Tag Archives: free trade

Regulating the Cockpit: Investor-State Disputes

emile_claus_-_hanengevecht_in_vlaanderen

Investor-state dispute settlement (ISDS)cases+are decided by extrajudicial tribunals composed of three corporate lawyers. Although ISDS has existed for decades, its scope and impact has grown sharply in the last decade. As ISDS has been written into over 3,000 Bilateral Investment Treaties (BITs) and numerous Free Trade Agreements (FTAs), the opportunities for ISDS claims are huge and growing.

Originally justified as necessary to protect foreign corporate investments abroad from nationalization or expropriation by governments controlling national judiciaries, [it is claimed that] foreign corporations have used ISDS to change sovereign laws and undermine national regulations...Already, India, Indonesia and Ecuador have advised their treaty partners that they are considering ending their BITs because of ISDS. To reduce abuses, investors could be required to first prove discrimination in national courts before being allowed to proceed to ISDS arbitration. Alternatively, national courts could exercise judicial review over ISDS awards. Also, arbitrators could be required to be independent of the ISDS process, with set salaries, security of tenure and no financial ties to litigants while investor status for ISDS claims could be defined more strictly.

Excerpts from Jomo Kwame Sundaram ISDS Corporate Rule of Law, IPS, Dec. 1, 2016

+While ISDS is often associated with international arbitration under the rules of ICSID (the International Centre for Settlement of Investment Disputes of the World Bank), it often takes place under the auspices of international arbitral tribunals governed by different rules or institutions, such as the London Court of International Arbitration, the International Chamber of Commerce, the Hong Kong International Arbitration Centre or the UNCITRAL Arbitration Rules. ISDS has been criticized because the United States has never lost any of its ISDS cases, and that the system is biased to favor American companies and American trade over other Western countries, and Western countries over the rest of the world (wikipedia)

Free Trade Zones as White Elephants

 

Shenzhen, China. Image from wikipedia

[E]veryone seems to be an admirer of “special economic zones” (SEZs) that offer a combination of tax-and-tariff incentives, streamlined customs procedures and less regulation. Three out of every four countries have at least one. The world now counts about 4,300 SEZs, and more are being added all the time. Myanmar and Qatar have recently unveiled new ones; Indian officials call their SEZ ambitions “revolutionary”; Shinzo Abe, Japan’s prime minister, announced special strategic zones as part of his reform agenda.

Fans of SEZs can point to several success stories, none bigger than China’s zone near Hong Kong, set up in 1980 and since dubbed “the Miracle of Shenzhen”. ...[But]Popular as they are, SEZs are often flops. Africa is littered with white elephants. India has hundreds that failed to get going, including more than 60 in Maharashtra state alone in just the past few years.
Nor are these efforts cost-free. The incentives offered to attract investors mean forgone tax revenues (at least in the short term). They create distortions inside economies, one reason why nationwide liberalisation is always better than patchwork efforts. Zones are increasingly a haven for money-laundering through, for instance, the mis-invoicing of exports. To ensure that these costs are more than offset by jobs and investment, governments must learn from the failures.

First, offering nothing but fiscal incentives may help get a zone off the ground, but it does not make for a lasting project. The most successful zones are entwined with the domestic economy: South Korea, for example, has been good at fostering links with local suppliers. Zones need to be connected to global markets. Improving infrastructure for this purpose has a bigger impact on the success of zones than tax breaks do. This often requires public spending to upgrade roads, railways and ports to handle the extra freight. Lack of such investment has been the downfall of many an SEZ in Africa. Lots of the continent’s new zones will fail for lack of a reliable power supply or because they are too far from a port.

Excerpts from Special economic zones: Not so special, Economist,  Apr. 4, 2015, at 14

How States Subsidize Exports: the US Export-Import Bank

made in the usa

[T]he Export-Import Bank of the U.S., which was so successful at expanding exports that scores of other nations have copied the model. Now — for the second time in a year — small-government advocates are trying to abolish the bank, saying it distorts the free market by using tax dollars to pick business winners and losers. …

Unless Congress acts, the Export-Import Bank’s lending authority will expire June 30, 2015. Tea Party Republicans, who want to limit government intervention in the free market, say the bank provides a form of corporate welfare. Some airlines, including Delta, say the bank’s loan guarantees for Boeing jets unfairly subsidize its international competitors. Congress is now considering four bills that would reauthorize the lender with some reforms. But Republican Representative Jeb Hensarling, head of the House committee that oversees the bank, is still calling for its abolition.

The Export-Import Bank was started by President Franklin D. Roosevelt in 1934 as a New Deal program to boost exports….It provides loan guarantees, loans and insurance to help foreign companies — sometimes those with less-than-perfect credit — buy U.S. goods when private banks can’t or won’t make loans in industries including aerospace, energy and manufacturing. Though Democrats widely support Ex-Im, Barack Obama criticized it while campaigning for president in 2008, calling it “little more than a fund for corporate welfare” at a time when opposition to government spending, triggered by the bailouts that year, was growing. Ex-Im authorizationssoared, reaching a peak of $114 billion in total outstanding financial commitments at the end of fiscal 2013, from $58 billion in 2008. President Obama now supports Ex-Im reauthorization.

In May 2015, the U.S. Chamber of Commerce began a national ad campaign in favor of the bank, arguing that without it, jobs might be lost to competitors in China or Russia. …[Another issue] is “corruption” at Ex-Im, after a former bank employee pleaded guilty to accepting over $78,000 in bribes between 2006 and 2013. While about 90 percent of Ex-Im’s deals help U.S. small businesses, an analysis by Veronique de Rugy, a bank critic at George Mason University, found that Boeing benefited from about 30 percent of the bank’s authorizations in 2013.

Excerpt from : Brian Wingfield, U.S. Export-Import Bank: From Apple Pie to Endangered Species, Bloomberg, June 25, 2015

Bilateral Trade Wars: farmers v.carmakers

rice paddies japan. image from wikipedia

The Trans-Pacific Partnership (TPP) was supposed to be central to plans by Japan’s prime minister, Shinzo Abe, to pep up the economy. Japanese farming is heavily protected and inefficient. Mr Abe promised big changes when it came to “sacred” areas protected by swingeing import tariffs including rice, wheat, beef, dairy and sugar.

The American side knows Japanese farmers need time to adjust. Still, negotiators have recently been underwhelmed by what was on offer—a refusal by the Japanese side to contemplate big cuts in tariffs. Perhaps the Japanese judged that the Americans needed a deal more. If so, they miscalculated. Piqued, the Americans withdrew an offer to cut tariffs on imported car parts. And that was that. One Japanese policymaker describes it as the most acrimonious episode since the bruising bilateral trade wars of the 1980s….The TPP bus is stalled.

Japan, America and the Trans-Pacific Partnership: Stalemate, Economist, Oct. 4, 2014, at 47

Tar Sands from Canada to Europe

dirty deals

Canada and the US have threatened to pull out of TTIP [Transatlantic Trade and Investment Partnership] trade talks unless the EU ignores the massive emissions of oil from tar sands – and the EU is collapsing under the pressure…For five long years the federal government and the oil industry have lobbied against the European Union labeling oilsands (also called tar sands) bitumen as ‘dirty oil’ in its Fuel Quality Directive (FQD).  A new report [authored by environmental groups] reveals the how recent involvement of the US in the lobby offensive to keep the EU market open for bitumen exports has tipped the scales in favour of oilsands proponents….

The report shows the EU Fuel Quality Directive, a piece of legislation designed to reduce global warming greenhouse gas (GHG) emissions in the EU’s transportation sector, is unlikely to acknowledge fuels from different sources of oil – conventional oil, oilsands, oil shale – have different carbon footprints.  All oil is the same – no matter how great the disparity in emissions  Instead all oils will more than likely be treated as having the same GHG emissions intensity ‘value’ in the Directive. This is exactly what Canada, the oil industry and now the US have been pushing for…

The EU has not fallen for the federal government’s argument that bitumen produces only marginally more GHG emissions than conventional oil in extraction, processing, and use.  A European Commission study found bitumen’s carbon footprint is between 12% – 40% higher than conventional oil as so much of the bitumen produced from the tar sands is burnt to fuel the energy-intensive extraction process.  The report reveals trade, not science, is the cause of the EU backing off from implementing the Fuel Quality Directive as it was originally meant to be implemented.

The US in some ways has been more open [than Canada] about its lobbying against the Fuel Quality Directive.  US Trade Representative Michael Froman confirmed he “raised these issues [of the FQD implementation] with senior Commission officials on several occasions, including in the context of the Transatlantic Trade and Investment Partnerships (TTIP).” The TTIP is the highly controversial trade agreement between the US and the EU currently under negotiation.  European Commission documents obtained by Friends of the Earth Europe reveal the US trade missions has “substantive concerns” with the Fuel Quality Directive singling out fuels produced from bitumen as having a higher carbon footprint than conventional oil.    Like Canada and the oil industry, the US wants all oil – regardless of GHG emissions – to be treated the same as conventional oil in the Directive…Recently eleven members of US Congress sent a letter to the US trade mission expressing their concerns “that official US trade negotiations could undercut the EU’s commendable efforts to reduce carbon pollution.”

Excerpts, Derek LeahyIgnore tar sands emissions! EU buckles under US, Canada pressure in TTIP talks, Ecologist, July 23, 2014

Latin America Trade: Pacific Alliance v. Mercosur

Brazil-Uruguay frontiers

On May 23rd, 2013 in the Colombian city of Cali the presidents of four Latin American countries—Chile, Colombia, Mexico and Peru—signed  an agreement removing tariffs on 90% of their merchandise trade. They will also agree on a timetable of no more than seven years for eliminating tariffs on the remaining 10%. They have already removed visa requirements for each other’s citizens and will proclaim their aspiration to move swiftly towards setting up a common market.  The Pacific Alliance, as the group calls itself, is “the most exciting thing going on in Latin America today”, according to Felipe Larraín, Chile’s finance minister. Some outsiders think so, too. Costa Rica and Panama want to join; Canada’s prime minister, Stephen Harper, and his Spanish counterpart, Mariano Rajoy, have said they will attend the Cali meeting as observers.

Behind the excitement is the sense that the Pacific Alliance is a hard-nosed business deal, rather than the usual gassy rhetoric of Latin American summitry. Under the leftist governments that rule in much of South America, there has been plenty of talk of regional integration, but precious little practice of it. Intra-regional trade makes up just 27% of total trade in South and Central America, compared with 63% in the European Union and 52% in Asia….

The four founding members are free-market and mainly fast-growing economies which have embraced globalisation, with a web of regional trade-agreements and expanding commercial ties to Asia. Their combined GDP is around $2 trillion—35% of the Latin American total and not much less than that of Brazil, the region’s gian.

The private sectors in the member countries have played a big role in setting the Alliance’s priorities. The stock exchanges of Chile, Colombia and Peru have created a single regional bourse. Negotiators are working to smooth border procedures and standardise rules, such as on labelling. They are making progress in talks to harmonise the rules of origin—how much local content goods must have to be tariff-free—in their existing trade agreements with each other. “They are trying to resolve the problem of the spaghetti bowl of regional trade-agreements,” says Antoni Estevadeordal of the Inter-American Development Bank. This “exercise in regulatory convergence” could be a model for other parts of the world, he adds.

The Pacific Alliance marks a return to the principles of “open regionalism”—the idea, prevalent in Latin America in the 1990s, that opening up to world trade would be more advantageous if combined with creating a deeper regional market, to reap economies of scale. This idea lay behind the founding in 1991 of Mercosur, a group originally comprising Argentina, Brazil, Paraguay and Uruguay.  But the left-wing governments in charge of those countries for much of the past decade have turned Mercosur into a different kind of enterprise. “Today it is almost wholly a political front” with “protectionist internal tendencies which frequently collide with Mercosur’s original principles,” according to Luiz Felipe Lampreia, a former foreign minister of Brazil.  This was underlined last year when the other members suspended Paraguay (because of the impeachment of its left-wing president) and admitted Venezuela, then governed by Hugo Chávez. Under Brazil’s aegis, much of Chávez’s anti-American ALBA block is being absorbed by Mercosur. On May 9th Brazil’s president, Dilma Rousseff welcomed Nicolás Maduro, Chávez’s chosen successor who was narrowly elected as president last month, and affirmed their “strategic partnership”. Brazil is also seeking closer ties with Cuba, which this month offered to send 6,000 doctors to the country.  Brazil’s two main regional partners, Argentina and Venezuela, have slow-growing, state-controlled economies, and their policies flirt with autarchy. That makes them captive markets for Brazilian construction companies and exporters of otherwise uncompetitive capital goods. Brazil had a trade surplus of $4 billion with Venezuela last year.

In the wider world, Mercosur has signed regional trade agreements only with Israel, Egypt and the Palestinian Authority. Argentina has stalled a proposed trade deal with the European Union, on which talks began in 1999. Brazil’s bet has been on the Doha round of world trade talks. It was cheered when Roberto Azevêdo, a Brazilian diplomat, was chosen this month to head the World Trade Organisation (WTO). But many trade specialists consider the Doha round all but dead and the WTO increasingly irrelevant….

In its short life, the Pacific Alliance has proved to be a brilliant piece of diplomatic marketing. Now it has to add substance

Latin American geoeconomics: A continental divide, Economist, May 18, 2013, at 38

See also ALBA