We should ask Canada and Mexico whether free trade deals are a good idea.
Last week, Barack Obama’s free-trade deal went from dead in the water to full steam ahead in the space of 24 hours, thanks to last-minute horse trading that saw thirteen Democrats break ranks with the Senate to side instead with Hollywood studies and big pharma.
The Trans-Pacific Partnership Agreement (TPPA) is still not a fait accompli. It must yet survive a number of proposed amendments, including one by Massachusetts Senator Elizabeth Warren to strip out its most controversial language: that around so-called ‘investor state dispute settlement’ – provisions that would allow corporations to sue member governments should they pass any laws they consider harmful to their investments.
Speculation is rife around the implications of the TPPA for our democracy, our sovereignty and our environment. But we don’t need to theorise: we simply have to look at the impacts of trade deals already done.
Bill Clinton’s North American Free Trade Agreement (NAFTA), enacted in 1994, was arguably the first to take square aim at regulations designed to protect agriculture, investment, energy, the environment, labour and food and consumer safety standards.
Watchdog groups point out that NAFTA has allowed corporations to object to stringent environmental standards by citing them as non-tariff trade barriers. Conversely, they say, other countries’ weaker protection provisions – or lax enforcement – have lent them a competitive advantage by attracting foreign businesses to a weak regulatory regime.
Last year, to mark NAFTA’s 20th anniversary, The Sierra Club reported on its environmental legacy. They concluded that the deal had:
- Encouraged high-volume, export-oriented industrial farming, with a concomitant surge in the use of fossil fuels, pesticides and GMOs;
- Encouraged an environmentally destructive mining boom in Mexico;
- Kneecapped Canada in its bid to regulate tar sands drilling, and locked it into large-scale export of fossil fuels to the United States;
- Failed to protect the environment against the soil, water and atmospheric consequences of increased economic activity; and
- Undermined environmental protection by enabling corporations to challenge public interest policymaking.
The report found that NAFTA inflicted the worst degradation on Mexico, where small landholders had been rolled by industrial agri-business. Desperate to achieve some kind of scale, many local farmers resorted to clearing forests, yet ultimately failed just the same.
A 1999 study by the Commission for Environmental Cooperation noted that NAFTA rule changes had already altered trade and investment flows in agriculture, especially between the US and Mexico. To capitalise on new trade rules, agri-business consolidated cattle production in North America, sparking an exponential boom in industrial feedlotting, with all the environmental costs it inflicts.
Mexico was left to languish. Between 1960 and 1980, Mexico's per capita GDP nearly doubled – a huge jump in living standards and one that, had it continued, would have by now granted Mexicans European living standards. But NAFTA, and a raft of neoliberal policy changes enforced by IMF debt relief, put an end to it.
Mexico’s growth has stagnated below one per cent – less than half the regional average – since 2000. The national poverty rate – 52.3 per cent in 2012 – has not budged since NAFTA.
In Canada, even as exports jumped more than 200 per cent between 1994 and 2008, wages remained static. Labour conditions worsened. An obligation to supply the US with oil compelled Canada to develop high-cost, climate-hostile tar sands in Alberta. Since NAFTA’s inception in 1994, North American greenhouse gas emissions rose from 7 billion tonnes to around 8.3 billion in 2005.
Investor state disputes have been rife: in April 1997, after the Canadian Parliament tried to ban the import of gasoline additive MMT – a magnesium-based anti-knock additive considered to be a dangerous airborne toxin – the US Ethyl company filed a lawsuit, citing NAFTA rules. It sought restitution of US$251 million to cover losses resulting from the "expropriation" of both its MMT production plant and its "good reputation." Canada reversed the ban.
In March 2014, a NAFTA panel ruled against the Nova Scotia and federal Governments after they turned down an application by US miner Bilcon to expand a basalt quarry in the Bay of Fundy in 2002.
NAFTA rules allow Bilcon to pursue compensation, and it has sued the Canadian governments for US$300m in damages.
In March this year, Canada was sued by oil giants ExxonMobil and Murphy Oil after a NAFTA tribunal ruled that the Canadian Government could not place conditions around exploration permits that required oil companies to spend more money in the local economy. Contributing to regional growth apparently breaches Article 1106 of the free-trade agreement.
The NAFTA decision awarded $13.9 million plus interest to ExxonMobil and $3.4 million plus interest to Murphy.
Meanwhile, the trans-Atlantic version of the TPPA, the Transatlantic Trade and Investment Partnership (TTIP) between the United States and the EU, has already thwarted attempts to regulate hormone-damaging chemicals linked to cancer and male infertility in Europe. Documents leaked last week show that aggressive lobbying by US trade officials forced EU regulators to shelve draft laws that would have banned 31 controversial pesticides across the bloc.
Despite assurances, there is nothing to suggest the TPPA will be any different. If anything, the 2015 National Trade Estimate Report on Foreign Trade Barriers, published by the US trade Representative’s Office last month, only hints at a strengthened multinational arm.
The analysis clearly considers New Zealand’s biotech approval and labeling laws an impediment to free trade (p.277). It also calls out New Zealand’s foreign investment provisions, which presently screen any foreign bid for 25 per cent ownership or more in any “significant business assets,” beyond a NZ$100 million value threshold.
Also singled out is our automatic screening of any investor pitching for 25 per cent or more of a fishing quota, or acquisitions of “sensitive” land such as foreshore, conservation land or farm spreads greater than five hectares. These all fall under the heading “Investment Barriers.”
In fact, much of the report is devoted not to issues around free trade, but complaints about hurdles to multinational access and control. Laws seeking to protect the environment, labour conditions and guard against monopoly are framed as problematic. Intellectual property rights – and anti-piracy laws in particular – are obviously an issue of keen interest, and patent provisions are scrutinised heavily, country by country.
What then, might the TPPA mean for us, and for our rights to regulate in our own interests? The Canadian experience of NAFTA shows that any environmental or public health initiative – be it chemical regulation, energy-efficiency, habitat protection, fisheries access, mining, fracking bans, climate change mitigation or pollution controls, will be subject to litigation by foreign multinationals should they consider their profits compromised.
The draft TPPA environment chapter, published by Wikileaks, shows that 11 out of 12 agreement parties (Australia is the sole dissenter) have agreed to investor-state dispute provisions demanded by the United States.
Under Procedural Matters, draft clause 3 states: “Each Party shall ensure that judicial, quasi-judicial, or administrative proceedings for the enforcement of its environmental laws are available under its law and are fair, equitable, transparent, and comply with due process of law (my emphasis). Any hearings in such proceedings shall be open to the public, except where the administration of justice otherwise requires, and in accordance with its applicable laws.”
The zinger comes one par down, in clause 4: “Each Party shall ensure that persons with a recognized interest under its law in a particular matter have appropriate access to proceedings referred to in paragraph 3.”
Using such language, it will be very easy to argue “unfairness,” at that, for instance, Monsanto has an interest in any moves to regulate pesticides. That ExxonMobil has an interest in any policy to restrict greenhouse emissions. That Peabody Energy has an interest in banning mining from sensitive habitats.
That may well mean, for example, that the Government would be powerless to respect any public opposition to, say, seabed mining, or oil and gas exploration. We could well find ourselves unable to implement such basic benchlines as renewable energy targets, water quality standards, nitrogen caps or air pollution measures.
Any acceptable future for New Zealand relies heavily on the uptake of clean tech, but the TPPA stands squarely in our way. We might find ourselves unable to pass any law promoting, for example, electric cars, or even feed-in tariffs for renewable energy. And be sure that any efforts to lock local manufacturing and employment into green initiatives would be cited as “protectionist” – a violation of trade rules.
Just such a perversity saw Silfab – an Italian renewables startup that employed more than 31,000 people in Ontario – stripped of its investment in 2014 after challenges from Japan and the EU that accused Ontario’s buy-local provisions of being ‘anti-trade.’
With Silfab disappeared Ontario’s renewable energy programme, widely lauded as “the most comprehensive renewable energy policy entered anywhere around the world.”[1]
There is very little that is free or fair under investor state rules, penalties that have made Canada NAFTA’s most-sued nation. US corporations have brought 36 claims against it, at a cost of US$170m and 22 against Mexico, which cost it US$204m.
The US, meanwhile, has never lost a NAFTA investor-state case. No wonder Obama thinks it’s such a great deal.