Senators Defend Dolphin Protections Threatened by WTO Ruling

On Tuesday, Sen. Barbara Boxer (D-CA) led a bipartisan group of 14 Senators in sending a letter to Rebecca Blank (Acting Secretary of the U.S. Department of Commerce) and Ron Kirk (U.S. Trade Representative) expressing concern over last year's WTO tuna-dolphin ruling. The statement noted that while "cruel and lethal" tuna-fishing methods have killed over 6.5 million dolphins in the past six decades, the U.S. "Dolphin-Safe" tuna label has contributed to an amazing 98% decrease in such dolphin deaths since 1990.  As such, the Senators made clear that, despite the WTO's determination that "Dolphin-Safe" constitutes a trade violation, Congress intends to stand by current dolphin protection laws:

“We are deeply disappointed by the WTO’s final ruling, but we stand firmly committed to preserving the Dolphin-Safe label. Let us be clear--Congress has no intention of repealing or weakening the current law applying to this label.”

The Senators also sent a letter to Arturo Sarukhan Casamitjana, the Ambassador of Mexico to the U.S., requesting that Mexico comply with the U.S.’s request to hear the case under NAFTA. The letter expresses the Senators’ disappointment that “Mexico has continued to stall consideration of this issue under the North American Free Trade Agreement (NAFTA),” and urges Mexico to proceed with selection of NAFTA dispute resolution panelists so that the case can be resolved in a more timely manner.

These letters follow an impressive House letter, sent in May, urging the Obama administration to push back on the tuna-dolphin ruling.

For a more detailed analysis of the tuna-dolphin case, click here.  For the press release from Senator Boxer's office, click here.  

Transitions at Eyes on Trade

Today is my 632nd and final blog post on Eyes and Trade. It has been a pleasure interacting with you over the last 5.5 years.

Tomorrow is my final day at Public Citizen. I’ve been named a Gates Scholar and I’ll be off to the University of Cambridge to continue my research agenda. You can keep tabs on me at my personal blog: ToddNTucker.com.

Eyes on Trade will continue, under the able editorial oversight of Ben Beachy - Public Citizen’s new research director on trade issues. You’ve already seen him blogging here, and you’re in great hands!

When I came to Public Citizen in October 2004, I had an interest in foreign policy and institutional economics (how politics shape economic outcomes and vice versa). I was eager to work with a terrific group of activists, and to learn about Congress and trade issues.

So, what have I learned?

WTO takes on credit card regulations

The WTO issued its first ever ruling on a dispute over financial services earlier this morning. The case was brought in 2010 by the Obama administration against China's credit card policies.

This sprawling case - which alleged that a myriad of diverse Chinese policies operated collectively to violate WTO rules - failed on most counts.

But even the partial U.S. success raises more questions than in answers. U.S. credit card companies were reportedly less than enthusiastic about the case, and even the most optimistic U.S. job impact of China's credit card policies represent only a drop in the bucket relative to the considerable job displacement caused by Chinese industrial policies in U.S. manufacturing.

The greater significance of the ruling is in the precedent that it sets of a WTO member being willing to tackle another member's financial policies. Those of us who have raised the alarm about the conflict of the WTO's services agreement with financial regulation have often been told not to worry... that diplomatic restraint would keep a case from ever being launched. Even if launched, the WTO's institutional interests would keep it, the argument went, from ruling against a nation's policies.

Today's ruling totally undermines both aspects of this argument.

So what did the ruling - authored by Virachai Plasai (Thailand), Elaine Feldman (Canada) and Martin Redrado (Argentina) - say?

What Jobs? After NAFTA-Style Deal, an Unparalleled Surge in Korea Trade Deficit

Last year, President Obama and Congressional Republicans sold the U.S. public the promise that a NAFTA-style deal with Korea, passed last October, would bring jobs by boosting U.S. exports.  At the time, this claim contradicted even the government’s own projection that the trade deal would worsen the U.S.’s trade balance with South Korea.  Now, it appears to contradict the evidence. 

Since the March 15 implementation of the Korea trade deal, the U.S. trade deficit with South Korea has reached dramatic levels for the second consecutive month for which we have data.  While the U.S.’s goods deficit with South Korea in March was a mere $0.6 billion, in April the deficit trebled to $1.8 billion.  By contrast, the U.S. goods deficits with major trading partners like Japan, Mexico, and Germany all declined that month. 

In May, the goods deficit with South Korea hit the $2 billion mark, the ninth largest monthly deficit among the U.S.’s 230 trading partners.  (In May of last year, the deficit stood at only $1.3 billion and South Korea ranked 15th in deficit magnitude.)  Indeed, from March to May, while the overall U.S. trade deficit fell, the deficit with South Korea increased more (in dollar terms) than with any other country in the world, except for one: China. 

This worrisome data cripples the Obama Administration’s promise that more NAFTA-style deals will bring export-led job growth.  The post-FTA surge in the trade deficit with Korea was prompted in part by a $759 million downfall in U.S. exports to Korea from March to May.  Using a ratio employed by the International Trade Administration, the drop in exports over these two post-FTA months alone amounts to over 5,000 lost U.S. jobs. 

Last month, President Obama’s campaign ads named Presidential hopeful Mitt Romney as a would-be “Outsourcer-in-Chief,” accusing the Republican candidate of offshoring U.S. jobs during his time at Bain Capital.  Given the track record of the Korea trade deal thus far, perhaps the President should take some of his own medicine.  He could start by telling his Administration to stop pushing forward the Trans-Pacific Partnership, a NAFTA-on-steroids deal with even larger job-killing prospects than what we’ve seen from the deficit-fostering Korea deal.  

Growing Attention to Obama Trans-Pacific Trade Pact Threatens to Undermine Offshoring Attack on Romney as TPP Talks Wrap Up Today

SAN DIEGO – Growing congressional, state legislator and activist protests of closed-door negotiations on the Obama administration’s first trade pact, the Trans-Pacific Partnership (TPP), threatened to undermine the Obama campaign’s attack on Mitt Romney’s Bain Capital U.S. job offshoring activities. The latest round of TPP talks wrapped up today in San Diego following a week of protests outside the venue, growing concern about TPP in Congress, a letter warning of opposition from state legislators representing all 50 states and delivery of two different petitions with nearly 100,000 signatories each.

A text of the TPP’s investment chapter that leaked last month shows that it includes an expanded version of the rules in the North American Free Trade Agreement (NAFTA) that incentivize investment and job offshoring by eliminating the risks of relocating to lower-wage countries and guaranteeing preferential treatment for relocated firms.

 “U.S. negotiators have tried to keep TPP negotiations totally below the radar, but even so opposition to the current “NAFTA-on-steroids-with-Asia” approach is escalating, which is good news for the public but a serious complication for the Obama campaign’s attack on Romney as a U.S. job offshorer,” said Lori Wallach, director of Public Citizen’s Global Trade Watch.

During last week’s secretive TPP talks in San Diego, state legislative leaders from all 50 states sent a letter to President Barack Obama’s senior trade official, warning that they will oppose the deal unless the administration alters its current approach. “The lack of transparency of the treaty negotiation process, and the failure of negotiators to meaningfully consult with states on the far-reaching impact of trade agreements on state and local laws, even when binding on our states, is of grave concern to us,” the legislators wrote in their July 5 letter.

 During the TPP negotiations, Internet freedom activists delivered 90,000 signatures calling on U.S. negotiators to stop their insistence on pushing restrictive intellectual property programs similar to the controversial Stop Online Piracy Act (SOPA). The AFL-CIO also delivered nearly 90,000 signatures on another petition criticizing the TPP and calling for fair trade. The text of the petition stated, “Past FTAs have accelerated the shift of jobs overseas, made it harder for our own government to spend our tax dollars on Made in America products and put corporate profits before the interests of working families here and in other countries. It’s past time for our leaders to support trade rules that reward companies that invest in America so we can rebuild our nation.”

 On June 27, an overwhelming majority of House Democrats (133 members), led by U.S. Reps. Rosa DeLauro (D-Conn.) and George Miller (D-Calif.), sent a letter to the administration criticizing the secretive TPP negotiating process, demanding public release of the TPP text and raising alarm about TPP proposals that replicate past pacts and could increase drug prices, undermine Buy American policy and expose U.S. laws to attack in foreign tribunals. The letter, sponsored by two members of the House Democratic leadership, was signed by almost every Democratic full committee ranking member and Appropriations Committee ranking member, as well as many Ways and Means Committee members and a dozen lawmakers who supported last fall’s free trade agreements with South Korea, Colombia and Panama.

“President Obama is facing a growing chorus of opposition to what his trade negotiators are up to on the TPP from his base and from other Democratic elected officials, and given that his campaign seems to be honing in on job offshoring as a winning theme, he needs to redirect his negotiators from their current TPP agenda of NAFTA-on-steroids with all of Asia,” said Wallach.  

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Railroading Sovereignty

Last Friday was a sad day for Guatemalans, a day that unveiled the merits ruling on the first investor-state case brought under CAFTA. The case, Guatemala vs. Railroad Development Corporation (RDC), produced an $11.3 million judgment in favor of Pittsburgh-based RDC and against Guatemala, which has the second-lowest human development index in the Western Hemisphere.  The decision of the ICSID-hosted tribunal not only sacked the Guatemalan government with a fine equivalent to its health care provision for over 160,000 Guatemalans, but created a precedent that threatens to breach sovereignty and curtail policy space throughout Central America.

The dispute between the RDC and the Guatemalan government arose over RDC’s operation of Guatemala’s railway system. In 1997, RDC won a government contract to operate the country’s newly-privatized rails for 50 years (para. 30). For the following decade, RDC reopened several defunct rail lines, but did not restore the rail network to the extent the government had envisioned. In particular, it started but did not finish a planned corridor to link Guatemala with Mexico. (It seems that RDC’s sluggish investment stemmed from sub-par financial performance—in its first eight years, the company was not able to turn a profit on its Guatemala operations, a fact that the tribunal acknowledged—see para. 269.)

After months of negotiations with RDC failed to produce results, in August 2006, Guatemala’s executive branch declared RDC’s contract to be lesivo—or injurious to the interests of the State. The lesivo is a legal carve-out for the executive branch that has existed on the books for decades in several Latin American countries. In Guatemala, an executive declaration of lesivo initiates a legal process in which an administrative court weighs the executive branch’s accusations against the defense of the investor, which has the right to appeal the resulting decision to the Supreme Court (para. 91). Yet, RDC argued before the ICSID tribunal that the lesivo declaration itself gravely tarnished the company’s image, causing it to lose business contracts, lines of credit, potential investors, and even police protection (para. 124). While defending itself in Guatemala’s lesivo-prompted administrative court process, RDC opted to also sue the government under CAFTA to the tune of $64 million for having used the lesivo.

In the suit, RDC accused Guatemala of three trade “crimes” forbidden by CAFTA: indirect expropriation of RDC’s investment, national treatment (such as for favoritism for domestic over foreign investors), and failure to afford the company a “minimum standard of treatment.” The ICSID tribunal nixed the first two accusations as baseless, but upheld the third as sufficient cause for slapping Guatemalan taxpayers with an $11.3 million blow.

Before delving into RDC’s accusations, it’s worth underscoring the radical nature of the entire investor-state dispute mechanism enshrined in CAFTA and employed in this case. Here, CAFTA’s investment chapter has granted authority to a trade tribunal—three unelected men from foreign countries—to determine the legitimacy of a sovereign government’s contracts. Governments sign contracts for all manner of public purposes, including the provision of essential infrastructure, such as railways. Should foreign tribunals be permitted to rule on the validity of such public contracting, or to fine the government millions of dollars when they opine against its practices? The answer of course has been an adamant “no” from activists, scholars, and governmental representatives seeking to defend democracy and the public interest.

However, it now appears that US trade negotiators intend to mimic such sovereignty-breaching investor protectionism via the Trans-Pacific Partnership (TPP). The leaking of the TPP’s investment chapter last month sparked outrage when it revealed that the TPP would permit foreign corporations to directly sue the US and other participating governments over contract claims, once again to be decided by a foreign tribunal. (The U.S. appears to be pushing especially hard in this respect, such as by insisting that “investment agreements” with governments be subject to investor-state dispute settlement.) Just as CAFTA’s investment chapter subjected Guatemala’s railroad contracting practices to a multi-million dollar fine, the TPP’s expansion of this extreme investor-state system threatens the environmental, human rights, and Buy America conditions that the US places on its contracts.

America, meet your meat master

Happy Fourth of July! As our fearless leader Rob Weissman articulates in this note here, your holiday meat could be much more mysterious come next Fourth of July:

If you’re looking forward to grilling up some hamburgers and hot dogs, think about this: Where does the food you’re eating come from?

That simple question is going to be a lot harder to answer after a ruling from the World Trade Organization (WTO), which decreed last week that such basic consumer information as country-of-origin labels on meat are “unfair trade barriers” to multinational corporate profits.

If you don’t eat meat, know that the WTO ruling could be extended to country-of-origin labels for produce. So maybe next summer it’s the potato salad and corn on the cob, too.

Like me, you might find this hard to swallow. If you’ll excuse a mixed metaphor, mystery meat (and lettuce) is not my cup of tea.

But it’s standard operating practice for the WTO, which in recent months has proclaimed that U.S. “dolphin-safe” tuna labels and a U.S. ban on clove-, candy- and cola-flavored cigarettes both violate WTO trade rules.

Last November, I shared some of my thoughts about the WTO's lower panel ruling against the country-of-origin labels (COOL) for beef and pork that were created by the 2008 U.S. Farm Bill. Canada and Mexico had challenged the U.S. law, claiming that it violated their rights under the WTO's Agreement on Technical Barriers to Trade (TBT). (See here also.)

Last Friday, that ruling was upheld by the WTO's Appellate Body - specifically, by an AB division composed of Ujal Singh Bhatia of India, Ricardo Ramirez Hernandez of Mexico and Peter Van den Bossche of Belgium. In fact, it's the third consecutive WTO attack on a popular U.S. consumer protection or information policy to go down this year. (See the attacks on dolphin-safe labels and cancer prevention through cigarette controls.)

Like in those other cases, the Appellate Body doubled down on key aspects of the lower panels' rulings. And like those other cases, the implications go far beyond the specific measure at issue. Indeed, many other country of origin labels and consumer information policies are now at greater risk of challenge in the future.

We'll go through some of the specifics after the jump.