrast, NAFTA created new privileges and protections for foreign investors that incentivized the offshoring of investment and jobs by eliminating many of the risks normally associated with moving production to low-wage countries. NAFTA allowed foreign investors to directly challenge before foreign tribunals domestic policies and actions, demanding government compensation for policies that they claimed undermined their expected future profits. NAFTA also contained chapters that required the three countries to limit regulation of services, such as trucking and banking; extend medicine patent monopolies; limit food and product safety standards and border inspection; and waive domestic procurement preferences, such as Buy American.
In 1993, NAFTA was sold to the U.S. public with grand promises. NAFTA would create hundreds of thousands of good jobs here – 170,000 per year according the Peterson Institute for International Economics. U.S. farmers would export their way to wealth. NAFTA would bring Mexico to a first-world level of economic prosperity and stability, providing new economic opportunities there that would reduce immigration to the United States. Environmental standards would improve.
Twenty years later, the grand promises made by NAFTA’s proponents remain unfulfilled. Many outcomes are exactly the opposite of what was promised, as detailed in our new NAFTA at 20 report. In sum:
- Rather than creating the promised 170,000 jobs per year, NAFTA has contributed to an enormous new U.S. trade deficit with Mexico and Canada, which had already equated to an estimated net loss of one million U.S. jobs by 2004. This figure, calculated by the Economic Policy Institute, includes the net balance between jobs created and jobs lost. Much of the job erosion stems from the decisions of U.S. firms to embrace NAFTA’s new foreign investor privileges and relocate production to Mexico to take advantage of its lower wages and weaker environmental standards. The NAFTA-spurred job loss has not abated during NAFTA’s second decade, as the burgeoning post-NAFTA U.S. trade deficit with Canada and Mexico has not declined.
- More than 845,000 specific U.S. workers have been certified for Trade Adjustment Assistance (TAA) as having lost their jobs due to imports from Canada and Mexico or the relocation of factories to those countries. The TAA program is quite narrow, only covering a subset of the jobs lost at manufacturing facilities, and is difficult to qualify for. Thus, the NAFTA TAA numbers significantly undercount NAFTA job loss.
- NAFTA has contributed to downward pressure on U.S. wages and growing income inequality. According to the U.S. Bureau of Labor Statistics, two out of every three displaced manufacturing workers who were rehired in 2012 experienced a wage reduction, most of them taking a pay cut of greater than 20 percent. As increasing numbers of workers displaced from manufacturing jobs have joined the glut of workers competing for non-offshorable, low-skill jobs in sectors such as hospitality and food service, real wages have also fallen in these sectors under NAFTA. The resulting downward pressure on middle-class wages has fueled recent growth in income inequality.
- Despite a 188 percent rise in food imports from Canada and Mexico under NAFTA, the average nominal price of food in the United States has jumped 65 percent since the deal went into effect. This is the opposite of the outcome promised when NAFTA passage was debated. Then, some NAFTA proponents acknowledged that the deal would cause the loss of some U.S. jobs, but argued that U.S. workers would win overall by being able to purchase cheaper imported goods.
- The reductions in consumer goods prices that have materialized have not been sufficient to offset the losses to wages under NAFTA. U.S. workers without college degrees (63 percent of the workforce) have likely lost an amount equal to 12.2 percent of their wages under NAFTA-style trade even after accounting for the benefits of cheaper goods. This net loss, calculated by the Center for Economic and Policy Research, means a loss of more than $3,300 per year for a worker earning the median annual wage of $27,500.
- Soon after NAFTA’s passage, the small pre-NAFTA U.S. trade surplus with Mexico turned into a massive new trade deficit and the pre-NAFTA U.S. trade deficit with Canada expanded greatly. The inflation-adjusted U.S. trade surplus with Mexico of $2.5 billion and the $29.1 billion deficit with Canada in the year before NAFTA have morphed into a combined NAFTA trade deficit of $181 billion. The rosy job-creation promises made at the time of the NAFTA votes were predicated on NAFTA improving the U.S. balance of trade. The reality has been the opposite.
- During the NAFTA debate, scores of U.S. corporations promised to create specific numbers of jobs if NAFTA passed. Public Citizen catalogued these pledges, the failure to meet them and even the record of the same firms’ relocation of jobs to Mexico and Canada in a comprehensive report.
- Scores of NAFTA countries’ environmental and health laws have been challenged in foreign tribunals through the controversial investor-state system. More than $360 million in compensation to investors has been extracted from NAFTA governments via “investor-state” tribunal challenges against toxics bans, land-use rules, water and forestry policies and more. More than $12.4 billion are currently pending in such claims. These claims include foreign investor challenges of medicine patent policies, a fracking moratorium and a renewable energy program.
- The average annual U.S. agricultural trade deficit with Mexico and Canada under NAFTA stands at $800 million, more than twice the pre-NAFTA level. U.S. food processors moved to Mexico to take advantage of low wages and food imports soared. U.S. beef imports from Mexico and Canada, for example, have risen 130 percent since NAFTA took effect, and today U.S. consumption of “NAFTA” beef tops $1.3 billion annually.
- Overall imports of food into the United States have risen more steadily and to a greater degree than U.S. food exports under NAFTA. While the total volume of U.S. food exports in 2012 stood only 34 percent higher than the average level in the five years before NAFTA took effect, the volume of U.S. food imports was 137 percent higher. This stands in stark contrast to the promises made to U.S. farmers and ranchers that NAFTA would allow them to export their way to newfound wealth and farm income stability.
- The export of subsidized U.S. corn did increase under NAFTA, destroying the livelihoods of more than one million Mexican campesino farmers and about 1.4 million additional Mexican workers whose livelihoods depended on agriculture.
- The desperate migration of those displaced from Mexico’s rural economy pushed down wages in Mexico’s border maquiladora factory zone and contributed to a doubling of Mexican immigration to the United States following NAFTA’s implementation.
- Though the price paid to Mexican farmers for corn plummeted after NAFTA, the deregulated retail price of tortillas – Mexico’s staple food – shot up 279 percent in the pact’s first 10 years.
- Real wages in Mexico have fallen significantly below pre-NAFTA levels as price increases for basic consumer goods have exceeded wage increases. A minimum wage earner in Mexico today can buy 38 percent fewer consumer goods as on the day that NAFTA took effect. Despite promises that NAFTA would benefit Mexican consumers by granting access to cheaper imported products, the cost of basic consumer goods in Mexico has risen to seven times the pre-NAFTA level, while the minimum wage stands at only four times the pre-NAFTA level.
- Facing displacement, rising prices and stagnant wages, over half of the Mexican population, and over 60 percent of the rural population, still fall below the poverty line, despite the promises made by NAFTA’s proponents.
U.S. Public Opinion Polling Shows Overwhelming Opposition to NAFTA
The U.S. public’s view of NAFTA has shifted from a divide during the time of the NAFTA debate to broad opposition and now to overwhelming opposition to NAFTA-style trade deals. According to a 2012 Angus Reid Public Opinion poll, 53 percent of Americans believe the United States should “do whatever is necessary” to “renegotiate” or “leave” NAFTA, while only 15 percent believe the United States should “continue to be a member of NAFTA.” Rejection of the trade deal is the predominant stance of Democrats, Republicans and independents alike. NAFTA has drawn the ire of Americans across stunningly diverse demographics. A 2011 National Journal poll showed strong rejection of the status quo trade model from both lower-educated and higher-educated respondents, and a 2010 NBC News – Wall Street Journal survey revealed that a majority of upper-income respondents have now joined lower-income respondents in opposing NAFTA-style pacts.
Given NAFTA’s record of diverse damage, it is not surprising that opposition to the TPP – a supersized NAFTA that would be open for any Pacific Rim country to later join – is growing among the U.S. public and in Congress.
For a detailed analysis of NAFTA's two-decade legacy of job loss, income inequality, agricultural instability, corporate attacks on safeguards, and mass displacement, check out our new NAFTA at 20 report.
A moratorium on fracking. A strong anti-smoking cigarette label. A requirement to clean up industrial pollution. A medicine patent policy that could tamp down health costs. A decision to phase out nuclear energy.
Each of these has been attacked by a foreign corporation using "trade" and investment treaties that allow firms to circumvent domestic legal systems and directly challenge domestic public interest policies before private international tribunals. Such tribunals, comprised of three lawyers, are currently deciding whether to order governments to hand foreign corporations taxpayer money for each of the health and environmental safeguards above.
The extraordinary system that enables such assaults on domestic policymaking, known as the investor-state regime, could be vastly expanded by a "trade" deal under negotiation this week between the U.S. and the European Union. A "trade" deal only in name, the Trans-Atlantic Free Trade Agreement (TAFTA) would empower an unprecedented number of foreign corporations to attack health, environmental, financial, product safety, labor, Internet and other domestic policies in both the U.S. and the EU. Here's a synopsis of what's at stake.
Empowering Foreign Corporations to Directly Attack Public Protections
U.S. and EU officials have called for TAFTA to grant foreign firms the power to directly attack domestic health, financial, environmental and other public interest policies that they view as undermining new foreign investor privileges and rights that TAFTA would establish. TAFTA could empower individual foreign corporations to drag the U.S. and EU governments before extrajudicial tribunals, comprised of three private attorneys, that would be authorized to order unlimited taxpayer compensation for domestic policies or government actions perceived as undermining firms’ “expected future profits.”
This extreme “investor-state” system already has been included in U.S. “free trade” agreements, forcing taxpayers to pay firms more than $400 million for toxics bans, land-use rules, regulatory permits, and water and timber policies. Just under U.S. pacts, more than $14 billion remains pending in corporate claims against medicine patent policies, pollution cleanup requirements, climate and energy laws, and other public interest polices.
TAFTA could vastly expand the investor-state threat, given the thousands of corporations doing business in both the United States and EU that would be newly empowered to attack standards and safeguards. More than 3,300 EU parent corporations own more than 24,200 subsidiaries in the United States, any one of which could provide the basis for an investor-state claim. This exposure to investor-state attacks far exceeds that associated with all other U.S. “free trade” agreement partners. Similarly, the EU could be exposed to a potential wave of investor-state cases from any of the more than 14,400 U.S.-based corporations that own more than 50,800 subsidiaries in the EU. In sum, TAFTA could newly enable corporate attacks on behalf of any of the U.S. and EU’s 75,000 cross-registered firms.
The EU is proposing for TAFTA an even more radical version of investor privileges than that found in past U.S. pacts. But even if TAFTA would simply replicate the sweeping terms of past agreements, thousands of corporations would gain a new tool to undermine the policies on which we all rely. Consider these extreme features:
- Massive expansion of corporate power: The “investor-state” dispute settlement mechanism elevates foreign corporations to the level of sovereign governments, uniquely empowering them to skirt domestic laws and courts and privately enforce the terms of a public treaty by directly challenging governments’ public interest policies before foreign tribunals. That this regime would even be included in a U.S.-EU pact reveals that its aim is not investor protection, but corporate empowerment. The investor-state system was ostensibly established to ensure that foreign investors operating in countries without reliable domestic court systems could obtain compensation if their factories, mines or land were expropriated. The United States and EU have among the world’s strongest domestic court systems and property rights protections. Inclusion of the regime in TAFTA would only provide corporations a new means to attack domestic policies deemed permissible by domestic courts.
- Three corporate lawyers as “judges”: The tribunals authorized to rule against government policies are comprised of three private sector attorneys, unaccountable to any electorate. Many of the tribunalists rotate between serving as “judges” and bringing cases for corporations against governments. In the small “club” of international investment tribunalists, there are 15 lawyers who have been involved in 55 percent of the total investment-state cases known to date. There is no appeal mechanism for their decisions.
- Corporate right to avoid new regulation: Under this system, corporations can challenge policies or government actions that they allege as violating special substantive new investor “rights” that TAFTA would grant. These “rights” are phrased in vague, broad language and tribunals have increasingly interpreted them to be far more expansive than those afforded to domestic firms under domestic laws. This has included the “right” to a regulatory framework that conforms to a corporation’s “expectations” – meaning that governments should make no changes to regulatory policies once a foreign investment has been established. Another right is to obtain compensation for “indirect expropriation” – meaning governments must pay if a regulatory policy diminishes the value of an investment even if such a policy applies equally to domestic and foreign firms. Investors have no obligations to governments. Investors decide if and when to initiate cases.
- Wide array of policies attacked: Foreign investors have used these broad privileges to demand taxpayer compensation for consumer health and safety policies, environmental and land-use laws, government procurement decisions, energy and climate policies, water and mining laws, financial regulations and other non-trade domestic policies applied equally to foreign and domestic firms. For example, Egypt’s minimum-wage increase and a Peruvian anti-toxic emissions policy are now being attacked by EU and U.S. corporations, respectively, under deals enshrining investor privileges. And U.S. tobacco behemoth Philip Morris has launched investor-state cases against progressive anti-smoking laws in Uruguay and Australia, after failing to undermine the health laws in domestic courts. U.S. pharmaceutical corporation Eli Lilly has mounted an investor-state attack against Canada’s ability to set its own patent standards, a prerogative that is essential to ensuring access to affordable medicines. And Swedish energy firm Vattenfall has used the investor-state regime to demand billions in compensation from Germany over its coal-fired electricity plant regulations and its phase-out of nuclear energy.
- Billions in taxpayer compensation: There is no limit to the amount of money a tribunal can order a government to pay a foreign corporation. In one recent case, a tribunal ordered Ecuador to pay over $2 billion to an oil firm. Even when governments win, they often must pay for the tribunal's costs and legal fees, which average $8 million per case, wasting scarce resources to defend public interest policies against corporate challenges.
- Surge of corporate attacks: The annual number of new investor-state cases has more than doubled over the last ten years, with UNCTAD reporting a tenfold increase in the cumulative number of cases since 2000 (despite the fact that the system has existed since the 1950s). More cases were launched in 2012 than ever before. An entire industry of third-party financing and specialized law firms has sprung up to raid public treasuries via investor-state cases.
Multinational corporations that have profited most from this extreme system, such as Chevron, are those most loudly calling for its expansion via TAFTA. Chevron has been using an investor-state case in attempt to evade justice after 18 years of losing litigation in U.S. and Ecuadorian courts. Chevron now faces an $18 billion judgment in Ecuadorian courts in a case brought by indigenous communities suffering from the dumping of billions of gallons of toxic sludge in a wide swath of Ecuador’s Amazonian region. In response, Chevron launched an investor-state counterattack and asked a three-person tribunal to help halt the ruling. The tribunal obliged, ordering Ecuador’s government to defy its own constitution and interfere with the independent judiciary to block enforcement of the $18 billion order to clean up the egregious damage. In an initial ruling in the case, the tribunal simply ignored U.S. and Ecuadorian courts’ determination on the merits of the claim, declaring that some of the indigenous communities’ rights to pursue the case “no longer exist.”
In its formal comments on TAFTA, Chevron calls for the deal to expand the investor-state system, candidly stating, “Chevron’s ability to do business globally and protect our shareholder investments depends on strong mechanisms for resolving disputes.”