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  • Eyes on Trade is a blog by the staff of Public Citizen's Global Trade Watch (GTW) division. GTW aims to promote democracy by challenging corporate globalization, arguing that the current globalization model is neither a random inevitability nor "free trade." Eyes on Trade is a space for interested parties to share information about globalization and trade issues, and in particular for us to share our watchdogging insights with you! GTW director Lori Wallach's initial post explains it all.

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February 25, 2011

Workers Fight Back in the Rust Belt

Working families are taking back the heartland, out in the streets and even occupying the Wisconsin's state capitol building to demand their rights and demand that government work for them again.

For those who haven't heard, the fight is about a backwards budget bill that seeks to exploit budget difficulties to strip public workers of most all their collective bargaining rights, rolloing back +60 years of hard-won rights for working families - rights first won in Wisconsin. Former GTW staffer Mary Bottari and her new crew at the Center for Media and Democracy can get you all the latest news at their liveblog.

 

As you'll surely read if you check out CMD, it's a manufactured crisis. Big giveaways to the rich and to corporations have exacerbated the budget shortfall in Wisconsin, and now the governor there is pretending he has no choice but to take drastic measures. He disingenuinely faults people's rights for the fiscal mess caused by corporate giveaways, bailouts, and tax breaks.

It's a manufactured crisis, and it's linked to the manufacturing crisis. United Steelworkers president Leo Gerard spoke this past Monday at the state capitol, connecting the dots between this attack on workers, and unfair trade deals.

Continue reading "Workers Fight Back in the Rust Belt" »

February 23, 2011

Shell, shell, shell companies

Last year, we reported on how a Canadian-Cayman mining company, Pac Rim Cayman LLC, was using the U.S.-Central America Free Trade Agreement to challenge El Salvadoran mining policy. There are seven parties to CAFTA, and none of them is Canada or the Cayman islands.

In the months before launching a CAFTA case, Pac Rim Cayman LLC changed its incorporation from Cayman Islands to Nevada. El Salvador reasonably got suspicious about this convenient change of nationality, and is asking a CAFTA court convened at the World Bank (ICSID) to dismiss the case because of a lack of jurisdiction.

The case represents the most detailed analysis of corporations' "nationality planning" by an investor-state panel under a U.S. trade or investment agreement. Some of the key highlights from El Salvador's most recent objection to ICSID jurisdiction:

"77. In fact, Claimant has been forced to admit that CAFTA was at least a consideration in the decision to change the nationality of Pac Rim Cayman from the Cayman Islands to the United States. Mr. Shrake states, "[a]s part of this overall assessment of the Companies' organizational structure, I also considered the Companies' potential avenues of recourse if a dispute with El Salvador were ever to arise in the future."...

86. On the record there can be no doubt that the main reason to move Pac Rim Cayman to the United States in December 2007 was to gain treaty protection for the existing dispute related to the El Dorado mine. In its Counter-Memorial, Claimant does not dispute the facts: Pac Rim Cayman was not "repatriated" as Claimant asserted in its August 17, 2010 letter to the Tribunal; it has no office or assets in the United States; the capital invested in El Salvador was transferred from Canada; and there were no other changes to Pac Rim Cayman as a Nevada company.

87. Nevertheless, Claimant now alleges that the change of nationality was to save money. But, despite Claimant's suggestion that 2007 differed from other years because Pacific Rim Mining Corp. recorded a big loss, the truth is that Pacific Rim Mining Corp. has a history of losses, including $4.6 million for fiscal year 2005, $6.9 million for fiscal year 2004, and $2.8 million for fiscal year 2003. Moreover, although Claimant claims that the move saved it "the costs of maintaining Pac Rim Cayman in the Cayman Islands," Claimant presents no evidence that the costs of maintaining a limited liability company in Nevada are significantly cheaper than being incorporated in the Cayman Islands.

88. In fact, given the actual costs involved, the assertion that cost savings was the primary reason and access to CAFTA just a convenient afterthought, is hardly credible. According to the Cayman Islands Chamber of Commerce, a non-resident company currently pays between U.S. $488 and $689 to register and as an annual fee in the Cayman Islands, while an exempt company pays between $573 and up to $2400 for companies with maximum shareholder capital. Cost could not have been a major concern. Moreover, Claimant spent at least $575 to register, submit an initial list of managers, and acquire a business license in Nevada...

106. As discussed above and in El Salvador's Memorial, there is no evidence of Pac Rim Cayman having any business activities whatsoever. It is a shell moved around for the purposes of Pacific Rim Mining Corp. This is hardly disputed. All that Claimant argues is: "Pac Rim Cayman is . . . engaged in the substantial business activities of holding and managing investments in El Salvador from its headquarters in Nevada." Even this statement is misleading. The evidence produced by El Salvador clearly demonstrates that Pac Rim Cayman—a company with no employees, no office space leased under its name, no telephone, no office equipment, and no bank account—has no capacity to manage anything. Moreover, while there is no doubt that it is a holding company, Pac Rim Cayman does not even hold "investments" in El Salvador. It holds shares in Salvadoran companies used as investment vehicles by the common parent company Pacific Rim Mining Corp. Pac Rim Cayman's only "activity" is the purely passive holding of shares in two other companies under its name.

107. As El Salvador stated in its Memorial, holding shares in its name cannot be substantial business activity: "every shell company set up by a non-Party national to try to gain CAFTA jurisdiction will have 'holding' activities related to the investments of the non-Party parent company." The denial of benefits provision would be rendered meaningless if merely holding shares or investments qualified as "substantial business activities in the territory of any Party."

108. Moreover, the fact that an officer of the Canadian parent company was located in the United States when he made decisions about what other subsidiaries the Cayman Islands subsidiary, Pac Rim Cayman, would hold, does not amount to business activities for a U.S. enterprise. Like Claimant's other arguments, this would defeat the purpose of a denial of benefits clause. The alleged substantial activities must be connected to the enterprise when it is a national of the Party.

109. Of course, some holding companies may be able to establish that they are legitimate entities functioning within the territory of a Party. Pac Rim Cayman is not such a holding company. This is clear from Claimant's misleading attempt to align itself with the AMTO claimant: "[m]uch like Pac Rim Cayman, AMTO was a holding company with two fulltime employees." In fact, unlike AMTO, Pac Rim Cayman has no employees. In response to El Salvador's request for information ordered by the Tribunal, Pac Rim Cayman was not able to produce any evidence that it pays the salaries of any employees, or even a portion of the salaries of its two managers, who are also officers of the Canadian parent company and paid by the Canadian company and other subsidiaries. In addition, unlike Pac Rim Cayman, AMTO paid income tax and social insurance payments for its two employees, had a bank account, and leased an office for several years during which the investment was made and the dispute arose. The only thing that Pac Rim Cayman and AMTO have in common is that they are holding companies. Pac Rim Cayman has none of the characteristics that led the AMTO tribunal to conclude that AMTO had substantial business activities.

110. Claimant is a shell company, with no employees, no office, and no revenue. Pac Rim Cayman's subsidiaries, PRES and DOREX, are investment vehicles in El Salvador that do not contribute to Pac Rim Cayman having any activities in the United States. The activities of Pacific Rim Exploration, minimal as they are, should not be counted as activities of Pac Rim Cayman, because Pacific Rim Exploration was only moved to be held through Pac Rim Cayman as part of the abusive scheme to gain jurisdiction, at the same time Pac Rim Cayman's nationality was changed from the Cayman Islands to the United States. The only business activity Pac Rim Cayman can claim—"holding" the shares in the investment vehicles in El Salvador—is clearly insufficient.

El Salvador's legal defense is doing its best to ward off the attack on its environmental policies, but the underlying rules on how "investor" is defined by CAFTA and other NAFTA-style agreements are pretty lame. For instance, Pac Rim Cayman LLC, in its counter memorial on jurisdiction, wrote:

"Far from being “passive” vehicles for questionable purposes, holding companies have been described as “the fundamental building block of the global economy,” a “common and legal device for corporate organization [that] face the same legal obligations of corporations generally.” A holding company is a “company formed to control other companies, usu[ally] confining its role to owning stock and supervising management.”...

there is nothing wrong with an investor’s decision to structure its business activities in order to gain CAFTA’s benefits after investing in the territory of a CAFTA Party and before a dispute with that Party has arisen. Respondent itself admits as much, acknowledging that “prospective nationality planning has generally been accepted by arbitral tribunals, even if the nationality of the foreign investor has been selected to gain tax advantages or treaty protection in the event of future disputes.” One such instance
was in the Aguas del Tunari case, where the tribunal noted that it was “not uncommon in practice” to “locate one’s operations in a jurisdiction perceived to provide a beneficial legal and regulatory environment in terms, for examples, of taxation or the substantive law of the jurisdiction, including the availability of a BIT.”...

Penalizing an investor for taking prudent steps to protect itself in the event that the host State later purports to deny CAFTA’s benefits to the investor would only serve to discourage investors from investing in the territories of the Parties, and would, moreover, undermine CAFTA’s purpose of providing for the settlement of investment disputes."

El Salvador had to agree, saying,"As Claimant points out, structuring an investment ahead of time in order to gain treaty protection may be acceptable, but changing nationality after a dispute has arisen in order to qualify for treaty protection is Abuse of Process."

We need a different set of rules to ward off against investor-state challenges from shell or near-shell companies. After all, NAFTA-style deals prohibit countries from requiring foreign investors to give back to the community or protect environment (so-called "performance requirements".) But the deals don't set up any economically meaningful threshold for an investor actually creating a significant number of jobs before they can use NAFTA- or CAFTA-style rights. This is putting investors ahead of the public and national interest, even when they're not making investments.

(Kind of an analogue to the U.S. tax policy debate, where both parties compete to give corporations back money so that they can invest it "without any government meddling", that they go on to hoard rather than invest.)

It is ridiculous that El Salvador is forced to argue about precedents that would have allowed as few as two employees to be considered substantial business activities. While we debate whether the stimulus package created or saved closer to a million or closer to two million jobs, it seems a little ridiculous to be advancing investment provisions of NAFTA-style trade policies that split hairs about whether as few as two employees entitles a company to massive investor rights. And we wonder why the U.S. government has a hard time creating jobs: we've forgotten how to protect the policy space to actually create jobs, either at home or abroad.

But, there's a fair trade way of re-writing these "denial of benefits" provisions of trade deals. We suggest some ways this could be done here.

February 22, 2011

Grand River Case Shows U.S. Open to Financial Liability in NAFTA Attacks on Public Health Laws

The State Department published the NAFTA award in Grand River Enterprises Six Nations, Ltd. et. al. v. United States of America last week, a month after it was dispatched privately to the parties. The case was brought against the United States by a Canadian tobacco corporation that sold tobacco on reservations in the U.S. and three Canadian members of the Haudenosaunee indigenous group who owned or did business with the corporation. The claimants argued that implementation of the deal that U.S. states made with tobacco companies in the 1990s and later to address underage smoking and public health concerns about tobacco violated their NAFTA rights. The award, and other associated documents, is available here: http://www.state.gov/s/l/c11935.htm

While the United States thankfully prevailed in the case, the award raises serious concerns about NAFTA-style investment rules. Among the top concerns from my initial read of the award:

Even when governments win NAFTA disputes on the merits, taxpayers are on the hook for the multi-million dollar costs of arbitration. In this case, U.S. taxpayers had to cover nearly $3 million in legal and arbitration fees, despite the U.S. emerging victorious. (paragraph 241) The investor-state system is becoming so expensive that hedge funds are creating special financing vehicles to loan money to corporations and individuals pursuing attacks on national policies. While private companies can profit off of this system, taxpayers are left with nothing but liability for these often meritless claims.

NAFTA attacks allowed against public health measures. The U.S. states’ settlement with the tobacco companies was a complex response to a complex political and regulatory problem. In 1998, 46 U.S. states entered into a settlement agreement with Philip Morris Inc., R.J. Reynolds Tobacco Company, Brown & Williamson Tobacco Corp., and Lorillard Tobacco Company, (“participating manufacturers” or PMs) to resolve claims that the states had filed seeking to recoup medical expenses incurred for treating smoking-related illnesses of indigent smokers and to pay for smoking reduction programs.  As part of the settlement agreement, the PMs agreed to pay the states over $246 billion over the next 25 years,  and to restrict marketing directed at children. 

Continue reading "Grand River Case Shows U.S. Open to Financial Liability in NAFTA Attacks on Public Health Laws" »

February 16, 2011

Lori Wallach on HuffPo: "Korea Trade Deal Is Lose-Lose"

Check out Lori Wallach's latest piece on The Huffington Post:

HuffPo logo

Korea Trade Deal Is Lose-Lose

"The Obama administration's effort to convince Congress to pass a NAFTA-style trade pact with South Korea on foreign relations and national security grounds took a beating last month when a large delegation of Korean opponents of the pact came to Washington. ... A majority of Koreans oppose the FTA, are offended that it requires South Korea to subject itself to the jurisdiction of foreign arbitral tribunals, and fear it will undermine the financial stability policies Korea has implemented following the recent and 1997 financial crises; this was the message from the South Korean officials to U.S. members of Congress. The FTA is also 'an unacceptable humiliation and an overly high price to pay for the Americans' role in providing national defense,' they said..."

Read the entire piece at The Huffington Post.

 

February 15, 2011

A funny thing happened on the way to banking transparency in Panama

We always knew that Panama would drag its feet on promises to clean up its banking secrecy problems. Indeed, both government and industry have spent a lot of airtime bragging about how the deal with the United States doesn't force them to change the country's operating philosophy in major ways. See here, for instance.

But we also knew that Panama's tax haven industry would push back hard on any more substantive changes. And indeed they have. See here and here and here.

It seems like at least some of the efforts to water down the legislation worked. The National Assembly watered down the Martinelli administration proposal (itself a watering down of what tax justice groups have called for) in a couple of ways.

First, registered agents in Panama that violated the Know Your Client legislation saw their period of debarment shrink from 1-3 years in the Martinelli proposal, to as little as three months in the National Assembly approved legislation (see Article 20, as amended). So, after a little slap on the wrist, a lawyer could return to offering untransparent services to anonymous tax dodgers, assuming the laws are enforced in the first place.

Second, the Martinelli proposal required resident agents to 1. identify their clients and verify that identity through a paper trail; 2. ascertain the purpose for the creation of the corporate entity, and 3. share information with the government under certain extenuating circumstances. But the National Assembly scaled this back so that, in order to comply with item 2, "the resident agent shall not have the obligation to carry out any proactive step or verification of the information provided by the client." (Article 3, as amended). In other words, trust, but do not verify.

(You can see the original and amended versions here.)

Congress and public interest groups have been very clear about what needs to be fixed before any U.S.-Panama trade deal can be voted on. First, Panama needs to clean up its tax haven practices. Second, the FTA needs to be changed so that tax dodgers don't have FTA "hard law" means of attacking tax collectors' anti-tax haven measures, while tax collectors only have "soft law" means of asking nicely for taxes owed from tax dodgers. Thus far, the Obama and Martinelli administrations have made no progress on the latter, and the Panamanian government has dimished the former to not-even-symbolic changes.

It's pretty clear that, absent redoubled pressure, Panama will remain a top tax haven.

February 14, 2011

Mubarak Family Takes Advantage of Bank Secrecy in Panama

The entire world has focused on the inspiring and peaceful revolution in Egypt that pushed the Hosni Mubarak regime from power. One of the primary tasks that Egyptians will face in the coming months is tracking what if any wealth the Mubarak regime stashed abroad. As the New York Times reported,

As attention turns to tracking the Mubaraks’ purported wealth, rumors of vast real estate holdings by the family have swirled. But the only property outside of Egypt that has emerged is the London townhouse at 28 Wilton Place in Knightsbridge where Gamal Mubarak lived when he was an investment banker there.

But determining the precise ownership of the house shows why investigating the family’s wealth is complicated. A woman answering the front door of the house said the Mubaraks had sold it, but property agents said there was no record of a sale, and neighbors said they had seen Gamal Mubarak and his family entering it several times recently.

According to British records, the home is owned by a company called Ocral Enterprises of Panama. The registered agent for the company in Panama is a local law firm. A lawyer at the firm said that he could not reveal Ocral’s owner. The lawyer said his firm received its instructions regarding Ocral from a company in Muscat, Oman, which he declined to identify.

Though Swiss banks have begun the search for Mubarak family assets, experts said any money would be returned to Egypt only if its new government formally demanded them.

“Egypt has to run a criminal investigation,” said Daniel Thelesklaf, director of the International Center for Asset Recovery in Switzerland. “A lot will depend on the new Egyptian government.”

As we've discussed often on the blog, Panama is ground zero for rich individuals and corporations looking to avoid taxes and regulation. Despite overwhelming international attention on the tax haven abuses in Panama, the country has responded by threatening WTO action on any country that tries to target the abuses, and then slow-walked any micro-reforms. Thus, instead of getting rid of the bearer shares that allow drug traffickers to launder money, Panama has bragged that it has merely set in place a lesser untested solution that some records be kept on owners.

The grand "compromise" brokered by Treasury Secretary Tim Geithner (and intended to jumpstart the talks on a U.S.-Panama trade deal that was delayed when Congress started asking questions about Panama's tax practices) was to get Panama to sign a so-called Tax Information Exchange Agreement and "understanding". But the deal does not require Panama to automatically share tax information, and instead forces regulators to jump through tons of hoops on investigations that are already far along. (Good luck having the enforcement capacity for that during a time of budget austerity and cuts.)

Moreover, the deal is full of loopholes, like allowing Panama to dodge a U.S. request for tax information if fulfilling the request "would be contrary to the public policy" of Panama. Since Panama's public policy is to attract foreign monies through low to non existent regulations, the TIEA seems likely to give Panama substantial room to be uncooperative.

And not to mention that, unlike the U.S.-Panama FTA, there's no meaningful enforcement regime with the TIEA. Say Congress or the public pushed the administration to block financial transfers to and from Panama until Panama started disclosing the assets of corrupt dictators. Any Panama-registered investor that didn't like the action could force the U.S. into international arbitration, where U.S. taxpayers might have to actually cough up money to the regulation-dodger. In contrast, the "soft law" of the TIEA is all based on genteel requests, and contains no enforcement mechanisms.

This corresponds to a broader problem in international law, documented in a recent academic journal issue: when it comes to measures to build economic stability or enforce transparency (like minimum capital requirements or tax transparency), governments opt for unenforceable mechanisms. But when it comes to measures that get in the way of company profits, we opt for mechanisms (like FTAs) that are not only strongly enforceable, but which companies can themselves directly enforce.

Double standards like this bode poorly for the ability of democracy activists everywhere to push for accountability from those who govern them.

February 09, 2011

Liveblogging the Kirk Hearing on NAFTA Expansions

The Ways and Means Committee is having its second hearing on the NAFTA expansions to Korea, Panama and Colombia. The hearing is also looking at problematic attempts to expand the World Trade Organization's restrictions on domestic regulations, and the Trans-Pacific Free Trade Agreement (FTA). The U.S. Trade Representative, Ron Kirk, is testifying. I'll be live-blogging over at FiredogLake, and attempt to provide a real-time fact check. (If you want to watch the live feed, go here.)

February 08, 2011

Don't abuse me: the prudential quandary

Mike Alberti over at Remapping Debate has published an investigative piece that looks at the financial services provisions of the Korea FTA. He reports:

Most free trade agreements contain a so-called “prudential carve-out” section that is designed to protect a country’s right to regulate its economy. The “Financial Services” Chapter of the FTA contains such a provision ...

Public Citizen’s Tucker wrote in an email that the net effect was the prudential carve-out section was “self-cancelling.” True exceptions to trade agreements would, in contrast, “clearly allow countries reprieve from their obligations under the agreement if the exception’s requirements are met.”...

According to Joshua Meltzer, a Global Economy and Development fellow at the Brookings Institution, who has written in support of the FTA, the limiting sentence of Article 13.10 is merely designed to “make sure that you basically don’t use prudential regulation as a disguise to get out of your commitment.”

The argument that prudential defense clauses are intended to root out abuse has been made elsewhere, and it is no more convincing this time around.

Continue reading "Don't abuse me: the prudential quandary" »

February 07, 2011

Pushing Obama on Latest Class Snuggle

Protest 7 Today, workers’ rights and fair trade advocates gathered at Lafayette Square in Washington, D.C. ahead of President Obama's address to the Chamber of Commerce. They urged President Obama to defend American jobs and oppose NAFTA style “free trade” agreements such as the Korea FTA. Groups represented included the National Nurses United/California Nurses Association (NNU) and ThinkProgress, among others. Donna Smith of NNU stated, “the Chamber of Commerce represents Wall Street and corporate greed, not working people. It encourages employers to roll back rights and living standards for working people. It promotes the outsourcing of U.S. jobs, and spends hundreds of millions of dollars at home to influence Congress to achieve tax breaks for big business and block reforms for working people.” Some of those present also voiced their distaste with President Obama’s support for the to Korea trade deal, which stands in stark contrast with his campaign promises on trade. 

In Speech to U.S. Chamber, Obama Gets It Wrong on Trade, Jobs

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

    It’s unclear what is more mortifying: President Barack Obama choosing the club of America’s notorious job-offshorers to talk about the importance of creating American jobs, or his rallying of his fiercest political opponents to help him overcome the majority of Americans who oppose more-of-the-same job-killing trade agreements and pass a NAFTA-style deal with Korea that the government’s own analysis shows will increase our trade deficit.

    The U.S. Chamber of Commerce audience must have been thrilled to have Obama push more of the trade agreements that both help them offshore American jobs and, given that most Americans oppose more of these job-killing trade pacts, can help them achieve their political goal of replacing Obama in 2012.

    After winning key swing states by pledging to reform America’s job-killing trade policy, I suppose the Chamber is about the only place that President Obama could go to rally for more-of-the-same trade policies as if these had not resulted in a huge trade deficit and the net loss of 5.1 million manufacturing jobs and 43,000 factories since America started its experiment with the current trade model in the 1990s.

    As Paul Krugman wrote in a recent New York Times column (“Trade Does Not Equal Jobs,” Dec. 6): “If you want a trade policy that helps employment, it has to be a policy that induces other countries to run bigger deficits or smaller surpluses. A countervailing duty on Chinese exports would be job-creating; a deal with South Korea, not.” The Korea pact is projected to cost another 159,000 U.S. jobs – with nine economic sectors, including high-tech electronics, as losers. Obama’s comments on the pact “supporting” American jobs refers only to the export side of the equation without considering that the pact is projected to result in an overall larger U.S. trade deficit and thus net job loss.

###
 

February 03, 2011

Belief vs. Reality in West Lafayette Park

The Washington Post reported an interesting tidbit today:

"That's been a big piece of the business community's mantra for a long time: trade," said Daley, who was an adviser to President Bill Clinton on NAFTA and became Obama's chief of staff last month. "Just about every Republican I've engaged with in one way or the other at social events or calls, when I got the job . . . all of them that I've talked to, they all go right to Korea and the trade issue, because I think there's a belief that, you know, that can help the economy."

So, there you have it. Some businesses and some Republicans believe that the Korea FTA will help the economy, so the White House is making it a priority.

But, as we've documented, the projections show that the reality of the Korea FTA will be a net negative for the economy. And, as Roll Call reported yesterday, plenty of small business groups and Republicans are against the deal:

Opponents of free-trade deals say they can swing tea party backers to their side. Michael Ostrolenk, national director of StopUSKoreaNAFTA.org, said his center-right libertarian group favors free trade but opposes the South Korea deal because it would cost U.S. jobs and sovereignty.

In other words, there's a formula for uniting the country (as opposed to just west Lafayette Park residents) around trade expansion, but the Korea FTA ain't it.

February 02, 2011

Troubling Signs for Panama NAFTA Deal from Judge in U.S.-Panama investment dispute

The Obama administration has made some indications that it plans to eventually take up a NAFTA-style trade agreement that the Bush administration negotiated with the tax-haven nation of Panama.

As we’ve pointed out, that agreement is riddled with problems, not least of which it would allow investors to challenge U.S. anti-tax haven measures as violations of the pact for cash compensation. While the U.S. and Panama already have a bilateral investment treaty (BIT) which contains some of these provisions, the trade deal’s investment provisions would make these worse.

Late last year, a World Bank tribunal at the International Center for the Settlement of Investment Disputes (ICSID) issued the first known decision under the U.S.-Panama BIT. While a majority of the tribunal sided with the Government of Panama and against the U.S. investor, the award contained several troubling conclusions that are likely to undermine support for the U.S.-Panama trade deal. Read more after the jump.

Continue reading "Troubling Signs for Panama NAFTA Deal from Judge in U.S.-Panama investment dispute" »

February 01, 2011

Economists to Obama: Save U.S. Export Markets; allow Capital Controls!

Our colleages at GDAE and IPS have recently released a sign-on letter from over 250 economists calling for trade agreements to permit countries to utilize capital controls. As the letter states:

many U.S. free trade agreements and bilateral investment treaties contain provisions that strictly limit the ability of our trading partners to deploy capital controls. The “capital transfers” provisions of such agreements require governments to permit all transfers relating to a covered investment to be made “freely and without delay into and out of its territory.”

Under these agreements, private foreign investors have the power to effectively sue governments in international tribunals over alleged violations of these provisions. A few recent U.S. trade agreements put some limits on the amount of damages foreign investors may receive as compensation for certain capital control measures and require an extended “cooling off” period before investors may file their claims.iii However, these minor reforms do not go far enough to ensure that governments have the authority to use such legitimate policy tools. The trade and investment agreements of other major capital-exporting nations allow for more flexibility.

We recommend that future U.S. FTAs and BITs permit governments to deploy capital controls without being subject to investor claims, as part of a broader menu of policy options to prevent and mitigate financial crises.

Among the signatories are Nobel Laureate Joe Stiglitz, Harvard professors Ricardo Hausmann and Dani Rodrik, and Peterson Institute economist Arvind Subramanian.

As Kevin Gallagher, an organizer of the letter, points out:

The United States has trade or investment agreements with 52 countries that restrict the use of capital controls and allow private foreign investors the right to sue governments that violate these restrictions.  Several additional deals are in the works, including:

  • U.S.-South Korea free trade agreement. Status: pending congressional approval.
  • Trans-Pacific Partnership. Status:  Trade negotiators from the United States and eight other countries will meet for a 5th round of talks in Chile on Feb. 15.
  • Investment treaty with China. Status: The U.S. government is expected to soon complete a review of its model Bilateral Investment Treaty (BIT), which will accelerate negotiations with China, India, and several other countries.  Presidents Obama and Hu “reaffirmed their commitment” to these ongoing negotiations in a Jan. 19 joint statement.

Hopefully this letter will help spark some of the needed reforms to NAFTA-style deals. After all, financial crises abroad can lead to the collapse of U.S. export markets - imperiling U.S. jobs. All options should be on the table without risking trade pact challenge - including capital controls.

Environmental health at stake in first corporate attack under Peru NAFTA deal

It's February 1, which makes it two years since the Bush administration rushed to implement the NAFTA-style deal with Peru right before it left office, and over the objections of the congressional Democrats that had partnered with the administration to get it through Congress.

On the second anniversary of the Peru FTA implementation, we see a lead company attacking Peru's policies related to environmental health. Details about the Renco v. Peru case are scarce, but we know that the company involves a U.S. multinational that got upset after getting smacked with a U.S. lawsuit filed on behalf of 137 Peruvian children who have suffered from lead poisoning. Renco is now claiming $800 million from irritants related to its commitment to clean up the environmental mess on its site.

You can find information about the U.S. lawsuit here, and about the FTA investor-state case here, and here also here. And more after the jump...

Continue reading "Environmental health at stake in first corporate attack under Peru NAFTA deal" »

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