Obama Blocking Transparency at WTO?

Reuters is reporting that the U.S. has blocked the WTO from even looking into the compatibility of the bank bailouts with WTO rules:

At a meeting of the WTO's trade policy review body, the United States and Japan blocked proposals for future WTO analyses of trade measures to cover fiscal measures such as bailouts, according to an official who attended the meeting...

The WTO's regular protectionism reports, introduced in response to the financial crisis, have focused on conventional trade measures such as tariff increases and anti-dumping duties.

The call to include bailouts and stimulus packages was led by Argentina, backed by Ecuador, Cuba, Brazil, India and China.

These trade policy reviews are for transparency purposes only, and do not mean that the WTO is prohibiting countries from taking a certain course of action. As we've noted, the WTO limits on both domestic financial policy are expansive, and were developed by AIG, Citigroup, Larry Summers and Timothy Geithner. Might this latest move be an attempt to paper over their role in the WTO financial deregulation push? After all, if the WTO secretariat were to report that controversial policies like the bailouts were WTO violations, we'd have to fess up to the fact that a lot of popular proposals - like bans on risky financial products, or limitations on unlimited capital mobility - are also in conflict with various trade pact rules.

The U.S. has a sad history of pressuring developing nations to refrain from adopting policies that could prevent the deaths of millions (see here and here). Developing nations are going to see it as more than a little hypocritical that the U.S. doesn't even want to talk openly about its bailouts, which are also opposed by most Americans.

Unfortunately, this latest move in Geneva deals another blow against Obama's promise of greater transparency in the trade policy review making process, and a continuation of putting the big banks first.

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New Year’s Resolutions for the Obama Administration

With a number of important and high profile trade battles to be fought this year that will have far-reaching impacts on the U.S economy and domestic policy, we thought we’d suggest some New Year’s resolutions for president Obama to adopt on U.S. trade policy.

These resolutions are solutions that the administration needs to commit to in 2010, based on what's likely to move in the trade sphere this year. They hold President Obama to his campaign promise to deliver trade policy reform, and they’ll also help to fix the economy and keep good jobs in America.

The resolutions are:

  1. Push to modify World Trade Organization (WTO) limitations on domestic financial services regulation, in light of the economic crisis. Go here for details.
  2. Conduct a comprehensive review of trade agreement policy as promised during the campaign
  3. Announce formal new trade agreement approach that brings trade pacts into congruence with the administration’s domestic priorities and goals
  4. Pass climate legislation with meaningful border equality measures
  5. Pass second major stimulus bill with robust Buy America provisions to create jobs
  6. Pass food safety bill with serious import safety protections
  7. Use the Trans-Pacific Partnership talks to devise a replacement for the NAFTA model; we either need a new way or no deal
  8. Renegotiate remaining Bush trade agreements with South Korea, Colombia, & Panama to fix NAFTA model problems and bring them in line with the TRADE Act.
  9. Give the WTO’s “Doha Round” agenda a much needed burial and develop a new agenda related today's challenges aimed at fixing WTO problems, from financial services deregulation to limits on climate crisis redress space
  10. Fight for a China trade policy that supports jobs and also ensures product and food safety for both countries

Obama has already resolved to do a lot of these, but just as with most New Year’s resolutions, he’s somewhat fallen off the wagon.  We’re here to help him resolve anew and stick to it!

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DC's Bailing Out Them Bankers, as the Farmers Auction Ground

One of our favorite jam's around GTW this fall has been country artist John Rich's tune "Shuttin Detroit Down." Few songs capture better the anger that many in this country feel against the bankers that ruined the economy by infecting all sorts of institutions with toxic assets, and then going on to "take their bonus pay and jet on out of town."

But one issue that hasn't gotten a lot of attention is how our bank bailouts constitute subsidies that can be disciplined by the World Trade Organization.

The Scheduling Guidelines to the General Agreement on Trade in Services (one of 17 WTO agreements) state that the national treatment obligation “applies to subsidy-type measures in the same way that it applies to all other measures." This obligation targets policies that modify "the conditions of competition" in a way that - even inadvertently - favors domestic service providers.

There's been some uncertainty in policy circles as to how much bank bailouts might be carved out the subsidy obligations. Are these even subsidies, or are they just special programs for a special sector?

Looking back on over a decade of writing by the WTO Secretariat, it's pretty clear that - not only are bank bailouts considered subsidies - but they are some of the most frequent GATS-relevant subsidies. The WTO's Working Party on GATS Rules, over a set of five biannual reports, have targeted the following policies:

Continue reading "DC's Bailing Out Them Bankers, as the Farmers Auction Ground" »

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Reflections on Seattle WTO Anniversary '09

I'm on my way back from Seattle, having just attended the actions and people's summit celebrating the ten year anniversary of the WTO shutdown in 1999. Ten years ago this week, the Millennium Round of WTO negotiations to further bind the worlds' democracies to profit-over-people corporate policies - nearly identical to the current Doha Round - was stopped in it tracks.WTO IR Action N30 09

So much has happened since teamsters and turtles alike took over the streets of Seattle, labor marched, and tree sitters blockaded the convention center. During the weekend at the People's Summit, put on by the Seattle +10 Organizing Committee, Community Alliance for Global Justice, and the Washington Fair Trade Campaign, folks traded fond recollections of creative protest and dancing in the streets, chemical weapons and near misses, thoughts on broken widows and built alliances. You couldn't help but wish you had been there.

But it's true that much has changed since Seattle '99. Here are some thoughts, rooted in the past, that occur to me as we all look forward to the 21st Century Movement or Global Justice:

1) Support for trade justice has grown tremendously since 1999. We're right to be proud that we've stopped further WTO expansion since 1999, nearly stopped the Central American Free Trade Agreement, and have kept at bay the most damaging Bush-negotiated FTA deals with Colombia, South Korea, and Panama. We got stuck with the Peru FTA - but many organizations fought back and made clear that passing even economically tiny trade deals now requires a massive political cost.

2) Despite these victories, the damages of the WTO/NAFTA model are ongoing throughout the world. We can't forget that in addition to economic meltdown and joblessness in the U.S., that the food and climate crisis are already devastating the Global South. Add to these most glaring manifestations of the WTO-ified global insanity the cultural upheaval of widespread immigration, violent displacements of whole peoples for mining, megaprojects and monoculture, and wars of occupation for resources, and we still only start to get an accurate picture of the tattered world of 2009.

3) Its past time to return to direct denunciation of corporate power. In yesterday's global justice movement, we unabashedly called out the corporate powers as illegitimate and retrograde. Our primary gripe with the WTO, IMF World Bank, and FTAA, whether you were a student sweatshop activist, a tree-sitter, a manufacturing worker or a school teacher, was that those institutions gave more power to corporations to fell the old-growth, outsource and offshore, build more sweatshops, loot the public coffers and privatize our public services. Rhetorically, we made no bones about these institutions being vehicles that serve the corporate elite at the expense of the rest of us. We said if corporations were the ones doing the globalizing, we'd collectively resist their agenda. And that we have, uniting under common banners against a common opponent, one named corporate power. If we don't return to this footing, we'll remain fragmented as a climate movement, development and international solidarity, immigration rights, and food sovereignty movements.

4) Copenhagen = Seattle? The more I hear this comparison, the less I am sure. And note that I say this as someone who's increasingly convinced that the need for climate justice is the top challenge facing the global economy. What separates Seattle '99 and Copenhagen '09 is a clear understanding by social movements that corporate influence is rotting the process to the core. In Seattle, activists were clear that the WTO's development agenda was a trojan horse for corporate profits. Expanding corporate power was the aim of the talks, and the reason we shut it down.

Continue reading "Reflections on Seattle WTO Anniversary '09" »

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More Seattle 10th Anniversary

There's a lotta Seattle retrospectives going on.

  • Here's a Greg Palast video, where he actually interviews Pascal Lamy, head of the WTO, who admits that countries can face retaliation if they try to reregulate finance:

The trade fights of the future are not between US workers and Koreans; they are between a corporate agenda that encourages race-to-the-bottom profiteering and a popular vision of fair trade that respects workers, farmers, consumers and citizens in all countries. The electoral results of 2006 and '08 tell us that Wellstone was right: Americans are ready and willing to support a politics that seeks to civilize the global economy. Now, if we could just get a Democratic president to work with a Democratic Congress to offer them that politics...
  • Our own Lori Wallach has a fantabulous piece in The Nation on the WTO entitled "Obama's Choice."
As Americans committed to global justice, we must present the choice facing Obama in the stark terms it represents. Will he stand with the majority of Americans and implement his campaign commitments to change the rules of the global economy so they no longer "favor the few rather than the many"? Or will he side with the banksters and other global elites and fall back into the failed status quo? To repeat a popular refrain from the streets of Seattle: the whole world is watching.

That really is the question. You can plug into the growing call for a WTO Turnaround here.

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WTO Still Pushing More of the Same, WTO Turnaround Demanded

It's been ten years since the massive WTO demonstrations that rocked Seattle and the world. While the global justice movement has been successful in preventing further WTO expansion, President Obama has still not committed to fulfill his campaign promises on fair trade and launch a WTO turnaround. Read this exclusive report from our own Lori Wallach, who is on the ground in Geneva at the moment, and then take a moment to let President Obama know that you demand a WTO turnaround at www.WTOTurnaround.Org.


Dispatch: Lori Wallach. Location: Geneva, WTO Ministerial.

It's late afternoon here in Geneva as the 7th ministerial of the WTO is opening - 10 years to the day that the Seattle WTO protests rocked the world. 

Ten years after the world's most powerful governments and corporations failed to launch a massive WTO expansion at the 1999 Seattle WTO Ministerial, there still is not WTO expansion. BUT, there also is still no WTO turnaround - and the current rules are causing major damage on many fronts. 

In fact, the damaging outcomes of the WTO's radical financial service deregulation requirements, agribiz-written food trade rules and more have resulted in most of the WTO member countries favoring negotiations to fix the existing WTO rules.  

Thus, it was not surprising that the 300-plus press and civil society representatives who were just in a briefing presented by WTO Director General Pascal Lamy burst into repeated bouts of laughter when Lamy declared in short order that the WTO and the version of corporate globalization it implements had absolutely NOTHING to do with, respectively, the world financial crisis, the world food crisis or growing unemployment in numerous countries. In fact, the WTO was part of the cure to all of the above - oh, and the climate crisis also. 

This after the WTO Director General had been directly contradicted on the financial deregulation the day before at a public event that included Lamy and the trade ministers of various countries, including Brazil and South Africa. Meanwhile, yesterday the G-33 bloc of countries focused on the food crisis also explicitly fingered the current WTO rules as a cause of the crisis, not a solution. 

Lamy's comments came in response to questions about HOW the WTO intended to change its current rules to address their untenable outcomes. Instead, we were treated to the bizarre notion that the "Doha Round" - a watered-down-from-the-Seattle-plan-but-nonetheless-dangerous WTO expansion - is the answer to all ills. Yup, MORE WTO financial service dereg as the answer. More corporate control of food production and distribution as the answer. 

Meanwhile, the topic of the WTO Doha Round is too toxic to put on the agenda here. Yes, this is a WTO summit at which negotiation is not on the agenda. The WTO boosters knew that one more collapsed WTO summit, and the WTO expansion idea would certainly be toast. But, it's been too dangerous to get together for FOUR years, and this has caused an increasing crisis of legitimacy for WTO which is supposed to met biannually in a conference of minister-level officials who, per WTO mythology, set the organization's agenda and lend it the credibility of their governments. So, here we are. 

No country is willing to be blamed for officially pulling the plug on the Doha Round, yet many would be extremely relieved if some other country or bloc of countries did so. The speeches now being given at the opening ceremony are a bit Alice in Wonderland with calls for completion of the Doha Round based on terms and conditions not related to what is on the table. Perhaps the most interesting point raised by a trade minister here came yesterday from Brazil's Celso Amorim, who asked why almost a year into the Obama administration, the U.S. WTO representatives were continuing to push the same extreme GOP WTO agenda.

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It’s 10 pm… do you know where your trade negotiators are?

For the last two years of financial crisis, the WTO’s Committee on Trade in Financial Services has not seriously addressed the crisis, or any role that the WTO might have played in bringing it on. This is curious, since the WTO financial rules both require deregulation and, unlike other international bodies, actually have binding and enforceable dispute settlement.

It’s not for lack of trying. In meetings on March 31, the Kenyan and Tanzanian delegation asked to ensure that LDCs have “adequate policy space in confronting development issues.” The Indian delegation to these talks “mentioned the issue of standstill in the Understanding on Commitments in Financial Services. Many Members had made commitments according to the Understanding with a standstill clause. He wondered about the implications of that standstill commitment in the context of the major developments that had taken place.” He went on to ask about one of the major deregulatory requests made by the U.S., Canada and other countries.

You would think that this would be a perfect opportunity for the delegates of the Obama administration to clarify that there was a new sheriff in town, and further deregulation through WTO requirements were not being considered. Instead, even when given such a golden opportunity to announce the change of regime, said they were unwilling to discuss these issues in a non-negotiating forum. In other words, countries wanting the answer to that question must be prepared to discuss committing more to the WTO rules. Canada backed the U.S. up, and that was the end of the discussion.

But on June 24, things got a bit hotter. (The notes for this meeting were only recently disclosed to the public.) The first part of the meeting was relatively stale. The issues of Islamic finance and microfinance were brought up – believe it or not, among the most oft-raised issues in recent talks, and about as far as you can get from the issues that nearly brought down Wall Street, not to mention the hordes of unemployed and evicted.

That was the first agenda item. The second agenda item was even more alarming. The delegation from AIG (oops, the U.S.) had the audacity to suggest that it be allowed to make a presentation on the virtues of further market access (read: deregulation) of the insurance sector. This dragged on for half the session. The other delegations were incredulous, and began aggressively questioning (well, by Geneva standards) why such a presentation was appropriate.

Then, the levee broke. South Africa made a pointed question about the compatibility of rich countries’ bailouts, and whether they were consistent with GATS, or allowed by the so-called prudential “carve out.” Chile, Kenya, Argentina and China backed up the proposal. (As we've written, this isn't much of a carve-out... much more of a carve-in.)

Canada – presumably trying to offer cover to the U.S. for the bailouts – said that any questions about whether the bailouts were GATS-consistent should be handled bilaterally. The U.S. thanked Canada, and agreed that it was not the time or place to have this discussion.

Other delegations quickly called the North Americans on their hypocrisy – Brazil and India in particular. After spending half the session calling for a discussion of further deregulation of the insurance sector, now the rich countries did not want to talk about their bailouts.

The delegate of Bolivia put it well: “it was … quite strange to realize that the only committee that was not dealing with issues related to the financial crisis was in fact the Committee on Trade in Financial Services.”

Strange indeed. When do we get to see the Obama administration's new proposals on financial services? You know, the ones where we re-enshrine the right to regulate our domestic economies to ensure stability and prosperity?

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Bringing home the Battle in Seattle

Recently, we told you about our WTO Turnaround campaign – an effort urging President Obama to turn around the WTO’s failed policies. Starting this week as part of that campaign, in retirement communities and universities, at birthday parties and union halls, activists across the country will be holding special WTO Turnaround House Parties to celebrate the 10th anniversary of the Seattle protests where 50,000 activists took to the streets of Seattle and shut down the WTO. Battle_in_seattle_movie

The House Parties include showing a bonus special edition DVD of the feature film Battle in Seattle with exciting Seattle protest footage and a short new documentary we helped the Steelworkers produce about the protests and ongoing efforts to turnaround the WTO.

If you think you can pull together 10 or more of your friends and family, coworkers, church group, or classmates for a house party or screening, let us know and we’ll send you the DVD. We’ll also get you an activist tool kit with postcards to the president so that your friends and neighbors can remind President Obama about his trade reform commitments and the incredible citizen victory that happened in Seattle 10 years ago. We think that anyone, from the students, family farmers, unionists, and tree-sitters who rallied in Seattle in ’99 to all of those who wished they were there, won’t want to miss this DVD.  Click here for more info.

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Political spectrum agrees! WTO must change, for climate's sake

If you opened the Washington Post this morning, you might have been surprised to find an opinion piece on the barriers that World Trade Organization (WTO) rules pose for climate solutions. More surprisingly, the authors were a rather odd couple - our own Lori Wallach (longtime fair trade reformer), and C. Fred Bergsten (longtime trade agreement promoter). Here's a snippet:

There is a real danger that a collision between climate policy and trade agreements could derail two critical goals: controlling climate change and expanding trade.

But this danger is avoidable.

We are an unusual pair of advocates for this message. For a long time, we and our organizations have been on opposite ends of the debate over trade agreements, disagreeing about their effects on economies, livelihoods and domestic regulations.

But we agree on a surprising number of aspects of the climate-change debate and on the related need to overhaul global trade negotiations, which are stalled by disagreements and the worldwide financial crisis.

They go on to warn that "Implementing a treaty on global warming could require new trade rules in intellectual property, services, government procurement and product standards" and "that allowing the WTO adjudication process to handle trade disputes over climate matters is a recipe for discord and impasse."

As Fred and Lori's agreement on so many points demonstrates, the WTO must change, for the climate's sake. Similar notions have been floated from sources like the Center for American Progress, Sierra Club and even the WTO's own director general, Pascal Lamy.

When such a diverse spectrum of trade deal proponents and opponents agree, it's evidence of a path out of what President Obama called the "gridlock" on trade policy. This is a nice parallel to what we've seen in the House of Representatives this year - where New Democrats, Blue Dogs, Black Caucus, Hispanic Caucus, Progressives and even Republicans have come together on the TRADE Act to pave a new way forward on trade. The conversation on trade reform is also happening in houses across America, through the WTOTurnaround house parties.


The opinion piece references a 2008 Public Citizen report on what changes are needed to the WTO to implement then-candidate Obama's climate policies. You can find that report here (PDF).

Lori, in the WaPo piece, also mentions in the piece that "policymakers should fix existing WTO financial deregulation requirements rather than proceed with the Doha-round agenda of even more deregulation." For more info on what changes are needed to the WTO to address the financial crisis, go here.

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How NOT to Deal with Too Big to Fail

Over at the Baseline Scenario, Simon Johnson once again makes a good banking reform suggestion coupled with a bad WTO-related strategy:

the consensus is moving towards the view that state-supported banking (i.e., operating through implicit guarantees on Too Big To Fail banks) constitutes an unfair form of protectionism.  Financial services in this guise do not currently fall within the remit of the World Trade Organization, but it would be a simple matter to extend its mandate in this direction. In any reasonable judicial-type process, involving relatively transparent weighing of the evidence [proponents of big banks] would be most unlikely to prevail.

We blogged on some of Simon's over-reverence for the WTO a while back. In fact, the WTO does have rules on financial services, they do require financial deregulation, and specifically, they make it more difficult - not easier - to solve the too big to fail problem.

To wit: the WTO's General Agreement on Trade in Services Article XVI(2):

In sectors where market-access commitments are undertaken, the measures which a Member shall not maintain or adopt either on the basis of a regional subdivision or on the basis of its entire territory, unless otherwise specified in its Schedule, are defined as:

(a)        limitations on the number of service suppliers whether in the form of numerical quotas, monopolies, exclusive service suppliers or the requirements of an economic needs test;

(b)        limitations on the total value of service transactions or assets in the form of numerical quotas or the requirement of an economic needs test;

(c)        limitations on the total number of service operations or on the total quantity of service output expressed in terms of designated numerical units in the form of quotas or the requirement of an economic needs test;(9)

(d)        limitations on the total number of natural persons that may be employed in a particular service sector or that a service supplier may employ and who are necessary for, and directly related to, the supply of a specific service in the form of numerical quotas or the requirement of an economic needs test;

(e)        measures which restrict or require specific types of legal entity or joint venture through which a service supplier may supply a service;...

Financial services is a sector that countries can commit under the GATS, and over 100 countries did so for this market access obligation - including the US and EU. You can see what deregulators would like this provision:

  1. It prohibits even non-discriminatory size caps (i.e. it's deregulation, not just liberalization);
  2. It limits the ability of countries to specify that investment services can't be provided by a commercial bank, or make other requirements that certain services have to be provided by non-profits;
  3. It contemplates five different ways that governments might try to limit size, and prohibits all of them - even at the subfederal level of government.
  4. Then, there are other GATS-related rules, like GATS Article VI and the Understanding on Commitments in Financial Services that pose additional deregulation obligations on nondiscriminatory policies.

Even without these specific rules, the WTO dispute settlement system's 15 year track record of ruling against over 90 percent of challenged public interest laws should give pause to any reformer looking to utilize it to serve the public interest. It's interest is in maximizing trade flows, not preserving sound regulation.

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Killing Regs, Not Just Applying them Equally

I wanted to share a bit more about the Citigroup Global Services Summit soiree, which I posted on last week.

On a substantive level, what was the tenor of the conference? First, a reluctant concession to the political-economic reality that more financial services regulation might be necessary and/ or likely to be imposed; and second, some positioning against over-regulation, with veiled references to WTO disciplines against domestic regulations.

At the same time, because this was a meeting of WTO boosters, many folks claimed that trade deals would not prevent reregulation - no matter how lacking these arguments were on the merits. (On a parallel track, Goldman Sachs has recently been showing how to do this two step, first here, and then here.)

Here was WTO Secretary-General Pascal Lamy:

"As you all know, in the world of the GATS, ‘liberalization’ is essentially about opening specified sectors to competition on a non-discriminatory basis. It does not mean deregulation. It has long been recognized that opening up certain services, such as financial and telecom services, may require a regulatory framework in order to protect consumer interests, and ensure competitive markets. At this point in the services negotiations, this is very important. Let me repeat it: opening markets is one thing, you can do it more or less. Regulation is another. You can open and regulate, open and not regulate, not open and regulate, or not open and not regulate. At this moment, it is important to understand this. If you open your market, you are saying you are regulating foreign and domestic in the same way. It is no coincidence that the GATS Annex on Financial Services preserves the right of Members to take measures for prudential reasons even if they do not conform to its obligations under the Agreement.”

It's rare to see the titular head of an organization so blatantly misrepresent its purpose. Do the international nuclear agencies claim they're really food groups? Does the UN claim to do stand up?

As a report we put out last month shows, Lamy disregards a coterie of hairy provisions in WTO texts that would limit countries' ability to reregulate: this includes the Annex provision cited by Lamy.

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

GATS Article VI also creates a mandate to discipline "non-discriminatory" regulations. And, as I noted in a recent post, the WTO secretariat explicitly says that many consumer protections - let alone requirements that banks reinvest in their communities - would be disciplined by either Article VI, XVI or XVII of the GATS.

How can anyone say with a straight face that this is just liberalization, not deregulation?

(HT to Ellen Gould for many of these points.)

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Citigroup, Ward of State, Funds Conference Advising Bankers on Warding off State

Citigroup was birthed by the Clinton administration's financial deregulation proposals, and was most recently saved from total collapse by the Bush/ Obama administrations.

This is not a bank with an arms length relationship with government - in fact, so much not that Mexico may force Citigroup out of the country because of laws there against state-owned entities owning large banks like Banamex. (And, as if to prove that there's still no life beyond the nanny state, it seems that sources close to Citigroup are talking up the notion of further state assistance, this time via a NAFTA challenge.)

Apparently in Washington, having such a strong track record of dependence on taxpayer-funded policies like bailouts and trade pacts (not to mention government sign off for commercial banks to invest in toxic securities) does not disqualify you from funding a conference advising banks and other corporations how to get the guv'mint off your back.

Case in point. Last week, Citigroup helped put on the Global Services Summit here in DC. Many top corporations also lent a hand, such as Wal-Mart. Anyone willing to cough up at least $250 could go and be feted by the top brass in service-sector corporations and lobby groups, and enjoy a close personal audience with policymakers from around the globe.


I decided to go and check things out, and not only because I love filet mignon kabobs, of which copious portions were served during the reception hour. (Oh, and did I mention the party favor that was handed out: the cutest, Made-in-China Citigroup pig bank?)

No, I was curious to see whether my taxpayer investment in Citigroup was helping them turn their act around, or whether they were simply pushing more race-to-the-bottom policies. Did Citigroup and their ilk tame their ambition to deregulate in the wake of the financial crisis? What I found was quite the opposite: corporate lobbyists and government officials busily exhorted one another to push expansion of the WTO, the rules of which explicitly require further financial services deregulation. Here's just some of what they had to say about their vision of the corporate-government partnership to push such controversial WTO rules:

Continue reading "Citigroup, Ward of State, Funds Conference Advising Bankers on Warding off State" »

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WTO Turnaround - Battle Continues Ten Years After Seattle

Ten years ago next month, 50,000 global activists shut down the WTO ministerial in Seattle. History was made when a devastating plan to expand the WTO's reign of corporate globalization was derailed.Wtoturnaround-350

On November 30, 2009 - ten years to the day of the Seattle protests - trade ministers and their corporate allies will meet in Geneva to try once again to expand the WTO, in spite of the global economic disaster caused by their failed policies.

We aren't letting it happen. Instead, we're helping to launch the WTO Turnaround campaign to mobilize fair traders to keep the pirit of Seattle alive, and demand an end to the WTO's expansion of corporate rule that threatens workers, the environment, public health, sustainable development and democracy across the globe.

We at GTW are proud to join activists worldwide in demanding that the existing WTO regime be fundamentally transformed - shrunk or sunk, fixed or nixed - as go the slogans from protests past. The WTO Turnaround campaign features a petition drive, nationwide house parties and WTO-related movie screenings, speakers tours, as well as protests and vigils nationwide on the eve of the WTO ministerial in Geneva in late November.

The first push is an online petition drive. We're helping gather as many signatures as possible to let President Obama know we'll mobilize to support him acting on his campaign promises to push for fundamental change at the WTO. Over a thousand activists committed in the first hours of the campaign, and more are signing on every minute.

Visit the new site today to add your voice to theirs at the WTO Turnaround campaign site, and stay tuned to Eyes on Trade for all the latest on the much-needed WTO-Turnaround.

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"Stiglitz Commission" Calls for WTO financial services reform

For folks that have not gotten a chance to look at the final United Nations "Stiglitz Commission" report on the financial crisis, it is will worth a read. Here are just some of the highlights:

  • "many developing countries have entered into (North-South) free trade agreements (FTAs), bilateral investment treaties (BITs), and World Trade Organization (WTO) commitments that prevent them from regulating the operations of financial institutions and instruments or capital flows. For example, if a developing country decides to nationalize some services such as banking, this can require compensation if the sector has been liberalized under the WTO GATS Financial Services Agreements (FSA) or under an FTA or BIT. When these agreements and commitments are enforced, developing countries have to pay compensation or suffer the imposition of tariffs on their exports to the complainant if they do not or cannot comply." (at 38-39)
  • "The framework for financial market liberalization under the Financial Services Agreement of the General Agreement on Trade in Services (GATS) under the WTO and, even more, similar provisions in bilateral trade agreements may restrict the ability of governments to change the regulatory structure in ways which support financial stability, economic growth, and the welfare of vulnerable consumers and investors (see Chapter 4, Appendix)." at 82.
  • "Capital and financial market liberalization, pushed not only by the IMF but also within certain trade agreements, exposed developing countries to more risk and has contributed to the rapid spread of the crisis around the world. In particular, trade-related financial services liberalization has been advanced under the rubric of the WTO’s General Agreement on Trade in Services (GATS) Financial Services Agreement with insufficient regard for its consequences either for growth or stability. Externalities exerted by volatility in the financial sector have severe negative effects on all areas of the economy and are an impediment to a stable development path. Chapter 3 and discussions earlier in this chapter emphasized how inadequate regulation in one country may harm others. Unfortunately, while the GATS Financial Services Agreement provides the only significant regulatory framework for international financial services, it was not conceived and negotiated with these broader considerations in mind but rather was driven by sectoral interests. These special interests often do not realize (or care about) the vulnerabilities that these commitments impose on other aspects of their economy or the international economy." (103)
  • "Policy space is restricted not only by a lack of resources but also by multilateral and bilateral agreements and by the conditionalities accompanying assistance. Many bilateral and regional trade agreements contain commitments that restrict the ability of countries to respond to the current crisis with appropriate regulatory, structural, and macroeconomic reforms and support packages. Developing countries have had imposed on them deregulation policies akin to those that are now recognized as having played a role in the onset of the crisis. In addition, they have also faced restrictions on their ability to manage their capital account and financial systems (e.g. as a result of financial and capital market liberalization policies). These policies are placing a heavy burden on many developing countries." (104)
  • "Agreements that restrict a country’s ability to revise its regulatory regime—including not only domestic prudential but, crucially, capital account regulations—obviously have to be altered, in light of what has been learned about deficiencies in this crisis. In particular, there is concern that existing agreements under the WTO’s Financial Services Agreement might, were they enforced, impede countries from revising their regulatory structures in ways that would promote growth, equity, and stability."
  • "More broadly, all trade agreements need to be reviewed to ensure that they are consistent with the need for an inclusive and comprehensive international regulatory framework which is conducive to crisis prevention and management, counter-cyclical and prudential safeguards, development, and inclusive finance. Commitments and existing multilateral agreements (such as GATS) as well as regional trade agreements, which seek greater liberalization of financial flows and services, need to be critically reviewed in terms of their balance of payments effects, their impacts on macroeconomic stability, and the scope they provide for financial regulation. Macroeconomic stability, an efficient regulatory framework, and functioning institutions are necessary preconditions for liberalization of financial services and the capital account, not vice versa. Strategies and concepts of opening up developing economies need to include appropriate reforms and sequencing. This is of particular importance for small and vulnerable economies with weak institutional capacities. But there has to be a fundamental change in the presumptions that have guided efforts at liberalization. As noted in previous chapters, one of the lessons of the current crisis is that there should be no presumption that eventually there should be full liberalization. Rather, even the most advanced industrial countries require strong financial market regulations." (105)
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Check Out Rep. Levin's Guide on the Chinese Tire Case

As the media continues to cover the Obama administration’s recent decision to impose tariffs on tire imports from China, Congressman Sandy Levin has released a very useful guide covering the primary issues and arguments involved in the dispute - it is especially helpful in terms of distinguishing fact from fiction in the case.

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LOLR Exception, LOL?

I got several comments and questions following yesterday's post on capital requirements and WTO obligations. One commenter asked about whether Federal Reserve actions are carved out of the GATS, and another pointed out that the WTO has put out a 1998 document further classifying regulatory measures into a taxonomy by GATS applicability. Both questions highlight the uncertainty surrounding overly intrusive WTO/ GATS obligations.

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G-20 Summit: Yes, Actually Dangerous

Yep, the G-20 did it a third time: they called for reregulation and deregulation simultaneously. Here's the leaders' statement from the Pittsburgh meeting last week:

We will keep markets open and free and reaffirm the commitments made in Washington and London: to refrain from raising barriers or imposing new barriers to investment or to trade in goods and services, imposing new export restrictions or implementing World Trade Organization (WTO) inconsistent measures to stimulate exports and commit to rectify such measures as they arise. We will minimize any negative impact on trade and investment of our domestic policy actions, including fiscal policy and action to support the financial sector. We will not retreat into financial protectionism, particularly measures that constrain worldwide capital flows, especially to developing countries...

We remain committed to further trade liberalization. We are determined to seek an ambitious and balanced conclusion to the Doha Development Round in 2010...

As my colleague Lori Wallach noted after this was released:

The G-20 leaders have announced a very perplexing plan of action that calls for reregulation of the financial sector to try to avoid the next economic crisis while simultaneously calling for completion of the WTO Doha Round, which would require additional financial deregulation, including new WTO limits on accounting standards through a text the disgraced Arthur Andersen firm had a hand in formulating.

Perversely, the Europeans at the G-20 have been the strongest proponents of a new global floor of financial regulation while simultaneously being the strongest proponents pushing for a G-20 agreement on a new deadline for completion of the WTO Doha Round, which European negotiators have packed with new financial deregulation requirements. The G-20 leaders cannot have it both ways: They cannot follow through on desperately needed reregulation of the financial sector while also pushing for completion of the WTO Doha Round, which requires additional financial deregulation.

Over at the Baseline Scenario, Simon Johnson asks a good question: "Was The G20 Summit Actually Dangerous?"

consider for a moment the key way in which the G20 summit has worsened our predicament.

There is broad agreement that capital requirements need to be increased and a growing consensus that very large banks in particular should be required to hold bigger equity cushions.  This is a pressing national priority – if our financial system is to become safer – and reasonable people are starting to put numbers on the table, ever so quietly: Joe Nocera is hearing 8%, but Lehman had 11.6% tier one capital on the day before it failed and the US banking system used to carry much more capital – back in the days when it really was bailout free (think 20-30% in modern equivalent terms (see slide 40 here).

Obviously, raising capital standards in the US is going to be a long and drawn out fight.  The G20 could help, if it set high international expectations, but the opposite is more likely.  As Nocera suggests this morning, the inclination of the Europeans – largely because of their funky “hybrid” capital, but also because they have some very weak banks – will be to drag their feet.

Why should we care?  This administration seems to think that we need to bring others with us, if we are to strengthen capital requirements.  Our progress will be slowed by this thinking, the glacial nature of international economic diplomacy, and the self-interest of the Europeans.

Instead, the US should use its power as the leading potential place for productive investments to make this point: If you want to play in the US market, you need a lot of capital.  If you would rather move your reckless high risk activities overseas, that is fine.

I couldn't agree more, and while we're at it, let's break up all the big banks, and divide up their investment from their commercial arms.

But I think Simon errs in his passing comment that "this process needs to be WTO-compliant." The solution is to walk and chew gum at the same time: reform the banking sector AND reform the WTO.

Continue reading "G-20 Summit: Yes, Actually Dangerous" »

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Lori Wallach at the G20 and on Democracy Now!


Check out the video above, in which GTW Director Lori Wallach discusses how the WTO's Financial Services Agreement undermines the stated G-20 goal of reregulating the financial sector.

Updates from the ground in Pittsburgh are plentiful, for instance a New York Times story with this quote:

Trevor Griffith, 21, was part of the march after driving 16 hours from Pensacola, Fla., with three fellow students from the University of West Florida.

“The fact that 20 or so individuals right now are determining economic trade policies for four to five billion people just isn’t right,” Mr. Griffith said. “That’s why we’re here.”

Also check out some photo galleries at the Post and the Times, or, for something a little more Web 2.0 and less dinosaur media, this monster discussion forum thread.

Finally, for more from us, check out our new report that Todd just posted about, and the action alert we sent on Wednesday asking folks to call on Obama to turn around the WTO.

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New Report: G-20 Must Commit to WTO Reform to Build Financial Stability

This week, President Obama is meeting with other leaders for the G-20 Summit in Pittsburgh, a city ravaged by trade-related job loss.

Global justice advocates are also meeting up there to "push for more vigorous regulation of financial and credit markets, more stringent environmental standards and stronger commitments to human rights and the rights of workers to organize," according to the Steelworkers (whose home base is the 'Burgh). And John Sellers of the Ruckus Society told the New York Times that "crowds of demonstrators on Thursday and Friday would be significantly larger than the nearly nonexistent crowds that showed up for the last G-20 meeting in the United States, in Washington last November."

To help kick off the welcome party, we've released a new report that looks at the WTO's financial deregulation requirements. In particular, we examine a WTO provision on financial stability measures, and find that - contrary to the claim of some of the WTO's defenders - it doesn't offer a safe harbor for prudential tools.

That's the bad news. The good news is that the report makes a series of policy recommendations to fix this conflict. Some of them are surprisingly simple, and could be accomplished with a healthy dose of political will. Oh, and a bit more grounding in reality than the last two G-20 summits, which have called for reregulation on the one hand, and WTO-led deregulation on the other.

The public is echoing this call for financial and WTO reform. As we reported last week,

Over 50 organizations representing over eight million Americans released a letter today that they sent to President Obama urging him to "advocate a global regulatory floor, and oppose any efforts to impose a ceiling" on re-regulation in the upcoming G-20 Summit.

And the AFL-CIO has adopted a resolution, which says,

We should not adopt or negotiate new trade agreements until we review the record of existing trade agreements and build a comprehensive new trade policy that will support the creation of good jobs at home. The TRADE Act, introduced by Rep. Mike Michaud with more than 100 co-sponsors in the House, and soon to be introduced in the Senate by Sen. Sherrod Brown, lays out such a review and reform. Reform must apply both to bilateral agreements and to new talks at the World Trade Organization. We should use the strategic pause to review the performance of past trade agreements and recommend renegotiation where needed... WTO rules must accommodate trade-related measures to coordinate responses to global environmental challenges."

Now, you too can make your voice heard, in this petition to President Obama. Here's the pitch from my colleague Bill Holland:

Petition to President Obama: Turn Around the WTO!

World leaders at this week's G20 Summit will issue plans for reregulating the financial industry to help solve the economic crisis. Yet, bizarrely those same leaders will push for completion of the current WTO negotiations - called the Doha Round - which at its core calls for further financial services deregulation and pressures governments to limit their regulation of banks.

We need to stop this.

President Obama needs to hear from you that he must lead the renegotiation of existing WTO rules – like he said he would on the campaign trail. And, he must pull the plug on the lunatic idea of the WTO Doha Round requiring further financial service deregulation - which would only exacerbate the economic crisis. Sign our petition to the president telling him to turn around the WTO.

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Flash Trading Ban a WTO Concern?

By Todd Tucker and Mohammad Khan (ed note: Khan was our star intern this summer, helping bring us up to speed with his considerable knowledge of financial markets. We thank him for helping co-write this blog post.)

Note: This post assumes some level of understanding of high frequency trading (HFT); a comprehensive introduction can be found on pages 8-14 of The New Bull Market Fallacy. This post examines the compounding difficulties in the regulation of HFT.

Last week, the Securities and Exchange Commission (SEC) attracted headlines when its commissioners unanimously voted to propose a ban on the controversial use of flash trading.

Yet, what is this practice, and what are its implications under international pacts like the World Trade Organization (WTO)?

Some brief background into the development of HFT is useful at this point. Accusations of espionage and intellectual property theft have recently become common in the HFT community, as individuals move from one HFT institution to another in an attempt to replicate their successes for more compensation. Goldman has been embroiled in a recent scandal regarding its “trading huddles” stemming from a WSJ article that accused Goldman of exclusively tipping off its major clients with internal recommendations unavailable to other Goldman clients.

 Analogous to credit rating agencies in the current crisis, market exchanges are vulnerable to conflicts of interest. Not adopting dangerous programs like flash trading results in a loss of market share; and although adopting flash trading programs magnifies risk and presents many new problems, exchanges have been forced to enter the HFT realm. HFT, flash orders in particular, have spawned a race to the bottom for exchanges. In an effort to maintain market share, exchanges have been forced to employ tactics like flash trading that they fully admit are not beneficial to market participants, but simply cannot afford to pass up. Take these statements from exchanges about flash orders: NASDAQ, BATS and NYSE.

Not all exchanges are similarly repentant. Direct Edge is the lone market center that has unrepentantly (and almost single-handedly) forced flash trading down the throats of other exchanges and continues to defend this position. Unsurprisingly, it has gained considerable market share since employing its Enhanced Liquidity Provider flash trading program.

To complicate matters a bit more, a recent WSJ article notes that Direct Edge is “owned 31.5% by the German-Swiss owned International Securities Exchange.”

While these conflicting interests certainly complicate the regulation of HFT, any new restrictions face yet more limitations in the form of international agreements like the World Trade Organization’s (WTO) provisions on financial services.

Continue reading "Flash Trading Ban a WTO Concern?" »

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Americans for Financial Reform Urges World Leaders to Change Course on Global Financial Deregulation

Over 50 organizations representing over eight million Americans released a letter today that they sent to President Obama urging him to "advocate a global regulatory floor, and oppose any efforts to impose a ceiling" on re-regulation in the upcoming G-20 Summit.

The event will bring the heads of the 20 leading economies to Pittsburgh, Pennsylvania from September 24-25, and "will be the next critical test of whether the United States can inspire the governments of the other major economies to join together to begin the vital work of creating a global economy that delivers a future of widely shared economic prosperity and security at home and abroad," said the labor, consumer and faith groups, which include Americans for Financial Reform – the coalition of 200 groups that is leading the efforts to reform and restore oversight, accountability, and transparency to the nation’s financial system.

The letter calls on President Obama and the G-20 to establish "a global regulatory floor for hedge funds, private equity funds, derivatives and off balance sheet activity."

The groups also urged the president "to lead an effort to ensure international agencies are pursuing policies that support global economic recovery." The letter notes that the International Monetary Fund (IMF) and World Trade Organization (WTO) impose deregulatory requirements that impede nations’ ability to resolve problems like "too big to fail" financial service providers and destabilizing capital flight.

Continue reading "Americans for Financial Reform Urges World Leaders to Change Course on Global Financial Deregulation" »

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Pay No Attention to the Man Behind the Curtain

The WTO is proudly touting “WTO Open Day” occurring next week, during which the WTO will open its Geneva headquarters to the public and host activities and guided tours of the building. There will apparently be children’s activities and foods from a variety of member nations. 

This lip service to transparency is ironic considering what we know about how the WTO actually operates: WTO decisions are made by committees and panels that meet behind closed doors with no public disclosure or accountability. The influence of business is apparent, and one WTO staffer admitted to the Financial Times that the WTO “is the place where governments collude in private against their domestic pressure groups” (Guy de Jonquieres, “Network Guerillas,” Financial Times, Apr. 30, 1998). 

Judgments in the WTO’s dispute resolutions tribunals are made by panelists selected for their trade credentials, rather than expertise on public health, environmental protection, or international development. Decisions are made based on documents that are never made public and with testimony from anonymous “experts.” The bias towards industry over public interest concerns is clear: since its creation in 1995 the WTO has ruled over 90 percent of the time that environmental, health, or safety policies before it constitute an illegal trade barrier and must be changed or removed. Furthermore, the WTO acts as a deterrent to the development of important and necessary public interest policies, as many developing countries do not have the money or expertise to defend themselves before the WTO. It is an organization shrouded in secrecy that consistently protects the interests of big business, with wide-ranging and damaging consequences for citizens all over the world – but perhaps the visitors on WTO Open Day will be too distracted by the culinary delicacies to notice. 
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New FDIC Rules, Offshore Hedge Funds and WTO Rules

The AP reports on new FDIC rules that pose additional restrictions for hedge funds relative to bank holding companies when they acquire failed banks:

The Federal Deposit Insurance Corp.'s board voted 4-1 to reduce the cash that private equity funds must maintain in banks they acquire.

Private equity funds tend to buy distressed companies, slash costs and then resell them a few years later. They have been criticized for excessive risk-taking. But the depth of the banking crisis has softened the FDIC's resistance to them...

Under the new rules, a buyer would need to maintain the bank's capital reserves equal to 10 percent of the failed bank's assets, down from 15 percent under an earlier proposal. That compares with a 5 percent minimum requirement for banks that buy other banks. And the new policy limits the circumstances under which private investors must maintain assets that could be provided if needed to bolster banks they own.

But the FDIC sought to guard against private equity funds that might want to quickly buy and sell at a profit: It required the acquiring investors to maintain a bank's minimum capital levels for three years.

But as the WSJ reported:

Hedge-fund assets in offshore tax havens such as the Cayman Islands and Bermuda represent more than two-thirds of the roughly $1.3 trillion industry, according to Hedge Fund Research Inc.

Of those offshore assets, industry insiders estimate, between $400 billion and $500 billion belongs to U.S. investors, with tax-exempt foundations, endowments and pension funds accounting for about half of that. Investors from outside the U.S. make up the rest.

What implications might this have for our trade and investment rules? Changes in minimal capital requirements would probably not run afoul of WTO member countries' market access commitments, but they could impact their commitments on domestic regulations.

Continue reading "New FDIC Rules, Offshore Hedge Funds and WTO Rules" »

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The most awesome WTO agreement that no one can remember

After years of celebrating the WTO Financial Services Agreement, many analysts and institutions appear eager to pretend it doesn't even exist.

Take a new report by Gary Hufbauer of the Peterson Institute and his colleagues Luca Rubini and Yee Wong. They assert that:

By far the largest bailouts were extended to the financial sector, both in the United States and Europe. This is not surprising, since reckless behavior by major banks and insurance firms created the epicenter for the Great Crisis and threatened to drag the entire world into the Second Great Depression. By our reckoning, shown in Tables 1 and 2, the United States has extended $1.7 trillion to financial institutions, and European member states have extended $854 billion. These figures exclude mortgage market support and the Fed’s dealings in commercial paper (which exceeded $6 trillion), though of course those measures were entwined with rescuing the financial system. The threat of a Second Great Depression furnished the justification for financial sector bailouts on an unprecedented scale.

The Agreement on Subsidies and Countervailing Measures (ASCM) was not extended to discipline subsidies in the service sector. Moreover, the General Agreement on Services (GATS) does not provide meaningful regulation of service subsidies. Accordingly, WTO members have no grounds for complaining in the WTO Dispute Settlement Mechanism when another member provides massive assistance to a bank or insurer, even when the assistance enables the recipient firm to survive and compete vigorously in the global marketplace.

As support, they cite an opinion piece by Arvind Subramanian and Aaditya Mattoo, the latter a GATS expert who should know better. In their joint piece, they write:

We have witnessed protection imposed through traditional instruments, such as tariff increases, restrictive import licensing, state aid (especially in the automobile and financial sectors), anti-dumping actions, and discriminatory government procurement, which has assumed greater importance in industrial countries because of the increased role of the state and higher government expenditures. There have also been newer forms of protection, including undervalued exchange rates, environmentally motivated trade restrictions, resource nationalism (such as when countries restricted the export of food during last year’s commodity crisis), and now financial nationalism, whereby financial resources are directed to national firms.

These differing forms of protection share two common features – they are consistent with current WTO rules and, for the most part, are not being addressed in the Doha Round.

The authors seem not to have read the Guidelines for Scheduling GATS Commitments, adopted by WTO Members in 2001, which state:

“Article XVII [National Treatment] applies to subsidies in the same way that it applies to all other measures. ... any subsidy which is a discriminatory measure within the meaning of Article XVII would have to be either scheduled as a limitation on National Treatment or brought into conformity with that Article. Subsidies are also not excluded from the scope of Article II (MFN). In line with the paragraph above, a binding under Article XVII with respect to the granting of a subsidy does not require a Member to offer such a subsidy to a services supplier located in the territory of another Member.”

So, for scheduled sectors, subsidies that favor domestic financial industries can certainly conflict with the GATS. The United States committed essentially the entirety of its financial services sector to GATS coverage, thanks in large part to negotiations led alternately by Timothy Geithner and Larry Summers in the 1990s. And, as pages 12-13 of this document show, subsidies are not excluded from the national treatment obligations for services suppliers operating in the United States (i.e. Mode 3, or establishment).

As the Wall Street Journal recently noted, banks like Goldman Sachs that benefited from government largesse and thus weathered the storm, certainly have a leg up on the competition. Meanwhile, no foreign bank got TARP money, or had access to many of the other bailout programs. Banks that did not have access to these bailout funds and found themselves eliminated from competition are likely to feel very differently than Mattoo and Hufbauer.

Despite disagreeing with these authors on the empirics, I do agree with their prescription to negotiate more policy space on crisis-related measures, especially prudential financial regulations and capital controls.

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USTR Refuses Public Disclosure of US-Russia Trade Agreement

[Editorial note: This post is written by guest blogger Steve Charnovitz of George Washington University Law School.  The views expressed herein are solely those of the individual contributor and do not necessarily reflect those of Public Citizen.]

This is a follow-up to my blog post of July 20, 2009 about my efforts to use the Freedom of Information Act (FOIA) to get the Office of the U.S. Trade Representative (USTR) to release the text of the US-Russia Bilateral Market Access agreements signed on November 19, 2006.  After several unsuccessful efforts by email and phone to get the text, I had written to the USTR FOIA officer, Carmen Suro-Bredie, on November 19, 2008.  The US-Russia agreement was negotiated as part of Russia’s longtime efforts to join the World Trade Organization and I was interested to see the precise terms of this legal arrangement.

Ms. Suro-Bredie denied my request in a letter dated July 28, 2009 which I received on August 3.  She said that the completed trade agreements are considered “foreign government information” that are exempt from disclosure under Exemption 1 of the FOIA.  In addition, she described her turndown letter as a “complete response to your request,” and advised that “I am closing your file in this office.”

Although I was surprised about how long it takes to get a response from USTR (251 days elapsed between November 19 and July 28), I was not surprised by USTR’s position that it will disclose only what it is required to by law. As a veteran USTR watcher, I have observed that USTR is hardwired to keep trade treaties and negotiations as secret as possible from the American public. Bureaucracies are highly resistant to change, even when a new Administration comes to office promising “Change We Can Believe In” and specifically pledging that it wanted a presumption for FOIA disclosure and greater transparency and accountability in government. So I was not surprised by the turndown of my request for transparency.

Continue reading "USTR Refuses Public Disclosure of US-Russia Trade Agreement" »

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Another Race to the Bottom

As the United States and other countries around the world embark on properly regulating the financial services sector in hopes of preventing future financial collapse, House Financial Services Chairman Barney Frank warns that an international "race to the bottom" could undermine these efforts.

Congress Daily reported last week:

Frank said that there is wide agreement among the European Union, Canada, France and others that there must not be an "escape hatch" as countries revamp their systems to make their rules sufficiently similar to others.

"Everyone understands that it would be fatal," Frank said. "There is just overwhelming agreement that this is going to be done in a multinational, coordinated way and that a great conglomeration is going to come down hard on anybody that tries to play games with it."

While Frank deserves praise for pledging to prevent the woefully low regulatory floor that would be created should some countries fail to implement stricter regulations on financial services, policymakers also need to be careful about the regulatory ceiling that could be imposed by the World Trade Organization (WTO) and other international trade agreements.   

Americans for Financial Reform lays out a set of guiding principles for re-regulating financial services in the global arena which will help ensure that policymakers and regulators have the policy space to get it right.

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U.S. Pushes for Ceiling on Global Financial Re-regulation

Here we go.

Since last year, we've been predicting that it was only a matter of time before governments and corporations decided to start invoking trade-law concepts to talk down the ambition in financial re-regulation, but I wouldn't have guessed that entities headed by "Barack Hussein Obama" and the "Labour Party" would be kicking off the kicking.

Reports the WSJ:

The U.S. and U.K. are lining up to change the European Union's proposed Alternative Investment Funds Directive, a sweeping bid to overhaul regulation of hedge funds, private equity and other alternative investment funds...

The directive would effectively apply to all funds and financial firms, including those based in the U.S., if they want to raise cash or provide services in Europe. This so-called equivalence test may block some U.S. companies from operating in Europe, given that the European directive goes much further than proposed increases in U.S. fund regulation. The U.S government wants hedge funds to register and provide more information but isn't looking at rules such as leverage caps.

The U.S. signaled its position in a little-noticed speech late last month by Mark Sobel, the U.S. Acting Secretary for International Affairs. "In a world of mobile capital...we cannot go our own ways, deviating significantly from international standards," Mr. Sobel told the Federation Bancaire Francaise, a Paris-based banking association. "Nor should we impose standards on one another if we are not identical."...

The U.K., which already regulates hedge-fund managers, believes the European rules go too far and will drive funds out of Europe in what was described as a "weak form of protectionism" by Paul Myners, a U.K. government minister responsible for London's financial center.

What's noteworthy about the EU proposal is that it is non-discriminatory, i.e. would apply to European and U.S. firms alike. But even non-discriminatory regulations conflict with WTO market access terms.

This is the real danger for advocates who wish to postpone or avoid the international re-regulation dimension: if you haven't adequately prepared by calling simultaneously for domestic re-regulation and removal of the WTO and other institutions' regulatory ceiling, you too could end up being called a (gasp) "protectionist." And, it ain't fun, I assure you.

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Panamanian Firm Beats U.S. Taxpayers

The Wall Street Journal reports that Starr International Co., a Panamanian firm led by former AIG head Maurice Greenberg, has prevailed in litigation against AIG.

A little background is necessary. Over several decades, Greenberg helped convert AIG from a sleepy insurance company with origins in pre-revolutionary China into a world-threatening leviathan, which expanded into insuring collateralized debt obligations via credit default swaps. The firm became too interconnected to fail, and when the value of the underlying mortgage-backed securities it was insuring went south, AIG ended up owing money to all sorts of counterparties all over the U.S. and global economies. Greenberg was also deeply involved in policy matters, serving as midwife to the WTO's Financial Services Agreement.

Now U.S. taxpayers, as the primary shareholders in AIG (Greenberg's SICO is the second largest) are trying to get capital back on the firm's books so that the firm and its counterparties can begin to return to health and the taxpayers can get their money back, with some return.

And, then there's the interesting part...

As we reported in March, under Greenberg, AIG maintained affiliations with a variety of offshore entities,  including Panama's SICO, often to provide reinsurance and other services. Part of SICO's role in the division of labor was to operate a compensation pool for top AIG staff, who would get rewarded for good behavior with AIG stock held by SICO. As the WSJ reported:

The trial was basically a dispute over tens of millions of shares in AIG held by Starr but used for decades when Mr. Greenberg was AIG's chief executive to fund a long-term compensation plan for AIG employees. Mr. Greenberg left AIG in 2005 while it was under investigation for its accounting. When he left, the program ended and Starr later sold off some of the shares; AIG maintains it should control the shares.

The verdict is a setback for the insurer, which has been hungry for funds to repay a federal bailout in September that rescued the storied firm from the brink of bankruptcy. The government has made as much as $173.3 billion in aid available to AIG.

Greenberg's victory not only pushes AIG (and us, as its owners) farther away from financial health, it also shows the power that a Panama-registered company can wield in the U.S. court system, in a case against a government-owned company.

Just imagine what such a firm might be able to do if it had even greater rights under the Panama FTA. Earlier this year, we asked you to contact your member of Congress and let them know that these foreign investor rights should be stripped from U.S. trade and investment agreements. With Greenberg's latest success against U.S. companies and taxpayers, now's a good time to let them know that this issue hasn't gone away! Congress should "just say no" to the Panama FTA, and "just say yes" to positive trade legislation like the TRADE Act.

We'll continue to follow the AIG-SICO story, which is not yet over. AIG is suing the U.S. taxpayers for back taxes it owed related to its (and SICO's) Panamanian operations. And, will AIG and other mega corporations continue to push for the Panama FTA, which grants them rights that go beyond U.S. law? Stay tuned.

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Chilling Policy While the World Burns

Team Obama made some news recently when they went out of their way to criticize a (relatively modest) border adjustment tax measure included in the Waxman-Markey climate legislation as part of last-minute negotiations with Ways and Means trade subcommittee chair Sander Levin (D-Mich.).

For the uninitiated, a border adjustment tax in the climate context is a charge placed on imports from countries that do not have comparable carbon emission reduction schemes. It's intended to ensure that U.S. industries do not lose competitiveness as a result of a domestic cap-and-trade scheme, and that the carbon reduction in the U.S. is not canceled out by an increase in emissions in say China as a result of increased, cap/trade-induced offshoring to that country.

It's political commonsense that a strong border adjustment tax is about the only way you're going to get Midwestern (and many others besides) senators to vote for a climate bill. At a time of high unemployment and manufacturing job loss, it's pretty difficult to ask members to vote for a bill that (without adequate green industrial policy and trade measures) will make matters worse.

That is why it is so surprising that Obama would choose to criticize this measure on the basis of WTO compatibility, as Lori explained here.

What was even more surprising was that the WTO put out a report just days before, appearing to give the WTO seal of approval to border adjustment taxes, something that had Paul Krugman giddy (but which others warned against getting too giddy about). It's odd to say the least that Obama would position himself to the right of the commerce-uber-alles WTO.

Continue reading "Chilling Policy While the World Burns" »

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Obama Administration Blocking Reform at the UN Financial Crisis Summit?

We sent this memo to reporters yesterday:

Is the Obama Administration Working With the EU, Canada to Block Real Reform at This Week’s UN Financial Crisis Summit?

Wealthy Nations Send Only Low-Level Reps; Insist Communiqué Calls for WTO Doha Round Conclusion Even as Doha Agenda Includes More Financial Service Deregulation

This week, government representatives will meet in New York for what was to be an unprecedented, inclusive high-level global debate about the causes of and solutions to the financial crisis. The summit was called to remedy the significant shortcoming of the G-20 summits, which excluded most of the 192 United Nations (UN) member nations, promoted only minimal reforms to the global economic architecture and pushed further financial deregulation by calling for completion of the World Trade Organization (WTO) Doha Round talks.

Instead of the UN summit remedying the problems of the G-20 approach, reports indicate that rich countries have worked behind the scenes to ensure the UN summit does not focus on the role of existing global economic governance structures in causing the crisis nor issue a call for reforms to these institutions and policies. In a candid speech this weekend, the elected president of the UN General Assembly, Nicaraguan priest Miguel D’Escoto noted: “...despite the growing need for major changes, many Member States, particularly those in the North, increasingly resist reforms of the IMF and the World Bank, hoping that things will return to business as usual. And they have also made it very clear that they do not want a serious global conversation to take place at the United Nations.”

Read the full memo after the jump, or download the PDF (with footnotes that are not included here).

Continue reading "Obama Administration Blocking Reform at the UN Financial Crisis Summit?" »

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The WTO Wants You to Light up a Cancer Stick

Over at IELP, Simon Lester alerts us to a potential WTO case that Indonesia might bring against the recent U.S. bill to step up regulation on tobacco. Read the full post for details, but I thought Simon's closing comment was interesting:

I hate to sound defensive here, but I just want to emphasize to trade skeptics out there that this issue does not mean that countries can't regulate tobacco. It just means that they can't insert protectionist components into their tobacco regulation measures. 99.9% of these measures are fine under trade rules.  The main problem area is the part about (possibly) treating foreign products less favorably than domestic ones.

An insider in the tobacco debates tells Eyes on Trade:

In terms of what actually happened:

Everyone recognizes that flavorings are a way to appeal to kids.

Menthol historically in the US has been marketed to African Americans, so there is actually extra good public health reason to ban it.

The failure to ban was not because of so-called protectionist impulse, but political reality: It's too big a market to wipe out and get the bill passed. This is probably a combination of both manufacturer power and worries about protests from African-American smokers.

Of course, that political reality is no WTO defense at all.

An important point not mentioned in this post is that Philip Morris International now owns the third biggest kretek maker. PMI -- now a separate company from Philip Morris/Altria -- has alleged no interest in the US market but they are under no contractual limits, so far as I know. PMI's HQ is in Switzerland, but they remain registered as a NYSE company.

Tobacco and public health groups will be very worked up about this, should a [WTO] challenge emerge.

This observer's comment that "political reality is no WTO defense at all" is what's key here. God willing, over the next few years, we're going to see a lot of consumer and environmental protection laws going into effect. A lot of them will be messy, and a lot of them will be criticized by groups like Public Citizen. But I don't think there's an advocate here among us that doesn't realize that the political process is going to yield imperfect results that are still better than nothing. Maybe it's time for a "political reality" carveout from WTO obligations.

An update from Simon on a speech from Rep. Virginia Foxx (R-N.C.) had the member arguing that the U.S. should cowtow to WTO threats. Will this be the next case of the WTO chilling effect? Stay tuned.

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Re-regulating Finance Starts Now

Yesterday, Public Citizen and a wide variety of other consumer and labor groups kicked off the Americans for Financial Reform coalition. Our mission?

For too long, the rules of Wall Street have been written by the bankers themselves.


This year, that has to change.

Americans for Financial Reform is a coalition of nearly 200 national, state and local consumer, employee, investor, community and civil rights organizations that have come together to spearhead a campaign for real reform in our banking and financial system.

We're circulating a petition to restore transparency, oversight, and fairness to the financial marketplace. Take action here!

One of the principles of the coalition is that International institutions, from trade pacts to development banks and others, should provide a regulatory floor, not impose a regulatory ceiling. (You can read our issues brief on that matter here.) Expect to see more from us about how we can reform trade, investment and financial pacts to promote prosperity and security!

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Meet the New USTR Website, Same as the Old USTR Website

President Obama's promises during the campaign to shift our trade policies got the base psyched. Yet in the first five months of the administration, the most oft-touted shift in the USTR's workplan (working "rigorously" to pass a Bush FTA doesn't count as a shift, and thankfully appears to be put off for the moment) has been the upgrade to a new website.

We've taken a look at the website, which is purtier and more consistent with other Obama campaign and admin webpages, and here are some things we noticed:

  • Up until yesterday, this link had Panama, Colombia, Korea as agreements in force. This was corrected this morning.
  • A lot of the specific trade agreement pages seem to have lost a lot of their material. For instance, look at this cached page on the Panama FTA, which includes advisory committee reports, and then compare with the new page. The old link that would have gone to the advisory pages doesn't work.
  • The Fast Track / Trade Promotion Authority page seems to be removed. (Maybe I'm wrong, but I couldn't find it.) If USTR is looking for content, we've got a book for them to post - The Rise and Fall of Fast Track Trade Authority!

We're going to be migrating to a new website in the coming months, and the years of planning for it already has me nervous. So, some bumps in the road seem inevitable. The thing that is most concerning about the USTR's new website is the lack of meaningful reference to Obama's trade commitments on the campaign - which would seem like the biggest update needed, with some of the full-throated advocacy of bad trade deals tamped down or removed.

So, here's my question for "Ask the Ambassador" (a new "interactive" feature for the website): When will the Bush talking points on trade come down, and the Obama talking points on trade go up? (Some illustrative examples suggested after the jump:)

Continue reading "Meet the New USTR Website, Same as the Old USTR Website" »

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Will GM Bailout Trigger a WTO Case?

That's what the American Enterprise Institute seems to think in a new policy brief:

GM had recently informed Congress that it planned to produce roughly 50,000 subcompacts per year in China to sell in the U.S market in the near future. However, on Thursday, UAW President Ron Gettelfinger said that GM had agreed not to import the cars from China and to produce them in the United States instead as part of its deal with the UAW. This change opens up an enormous set of problems for the United States that will stretch well beyond the automotive sector. The United States has commitments under the World Trade Organization for its tariffs on cars; it's supposed to avoid quantitative restrictions altogether. This latest policy switch looks very much like a government-mandated reduction in auto imports from China...

Nor will GM be the only automaker affected. The principle criticism levied by opponents of the Korea-United States Free Trade Agreement has been that South Korea maintains non-tariff barriers that block imports of U.S. cars. Will the United States still make these arguments while it blatantly uses its financial leverage to block foreign auto exports into the United States?

The Wall Street Journal cited some factors that might tamp down this criticism:

The Canadian government is taking a stake in GM, which could give the restructuring a sense of multilateralism.

Some other governments may balk at challenging the U.S. because they also support domestic auto makers. The German state of Lower Saxony holds just over 20% of Volkswagen AG. The German government and the European Commission have fought for years over a German law that essentially allows Lower Saxony to block VW's major decisions.

...And notes some other potential WTO conflicts of the GM move:

U.S. support for GM has both trade and investment implications. On the trade front, the issues include whether U.S. support amounts to unfair subsidies and whether, as a government-owned entity, GM is bound by international procurement rules that limit the U.S. government from discriminating against foreign suppliers.

When it comes to investment, GM's moves overseas could face tougher scrutiny. The U.S. often closely examines investment by state-owned companies to make sure the firms are acting in a commercial rather than political fashion. That level of scrutiny might now be applied to GM overseas.

Once again, I gotta point out the double standard here. There was not a lot of hooting and hollering going on when AIG and Citi became government-owned entities, and there is certainly a case that could be made that these moves ran afoul of the spirit if not letter of the U.S. WTO commitments on financial services. To paraphrase Leo Gerard, we'll call your bailout WTO-illegal if it benefits those that shower after work, but not if it benefits those that shower before work.

(HT to Simon Lester.)

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Climate Policy's Unwelcome House Guest

One of the aspects of climate-change policy rarely discussed outside of very specialized circles is the compatibility of carbon reduction schemes with WTO rules. Indeed, even many in the environmental community don't know about the potential conflicts, and those that do wish like heck that the issue would just go away.

But corporations and pro-corporate think-tanks are paying attention to this issue, and a lot of what they are advocating would take us farther away from a just and sustainable international economic and climate architecture.

Take a recent book by Gary Hufbauer, Steve Charnovitz and Jisun Kim entitled "Global Warming and the World Trading System." In the book, they provide one of the most thorough outlines I've seen yet regarding the potential WTO constraints on climate-change policies, in particular those being debated in Congress and in the lead-up to the Copenhagen summit on climate this December 2009.

They offer up a number of ways of reconciling trade and climate constraints, including

  1. Simply letting WTO members challenge each others' climate measures in the WTO dispute settlement body. The advantage to this approach is that it would help build up "case law" that could settle "once and for all" the question of how restrictive the WTO is with regards to environmental measures. The disadvantage, in the authors' view, is that this "could inspire greater criticism of the already-fragile WTO system" if the panels privilege commerce over climate; "could open the door to widespread opportunistic protectionism and rent-seeking behavior" if the panels privilege climate over commerce; and even a middle ground of balancing the two objectives would not be desirable because those "with a different sense of balance will challenge the outcome as illegitimate." (page 96).
  2. A never-before used Permanent Group of Experts contemplated under the WTO's subsidy agreement could give an opinion as to whether certain climate measures might be considered a subsidy under WTO rules. The disadvantage of this approach is that the opinion would be advisory and perhaps also confidential.
  3. Another option is to renegotiate the WTO, but this would require unanimity among the member countries. (An option they don't consider is for the U.S. to pull out of the WTO.)
  4. WTO members could negotiate a waiver from WTO requirements, with the disadvantage being that a three-quarters majority vote would be necessary.
  5. WTO members could negotiate an optional "code" that certain members could join to allow deviations from WTO requirements on climate reduction policies. While all WTO members would have to approve this code, the authors consider it likely that this approval would be granted, because not all countries would be required to comply with the code's rules. This is the approach favored by the authors.
  6. Nations could ignore the WTO, and simply create a multilateral environmental agreement (MEA) at Copenhagen that conflicts with WTO rules. Obviously, the disadvantage to this approach is that a country that signed onto the MEA would not be immune from a WTO challenge from a country not party to the MEA.
  7. Countries could negotiate a WTO round that would drop tariffs further on products reclassified by their carbon intensity. This is not mutually exclusive from the alternatives outlined above, and in fact a modest version of this is being advocated by the Obama administration, like the Bush administration before it. This is encountering opposition from many development groups that believe that it would deprive developing nations of infant industry protection for green industries.
  8. A final option contemplated in the book is a WTO sectoral agreement on climate-intensive industries, like steel. This model has been used in the past to provide tariff protection for sectors like textiles, one reason the authors seem to dislike this option. Moreover, it would have to be approved by all WTO members.

The problem I see with their idea for a code, and I've just read the book and may not be understanding it correctly, is that it would not be binding on non-code countries. So, what's to keep a non-code country from launching a WTO dispute against a code country? In other words, if the U.S. were in the Code, along with Europe, but China were not, and a U.S. cap-and-trade / green jobs program hurt Chinese "dirtier" steel to the benefit of U.S. "greener" steel, what would insulate the U.S. from a WTO challenge from China? (Given what Paul Krugman reports on Chinese official attitudes on climate in his column today, such an outcome would not seem unlikely.)

We've argued, on the other hand, that the better option is to shrink or sink the WTO. It already has little popular support, as Hufbauer et. al's point 1 shows: anything short of a gutting of the WTO will fuel anger at the institution. The WTO moreover is serving as an obstacle rather than an enabler of finding climate solutions, which inevitably will require messy domestic and international political compromises, as we are seeing currently in the debate around the Waxman-Markey climate bill. The climate emergency means, at a minimum, that the WTO must be kicked to the side, and then renegotiated to be compatible with the climate regime that results from the real give and take between and within nations. After all, even if you like the World Trade Organization, what good is it if there's no world left?

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Corporates Out of Step in Today's Hearing on Investment, Panama, etc.

The House Ways & Means Trade Subcommittee had a hearing on investor protections in U.S. trade and investment agreements. I gave testimony for the record, which you can read here.

As we detail in our recent book, "The Rise and Fall of Fast Track Trade Authority," investment rules in trade deals are a classic non-tariff, non-trade provision. We wrote:

Largely flying under the radar, the 1984 act dramatically expanded the subject matter and the types of agreements that the president was authorized to negotiate. Title III of the act authorized the president to collect information on (and enter into agreements related to the elimination of) "barriers to international trade in services" and "the trade distortive effects of certain investment-related measures." Service and investment barriers were defined as denial of "national treatment and restrictions on the establishment" of service operations and investments; "foreign industrial policies;" "export performance requirements;" and "direct or indirect restrictions on the transfer of information into, or out of" a given country.

The 1988 Fast Track went even further, specifying that:

The principal negotiating objectives of the United States regarding foreign direct investment are --

(i) to reduce or to eliminate artificial or trade-distorting barriers to foreign direct investment, to expand the principle of national treatment, and to reduce unreasonable barriers to establishment; and

(ii) to develop internationally agreed rules, including dispute settlement procedures, which --

(I) will help ensure a free flow of foreign direct investment, and

(II) will reduce or eliminate the trade distortive effects of certain trade-related investment measures.

This delegation of Fast Track produced NAFTA. And despite efforts in the 2002 Fast Track and the May 2007 deal to change the investment provisions in the "cookie cutter" trade template, U.S. trade agreements' investment provisions (such as those in CAFTA and now in the U.S.-Panama FTA) have delved ever more deeply into regulatory policy space. And indeed, in today's hearing, Thea Lee of the AFL-CIO in particular pointed out that the [preambular] language added as a part of the May 2007 deal is non-binding in nature.

One of the richest debates at today's hearing was the nature of the changes made to investment provisions of trade deals since 2002, in particular with respect to so-called exceptions (i.e. protections for governments from having to cough up cash or change laws in response to successful trade-pact challenges by foreign investors and governments) for prudential/ financial and tax measures. You don't often get that kind of substantive debate in a congressional hearing, and perhaps it was too substantive for some, judging by the small attendance by the end of the hearing. As it happens, these so-called exceptions are a subject of our latest report on Panama's tax-haven practices and the U.S. FTA.

Continue reading "Corporates Out of Step in Today's Hearing on Investment, Panama, etc." »

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NAFTA: A Familiar Hurdle for California's Environmental Regulators

Last Thursday, California, yet again, proved itself to be a laboratory of innovation, by becoming the first state in the nation to require low-carbon fuels.

The Associated Press reports:

The California Air Resources Board voted 9-1 to approve the standards, which are expected to create a new market for alternative fuels and could serve as a template for a national policy that has been advocated by President Barack Obama and Democrats in Congress.

California state legislator Fran Pavley led the fight to reduce emissions in California by introducing the Global Warming Solutions Act (AB 32) which Governor Schwarzenegger signed into law in 2006. However, the Bush administration stalled implementation of this legislation with a variety of obstacles and it wasn’t until January 2009 that California was given the green light to fully implement the Global Warming Solutions Act.

Now…even after California has cleared the Bush preemption hurdles, officials may have to fight against backdoor international preemption of some of these landmark regulations!Emissions

International Business Times reports that Canadian trade lawyers are beginning to grumble about these new environmental measures possibly violating NAFTA and the WTO.

The measures to slash such emissions would force refiners to consider the carbon footprint of the fuels they produce, a potential blow to synthetic crude upgraded from Alberta's oil sands, whose production emits more carbon-dioxide than conventional oil.

However, the state may have no business imposing such rules on oil produced in other countries, a Canadian lawyer said, and the provisions may violate international trade treaties.

"There's definitely a NAFTA case and a WTO case. There's no doubt in my mind about it," said Simon Potter, a partner at the McCarthy Tetrault law firm whose practice includes trade and competition law.

If a Canadian company were to, as Potter hints, file a NAFTA case, it would be the third major NAFTA investor case launched against California environmental regulations. The first major suit was in response to California’s ban on a harmful gasoline additive MBTE that was leeching into the water system. After five years, the case was finally settled with California’s ban intact. The California Attorney General’s office is yet again helping the federal government fend off a suit brought by Canadian mining company Glamis Gold over California’s mining regulations.

State legislators in California have objected in the past to the kind of backdoor preemption of state regulations encouraged in current trade agreements and have urged the federal government to consult with state legislatures about new trade commitments that could compromise states’ ability to regulate. This legislative session, Assembly Member Nancy Skinner introduced AB 1276 which would add more oversight to the process by which state commits to comply to certain provisions of future trade agreements. 

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G-20’s Bizarre Contradiction: We All Pledge to Re-Regulate Financial Services … and Further De-Regulate Financial Services

WASHINGTON, D.C. - Today’s G-20 commitments to enhance financial service regulation clash with deregulation requirements in the World Trade Organization’s (WTO) 1999 Financial Services Agreement. Instead of G-20 leaders calling for completion of WTO “Doha Round” negotiations that include further finance deregulation, they needed to agree to fix the existing WTO rules that facilitated the current crisis, Public Citizen said today. 

“It is crazy that the G-20 leaders vowed to re-regulate the financial system while simultaneously undermining their ability to actually do so,” said Lori Wallach, director of Public Citizen’s Global Trade Watch division. “Instead of agreeing to change WTO rules that now obligate 105 nations to continue the extreme finance deregulation policies that got us into this economic mess, the G-20 leaders called for completion of a WTO expansion that includes additional financial deregulation.”

Continue reading "G-20’s Bizarre Contradiction: We All Pledge to Re-Regulate Financial Services … and Further De-Regulate Financial Services" »

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Key G-20 Item Is Latest Threat To World Trade: WTO's Ever- Expanding Definition Of "Protectionism"

Is anybody else getting the feeling that government public service ads reminding us to eat a balanced diet or funding of school crossing guards will soon be labeled a "protectionist" measure? And that, moreover, Smoot and Hawley are rising from the grave?

There is a narrative that keeps getting repeated in the press and in politicians' speeches that "protectionist' measures are on the rise because of the economic crisis. But where is the evidence?

Take a close read of the actual WTO March 26 report on this subject. What exactly is the cause of the breathless fears about growing protectionism? Would it be the unilateral tariff cuts in the seemingly ominous list of "trade measures" countries have taken since September which is attached to the report? 

It seems that between what's in the actual report and the press reporting about it, a lot of new protectionism has been created - from thin air. Because if you read the small print, you will see that the scary "trade measures" list is just notification of any and all policy actions take by WTO nations. That includes new tariff cuts, filing of anti-dumping cases just like before the crisis when there is dumping, and - heaven forbid - ensuring food and toy safety. 

The first page of the actual WTO report even notes: "There is no indication of an imminent descent into high intensity protectionism involving widespread resort to trade restriction and retaliation."  So, what is on the list?  

Food Safety Measures:

  • China's halt of Irish pork imports after Ireland warned importers of dioxin contamination;
  • Russia's suspension of pork imports from U.S. plants after on-site inspection of the facilities; 
  • U.S. defunding of a carbon-intensive, food safety-threatening program to facilitate U.S.-slaughtered chickens being shipped to China for processing and back to U.S. for sale.

Consumer & Public-Safety Measures:

  • India and Argentina's toy-safety policies; 
  • U.S. defunding of a Bush program that circumvented congressional requirements that Mexican-domiciled trucks must meet U.S. driver and vehicle standards to access U.S. roads.

Economic Stimulus Measures:

  • Paraguay's 'Buy Paraguayan' preferences for government expenditures;
  • China's encouragement of colleges and schools to buy local; 
  • Taiwan's encouragement of buy and hire local on construction projects; 
  • Japan's local governments encouraging citizens to buy local; 
  • U.S. domestic preference for domestic infrastructure spending.

National-Defense and Immigration Measures:

  • The immigration policies of Malaysia and United States;
  • India's policies relating to foreign ownership of defense production and aviation.

Whatever arguments can be made about the desirability of any of these domestic policies on questions ranging from food and consumer safety, to national security, immigration and domestic stimulus and infrastructure spending, they are subjects of national political decision-making about which one would find nary a tariff or quota involved.    

Certainly even the most ardent defenders of the WTO see that labeling every other domestic policy "protectionism" will only undermine public support for the policies that really are critical to obtain the benefits of open trade?

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Offshoring Rubbers, Destroying Lives

I have long threatened to start a new Public Citizen division dedicated to the safety of adult products, because, well, no one is bothering to regulate them, as last year's melamine edible underwear scare showed.

Now, this is happening:

In a move expected to cost 300 American jobs, the government is switching to cheaper off-shore condoms, including some made in China...

“Of course, we considered how many U.S. jobs would be affected by this move,” said a USAID official who spoke on the condition that he would not be named. But he said the reasons for the change included lower prices (2 cents versus more than 5 cents for U.S.-made condoms) and the fact that Congress dropped “buy American language” in a recent appropriations bill...

Fannie Thomas, who has been making AIDS-preventing condoms in southeastern Alabama for nearly 40 years in the small town of Eufaula[, says].

“We pay taxes down here, too, and with all this stimulus money going to save jobs, it seems to me like they (the U.S. government) should share this contract so they can save jobs here in America,” Thomas said.

Thomas and others at the Alatech plant said there aren’t many alternatives for them if it closes down, which is a likely result of the contracting switch.

In fact, the government is close to accepting condoms from two offshore companies: Unidus Corp., which makes condoms in South Korea, and Qingdao Double Butterfly Group, which makes them in China.

There's a number of issues here: first, Buy America, last I checked is still intact. But as we pointed out during the debate on the stimulus bill, this can be waived for a lot of reasons, including NAFTA-WTO-style trade agreements. And I believe that the Chinese bid would have to be only 6% cheaper to choose that over the American bid.

Second, given the rampant problems with product safety in China, there are some serious issues about quality control. As the Kansas City Star reports:

Bill Howe, president of PolyTech Synergies in Ohio, a consultant to the condom industry, said China is “learning” to produce better condoms, but their products are still “notoriously suspect.”

Howe, who has consulted for Alatech, acknowledges that the company got a “sweet deal” for years as the only supplier to the U.S. government for international condom distribution. Nonetheless, “they have a high level of integrity, and you don’t get that in China,” he said.

Even Chinese condom makers admit that some of their customers did not care for their products. Chinese buyers have complained their country’s condoms were “too thick, low quality and don’t feel comfortable.”

Problems persisted for some Chinese condom makers as late as 2007. Free Chinese-made condoms passed out by AIDS groups in Washington, D.C., were the subject of numerous complaints about unreadable expiration dates. Sometimes, just opening the packages damaged the condoms, some groups alleged.

Of course, NAFTA-style trade agreements and the WTO put sharp limits on the kinds of product standards and inspections we can apply to imports, while the WTO procurement agreement places limitations on the kinds of product standards or environmental or human-rights qualifications we can put on suppliers to the U.S .government. Read more here, on our section on product safety.

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Double Standards for Banks and Builders

The Treasury Department released details of its new Public-Private Investment Program, which will give a massive subsidy to investors to partner with the government to buy up toxic assets.

You too can participate! All you need to pre-qualify is "demonstrated capacity to raise at least $500 million of private capital; demonstrated experience investing in Eligible Assets, including through performance track records, a minimum of $10 billion (market value) of Eligible Assets currently under management; demonstrated operational capacity to manage the Funds in a manner consistent with Treasury’s stated Investment Objective while also protecting taxpayers."

Oh, and you must have "Headquarters in the United States."

But in the WTO's Financial Services Agreement, the United States took on the commitment to treat foreign banks as well as we treat U.S. banks. As we say in a forthcoming paper:

A requirement to provide foreign corporations National Treatment with regard to subsidies is unquestionably part of these obligations. The Guidelines for Scheduling GATS Commitments, adopted by WTO Members in 2001, states:

“Article XVII [National Treatment] applies to subsidies in the same way that it applies to all other measures. ... any subsidy which is a discriminatory measure within the meaning of Article XVII would have to be either scheduled as a limitation on National Treatment or brought into conformity with that Article. Subsidies are also not excluded from the scope of Article II (MFN). In line with the paragraph above, a binding under Article XVII with respect to the granting of a subsidy does not require a Member to offer such a subsidy to a services supplier located in the territory of another Member.”

As Dean Baker points out, it is an outrage that folks in Washington would make such a stink about making sure Buy America is compliant with draconian WTO requirements, but we violate them willy nilly when it comes to subsidizing someone's rich friends on Wall Street.

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Is Your Mudda Necessary?

As the U.S. and international climate debate gears up, we are getting a lot of questions about how WTO compliant is this or that climate policy. My colleague Steve Charnovitz and two co-authors recently released a book called Global Warming and the World Trading System that goes into some depth on this topic.

I hope to release a response to this report in the coming weeks or months, but Steve and his coauthors have an extremely useful appendix that summarizes key WTO cases with relevance for environmental protection. Drawing from this, as well as this win-loss chart and our recent report on the WTO compatibility of Obama's green jobs plans, I conclude that the attempts to defend environmental and other public-interest policies at the WTO have failed most of the time.

By way of a background, the WTO's General Agreement on Tariffs and Trade (GATT) prohibits discrimination against foreign products (even some measures not intended to discriminate), and makes difficult all sorts of other environmental policy implementation besides. That grouplet of trade lawyers that claim that the WTO doesn't represent the most significant international legal tripwire against environmental protection rely on GATT's Article 20 exceptions, which read:

Subject to the requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade, nothing in this Agreement shall be construed to prevent the adoption or enforcement by any contracting party of measures:

(b)        necessary to protect human, animal or plant life or health;..

(d)        necessary to secure compliance with laws or regulations which are not inconsistent with the provisions of this Agreement, including those relating to customs enforcement, the enforcement of monopolies operated under paragraph 4 of Article II and Article XVII, the protection of patents, trade marks and copyrights, and the prevention of deceptive practices;...

(g)        relating to the conservation of exhaustible natural resources if such measures are made effective in conjunction with restrictions on domestic production or consumption;

As you can see, defending an environmental measure can be cumbersome. There's that pesky "requirement that such measures are not applied in a manner which would constitute a means of arbitrary or unjustifiable discrimination between countries where the same conditions prevail, or a disguised restriction on international trade." Then there's also that funny word "necessary." Is the environment "necessary"? Is my awful plaid shirt that my dad gave me that I am offending my co-workers with "necessary"? What about that after-dinner ice cream? We focus on some stats on the necessary test in this post.

It turns out that meeting this "necessary" hurdle is very difficult. According to Joost Pauwelyn, GATT panels never deemed environmental or public-interest policies "necessary" prior to the establishment of the WTO. As we list in our report in footnote 130, there have been 11 post-95 WTO cases where Article 20 exceptions have been invoked.

So, out of 11 cases pre- and post-95 where the "necessary test" was invoked, it was only accepted twice. Of the 15 cases listed here, the overall exception was only accepted twice. So environmental and other GATT exceptions failed 80-87 percent of the time.

If you have comments, or know of other cases where the exceptions (and specifically ones where the "necessary" test is relevant), please let me know. This is what I'm cramming together from memory and these few sources.

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WTO Dispute/FTA Countries Set Stage for Banking Drama

Other than being small Caribbean countries, what do Panama and Antigua have most prominently in common? Trade wonks will know there's a stalled U.S.-Panama FTA hungover from the bad old Bush years, and that Antigua's case challenging the U.S.'s right to set our own gambling policy give them that common thread. But what else?Banksy Money

If you answered "setting of huge banking scandal", you're right!

Gazillionaire financier Bernie Madoff Allen Stanford has been all over the headlines for an $8 Billion fraud scheme (yes that's a 'B'...) that rocked several Caribbean and Latin American countries, including Panama and Antigua. As the New York Times reports on the scandal and its impact on other popular offshore banking destinations:

Stanford International claims it had about $8 billion in assets, but the Securities and Exchange Commission has only said it has not been able to account for that money. Most of the key players, including Mr. Stanford, failed to appear to testify after the S.E.C. issued a subpeona.

Panama's strict banking secrecy laws make it a well known tax haven and popular destination for money laundering of all sorts. During the Stanford manhunt, one financial press blogger betrayed the truth, that "of course" Panama would be implicated in a Caribbean financial scandal:

[G]iven that [Stanford] owns banks in many different jurisdictions (the FT has found entities not only in the US and Antigua, but also New Zealand, Switzerland, Colombia, Ecuador, Mexico, Peru, Panama, Venezuela, and, of course, Panama), as well as what Matthew Goldstein calls "a number of private jets", one expects that at this point his contingency plan is well underway.

You'd hope the U.S. government will be smarter than Stanford - who despite what the blogger notes about the ease for him to hide abroad was caught on U.S. soil last week. The guvs can prove they are smarter by doing away with Bush's hangover Panama FTA, which would do nothing to ensure that the rich pay their fair share of taxes as we invest hundreds of billions in American recovery. Even worse, the Panama FTA could potentially allow corporations and the wealthy to escape the regulations that will be needed to avoid the next financial crisis - deregulation having gotten us into this economic tailspin in the first place.

The Antigua case is something of a non-sequitur - though it's still crucial that the Obama administration act in the public interest to both resolve that case and get us out of an overreaching WTO agreement on financial services. However, U.S. policymakers still have time to avoid facilitating further fraud by sending the Panama FTA packing.

(Photo used under Creative Commons license courtesy of Flickr user guano)

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Buy Keynesian

My colleague John Schmitt has written an interesting column suggesting the following:

The President could rewrite the current "Buy American" restriction to allow US recovery funds to be spent on US goods — as well as those from any country that passes an economic stimulus program that is at least as large (as a percent of their national GDP) as the package ultimately passed here. Call it a "Buy Keynesian" plan.

The "Buy Keynesian" clause would let the President thread the political needle. He gets to keep the "Buy American" provision that many taxpayers (and Senators) are demanding. And, when foreign leaders accuse him of protectionism, he can rightly respond that their goods have been excluded not because they are foreign, but because their countries aren't pulling their weight in the international recovery.

This is a great idea, and obviously a great way to reflate the economy. Which of course means that it's  WTO illegal. Check this out from the WTO procurement agreement:

With respect to all laws, regulations, procedures and practices regarding government procurement covered by this Agreement, each Party shall provide immediately and unconditionally to the products, services and suppliers of other Parties offering products or services of the Parties, treatment no less favourable than:

            (a)        that accorded to domestic products, services and suppliers; and

            (b)        that accorded to products, services and suppliers of any other Party.

And unfortunately, there is no Keynesian exception to the national-treatment and most-favored nation obligation. Yet another reason that I am coming to the point of view that EVERY policy proposal ith any WTO implications should include both the proposed domestic measure, and a proposed sense of Congress that the WTO should be renegotiated to allow policy space for the measure.

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Congress Passes Buy America in Stimulus

On votes of 246-183 in the House and 60-38 in the Senate, Congress passed the biggest economic stimulus package of all time, which included Buy America provisions. The Washington Post has a truly touching story about how fair-trade champion Sen. Sherrod Brown (D-Ohio) flew from his mother's memorial service to cast the deciding vote. Our hearts and prayers go out to Sen. Brown and his family.

Here's the final version of the language:

    Sec. 1605. Use of American Iron, Steel, and Manufactured Goods. (a) None of the funds appropriated or otherwise made available by this Act may be used for a project for the construction, alteration, maintenance, or repair of a public building or public work unless all of the iron, steel, and manufactured goods used in the project are produced in the United States.

    (b) Subsection (a) shall not apply in any case or category of cases in which the head of the Federal department or agency involved finds that--

    (1) applying subsection (a) would be inconsistent with the public interest;

    (2) iron, steel, and the relevant manufactured goods are not produced in the United States in sufficient and reasonably available quantities and of a satisfactory quality; or

    (3) inclusion of iron, steel, and manufactured goods produced in the United States will increase the cost of the overall project by more than 25 percent.

    (c) If the head of a Federal department or agency determines that it is necessary to waive the application of subsection (a) based on a finding under subsection (b), the head of the department or agency shall publish in the Federal Register a detailed written justification as to why the provision is being waived.

    (d) This section shall be applied in a manner consistent with United States obligations under international agreements.

The conferees' report made the following note regarding Buy America provisions:

Section 1605 provides for the use of American iron, steel and manufactured goods, except in certain instances. Section 1605(d) is not intended to repeal by implication the President's authority under Title III of the Trade Agreements Act of 1979. The conferees anticipate that the Administration will rely on the authority under 19 U.S.C. 2511(b) to the extent necessary to comply with U.S. obligations under the WTO Agreement on Government Procurement and under U.S. free trade agreements and so that section 1605 will not apply to least developed countries to the same extent that it does not apply to the parties to those international agreements. The conferees also note that waiver authority under section 2511(b)(2) has not been used.

It seems that this last sentence refers to the president's ability to waive Buy America requirements for countries that aren't parties to procurement agreements with the U.S. (i.e. Brazil, India, China, for starters.) It's actually fairly troubling that the president has so much discretion in these matters in the first place. The history of this power is that Congress, in 1979 on a fast-tracked vote, decided to waive much of its authority over procurement, handing it to the president, who could then waive the requirements to comply with flawed trade deals. Clearly, this whole system - born as it was of a kind of double delegation of legislative powers - needs a major rethink.

In other news, our colleagues Terry Stewart and Elizabeth Drake put out a useful paper debunking some of the myths surrounding Buy America perpetrated by corporate-backed think-tanks. It's chock full of useful material. Here is something I did not know:

Myth #5: Insisting on the use of domestic goods will reduce the effectiveness of the recovery plan by imposing unreasonable requirements where U.S. goods are unavailable or prohibitively expensive.33

The Facts: This assertion ignores the language of the recovery bills and U.S. experience applying similar provisions in the past. First, both the House and Senate versions of the Act allow domestic sourcing requirements to be waived where the relevant goods “are not produced in the United States in sufficient and reasonably available quantities and of a satisfactory quality.”34 This waiver provision is also included in the Buy American Act,35 and data relied upon by Hufbauer and Schott indicate that such non-availability waivers were necessary to permit foreign sourcing for only 0.29 percent of all federal contract dollars spent in 2007.36

Moreover, the House and Senate bills permit domestic sourcing requirements to be waived where their application would increase the cost of the overall project by more than 25 percent.37 The 25 percent threshold reflects cost competitiveness standards that currently apply in Buy America requirements attached to federal highway and mass transit funds.38 Similar cost waivers are available for direct federal contracting under the Buy American Act, though they have been set at different levels administratively.39 Such cost waivers were needed to justify 0.20 percent of the federal government’s spending on foreign manufactures for domestic use in 2007 – a mere 0.01 percent of all federal contracting dollars spent.40

Clearly, unavailability and cost differences present obstacles to domestic purchasing in only a tiny portion of contracts, and, where such issues do arise, procurement officials are able to use their waiver authority to address them. The same will be true under the economic recovery plan.
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Canadian Businesses Support "Buy Canada"

We've reported on the disappointing efforts of offshore-happy corporations like Caterpillar to invoke the "Shock Doctrine" and roll back "Buy America" rules already on the books and consistent with our trade obligations. We've reported on the hypocritical campaign by the Canadian government to accomplish the same, even though they committed even fewer types of procurement contracts to the WTO than we did.

But one question has been nagging me: what kinds of "Buy Canada" policies are actually on the books? Turns out there are a few major examples

Another major difference between here and there is that the business and exporters' associations actually support Buy Canadian policies (including the Manufacturers and Exporters of Canada, where my friend Birgit works!)

And a recent USTR report shows that the Europeans are making good use of their flexibilities under the WTO:

In 2004, the EU adopted a revised Utilities Directive (2004/17), covering purchases in the water, transportation, energy, and postal services sectors. Member States were mandated to implement the new Utilities Directive by the end of January 2006, but some EU Member States still have not implemented it. This Directive requires open, objective bidding procedures, but discriminates against bids with less than 50 percent EU content that are not covered by an international or reciprocal bilateral agreement. The EU content requirement applies to U.S suppliers of goods and services in the following sectors: water (production, transport, and distribution of drinking water), energy (gas and heat), urban transport (urban railway, automated systems, tramway, bus, trolley bus, and cable), and postal services.

Congrats EU and Canada!  Nice to see we're all doing what we can to support a local industrial base!

(Please let me know if you know of other local content requirements - especially in transportation infrastructure funding - that we should highlight.)

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Buy America survives Collins-Nelson Fleet Streeting

Paul Krugman points out in today's column that Sens. Susan Collins (R-Maine) and Ben Nelson (D-Neb.) have effectively gutted much of the stimulative impact of the American Recovery and Reinvestment Act.

Luckily, the Buy America provisions survived the Collins-Nelson Fleet Streeting of the Stimulus, as didJohnny_depp_in_2007_sweeney_todd__the_demon_barber_of_fleet_street_wallpaper_4 the Sanders-Grassley amendment, which was passed unanimously by voice vote. For companies receiving TARP funds, it restricts their ability to cite labor shortages in their hiring of H-1B workers from abroad. The idea is that Microsoft shouldn't be able to layoff thousands of workers and then come to Congress citing engineer labor shortages in their quest to import foreign workers that are covered by weaker labor rights. (Text below).

    Sec. 1610. Hiring American workers in companies receiving TARP funding.

    (a) Short Title- This section may be cited as the `Employ American Workers Act'.

    (b) Prohibition-

      (1) IN GENERAL- Notwithstanding any other provision of law, it shall be unlawful for any recipient of funding under title I of the Emergency Economic Stabilization Act of 2008 (Public Law 110-343) or section 13 of the Federal Reserve Act (12 U.S.C. 342 et seq.) to hire any nonimmigrant described in section 101(a)(15)(h)(i)(b) of the Immigration and Nationality Act (8 U.S.C. 1101(a)(15)(h)(i)(b)) unless the recipient is in compliance with the requirements for an H-1B dependent employer (as defined in section 212(n)(3) of such Act (8 U.S.C. 1182(n)(3))), except that the second sentence of section 212(n)(1)(E)(ii) of such Act shall not apply.

      (2) DEFINED TERM- In this subsection, the term `hire' means to permit a new employee to commence a period of employment.

    (c) Sunset Provision- This section shall be effective during the 2-year period beginning on the date of the enactment of this Act.

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Pretending there's a problem

Canada's Globe and Mail had a must read editorial from a few days ago on Buy America. Here's a preview:

This week's horror and hysteria over a U.S. move to “protectionism” like the Smoot-Hawley tariffs of the 1930s, leading to global “trade war” and disaster – was sheer myth. The Buy American clause and the ensuing “backdown” by Congress meant nothing. Those policies have been in place for decades; they still are...

So what's up? Whence the frenzy? Good question, different answers. Stockwell Day and Stephen Harper get to look vigilant and militant, standing on guard for us, while nothing is really at stake. Barack Obama gets to look presidential. He says sternly that he's against bad things, knowing no vetoes or actions will follow. John McCain wants to repeal the offending clause so the world won't think the U.S. has “gone back” to protectionism, which it never left, but maybe the world won't think so now...

Derek Burney, Canadian corporate mouthpiece, calls for even less regulation and protection than we now have, on the grounds, as they say in the Obama White House, that you never let a serious crisis (or a fake one) go to waste. ...

I especially like Michael Ignatieff's demand that Stephen Harper phone Barack Obama on this. I'd like to overhear that one. Uh, I'm calling to pretend there's a problem. … Fine, I'm taking the call to pretend the same thing. [Silence. Silence. Silence.] We agree, then. … Yes, good talking to you...

It's like the murder on the Orient Express: It turned out everyone participated, but they all did it for their own reasons.
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The American People is Ready for a Change with Buy America

I was on Washington Journal this morning opposite Birgit Matthiesen of the Manufacturers and Exporters of Canada. The subject? Buy America, and how it is consistent with existing domestic and international law. And a few digs at the WTO's procurement agreement while we're at it.

Here's the video; let me know what you think.

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McCain Amendment to Prohibit Buy America Crashes and Burns

Back in the general election, Obama bashed McCain for his comment that Buy America provisions were "disgraceful," as in this paid television ad below:

(See this ad and over a hundred others in our online database of paid election trade ads.)

If there was any doubt that McCain was fo' real, an amendment he introduced yesterday to the stimulus bill cleared that up. Senate Amendment 279 to the American Recovery and Reinvestment Act of 2009 (H.R. 1) listed as its purpose: "To prohibit the applicability of Buy American requirements in the Act to the utilization of funds provided by the Act."

This would have gone considerably farther than our current law and WTO commitments, since we have always been allowed to do most if not all of what is in the stimulus package. In essence, had it passed, it would have put the Senate on the record as opposing even the WTO-legal parts of Buy America. It would have also announced to America that, even when domestic policy proposals do NOT violate WTO obligations, we will not pass them if someone might THINK that they do. I'm not a total sovereignty hawk, but, wow...

Luckily, the amendment crashed and burned at around 8:30 pm last night, with only 31 senators (all GOP + Lieberman) supporting. All the Dems plus 9 GOP opposed. Find out how your senator voted! And then let them know what you think about it!

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