Democracies Under Pressure. Authoritarianism, Repression, Struggles

The articles

When trade agreements undermine States’ ability to respond to ecological and social emergencies

, by DUPRÉ Mathilde

Through multilateral and bilateral trade agreements, States have agreed to reduce, inordinately, their regulatory abilities. The progressive expansion of the agenda of trade negotiations has meant more an more disciplinary measures to which they have willingly submitted. And so-called “new generation” agreements may make matters even worse. Not only do they introduce new arrangements that make them “living,” i.e. subject to evolution after signature, but many of them also include a rider on investment protection, guaranteeing exorbitant rights to transnational businesses. By ratifying these agreements, States consent to further limit their ability to act when they should, on the contrary, seek to increase it to confront current civilizational challenges, and impose regulations guaranteeing the general interest in a democratic framework.

Social movements are on the rise to demand responses to the many ecological, social, and democratic crises we are facing today and to challenge, in particular, the way we produce and consume. But our trade modalities, and the commercial policies governing them, are still broadly speaking ignored in today’s ecological and social transition, as is evident in the planned European Green Deal.

But commercial regulations play a structuring role in the organization of international economic activities. Failing to efficiently integrate the social and ecological dimension, they promote an unsustainable model and favor the development of activities that are polluting and harmful to human rights. Even worse, the disciplinary regulations to which States subscribe through trade agreements limit their ability to act to respond to democratic aspirations and make the economic changes demanded by increasingly prominent social movements, and which are imperative for our societies.

Autonomization of commercial policy and inversion of priorities

The Havana Charter of 1948 aimed to establish an international trade organization in relation with the Economic and Social Council of the United Nations, whose mission would be promoting employment and development. But the United States’ refusal to sign this instrument had the effect of promoting, through the GATT, [1] the autonomization of international trade in relation to other fields of international policy, in particular social and environmental.

To facilitate trade and promote investment, States adopted constraining international trade regulations, defined in multilateral agreements. Specifically, this means that States may be penalized if they adopt, for instance, regulations considered incompatible with their free trade commitments. Since the World Trade Organization was created, the multiplication of regional or bilateral trade agreements covering wider and wider domains [2] contributes to consolidating and strengthening this legal edifice. At the same time, environmental, social, and fiscal regulations remain essentially defined at the national level. And States hold back from establishing ambitious and genuinely restrictive international regulations in these domains. This is why it is still an open question whether the Paris Climate Agreement and other multilateral environmental agreements, or the international standards of the International Labor Organization and the United Nations, will be effectively respected. Under the assumption that economic growth would be the sine qua non to fight poverty, promote human rights, and protect the environment, States created a kind of inverted hierarchy of regulations. This is why the international community has systematically sought to limit the impact of social and environmental norms upon economic activity. Thus States, starting with those of the European Union, voluntarily abstained from making any kind of commitment in the Paris Agreement that might have a negative effect on trade, for fear of negative effects on economic activity. Mireille Delmas-Marty speaks, on this subject, of a “dyschronia [3] of different branches of international law. Alain Supiot notes a “schizophrenic international legal order whose economic hemisphere discourages the ratification or application of the norms that its social or ecological hemisphere proclaims to be necessary and universal. [4] This asymmetry of instruments gives trade regulations primacy over other domains of international law.

Social and environmental issues are not easily taken into account in trade policy today, because multilateral regulations have been developed precisely so as to nullify them. Trade goods, for instance, cannot be treated differently unless they present different characteristics. Differences in processes or production methods that are not evident in the final product are almost impossible to invoke. This rule greatly reduces States’ ability to impose specific norms regarding ecological impact, product life cycle, or working conditions, even though these are the subject of increasing democratic attention. Certainly, international trade regulations theoretically allow for a few exceptions to liberalization agreements in the interest of protecting health, life, and non-renewable natural resources. But the States that have tried to use them have almost never succeeded. And European public policies based on the precautionary principle that have been challenged by our partners (such as banning hormone-treated beef or GMOs) have been ruled contrary to trade law.

In light of these pitfalls, the EU has not sought to reform international trade regulations in a reinforced multilateral framework to correct the original flaws and their impacts on development and the planet. On the contrary, it has multiplied the negotiation of bilateral agreements presenting the same flaws and eroding the power of States even more, in a kind of headlong advance aiming at ever-increasing trade liberalization to boost the continent’s economic growth.

Endless expansion of trade policy

The first characteristic of the “new generation” trade agreements negotiated by the EU since the mid-2000s is to go far beyond mere trade issues.

Customs duties, the principal barriers to trade in the past, have been considerably reduced, except for certain sectors such as agriculture. Nearly three quarters of EU imports are already exonerated of customs duty or subject to reduced duties. This is why trade negotiations now address other types of regulation, which are presented by negotiators as “non-tariff barriers” to trade: production standards, but also health, social, or environmental standards. Pascal Lamy, former WTO director, said this about the stalled negotiations for a transatlantic trade partnership: “The TTIP [or TAFTA] [5] attempts to challenge non-tariff barriers, i.e. the differences between the various precautionary standards protecting consumers against various types of risk. Today they constitute 80% of the obstacles to trade between the two economies. [...] It is because consumer rather than producer protection is at stake that these negotiations are creating such upheaval.” [6] This broadening of the trade negotiation agenda presents certain difficulties; it tends to treat democratically-defined regulations from the perspective of their impact on trade, to the detriment of their protective role for health, working conditions, or the environment. While the EU may promise that there will be no impact on Europe’s collective preferences and that these agreements, like the CETA (global economic and trade agreement between Canada and the EU), will not lower or freeze our standards, this is sadly far from the truth.

In front of the European Parliament, protesters hold letters saying “STOP CETA”. Credit : Mathilde Dupré.

The European or national regulations that our trade partners are examining involve many sensitive issues. The United States’ annual report for 2020 specified, for example, European regulations on chemicals (REACH), renewable energy and fuel quality, GMOs, growth hormones and antibiotics for livestock, and the Commission’s action against tax evasion. [7] This haggling over standards is not one-way, of course; the EU also has certain goals in these negotiations. But the very nature of a negotiation implies accepting concessions to obtain advantages on issues identified as priorities. And the risks of weakening protective regulations are multiplied with the extension of negotiations after the agreement is signed.

Opacity and capture of trade policy

This broadening of the field of trade policy was not accompanied by a real movement towards democratization. Despite a few limited attempts at transparency, the opacity that always surrounds negotiations deprives elected representatives, civil organizations, and citizens of their ability to contribute effectively to the development of these agreements. The CETA, JEFTA (trade agreement with Japan), and EU-Mercosur agreement have all released information on their content only after negotiations were finalized. The public has not had access to the negotiation mandates issued by the member States, nor to the interim proposals made by the EU, still less to the consolidated negotiation texts. While trade negotiations have traditionally been held behind closed doors for strategic reasons, such a practice seems increasingly difficult to justify given the expansion of the subjects covered by the agreements. This is not to mention the great imbalance in stakeholder input.

Studies published by the Corporate Europe Observatory show that consultations carried out by the European Commission, whether for the Transatlantic Agreement, that with Japan, or Brexit, privilege the representatives of big businesses over all other actors (small and medium businesses, farmers, consumer organizations, unions, NGOs, etc.). [8] Unsurprisingly, the unequal access of different actors to the negotiations is reflected in the unequal ability to influence their content. Some of the subjects covered by trade agreements do not derive directly from free trade measures, but contribute, on the contrary, to giving additional income or rights to certain economic actors, through investment protection rules or the extension of intellectual property rights, etc.

“Living” agreements

The real impact of agreements on States’ ability to regulate is all the more difficult to evaluate when there is no time limit. These new generation agreements are, indeed, now designed to be “living” agreements. They establish committees and dialog mechanisms whose role is to oversee the implementation of the agreement, but also to continue to negotiate.

The CETA has created a joint committee and a dozen specialized committees on biotechnologies, health and phytosanitary standards, financial services, a regulatory cooperation forum, etc. Their power is significant because some may even change parts of the agreement after its signature, without submitting to effective mechanisms of democratic control, such as demanding a new Parliament vote in the event of amendment of the parts in question. The objective is to facilitate the convergence of standards and regulations and reduce businesses’ costs of observing them. This mechanism also seeks to ensure that all existing and future laws of the countries concerned are in line with the treaty and will not have a negative impact on trade.

In practice, this means that with the CETA, Canada will be informed in advance and consulted on any proposed ban on glyphosate or endocrine disruptors in the EU or its member States. According to the Commission Schubert, assigned by the French government to evaluate the health and environmental impacts of the agreement, this arrangement could involve a risk of “bypassing internal democratic processes” and “private interests (Canadian or European industry) intruding in the regulatory processes of the parties.” [9]

This was indeed the desired effect, as testified by Mark Camillieri, [10] president of an association cofounded by the former Canadian ambassador, David Plunkett, and member of the CETA negotiating team: “[regulatory cooperation] institutionalizes the opportunity for Canadian businesses to take full advantage of the CETA by playing a role in decision-making at the EU level.

As a matter of fact, during the first years of temporary implementation of the CETA, Canada has already expressed its criticism of the EU and member States regarding issues in relation to a possible ban on dangerous pesticides and what is perceived as excessive strictness of the maximum limits of pesticide residue allowed in imported products, which prevents, for example, Canadian exports of potatoes treated with neonicotinoids banned by the EU. [11] In July, then in November 2019, Canada, together with 18 other countries (among them several with which the EU is negotiating new agreements) [12] also wrote to the WTO to express their objections to the same dossier.

Increased rights for multinationals, including over law

Finally, the majority of these new agreements include a section dedicated to protecting investments, involving the establishment of a mechanism to resolve disputes between investors and States (ISDS). This arrangement gives foreign investors the ability to sue the EU or member States and challenge any public policy contrary to their interest before special courts and according to regulations highly favorable to them.

This mechanism is not new. It was designed in the context of decolonization to give ad hoc protection to the activities of investors from rich countries against the risk of expropriations or arbitrary decisions in countries whose legal systems were considered lacking or corrupt. But the EU is generalizing it even while the number of cases is exploding (3 known cases in 1995, 1061 cases as of late 2020). This arrangement has been used, for example, by Cargill against Mexico to challenge their taxing sodas to fight obesity, [13] but also, repeatedly, against environmental measures, such as a moratorium on shale gas in Quebec, a ban on offshore drilling in Italy, the phasing out of nuclear energy, or the standards applicable to coal-fired plants in Germany.

In front of the European Parliament, protesters hold a banner that states : “Rights for people, rules for corporations. Stop ISDS”. Credit : European Campaign ’Rights for people, Rules for multinationals’, Friends of the Earth Europe.

For a number of years, the EU has sought to include this arrangement in as many agreements as possible, including those with countries whose legal systems are efficient and the headquarters of multinationals habituated to cases against States, such as Canada, the United States, or Japan. It is even promoting the creation of a multilateral investment court to foster the extension of investor rights.

In the CETA, this section will not be applicable unless all member States ratify the agreement. Its form has been slightly adjusted, in response to unprecedented grassroots activism, but the problems of its content remain. “Nothing in the treaty guarantees that future environmental measures necessary to pursuing France’s objectives for energy transition and sustainable development will not be challenged before this jurisdiction,” the Commission Schubert’s evaluation report emphasized, despite growing societal pressure in favor of climate protection. [14]

Beyond the EU, many States have been burned by litigation or threatened litigation and have decided to try to exit this arrangement or limit its applicability. Bolivia, Venezuela, and Ecuador have withdrawn from the World Bank’s International Center for the Settlement of Investment Disputes and have not renewed certain agreements. South Africa, India, and Indonesia had also announced their desire to return primacy to their national jurisdictions to examine this type of dispute. New Zealand is now developing a much more restrictive à la carte approach. And even the United States and Canada, who were the first developed countries to establish a mechanism to settle disputes between investors and States between themselves, with NAFTA in 1994, have decided to put an end to it. “This has cost Canadian taxpayers more than 300 million dollars in fines and legal fees. The ISDS puts the rights of businesses above government sovereignty. By removing it, we reinforce the right of our governments to rule in the general interest, to protect public health and the environment,” declared the Canadian minister of foreign affairs. So, in 2019, for the second time, the number of new investment protection agreements signed was lower than the number of agreements put to an end. In this context, the EU’s seeking to conclude several new protection agreements with economic powers, including China, seems difficult to justify.

Conclusion

The European Union bears prime responsibility for promoting a genuine reform of international trade rules and giving States back their ability to act in light of social and ecological emergencies. Given its ability to act in the name of all its member States, it was still, before Brexit, the greatest trade power in the world, with the greatest volume of goods and services exported and of imports, as well as the principal provider and beneficiary of direct foreign investment. [15] Additionally, its 450 millions consumers, with their high purchasing power, represent a significant opportunity for investors and businesses worldwide. But will the EU step up? No one knows. It certainly set about in 2020 to revise its European trade policy to “respond to various new challenges arising on a global level and drawing upon lessons learned from the coronavirus crisis.” But for the moment, reforms announced as part of the European Green Deal and by the new trade commissioner, Valdis Dombrovskis, seem timid in light of what is at stake. And trade and/or investment agreements on the CETA model are on the rise (EU/Mercosur, EU/Mexico, EU/China ...), setting the framework of economic exchange for decades to come. But according to the “trilemma” described by economist Dani Rodrik, it seems impossible today to reconcile hyperglobalization, democratic functioning of our institutions, and respect for a national space of political decision. [16] We have already gone too far in imposing restraints on governments through international trade regulations. This movement contributes to weaken the bases of democracy and the bond of trust between citizens and deciders. It is therefore urgent that trade rules be completely transformed to allow States and local governments to recover their ability to define the rules of the economic game and implement policies for social protection, local development, and environmental preservation to which a growing share of citizens aspires. This presupposes a moratorium on agreements in the process of ratification or negotiation in order to draw up a complete evaluation of past agreements and redefine, on this basis, the outline of a new democratic, just, and sustainable trade policy.

Notes

[1General Agreement on Tariffs and Trade, signed in 1947 to promote trade in goods; ancestor of the WTO (World Trade Organization).

[2For example, services, investment protection, public markets, and intellectual property rights.

[3Dyschronia, or asynchronia, is based on dysfunctions between normative spaces functioning at different speeds, such as the “human rights” space and the “world trade” space. The “human rights” space is older, but moves slowly; the “world trade” space is more recent (creation of the WTO in 1994), but has progressed rapidly. Several elements manifest these dysfunctions: human rights cannot be cited before the WTO; social rights, unlike trade, have not been globalized.” Mireille Delmas Marty, Honorary Law Professor in the Collège de France, in “La justice environnementale”, Chaire Gilles Deleuze, Université de Bordeaux, 2014. Available here: http://www.fondation.univ-bordeaux.fr/wp-content/uploads/2016/09/2015-04-DELEUZE-syntheses-M-DELMAS-MARTY.pdf

[4“Quelle justice sociale internationale au XXI e siècle ?”, Opening address, XXI e Congrès de la Société internationale de droit du travail et de la Sécurité Sociale (Le Cap, September 15-18, 2015).

[5The Transatlantic Trade and Investment Partnership (TTIP), also known as the Transatlantic Free Trade Agreement (TAFTA) is a proposed trade agreement between the European Union and the United States.

[6Pascal Lamy and Elvire Fabry, TTIP, Une négociation d’avant-garde, stratégique pour les PME, CCE International, n°583, December 2015/January 2016.

[7Inquiries opened to reclassify as illegal State aid a certain number of transfer price agreements.

[8“JEFTA : An Exclusive Trade between EU Negotiators and Big Business,” Corporate Europe Observatory, May 28, 2018.

[9Katheline Schubert et al., Rapport au Premier ministre. L’impact de l’Accord Économique et Commercial Global entre l’Union européenne et le Canada (AECG/CETA) sur l’environnement, le climat et la santé, p. 52, 7/09/2017.

[10Julius Melnitzer, “New Boots-on-the-Ground Trade Association to Boost Ties between Canada, EU,” Financial Post, September 12, 2018.

[11Mathilde Dupré, “Pourra-t-on encore interdire le glyphosate avec le Ceta ?”, Alternatives Économiques,17/04/2018 and “Accord Ceta : ça part mal pour l’Acte II du quinquennat”, Alternatives économiques, 21/06/2019.

[12Such as Argentina, Australia, Brazil, Malaysia, Paraguay, the United States, and Uruguay. https://docs.wto.org/dol2fe/Pages/SS/directdoc.aspx?filename=r:/G/C/W767R1.pdf

[13“Le Commerce à tout prix”, Foodwatch, February 2018. https://www.foodwatch.org/uploads/tx_ab-downloads/files/trade_at_any_cost_french_okHD.pdf

[14Op cit. On this subject, also see “Doit-on autoriser les multinationales américaines à traduire les États européens devant des tribunaux supra nationaux ?”, panel of twelve legal experts, in La Croix, March 10, 2016. https://www.asso-sherpa.org/on-autoriser-multinationales-americaines-a-traduire-etats-europeens-devant-tribunaux-supra-nationaux%E2%80%89

[15“Statistical Guide,” DG Commerce, June 2018.

[16Dani Rodrik, Straight Talk on Trade. Ideas for a Sane World Economy, Princeton University Press, 2018.

Commentaires

Mathilde Dupré is co-director of the Veblen Institute, specialised in trade issues, tax justice and the regulation of multinational corporations.