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On a fast track to disaster for the world’s poor


On Dec. 6, by a one-vote margin of 215-214, the House voted to give President Bush “fast track” authority to negotiate new trade agreements without any meaningful congressional oversight. The Senate has yet to approve a similar measure.

Fast track legislation will become significant in coming months when a bill is introduced calling for a Free Trade Area of the Americas, of crucial importance to the growing power of transnational corporations. If fast track is in place, Congress will have to vote on the matter quickly, with limited debate, and without the ability to amend the measure.

The Free Trade Area of the Americas, often called FTAA, will be a disaster for the world’s poor, with a special focus on the 34 countries of this hemisphere. It is crucial to understand the roots and the context of this bill as it arrives under the urgent pressure of fast track.

In 1994, at the Summit of the Americas in Miami, the 34 nations of North America, Central America, South America and the Caribbean (except Cuba) agreed to sign the trade and investment pact called Free Trade Area of the Americas. With a population of 800 million from Alaska to Argentina, and a combined gross product of $11 trillion, it would be the largest free trade zone in world. It is intended for completion by 2005.

‘NAFTA on steroids’

The plan is based on models from the North American Free Trade Agreement -- NAFTA -- and the World Trade Organization, but it goes far beyond each of these in both scope and power. One observer has remarked, “FTAA is NAFTA on steroids.” It incorporates from the World Trade Organization the General Agreement on Trade in Services, and sneaks in all the powers of the Multilateral Agreement on Investment, which was roundly rejected by public outrage in 1998.

It also expands on the Structural Adjustment Programs, which have been imposed in recent years on most countries of the region by the International Monetary Fund and World Bank, and which are so much a part of the unpayable debt in the Third World.

In the principles of the Free Trade Area of the Americas, we have the apex of the economic and political globalization process. The world today is no longer effectively ruled by nation states. There has been a massive restructuring of the global economy in favor of transnational corporations. Between 1970 and 1998, their number increased by 800 percent. Of the top 100 economies in the world, 51 are now corporations, and 49 are countries. Seventy percent of global trade is controlled by just 500 corporations.

The proposed Free Trade Area of the Americas represents a global corporate system in which the transnational corporation is undisputed king, and the planet’s new rule will be by extra-parliamentary and transnational fiat.The Free Trade Area of the Americas agreement will contain no safeguards to protect workers, human rights, social services or health and environmental services.

In 1998, a Free Trade Area of the Americas Trade Negotiations Committee was set up, with nine working groups on major areas of negotiations, including such areas as services, investment, market access, agriculture, competition policy and dispute settlement. Three non-negotiating special committees were established to deal with issues of smaller economies, civil society and electronic commerce.

Since early 1999, over 900 trade negotiators have been meeting in closed sessions in Miami. Big corporations and lobby groups have been integral to the process. Over 500 corporate representatives have security clearance and access to the documents. The public has been granted only bits and pieces of official information about these proceedings. Some negotiating documents have been leaked, including a substantive report from the Negotiating Group on Services in October 1999.

There is no public participation in drafting these agreements, and no appeal allowed by anyone except corporate or state representatives. All disputes will be adjudicated in secret before unelected authorities and tribunals, with no public observers permitted and with no published record of the proceedings.

Of the nine negotiating groups, we shall look at only the first two, on services and on investment, since there is more leaked information about them than about the other seven groups, and because these two capture the heart of the Free Trade Area of the Americas.

Corporate takeover of services

The Negotiating Group on Services seeks to “establish disciplines to progressively liberalize trade in services, so as to permit the achievement of a hemispheric free trade area under conditions of certainty and transparency.” The most fundamental purpose of the recent global trade agreements has been to constrain all levels of government in their delivery of services, and to facilitate access to government contracts by transnational corporations in a multitude of areas, including health care, education, law, energy, water services, environmental protection services, real estate, insurance, postal services, transportation, publishing, broadcasting and many others.

The proposed Free Trade Area of the Americas services agreement is even more sweeping in scope. The vast new authority to overrule government in this agreement demands that all public services at all levels of government would have to be opened up for competition from foreign for-profit service corporations. It would disallow any level of government from giving preferential funding to domestic service providers in services as diverse as health care, education, municipal services, libraries, culture and sewer and water services.

A key prescription in the agreement is that “investors/corporations from all FTAA countries must be treated the same as domestic and local service providers.”

For the first time in any international trade agreement, transnational corporations will gain competitive rights to the full range of government service provisions and will have the right to sue for financial compensation from any government that resists, since publicly funded services are considered “monopolies” in the new world of international trade.

Services are the fastest growing sector in international trade, and of all services, health, education and water are potentially the most lucrative. Already over 40 countries, including all of Europe, have listed education services with the General Agreement on Trade in Services, opening up their public education sectors to foreign-based corporate competition, and almost 100 countries have done the same in health care.

Columbia, the largest for-profit private hospital corporation, says that health care is a business no different in kind than aviation or manufacturing ball-bearings, and it has vowed to destroy every public hospital in North America, since they are not “good corporate citizens.” Numerous investment houses predict that public education will be privatized in the hemisphere over the next decade, just as health care has been, and say there is a great deal of money to be made when this happens. Standards for health, education and social work professionals will be subject to Free Trade Areas of the Americas’ rules and review to ensure that they are not an “impediment to trade.”

The infamous Chapter 11

It builds on and significantly expands the investment chapter of NAFTA, the infamous Chapter 11, which many analysts have called “the very heart and soul of NAFTA.” The exclusive focus of the Free Trade Areas of the Americas’ mandate on investment is on the protection of foreign investors. And the key question is whether or not the Free Trade Areas of Americas will force governments to entirely give over their sovereign power to regulate in the public interest.

NAFTA was the first international trade agreement to allow a private interest, usually a corporation or an industry sector, to bypass its own government and, although it is not a signatory to the agreement, directly challenge another NAFTA government if its laws, policies and practices impinge on the established “rights” of the corporation. Chapter 11 gives the right to sue for compensation for lost current and future profit from government actions, no matter how legal these actions may be. It incorporates the rather astounding principle that a government cannot implement legislation that “expropriates” a company’s future profits.

As with the conditions on public services, the investment rights granted in the second negotiating group of the Free Trade Area of the Americas are very broad. No country can discriminate on behalf of its own domestic sector. A foreign “investor” or corporation can claim compensation for lost business or profit from the creation of regulations, including environmental laws, by the government of another Free Trade Areas of the Americas country. No country has the right to place any performance requirements on foreign investment.

A panel of trade bureaucrats can override a government’s legislation or force a government to pay substantial compensation if they continue to enforce that legislation. To adjudicate all disputes, NAFTA’s Chapter 11 sets up secretive “tribunals” at the World Bank or United Nations, made up of three persons named by the parties in dispute. These hearings are never open to the public, offering the confidentiality corporate investors consider essential. NAFTA panels are not bound by the rulings of previous panels; they create no precedents.

NAFTA’s secret cases

It appears that about a dozen major cases have been brought to NAFTA tribunals; but one never knows for sure how many, or their outcome, since the whole process is highly confidential. But here are just a few about which there seems to be some reliable public information.

The first Chapter 11 case, brought before a NAFTA tribunal at the United Nations, was one in which the U.S.-based Ethyl Corporation sued the Canadian government for $251 million in damages over its ban of Ethyl’s gasoline additive, which Canadian Prime Minister Jean Chrétien once called a “dangerous neurotoxin.” Canada settled the case in 1998, agreeing to lift the ban, allow the additive, and pay $13 million in damages to Ethyl.

The case with the greatest chutzpah for the amount of money involved is that of Sun Belt Water of Santa Barbara, Calif., which is suing the Canadian government for $10.5 billion in damages. Sun Belt’s claim revolves around British Columbia’s having banned the export of its bulk water in 1993, thus preventing Sun Belt from getting into the water business in that province. The case is pending.

In another case, United Parcel Service is suing Canada for $160 million in damages, claiming that government subsidies to the Canadian postal service represent an unfair trade advantage against UPS. The case is pending, but lots of public service providers are watching for the outcome of that one.

Another important case, the largest brought in the United States, has the potential for creating a significant backlash against these outlandish suits. It is that of Methanex, a Canadian corporation that is the world’s largest producer of methanol, a key ingredient in the gasoline additive MTBE. In 1999, California banned MTBE, after studies at the University of California, Davis, warned that it may cause cancer in humans. Methanex claims that California’s action is a “confiscation” of its property, what Chapter 11 calls “tantamount to expropriation.” Though its quarrel is with a state law, Methanex sued the U.S. government for $970 million, and if a NAFTA tribunal at the United Nations finds this a “regulatory taking,” the U. S. government can be held liable for the corporation’s lost profits.

The Methanex case is pending, and it has become a main focus for the California senate’s new Select Committee on International Trade Policy and State Legislation, the first committee of its kind in the 50 states. It is chaired by State Sen. Sheila Kuehl, and its core concern is sovereignty, in this case the ability of a state to set antipollution standards that are tougher than federal minimums.

In the sheer size of its economy, California outstrips all 34 parties to the Free Trade Authority of the Americas except for the United States itself. If Kuehl gets her way, the FTAA will not get by without intense scrutiny. Admittedly, her committee is only a select committee in the California senate, not a standing one. Nevertheless, following its lead, legislatures throughout the Americas could begin to open global trade negotiations to public examination and make them responsive to the concerns of civil society.

From the beginnings of the Third World debt crisis in the early 1980s, access to multimillion-dollar loans from the World Bank and International Monetary Fund was made contingent on a country’s agreement to carry out a drastic economic program of “liberalization.” This array of monetary, budgetary, market and trade reforms have together come to be known as Structural Adjustment Policies. We have noted above that these economic reform principles are also the basis of the NAFTA and the Free Trade Area of the Americas agreements. The Structural Adjustment package varies in detail from country to country, but the main policies include: reducing the state’s role in the economy; lowering barriers to imports; removing restrictions on foreign investment; raising taxes; eliminating subsidies for food staples and for local industries; reducing spending for social welfare; cutting wages; devaluing the currency; and emphasizing production for export rather than for local consumption.

FTAA’s brave new world

Because so much of NAFTA’s workings operate in corporate seclusion, it is difficult to get a reliable evaluation of its track record since it began in 1994. But Public Citizen’s Global Trade Watch has recently released a lengthy and richly documented report titled “Down on the Farm: NAFTA’s Seven Years War on Farmers and Ranchers in the U.S., Canada and Mexico.” Their findings on the fate of agriculture in the three countries since 1994 hint at what is in store for the rest of the hemisphere under the brave new world of the Free Trade Area of the Americas.

The report shows how independent farmers in the United States, Canada and Mexico have seen agricultural prices plummet, farm incomes collapse and critical agricultural subsidy programs dismantled. NAFTA’s rules empowering investors, guaranteeing large corporate traders access rights and constraining government regulatory power has set up a race to the bottom in farm income, wages and sanitary and environmental standards.

In the United States, commodity prices have sharply declined. Between 1995 and 2000, the bushel price received by U.S. farmers declined 33 percent for corn, 42 percent for wheat, 34 percent for soybeans and 42 percent for rice. About 33,000 U.S. farms with under $100,000 annual income have disappeared during the seven years of NAFTA. This is a rate six times steeper than the pre-NAFTA period.

Ironically, to counteract the failure of NAFTA and its farm deregulation policies, Congress has had to appropriate emergency farm supports -- in massive farm bailout bills -- every year since the legislation went into effect.

All over Mexico, the alteration of property rights through NAFTA has brought sweeping changes in land use, particularly in agriculture. The rights of peasants and indigenous people to ejidos, communally owned land, along with a law prohibiting foreigners from owning land, were first promulgated in 1917. Under NAFTA, ejidos and the prohibition of foreign ownership were considered “nontariff barriers” that prevented foreigners from receiving the same treatment and economic rights as Mexican citizens, and, in the name of “free trade,” the government repealed or weakened these laws.

U.S. corn dumping has devastated Mexican farmers and undermined the genetic diversity of Mexico’s corn breeds. Before NAFTA, Mexican peasant farmers mostly grew corn, primarily to feed their families, on small parcels of land of five acres or less, often on ejidos. Between 1994 and 1998, the import of cheap corn by huge agribusinesses forced millions of Mexican maize farmers and their families off the land; some projections run to as many as 15 million people, or about one in six Mexicans were forced off. The government reduced tariffs on corn, price supports for growers, and subsidies on tortillas. The price of corn tortillas has risen drastically, and even quadrupled in some places, proving wrong the oft-repeated free trade mantra that greater imports and lower commodity prices benefit consumers with price cuts.

The report’s conclusion is that NAFTA’s twin policies of free trade and elimination of domestic farm protections have handed the entire food production and distribution system over to giant agribusinesses who have reaped huge profits while the majority of farmers and consumers have been major losers.

Under the Free Trade Area of the Americas, this process will only accelerate through all 34 countries of the hemisphere, and traditional medicine, education and cultural diversity will be wiped out. One top World Trade Organization official has said that the goal is really worldwide economic and cultural homogenization, and that “it won’t stop until foreigners finally start to think like Americans, act like Americans and -- most of all -- like Americans.”

The U.S. Constitution gives Congress exclusive authority “to regulate commerce with foreign nations.” “Fast track” is a mechanism established in 1974, and used only five times since, that delegates away to the executive branch this congressional authority for setting trade terms. It suspends normal congressional rules and leaves Congress with 60 days to act, 20 hours maximum of debate in each chamber of Congress, and an up-or-down vote with no amendments.

Fast track power expired in 1994, after it had been used by President Clinton the previous year for passage of NAFTA. Clinton’s requests that congress again delegate its trade authority in 1997 and 1998 were refused by the House of Representatives. The Bush administration has now renamed it “trade promotion authority.” On May 10, a bipartisan deal was worked out making it more likely the Senate will pass this legislation.

At a glance

The U.S. Constitution gives Congress exclusive authority to “regulate commerce with foreign nations.” “Fast track” is a mechanism established by President Nixon that delegates that authority away from Congress to the executive branch. It expired in 1994, just after President Clinton used it for passage of the North American Free Trade Agreement, commonly called NAFTA. The Bush administration has renamed it “trade promotion authority.” On May 10, U.S. Senate negotiators reached a bipartisan deal to break the logjam on trade promotion authority, President Bush’s main legislative goal this year. If it passes the Senate, Bush will have authority to move forward in two major negotiations: the next round of trade talks at the World Trade Organization and plans to negotiate a Free Trade Areas of the Americas.

In 1994, North and South American nations agreed to sign a trade and investment pact called Free Trade Area of the Americas -- FTAA -- which would create the largest free trade zone in the world. Signatory nations hoped for the agreement to be ratified by all participating nations by 2003 and implemented by 2005.

The Free Trade Area of the Americas is part of a massive restructuring of the global economy to favor transnational corporations. Between 1970 and 1998, the number of these entities has increased by 800 percent.

The proposed Free Trade Area of the Americas is a kind of global corporate system in which transnational corporations are sovereign, with no safeguards to protect workers, human rights, social or health services or environmental regulations.

Two areas of special concern are included in the proposed agreements that will charter and direct Free Trade Area of the Americas:

  • Services. All public services at all levels of government would be opened up for competition from for-profit service corporations worldwide.
  • Chapter 11 of NAFTA: The mandate of the Negotiating Group of the Free Trade Area of the Americas is to establish “a fair and transparent legal framework to promote investment through the creation of a stable and predictable environment that favors the investor, his investment and related flows, without creating obstacles to investments from outside the hemisphere.”

The Free Trade Area of the Americas builds on and significantly expands the investment chapter of NAFTA, the infamous Chapter 11, which critics have named “the heart and soul of NAFTA.” Chapter 11 allows a private interest to bypass its own government and directly challenge another NAFTA government if its laws, policies and practices impinge on the “rights” of the corporation. Already there have been 15 cases filed under Chapter 11.

Related Web sites

For more information:

The Free Trade Area of the Americas: The Threat to Social Programs, Environmental Sustainability and Social Justice by Maude Barlow, a special report by the International Forum on Globalization, originally published as a paper with a Canadian focus for the Council of Canadians, January 2001. It can be accessed at: www.ifg.org and www.canadians.org.

For more on organizing the global economy and on the future of NAFTA: see the links to these articles: www.prospect.org

Public Citizen’s Global Trade Watch report: “Down on the Farm: NAFTA’s Seven-Years War on Farmers and Ranchers in the U.S., Canada and Mexico” is informative. The report and other excellent analyses can be accessed at: www.tradewatch.org.

One can get shadowy sketches of agendas and reports on the official FTAA Web site at: www.ftaa-alca.org.

Thomas E. Ambrogi is an interfaith theologian and human rights advocate.

National Catholic Reporter, May 24, 2002