Planet Not For Sale
The Seattle to Brussels Network (S2B) would like to welcome you in the EU Presidency. We hope
that we will be able to build a constructive dialogue around the EU trade policy – in the direction of
a trade policy that puts people and the environment first.
The S2B Network is a coalition of European civil society organisations that challenges the
democratic deficit in the EU decision making process on trade issues and promotes a sustainable,
social and democratic accountable trade system. The S2B membership is diverse and located
throughout Europe; it includes development, environment, human rights, women and farmers
organisations, trade unions, various social movements as well as research institutes and has built
strong partnerships with networks of social actors in the South.
Since 1999, S2B has been working to democratise the EU’s trade agenda through revealing the
dominant influence the corporate sector has on the EU’s trade agenda and its negative impacts in
Europe and the Global South, especially on small-scale farmers, women, rural populations and small
and medium enterprises.
S2B members are deeply concerned about the EU Trade strategy as described in the EC
communication Global Europe: Competing in the World. With its emphasis on meeting the EU
business interests at the cost of socio-economic rights, sustainable development and gender
equality objectives and the fight against inequality at local as well as at global level, the Global
Europe strategy threatens many of the world’s poorer communities.
Our concerns have been reinforced in the context of the multiple crisis (food, financial, energy,
economic, climate). These crisis is to a large degree systemic and is deeply related to the
liberalisation and deregulation policies of the last decades.
The financial crisis follows the systematic deregulation of the financial markets, which allowed
massive speculation; and this financial liberalisation is reinforced through the EU’s Free Trade
Agreements (such as the CARIFORUM EPA) and the EU’s offensive position at the WTO in the area
of financial services negotiations.
The financial crisis, however, results not only from financial deregulation, but also from too fast and
universal trade liberalization.
Progressive global trade liberalization has over past three decades led some important countries to
adopt aggressive export-oriented models backed by undervalued currency.
Accumulation of foreign reserves and huge capital surpluses helped these countries both to succeed
in highly competitive global markets and to preserve their domestic financial stability.
But without adequate international exchange rate and capital flows management, these capital
surpluses have caused huge global imbalances, including the global financial and economic crisis of
The global food price crisis, too, has one of its roots in the destruction of small-scale farming in the
South as a consequence of excessive market opening, export orientation and the abolition of
agricultural support. Cheap global capital without proper regulation also greatly facilitated
speculative investments in commodities causing high and volatile oil and food prices for many poor
people around the world.
The climate crisis, finally, will surely not be solved by more excessive transportation of goods, more
unsustainable and debt-based consumption and reduced policy space, which would be the
consequence of more stringent “free trade” rules as called for by the EU leaders.
In the context of these unfolding crises we are extremely concerned about the commitment of the
EU to continue with “business-as-usual” in EU trade policies. We believe that concluding the WTO’s
Doha Round and the bilateral and regional FTAs, in the way they are conceived of now, is the wrong
approach. While resorting to large-scale protectionisms would certainly deepen the current
economic crisis today, further liberalization across the board might bring more of costlier financial,
fuel and food crises in the future
S2B believes a radically different approach, espousing selective liberalization and right to protect, is
needed to ensure that EU trade and investment agreements do not have a negative impact on the
prospects of developing countries, on efforts to save the climate or on the European social model.
Only smart trade policies that work for the poorest of the world will also ensure a stable, just,
sustainable and prosperous world for all. It is time for a new and updated economic system which
reduces inequality, ensures a healthy environment and works to create well-being for all. . Such a
system should include:
· A major recovery plan that puts people and the environment at its heart and in particular
enables countries to better feed, educate and protect their people, invest in low-carbon
development and sustainable decent jobs, and build up their economic resilience and
· Effective regulation of the global financial system, including tax, debt and trade rules
· A set of new and reformed democratic institutions to govern this economic system on global,
regional, national and local level
The upcoming negotiating rounds of the Free Trade Agreements between the EU and its
counterparts (South Korea, India, ASEAN, Andean Community and Central America) must take
these orientations into consideration. This is also the case for the EPAs. Although some interim EPAs
have already been initialled or signed, the door should be kept open for real alternatives and the EU
should refrain from putting pressure on the ACP countries to take binding commitments in services,
intellectual property right or Singapore issues. Instead it should take the commitment to respond
unconditionally and in a flexible way to demands by ACP countries to revise the contentious issues
included in the interim agreements and it should revisit the EU- CARIFORUM EPA in the light of the
We also appeal on your leadership to make sure that the EU’s Raw Materials Strategy (which is
currently under consideration by the Council) does not stand in the way of the socio-economic
rights of the people of the South, sustainable management of natural resources, preservation of
fragile ecosystems, resource sovereignty in developing countries and increased resource efficiency
Finally, the EU will play a key role in the next G20 meeting foreseen in London, which aims at
setting up new rules and solid governance structures for the global financial system.
In this framework, useful steps for the Czech Presidency should include the initiative to put the
elimination/defuse of tax havens on the agenda of the upcoming ECOFIN meeting, through a)
extending the European Savings Directive to companies and trusts and b) requiring that the
international accounting standards include Country-to-Country reporting of multinational companies
to reveal profits, losses and taxes paid in each country of their operation.
The Czech Presidency should also take a courageous approach and propose a review of the impact
of financial deregulation commitments made by the EU and EU Member States in the WTO/GATS
and in bilateral and bi-regional free trade agreements and investment treaties. As an immediate
step, the Czech Presidency should put on the Council’s agenda measures to reverse obsolete
restrictions on capital controls in trade and investment agreements and to encourage capital
controls as an effective tool to address financial market volatility.
As S2B, we would actively support your engagement in favour of a European trade and investment
strategy that puts people's needs and environment at its heart.
We are at your disposal to exchange further views on the alternatives we propose and look forward
to hearing from you.
The Seattle to Brussels Network
Many political leaders have been calling for the conclusion of the ‘Doha Round’ negotiations in the World Trade Organisation (WTO) as a solution to the financial crisis, in order to provide a boost to the world economy and a signal of confidence to multilateralism. They argue that WTO rules prevent “protectionist measures”, closing of borders, and beggar-thy-neighbour policies, which led to the economic depression in the 1930s and the consequent wars.
Arguing that a Doha deal would prevent the kind of trade barriers that led to the Great Depression of the 1930’s is ill-conceived:
? No countries are currently closing their borders to imports more than allowed under the WTO. Some countries have put up barriers to ‘exports’ of food in order to prevent hunger.
? The Doha Round draft negotiation text reveals a protectionism for the rich and multinationals - who lobbied for aggressive market access in their interests- and will result in an inequitable and unsustainable ‘rules-based system’.
? The existing inequality between the international trade actors and the bail out packages that strengthen the competitiveness of the industrialised countries, means that further liberalisation does not provide the claimed benefits of open trade, as argued in the comparison with the 1930s.
? The argument that “one’s protection is another one’s lost opportunity” could be turned around by saying “each market opening is one’s lost opportunity”. The real question is whose opportunity!?
New WTO rules would mean deregulation at the domestic level in the agricultural, industrial and services sectors, preventing countries from taking required measures to combat the financial and economic crises, as well as the food and environmental crises. This likely outcome contradicts the argument that the conclusion of the Doha Round will ‘strengthen regulation’. For instance, the services talks in financial services during the Doha Round will further deregulate the financial sector and further spread risky financial products, which caused the financial crisis in the first place, while new needed supervision and regulation is not yet in place (see other OWINFS briefings: “End WTO Deregulation of Finance” and “FTAs Contribute to Financial and Other Crises”).
Finalising the Doha Round, as currently negotiated, would be a disastrous way to deal with the economic, social and environmental problems facing the world today:
? Now is the wrong time for developing countries to negotiate away flexibilities and policy space which prevents them from regulation and intervention. Certainly at a time that developed countries are massively using state intervention, subsidies and other Keynesian measures to deal with the crisis, developing countries often have only trade barriers to protect themselves.
? No negotiation flexibilities and extra market access concessions are to be expected from Western countries given the financial and economic crises they are facing. Rather, rich countries are pushing for large concessions from developing countries to open up markets for rich country exports as compensation for their economic problems. This contradicts the Doha Round principle that developing countries have to make less concessions, and negates Western countries’ responsibility for causing the financial crisis.
? Application of Keynesianism at home while requiring the rest of the world to follow Adam Smith would have very long lasting imbalances among countries. More fragile economies and companies – now also lacking access to credit due to the financial crisis– will not be able to compete under new free trade regimes. They will lose out, as we are already seeing, while jobs and income lost due unfair competition will not be easily be replaced.
The new state interventions in (Western) countries and the combined financial, economic, climate, food, environmental and equity crises call for a systemic restructuring of trade agreements, in addition to restructuring of current international negotiations on new financial regulation and supervision.
THE FINANCIAL CRISIS SHOWS HOW THE WTO IS ON THE WRONG TRACK
The financial crisis has exposed how the model of free markets, deregulation and ever increasing competition has been very risky and ill conceived. Societies were left unprotected against this crisis-prone model but have to pay the high price. Financial regulators’ belief that markets can be left to sort themselves out, and that free markets and uncontrolled innovation should not be interfered with, has been proven to cause a huge financial crisis.
The extreme recklessness of these policies is now widely recognized in the financial sector. However there is still too little political and public questioning of free markets in trade and the credibility of many of the institutions such as the WTO, which serve to enforce these free market policies. The WTO was launched during the height of popularity of the “neo-liberal” economic model, aimed at reducing public oversight and regulation of the economy, while re-regulating to enforce rights for especially big corporations. The WTO and free trade agreements (FTAs) legalised a radical deregulation and liberalisation agenda which had been pushed by the rich countries, the IMF and the World Bank.
At a time that many (developed) countries are increasingly using other, more Keynesian, models it would be wrong for the WTO to continue stopping national and international intervention in markets The financial crisis has not only exposed the negative consequences of deregulating and liberalising financial markets, but also exposed the problematic model of export orientation, import dependence, unlimited competition and free trade and investment as embodied in the WTO and FTAs:
? Competition unleashed by liberalising and deregulating the financial sector resulted in un-efficient ever-more-profit strategies focused on high returns on capital rather than financing the economy. Extreme speculative products were instruments of this competition which contributed to the financial and food crisis, and volatile commodity and oil prices.
? Market opening of the financial sector under GATS and FTAs has shown the many risks of foreign banks: failing to serve poor people and the domestic industry, financing unsustainable companies or projects, and withdrawing capital and limiting credit in times of crisis.
? Competition encouraged by liberalisation policies as well as free trade and investment agreements has resulted in huge and successful lobbying by the financial industries, exporters and traders for less regulation in all countries.
? The lack of international mechanisms to stabilise exchange rates might be more damaging than trade barriers to developing countries, e.g. through more expensive imports and less income from exports.
? Export oriented economies suffer huge job losses when demand abroad is contracting and the financial crisis leads to less available credit for production and trade;
? Foreign direct investment is currently declining or leaving countries that have economic and export polices relying on foreign investment and open capital markets.
? Remittances by migrant workers are being reduced as many have lost their jobs.
? Unemployment is estimated to rise massively worldwide.
? The working poor and those living on less than a dollar a day are estimated to be increasing by 40 million and those on 2 dollars a day by 100 million.
? Current patterns of unconditioned (export) production, trade and consumption are damaging the environment, encouraging climate change and having negative social consequences in the agricultural, industrial and services sectors.
The current dysfunction of the financial sector and economies means that current free trade agreements and negotiations will not provide the claimed benefits but rather reinforce the convergence of crises. These WTO and FTAs negotiations need to be stopped ! Alternative trade agreements are needed that help prevent the systemic economic, social and environmental problems of current free trade, free investment, free markets and free capital policies.
For more information see: www.somo.nl/dossiers-en/trade-investment/gats or somo.nl/dossiers-en/sectors/financial/financial
“FREE TRADE” AGREEMENTS CONTRIBUTE TO FINANCIAL AND OTHER CRISES
While the financial crisis and its consequences are spreading around the world and even the most erstwhile ‘free market’ governments are discussing how to re-regulate the financial sector, bilateral and regional ‘free trade’ agreements continue extreme deregulation of the financial industry. The terms of these agreements prohibit countries from reforming their financial sector so as to remedy the financial, economic, environmental, food and social crises now growing, and from ensuring that finance is directed towards the transformation to sustainable societies.
Deregulation and liberalisation of financial services is part of the many bilateral and regional free trade agreements (FTAs) that are currently being negotiated or have been implemented over the last years. For instance, the EU-Caribbean Economic Partnership agreement (EPA) exemplifies the model that the EU seeks to impose during all current FTA and EPA negotiations. Some FTAs include a ‘review clause’ which is a commitment to (further) deregulate and liberalise (financial) services through new negotiations at a certain point in time, without public or parliamentary scrutiny.
Expansion of financial conglomerates
Under the rules of the services agreement (General Agreement on Trade in Services or “GATS”) in the World Trade Organization (WTO), developing countries can choose whether or not to liberalise or deregulate financial services. But a GATS rule determines that an FTA that covers services must include substantial liberalisation and deregulation commitments although developing countries can liberalise somewhat less than developed countries. EU and US negotiators – in close coordination with their financial service industries - have been very keen to secure new deregulated access for their once profitable financial industry (Citigroup profits in 2004 were US$ 17bn). Some existing FTAs have almost 10 pages of commitments and rules on financial services. These rules require that developing countries must admit the presence of all kinds of foreign banks, insurance companies and other financial operators and their services …regardless of whether regulation and supervision, or consumer protection, is established or not.
Deregulation of foreign banks
While requiring that countries admit more foreign banks and other financials services, the FTAs simultaneously impose the same restrictions on how governments may regulate financial services and their providers as seen in GATS, unless exemptions were made at the time of negotiation:
? allowing 100% foreign ownership of financial operators and the financial sector;
? no restrictions on the size and number of financial operators, nor on the volume of their financial transactions;
? foreign financial operators have to be treated at least as favourable as domestic financial operators.As a result, many measures that are necessary to prevent a financial crisis violate these rules. One such preventive measure is to limit the size of a bank and the volume of its financial transactions, so that it cannot become “too big to fail” – and thus does not need to be bailed out with taxpayer money.
FTA rules also disregard that foreign financial operators behave differently. Foreign banks tend to target the more profitable, rich clients and provide less credit to farmers and small producers, especially in times of a financial crisis. This undermines food production and economic development.
FTAs do not allow host governments to pre-screen foreign financial service investors – for instance to exclude foreign banks that mainly finance socially and environmentally destructive projects or companies, and to only admit those banks that serve their societies.
FTAs deregulate more than GATS
FTAs contain more rules that deregulate financial services than GATS. For instance, countries are required to permit any new foreign financial service within their territory in those financial sectors they liberalised under NAFTA or an FTA with the EU (Chile, Mexico, Caribbean countries). This means that very risky financial products such as speculative derivative trading can be introduced– a practise which contributed significantly to the financial crisis. Although agreements often contain some exceptions for ‘prudential’ regulation, it is left to trade tribunals to decide what policies are protected. FTAs therefore can make it very difficult for countries to ban speculation in food prices through banning trade in food derivatives that contribute to the food crisis.
Moreover, the EU seeks to impose through its FTAs, the implementation of many non-binding international norms for financial regulators in developing countries. Yet, these norms completely failed to prevent the financial crisis, and most developing countries have had no say in their design.
FTAs stop capital controls
During a financial crisis, or in order to prevent it, it is important that countries are able to control capital inflows and outflows, which mainly move through banks. Yet, the FTA model employed by both the EU and the US requires countries to remove restrictions on capital movement and facilitate cross-border capital flows. In the EU-Caribbean EPA, no restrictions on capital transfers between residents of the signatory countries are permitted, not even on large capital account transfers related to investments. Only in “exceptional circumstances“ are countries allowed to stop destabilising capital transfers. Also, any prudential measures taken to stop capital or trade flows that are financially destabilising are restricted by many conditions, which undermines many domestic policies to protect economies and societies.
The dangerous mix of FTAs and BITs
What is often forgotten is that foreign financial investors that enter a country under an FTA, can use already existing bilateral investment agreements (BITs) to sue host governments that introduce new social or environmental regulations. For instance, Argentina has been sued by more then 30 companies for its measures taken during its financial crisis (2000-2001). Foreign investors have already used a BIT to sue South Africa for its policies to reverse the legacy of apartheid and increase black ownership in the mining sector, which could also happen in the financial sector.
FTAs forgotten during financial reforms
None of the current official discussions about reforms of the financial sector take into account how FTAs and the WTO’s GATS further liberalise and deregulate the financial sector. Nor do these reform discussions focus on establishing rules to shift finance to productive rather than speculative ends or to halt investment in companies and projects that are socially and environmentally disruptive. In order to stop the financial sector’s contribution to the world’s food, climate/environmental and social crises, the extreme deregulation and market opening by FTAs and GATS must be reversed.
WHAT WE DEMAND:
• All negotiations in financial services in GATS and FTAs have to be stopped.
• Countries should be permitted to reverse their existing GATS and FTA liberalisation commitments of financial services (a roll back).
• Countries are permitted to take all necessary measures to prevent financial, social and environmental crises without retaliation threats based on GATS and FTA rules.
• Financial services and capital liberalisation are to be taken out of the WTO and all FTAs.
• Financial services need to be regulated to urgently support the shaping of sustainable societies – including by serving the poorest communities first.
For more information, contact firstname.lastname@example.org
END WTO DEREGULATION OF FINANCE
Since the current financial crisis started, none of the governments, experts or media who have called for new regulations for the financial industry have taken into account rules of the World Trade Organisation (WTO) which actually impose extreme financial service deregulation on many WTO member countries. Worse, the heads of the G-20 country governments who met on 15 November 2008 to discuss how to reform the financial system, called for finalising the WTO’s current ‘Doha Round’ of negotiations to liberalise trade.
Yet, liberalisation and deregulation of financial services is part of the ongoing negotiations to expand the WTO’s General Agreement on Trade in Services (GATS). Already, GATS rules impose many restrictions on governmental regulation in the financial service sector, as explained below. “Free trade” agreements include similar and additional problems, as explained in a separate flyer: “Free Trade Agreements Contribute to Financial and Other Crises“.
Banning risky financial products is forbidden by GATS
Many WTO member countries already agreed to permit all foreign banks or insurance companies originating from any other WTO member country to establish themselves and offer their financial services and products in accordance with rules of the GATS agreement. Although nothing is being traded over borders, this ‘commitment’ to allow foreign presence is part of this WTO agreement on ‘trade in services’ ! Some developing countries such as Argentina, Ghana and South Africa, have also agreed to permit foreign financial operators offering very risky financial service products although such trading in derivatives is widely recognised as a major cause of the financial crisis. Derivative trading in food has resulted in huge speculation on future food prices and has contributed to the food crisis. Some countries even have subjected financial services that have an important social impact, such as health insurance or pension fund management, to GATS restrictions on regulation. Those countries seeking to ban any risky product or risky financial operator may well find themselves in conflict with GATS rules.
If countries want to withdraw sensitive service sectors from GATS’ restricting measures, GATS requires that countries compensate the loss of future business opportunities to other WTO countries requesting compensation. Thus, India could tackle speculation in food prices by banning trade in speculative food derivatives while South Africa or Argentina can hardly do so because, under GATS, they have committed to keep their governments out of the business of regulating derivative trading.GATS undermines new regulations
In addition to the GATS rules itself, most developed countries have committed to a yet-more-extreme set of financial service sector deregulation. This GATS “Understanding on Commitments in Financial Services” forbids further regulation and requires that foreign investors must be permitted to offer any new financial service. As a consequence, proposals raised in the US to re-regulate or ban risky financial products that sparked the financial crisis, such as stopping sub-prime loans or screening risky financial products, would go against those rules. This would also be the case for potential proposals in the EU to regulate Hedge Funds, which have systematically contributed to financial crises. Although another GATS Annex on financial services allows government to implement ‘prudential measures’, that clause is limited in that it also requires that such measures should not undermine the GATS market openings. These provisions prohibit governments to implement regulations, or even bans, which are necessary to prevent or deal with a financial crisis. Also, countries cannot decide to go back to only state banks e.g. for basic banking services.
GATS rules that deregulate
‘Liberalisation’ under GATS rules means that WTO country governments are restricted in selecting which financial operators they want in their territory and how they may regulate foreign financial operators and products. Unless explicit exemptions were taken at the time of negotiation, WTO member governments cannot limit the size or the volume of the transactions of the foreign financial industry nor can they limit the percentage of foreign ownership. So, foreign banks can take over the whole banking sector and become too big to fail. In addition, most capital movements linked to foreign financial services cannot be restricted, e.g. by measures to avoid sudden withdrawals to avoid a crisis.
Controversial activities by foreign banks
GATS rules require foreign banks to be treated as national banks even though foreign banks behave differently in many ways. For instance, in times of a financial crisis, foreign banks often transfer capital abroad or are bailed out at home, and offer even less financial services to poorer communities, as was recently the case in Mexico. In India, as in many other countries, foreign banks have little interest in serving the poor or providing credit to small industrial or agricultural producers. In case the WTO further liberalises (processed) agricultural and non-agricultural products (NAMA) this lack of credit further undermines the ability of domestic producers to compete with imported products, mostly produced or traded by multinationals (One-third of international trade is now between multinationals and another one-third of trade is between affiliates of multinationals).
Foreign banks pick the rich clients, offer them risky financial products, and transfer the profits abroad, which has to be done without restrictions according to a GATS rule. But when a financial crisis makes an affiliate unprofitable, some foreign banks just close down and leave the country. The argument that foreign banks are more efficient … might thus only benefit a few.
Liberalisation without regulation
GATS negotiations aim at opening financial services markets without considering if sufficient regulation and supervision exists and then restricts regulation. Further, foreign banks are mainly supervised by the home supervisor at the expense of the interests of the host country. Moreover, there is no one supervisor who has all information about worldwide transactions of a financial conglomerate which operates in banking, insurance and/or securities’ trading activities.
As part of the GATS negotiations, the EU has requested that many developing countries take away particular prudential regulations which had been put in place after the Asian financial crisis or which are now seen as solutions to the financial crisis. Such secret negotiations must be avoided.
GATS forgotten contribution to the crisis
Liberalisation of financial services under GATS and the GATS extreme deregulatory agenda means that banks can expand worldwide, become too big to fail, and then require bailouts by public funds. Unless countries regain policy space to regulate such institutions, the bail out problem remains!
GATS encouraged fierce competition among the financial industry for ever more profit. In the name of competitiveness, huge lobbying efforts were undertaken to convince home and host governments to deregulate, not in the least for speculative products that have contributed to the crisis. The argument that regulation were costly barriers is now lost on taxpayers having to pay the bill of deregulation !
WHAT WE DEMAND
• All negotiations in financial services in the GATS and free trade agreements (FTAs) have to be stopped.
• Countries should be permitted to reverse GATS liberalisation of financial services without having to pay for compensation.
• Countries should be permitted to take all measures needed to prevent financial, social and environmental crises, without threats based on GATS and FTA rules.
• Financial services and capital liberalisation and deregulation should be taken out of the WTO and all trade agreements.
• Financial services need to be regulated to urgently support the shaping of sustainable societies, – particularly to serve poor people first.
For more information: contact email@example.com
The Obama administrations message on trade negotiations inherited from its predecessor is emerging and it clearly says: we'll get back to you when we have the necessary cabinet officials in place, such as a U.S. Trade Representative, and have had time to review our trade policy.
So far, the administration has sought a delay in negotiating sessions for two new trade agreements that were scheduled to take place next month, and has opted to refrain from pushing a bilateral investment treaty (BIT) with China during Secretary of State Hillary Clintons trip to Asia.
Delayed from March is the first comprehensive round of trade negotiations for the Trans-Pacific Partnership (TPP), which initially would mean a free trade agreement between the U.S. and New Zealand as well as a U.S.-Brunei FTA. The TPP meeting was scheduled for the week of March 30, and will be the subject of a March 4 interagency hearing chaired by USTR.
The key issue to watch is what position agriculture groups will take on the new agreement, which may hold some promises in the long-term if the TPP were expanded to include Japan, but provides few U.S. export benefits in the near-term.
The U.S. also successfully requested a delay in the March negotiations of a controversial intellectual property rights agreement known as the Anti-Counterfeiting Trade Agreement.
Similarly, Clinton did not press during her visit to China the need for a bilateral investment treaty, though sources emphasize that is a temporary delay.
This pause on trade could last a while longer since it now looks that the Senate Finance Committee hearing for USTR nominee Ron Kirk could slip to the week of March 9 after signals late last week that it could may happen in the first week of March. Finance Committee staff met with Kirk last Thursday (Feb. 19) and discussed Kirk's questionnaire and other submitted documents, according to a committee aide.
When the nomination hearing takes place, it will be interesting to see if Kirk offers more than the typical nominee responses on how the administration will proceed on the controversial pending U.S.-Colombia FTA and what additional steps Colombia has to take to address Democratic objections on labor violence in that country.
One congressional aide said this week he expected Finance Committee members to press Kirk on these specific issues, which Democrats so far have avoided answering detail.
There is also a policy void at the Commerce Dept., because there is no formal nomination for a Commerce Secretary. Former Washington Governor Gary Locke is clearly being vetted for that spot and many seem to hope the third-time nomination will be the charm.
The U.S. postponements of negotiations may well be temporary and driven by the fact there that there is simply no one home at USTR or Commerce to make necessary decisions and vet them with the White House, where key officials are preoccupied with the economic crisis.
But we will not know whether and how the Obama administration wants to deal with this inherited trade agenda until it has undergone an internal trade policy review, which could take roughly two months after Kirks confirmation.
Trade critics in Congress such as Rep. Mike Michaud (D-ME) are clearly hoping this pause by the Obama administration is more than temporary. These members of Congress are poised to call on President Obama to work with them on a new model for trade and investment negotiations before proceeding to any new negotiations.
In a draft letter, these members are pressing the administration to call off BIT talks with China and TPP talks with Chile, Singapore, Brunei and New Zealand because they reflect the bad policies of the past.
The TPP seems to have little exposure so far in Congress judging by the fact that fewer than 20 members signed a draft letter to Obama urging U.S. participation in the March TPP session. One trade skeptic speculated that it is likely the letter, which was championed by Reps. Ellen Tauscher (D-CA) and Ways and Means Ranking Member Kevin Brady (R-TX), will not even be sent in light of that scant response.
The perennially lagging Doha round of trade negotiations will likely come into the spotlight on April 2 when G20 leaders gather in London to tackle the global financial crisis. Obama is likely to face pressure to agree to a political pledge on recommitting to the successful conclusion of the Doha round from U.K. Prime Minister Gordon Brown and others.
The outcome could be bold policy pronouncements on the need to complete the Doha round quickly and to avoid trade-restricting measures in the face of the global economic crisis. But it is unlikely that these statements will translate into Geneva efforts aimed at reviving the stalled negotiations until USTR and the White House decide how they want to proceed on the talks.
Such a review on Doha could lead to a change in the agenda as well as the negotiating approach. The talks are currently deadlocked over negotiating modalities for non-agricultural market access and agriculture.
Leading U.S. lobbying groups in services, industrial goods and agriculture are poised to send a letter to Obama this week reiterating their belief that what is on the negotiating table in Geneva now is simply not good enough. But key trading partners have taken the position that the Doha round is stuck unless the U.S. digs into its pocket for more concessions.
The U.S. delay is not the only political problem the Doha round faces: India will have elections in April, Japan faces elections this year and the European Union is poised to name a new commission in the fall.
Three sacred cows have dominated the market fundamentalist religion of the last 25 years: balanced budgets, private ownership and free trade. Two have recently been sacrificed to reality. Balanced budgets went first, as countries dived into deficit spending without debate to fend off the recession. Belief in private ownership is faltering too, as country after country nationalises its banks.
Faith in free trade, however, is holding out, just about. The major economies are slowly but surely raising protectionist barriers through subsidies and local procurement programmes, yet free-market economists warn us that any moves to protectionism will trigger a trade war, and destroy the world trading system, as happened in the 1930s.
This is a misreading of history. The depression-era shift to protectionism was much less dramatic than is often claimed. The conventional story says that the world trading system collapsed because the US introduced the Smoot-Hawley tariffs in 1930. But this was not a radical shift in policy. America had been the most protectionist country in the world for the previous century, while Smoot-Hawley (pictured, below right) only raised average industrial tariffs from about 37 per cent to about 48 per cent, well within the historical range of US tariffs until then. Tariffs in other countries did rise after 1930, but only moderately, and economic historians have shown that trade shrinkage after the depression had more to do with shrinking demand and the drying-up of trade credits.
Of course, an all-out trade war would not help the world economy recover. Thankfully, at least in the short run, there is no danger of such a thing happening. Unlike in the 1930s, we have the World Trade Organisation, the EU and many regional trade agreements to limit the protections that countries can deploy. Countries will cheat within the boundaries of these agreements, but they can do only so much.
Moreover, the “1930s: never again” story assumes that protectionism is always bad. But this is not true either. Unlike in finance, where things can be speedily re-arranged, the real economy takes time to adjust. Producers must build new factories, and invest in new technologies. Workers must acquire new skills and find new jobs. When big adjustments are needed, temporary protectionism helps to create the breathing space for companies and workers to reinvent themselves.
There are other good reasons to consider limited measures to protect domestic economies. Textbook trade theory says that making countries more and more specialised is an unquestionable good. But this isn’t always true. Britain, for instance, probably over-specialised in finance over the last few decades, while neglecting manufacturing. The international division of labour should be balanced against the need for a broadly based economy, capable of protecting countries and their people against shocks to a particular industry. Voters in advanced countries, meanwhile, might well be willing to swap a little more job stability for slightly more expensive goods in their shops.
Such mild protectionism can be explicitly time limited. Indeed, evidence after the 1970s oil shocks shows that countries like Japan and Sweden that had specific and time-bound protectionism bounced back more quickly than others, like the US, where measures were hidden but more pervasive. The danger today is that we will pretend to believe in free trade, while practising protectionism by other names—just recall Peter Mandelson’s £2.5bn auto industry rescue: “not a bailout,” he said, but a “greening” initiative.
To avoid destroying the legitimacy of the global trading system we urgently need an international agreement, at least an informal one, that sets out some broad rules for this transparent and time-bound protectionism for adjustment purposes.
Emphasising the need to create a more transparent mechanism for the use of “adjustment protectionism” is not to suggest that everything else is fine with the current system. There is another kind of protection which needs to be allowed—one that allows developing countries relief from outside competition while they acquire new technologies and train their workers in new skills.
Such protection, known as “infant industry protection,” was practised by virtually all of today’s rich countries—starting with 18th-century Britain, through 19th-century US, Germany and Sweden, to 20th-century Japan, Korea, Taiwan—as I show in my books, Kicking Away the Ladder and Bad Samaritans.
Despite their own history, over the past quarter century rich countries have done their best to make it increasingly difficult for developing countries to use infant industry protection measures. They have pressed for trade liberalisation as a condition for the aid they give, and for the loans from the international financial organisations that they control. They have pushed for greater restrictions on tariffs, subsidies, regulations on foreign investment and other measures that developing countries need in order to promote their infant industries. This practice has to stop—and, ideally, be reversed.
The reality is that free trade has never worked very well, especially for developing countries, but it is going to malfunction even more in the coming years. Rather than trying to nurse this ailing sacred cow back to health, we should slaughter it —and concentrate our energy on designing a new system of international trade that pragmatically mixes free trade and protectionism.
The present report seeks to explore the relationship between the agreements concludedunder the framework of the World Trade Organization (WTO), particularly the Agreement onAgriculture, and the obligation of the Members of the WTO to respect the human right toadequate food. It is based on the mission of the Special Rapporteur on the right to food to theWTO.
In the report, the Special Rapporteur argues that, if trade is to work for developmentand to contribute to the realization of the right to adequate food, it needs to recognize thespecificity of agricultural products, rather than to treat them as any other commodities, and toallow more flexibilities to developing countries, particularly in order to shield theiragricultural producers from the competition from industrialized countries’ farmers. The mainimpacts of the current multilateral trade regime on the right to food include (a) increaseddependency on international trade which may lead to loss of export revenues when the pricesof export commodities go down, threats to local producers when low-priced imports arrive onthe domestic markets, against which these producers are unable to compete, and balance ofpayments problems for the net food-importing countries when the prices of food commoditiesgo up; (b) potential abuses of market power in increasingly concentrated global food supplychains and further dualization of the domestic farming sector ; and (c) potential impacts onthe environment and on human health and nutrition, impacts that are usually ignored ininternational trade discussions, despite their close relationship to the right to adequate food.
The report proposes ways to reconcile trade with the right to food, addressing thefailure of global governance mechanisms to tackle the lack of coordination between humanrights obligations and trade commitments – a failure which mechanisms ensuring a bettercoordination at the domestic level may not be able to compensate for. The report invitesStates to assess the impacts of trade agreements on the right to food and ensure they do notaccept undertakings under the WTO framework which would be incompatible with theirright-to-food obligations.
By Joshua Chaffin in Brussels and Alan Beattie in Washington
The European Union is gearing up to slap duties on imported US biodiesel inthe latest sign of rising trade tensions as world economies slump intorecession.
The so-called “anti-dumping” and “countervailing” duties, levied againstimports deemed to be priced unfairly low and receiving government subsidy,will be proposed by the European Commission at a meeting early next month.
The Commission’s preliminary findings suggest that the subsidies are pushingdown prices by between 89-99 US cents per gallon and that US companies areunderpricing by 10-82 cents a gallon, according to people involved in thecase. Biodiesel is currently about $2 per gallon. Duties to offset thesemargins would initially be imposed for a four-month period before theCommission made a final ruling on whether the subsidies contravened WTOrules.
The Commission launched in investigation in June after a complaint waslodged by the European Biodiesel Board, a trade group. It declined tocomment on the matter on Friday, beyond saying that its deadline to render ajudgment was March 13.
But the US National Biodiesel Board, which is trying to get the USadministration to launch a case against the EU at the WTO, said the onlyEuropean biodiesel companies suffering were those that had made bad businessdecisions.
“The European biodiesel industry is not being hurt by US competition,” saidManning Feraci, the board’s vice-president for federal affairs. “There areEuropean companies doing quite well, and the data on record in front of theCommission bear that out. We hope the true facts will be reflected in thefinal determination in this case.”
The complaint centres on a US law that grants domestic producers a $1 pergallon tax credit. European producers claim that results in a $250 per tonnecost advantage for US biodiesel – an advantage that was further increasedlast year by the weak dollar.
They have also complained about the so-called “splash-and-dash” trade –producers from Malaysia and elsewhere claiming the credit by adding aminimal amount of US biodiesel on the way to Europe.
US biodiesel exports to Europe have surged to more than 1m tonnes over thepast year, up from just 50,000 tonnes in 2006. They account for about €600m($770m) of the €5bn European market.
The US biodiesel industry says that small European producers far from portsare suffering because of high costs and inefficiencies, while some largercompanies are thriving.
Copyright The Financial Times Limited 2009