NAFTA Notice: A Final Deal Must Be Judged on Whether It Will Stop NAFTA’s Serious Ongoing Damage

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Statement of Lori Wallach, Director, Public Citizen’s Global Trade Watch

Note: The Trump administration gave notice to the U.S. Congress on Friday, Aug. 31 of its intent to sign a renegotiated North America Free Trade Agreement (NAFTA). Aug. 31 is the last day to give notice for a deal to be signed by outgoing Mexican President Enrique Peña Nieto. The U.S. reached agreement with Mexico on new terms, but talks with Canada are ongoing. The text of any deal would be made public only after 30 days’ notice. While much attention has been given to whether various deadlines can be met and the political and legal implications of various scenarios, the fundamental question is whether the content of a new agreement can halt NAFTA’s ongoing damage:

“We understand that progress has been made on some essential NAFTA changes we have long sought, like razing NAFTA’s investor tribunals where multinational corporations have grabbed $392 million in compensation from North American taxpayers after attacking environmental and health policies. But swift and certain enforcement of what we understand are improved labor standards is lacking and must still be added or U.S. corporations will keep outsourcing jobs to Mexico to pay workers a pittance, dump toxins and import products back to the U.S. for sale here.

Given the encouraging news about some of the key NAFTA changes we have long sought, we are closely monitoring the ongoing process with respect to improvements in labor enforcement that are necessary to counter NAFTA job outsourcing. We also closely monitoring the ongoing negotiations with Canada where several important consumer protection issues are at stake, including extended monopoly rights for pharmaceutical corporation that would increase medicine prices. Ultimately, we must see the final text to know whether our demands have been met.

Any final deal must be judged on whether it will stop NAFTA’s serious ongoing damage, given the pact now helps corporations outsource more jobs to Mexico every week (Almost one million American jobs have been government-certified as lost to NAFTA) and launch new NAFTA investor attacks on health and environmental laws after already $392 million has been grabbed from taxpayers. 

As we have made clear since Day One of renegotiations, the only agreement that can achieve broad support must end NAFTA’s job outsourcing incentives and Investor State Dispute Settlements tribunals – where corporations can attack our laws – and add strong environmental and labor terms with swift and certain enforcement to raise wages.

It may seem improbable that this administration could be making changes progressives have long sought, but public anger over outsourcing has made it impossible for business-as-usual trade agreements to get through Congress. The big questions are whether Trump will deliver a final deal strong enough to meet his election promises to return manufacturing jobs and cut the large NAFTA trade deficit and if so, whether Republicans in Congress would buck the corporate lobby and support a deal that would end NAFTA’s job outsourcing incentives and ISDS tribunals where corporations can attack our laws and add strong environmental and labor terms with swift and certain enforcement to raise wages.”


U.S. Trade Deficit for First Half of 2018 Likely to Be Largest Recorded in Years, With China Deficit on Track to Be Highest First-Half Ever Recorded

January-June 2018 Data Out This Friday Likely to Show a Trump Trade Deficit Higher Than First Halves of 2017 or 2016

Contrary to Donald Trump’s claim last week that he has reduced the trade deficit by $52 billion, the United States is on track to post a record high goods trade deficit for the first half of 2018. When the U.S. Census Bureau releases the six-month data this Friday, the global deficit and China deficit are likely to be higher than in the first half of Trump’s first year in office, which was higher than the first half of President Barack Obama’s last year. The six-month 2018 North American Free Trade Agreement (NAFTA) deficit also is likely to be higher than the first half of Obama’s last year.

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U.S. Trade Deficit with Selected Partners, Sum of First Five Months (Source: U.S. Census Bureau)

Trump’s $52 billion trade deficit reduction claim seems to be premised on a misleading comparison between an annualized change in the goods and services trade balance between the first quarter of 2018 (a $902 billion deficit) and the second quarter of 2018 (a $850 billion deficit.) But the U.S. goods trade deficit in the first quarter of 2018 was the largest first-quarter deficit since before the financial crisis, meaning a decline from that in the next quarter says very little about the overall trend. This comparison, like changes in month-to-month deficit figures that often are reported in the press, obscure actual trends. The monthly data are volatile, especially now, as U.S. exporters race to beat retaliatory tariffs on U.S. goods. Reviewing the same five-month goods trade balances shows that U.S. deficits with the world and with China were higher over the first five months of 2018 compared to the first five months of 2017, which in turn were higher than the first five months of 2016, even after adjusting for inflation.  (All figures in this memo are inflation-adjusted, so they represent the actual growth in the deficit expressed in constant dollars.)

What to Look for When Census Releases the Six-Month 2018 Trade Data on Friday

  • The goods trade deficit with China over the first half of 2018 is on track to be the highest first-half ever recorded. Comparing the first five months of Trump’s first year in office to his second, the China goods trade deficit increased 8 percent from $141 billion in 2017 to $152 billion in 2018. This compares to $136 billion for the first five months of 2016, Obama’s last year. As was widely reported, U.S. exports were inflated during the first half of 2018 by shipments racing to get ahead of the imposition of tariffs, but imports also grew substantially.
  • The goods trade deficit with the world over the first half of 2018 is likely to reach a level closer to the record deficits before the 2008-09 financial crisis. The U.S. trade deficit with the world over the first five months increased 5 percent from $320 billion in 2017 to $336 billion in 2018 after already hitting $296 billion in 2016, the last year of Obama’s term. The 2008 first five-month deficit, before the effect of the crisis was felt, reached a record $385 billion before falling to $206 billion in 2009 for the same period. 

  • The six-month 2018 NAFTA goods trade deficit may also increase in Trump’s second year, as it did in his first relative to Obama’s last year in office. The NAFTA deficit for the first five months of 2018 increased from $70 billion in 2016 to $82 billion in 2017 to $84 billion in 2018. Because re-exports now represent 20 percent of U.S. goods exports to NAFTA nations, for the NAFTA figures we use domestic export data. This excludes goods not actually produced in the exporting country. In 2016, 44 percent or nearly $100 billion of U.S. re-exports went to NAFTA partners – $53.5 billion to Mexico and $45.7 billion to Canada. No other country received more than 6 percent of U.S. re-exports. Not removing re-export artificially inflate export

Why Month-to-Month Trends Miss the Main Story

Many trade watchers focus on the change in month-to-month numbers, especially now as they study whether newly imposed tariffs are altering trade flows. But monthly trade figures are volatile, and the “seasonal adjustment” done by Census does not control for factors such as U.S. exporters trying to beat the imposition of various countervailing tariffs. Thus, the main storyline when the May trade figures were released was that the monthly deficit with the world was the lowest since October 2016. But missing in this assessment was that U.S. trade deficits with the world and with China were higher during the first five months of 2018 compared to the same period in 2017, which were in turn higher than the first five months of 2016, even after adjusting for inflation. A more complete picture of U.S. trade balance trends is achieved by comparing the year-to-date totals through the same point of previous years. This removes the need for seasonal adjustment, given the data cover the same months each year. (We focus on goods balances rather than total goods and services in this memo because services data broken down by trading partner lags the goods data by months. The services data by partner for the first half of 2018 will not be available until September 2018.)

NAFTA Balances and the Skew from Re-Exports: Yes, We Have A Deficit With Canada

Accurately accounting for NAFTA trade balances is complicated. Since NAFTA went into effect, the share of U.S. exports to Mexico and Canada that are re-exports of goods made in other countries has jumped from 5 percent in 1993 pre-NAFTA to 20 percent in 2017. (Re-exports are goods imported, for instance, from China into the United States and then exported to Canada without change. In 2016, one-third of U.S. re-exports to Canada were produced in China.) Counting re-export of foreign-made goods in U.S. export data inaccurately inflate export numbers. But to get an accurate balance, the import side of the equation also must be considered. The United Nations’ trade database, called Comtrade, provides official government data on domestic exports (i.e., not including re-exports). Consider the controversial question of whether the United States has a trade deficit with Canada. The Comtrade data show $221 billion in U.S. domestic exports to Canada and $266 billion in Canadian domestic exports to the United States in 2016, the most recent year that can be compared to available services data. That yields a $45 billion U.S. goods trade deficit with Canada. After subtracting the $24 billion U.S. services trade surplus with Canada documented by the U.S. Bureau of Economic Analysis, the United States still had a $21 billion goods and services trade deficit with Canada in 2016. When this issue came to the forefront earlier this year, analysts who did not subtract re-exports instead calculated a $7 billion U.S. surplus with Canada for 2016.

A Deeper Dig into the Data: About Those Soy Exports

Several deeper cuts of the data are worth considering. The first relates to what the United States is exporting, which to the world in 2017 was $138 billion of agricultural goods and $1.1 trillion of manufactured goods. There has been breathless coverage of how China’s retaliatory tariffs have impacted U.S. soybean exports, which are noted to be the second largest U.S. export to China after civilian aircraft, engines and parts. What this reveals is the lack of U.S. value-added exports to China after that nation’s accession to the World Trade Organization (WTO). After soybeans, the top 15 U.S. export products to China include commodities like crude oil (No. 4), copper scrap ( No. 7), propane (No. 8), aluminum scrap (No. 11), wood pulp (No. 12), cotton (No. 14) and paper waste (No. 15). The giant trade deficit with China is the result of exporting only $120 billion worth of goods in total. However, a large portion are low value-added commodities. Of the top 15 U.S. export products to China, $24 billion represent such goods, and only $31 billion, or 56 percent, represent high value-added product categories like cars and electronics. Meanwhile, 84 percent of Chinese imports into the United States are in these high- value categories. The United States runs over a $100 billion deficit with China in electrical machinery alone.

The second deep dive relates to the impact on wages from the composition of the goods we import and export. One way to view this is by checking the subset of the data on our manufacturing trade balance. Even the most orthodox economists admit that trade changes the composition of jobs – and thus the wages – available for U.S. workers. As the grandfather of modern trade economics, Nobel-Prize winning economist Paul Samuelson found in one of the last papers he published before his death, offshoring of higher-paid jobs to countries like China and India can cause U.S. workers to lose more in wages than they gain from access to cheaper imported goods. The downward pressure on wages is still the predominant feature of the U.S. labor market and trade is one of the significant factors fueling it and one of the only ones that can be altered via policy changes. The Center for Economic and Policy Research (CEPR) revealed that when comparing the lower prices of cheaper imported goods to the income American workers lost from low-wage competition under current trade policy, by 2001 the trade-related wage losses were larger than gains from access to cheaper goods for the majority of U.S. workers. CEPR found that those without college degrees (58 percent of the workforce) had likely lost an amount equal to 12.2 percent of their wages under NAFTA-style trade, even after accounting for the benefits of cheaper imports. That meant a net loss of more than $3,965 per year for the average worker. Despite this, defenders of the trade status quo dismiss the relevance of trade deficits, especially given strong economic growth figures in an economy running near full employment. Yet, while headline economic indicators are strong, damage that is occurring may remain invisible. When the tide goes out on a hot economy, the damage in lower wages and the disappearance of middle-class jobs for the majority of Americans without college degrees may be seen and felt acutely, just as it was after the 2008-09 financial crisis.


Will the U.S. and EU Revive the Damaging Pro-corporate, Anti-people TTIP Agenda?

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Trump promised a new approach on trade policy that would fix past damage to working people. But what his administration and European Union officials said this week in their joint statement after European Commission President Jean-Claude Juncker’s visit to the White House sure sounds like a revival of the status-quo, pro-corporate agenda that Trump railed against in his campaign.

It remains unclear what the joint statement ultimately will lead to. However, anyone who cares about the safety standards on which we rely for our food and medicine, the energy and climate policies needed to save our planet, or financial regulations designed to prevent banks from gambling with our money and creating another crisis should be extremely worried.

The statement’s overall tone and specific worrying buzz words reflect the agenda that had been pushed by the largest U.S. and European banks, agribusinesses and other powerful industry groups in the Transatlantic Trade and Investment Partnership (TTIP) talks undertaken during the previous administration. That TTIP agenda had been resoundingly rejected by civil society on both sides of the Atlantic because people in Europe and the United States refuse to allow our fundamental environmental and consumer safeguards to be rewritten behind closed doors.

The statement calls for “zero non-tariff barriers.” “Non-tariff barriers” is trade-speak for any domestic policy or regulation that can affect multinational corporations’ ability to move goods or services across borders. Many consumer, health, or environmental safeguards we rely on to protect people and the environment are considered “non-tariff barriers” by business interests. Given that, does inclusion of this clause mean that the goal of these negotiations will be zero domestic safeguards on either side of the Atlantic – such as European GMO standards or U.S. financial regulations post-crisis – that might inconvenience a multinational corporation? That would be an even more radical pro-corporate plan than what was tried (and failed) in the TTIP negotiations.

Worryingly, the statement calls for “reducing barriers” to “chemicals,” “pharmaceuticals,” and “medical products.” The U.S. chemical industry sought to use TTIP to undermine Europe’s superior Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH) policy. This chemical safety regime  is much more robust in protecting the public from unsafe chemicals than the broken U.S. policy.

Meanwhile, European pharmaceutical manufacturers called for the U.S. FDA to relinquish its current responsibility to independently approve the safety of medicines sold in the United States, proposing that the U.S. government automatically accept a European determination that a drug produced in Europe is safe for U.S. consumers. This language suggests that this dangerous industry wish list may be revived.

References to “a dialogue on standards in order to increase trade, reduce bureaucratic obstacles and slash costs” also sound suspiciously like a revival of the problematic and highly undemocratic “regulatory cooperation” agenda from TTIP. While cooperation among regulators is not inherently a bad idea, it IS very dangerous for such cooperation to happen in the context of trade negotiations that have explicitly prioritized reducing costs for businesses over any protection of consumers or the environment. The biggest banks, agribusiness, chemicals and pharma corporations in Europe and the U.S. have made clear what consumer and environmental protections they intend to undermine in the name of such “regulatory cooperation.”

The statement also explicitly calls for increasing exports of liquefied national gas (LNG) from the United States to Europe. This would create more market incentives for LNG companies to increase the environmentally destructive practice of “fracking” across the United States, even when many U.S. states have already or are considering banning the controversial practice altogether. Pushing for the extraction and transatlantic transport of even more fossil fuels takes both the United States and European Union in the categorically opposite direction of what is needed to transition to a low-carbon economy to address climate change.

It may be unsurprising – if tragic – that the Trump administration would pursue this policy, given its shameful withdrawal from the Paris Climate Accords. But that the EU would continue to pursue this is a stark abrogation of its commitment to combat climate change.

Finally, the statement’s call for the immediate creation of an Executive Working Group to move the agenda forward raises alarm bells. What is the scope of its mandate? Will there be any mechanisms to ensure that it is democratically accountable on both sides of the Atlantic? What is the nature of the “negotiations” it is undertaking?

A revival of the TTIP agenda might make some corporate cronies happy, but it would cause tremendous harm to the rest of us on both sides of the Atlantic. And it would be a clear betrayal of Trump’s promises to fix trade policy.


Today’s D.C. Visit by Top Mexican Trade Officials May Reveal Whether a Renegotiated NAFTA Deal Can Be Signed in 2018

Statement of Lori Wallach, Director, Public Citizen’s Global Trade Watch

 Note: Today, the top Mexican trade officials of the current Peña Nieto and incoming López Obrador administrations will meet with U.S.  Trade Representative Robert Lighthizer. At issue is whether deals can be reached between the United States and Mexico on the last outstanding issues in North American Free Trade Agreement (NAFTA) renegotiations in time for the pact to be signed before Mexico’s current president leaves office. The high-level meeting occurs five weeks before the August 31 date by which the U.S.  Congress must be formally notified of a deal under Fast Track procedures for Mexico’s current president to sign a new pact. Even if a deal is signed this year, a U.S. congressional vote would likely occur in 2019. Lori Wallach said:

 “What’s new is Mexico’s heightened motivation to finalize a deal now, given that both the outgoing and incoming administrations appear to have compelling reasons to want a deal done in time for the current Mexican president to sign it and they generally agree on what terms would be acceptable. 

“If a deal cannot be reached now and negotiations roll into 2019, the timeline for talks to be concluded, as well as NAFTA’s ultimate fate, become less certain.

“Achieving a deal that can get through the U.S. Congress and that satisfies Donald Trump’s high-profile campaign pledges to bring back manufacturing jobs and reduce the NAFTA trade deficit is extremely tricky, but ironically less so if current predictions of Democratic gains in the midterm elections hold true. For decades, congressional Democrats have advocated for the NAFTA changes that could deliver the outcomes Trump promised, including elimination of NAFTA’s investor protections that promote job outsourcing and the addition of strong, enforceable labor and environmental standards to raise wages in Mexico and level the playing field.”


Unpacking Disingenuous GOP Complaints About Presidential Trade Authority

At midnight on June 30, Fast Track, which delegates Congress’ constitutional trade authority to the president, extended for another three years.

The congressional Democrats, who fought this broad give-away of control over trade agreements even when it was President Barack Obama’s request in 2015, could not even obtain a vote because the procedure is so rigged it automatically extends unless a “non-extension resolution” is passed. But that vote can only occur if the congressional GOP leadership allows it.

And the congressional GOP, most of whom supported the extreme Fast Track procedure but now are cynically howling about undue presidential authority over trade, chose not to take action.

Under the U.S. Constitution, Congress is supposed to write the laws and set trade policy, while the executive branch represents the United States in negotiations with foreign governments. When it came to trade agreements, this arrangement required cooperation between the branches.

For 200 years, these key checks and balances helped ensure that no one branch of government had too much power over trade policy. But, starting with Nixon, presidents have tried to seize those congressional powers using Fast Track.

Fast Track, which supporters renamed Trade Promotion Authority as the procedure became increasingly controversial, empowers the executive branch to unilaterally select partner countries for “trade” pacts, decide the agreements’ contents, and then negotiate, sign and enter into the agreements — all before Congress has a vote on the matter. Normal congressional committee processes are forbidden, meaning that the executive branch is empowered to write lengthy legislation on its own with no review or amendments. And, then the president is guaranteed a vote on the done deal within a set amount of time with no amendments allowed and debate limited.

President Obama — despite his campaign promise to reject Fast Track — requested the authority for the Trans-Pacific Partnership (TPP). A years-long battle ensued, with opposition coming from a majority of the U.S. public, most House Democrats and a sizeable bloc of Republicans, organized labor, environmental groups, public health organizations, family farmers, and many more. Despite the unprecedented strength and diversity of this coalition focused on a trade issue, Fast Track authority was passed by a one-vote margin in June 2015.

This delegation of Fast Track authority was for a three-year period with an automatic renewal for another three years after that. The only way to stop the automatic renewal of Fast Track would have been with a congressional resolution of disapproval.

The AFL-CIO sent a letter to Congress opposing Fast Track renewal in its current form because of its opacity and inadequate labor standards. But the broad coalition in Congress and outside that almost stopped Fast Track in 2015 did not organize a push to end the procedure because the disapproval mechanism is designed to only function if the congressional leadership allows it.

And, it was a telling spectacle to watch Sen. Bob Corker (R-Tenn.) and other GOP senators going ballistic over President Donald Trump’s authority to do anything to stop trade cheating while revealing their disinterest in getting rid of the Fast Track legislative luge run. 

Fast Track has been the necessary swamp oil to grease the skids to pass pacts like the North American Free Trade Agreement (NAFTA), and other job-killing deals packed with special corporate protections and rights. The corporate lobby opposes the president having trade authority to combat trade cheating that costs American jobs, but loves Fast-Tracked trade deals that make it easier to outsource additional jobs.

The GOP inaction on Fast Track disapproval made 100 percent clear what is really going on: Team Trade Status Quo is keen to eliminate presidential authority on trade matters that break with their pro-job-outsourcing trade agenda while remaining committed to the current iteration of Fast Track with a view to trying to use it to get more-of-the-same trade deals.

That dynamic makes the current NAFTA renegotiation a moment of truth. The U.S. Trade Representative, Robert Lighthizer, is using this delegation of Fast Track to negotiate a NAFTA replacement that actually has a chance of making things better for working people rather than expanding greater corporate control over our lives.

The renegotiated NAFTA just might eliminate the job outsourcing incentives at NAFTA’s heart, including the system that empowers multinational corporations to attack our laws for taxpayer money before a panel of three corporate lawyers. And the NAFTA replacement may even add labor and environmental standards that could actually help raise wages and improve conditions for people throughout North America.

In the face of this potential game-changer of a trade agreement, congressional Republicans’ inconsistency on Fast Track belies the truth, that for them criticism of presidential trade authority was never about constitutional checks and balances – it was all about making sure their corporate cronies can do whatever they want.

However, the revised NAFTA deal is not done yet. And the GOP’s decision not to act against Fast Track extension suggests that they still think they can get the terrible, TPP-style NAFTA deal that they want.

The diverse coalition that fought Fast Track and that defeated the TPP must remain vigilant and show that a revolutionary new model for NAFTA that puts working people first is the only type of deal that will pass in Congress.


For G-7, Trump’s racism and misogyny are ok, but his trade policies are intolerable

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U.S. President Donald Trump greets Canadian Prime Minister Justin Trudeau during the 2017 G-7 Summit in Italy. (Official White House Photo by Shealah Craighead)

U.S. President Donald Trump seems as welcome at the G-7 picnic as a rabid skunk.

Most G-7 leaders have worked to build warm relationships with Trump, despite his xenophobia, racism, misogyny, climate denialism, warmongering and corrupt business self-dealing. But apparently, taking on the trade status quo was a bridge too far.

That is a bitter irony, given that the trade and financial policies that the G-7 has relentlessly promoted created the political context that helped to make Trump president. Decades of U.S. presidents from both parties and their G-7 counterparts have pushed international economic policies that have created expansive new rights and powers for multinational corporations and hurt working people.

Pushing corporate-rigged trade agreements, blessing financial deregulation and loosening trillions in speculative investment flows were the economic priorities.

Even as millions of manufacturing jobs were lost, absent was coordinated G-7 action to counter China’s currency manipulation or a unified approach to end Chinese subsidies and other unfair trade practices that, among other problems, fueled the global steel and aluminum oversupply glut.

And as working-class wages declined and income inequality and financial instability grew, the majority harmed by the G-7 version of globalization were told their fate was inevitable.

In the United States, that message was conveyed by Democratic and Republican presidents alike even as the economic and social fallout became increasing difficult to deny. About 4.5 million net American manufacturing jobs have been lost since the 1994 start of the North American Free Trade Agreement (NAFTA) and 2000 trade deal with China related to its admission to the World Trade Organization. Sixty-thousand manufacturing facilities shuttered. And real wages flattened, given that the replacement of the higher-wage manufacturing jobs with lower-wage service sector jobs pushed down wages economy-wide even if one did not lose their job to trade.

Enter Trump, who, whatever else his trade policies may or may not do, ended the bipartisan presidential practice of not seeing or talking about the many Americans who have been harmed by our trade status quo.

Therefore perhaps Trump’s truly unforgiveable sin, finally meriting open ire from G-7 partners, is to demonstrate that the trade status quo is, in fact, not pre-ordained, but rather is a set of policies he is shredding.

Trump may well not achieve the better trade outcomes he promised.

That would require him to stay focused on changing China’s cornucopia of unfair trade practices rather than settling for the usual Chinese promises to buy more U.S. exports. And, unless he can implement a replacement deal that eliminates NAFTA’s investor-state outsourcing incentives and adds strong labor and environmental terms with swift and certain enforcement to raise wages, companies will keep moving jobs to Mexico to pay workers a pittance and dump toxins and import those products back for sale here.

And, the U.S. corporate lobby is in overdrive working against any attempt to change the trade policies to preserve the status quo. Doing so is apparently a higher priority for them than preserving the Republican congressional majority. The Koch Brothers just announced a campaign designed to line up congressional Republicans against Trump’s trade agenda before the midterm elections, even as polls show GOP and Independent voters support that agenda.

Plus, Trumpian chaos has led to Trump caving on well-thought-out policies, such as the China trade enforcement action aimed at dismantling the technology theft essential to the China 2025 agenda to dominate industries of the future. That approach was revived, for now.

But whether or not Trump’s trade policies succeed, the other G-7 leaders should reflect on the painful lesson of Trump’s rise and that of other authoritarian politicians who wrap themselves in economic populism: Political leaders who fail to offer a new approach on trade and the related economic policies that provide greater economic security for all only serve to alienate more and more people who are left behind, creating fertile political ground for more Trumps.

Trump’s pledges to upend the trade status quo, end job outsourcing and create manufacturing jobs attracted hard-hit working-class votes in the key Midwestern swing states that put him in the White House. And President Barack Obama’s relentless efforts right through the 2016 campaign to pass the business-as-usual Trans-Pacific Partnership (TPP), and Secretary Hilary Clinton’s ambiguous views on the TPP and connection to President Bill Clinton’s NAFTA, dampened working-class enthusiasm for the Democratic ticket.

If Trump’s foreseeably cringe-worthy exploits at the G-7 don’t drive home this point, perhaps yesterday’s election of Doug Ford — considered the Donald Trump of Canada and brother of the infamous right-wing, populist, crack-smoking Ontario Mayor Robert Ford — as Ontario’s new Premier will.


Corporate Lawyers Hijack UN Meeting, While Civil Society Is Sidelined

By Melinda St. Louis

As originally published in TruthOut

Thanks to years of public education and organizing around the globe, the once-obscure investor-state dispute settlement (ISDS) system is on the ropes. The ISDS system, buried in trade and investment agreements, grants new rights to multinational corporations to sue governments before a panel of three corporate lawyers. These lawyers can award the corporations unlimited sums to be paid by taxpayers, including for the loss of expected future profits, and their decisions are not subject to appeal. The corporations need only convince the lawyers that an environmental law or safety regulation violates the expansive investor rights granted by such pacts.

As governments are increasingly questioning the legitimacy of this system, the law firms and corporate beneficiaries of the regime are trying defend it, including by rigging international intergovernmental meetings like the one I recently managed to attend despite being banned. 

Supporters of the ISDS regime are on the defensive for good reason. The Trans-Pacific Partnership (TPP) never achieved majority support in the US Congress in large part due to bipartisan opposition to ISDS -- from the Republican-majority National Conference on State Legislatures and US Supreme Court Chief Justice John Roberts, to Nobel laureate economist Joseph Stiglitz and Sen. Elizabeth Warren. The EU Trade Commissioner admitted that ISDS was "the most toxic acronym in Europe." As the number of ISDS cases filed each year has exploded and corporations have won billions in attacks on a stunning array of policies, governments from South Africa to Indonesia to Ecuador have terminated many of their treaties that include ISDS. Even the Trump administration has proposed eliminating ISDS from the North American Free Trade Agreement (NAFTA).

The law firms, tribunalists, hedge funds and private equity firms getting rich off of these raids on governments' treasuries have been scrambling to figure out how they can save the system, even as they are being forced to reckon with massive opposition to ISDS by civil society and governments alike.

The result has been a high-stakes shell game, with ISDS defenders setting up discussions about whether the system requires "reforms" that are designed to avoid real change.

Biased ISDS "Reform" Discussions

Exhibit A: The little-known United Nations Commission on International Trade Law (UNCITRAL), which provides one set of rules under which many ISDS cases are litigated, has now been forced to engage in a discussion about the need to reform ISDS. Very few people -- even within governments -- have paid much attention to UNCITRAL. But the arbitration industry, and all the law firms who make millions bringing ISDS cases on behalf of corporations or sitting as arbitrators in these ad-hoc tribunals, have been heavily invested in this process.

Whose views is UNCITRAL most interested in hearing, as the agency holds a series of meetings to discuss whether ISDS reform is desirable and what those reforms should be? The report from the first November 2017 UNCITRAL ISDS "reform" meeting made that quite clear: Of the 27 the groups listed as non-governmental "observers," all but two (93 percent) represented the arbitration industry. If this were not sufficiently galling, many of the governments' own delegations to the meeting included private ISDS lawyers and arbitrators. Indeed, some governments, including Mauritius, Iceland and Bahrain, were solely represented by practicing arbitrators. 

The arbitration industry is obviously not keen for UNCITRAL to engage in meaningful reform of the system. Those who wish to save the ISDS regime are aiming to hijack the UNCITRAL reform discussion to maintain the status quo or promote half-measures around the margins that do not address ISDS's fundamental flaws. For instance, the European Union has been pushing a proposal to establish a "multilateral investment court" within this process, which could actually institutionalize and formalize the ISDS system.

Critical Voices Not Welcome?

Concerned about this danger, Public Citizen's Global Trade Watch, along with other international civil society organizations, applied to be observers at the April 2018 meeting in order to provide more critical views of some of the emerging proposals. UNCITRAL's observer application process is opaque and unclear, but we sent a detailed letter explaining how we met their observer criteria relating to international focus, competence and expertise in the subject area, and whether we would contribute to reaching the goal of a more balanced representation of major viewpoints.

We fully expected to be approved as observers, given our deep expertise in the issue and that we have been accredited to attend all the World Trade Organization Ministerial meetings and other UN meetings on ISDS. But Public Citizen and other close allies received rejection letters from UNCITRAL.

The message seemed pretty clear: UNCITRAL welcomes the arbitration industry to be a part of these discussions, despite the clear conflict of interest. But several civil society organizations like ours that represent the public interest were to be kept away.

A Fly on the Wall

Despite being officially banned from the premises, yours truly managed to attend the April 2018 UNCITRAL meeting in New York as a guest of an approved organization. The flawed, biased process became even more evident.

The arbitration industry dominated observer and governmental delegations in the actual formal sessions. Thirty-seven of the 44 non-governmental observer organizations represented private lawyers and arbitrators, while only seven represented broader civil society interests. Hardly "reaching the goal of a more balanced representation of major viewpoints" that was the remit of the UNCITRAL secretariat.

An "academic forum" -- held on the sidelines of the UNCITRAL meeting -- was organized by a well-known arbitrator who served as an official member of Switzerland's delegation to the meeting. Many academics who participated in the forum were also arbitrators themselves with a personal financial stake in the ISDS system. Not only were well-known academic critics of the system notably absent from the invitation list, but the event itself was held at the New York International Arbitration Centre -- not exactly a neutral, academic venue. 

The UNCITRAL secretariat did not have its story straight about the role of this academic forum or a separately organized "practitioners' forum," which even more explicitly represented the views of the arbitrators. 

During an introductory meeting with civil society organizations, the UNCITRAL representative explained that the practitioners' forum and the academics' forum were separate from the UNCITRAL proceedings. The official said that results of those discussions would only be linked to the UNCITRAL website if they meet a "test" of "objective, neutral and fact-based, technical and not political, and from research and not political organizations." It is peculiar that the views of people with a personal financial stake in maintaining the ISDS status quo as arbitrators might be considered "neutral" and "not political" in a discussion about reforming the ISDS system.

It only got more bizarre. During the UNCITRAL meeting, an official US government delegation representative took the floor and invited all the government delegates to an evening event hosted by his law firm, King and Spalding. The firm has represented corporations in some of the most egregious ISDS claims, including the infamous Chevron v. Ecuador case. No one in the room seemed to question the propriety of a private law firm that earns millions from the ISDS system speaking on behalf of the US government delegation to invite delegates at an intergovernmental meeting to that law firm's event. 

At that King and Spalding event, the UNCITRAL secretariat announced that because they "wanted to ensure the widest possible input, [UNCITRAL] set up the practitioners' forum and the academic forum," and they specifically wanted "to hear from arbitrators because they are the people most affected by the UNCITRAL process." Yes, those would be the same forums that UNCITRAL officials said were unrelated to the meeting. And of course, no mention of the communities around the globe who are affected by ISDS attacks against their environmental, public health and safety laws.

Further, while civil society organizations were informed by UNCITRAL that no space was available inside the UN building for side events, the International Chamber of Commerce held just such a side event down the hall from the official meetings in the UN building.

Perhaps perceiving the public relations nightmare that might arise from their biased meeting, towards the end of the week, some governments and the UNCITRAL secretariat took some small steps to include the perspectives of the few civil society organizations present.

But the takeaway from the UNCITRAL's process for its so-called "reform" discussions thus far is that lawyers making millions in ISDS cases are welcomed, while the voices of the millions of people whose lives are harmed by ISDS cases brought by multinational corporations are barely an afterthought.

Venues like UNCITRAL and the arbitration industry may want to tamp down the wave of opposition to the unjust ISDS system, even as they go through the motions of considering "reform." But sidelining the growing critique against ISDS from across the political spectrum around the globe will most certainly backfire. Worldwide, the call to end ISDS is only growing louder, and pro-status quo forces ignore those voices at their peril.


NAFTA Talks Should Continue Until a Good Deal Is Achieved

Statement of Lori Wallach, Director, Public Citizen’s Global Trade Watch

Lori Wallach, director of Public Citizen’s Global Trade Watch, released the following statement upon the conclusion of today’s North American Free Trade Agreement (NAFTA) ministerial meeting:

“Until a deal is achieved that eliminates NAFTA’s job outsourcing incentives and foreign tribunals exposing our laws to attack, and that adds strong labor and environmental standards with swift and certain enforcement to raise wages, talks should continue. The administration has been making progress on important elements of the major NAFTA replacement deal that is needed, and we hope they continue negotiating until they get a deal that would enjoy broad support.

Only a deal that eliminates NAFTA’s job outsourcing incentives and investor-state dispute settlement tribunals and adds strong labor and environmental standards with swift and certain enforcement can obtain broad support in Congress, a reality demonstrated by the Trans-Pacific Partnership falling dozens of votes short of passage in the previous Congress.

Certainly the continuation of the status quo of NAFTA helping corporations outsource more jobs to Mexico every week and attack health and environmental safeguards in secretive tribunals is not acceptable. President Trump promised to bring jobs back with a quick NAFTA renegotiation, but more important than a fast deal is the right deal that transforms the failed NAFTA model. Members of Congress, unions and small businesses, state legislators and consumer groups have articulated for decades the structural changes needed to NAFTA to reverse its outsourcing incentives, downward pressure on wages and attacks on our health and environmental laws.”


New Data Show Trump’s First Quarter 2018 China and Mexico Trade Deficits Largest on Record as All Eyes Focus on This Week’s Trade Discussions in China, Looming NAFTA Deadline

U.S. Trade Deficit With World Largest Since 2008 Financial Crisis, Contrary to Trump’s Campaign Pledge to Quickly Reduce Deficit to Bring Back Manufacturing Jobs  

WASHINGTON, D.C. – Record-high first-quarter trade deficits add to the urgency of the Trump administration succeeding in reworking the terms of U.S.-China trade and the North American Free Trade Agreement (NAFTA), Public Citizen said today.

The 2018 first quarter goods trade deficit with China and with the world is significantly larger than figures for the first quarter of 2017 even as the March monthly goods deficit with China declined as U.S. exporters accelerated shipments to beat tariffs that may be imposed relating to the 301 action, which gave an extra boost to U.S. exports overall this month.

President Donald Trump’s pledge to quickly reduce the U.S. trade deficit remained unfulfilled after the U.S. trade deficit rose in 2017. As his second year in office begins:

  • The first-quarter goods trade deficit with China is the largest ever recorded at $91.1 billion, up from $80.7 billion for the same period last year;
  • The goods trade deficit with the world of $196.7 billion is larger than any period since before the 2008 financial crisis – up 8.5 percent over the first quarter of 2017 deficit of $181.4 billion.
  • The first-quarter goods trade deficit with Mexico is the largest ever recorded at $33.3 billion, up from $30.6 billion for the same period last year. After improving from 2011 to 2016, but worsening in 2017, the NAFTA first-quarter 2018 goods deficit is up slightly relative to the first quarter of 2017 – an increase from $49.1 billion to $49.6 billion. (NAFTA data exclude re-exports, which account for 20 percent of U.S. exports to NAFTA countries.)
  • The 2018 first-quarter goods trade deficit with the world is up $24.4 billion compared to the $172.4 billion first-quarter global goods deficit in 2016, the last year of the Obama administration. The deficit in manufactured goods remained 88 percent of the overall deficit from 2016 to 2017, contradicting Trump’s promises to help manufacturing workers.

(All data in inflation-controlled terms.)

With the comment period on proposed China 301 tariffs closing at the end of May, Trump’s senior trade and economic advisers are in Beijing this week seeking major changes to the terms of U.S.-China trade. NAFTA talks must be completed within weeks for a pact to be voted on this year, but only a deal that removes NAFTA’s job outsourcing incentives and adds strong and strictly enforced labor and environmental standards could change the trade deficit trends. Given the failure of the Trans-Pacific Partnership to obtain majority support in Congress, such a major redo of the past U.S. trade agreement model is also necessary for a new pact to be approved by Congress.

“This ever-expanding trade deficit is like the ghost of Trump trade promises past that is haunting the U.S. negotiators now in Beijing trying to remedy the debacle of our China trade policy and those trying to conclude a NAFTA replacement deal that ends the outsourcing incentives and thus could win broad support,” said Lori Wallach, director of Public Citizen’s Global Trade Watch.

The Deficit Is Now Mostly Made Up of Manufactured and Agricultural Goods, With the Oil Deficit Down

Economists who critique the significance of bilateral deficits nonetheless agree that large sustained overall trade deficits can suppress demand and slow economic growth. The overall U.S. trade deficit is mostly made up of manufactured and agricultural goods. Growth in U.S. oil exports and a decline of oil imports since 2011 have masked the deterioration of the non-oil trade deficit.

Over the past three years, the worsening of the non-oil trade deficit has been comparable in magnitude to the worst part of the 2000s “China shock” period, reaching 3.5 percent of GDP between 2014 and 2017 compared to 3.6 percent of GDP between 2002 and 2005. The non-oil trade deficit increased from $573 billion to $756 billion from 2014 to 2017, including the increase in Trump’s first year of office from $703 billion to $756 billion.

“Expect ever-expanding trade deficits that eviscerate Trump’s grand trade reform promises unless the administration transforms our failed China trade policy and removes NAFTA’s job outsourcing incentives, adds strong labor and environmental standards, and thus achieves a NAFTA replacement that can get through Congress,” Wallach said.

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New Trump Administration Trade Report Sticks to the Status Quo

The Trump administration’s recently released 2018 National Trade Estimate Report could become classic reading for political science students studying the “deep state” concept.

The 2018 report, which provides a 500-page compilation of policies in other countries that U.S. commercial interests claim are “trade barriers,” is remarkably similar to Obama-era editions of this congressionally-mandated annual report.

Yes, it was shocking that the Obama administration issued a report that labeled countries’ public health and environmental policies, food-labelling laws, and even religious standards as significant trade barriers. Sadly, this aspect of the report is not surprising for the new administration. 

But attacks in the report on other countries’ policies that reflect the new administration’s approach can only be explained by the reality that too many career trade-policy staff are rutted in pro-status-quo groupthink.

Exhibit A: A key administration demand in the North American Free Trade Agreement (NAFTA) renegotiations is to cut investor-state dispute settlement (ISDS). Administration officials have made clear that ISDS is considered a problem because it makes it less risky and costly to outsource jobs and because it undermines sovereignty. The ISDS system empowers foreign investors and corporations to skirt domestic courts and attack domestic policies by going before tribunals of three corporate lawyers to adjudicate claims. These extra-judicial international arbitration tribunals can order unlimited compensation be paid to investors by a host country’s taxpayers.

Yet this year’s report identifies as a barrier Mexico’s hydrocarbons law because it requires foreign companies to use the domestic court system in Mexico to arbitrate certain government disputes – rather than allowing foreign firms to use unaccountable international tribunals.

Along the same lines, the Trump administration is seeking to roll back NAFTA terms that require the waiver of Buy American and other domestic preference programs. But the report attacks Quebec’s requirement that 60 percent of the goods used in wind energy projects be sourced domestically as this “could pose hurdles for U.S. companies in the renewable energy sector in Canada.”

Jumping from NAFTA to other news headlines, another barrier listed is the European Union’s new privacy law. According to the report, the policy adds “new requirements for accountability, data governance, and notification of a data breach,” which may “increase administrative costs and burdens” for U.S. companies operating in Europe. Funny thing is that U.S. megacorporation Facebook, facing attacks on its lax safeguards, just announced it is adopting the European standard for its operations worldwide.

It bears noting that once again even public health policies designed to improve maternal and infant health are attacked as trade barriers in the report. That includes Malaysia’s proposed revisions to “its existing Code of Ethics for the Marketing of Infant Foods and Related Products” that would restrict corporate marketing practices aimed at toddlers and young children. Also, the report criticizes Hong Kong’s recent regulations governing the marketing of infant formula. Although acknowledging that the regulations are based on “World Health Organization guidance and purportedly voluntary,” the report parrots the food industry’s concern that Hong Kong’s new policies might become mandatory.

Other eyebrow-raising trade barriers? The report criticizes Malaysia – a predominantly Muslim country – for having certain restrictions on the importation of alcohol, and Brunei – another predominantly Muslim country – for requiring that non-halal foods be sold in specially designated rooms.

It remains to be seen whether future National Trade Estimate reports by the Trump administration will be consistent with the administration’s stated positions or the deep-state “trade-think” of decades of Democratic and Republican administrations past will prevail. Either way, we will be watching closely.