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WTO still denying its Wall Street ties

Last week, we pointed out an interesting piece by the New York Times' Gretchen Morgenson, who wrote about the WTO conflict with financial re-regulation.

In this Sunday's NYT, the WTO's Keith Rockwell responds. Here's a highlight:

The most important elements of the W.T.O. commitments on financial services pertain to nondiscrimination and national treatment, meaning that if you accept opening your market, you may not apply different regulations to banks from different foreign countries or to your local banks.

We've been following this issue on the blog for years, and I'm a little underwhelmed by the WTO talking points. As far back as 2009, Pascal Lamy (the WTO head) made the same argument that Rockwell now makes: that the WTO's GATS only requires non-discrimination. And as we wrote then:

...the WTO's own Appellate Body ruled that non-discriminatory bans on the supply of services, in sectors where full market access commitments have been undertaken, are quantitative limitations covered by GATS Article XVI(2) - and thus must be removed.

This article, as it happens, was the focus of Morgenson's piece. She wrote on Article XVI or Market Access rules, while Lamy and Rockwell seem to want to only talk about Article XVII or National Treatment rules. (Their conversation on National Treatment doesn't really draw the right lessons from the case history: even policies that don't have discriminatory aims or effects can be found to violate the so-called "anti-discrimination" rules.)

Both articles are major planks of the GATS architecture: for the WTO to pretend that the former doesn't  exist is disingenous and inconsistent with the organization's own case law.

Rockwell is also off point when he writes:

As members of the European Union, Britain and Sweden provide the same degree of market access to foreign providers of financial services. Yet the crisis did not hit Swedish banks, while British banks suffered greatly. Why? Their regulatory systems differ.

The real pertinent question is whether either nation attempted to ban a dangerous financial product, cap the size of financial service providers, or restrict capital flows. If they attempted to, and they had deep financial services commitments under Article XVI, they could face dispute settlement and ultimately trade sanctions.

So, it's not ALL regulations that are banned by the GATS, but some very important ones are.

To recap: the WTO rules are enforceable and ban some very important financial regulations, while there is no international body (not BIS, not IMF, etc.) that can compel any positive financial regulation. To paraphrase Morgenson, this is an unfortunate paradox, and isn't about doing the right thing.

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Investor-State Arbitration Strikes Again, Now in Argentina

Today the Obama administration announced that it would remove Argentina from the list of countries that receive certain trade preferences. The administration claims that Argentina has not complied with a orders from World Bank tribunals to hand over the about $300 million in cash to two foreign investors, so its trade prefrences had to be revoked. Did Argentina steal the investors' assets in a Cuban-style expropriation? No. Argentina was merely trying to conduct some reasonable policies in the spheres of water utility management and macroeconomic policy when these companies filed cases under the investor-state lawsuit provisions of the U.S.-Argentina Bilateral Investment Treaty (BIT). The two companies, Azurix and CMS Gas Transmission Company, argued that Argentina's regulations infringed on their profit rights, and the arbitration panels agreed.

Azurix's case against Argentina stemmed from the sky-high prices the company charged for water when it took over a newly-privatized water utility. When the Argentine government sought to bring the prices back into the range of affordability in 1999, Azurix tried to escape the regulations by filing a case under the BIT. It eventually won over $165 million through this tactic, but the company has so far refused to collect its claim in Argentine courts as required by Argentine law.

CMS Gas Transmission Company sued Argentina on the basis of its foreign exchange and capital control policies in the wake of the meltdown of the peso-to-dollar peg in 2001. Apparently, Argentina can't even run its macroeconomic policy without being second-guessed (and sued) by a foreign investor. Citizens of Argentina had to endure the rocky domestic economy for a few years while Argentina got back on its feet, but CMS Gas Transmission Company used the BIT to get special treatment and the arbitration panel ordered Argentina to pay over $133 million. (CMS later sold the arbitration case to Blue Ridge Investment, a Bank of America subsidiary, thereby broadening the horizons of the financialization of everything.)

Multinational corporations would love to expand this investor-state system that places investor profits above sound public policy. They may get their wish if the Trans-Pacific Partnership (TPP) “free trade” agreement were to go into effect. As of now, the U.S., Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore, and Vietnam are participating in the TPP talks, but Japan could join soon. Importantly, the investor-state system works both ways: U.S. regulations would be under threat just as much as regulations of the other TPP countries would be under threat.

The case of Argentina just underlines the fact that the investor-state system enables a two-track system of justice in which foreign investor rights are perfectly enforceable, but the rights of citizens are not. As we have discussed on this blog recently, Chevron is using the investor-state system to avoid paying a court award of $18 billion for punitive damages and cleanup for its huge oil spills in the Ecuadorean Amazon. The Obama administration should be focused on rolling back this system instead of expanding it under the TPP.

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Despite free-trade pact, S. Koreans don’t fancy U.S. cars

Just days after the Korea FTA was implemented, the word on the streets of Seoul is that buying U.S. cars is NOT a priority.

Here's a clip from the Washington Times:

SEOUL — If President Obama wants to sell more American-made cars to South Korea, nobody has yet told the average South Korean.

In a Starbucks in downtown Seoul, Shin Yoon-chu, 38, was asked for his opinion of automobiles made in the U.S.A.

“Not that popular,” Mr. Shin said. “We have a feeling that they require a lot of fuel. And if you compare to the European cars, the design is not that great.”

The Korean-U.S. free-trade agreement went into effect March 15, just before Seoul played host to Mr. Obama and more than 50 other heads of state at this week’s nuclear security summit. Mr. Obama, hoping to energize his union base and boost the economy, is fond of saying the long-sought FTA will help the U.S. auto industry by increasing exports.

“Thanks to the bipartisan trade agreements I signed into law with you in mind, there will soon be new cars on the streets of South Korea imported from Detroit, Toledo and Chicago,” he told a United Auto Workers convention in Washington in February.

Read the rest from the Washington Times by clicking here.

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Public Citizen Applauds Obama Administration’s Efforts to Defend Consumer Country of Origin Meat Labeling; Appeal of WTO Ruling Necessary First Step

Statement of Todd Tucker, Research Director, Public Citizen’s Global Trade Watch


Public Citizen commends the Obama administration for taking the necessary step of appealing the harmful World Trade Organization (WTO) ruling against U.S. consumer labeling. In November 2011, a WTO panel ruled that the U.S. country of origin labels on meats (COOL) violated the organization’s rules.

The implications for this ruling are dire, especially in the context of a decades- long battle to ensure that consumers know the source of their meat. After overcoming countless obstacles, from presidential vetoes to adverse Supreme Court rulings in cases brought by food processors, it was only in 2009 that a meaningful country of origin labeling regime was finally implemented.

The legitimacy of the WTO is likely to be further undermined if the organization’s Appellate Body upholds the lower panel ruling. Such an outcome would provide evidence to consumer groups that the WTO allows anti-consumer forces a second (or third) bite at the apple, even when these interests do not succeed in their efforts to undermine consumer safeguards through purely domestic legal and political means.”

The Obama administration is considering expanding some of these anti-consumer rules in the first trade deal it is negotiating – the nine-nation Trans-Pacific Partnership trade agreement. The WTO ruling (and two others in 2011 against dolphin-safe labels on tuna and anti-smoking measures) shows that a new approach to trade agreements is needed – one that puts consumers, the environment and communities first.


Public Citizen is a national, nonprofit consumer advocacy organization based in Washington, D.C. For more information, please visit www.citizen.org.

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Global Trade Watch's Director Lori Wallach in the Huffington Post

Trade Deals: Backdoor Financial Deregulation

Wall Street has a new power tool to demolish financial stability policies, and it comes from a source many would not expect. It's not the cozy relationship between Wall Street and some members of Congress, or the hordes of bankster lobbyists who roam Capitol Hill. Wall Street has obtained and is now pushing for more powers to challenge U.S. and other nations' financial regulations via the international agreements that it has sold to a skeptical American public under the appealing brand of export-expanding "free trade" deals.

In Sunday's New York Times, Gretchen Morgenson described how the financial provisions of the World Trade Organization (WTO) and NAFTA (the North American Free Trade Agreement) operate as backdoor deregulation instruments. Those of us who have studied these so-called "trade deals" understand that these agreements have very little to do with trade per se. Rather, they mainly include new rights for corporations and new constraints on governments' non-trade regulatory policy space.

As my piece in a special edition of the American Prospect shows, instead of following through on President Obama's campaign commitments to fix this backdoor corporate power grab, now the administration is rushing to massively expand this mess by completing a Trans-Pacific Partnership (TPP) deal now being negotiated behind closed doors with eight Pacific Rim nations.

To read the rest of the article click here or go to http://huff.to/GHOXUd

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Senator Wyden files amendment for more transparency in the TPP negotiations

A couple of weeks ago we reported about Senator Wyden's lively exchange with U.S. Trade Representative Ron Kirk regarding transparency in the Trans-Pacific Partnership Free Trade Agreement (TPP).

Senator Wyden has now increased pressure on USTR by filing a legislative amendment for more transparency in the TPP negotiations related to intellectual property and the internet. Our colleagues at KEI posted a short blog about the amendment.

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Two interesting reads on WTO conflict with financial re-regulation

In yesterday's New York Times, columnist Gretchen Morgenson sums up where we are at on avoiding another Wall Street melt-down:

Financial institutions, eager to maintain their profitable status quo, have lobbied hard against change. As a result, too-big-to-fail institutions have become even bigger and more powerful.  

In addition to lobbying, big financial players have another potential weapon in their battle against safety and soundness. This one is more hidden from view and comes from, of all places, the World Trade Organization in Geneva.

Back in the 1990s, when many in Washington — and virtually everyone on Wall Street — embraced the deregulation that helped lead to the recent crisis, a vast majority of W.T.O. nations made varying commitments to what’s called the financial services agreement, which loosens rules governing banks and other such institutions...

All this represents yet another paradox of our financial world: Even as our regulators try to devise a safer financial system, our trade representatives thwart efforts to reduce risks these operations pose to taxpayers.

Obama's trade team apparently had no comment for the article, which you can read here.

And over on the IDEAS web-page, veteran economist and policy analyst Andrew Cornford also discusses the conflict between the WTO services agreement and re-regulation, writing...

The introduction of the post‐crisis regulatory architecture for the financial sector reflects far‐reaching shifts in thinking concerning the appropriate scope and practice of financial regulation in comparison with that prevalent at the time of the drafting of the GATS rules on international trade in banking. These shifts have provided a further fillip to the debate among GATS commentators as to how far the rules accommodate prudential measures and reforms likely to constitute key elements of this new architecture.

He reviews the major interventions in the debate since the financial crisis.

Both Morgenson and Cornford's pieces are useful additions to the ongoing debate about ensuring that our trade rules don't get in the way of reining in Wall Street.

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Global Trade Watch's Director Lori Wallach in The American Prospect


 Washington, DC -- Today, President Obama will announce plans to escalate the administration's trade offensive against China. This follows the administration's pattern of taking a hard line on narrow issues, while at the same time working to finalize a much more consequential grand-bargain with the region: the Trans-Pacific Partnership (TPP). As Obama’s main trade and diplomatic thrust in the Pacific, the TPP is meant to revive the U.S. export economy and counter Chinese influence. In reality, it does neither. 

Pacific Illusions, a new special report by The American Prospect, examines why the TPP appears doomed to repeat the failures of previous free-trade agreements. 

Read Pacific Illusions online: http://bit.ly/AxMS2R

Pacific Illusions shows how the TPP fails on trade because it doesn’t address the most important issues: currency manipulation, trade with state-owned companies, investment subsidies to induce off-shoring, and the asymmetry between the mercantilist policies and practices of much of Asia and the free trade regime of the United States. 

Contributors and issues covered include:

-- Clyde Prestowitz, President of the Economic Strategy Institute, explains why the TPP will undercut the U.S. strategic position in "The Pacific Pivot."


-- Jeff Faux, founder of the Economic Policy Institute and now its distinguished fellow, analyzes how the deal will accelerate offshoring and drive down wages, in "The Myth of the Level Playing Field."

-- Lori Wallach, director of Public Citizen’s Global Trade Watch, argues that the provisions of the proposed deal and its secretive negotiations amount to a covert attack on regulation, in "A Stealth Attack on Democratic Governance."

-- Kevin P. Gallagher, associate professor of international relations at Boston University and senior researcher at the Global Development and Environment Institute, Tufts University describes how the damage won't be limited to the U.S., as the economies of smaller Asian countries will also take a hit, in "Not A Great Deal For Asia."

-- Merrill Goozner, senior correspondent for The Fiscal Times, takes a look at how U.S.-based solar and microchip industries will be harmed the agreement; Harold Meyerson, editor-at-large at The American Prospect, addresses the negative impact on auto and steel manufacturing. 


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Obama Ignores Korean Request for Changes to Trade Deal; Implementation Rushed to Beat Korean April Election

Korean Party Expected to Win Warns Obama It Will Revoke Pact Absent Changes

 WASHINGTON, D.C. – The Obama administration should accept Korean demands to remove controversial private corporate protections from the Korea Free Trade Agreement (FTA), rather than rush to implement the deal ahead of the April 11 Korean parliamentary elections (which recent polls indicate will elevate a political party that has vowed to terminate the pact unless the “investor-state” enforcement system is altered), Public Citizen said today. The mid-month implementation date being pushed for the Korea FTA is extremely rare for the United States. Generally, trade pacts are implemented on the first day of a month, since tariff cut phase-ins are determined from the date a pact goes into effect.

On Dec. 27, 2011, the Korean parliament passed a resolution calling for FTA renegotiations to remove the private investor enforcement system. On Feb. 8, nearly 100 parliamentarians – mainly from the opposition Democratic United Party (DUP), which is expected to gain control of the parliament in April – wrote President Barack Obama, vowing to terminate the FTA if it is implemented without changes. Shortly thereafter, the United States Trade Representative announced that the pact would be implemented on March 15.

Tens of thousands of anti-FTA protestors are again in the streets of Korea, while Korean polling shows 70 percent opposition to the pact. The FTA is one of the defining issues of the Korean election. The ruling party reorganized under a new name after polling predicted defeat by the DUP, which has made opposition to the current FTA one of its marquee issues.

“Just how damaging this deal is to the 99 percent in both countries has been repeatedly revealed from this latest disgrace of trying to outrun the democratic accountability of Korea’s election to the White House, notably canceling a public bill-signing ceremony after the FTA was passed here,” said Lori Wallach, director of Public Citizen’s Global Trade Watch. “By rushing the implementation, the Obama administration is trying to cement in the extreme NAFTA-style corporate investor privileges that candidate Obama pledged would not be included in his trade agreements and that a large majority of Korea’s parliament also opposes.”

 NAFTA-style foreign investor privileges and their private “investor-state” enforcement are among the most controversial aspects of past U.S. trade deals. In fact, this provision is now emerging as a point of major contention in the Trans-Pacific Partnership (TPP) negotiations, where Australia has indicated it will not accept “investor-state” enforcement. The terms of “investor-state” promote job offshoring by requiring host countries to guarantee privileged treatment for foreign investors, forbidding limits on investors’ capital transfers, and providing corporations with a private enforcement of these rights. The system allows corporations to sue governments directly for cash damages in tribunals of three private-sector lawyers who alternate between serving as “judges” and bringing cases against governments for corporations, and who operate under arbitration rules of the World Bank and United Nations.

 The “investor-state” regime eliminates many costs and risks normally associated with relocating production to low-wage developing countries. It also exposes a wide range of common government policies and actions to challenge outside domestic courts. Currently, Chevron is using an “investor-state” tribunal to try to avoid paying $18 billion in environmental cleanup and punitive damages ordered after 18 years of U.S. and Ecuadorian court rulings. Philip Morris is using the system to attack Australian and Uruguayan cigarette plain packaging laws. More than $675 million has been paid by governments to corporations under U.S. pacts’ “investor-state” provisions alone, 70 percent of which has been in attacks on environmental, health and other non-trade policies.

 A greater percentage of Democrats in the U.S. House of Representatives opposed Obama on the Korea FTA’s passage (and two other trade deals passed the same day) than on any other legislation during his presidency. A higher percentage of House Democrats voted against Obama on this deal than did House Democrats against former President Bill Clinton’s North American Free Trade Agreement (NAFTA) or China’s entry into the World Trade Organization.

 The official U.S. International Trade Commission study showed that the Korea FTA is projected to increase the overall U.S. trade deficit, with seven U.S. manufacturing sectors particularly hard hit. The Economic Policy Institute used government trade balance data to project that the pact would cost 159,000 American jobs in its first seven years.

 The pact, signed before the global financial crisis, also includes limits on financial regulation. The Obama administration did not remedy this problem in 2010 when it tweaked auto trade provisions of the pact that had been signed in 2007 by then-President George W. Bush. Citigroup called the Korea FTA “the best financial services chapter negotiated in a free trade agreement to date.”

“The Korea FTA has become the major campaign issue in Korea. And given the growing focus on American manufacturing in the U.S. election, I suspect many American politicians will rue the day that they supported a deal that even the official government studies show will increase our trade deficit and slam seven U.S. manufacturing sectors,” said Wallach.



Public Citizen is a national, nonprofit consumer advocacy organization based in Washington, D.C. For more information, please visit www.citizen.org

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USTR May Trade Away Internet Freedom, But We Won't Know Until It's Too Late

At Wednesday's Senate Finance Committee hearing on the Obama administration's 2012 trade agenda, Senator Ron Wyden grilled U.S. Trade Representative Ron Kirk about the intense secrecy surrounting the Trans-Pacific Partnership (TPP) negotiations. Since the TPP is set to include provisions similar to the Stop Online Piracy Act (SOPA) and the Anti-Counterfeiting Trade Agreement (ACTA) decried by internet freedom advocates, Americans deserve information about such a controversial policy. Sen. Wyden notes that the TPP negotiations are not a matter of national security, but are a matter of policy of broad public concern:

I’m not asking for everything to be published, and certainly, I respect your judgment with respect to, you know, issues that affect national security and classified matters.  But, issues that pertain to freedom and innovation on the net are policy questions, and the American people want the chance to participate.

The hearing heats up at minute 7:02:

Ron Kirk replies with the tired line that trade agreements could not be negotiated without this kind of secrecy, but provides no arguments or evidence to support this assertion. This claim is false on its face. The public is now provided access to negotiating documents of the WTO, arguable the most important venue for trade negotiations. There is no reason why the public should not have access to the same information for the TPP negotiations.

Not only is the text secret during the negotiations, but all TPP countries signed a secret agreement to calssify the negotiating texts for at least four years after the TPP goes into effect. After taking heat for this secret agreement that keeps everything secret, New Zealand was forced to release the text of the secrecy pact. Though neither the public nor members of Congress are permitted to view the negotiating texts, over 600 representatives from corporations have access to the texts, allowing them to steer the negotiations in their favor.

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Choking on sugarcoating

Last night, the Office of the U.S. Trade Representative (USTR) released its hefty, annual Trade Policy Agenda and Annual Report. This statutorily mandated annual tome offers a good opportunity for Congress and the public to understand what USTR thinks it's doing, or what the agency wants us to think it's doing.

Unfortunately, the Trade Policy Agenda is (once again) an exercise in sugar-coating so extreme that it's surprising it got past Michelle Obama's nutrition advisers.

We've detailed how, after some initial honesty in the 2009 Trade Policy Agenda, USTR by President Obama's second year was back to the same old Bush administration rhetoric on trade policy. The 2012 agenda is in that latter vein as well. Here are just some of the flaws in the latest report:

Trade without a net (calculation). As we've detailed on this blog many times over (see here and here), one of the administration's biggest sins in its recent push for the Korea and Colombia trade deals was its claim that these deals would boost bilateral exports by $12 billion, without noting that the government's own numbers project that the deals will increase job-displacing imports more than job-creating exports. In other words, these deals are projected to be a net negative for job creating exports. We were kinda hoping that the administration might stop misrepresenting its own research once they got Congress to pass these deals. But this seems to be a case of repeating the same incorrect line so many times that you start to believe it's true.

American-made smoke and mirrors. The very first page of the Trade Agenda mentions the "Made in America" theme twice. But USTR is actually pushing the exact opposite of Made in America. Not only have our trade deals meant that imports of products Made-Overseas swamp exports of products Made-in-America, but these pacts also require that the U.S. roll back Buy American requirements for our trading partners. In fact, today, the morning after the Trade Agenda touting Made in America was published, USTR issued a determination stating that Korean-made products will be treated as if they were American for U.S. government procurement purposes.

Korea deal hurts U.S. auto sector. Everyone loves to love on the auto sector these days, and the Trade Agenda paints the Korea deal as a boon to Detroit. But once again, the government's actual numbers show that Korean auto imports will outstrip U.S. auto exports under the deal. Moreover, the harebrained (and high profile in Korea) exemption of U.S. autos from having to meet Korean auto safety and environmental standards will read like a "Do Not Buy American cars for your teen" label to every concerned Korean mother and father.

No mention of significant WTO attacks. The Trade Agenda also celebrates U.S. participation in the World Trade Organization (WTO) in 2011, but fails to mention the most important news: the U.S. lost not one, not two, but three high-profile WTO attacks on U.S. consumer protection policies. As the majority of WTO members cheered from the sidelines, three panels of nine unelected foreign "judges" ruled that U.S. efforts to reduce teen smoking and inform consumers about the origin of meats and the impact of tuna fishing on dolphins violate WTO rules. These three rulings were the first ever under controversial terms of the WTO's Agreement on Technical Barriers to Trade, and could open the U.S. up to trade sanctions. (Now, if you bother to look through the full 393 pages of the extended Annual Report, these disputes are mentioned, albeit with insufficient detail or balance to develop an informed view.)

Working hard to export less. Significant USTR resources are being expended on the Trans-Pacific Partnership (TPP). The Trade Agenda touts U.S. exports to the eight TPP nations (supposedly to point out how awesome the deal will be for U.S. exports), but fails to mention that USTR already put FTAs in place with the four most significant nations on the list (Peru, Chile, Singapore and Australia). Oops.

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