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Rethinking Trade - Season 1 Episode 11: New NAFTA’s Start Marred by Labor Activist’s Arrest

After a multi-year campaign by unions, civil society groups and congressional Democrats won critical improvements to the bad NAFTA 2.0 deal Trump signed in 2018, the new North American Free Trade Agreement goes into effect on July 1.

But it’s a bad start: a leading Mexican labor lawyer, Susana Prieto Terrazas, has spent weeks in jail on trumped up charges for helping workers use USMCA’s labor rights, and Mexico’s new USMCA-compliant labor law is bogged down by hundreds of lawsuits aimed at derailing it.

In this episode we discuss the decades-long movement against the original NAFTA, that pact’s outcomes, the recent Replace NAFTA campaign and the cross-border effort to free Susana Prieto Terrazas.

Transcribed by Kaley Joss

Ryan: You’re listening to Rethinking Trade with Lori Wallach. I’m Ryan, and I’m joined once again by our in-house trade expert, Lori Wallach.

So, Lori, Wednesday is a big day, because it's the day when the new NAFTA is going to be implemented. This is something that you’ve worked extremely hard on, not just in the last few years, but in the last few decades. Maybe you can tell us first about NAFTA, and what the new NAFTA is. 

Lori: So NAFTA, the North American Free Trade Agreement, was this radical, corporate experiment in using the brand “Free Trade Agreement,” to implement a set of new corporate rights and powers and to constrain government regulatory authority on a wide scale, on issues that never would have gotten through Congress as normal legislation. So at the heart of NAFTA are foreign investor rights that made it easier, cheaper, less risky to outsource U.S. production jobs to much lower-wage Mexico. These investor rights basically took away a lot of the potential threats that would otherwise be associated with outsourcing jobs and investment. And in short order, we saw a mass movement of higher wage union jobs from across the United States, not just the Midwest but California, New York, Texas, that in NAFTA’s 25 years resulted in over a million government-certified NAFTA job losses, which some of the pro-NAFTA think tanks say is an undercount of one out of ten of the real damage. 

Also, at the heart of NAFTA were corporate tribunals called investor state dispute-settlement tribunals, where corporations were empowered to go before tribunals of three corporate attorneys to demand taxpayer compensation for any domestic law, or government action, court decision that the corporations claimed undermined their NAFTA investor rights. Over the decades of NAFTA, $400 million dollars were paid out in taxpayer money, to corporations attacking tax expansions, water policies, timber policies and energy policies. There is no outside appeal in these cases, and there is no limit to what the corporations can get paid. 

And finally, NAFTA had, at its heart, some very strong limits on its government policies that are pro-people, pro-planet. So, for instance, it did not have any disciplines on subsidies for agribusiness, but it had rules banning certain food policies that were designed to protect small farmers. So, in the course of NAFTA, even in its first 10 years, according to the Mexican government, more than two million campesinos, small independent farmers, were pushed off their land. And NAFTA even made the Mexican government change the Mexican revolutionary-era constitution, to allow U.S. agribusiness to buy up farmland. 

Very quickly, migration of desperation from Mexico to the U.S. expanded enormously, as workers first went to the borders, where they were seeing dollar-an-hour jobs in these U.S. plants that had moved to Mexico. But so many more people lost their jobs, that even those low wage jobs couldn’t contain people's needs. There was a wave of really NAFTA-forced migration to the U.S.. NAFTA’s been a loser for people on the planet for all three countries, but there've been some big multinational corporations that loved it. And, because the NAFTA experience has been so devastating, and there are whole parts of the country—El Paso, Texas, Parts of Los Angeles—where there are a lot of Latino workers, the African-American new union-based middle classes of Milwaukee, Wisconsin, Detroit, Michigan—people were just devastated. And, there’s been a lot of pushback from Congress to fix NAFTA.

So when NAFTA renegotiations were announced, there was some hope that actually, things might get fixed. But, the first new renegotiated NAFTA that Donald Trump announced, actually kind of made things worse. It didn’t fix the bad stuff that promoted outsourcing, and it added a variety of new giveaways for Big Pharma that would have locked-in high U.S. medicine prices, and exported our medicine/Pharma monopoly ripoff pricing policies to Mexico and Canada. So it wasn’t a big shocker that the Democrats in the House of Representatives said, “Uh, no thank you.” And they ultimately, after a year of a standoff where Trump tried to ram that bad NAFTA 2.0 deal through Congress and Congress said “No,” finally that deal got renegotiated a second time, Trump got forced to take the Big Pharma giveaways out, to improve the environmental and labor standards, and to implement a totally different enforcement system for labor that might have some chance of raising wages in Mexico, which obviously is critical for people there, and also is critical to stop the race-to-the-bottom outsourcing. 

And that deal passed with very wide majorities of Democrats and Republicans in both the House and the Senate. And on July 1, it’s supposed to go into effect. But some of the things that were supposed to happen before it went into effect, especially Mexican labor rights, just aren’t looking so good. 

Ryan:

So speaking of those labor rights, and the coalition that fought against Trump’s original NAFTA 2.0, maybe you can talk about the coalition that formed around the original NAFTA’s implementation, and how that same coalition of different types of organizations are working together now to address future trade policies and advocate for changes for people and the planet.

Lori:
The original NAFTA fight really birthed the fair-trade movement in the United States. At that point, the labor unions and the environmental groups were fighting over the Clean Air Act. The consumer groups and the family farm groups were fighting over a dairy bill, and no one was really working together on trade. But NAFTA was such an obvious threat to everyone’s interests, because it had become this cauldron, where every corporate interest from Wall Street, to the food processors, to oil and gas companies, to the chronic outsourcing of manufacturing companies like GE. They all had thrown all their favorite ingredients into this toxic soup, and so, really, a lot of groups that were fighting with each other sat down and realized, well, hell we have a lot more in common trying to fight this corporate nightmare NAFTA than we have in fighting each other. So let's put those to the side. We’ll keep having them over those specific issues, but lets get united together across the country with all of our different organizations—labor, environmental, faith, family farms, women's groups, consumer groups—and let's figure out if united we can actually try and beat the corporations.

And in 1993, on November 17 in the House of Representatives, NAFTA was almost defeated. In fact, two weeks earlier there was a large majority against NAFTA. Then President Clinton bought the votes one by one, trading a project there, a highway there. NAFTA narrowly passed and went into effect February 1, 1994, and the disaster was ongoing.

The groups that started that fight back in the early ‘90s stayed together. And as the evidence of the disaster that was these corporate-rigged trade agreements became more evident, they started to have successes: stopping the expansion of the WTO, stopping a hemisphere-wide NAFTA expansion called Free Trade Area of the Americas, stopping a 30-country investor-state dispute settlement agreement called the Multilateral Agreement on Investment, ultimately making it possible for the Trans-Pacific Partnership to get through the U.S. Congress for the year after it was signed. And then that was the coalition of groups that basically made it impossible for Donald Trump to railroad through the House of Representatives his NAFTA 2.0 deal that was worse than the original. And that’s ultimately the group that forced the renegotiation of the renegotiated NAFTA. 

So that now we have an agreement that, though certainly not the model going forward, is better than the original NAFTA. It might have some chance of improving the labor situation in Mexico, which would be a big deal. It doesn’t have the investor-state dispute settlement at all between the U.S. and Canada, and it is much scaled back between the U.S. and Mexico. Got rid of some outrageous mandatory natural resource export rules, but left in place the bad agriculture rules, the problems with food safety and added some really retrograde rules that have to do with limiting the government's ability to regulate in what they call “digital trade,” which is what we’d all think of as our online privacy and the liability of the big online platforms. So, it’s a mixed bag. It’s better than the original for sure. It was worth passing this so that we don’t have the old thing. 

But again, it's like the difference from being in the twelfth rung below Hell, and we’re now, you know, a ring above the surface, but our butts still are getting grilled. This is not the agreement that we want! We want something that is aspirational, that is actually, objectively good for people and the planet. So, yes, big improvement, something to be proud of, but again, there’s a lot more work to be done to build on the gains that were made between the NAFTA renegotiation and the kind of agreement we’d really be for. 

Ryan:
So one of the more significant of those changes was in the labor rights and the labor standards. We just received news recently, from Mexico, that independent labor activist Susana Prieto Terrazas has been arrested on bogus charges, and it does not look good, considering Mexico’s commitment to sweeping labor reforms. Maybe to close us out, you could just talk a bit about the challenges facing improved labor standards in the new NAFTA, and how society can play a role in making sure those changes are made real. 

Lori:
So, there’s no doubt that the new NAFTA on paper is an improvement over the old one. But it remains to be seen if real people’s lives get improved: if in Mexico people for the first time are allowed to actually organize independent unions that can fight to raise their wages, if their working conditions will improve, whether that will incentivize U.S. companies to not see Mexico as a labor-union-free, low-wage, torment-the-worker zone, and if as a result there’d be less outsourcing from the United States of manufacturing jobs. We do know, under the new NAFTA, corporations will lose the investor-state attack rights. We do know policies like mandatory natural resource exports are out. But the real change, the real thing, is still to be seen: will the new NAFTA translate to improvements on the ground of labor rights for Mexican workers where they can fight to improve their conditions?

And this situation with Susana Prieto is really bad news. She is a very well known, very brave organizer and labor lawyer. She was involved in fighting for rights of workers along the U.S.-Texas border last year. You probably saw in the news a lot of what were called ‘wildcat strikes’ of workers at maquiladora plants, which are where workers at the border manufacturing plants in Matamoros and Juarez, Mexico fought to get pay increases. Totally inspiring. They did strikes, they got renegotiated contracts, they got pay increases. She was one of the folks who helped workers there achieve that goal. And she’s been incredibly forceful fighting for workers now that they’re being pushed to go back into their plants when it's not safe. COVID is increasing and maquila workers are dying from exposure to the coronavirus in these plants. She’s been pushing to get health and safety improvements and to not reopen the plants until workers have personal protective equipment,and there's plexiglass between their stations, et cetera. She was swooped up on false charges of mutiny, among other things, and not only jailed but now denied bail twice. She is locked up 200 kilometers away from where she lives in the capital of one of the border states, in what is a really dangerous situation. Like in the U.S., the Mexican jails have very high incidences of COVID-19. She’s been denied bail, locked up, they don’t want her organizing and they don’t want her helping the workers. And the thing she was fundamentally trying to do was one of the guarantees in the new NAFTA. That is, to have workers vote for their own union leadership, to file a petition to get rid of an old, fake ‘protection’ company union and replace it with a real union that represents the workers. That’s one of the essential guarantees of the new NAFTA, and that is basically what she was arrested for trying to file.

So it is super ominous, she has been in jail for three weeks, the federal government- the president of Mexico- has not intervened. It’s obvious that some right-wing governors in some states in Mexico are heavy-handed in trying to defeat the labor reform. But, now it’s the issue of AMLO, the president of Mexico, as well, because he hasn’t done anything to, hell, get her out on bail, much less to ensure that the labor law reforms that he enacted in Mexican law, great improvement, and on paper in NAFTA, much better, actually result in improvements people's lives. It really is casting a very dark shadow over the July 1st enactment date of the New NAFTA that Susana Prieto is in jail. And frankly, a bunch of those corrupt unions that she’s been fighting against have tried to legally challenge the new labor law, which would be implemented with NAFTA. So we are all going to have to really be on our toes.

If you tune into our rethinktrade.org website, you can get updates about what’s going on. We’re going to be tracking Susana’s situation, and also the status of the labor law reforms. If you want to read a legal memo about those issues, it’s posted at tradewatch.org. Working with our counterparts in Mexico, we intend to fight tooth-and-nail to actually make real the changes we want on paper in the NAFTA renegotiation fight. 

Ryan:

That’s all for today, thank you all for listening. Rethinking Trade is produced by Public Citizen's Global Trade Watch. I would encourage you to visit rethinktrade.org, as well as tradewatch.org to educate yourself and find out how you can get involved in the work we’re doing to fight for fairer and more equitable trade policies.

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Jailed Mexican Labor Activist’s Immediate Release Demanded by Major U.S. Unions, Faith and Civil Society Groups in Letter Delivered Today to Human Right Commission

June 8 Arrest and Detainment of Mexican Labor Lawyer Susana Prieto Threatens to Overshadow Planned July 1 Start Date for New NAFTA

A group of powerful U.S. organizations demanded the immediate release of imprisoned Mexican labor lawyer Susana Prieto Terrazas, who was arrested on June 8 on trumped-up charges for “mutiny, threats and coercion.” Prieto’s daughter delivered a letter from the groups to the Mexican National Human Rights Commission today.

Prieto, an advocate for labor rights of workers in maquiladora factories near the Mexico-U.S. border, has defended workers who are protesting for improved safety measures against COVID-19 in reopened plants. Dozens of maquiladora workers have died after being exposed to the coronavirus. She recently sought to register a new independent union to replace a company-connected “protection” union. This is a core protection guaranteed by the revised North American Free Trade Agreement (NAFTA) and Mexico’s 2019 revised national labor law.

The arrest of Prieto and punitive bail denials that threaten her life given the high incidence of COVID-19 in collective settings such as jails, spotlights the ongoing labor rights crisis in Mexico. Growing focus on Prieto’s detention is overshadowing the July 1 start date of the revised NAFTA.

Members of Congress raised concerns about Prieto’s imprisonment to USTR Robert Lighthizer during a congressional hearing on June 17. Lighthizer said he was closely monitoring the case, “take[s] this very seriously,” found it to be a “bad indicator” of compliance with the new labor standards, hoped “[Mexico] can work it out themselves” but that “we’ll take action if appropriate.”

As well as facility-specific rapid response labor enforcement cases, the revised NAFTA allows NAFTA governments to charge each other with violations of their obligations. The dispute resolution process in the pact could result in Mexican imports to the United States facing tariffs if a NAFTA tribunal determines Mexico is not meeting its labor rights obligations.

The letter, signed by the American Federation of State, County and Municipal Employees (AFSCME), Citizens Trade Campaign, Communications Workers of America, International Association of Machinists and Aerospace Workers, International Brotherhood of Teamsters, Maryknoll Office of Global Concerns,  NETWORK Lobby for Catholic Social Justice, Our Revolution, Presente.org, Public Citizen, Service Employees Union International, United Auto Workers, United Brotherhood of Carpenters, United Methodist Church Board of Church and Society and the United Steelworkers, is available here in English and Spanish.

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Rethinking Trade - Season 1 Episode 9: The Hong Kong Protests VS. China's Democracy Crackdown

Hong Kong is at a significant crossroads—and its special trade status with the US has become a central point of leverage in determining the outcome of this crisis. 

One year ago, millions took to Hong Kong’s streets in response to the Chinese government’s attempts to limit free speech, protest and unions rights. The protests would become one of the largest sustained protest movements in recent history, and would succeed in derailing repressive legislation that Chinese leadership was pushing through the Hong Kong legislature. But last month, China moved to skirt that legislature and impose from Beijing a national security law that threatens the freedoms of the Chinese government’s critics. It would allow HK residents to be arrested for criticizing the Beijing government and jailed in mainland China. 

In this episode, Lori and Ryan discuss the protest movement and the central role US trade policies are playing in influencing the future of Hong Kong.

Transcribed by Kaley Joss

 

Ryan:

You're listening to rethinking trade with Lori Wallach.

 

Welcome back to Rethinking Trade, where we don't just talk about trade policy, we fight to change it. I'm Ryan, and I'm joined once again by our in house trade expert Lori Wallach. So, Lori, today marks 1 year since the start of these mass protests in Hong Kong. They are against an extradition law that was widely seen as opening the door to people in Hong Kong getting prosecuted and imprisoned in China. Recently, these protests flared up again because of a new national security law that China is imposing in Hong Kong. As we both know, the US-China and US-Hong Kong trade relationship have been a central part of that story on the show. We're going to talk about Hong Kong’s “special status” in relation to the US. We're going to talk about the protests, and how this all has to do with our trade policies. So, first, Lori can you describe Hong Kong’s special status in relation to the US, and what some of the trade issues are that have been involved in the recent discussions around Hong Kong?

 

Lori:

Hong Kong has a special treatment in the trade world. Hong Kong has its own seat at the World Trade Organization, separate from China. Also, in US law there's a statute called the Hong Kong relations act which was passed in 1992. This  basically guarantees that, as long as China continues to hold up the promises made to Hong Kong in the 1997 agreement between China and England, when England handed Hong Kong over to China, Hong Kong gets treated basically as a separate entity. What that means, practically, is that for instance when China is judged to be dumping products at below the cost of production and a penalty is put on Chinese imports, imports from Hong Kong don't get hit. Or, China has its own tariff schedule, Hong Kong has a different tariff schedule. Other differences are what the border taxes are, and if there's a penalty, like the section 301. But there is a condition to that, which is every year the US government has to certify that Hong Kong is in fact being given those special rights and treatments that China committed to. If that certification ends, then the 1992 Hong Kong Relations Act allows US presidents to basically withdraw that special treatment. That would mean higher tariffs on goods from Hong Kong, limits on investments from corporations incorporated in Hong Kong, and a variety of other penalties would then be able to be imposed.

 

Ryan:

So, recently, Donald Trump and Mike Pompeo made a move which a lot of people in Hong Kong seem to be supporting, even though it's venturing into unknown territory. Maybe you could talk about what that maneuver was.

 

Lori:

So, part of the Hong Kong Relations Act requires a certification every year by the Secretary of State. This certifies that in fact Hong Kong is being treated autonomously, with respect to free speech rights, independent unions and the like. If that certification is done, then the special, preferential treatment included in the Hong Kong Relations Act is continued. For the first time since the act was passed in 1992, the Secretary of State Pompeo did not certify autonomy. This was notable, and was big news. Now, the president could, at any point, start to effectively impose detrimental pressure on Hong Kong, and therefore pressure on China. 

 

This is one of things I'd love to hear your perspective on, because I know you've been talking organizer to organizer with activists in Hong Kong. I'm interested in hearing more details about what's going on in the protests there. I do know the motto of the protests has been “If we bleed you bleed,” which is to say, to mainland China, ‘if you cut off our rights then we're happy to have economic damage befall you’. That seems, maybe, to be part of the reason why the protest movement is happy that the U. S. decertified. Maybe, for once, Trump will actually follow through and do something that creates economic pain for China. That so far has not happened with respect to the Hong Kong actions. It's been shameful actually, but not surprising in the least, because in the whole year of these protests Trump has signaled he's with the president of China Xi as compared with the protesters. But I'm curious, Ryan, what you've picked up as far as why folks on the streets want pressure, and also how those protests are going?

 

Ryan:

One thing to keep in mind, is that there's been, you know, a year of sustained protests in Hong Kong. Some of these protests have been absolutely massive, with estimates of over 1,000,000 people. On several different occasions there's been lots of violence from the police. Some of the protests have been pretty violent as well. There's been fights between citizens in the streets as well as fights in parliament. It's a very significant situation, and a year of that will obviously harden people. I've spoken to groups from the more left wing progressive groups, as well as more middle of the road groups and the business community. The vibe generally that a lot of people indicate seems to be a general alignment on some big topics: cutting off the special status and seeing what that can do, agreeing with sanctioning targeted officials. This comes too after years of history. In 2014 there were huge protests in Hong Kong, and again back in 2003. This is just a recent development, but I think what's new is China's place in the world. There is a big question right now about what the future looks like, in terms of the US and China, and I think a lot of folks in Hong Kong are asking that question amongst themselves. 



One thing that happened at the end of last year- so these protests began on this day a year ago, in June, and within a few weeks it became clear that this extradition law wasn't gonna fly. So, it was suspended. I think about a month later it was actually removed, and then a few months later was it was completely off the books. That was a pretty big victory, but the protest didn't stop because they saw what was coming. They're living in a place where their legislator is only partially elected, part of it is actually appointed by members of the corporate sector, which is really interesting. The results of that have been a pro-Beijing legislator for a very long time. That changed in November. 

 

The elections in Hong Kong really swept pro-democracy people into parliament. It became clear to China that their attempts to pass any sort of an extradition law or any sort of laws governing activity in Hong Kong, wasn't gonna fly. So they just made this move, and said, well, “we’re making a declaration in the name of national security.” Under Hong Kong's relationship with China, they're technically allowed to do that. But, national security, as many people in Hong Kong we tell you, actually doesn't fall under criticizing the Chinese national anthem, or mocking the flag. There's actually strange overlapping interest between the streets, as in grassroots protest organizations, NGOs, student groups and people from the business sector. The interest comes in that there's a lot of people worried about what extradition could mean for them. A lot of people talked about the quote “white gloves in Hong Kong”, referencing Hong Kong's role as a money laundering hub for elites from China, so there's a lot of people who have a stake in the game. That's why I think we've seen such coalescing of people around the specific issues, such as cutting off the special status. 

 

Lori:

I think it's incredibly powerful and inspiring having watched what's happened in Hong Kong. The stakes are extremely high, as Hong Kong is this tiny island totally surrounded by China, officially controlled by China. China is notorious for not having rule of law or rights for citizens, and yet you have seen this incredible social solidarity of, as you said, a very diverse set of interests. Many of them are for protecting specific rights, a way of life of free speech and freedom. Some certainly are protecting commercial interests, because Hong Kong is operating commercially very differently than China. But, unified in a way that beat [overthrew] a head of state, officially appointed from Beijing. And Beijing made sympathetic leader Carrie Lam, withdraw outrageous policy proposals. So it is both inspiring what they accomplished and then kind of crushing to see how Beijing just, autocratically imposed a new measure which would go into effect. It literally would make a lot of what everyone listening to this podcast, and what you Ryan and I, do every day, a crime, which is criticizing the government. You could be swooped up out of your home and dragged off to a not-real court in Beijing, and then chalked into jail indefinitely in Beijing. For folks in Hong Kong, which is such a different culture that in Beijing, it's a life or death matter. It strikes me at this moment- we're in the United States, where tens of millions of Americans who have also, an incredibly inspiring way, taken to the streets over a life and death matter, which is historic structural racism in this country. It is really really hard, and difficult. Scary confrontations have happened between very established powers and people's aspirations to fight for their rights. There is a way in which the situations are entirely different, but also are both really inspiring examples of people power. Having spent a considerable amount of time in Hong Kong with friends there, but also during the WTO ministerial, their powerful protest movements there, or ‘the year of endless protests’ in a way is probably a foreshadow of the continuing work in the U. S., as we are also in a long term fight for basic rights.

 

Ryan:

Absolutely, and I think, in a way to look at Hong Kong there's two things. One, it comes as part of this wave of global, unprecedented protests and shifting political events around the world. Especially since the economic crisis. And, it also comes in this time where China is asserting itself globally as a real power. Hong Kongers are looking at that, at their place in the world in between these two super powers, and they're taking initiative to try to create their future in the way they want it, rather than it being dictated from outside. And I think that that kind of ties into stuff that you've been writing about and talking about recently, especially sparked by the covid-19 and the pandemic. But, also it's been coming for a while- there are big shifts happening in the world, and we're in this moment where new ideas or even old ideas that are still good ideas have a new place at the table.

 

We're pushing some of those in the trade world. Maybe you could talk about the situation out of Hong Kong, in the US and China, conversations you've been having about a progressive approach to China, and how our trade policies with China need to change?

 

Lori:

I think that as we look at the economic relationship between the U. S. and China it cannot be divorced from the broader geopolitical dynamic between the US and China. You've described it as sort of a babble of different views about how society and economy should be organized, neither of which are entirely inspiring. However, by many orders of magnitude, the situation in China, with respect to basic rights for people to express their opinions; protest; organize for themselves in their workplaces, as unions or as individuals fighting for control of their communities, of the land that gets grabbed out from under them; fight against pollution- all of those basic fundamental rights are denied in the Chinese system. They’re criminalized, there's no rule of law. And, there are a couple hundred very powerful families who are integrated in the Chinese ruling government system, through the Communist Party in China, and through the economic system. Very government affected and controlled. Many of them owned companies, and as we think forward about what a better relationship between the US and China would entail, the economics of it include something that has to do with us, not China. Which is, as the COVID crisis has shown, the hyper-globalization of our economy through decades of corporate trade agreements has gotten rid of the redundancy of production, and has created extremely long brittle supply chains which are to rely on one country. That country happens to be China, but if that one country were England it would still be a problem. This lesson is we need redundant supply chains in different parts of the world, and we need some domestic capacity. So, that when countries, reasonably, are looking to take care of their own citizens, and send their own supplies to domestic needs, we have some ability in critical goods to make some portion of what we need. That way we can balance the way the global economy production occurs so that we have more capacity domestically. We don't have to be totally self reliant by any means, but some capacity. We cannot have a scenario where we don't make, at all, certain medicines and certain active pharmaceutical ingredients, in the continental size country like the United States. And, we need to diversify the supply chains in trade. So that, heaven forbid, there is a natural disaster or whatever it is, that knocks out production as it did in China, and we see huge crashing imports, we don't end up quickly with major shortages that make our situation worse. But, all of that aside, that's medium term and long term thinking. The short term question is, is the US going to actually do anything to protect people in Hong Kong? Or, is President Trump just gonna stand by, and let the Beijing dictatorship crush free speech and democracy in Hong Kong. 

 

Ryan:

Rethinking trade is produced by Public Citizen's Global Trade Watch, where we don't just talk about trade policy, we fight to change. Visit rethinktrade.org today to get involved in our campaigns and help us fight for global economic justice.

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Rethinking Trade - Season 1 Episode 10: ISDS Corporate Attacks Against COVID-19 Emergency Measures

Governments are taking emergency action to fight COVID-19, counter economic disaster and ensure peoples’ basic needs are met. Now corporate law firms are targeting those actions for outrageous Investor-State Dispute Settlement (ISDS) attacks.

ISDS law firms are actively recruiting multinational corporations to sue governments before a panel of three corporate lawyers to obtain unlimited taxpayer compensation for government actions related to the COVID emergency. These ISDS tribunals can even order compensation for multinationals’ loss of expected future profits and there is no outside appeal.

In this episode, Lori explains the immediate ISDS danger and breaks down the regime’s history of attacking environmental protections, consumer safety regulations and democracy itself. 

Transcribed by Mariana Lopez 

Ryan: Welcome back to Rethinking Trade, where we don’t just talk about trade policy, we fight to change it. I am Ryan, and I am joined once again by our in-house trade expert Lori Wallach.  So Lori, as we both know, the best and worst things can emerge in times of crisis and just recently amidst the coronavirus pandemic, we’ve seen one of the ugliest aspects of corporate trade policy rear its head once again: Investor State Dispute Settlement Tribunals. The internet now is flooded with blogs, webinars and other content from corporate law firms fishing for clients to attack governments and demand compensation over health measures taken during the  pandemic. Before we get into those gory details, maybe you can just tell us about how ISDS policies work and, you know, what these law firms have been saying. 

Lori: Investor State Dispute Settlement or ISDS is an outrageous scheme where trade agreements and agreements called bilateral investment agreements grant new rights and powers to multinational corporations to sue governments before a panel of three corporate lawyers. Those lawyers award the corporations unlimited sums to be paid by us, taxpayers, including for the loss of expected future profits. The corporations only have to convince the lawyers that a country’s domestic law, or policy, or safety, regulation or court decision violates their special foreign investor rights. And these decisions are not subject to appeal. The amount that gets awarded has no limit. So, literally it is a parallel system of injustice, where multinational corporations can skirt domestic courts, raid our treasuries, undermine our laws and are given an enormous amount of new powers relative to governments or to all of us, the people who are ostensibly represented by our governments. 

Now if that seems like something from a science fiction novel and too crazy to be true, first of all, it was included in the original NAFTA (that was the first trade agreement that had it) and the Trans Pacific Partnership Agreement went up in flames in the U.S. Congress in part because that agreement expanded those outrageous corporate powers. And there have been hundreds of rulings where corporations have extracted billions of dollars from numerous countries’ tax payers, after these corporate tribunals have ruled against toxic bans, mining limits, water safety programs and an enormous number of energy policies. Such that, for instance, just for North America, just under NAFTA, almost 400 million dollars has been paid out after successful corporate attacks on an array of public interest safeguards. 

Ryan: And so these law firms are trying to find clients willing to pursue cases under this system as a result of the coronavirus?

Lori: So globally right now, governments are taking actions to save lives and stop the pandemic. These kinds of actions are unprecedented in modern times, even as the need has been clear. But because the ISDS system is so invasive, many of the things governments are doing can be subject to corporate claims for hundreds of millions in compensation. And the kinds of things to consider are, for instance, based on previous crises like the financial crisis that hit, cases could arise, corporations could attack and demand compensation from things many governments are doing: restricting and closing business activities to limit the spread of the virus and protect workers, securing resources for healthcare workers by requisitioning the use of private hospital facilities, or putting manufacturers under orders to produce ventilators, or PPE or other emergency medical goods, or mandating relief from rent and mortgage payments to avoid people being turned out to the streets, or a bunch of countries have passed policies preventing foreign takeovers of strategic businesses stricken by the virus. Other countries have required utility companies to freeze bills and suspend disconnections to assure there’s access to clean water for handwashing. Other countries have done compulsory licensing and other actions to make sure medicines and tests and vaccines are affordable. A lot of countries are doing debt restructuring. All of those things may be applied equally to both foreign and domestic firms. But under ISDS, foreigns firms have special rights under special tribunals. They could demand compensation for any of those very necessary, even extraordinary kinds of actions that governments around the world are taking. 

Ryan: Can you explain more about how the ISDS regime works and what exactly these tribunals, you know, what do they look like, provide for big companies and how they impact regular people, public health and the planet. Maybe you can talk about some of the cases. 

Lori: So let me go back to some of these COVID threats. So, for instance, there were a whole series of cases after various financial crises, for instance in Argentina, where the government did things like suspend utility payments and require companies to keep water and electricity going. And foreign companies who were invested in those kinds of utilities were able to go to a tribunal where they pick one of the judges (the corporation picks one judge, the government picks another judge and then those two pick a third). The judges are paid by the house, so it is in their financial interests--they get hundred and hundreds an hour to keep the tribunal going as long as possible. And a corporation literally says, “Government of Argentina, your taxpayers owe me. You have to pay 100 million dollars because you made me keep my electricity flowing even though during this crisis people couldn’t pay the bills. And I know you did that to all the Argentine companies too, but I am foreign investor, and I have special foreign investor rights under ISDS, and I can go to this tribunal. So we’re going to have these three private attorneys decide outside your court system, just for me, the foreign investor, how much taxpayers are going to pay me, because in the middle of a crisis you took crisis actions that apply to domestic and foreign companies.”

And under that kind of regime, there have been repeated rulings in favor of the corporations. I mean one of the—there are several infamous ones about governments insisting that foreign water companies keep the water going and/or cancelling contracts when they weren’t purifying water systems when foreign companies had bought privatized water systems in developing countries. And on a regular basis, these corporate tribunals order the taxpayers of poor countries, and some wealthy countries too, to pay the corporations. I mean to some degree there is nothing like losing one of these cases to start getting public opinion to turn. Germany, with many corporations using that regime to collect hundreds of millions, was a place that was a cheerleader for ISDS until the government of Germany decided to phase out nuclear power after the Fukushima disaster and to strengthen the rules for coal-fired electric plants as part of their Paris commitments. And in both instances, foreign companies sued the German taxpayers and forced settlements where hundreds of millions were paid out because Germany changed a policy. And that change applied to German companies too, but the foreign investors went to ISDS and they got the money. And this has been a systematic problem of over 1,000 known cases. Already more than a dozen have resulted in payouts of more than a billion dollars, including for future loss of profits. And by the end of 2018, because the 2019 data is not yet available, governments worldwide ordered to pay or agreed to pay investors in just the cases we know about, because a lot of ISDS cases are secret. Eighty-eight billion dollars we know about have been paid out. And that’s not counting the developing countries that have billions and billions in outstanding ISDS payments. If you don’t pay under this regime, the corporation can seize one of your nation’s ships or seize your assets, your foreign reserves in another country’s banks, or try and take one of your national airline’s planes if it lands in a country where they have a court order to force the payment. It’s so outrageous you couldn’t make it up, except it’s the reality. 

Ryan: If we got rid of ISDS tribunals, what would a fairer, more equitable tribunal system look like?

Lori: Well there should be no parallel system of justice just for multinational corporations. They’re hardly an underprivileged class that needs special rights. So the answer is there should be no ISDS. Those agreements should be abolished. The original idea of the system when it was concocted with a more narrow scope, was that European companies and governments, invested in what were about to become their foreign colonies, would flee during the period of independence because the court systems in parts of the Caribbean and Africa and Asia weren’t set up. So the idea was, here is a system for these colonial investors in the transition to independence that will keep them staying invested( Royal Dutch Shell in Indonesia, etc.). And the system has overtime morphed to be this incredible corporate power scam. 

It may have been a bad idea to start with, but when it was just compensation for expropriation, you had to get your money back if your oil rig was taken, that’s one thing. Now it's just a vast system of if you change your regulation, a company thinks that’s unfair, they go in front of a bunch of corporate attorneys whose incentives are to rule for the companies because the companies start the cases, the governments can’t sue a corporation. So the tribunalists in the system want to curry favor with corporations because they’re the ones who start cases and hire the judges. It’s just so corrupt and unfair. There is no way to fix it. And what’s super disappointing is, in the face of worldwide opposition and numerous countries–South Africa, India–leaving the old ISDS regime, Europe is trying to repackage the same old thing with a new coat of paint and call it a global investment court and basically pretend (multilateral investment court is the formal name, the MIC) it is something other than ISDS even more formalized. The only answer is to get rid of the whole parallel rights for corporations. 

Ryan: And Lori, I am sure a lot of listeners are wondering how real is the threat of ISDS cases around coronavirus. But then also maybe we can talk about some of the good news, which is that the tide has turned on ISDS in some places: the new NAFTA having shredded the original deal’s ISDS rules and also both Donald Trump and Joe BIden giving some indication of opposition to ISDS tribunals. 

Lori: It is unfortunately very likely that a whole spate of ISDS attacks on governments’ responses to the COVID crisis will begin to be filed. And the reason why is, under this regime, an enormous amount of money can be made by both the lawyers and the corporations. It is a legalized raid on treasuries. And so, one of the ways we know that these cases are already being designed is that online every law firm you can imagine that has work in this area is trolling for clients. There are webinars, there are podcasts, there are advertisements about how exactly investors ought to structure their corporate holdings to be able to maximize their use of this system, to come out of the crisis in the best way. And it even—in some of these unlined platforms of the law firms, they describe “have you lost money because of this?” It’s, you know, sort of global, corporate ambulance chasing. 

And there are some very specific things governments are going to have to do to avoid being just slayed by this, at the very time economies and jobs are shaky and health costs are up. I mean the most important thing countries can do is just to restrict the use of ISDS and all its forms with respect to any claims relating to COVID. That is narrow if they don’t want to get rid of ISDS all together, and there are different technical ways you can do that. You can do that in a multilateral agreement among the countries who sign these treaties, you can do it unilaterally, but you can have limited effect because the tribunals can just ignore the government and rule against you and then seize your government airline’s plane to pay off the corporation. But there are ways for governments to restrict the use. There certainly should be a suspension for all the cases ongoing right now while governments are focused on fighting COVID-19. There are almost 400 open ISDS cases against 83 countries right now. So there’s no bandwidth to deal with this. But one of the countries, Bolivia, has already asked tribunals in two cases to suspend proceedings, and in both cases the tribunals rejected the request and just kept going. A third thing is to make sure that no public money is spent paying the corporations for decisions during the pandemic. And really it’s two different things: don’t pay your ISDS awards, make them so that the corporations have to go to domestic courts and try to seize your stuff (it delays it), but also if you have carved out ISDS that may be existing in your agreements that may be covering anything that covers COVID, you basically can protect yourself from having to pay. Obviously, countries should stop negotiating, signing and ratifying new agreements that include ISDS, and they should terminate their existing agreements with ISDS, which if you look at our website (tradewatch.org) we’ve done a study that shows that the countries that got out—Bolivia, Ecuador, Indonesia, India, South Africa-—have not seen drops in foreign direct investment. In fact, some of them had their credit ratings go up, because there isn’t this potential huge liability of corporate money grabbing. And then, obviously, every country should be reviewing all of their agreements that might include ISDS because they just don’t fit the reality of too much corporate power in the global economy and even more so in this crisis. 

And that gets to the good news. So, for many decades the United States was one of the leading proponents of ISDS, it was shoving it down every other countries’ throats. And as we saw during the Obama Administration with the fight over the Trans Pacific Partnership (TPP) in Congress, pretty much on a bipartisan basis, ISDS has lost support. And a lot of people claimed, “well maybe it wasn’t really opposition to ISDS that derailed the TPP, maybe it was just that Republicans didn’t like Obama and didn’t want him to have that vote.” But the reality is, the United States Congress just passed, by overwhelming House and Senate majorities, a new North American Free Trade Agreement that totally eliminates the existing ISDS between the United States and Canada, under which dozens of Canadian environmental laws have been attacked and millions paid out, and largely whacked ISDS between Mexico and the U.S.. And new U.S. trade agreements with the UK, Kenya, etc. aren’t going to have ISDS anymore. So if even the U.S., on a bipartisan basis, is stepping back, and you have lots of developing countries that have gotten out of their ISDS enforced agreements, then progress in the right direction is happening. And the Europeans need to stop pushing the same-old-same-old under a different brand, their multilateral investment court. 

I mean, hell, we are going into a U.S. presidential election where Vice President Biden, who in the past supported these agreements, on the record, in writing, has been answering campaign questionnaires saying his future trade agreements will not have ISDS (that’s a stupendous shift). And Trump has been behind agreements that already don’t have ISDS, so that’s a big shift domestically. Every activist should be happy about the work that people in the U.S. have done for decades to get there. And, you know, all these COVID attack cases are exhibits one, two and three of why every other country should abandon, ditch, get rid of, terminate, their ISDS agreements and liability. 


Ryan: That’s all for today. Thank you all for listening. Rethinking Trade is produced by Public Citizen’s Global Trade Watch. I would encourage you to visit rethinktrade.org as well as tradewatch.org, to educate yourself and to find out how you can get involved in the work we are doing to fight for fairer and more equitable trade policies.

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Rethinking Trade - Season 1 Episode 8: Crisis at the World Trade Organization

Today, the World Trade Organization is in a major crisis of its own making, with its over-reaching enforcement regime derailed, its Director-General abruptly announcing his resignation and legislation introduced in both chambers to terminate Congress’ approval of the organization. 

When the WTO was launched in 1995, we were promised by an array of corporations and politicians that it would usher in a new era of win-win globalization that would deliver higher wages and good jobs. Instead, as activists and union members warned, the WTO has facilitated a race to the bottom in wages and mass job outsourcing, especially after China joined in 2001. The WTO has ruled again scores of U.S. policies, including environmental and consumer protections. 

What happens next at WTO affects us all. In this episode Lori digs in the history of the organization and describes the significance of its current crisis.

Transcribed by Kaley Joss

Ryan:

You’re listening to Rethinking Trade with Lori Wallach. Welcome back to Rethinking Trade, where we don’t just talk about trade policy, we fight to change it. I’m Ryan and I’m joined once again by our in-house trade expert Lori Wallach. So Lori, the World Trade Organization protests in 1999, the Battle in Seattle, that was my gateway into political activism. And we just celebrated the 20th anniversary of that event a few months back, but today we’re going to be talking about the WTO right now. Because it’s facing a significant crisis. Before we get into that, maybe you could just tell us what the World Trade Organization is, where it came from, and what some of the major issues have been in the fight against it. 

 

Lori: 

So, the WTO is an international commercial agency. It sometimes gets called a trade agreement, but most of its contents have nothing to do with trade. It is the global commerce agency that replaced an agreement called the General Agreement on Tariffs and Trade, which was a global trade agreement created in the fall of 1947. It was one of the so-called Bretton Woods agreements that came after World War II and the economic and social crisis that followed, where actually a bunch of Keynesians sat around and tried to come up with some good rules. They had a thing called the “International Trade Organization,” it had labor standards, it had currency disciplines, it’s not totally different than the agreement we’ve been fighting for these days. But the U.S. Senate objected—we got the GATT. The GATT was really about trade, border tax cutting, and quota cutting. And that’s what we traded under for many decades. It worked pretty well for the U.S., until in the ‘80s Ronald Reagan and the folks around him who were uber-deregulatory, big about corporate power and rights, wanted ways to get around the fact that there was a durable Democratic majority in Congress. 

 

In Germany, a neoliberal chancellor wanted to deal with busting up his unions, Margaret Thatcher was in cahoots in the same mindset as Kohl and Reagan. And they came up with this really elegant, but rotten, but effective strategy of shifting out of democratically accountable public venues like parliaments to close door trade negotiations, and the Uruguay Round of GATT negotiations was launched in 1982. It resulted in replacing the entire GATT. The GATT becomes one of twenty-plus agreements in force by this gargantuan new World Trade Organization which suddenly sets top-down, one size fits all rules for all kinds of stuff, totally unrelated to trade. 

 

So to start with, there are a bunch of just flat out corporate protectionism. New monopoly protections, classic sort of rent-seeking protectionism for patents and copyright monopolies—monopolies in a free trade agreement. Every country is required to make in their domestic laws certain guarantees for corporate rights and all kinds of new limits on behind-the-border type policies on food safety, product safety, energy policy, banking regulation. In one fell swoop, basically like some quiet, corporate coup d’etat. This thing labelled “free trade agreement” gets rolled in like a Trojan Horse. And actually, what’s on the inside is an enforceable system of global governance literally by, for, and to a large degree (given the revolving door of the staff), of multinational corporations. And every signatory country was obliged to conform it’s domestic laws to these rules. And if they didn’t, they faced indefinite trade sanctions, fines, cash, it was suddenly an enforceable system of governance. And if this sounds like I’m exaggerating, let me actually read the key clause in the agreement established in the WTO. “Each signatory country shall conform its domestic laws, regulations, and administrative procedures to the attached agreements,” and the attached agreements are a whole bunch of rules limiting service sector regulation, food and product safety regulation, giving new corporate rights for investors, for intellectual property, that every country was supposed to make its domestic laws meet. That’s the WTO. It started on January 1st, 1995. 

 

Ryan:

And since the WTO was launched, they’ve tried several times to launch new rounds of talks to expand their power and scope and it hasn’t quite worked out the way they wanted it to. It's becoming increasingly clear now that they’re in a real serious crisis. But there have been a few things recently that have happened as well. What’s going on over there and how significant is the situation at the WTO?

 

Lori:

So the WTO’s actual outcomes have helped doom it. It hasn’t helped that it’s tried to grab more power and scope, but it’s the record of what’s actually happened. So, during the period since the WTO went into effect, just for instance with the US, we’ve lost a quarter of our manufacturing jobs, nearly 5 million, with 60,000 factories shuttered. This really took off after the 2001 entry of China into the WTO. The U.S. went from a goods and services trade deficit before the WTO of 125 billion, which was not great but now, it’s 617 billion, as in almost a 400% increase. And then, add to that all of the WTO’s obscene corporate protectionism and bans on common sense consumer safeguards, we have seen law after U.S. law challenged in WTO tribunals. We’ve lost 93% of the WTO attacks against our public interest policies and that’s led to roll backs of country of origin labelling for consumers of meat, rollbacks of protections of dolphins, clean air act regulations and gasoline cleanliness, endangered species acts, sea turtle safeguards and more. And this system is so lopsided that you know, we’ve lost 93% of the public interest cases but we’ve lost 90% of the 79 cases brought against the US at the WTO. Which just is a perverse irony, the U.S. was the biggest pusher of establishing the WTO, and we’re the number one target of the WTO enforcement actions. Just under a third of all the WTO cases are against U.S. policies and laws. So, the WTO didn’t deliver on the glorious and great gains that were promised certainly to people in the U.S. and Europe. And for developing countries, like some of the developed countries, there have been some major problems. 

 

So we’ve seen this gutting out of middle class jobs and the attack on environmental laws, but the attack on public interest laws have been worldwide. So for instance, India Ghandian-era law constitution and laws that forbid the patenting of seeds and medicines were ruled to be a WTO violation. Of course, those policies are about trying to keep a country with a billion poor people being able to have seeds to plant to feed themselves and have access to medicine. Attacks on policies such as Europe’s ban on the use of artificial hormones on raising meat or Europe’s labelling and approval process for genetically modified organisms. There have been attacks on development policy like the banana trade policy that was basically a development policy that Europe had with its former colonies in the Carribean and Africa. So time after time the WTO rules against people-policies for corporate policies, but also how now there is in Congress a new wave growing of bipartisan upset about the WTO. The WTO’s unelected, unaccountable tribunal started also just making up policies, making up laws, and then enforcing them against countries. And that was irritating when it started to actually cause problems for some businesses who had been WTO boosters and then saw the WTO just making up rules and enforcing them that no country ever signed onto. 

 

Ryan:

And what has all that added up to today?

 

Lori:

Well, pretty much a meltdown at the WTO. So, starting with the Obama administration the U.S. you know, was furious with the WTO making up policies and sticking them on countries and was criticizing the enforcement system for not being very transparent, or timely or fair, and the Trump administration came in and stepped that up a level yet. Actually, the Bush two administration kinda started it, Obama stepped it up, then Trump went into overdrive. And the Trump U.S. Trade Representative Robert Lighthizer just flat out refused to appoint more judges to the final tribunal of the WTO, and he basically put it out of business at the end of 2019. So right now the WTO enforcement system is derailed, which given how bad its ruins are, is nothing to be too upset about actually. And the WTO hasn’t been able to complete any major negotiations basically since it was established. You know the Seattle Round obviously melted down, there was a 10-year skirmish over what was called the Doha Round of WTO expansion, but that was ultimately derailed. So it’s not negotiating, it’s not enforcing a lot of the rules that are locking in really crazy, extreme neoliberal 1980’s ideas. Meanwhile things that are at the cutting edge of concern, things like climate change, and issues around income inequality and in this COVID crisis access to essential medical goods, are either not covered in the WTO or covered in a way that makes things worse. So given the deadlock on enforcement and the deadlock on negotiations, it was not totally surprising but totally shocking when, just recently, the guy who was the head of the World Trade Organization, which is kind of a coveted position (and the guy still had a couple years on his term—a Brazilian diplomat named Roberto Azevedo) he announced he was leaving this fall. Almost two years early. Now that body that is very jammed will also be headless, so to speak. 

 

Ryan:

Recently Representative Defazio and Senator Hawley introduced a bill to withdraw the United States from the World Trade Organization. Can you talk about that a little bit?

 

Lori:

So when the U.S. Congress voted on what was called the Uruguay Round Agreements Act, which gave Congress’ approval to the WTO, it was so controversial that then-Senator Bob Dole (generally a free trade guy) insisted, given all the sovereignty implications of all the non-trade policies being imposed by the WTO, that every fifth Congress have a report on the outcomes and activities of the WTO and a privileged guaranteed vote to reverse the U.S. approval of the agreement. And a privileged vote means the kind of cloture and other rules in the Senate that block things up don’t apply... you get a vote. It gets pushed out of committee after a certain number of days, so the committees can’t block it. It gets a vote. And the agreement, the legislation, Article 125 of the Uruguay Round Agreements Act, has this five year option of withdrawing congressional approval. So first a conservative Republican Senator from Missouri named Josh Hawley put it in the Senate, and then shortly after two Democratic House full committee chairs, Congressman Peter Defazio and Congressman Frank Pallone, submitted the House version. 

 

Now, the way it’s written, both the House and Senate have to send it to the President within 90,what are called, legislative days. It’s not calendar days, it’s a little bit longer. And if they do that within 90 days when the report that’s required gets sent, then it would withdraw the U.S. Congressional consent for the WTO. Now, there are all kinds of complications with that because the House can’t get the 90 days vote in, given when the resolution was submitted. And even if Congress’ approval of the legislation was withdrawn, it’s not clear that it actually gets the U.S. out of the WTO, and that’s assuming Trump wouldn’t veto it. And that’s assuming it would pass, all of which are things that I think you can’t assume. But, the bottom line of the whole situation is, there is a decent likelihood there will be House and Senate votes where members of Congress are going to have to express what they think about the WTO. It’s kind of a free vote to express your concerns without any potential liability. Because of the timing, the technical problems, it’s not a vote to get out of the WTO even if, actually, the House and the Senate both supported the resolution by majorities. 

 

Ryan:

So let’s say that the US did leave the WTO or that the WTO did fall apart. What does the alternative to it look like? You kind of wrote the damn book on it—what could an alternative system look like?

 

Lori:

Well first of all, folks can still get that book Whose Trade Organization?. I think the best way to think about it is “what are the rules we want?” So, “what are the goals we want?” Is the first question, and then you think about the rules. Versus the way the WTO was created was: here’s a model, the whole neoliberal smorgasbord of policies, of corporate rights, of corporate protections, of intellectual property rules, of limits on regulation, and service sector and financial deregulation, and let’s see what happens! No, you go the other way around, so what do you want? You want living, family supporting jobs and wages. You want labor and human rights so that people can advocate for themselves. You want an agreement that is compatible with a living planet and doesn’t exacerbate climate crises, in fact, as part of a transition to a lower carbon economy. You want to make that sure food is safe and the services we rely on are reliable and affordable and safe. 

 

So if you think about it that way and you look at the WTO, basically in a certain way, you kinda want to go back to the ITO, the International Trade Organization. Which is, you take all of those WTO agreements, you just whack and bury a bunch of them. You don’t need a trade-related intellectual property agreement. There shouldn’t be protectionist patent and copyright monopolies in a trade agreement—they do not go there. That is just pharma and the content industry trying to ride on the good name of trade. You don’t need rules limiting what kind of food safety or environmental standards or product safety standards—you know the basic rule is as long as you treat domestic and foreign goods the same, the democratic process in the country that’s going to have the stuff in their market decides whether or not it can have pesticides and how much, and whether there should be GMOs and how they should be labelled. That’s not a trade issue. The discrimination treating foreign goods worse, that could be a trade issue. But as long as you don’t discriminate, the level of protection, the level of consumer information, that’s a democratic choice. So a bunch of those things need to get cut out of the system, then the stuff that’s missing needs to be put in. Which comes back around to the ITO. 

 

So that old International Trade Organization connected to the International Labor Organization’s conventions on labor rights- that needs to be the floor on which trade happens. It didn’t have an environmental component—it would be very easy to use the kind of language that’s now in the revised NAFTA that talks about multilateral environmental agreements that countries have, as sovereigns signed onto, becoming the floor on environment that countries have to meet to get the benefits of the trade agreement. Equally, there are human rights standards through the United Nations. We have international rules on the people’s side that should become a floor on which trade is predicated. And then things like currency manipulation—there were rules against currency manipulation in those days relating to the IMF, which had a different kind of function then, that were in the ITO. We definitely need to make sure there are currency rules. There were also antitrust rules to break up anticompetitive practice, which obviously in the global economy we need. And we need rules (and there are various versions of these in some places) to stop tax cheating and the use of tax havens to get an advantage and starve governments. So if you take out the stuff that shouldn’t be in there and you put in the stuff that should be in there, it focuses mainly on trade—trade and what the terms should be for when trade happens. Those are the kind of agreements that could really get the benefits of trade without all the corporate baggage attached. 

 

You know, when I think about what’s happened to the WTO and what we want, it makes me think back of walking around the Senate building with Ralph Nader during the fight in 1994 about approving the WTO. And he used to say to Senators, “if this darn agreement were ever fully implemented, the results would be so outrageous that people would want to get the hell out of it. And hopefully we don’t have to go through all the pain and suffering that’s going to ensure before we know it was a bad idea and we get out.” Well, it’s been 25 years and it is overdue to get out. But the other thing he said regularly was, “it’s not that there is no alternative, there are many alternatives. We just need rules that actually work for people and the planet, not corporations.” So stay tuned to the news about what’s going to happen with the WTO, could be at a turning point, sure would be overdue time to see something different as the rules of the global economy. 

 

Ryan:

That’s all for today, thank you all for listening. Rethinking Trade is produced by Public Citizen’s Global Trade Watch. I would encourage you to visit rethinktrade.org as well as tradewatch.org to educate yourself, as well as find out how you can get involved in the work we’re doing to fight for fairer and more equitable trade policies.

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Rethinking Trade - Season 1 Episode 7: The Loophole That Lets Amazon Deliver Uninspected Imports to Your Door

Nearly 2 million imported products we buy online every day enter the United States and are delivered to consumers’ doors without any inspections. That’s thanks to a trade law loophole that also lets these imports dodge the fees that brick-and-mortar stores pay for the same products. 

Amazon and other E-commerce giants pushed for this change to what is called de minimis import policy, and it has facilitated a new flood of fake and unsafe imports that threaten consumers while undermining local businesses.

Transcribed by Lauren Martin

Ryan:

Welcome back to Rethinking Trade where we don’t just talk about trade policy, we fight to change it. I’m Ryan, and I’m joined once again by our in-house trade expert, Lori Wallach. With all of us sheltering at home, more and more people are reliant on e-commerce for their shopping needs. So today, we’re going to talk about a little-known piece of the e-commerce world, which is because of a sneaky change to trade to trade laws, a lot of products we’re bringing into our homes are not even inspected. Lori, maybe you can describe this situation and explain kind of why it matters to folks like us?

 

Lori:

So normally when we think of the products that we buy, we assume that they’ve been inspected by the Consumer Product Safety Commission or the Food and Drug Administration or the USDA depending on what they are. And typically, that applies to imports, not at the level you’d want, it’s too low of an inspection rate, but the way that this is done is things that are most worrisome get targeted by risk for deeper inspection for imports. Except, thanks to a sneaky change to trade law, anything that comes in — most of e-commerce shipments, I might add at under $800 of value totally skirts normal customs procedures and all inspections from any U.S. safety agency. That is called “de minimis” importing. De minimis refers to the amount below which an import isn’t subject to customs laws. And for years, it was $200. So anyone who’s travelled into the U.S. before 2015 will remember that customs form, that paper form they made you fill out on the plane before you got back into the U.S., and it said “are you bringing back more than $200 worth of stuff?” That was the de minimis, and as long as the stuff you were bringing was less than $200, you just wrote “no” and that was the end of it. If you were over $200, you had to list what it was and you might have to pay a border tax on it, a tariff, and it might be subject to getting you pulled aside for inspection. In 2015, there was a push to change that from $200 to $800. What that means now is that an enormous amount of stuff including a bunch of things that are potentially very hazardous, like car airbags and fancy safety devices for kids from car seats for kids to fancy jogging strollers, to the really high-end helmets for motorcycles and biking, to a lot of different athletic equipment like hoverboards all of those things now come in under the de minimis which means none of it’s inspected. And it meant an explosion of imports. It’s called Section 321 under the statute that sets up de minimis. But today, about 1.8 million shipments, individual packages, are released every day, being imported without being inspected thanks to raising the de minimis from $200 to $800. And all the new things that can come in. Today about 1.8 million shipments a day are being released as de minimis with no inspection for safety, actually really no recording of what they are. That includes a million-plus air shipments, so air express, small packages, from e-commerce purchases just coming from China every day. None of this stuff is inspected.

 

Ryan:

When you say not inspected, you mean literally not inspected at all, not inspected for safety, not inspected for anything?

 

Lori:

I mean, you can bring this stuff in, listing only the most basic information. You don’t know where it originated from, you don’t know technically what it is. You can describe it in vague language. There’s none of the import codes, so you can’t have an idea if you’re an inspector that it’s in that category of dangerous things. It isn’t inspected for safety, it isn’t inspected for even what it is, and it gets around normal border tariff taxes, it’s just a huge loophole.

 

Ryan:

And I’m assuming it wasn’t parents that were lobbying for bike helmets that weren’t inspected, and it wasn’t drivers who wanted seatbelts that weren’t inspected. Who was pushing for this change to be made in the de minimis rules?

 

Lori:

So in 2015, folks will remember there was a knock-down, drag-out fight over trade authority, over Fast Track trade authority for the Trans Pacific Partnership. And there were other bits and pieces of the legislation that was written to extend Fast Track. But the fight and the focus was on Fast Track. One of those pieces was a change from $200 to $800 of this de minimis standard, and it was quietly but ferociously pushed by two sets of interests: the express delivery industry so the UPSs, the Fedexs, the DHLs — and by the e-commerce industry so the Amazons, the Walmarts, etc.. Both of those sectors said “hm, we actually if we got this higher, could be bringing in lots of stuff from China and other countries, much cheaper and much more quickly without the bother of inspections.” That is otherwise the rule of thumb for every brick-and-mortar store, and that was the rule for every package over $200 in value.

 

Ryan:

And the way they do this is, just on the business end when I order something from Amazon, I’m considered the importer, and so legally it’s me that’s importing this product directly and Amazon’s acting like they’re not involved. 

 

Lori:

Part of the problem is the change in the statute from $200 to $800. And that happened before the Trump administration. Part of the problem though is the ruling that was issued during the Trump administration which allows the importation of entire shipping crates full of individually addressed packages creating a myth that when Amazon in a fulfillment center in China makes 10,000 individual packages and puts them in a multi-ton shipping crate, each individual consumer is the person who is importing. So each individual package has to be under $800 to sneak in under this loophole. The whole shipping crate isn’t considered. Yes, every time one of us makes an order, we’re the “importer of record,” not the big e-commerce platform that on any given day is importing hundreds of dollars of goods. 

 

Ryan:

So companies like Amazon are obviously making a lot of extra money because of this. Who’s being harmed by this? How is this affecting other businesses, brick-and mortar-shops?

 

Lori:

This scam of importing through this de minimis, hundreds of millions of dollars of potentially unsafe, potentially fake when I say fake, I don’t mean knock-off Gucci bags, I mean it says it’s an airbag, but it’s not really one, and you rely on it and die. It says it’s the fancy $800 stroller that’s impact resistant but it isn’t and your kid gets hurt. Those goods coming in not only expose us all to safety risks, but also, brick-and-mortar stores who are selling the same stuff are put at an enormous disadvantage relative to the Amazons, the Ebays, etc. Because, if say, your favorite local bike store decides they’re going to sell a very high-end bike, a $700 bike, and they want four of them in stock, and they buy the four of them, and they’re subject to tariffs, it’s $2,800. The ability for you as a consumer to buy the $700 bike online, and bring it in under the fake Amazon platform, under the fake notion that you are the importer versus Amazon, means you never have to pay that border tax. So, Amazon ends up undercutting the brick-and-mortar guys, who actually, you probably went to the brick-and-mortar place to check out the bike but then, the reason why it’s so much cheaper on Amazon than in the brick-and-mortar places is this de minimis cheat. And what is that money? Those are tax dollars that aren’t going into U.S. infrastructure, social security, other programs that we like and care about. Instead it goes into Amazon’s profit margin. 

 

Ryan:

And some of these companies like Amazon, they’ve actually built infrastructure around this loophole. There was this great piece in ProPublica talking about these warehouses along the Canadian and I think also the Mexican border for packages going into the U.S., but they were all subject to the loophole, right?

 

Lori:

So the big online monopolists have figured out numerous ways to exploit this loophole they created in the 2015 bill. First, they put fulfillment centers in China and it’s not just them the original ruling on this stunt came from Zara, the women’s clothing store. Any online package fulfilled directly in China from the Zara fulfillment center same thing for Amazon you can put 10,000 of those individual packages into a shipping crate and each individual purchaser of an item is considered the importer, not Amazon who arranged the shipping crate. So that’s scam number one. Scam number two and that required getting a special exception from the Trump administration from the customs department. Scam number two: They have created warehouses, as you said, along the border with the U.S. and Mexico and the U.S. and Canada. So the way that one works is they bring the goods into Mexico or Canada, and they keep them what’s called “in bond.” That means it’s landing there, but it’s on it’s way to someplace else. So it’s not going to be entered into customs in Mexico or Canada. Because the actual ultimate consumer is in the U.S. So they bring in big shipments of whatever is the good, and then it’s packaged into individual consumer packages, which are put on trucks, driven across the border to a U.S. post office in a U.S./Mexico or U.S./Canada border town, and because of NAFTA there is no tariff when a good crosses from Mexico to the U.S. or Canada to the U.S. Therefore it goes into the U.S. system under the de minimis so no inspection and duty-free and it enters basically from big warehouses full of large amounts of these goods that basically the package gets picked and packed there and then shipped on a truck across the border and put in U.S. mail. The third sort of related scam is using the de minimis, basically online platforms using third party sales, so not even like an Amazon fulfillment warehouse, basically is setting up an avenue for a tsunami of goods from totally unregulated, mysterious, and often unknown fulfillers. The third-party stuff is kind of the scariest of all, where basically because of the exponential growth of e-commerce as a means by which Americans buy products, consumers are being widely exposed to serious health and safety risks by fake products produced anywhere in the world, which get millions of potential customers for sales and delivery. That’s not just made easy and quick by listing as a third-party seller on a well branded e-commerce platform, but has an air of legitimacy and a false sense of security so that a good that would normally be pulled from some unreputable third-party seller whizzes right through with no inspection, and frankly the consumer doesn’t even know. Those are three really scary ways that the big online giants are using this loophole.

 

Ryan:

So how do you tackle a problem like this? What are potential solutions to this and how can they be implemented?

 

Lori:

The simplest fix is just to take the de minimis level back from $800 down to $200. That was a sneak attack amendment. People weren’t paying attention. No one even thought through necessarily what it would mean. Now that we see the outcomes, it should be brought back. But that would require Congress to pass it, House and Senate, and the prospect of that happening anytime soon is not great. And not only because of the big express shipment lobbying operations and Amazon and Ebay and Walmart and all the companies that would object, all the retailers, Zara and everyone else who enjoys using this loophole, but also cause right now even as people are more and more reliant on e-commerce because of the COVID crisis, Congress’ bandwidth to do stuff that isn’t immediate urgent COVID disaster is more limited. So, in the interim, the Trump administration can fix this by executive order. They have it within their hands, the Buy America, Hire America alleged administration, to fix this major trade scam. And the way to do it is basically Section 321, the way it’s written, gives enormous discretion to the Treasury Secretary to decide how the program will be administered. So you can’t unilaterally change that $800 is the amount, but you can basically determine what should or shouldn’t be subject to the waiver. So for instance, it seems pretty obvious that every good that is on the Consumer Product Safety Commission’s High Risk List because they do a risk assessment, they know of products like the hoverboards that were blowing up, burning, and burning down people’s houses. That’s on the list. Car seats, because there have been so many dangerous fakes brought in, that’s on the list. Certain other sports equipment, like helmets, where there’s so many dangerous bicycle fake helmets, etc., that’s on the list. Lots of toys with magnets in them, which little kids will swallow then have their guts ripped up internally there are right this day things that have allegedly been taken off these websites, these e-commerce platforms, you can find all these things if you look on these websites because these third-party marketers keep popping back up. All of those products should just not be subject to de minimis. Zero of those products should be getting in through this loophole. And it’s easy because the Consumer Product Safety Commission has a specific list. And so all those goods should not be subject. Similarly, if you’re thinking about fairness just as far as brick-and-mortar stores, and you’re thinking about the income lost for the government, it makes a hell of a lot of sense to say something like, “no product subject to more than a pick your amount-ten, percent border tax should be subject to de minimis.” That way you’re not making a huge thumb on the scale against brick-and-mortar companies, and you’re making sure you’re not gutting out revenue. And you could say, you know, the standard of Section 321 is for the convenience and the efficiency. Alright, you could say it’s inconvenient or not very efficient to bother collecting tariffs if it’s less than a 10% tariff on an $800 value good. But when it’s actually $100 of revenue versus $80 or more, hm, that makes more sense. So you could limit the amount of the tariff category and you’d knock a bunch of stuff out. Those are some things you could do right away as well as reversing the customs order that allows the scam of having whole shipping crates of individual packages somehow pretend not to be the e-commerce platform’s import, but pretend to be the customer’s import. Those three changes right away would fix about 90% of the problem. So given those three things would fix 90% of the problem, and the executive branch, the Trump administration, can do it solo, and they claim to be standing up for American companies and American consumers and trade, guess the big question is, what the hell are they waiting for?

Ryan:

That’s all for today, thank you all for listening. Rethinking Trade is produced by Public Citizen’s Global Trade Watch. I would encourage you to visit rethinktrade.org as well as tradewatch.org to educate yourself and to find out how you can get involved in the work we’re doing to fight for fairer and more equitable trade policies.

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