In a move that elicited a collective groan from virtually all of progressive America, the Obama administration and congressional Republicans reached a deal on April 16 on so-called “fast track” trade authority. This is the legislation needed to ram new trade agreements through the U.S. Congress with limited debate and no amendments.
It was a gut-kick for labor unions and environmental, consumer, human rights, and other groups that have long called for a change of course on U.S. trade policy. Instead, the fast track legislation shows we’re still stuck in the same old failed model of the 1990s. The bill lays out trade policy objectives that elevate the narrow interests of large corporations and undercut efforts to support good jobs, the environment, and financial stability.
Nowhere is this corporate bias more explicit than in the “investor-state” dispute settlement mechanism. In fact it would be hard to find in any U.S. policy a stronger example of excessive power granted to large corporations. Under this mechanism, private foreign investors are allowed to sue governments in international tribunals over actions — including public interest regulations — that reduce the value of their investments. The fast track bill makes clear that future trade agreements will continue to grant this extreme corporate privilege.
You would think the proliferation of such “investor-state” suits in recent years would give policymakers pause. Here we are, for example, in the middle of the climate crisis, and yet investors are allowed to sue governments over policies to encourage renewable energy. In the wake of the Fukushima disaster, we have a case against Germany over its decision to phase out nuclear power. And at a time when tobacco-related health costs total about half a trillion dollars per year, Philip Morris is suing the governments of Australia and Uruguay over anti-smoking laws.
What I find particularly galling is that in the wake of the financial crisis, we still have trade agreements that allow private investors to sue governments if they use capital controls to deal with destabilizing hot money flows. Good grief, it was back in the aftermath of the 1990s global financial crisis that reasonable people started pointing out the foolishness of such policies.
Daniel Tarullo, for example, now a member of the Federal Reserve Board, gave congressional testimony in 2003 saying that prohibiting capital controls is not only “bad financial policy and bad trade policy,” but also “bad foreign policy.”
He went on to lay out what would likely happen if a government bound by these rules were to use such controls during a severe financial crisis: “As the country struggles to emerge from its recession…U.S. investors file their claims for compensation. And, of course, under the bilateral trade agreement they are entitled to that compensation. Thus the still-suffering citizens of the country are treated to the prospect of U.S. investors being made whole while everyone else bears losses from an economic catastrophe that has afflicted the entire nation. Regardless of what one thinks of the merits of capital controls, one would have to be naïve not to think that an anti-American backlash would result.”
A dozen years later, the International Monetary Fund has come around to Tarullo’s way of thinking. After the 2008 crisis, it recommended that several countries use capital controls to address volatility. In 2012 the fund adopted an official institutional position in support of these policy tools in certain circumstances.
But the fast track bill still instructs U.S. negotiators to continue to insist on capital control restrictions. (In tradespeak, it says that a “principal objective” of U.S. trade agreements should be to “secure for investors important rights” including “freeing the transfer of funds relating to investments.”)
Recently, WikiLeaks made available a draft chapter of the proposed Trans-Pacific Partnership, one of the trade agreements that the Obama administration hopes might be approved through fast track authority. This leaked chapter reveals that some of the other 11 governments involved in those talks are pushing back against the hard U.S. line on capital controls. While the text includes the standard “free transfers” language, it also includes an annex with two proposed safeguards for government actions to control volatile capital flows. In a joint memo I co-authored with Boston University economist Dr. Kevin Gallagher and trade law expert Annamaria Viterbo, we laid out several recommendations for strengthening these proposals to allow governments the flexibility they need to prevent or mitigate financial instability.
After more than two decades of failed trade policies and a devastating financial crisis, it’s time to put people and the planet above giant corporations and Wall Street.