How the U.S. is able to dictate to the rest of the world

The United States government is able to impose its will on all the world’s countries. The rest of the world, even some of the strongest imperialist countries of the Global North, lie prostrate at the feet of the U.S. What is the source of this seemingly impregnable power? Which of course leads to the next question: How long can it last? 

The U.S. moves against any country that dares to act on a belief that its resources should be for its own people’s benefits rather than maximizing profits of multinational corporations or prioritizes the welfare of its citizens over corporate profit or simply refuses to accept dictation in how it should organize its economy. The military is frequently put to use, as are manipulation of the United Nations and the strong arms of the World Bank and International Monetary Fund (IMF). But sanctions are a frequently used tool, enforced on countries, banks and corporations that have no presence in the U.S. and conduct business entirely outside the United States. The U.S. can impose its will on national governments around the world, using multilateral institutions to force governments to act in the interest of multinational capital, even when that is opposite the interests of the country itself or that country’s peoples. And when a country persists in refusing to bend to U.S. demands, sanctions imposing misery on the general population are unilaterally imposed and the rest of the world is forced to observe them.

In short, the U.S. government possesses a power that no country has ever held, not even Britain at the height of its empire. And that government, regardless of which party or what personality is in the White House or in control of Congress, is ruthless in using this power to impose its will.

This power is most often wielded within an enveloping shell of propaganda that claims the U.S. is acting in the interest of “democracy” and maintaining the “rule of law” so that business can be conducted in the interest of a common good. So successful has this propaganda been that this domination is called the “Washington Consensus.” Just who agreed to this “consensus” other than Washington political elites and the corporate executives and financial speculators those elites represent has never been clear. “Washington diktat” would be a more accurate name.

Much speculation among Left circles exists as to when this domination will be brought to an end, with many commentators believing that the fall of the U.S. dollar is not far off and perhaps China will become the new center of a system less imperialistic. On the Right, particularly in the financial industry, such speculation is far from unknown, although there of course the downfall of the dollar is feared. In financial circles, however, there is no illusion that the end of dollar supremacy in world economics is imminent.

There are only two possible challengers to U.S. dollar hegemony: The European Union’s euro and China’s renminbi. But the EU and China are very much subordinated to the dollar, and thus not in a position to counter U.S. dictates. Let’s start here, and then we’ll move on to the mechanics of U.S. economic hegemony over the world, which rests on the dollar being the global reserve currency and the leveraging of that status to control the world’s multilateral institutions and forcing global compliance with its sanctions.

Europe “helpless” in the face of U.S. sanctions

A February 2019 paper published by the German Institute for International and Security Affairs, discussing the inability of EU countries to counteract the Trump administration’s pullout from the Joint Comprehensive Plan of Action, the multilateral nuclear deal with Iran, flatly declared the EU “helpless”: “In trying to shield EU-based individuals and entities with commercial interests from its adverse impact, European policy-makers have recently been exposed as more or less helpless.”

The legislative arm of the EU, the European Parliament, was no more bullish. In a paper published in November 2020, the Parliament wrote this about U.S. extraterritorial sanctions: “[T]his bold attempt to prescribe the conduct of EU companies and nationals without even asking for consent challenges the EU and its Member States as well as the functioning and development of transatlantic relations. The extraterritorial reach of sanctions does not only affect EU businesses but also puts into question the political independence and ultimately the sovereignty of the EU and its Member States.”

No such open worries are going to be said in public by the Chinese government. But is China better prepared than the EU? Mary Hui, a Hong Kong-based business journalist, wrote in Quartz, “China is actually far more vulnerable to US sanctions than it will let on, even if the sanctions are aimed at individuals and not banks. That’s because the primary system powering the world’s cross-border financial transactions between banks, Swift, is dominated by the US dollar.” We’ll delve into this shortly. As a result of that domination, Ms. Hui wrote, “the US has outsize control over the machinery of international transactions—or, as the Economist put it, ‘America is uniquely well positioned to use financial warfare in the service of foreign policy.’ ”

Grand Place, Brussels (photo by Wouter Hagens)

In 2017, then U.S. Treasury Secretary Steven Mnuchin threatened China with sanctions that would cut it off from the U.S. financial system if it didn’t comply with fresh United Nations Security Council sanctions imposed on North Korea in 2007; he had already threatened unilateral sanctions on any country that trades with North Korea if the United Nations didn’t apply sanctions on Pyongyang.

So neither Brussels or Beijing are in a position, at this time, to meaningfully challenge U.S. hegemony. That hegemony rests on multiple legs.

The world financial platform that the U.S. ultimately controls

The use (or, actually, abuse) of the two biggest multilateral financial institutions, the World Bank and the IMF, are well known. The U.S., as the biggest vote holder and through the rules set up for decision-making, carries a veto and thus imposes its will on any country that falls into debt and must turn to the World Bank or IMF for a loan. There also are the U.S.-controlled regional banks, such as the Asian Development Bank and Inter-American Development Bank, that impose U.S. dictates through the terms of their loans.

Also important as an institution, however, is a multilateral financial institution most haven’t heard of: The Society for Worldwide Interbank Financial Telecommunication, known as SWIFT. Based in Brussels, SWIFT is the primary platform used by the world’s financial institutions “to securely exchange information about financial transactions, including payment instructions, among themselves.” SWIFT says it is officially a member-owned cooperative with more than 11,000 member financial institutions in more than 200 countries and territories.

That sounds like it is a truly global entity. Despite that description, the U.S. holds ultimate authority over it and what it does. U.S. government agencies, including the CIA, National Security Agency and Treasury Department, have access to the SWIFT transaction database. Payments in U.S. dollars can be seized by the U.S. government even when the transaction is between two entities outside the U.S. And here we have a key to understanding.

The skyline of Beijing (photo by Picrazy2)

Beyond the ability of U.S. intelligence agencies to acquire information is the status of the U.S. dollar as the world’s reserve currency, the foundation of the world capitalist system of which SWIFT is very much a component and thus subject to dictates the same as any other financial institution. What is a reserve currency? This succinct definition offered by the Council on Foreign Relations provides the picture:

“A reserve currency is a foreign currency that a central bank or treasury holds as part of its country’s formal foreign exchange reserves. Countries hold reserves for a number of reasons, including to weather economic shocks, pay for imports, service debts, and moderate the value of its own currency. Many countries cannot borrow money or pay for foreign goods in their own currencies—since much of international trade is done in dollars—and therefore need to hold reserves to ensure a steady supply of imports during a crisis and assure creditors that debt payments denominated in foreign currency can be made.”

The currency mostly used is the U.S. dollar, the Council explains:

“Most countries want to hold their reserves in a currency with large and open financial markets, since they want to be sure that they can access their reserves in a moment of need. Central banks often hold currency in the form of government bonds, such as U.S. Treasuries. The U.S. Treasury market remains by far the world’s largest and most liquid—the easiest to buy into and sell out of bond market[s].”

If you use dollars, the U.S. can go after you

Everybody uses the dollar because everybody else uses it. Almost two-thirds of foreign exchange reserves are held in U.S. dollars. Here’s the breakdown of the four most commonly held currencies, as of the first quarter of 2020:

  • U.S. dollar 62%
  • EU euro 20%
  • Japanese yen 4%
  • Chinese renminbi 2%

That 62 percent gives the U.S. government its power to not only impose sanctions unilaterally, but to force the rest of the world to observe them, in conjunction with the use of the dollar as the primary currency in international transactions. In some industries, it is almost the only currency used. To again turn to the Council on Foreign Relations explainer:

“In addition to accounting for the bulk of global reserves, the dollar is the currency of choice for international trade. Major commodities such as oil are primarily bought and sold using U.S. dollars. Some countries, including Saudi Arabia, still peg their currencies to the dollar. Factors that contribute to the dollar’s dominance include its stable value, the size of the U.S. economy, and the United States’ geopolitical heft. In addition, no other country has a market for its debt akin to the United States’, which totals roughly $18 trillion.

The dollar’s centrality to the system of global payments also increases the power of U.S. financial sanctions. Almost all trade done in U.S. dollars, even trade among other countries, can be subject to U.S. sanctions, because they are handled by so-called correspondent banks with accounts at the Federal Reserve. By cutting off the ability to transact in dollars, the United States can make it difficult for those it blacklists to do business.”

Sanctions imposed by the U.S. government are effectively extra-territorial because a non-U.S. bank that seeks to handle a transaction in U.S. dollars has to do so by clearing the transaction through a U.S. bank; a U.S. bank that cleared such a transaction would be in violation of the sanctions. The agency that monitors sanctions compliance, the Office of Foreign Assets Control (OFAC), insists that any transaction using the dollar comes under U.S. law and thus blocking funds “is a territorial exercise of jurisdiction” wherever it occurs, even if no U.S. entities are involved. Even offering software as a service (or for download) from United States servers is under OFAC jurisdiction.

Two further measures of dollar dominance are that about half of all cross-border bank loans and international debt securities are denominated in U.S. currency and that 88 percent of all foreign-exchange transactions in 2019 involved the dollar on one side. That forex domination has remained largely unchanged; the figure was 87 percent in April 2003.

Dollar dominance cemented at end of World War II

The roots of the dollar as the global reserve currency go back to the creation of the Bretton Woods system in 1944 (named for the New Hampshire town where representatives of Allied and other governments met to discuss the post-war monetary system as victory in World War II drew closer). The World Bank and IMF were created here. To stabilize currencies and make it more difficult for countries to reduce the value of their currencies for competitive reasons (to boost exports), all currencies were pegged to the dollar, and the dollar in turn was convertible into gold at $35 an ounce. Thus the dollar became the center of the world financial system, which cemented U.S. dominance. 

By the early 1970s, the Nixon administration believed that the Bretton Woods monetary system no longer sufficiently advantaged the United States despite its currency’s centrality within the system cementing U.S. economic suzerainty. Because of the system of fixing the value of a U.S. dollar to the price of gold, any government could exchange the dollars it held in reserve for U.S. Treasury Department gold on demand. 

Rising world supplies of dollars and domestic inflation depressed the value of the dollar, causing the Treasury price of gold to be artificially low and thereby making the exchange of dollars for gold at the fixed price an excellent deal for other governments. The Nixon administration refused to adjust the value of the dollar, instead in 1971 pulling the dollar from the gold standard by refusing to continue to exchange foreign-held dollars for gold on demand. Currencies would now float on markets against each other, their values set by speculators rather than by governments, making all but the strongest countries highly vulnerable to financial pressure. 

“Imperialism is the real virus.” (photo by Paul Sableman from St. Louis)

The world’s oil-producing states dramatically raised oil prices in 1973. The Nixon administration eliminated U.S. capital controls a year later, encouraged oil producers to park their new glut of dollars in U.S. banks and adopted policies to encourage the banks to lend those deposited dollars to the South. But perhaps “encourage” is too mild a word. The economist and strong critic of imperialism Michael Hudson once wrote, “I was informed at a White House meeting that U.S. diplomats had let Saudi Arabia and other Arab countries know that they could charge as much as they wanted for their oil, but that the United States would treat it as an act of war not to keep their oil proceeds in U.S. dollar assets.”

Restrictions limiting cross-border movements of capital were opposed by multi-national corporations that had moved production overseas, by speculators in the new currency-exchange markets that blossomed with the breakdown of Bretton Woods and by neoliberal ideologues, creating decisive momentum within the U.S. for the elimination of capital controls. The ultimate result of these developments was to make the dollar even more central to world trade and thus further enhance U.S. control. Needless to say, bipartisan U.S. policy ever since has been to maintain this control.

U.S. sanctions in action: The cases of Cuba and Iran

Two examples of U.S. sanctions being applied extraterritorially are those imposed on Cuba and Iran. (There are many other examples, including that of Venezuela.) In the case of Cuba, any entity that conducts business with Cuba is barred from doing business in the U.S. or with any U.S. entity; foreign businesses that are owned by U.S. companies are strictly prohibited from doing any business with Cuba. Any company that had done business in Cuba must cease all activities there if acquired by a U.S. corporation. Several companies selling life-saving medical equipment and medicines to Cuba had to cease doing so when acquired by a U.S. corporation.

Meanwhile, U.S. embassy personnel have reportedly threatened firms in countries such as Switzerland, France, Mexico and the Dominican Republic with commercial reprisals unless they canceled sales of goods to Cuba such as soap and milk. Amazingly, an American Journal of Public Health report quoted a July 1995 written communication by the U.S. Department of Commerce in which the department said those types of sales contribute to “medical terrorism” on the part of Cubans! Well, many of us when we were, say, 5 years old might have regarded soap with terror, but presumably have long gotten over that. Perhaps Commerce employees haven’t.

The sanctions on Cuba have been repeatedly tightened over the years. Joy Gordon, writing in the Harvard International Law Journal in January 2016, provides a vivid picture of the difficulties thereby caused:

“The Torricelli Act [of 1992] provided that no ship could dock in the United States within 180 days of entering a Cuban port. This restriction made deliveries to Cuba commercially unfeasible for many European and Asian companies, as their vessels would normally deliver or take on shipments from the United States while they were in the Caribbean. The Torricelli Act also prohibited foreign subsidiaries of U.S. companies from trading with Cuba. … The Helms-Burton Act, enacted in 1996, permitted U.S. nationals to bring suit against foreign companies that were doing business in Cuba and that owned properties that had been abandoned or confiscated after the revolution. Additionally, the Helms-Burton Act prohibited third-party countries from selling goods in the United States that contained any components originating in Cuba. This significantly impacted Cuba’s major exports, particularly sugar and nickel. 

[T]he shipping restrictions in the Torricelli Act have increased costs in several ways, such as Cuba sometimes having to pay for ships carrying imports from Europe or elsewhere to return empty because they cannot stop at U.S. ports to pick up goods. Shipping companies have partially responded by dedicating particular ships for Cuba deliveries; but in most cases, they tend to designate old ships in poor condition, which then leads to higher maritime insurance costs.”

The United Nations estimates that the cost of the embargo to Cuba has been about $130 billion.

However distasteful we find the religious fundamentalist government of Iran, U.S. sanctions, which are blunt weapons, have caused much hardship on Iranians. The same restrictions on Cuba apply to Iran. The Iranian government said in September 2020 that it has lost $150 billion since the Trump administration withdrew from the 2015 nuclear deal and that it is hampered from importing food and medicines.

The Trump administration’s renewed sanctions were imposed unilaterally and against the expressed policies of all other signatories — Britain, France, Germany, China and Russia. With those governments unable to restrain Washington, businesses from around the world pulled out to avoid getting sanctioned. EU countermeasures were ineffective — small fines didn’t outweigh far larger U.S. fines, European companies are subject to U.S. sanctions and favorable judgments in European courts are unenforceable in U.S. courts.

Sascha Lohmann, author of the German Institute for International and Security Affairs paper, wrote:

“Well ahead of the deadlines set by the Trump administration and absent any enforcement action, major European and Asian companies withdrew from the otherwise lucrative Iranian market. Most not­a­bly, this included [SWIFT,] which cut off most of the more than 50 Iranian banks in early November 2018, including the Central Bank of Iran, after they again became subject to U.S. financial sanctions. …  [T]he exodus of EU-based companies has revealed an inconvenient truth to European policy-makers, namely that those companies are effectively regulated in Washington, D.C. … [T]he secretary of the Treasury can order U.S. banks to close or impose strict conditions on the opening or maintaining of correspondent or payable-through accounts on behalf of a foreign bank, thereby closing down access to dollarized transactions — the ‘Wall Street equivalent of the death penalty.’ ”

The long arm of U.S. sanctions stretches around the world

The idea that sanctions can be the “Wall Street equivalent of the death penalty” is not a figment of the imagination. Two examples of sanctions against European multinational enterprises demonstrate this.

In 2015, the French bank BNP Paribas was given a penalty of almost $9 billion for violating U.S. sanctions by processing dollar payments from Cuba, Iran and Sudan. The bank also pleaded guilty to two criminal charges. These penalties were handed down in U.S. courts and prosecuted by the U.S. Department of Justice. The chief executive officer of the bank told the court “we deeply regret the past misconduct.” The judge overseeing the case declared the bank “not only flouted U.S. foreign policy but also provided support to governments that threaten both our regional and national security,” a passage highlighted in the Department’s press release announcing the settlement.

Why would a French bank agree to these penalties and do so in such apologetic terms? And why would it accept the preposterous idea that Cuba represents any security threat to the U.S. or that a French bank is required to enforce U.S. foreign policy? As part of the settlement, Reuters reported, “regulators banned BNP for a year from conducting certain U.S. dollar transactions, a critical part of the bank’s global business.” And that gives us the clue. Had the bank not settled its case, it risked a permanent ban on access to the U.S. financial system, meaning it could not handle any deals denominated in dollars. Even the one-year ban could have triggered an exodus of clients in several major industries, including oil and gas.

Viñales Valley, Pinar del Rio province, Cuba (photo by Adam Jones adamjones.freeservers.com)

This was completely an extraterritorial application of U.S. law. An International Bar Association summary of the case noted, “the transactions in question were not illegal under French or EU law. Nor did they fall foul of France’s obligations under the World Trade Organization or the United Nations; no agreements between France and the US were violated. But as they were denominated in dollars, the deals ultimately had to pass through New York and thus came under its regulatory authority.”

It does not take direct involvement in financial transactions to run afoul of the long arm of U.S. sanctions. A Swiss company, Société Internationale de Télécommunications Aéronautiques (SITA), was forced to agree to pay $8 million to settle allegations that it provided blacklisted airlines with “software and/or services that were provided from, transited through, or originated in the United States.” Among the actions punished were that SITA used software originating in the U.S. to track lost baggage and used a global lost-baggage tracing system hosted on servers in the United States. Retrieving baggage is a service most people would not consider a high crime.

Can the EU or China create an alternative?

Dropping the widespread use of the dollar and substituting one or more other currencies, and setting up alternative financial systems, would be the logical short-term path toward ending U.S. financial hegemony. The German public broadcaster Deutsche Welle, in a 2018 report, quoted the German foreign minister, Heiko Maas, “We must increase Europe’s autonomy and sovereignty in trade, economic and financial policies. It will not be easy, but we have already begun to do it.” DW reported that the European Commission was developing a system parallel to SWIFT that would allow Iran to interface with European clearing systems with transactions based on the euro, but such a system never was put in place. In January 2021, as the new Biden administration took office, Iran dismissed it entirely, Bloomberg reported: “European governments have ‘no idea’ how to finance the conduit set up two years ago, known as Instex, and ‘have not had enough courage to maintain their economic sovereignty,’ the Central Bank of Iran said in comments on Twitter.” 

It would seem that Teheran’s dismissal is warranted. The European Parliament, in its paper on U.S. sanctions being imposed extraterritorially, could only offer liberal weak-tea ideas, such as “Encourage and assist EU businesses in bringing claims in international investor-state arbitration and in US courts; Complaints against extraterritorial measures in the [World Trade Organization].” Such prescriptions are unlikely to have anyone in Washington losing sleep.

What about China? Beijing has actually created a functioning alternative to the World Bank and IMF, the Asian Infrastructure Investment Bank. Just on the basis of the new bank representing a bad example (from Washington’s perspective), the U.S. government leaned heavily on Australia and other countries sufficiently firmly that Canberra initially declined to join the bank despite its initial interest, nor did Indonesia and South Korea, although all three did later join. There is a possibility of one-sidedness here, however, as China has by far the biggest share of the vote, 27 percent, dwarfing No. 2 India’s 7 percent, giving Beijing potential veto power. And with US$74 billion in capitalization (less than the goal of $100 billion set in 2014), it can’t realistically be a substitute for existing multilateral financial institutes.

China has also set up an alternative to SWIFT, the Cross-border Interbank Payment System (CIPS), a renminbi-denominated clearing and settlement system. CIPS says it has participants from 50 countries and regions, and processes US$19.4 billion per day. But that’s well less than one percent of the $6 trillion SWIFT handles daily. The Bank of China, the country’s central bank, is on the record of seeking an alternative to the dollar system so that it can evade any U.S. sanctions. “A good punch to the enemy will save yourself from hundreds of punches from your enemies,” a 2020 Bank of China report said. “We need to get prepared in advance, mentally and practically.” The report said if Chinese banks are deprived of access to dollar settlements, China should consider ceasing the use of the U.S. dollar as the anchor currency for its foreign exchange controls.

That is easier said than done — China holds $1.1 trillion in U.S. government debt issued by the U.S. Treasury Department. That total is second only to Japan, and Beijing’s holdings comprise 15 percent of all U.S. debt held by foreign governments. The South China Morning Post admits that China holds such large reserve assets of U.S. debt “largely due to its status as a ‘safe haven’ for investment during turbulent market conditions.” Although Beijing seeks an erosion of dollar dominance and fears that U.S. economic instability could result in another world economic downturn, its use of the safe haven is nowhere near at an end. “While it is clear that China is keen to lessen its dependence on US government debt, experts believe that Beijing is likely to continue buying US Treasuries, as there are few risk-free low cost substitutes,” the Morning Post wrote.

Coupled with the restrictions on renminbi conversion, Chinese institutions are today far from a position of challenging current global financial relations. The U.S. investment bank Morgan Stanley recently predicted that the renminbi could represent five to 10 percent of foreign-exchange reserves by 2030, up from the current two percent. Although that would mean central banks around the world would increase their holdings of the Chinese currency, it would not amount to any real threat to dollar dominance.

No empire, or system, lasts forever

The bottom line question from all of the above is this: Will this U.S. dominance come to an end? Stepping back and looking at this question in a historical way tells us that the answer can only be yes, given that there has been a sequence of cities that have been the financial center. Centuries ago, the seat of a small republic such as Venice could be the leading financial center on the strength of its trading networks. Once capitalism took hold, however, the financial center was successively located within a larger federation that possessed both a strong navy and a significant fleet of merchant ships (Amsterdam); then within a sizeable and unified country with a large enough population to maintain a powerful navy and a physical presence throughout an empire (London); and finally within a continent-spanning country that can project its economic and multi-dimensional military power around the world (New York). 

No empire, whatever its form, lasts forever. But knowledge of the sequence of capitalist centers tells us nothing of timing. Each successive new financial locus was embedded in successively larger powers able to operate militarily over larger areas and with more force. What then could replace the U.S.? The European Union has its effectiveness diluted by the many nationalisms within its sphere (and thus nationalism acts as a weakening agent for the EU whereas it is a strengthening agent for the U.S. and China). China’s economy is yet too small and retains capital controls, and its currency, the renminbi, isn’t fully convertible. U.S. Treasury bills remain the ultimate safe haven, as shown when investors poured into U.S. debt during crises such as the 2008 collapse, even when events in the U.S. are the trigger.

There are no other possible other contenders, and both the EU and China, as already discussed, are in no position to seriously challenge U.S. hegemony.

Here we have a collision of possibilities: The transcending of capitalism and transition to a new economic system or the decreasing functionality of the world capitalist system should it persist for several more decades. Given the resiliency of capitalism, and the many tools available to it (not least military power), the latter scenario can’t be ruled out although it might be unlikely. Making any prediction on the lifespan of capitalism is fraught with difficulty, not least because of the many predictions of its collapse for well over a century. But capitalism as a system requires infinite growth, quite impossible on a finite planet and all the more dire given there is almost no place on Earth remaining into which it can expand.

Although we can’t know what the expiration date of capitalism will be, it will almost certainly be sometime in the current century. But it won’t be followed by something better without a global movement of movements working across borders with a conscious aim of bringing a better world into being. In the absence of such movements, capitalism is likely to hang on for decades to come. In that scenario, what country or bloc could replace the U.S. as the center? And would we want a new center to dictate to the rest of the world? In a world of economic democracy (what we can call socialism) where all nations and societies can develop in their own way, in harmony with the environment and without the need to expand, and with production done for human need rather than corporate profit, there would no global center or hegemon and no need for one. Capitalism, however, can’t function without a center that uses financial, military and all other means to keep itself in the saddle and the rest of the world in line.

Yes, the day of U.S. dethronement will come, as will the end of capitalism. But the former is not going to happen any time soon, however much millions around the world wish that to be so, and the latter is what we should be working toward. A better world is possible; a gentler and kinder capitalism with a different center is not.

Far from a change, RCEP agreement is more capitalism as usual

The Regional Comprehensive Economic Partnership is being called a new model of trade agreements. Such paeans appear to be premature, and we might better hold off on uncorking the champagne.

It is best to remember that so-called “free trade” agreements are products of neoliberal assaults on any and all efforts to protect people and the environment from the rapacious effort of corporations to profit to the maximum extent and without regard to external cost. “Free trade” agreements are not the cause of neoliberalism; they are a product of neoliberalism.

It is true that the RCEP is less draconian than recent trade deals, and less one-sided in advancing corporate profiteering above all other human concerns than the Trans-Pacific Partnership was when the United States was involved and pushing for the harshest rules. But is that the standard we wish to uphold? “It’s not as bad as the worst agreements out there” really shouldn’t be a cause for celebration.

Much of the same language commonly found in “free trade” agreements is in the RCEP, and what appears to be the most promising development, the lack of the usual “investor-state dispute settlement” process that uses corporate-dominated tribunals that consistently overturn health, safety and environmental regulations, is much less than it appears once we look into the details. And there are no labor or environmental provisions. What we have here is more capitalism as usual, including a dispute process still weighted toward corporate interests.

Tokyo at night (photo by Basile Morin)

For readers not familiar with the RCEP, it is a trade deal reached by 15 countries across East Asia and Oceania. Although some commentators believe that China has been the impetus behind the RCEP, in fact it is the 10 countries of the Association of Southeast Asian Nations (ASEAN) that were the driving force. Australia, New Zealand, Japan and South Korea join China and the ASEAN countries — Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam — in a deal that encompasses nearly one-third of the world’s economy. India was originally a negotiating country, but dropped out, expressing concerns that the RCEP would be dominated by China.

As would be expected, mainstream economists, who as a group act as cheerleaders for capitalism rather than seriously analyze capitalist economies, are cheering the agreement. The Financial Times, for example, breathlessly reported that the RCEP “could add almost $200bn annually to the global economy by 2030,” a number repeated by signatory governments. That despite the fact that Australia, China, New Zealand, Japan and South Korea each already has a trade agreement in place with ASEAN.

Signatory countries were also enthusiastic. China’s prime minister, Li Keqiang, said the agreement is “a victory of multilateralism and free trade.” The New Zealand Ministry of Foreign Affairs and Trade said, “The agreement will help ensure New Zealand is in the best possible position to recover from the impacts of COVID-19 and seize new opportunities for exports and investment.” The Australia Department of Foreign Affairs and Trade said, “Australian farmers and businesses are set to benefit from better export opportunities.”

Unions fear working people face a race to the bottom

Once we turn our attention to those not highly placed, a rather different picture emerges. A bloc of seven trade union federations strongly condemned the RCEP after its signing. Those federations, covering workers in construction, manufacturing, agriculture, transportation, services and education, said, “Instead of furthering a free trade project, countries should be collaborating on reviving their economies and expanding public goods. … RCEP and other trade agreements that protect intellectual property rights threaten the ability to secure a globally accessible [Covid-19] vaccine. … [W]hile [corporate executives] traveling for business will benefit from facilitation of procedures for entry and temporary stay, workers face deteriorating working conditions in a race to the bottom under heightened competition in which migrant workers are facing the worse consequences. Regional cooperation based on a collective intent to promote decent work, quality public services and sustainable and inclusive development are a better solution.”

The seven trade union federations also pointed out that RCEP was shrouded in secrecy throughout its eight years of negotiations, with the text released to the public only after the agreement was signed. (All 15 countries must still formally ratify it.) The intellectual property chapter was leaked in 2015, prompting the Electronic Frontier Foundation to characterize the IP text as “a carbon copy” of the Trans-Pacific Partnership then also in negotiation. “South Korea is channeling the [U.S. trade representative] at its worst here,” the Foundation said in its commentary, speculating that Seoul was pushing draconian IP rules because accepting unfavorable rules in its bilateral trade agreement with the U.S. would put it at a disadvantage otherwise. We’ll return to the intellectual property text, always a key chapter in any trade pact, below.

There are also fears that trade deficits for less developed countries will increase and pressures for privatizations will increase.

The skyline of Bangkok (photo by kallerna)

A senior economist with the United Nations Conference on Trade and Development, Rashmi Banga, expects that, assuming tariffs are removed on all products trading among RCEP countries, most ASEAN countries will see their imports rise faster than their exports, believing that those countries won’t be able to compete with China.

Kate Lappin, the Asia Pacific regional secretary of Public Services International, a federation of more than 700 trade unions representing 30 million workers in 154 countries, said “free trade” deals such as RCEP “also increase the pressure on governments to privatise, as public services need to be traded and compete on the market. This will have negative impacts on equality, including corrosive impacts on gender equality.” Noting that some measures governments are taking to combat the Covid-19 pandemic would be in violation of the RCEP or other trade agreements, Ms. Lappin said “RCEP will bind the hands of governments in taking measures in the public interest in crises to come, be it health or environmental.” 

There could also be problems for manufacturers in small countries because “rules of origin” rules mandate that parts from any signatory country must be treated the same as domestic production.

Bad news for farmers, good news for agricultural multi-nationals

The ability of farmers to maintain control of their seeds is in peril, according to GRAIN, which describes itself as an “international non-profit organisation that works to support small farmers and social movements in their struggles for community-controlled and biodiversity-based food systems.” GRAIN, in analyzing a separate leak of RCEP chapters, said the agreement was in danger of requiring all signatory governments to adopt a seed law designed to provide private property rights over new crop varieties, giving corporations like Monsanto or Syngenta a legal monopoly over seeds, including farm-saved seeds, for at least 20 years; require adherence to the Budapest Treaty, which enforces patents on microorganisms; and make violations of these corporate-friendly rules criminal violations. Australia, Japan and South Korea were described as the “hard-line camp” on these issues.

Those fears remain in place. Article 11.9 of the final text indeed mandates that RCEP governments not already signed onto the Budapest Treaty do so. Adherence to several other international treaties are also mandated. Language concerning adoption of the seed law described in the preceding paragraph (the Act of International Convention for the Protection of New Varieties of Plants, amended in Geneva in 1991) is at Article 11.9, but the language is ambiguous, encouraging governments to sign the Convention and “cooperate” with other signatory governments “to support its ratification.” Also worrisome is Article 11.36, which mandates patents on plants: “[E]ach Party shall provide for the protection of plant varieties either by patents or by an effective sui generis system or by any combination thereof.”

There is also concern about the availability of medicines. A key goal of the United States when it was negotiating the Trans-Pacific Partnership was to undermine government procurement of medicines that reduced the cost of health care and to extend patents and data exclusivity periods for brand-name drugs, impede trade in generic medicines, and place new limits on how drug prices are set or regulated, all in the service of pharmaceutical company profits.

Canberra at night (photo by Ryan Wick)

Croakey Health Media, an Australian “not-for-profit public interest journalism organisation,” in a commentary on the RCEP’s potential impact on medicines, feared some of those goals could find their way into the final text. “Early in the negotiations, leaked texts indicated that Japan and South Korea had proposed rules for the RCEP intellectual property chapter that would extend and expand monopolies on new medicines in countries like Cambodia, Indonesia and Thailand,” Croakey said. “These types of rules can delay the availability of generic medicines.”

It appears there is at least some backing off of the worst provisions that had been under discussion. Article 11.8 of the final RCEP text says “The Parties reaffirm the Doha Declaration on the TRIPS Agreement and Public Health” adopted in 2001. The Doha Declaration is an ambiguous document that “affirms” intellectual property rights but also “should not prevent members from taking measures to protect public health.” How the text will be interpreted will likely determine how far it will be possible to go in attacking government health care systems.

It should be stressed that grassroots organizations had no chance to affect any aspect of the RCEP text as the negotiations were secret throughout.

Lots of language customarily found in trade agreements

The text of “free trade” agreements is always dry and technical, even neutral-sounding. It is in the interpretation, and what certain phrases actually mean, that determine their outcome. So let’s take a very brief look at some of the text, and what it might mean.

Chapter 10, covering investments, is crucial to understanding the similarities to existing deals. Article 10.1 on “covered investments” contains the standard list of what is covered typically found in “free trade” agreements, including “claims to money or to any contractual performance related to a business and having financial value” and “intellectual property rights and goodwill.” There is an important exception, however — the chapter does not apply to government procurement, “subsidies or grants provided by a Party” or “services supplied in the exercise of governmental authority.” What that means is that the RCEP theoretically reduces the ability to attack or force privatization of government-owned enterprises, a consistent goal of U.S. trade negotiators in agreements the U.S. is involved in, and a goal generally shared by multi-national corporations seeking new markets. But this clause could potentially be negated by the heavier market pressures that could lead to privatizations, as discussed above, and once a government enterprise is privatized, the clause is no longer relevant.

The investment chapter contains the standard clause that “Each Party shall accord to investors of another Party treatment no less favourable than that it accords, in like circumstances, to investors of any other Party or non-Party.” Article 10.5 follows up with language that is also typical: “Each Party shall accord to covered investments fair and equitable treatment and full protection and security, in accordance with the customary international law minimum standard of treatment of aliens.” Although these passages are bland, neutral-sounding phrases, this language has often been used as key points of attack for multi-national corporations seeking to eliminate government health, safety, labor or environmental regulations. As always, “customary international law” has been established by a series of rulings by the corporate-dominated secret tribunals that hand down unappealable decisions, decisions that are used as precedent for further such decisions. The expectation of profits by a corporation as a “right” superseding health and environmental regulations has been repeatedly handed down.

The skyline of Beijing (photo by Picrazy2)

Further language routinely found in “free trade” agreements stipulate that capital controls are prohibited, and, in Article 10.13 of the RCEP, “No Party shall expropriate or nationalise a covered investment either directly or through measures equivalent to expropriation or nationalisation.” What will constitute an illegal “expropriation”? How this clause will be interpreted is crucial. In existing “free trade” agreements, government regulations protecting health or the environment are frequently overturned because complying with such regulations would reduce profits, and thus constitute “expropriation” because corporate profits are presumed to be an entitlement by the tribunals sitting in judgment. Will the repeated examples of such rulings in, inter alia, the North American Free Trade Agreement, be replicated here?

In Chapter 11, covering intellectual property rights, there is no mandatory schedule for when those rights expire; this constitutes a small victory. The chapter also states that signatory governments “may establish appropriate measures to protect genetic resources, traditional knowledge, and folklore,” a right not ordinarily granted in “free trade” agreements.

But in the Financial Services Annex of Chapter 8, language similar to that found in other trade pacts requires that foreign financial services firms be given free reign to operate, even to take over a country’s banking system. Specifically, “Each host Party shall endeavour to permit financial institutions of another Party established in the territory of the host Party to supply a new financial service in the territory of the host Party that the host Party would permit its own financial institutions, in like circumstances.” Again, what seems neutral-sounding on the surface has specific meanings when interpreted by a tribunal in the context of “customary international law.”

Corporations will continue to be elevated above governments

And that brings us to Chapter 19, covering dispute settlement. Article 19.4 leaves us little doubt, reiterating that “This Agreement shall be interpreted in accordance with the customary rules of interpretation of public international law” and that adjudicators “shall also consider relevant interpretations in reports of WTO [World Trade Organization] panels and the WTO Appellate Body, adopted by the WTO Dispute Settlement Body.” No specific tribunal for the settlement of disputes is mandated, and the intent appears to be to have ad hoc panels rather than panels seated by one of the tribunals ordinarily used in trade disputes in existing trade agreements. Nonetheless, Article 19.5 gives right of forum selection to the complaining party — i.e., the corporations that will be suing governments — so the use of the tribunals can’t necessarily be ruled out. When seating an ad hoc panel, the complaining corporation and the respondent government are supposed to mutually agree on the three members of a panel but if they can’t agree, the WTO director-general will complete the panel — given the role of the WTO in imposing draconian pro-corporate rules, this clause can hardly be considered neutral.

And so who will sit on the panel and adjudicate the case? Article 19.11 designates those who “have expertise or experience in law, international trade, other matters covered by this Agreement, or the resolution of disputes arising under international trade agreements.” In other words, the same corporate lawyers who sit as judges on the tribunals that adjudicate cases brought under existing “free trade” agreements. If the WTO director-general seats panelists, those must not only meet the requirements stated above but additionally “be a well-qualified governmental or non-governmental individual including an individual who has served on a WTO panel or the WTO Appellate Body or in the WTO Secretariat, taught or published on international trade law or policy, or served as a senior trade policy official of a WTO Member.”

Under most existing “free trade” agreements, one of three tribunals is used, most commonly the International Centre for Settlement of Investment Disputes (ICSID), an arm of the World Bank. ICSID is the forum that was used in NAFTA and is used to adjudicate disputes under dozens of bilateral trade agreements, and is responsible for a long list of outrages declaring environmental and health regulations illegal. Conflicts of interest are blatant in these tribunals — corporate lawyers who specialize in defending multinational corporations in trade disputes alternate between appearing as counsel for corporations and as judges handing down the decisions.

This process is summed up well on a Bilaterals.org page answering “frequently asked questions”:

“In effect, ISDS creates a parallel business-friendly judicial system exclusively for transnational corporations. The power rests upon for-profit arbitrators who come from the corporate sector and face unverifiable conflicts of interest. They have no sovereign legitimacy and are not accountable to the public. The decisions they make can be inconsistent between one another and cannot be appealed. Plus, the arbitrators effectively serve as judge and party, because the same appointed arbitrators who plead the case for the parties make the decision. Imagine a football match where the referee plays for one of the teams! With ISDS, this becomes a possible scenario. So much for justice.”

RCEP rules not mandating ICSID or one of the other tribunals is a cosmetic change. Governments continue to tie themselves to rules and precedents that elevate multi-national corporations above national governments, and thus elevate corporate profiteering above all other human considerations. There will still be panels seated to adjudicate disputes, but instead of using ICSID or another permanent forum, there will be ad hoc panels, which will, as noted above, have the exact same criteria for seating judges. The Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union pioneered this cosmetic change, intended to make the one-sidedness of ISDS appear somewhat less blatant, and will also be used in some disputes covered by NAFTA 2, the U.S.-Mexico-Canada agreement.

Thus the “investor-state dispute settlement” (ISDS) process is very much in place in the RCEP. That should not come as a surprise. “Free trade” agreements arise because multi-national corporations scour the globe searching for the places with the lowest wages and least regulations in order to maximize their profits over all other considerations. As capitalist competition intensifies, corporations must match the moves their competitors make in order to remain in business, and adopt still more harsh policies to stay ahead. Once production is moved overseas, and supply chains are spread into ever more locales, tariffs and rules protecting domestic production are barriers to be removed. Trade deals at first mainly dealt with technical issues or tariffs, but as the relentless grasping for profits becomes ever more intense, regulations safeguarding health, labor, the environment or safety are seen as barriers to profit-making, and corporations seek to sweep them away, too.

Later trade agreements had much more to do with erasing regulations than with actual trade rules, which was reflected in the draconian rules the U.S., often assisted by Japan, sought to impose in the Trans-Pacific Partnership. That the RCEP has less draconian rules is not a cause for celebration — the rules are still plenty tilted in favor of multi-national capital and will inevitably be wielded as a cudgel by those beneficiaries. A rational trading system requires a rational, democratic economic system, not the dictatorship of capital.

Claims that the ‘NAFTA 2’ agreement is better is a macabre joke

Democratic Party House representatives have voted by a wide margin to approve version 2 of the North American Free Trade Agreement, known as the United States-Mexico-Canada Agreement. Even Rose DeLauro of Connecticut, in the past a strong leader within Congress in the fight against so-called “free trade” agreements, is on board with this one.

Representative DeLauro and other congressional Democrats claim they forced the Trump administration to strengthen the agreement by compelling the insertion of language that allegedly creates “effective and meaningful labor standards and protect[s] worker rights”; supports environmental standards; and “protect[s] access to affordable medicine.” Can this really be true? Or have congressional Democrats reverted to normal form, rolling in the dirt at the feet of Republicans yet again?

Although Democrats and public pressure forced through some improvements, the United States-Mexico-Canada Agreement (USMCA), or NAFTA 2, isn’t substantially different and remains a document of corporate domination. It would appear that appearances, not substance, drove Democrats in the House of Representatives to approve the deal. That was signaled by House Speaker Nancy Pelosi, who said she wanted to show United Statesians that her party can get things done and is not simply opposing President Donald Trump for the sake of opposing him. That was understood to be a gesture to buttress the re-election chances of Democrats who won seats in districts previously held by Republicans.

Factory farms won’t be going away under the USMCA (photo by Mercy for Animals)

So Democrats went along to get along, much as they did in approving the massive $738 billion Pentagon budget. In other words, they once again demonstrated that cringing and cowering is their default position. One can imagine the discussion behind closed doors: Yes, that will show Donald Trump we mean business — we’ll support his most desired policy initiative.

Unfortunately, the Mexican and Canadian governments have not shown much more resistance. Mexico President Andrés Manuel López Obrador, despite being elected on a Left wave and promising significant change, has so far tended to give in to President Trump’s demands. That tendency was underscored by the almost unanimous approval given the USMCA by the Mexican Senate. Meanwhile, Canada Prime Minister Justin Trudeau has been a willing participant in bringing NAFTA 2 to fruition, even going so far as to be a voice for retaining the ability of corporations to use unaccountable tribunals to sue governments, including his own and despite Canada’s regulations being the most frequent target.

What the document says isn’t what it means

So what is really in the USMCA text? Interpretation is what really matters here, as the text, like all “free trade” agreements, is written in dry, technical language that appears to be neutral at first glance. But what the words mean in practice, and how they will be interpreted by tribunals, is not necessarily the same as what the words might appear to say.

A key portion of the document is Chapter 14, the chapter on investment. The chapter’s first page, Article 14.1, defines an “investment” with the standard broad brush — not only is any capital outlay covered but so are all forms of financial speculation, including derivatives. Intellectual property rights and intangible property are explicitly named as well. So the expectation of a profit across the spectrum of business activities is well covered here, and of course the expectation of a profit — in actual practice, the demand for the biggest possible profit regardless of cost to others — is what the owners of capital expect these agreements to help deliver. The secret tribunals used to adjudicate disputes, frequently presided over by corporate lawyers who in their day job specialize in representing the corporations who sue in the tribunals, consistently interpret the language of “free trade” agreements to mean corporations are guaranteed maximum profits above all other considerations.

So is the language of Chapter 14 substantially different? Asking that question is important because Article 14.3 states that in the event of any inconsistency between Article 14 and any any other chapter, Article 14 prevails. The one exception is financial services, covered by Chapter 17, to which we will return. Article 14.4 begins with this passage: “Each Party shall accord to investors of another Party treatment no less favorable than that it accords, in like circumstances, to its own investors with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments in its territory.”

That dry language may sound neutral, but it is the exact language that is standard in “free trade” agreements. This is the language that is invoked by multi-national corporations to demand “damages” anytime any law or regulation that upholds health, safety, worker or environmental standards prevents them from extracting the biggest possible profit. This is the language invoked in the secret tribunals that adjudicate these cases to rule in favor of corporate plunder and against regulations.

When you hear “customary international law,” be afraid

That is followed up by Article 14.6, which states “Each Party shall accord to covered investments treatment in accordance with customary international law, including fair and equitable treatment and full protection and security.” On the surface, that passage seems neutral, even innocuous. But what is “customary international law”? It is whatever the tribunals that have adjudicated disputes between multi-national corporations and governments say it is. In practice, the many outrageous decisions overturning reasonable health, safety, worker or environmental standards and making corporate profit paramount establishes precedent and thus constitutes “customary” law.

The article goes on to state: “The concepts of ‘fair and equitable treatment’ and ‘full protection and security’ do not require treatment in addition to or beyond that which is required by that standard, and do not create additional substantive rights.” Again, what sounds neutral has to been read in context. What need for “additional rights” would be needed when the profits of multi-national corporations are elevated above all other considerations?

The vote in the Canadian Parliament will likely be the last chance to stop the USMCA (photo by Saffron Blaze)

We then come to Article 14.8, which states: “No Party shall expropriate or nationalize a covered investment either directly or indirectly through measures equivalent to expropriation or nationalization (expropriation).” The word “indirectly” is crucial here. Not a reference to a nationalization, which would be a verboten act, an “indirect expropriation” can be any government act that, regardless of intention or general applicability, has the effect of preventing a multi-national corporation from extracting the biggest possible profit. An environmental regulation or a regulation imposing standards protecting human health are two examples of “indirect expropriation,” and under the rules established here would mean that the government being sued would be obligated to strike such regulations from its law and pay “compensation” to the corporation. The article explicitly states that “compensation shall be paid without delay.” (A “Party” is a government that is a signatory to the agreement.)

And what of requiring corporations to act in a socially responsible manner? Here’s Article 14.17 in full: “The Parties reaffirm the importance of each Party encouraging enterprises operating within its territory or subject to its jurisdiction to voluntarily incorporate into their internal policies those internationally recognized standards, guidelines, and principles of corporate social responsibility that have been endorsed or are supported by that Party, which may include the OECD Guidelines for Multinational Enterprises. These standards, guidelines, and principles may address areas such as labor, environment, gender equality, human rights, indigenous and aboriginal peoples’ rights, and corruption” (emphasis added).

Note the provisional language, quite unlike the many articles addressing what governments must do for multi-national corporations. In the standard language of trade agreements, rules benefiting capital and erasing the ability of governments to regulate are implemented in trade-agreement texts with words like “shall” and “must” while the few rules that purport to protect labor, health, safety and environmental standards use words like “may” and “can.” The USMCA is no different. It’s the same sleight of hand.

Regulations on banks and Internet giants? Forget about it

Chapter 17, covering financial services, contains the same standard language requiring “treatment no less favorable than that it accords to its own financial institutions … with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of financial institutions and investments.” Again, what appears to be bland language actually means something stronger: In this case, a prohibition against restrictions on predatory banks. Article 17.5 explicitly bans any limitations on the activities of financial institutions and Article 17.6 prohibits any restrictions on taking capital out of a country.

Among other rules, Article 19.11 prohibits any restrictions on “cross-border transfer of information,” which effectively means, for example, that neither Canada or Mexico can protect personal information from U.S. internet companies, a cohort not known for responsible use of personal information. Similar language can be found in Chapter 15, covering cross-border trade in services. This section appears to be modeled on the Trade In Services Agreement (TISA), a notorious “free trade” agreement negotiated in secret among 50 countries, among them all three NAFTA countries, the European Union, Australia, New Zealand and Japan, and purporting to liberalize professional services.

The cover story for why TISA is being negotiated is that it would uphold the right to hire the accountant or engineer of your choice, but in reality is intended to enable the financial industry and Internet companies to run roughshod over countries around the world. The text of TISA expanded the definition of “services” to encompass manufacturing and could potentially encompass technology companies like Google and Facebook as providers of “communications services.” The text of USMCA’s Chapter 15 may not necessarily be stretched as far it is in TISA, but a reasonable reading is that this chapter will provide another weapon that predatory banks can leverage to take over financial systems and halt attempts at bringing them under meaningful regulatory control. Citigroup, Microsoft and Google are among the many corporate entities celebrating the USMCA.

Another area of concern is Chapter 11, covering “technical barriers to trade.” This chapter adopts numerous articles from the World Trade Organization’s Agreement on Technical Barriers to Trade, and makes WTO standards obligatory. There is also a clause in Article 11.7 that requires equal participation by citizens of other countries when technical regulations or standards are developed. Might this be an invitation for executives and lobbyists for multi-national corporations to demand the ability to shape new regulations? What might be ruled an “unnecessary technical barrier to trade”? Such “barriers” are intended to be eliminated as stated in Article 11.9.

Ending secret tribunals appears to be an empty promise

In “free trade” lingo, when a corporation sues a government, the dispute is to be adjudicated in a mechanism known as an “investor-state dispute settlement.” That bland-sounding bureaucratic phrase means that a tribunal decides the issue. Under NAFTA, and many other “free trade” agreements, the tribunal is the International Centre for Settlement of Investment Disputes (ICSID), an arm of the World Bank. One of President Trump’s empty promises was to put an end to the use of these tribunals. Surprise! It’s ain’t so. OK, it’s not a surprise that he lied.

In disputes between the U.S. and Mexico, Article 14.D.3 states that disputes will be settled in the ICSID, but the two sides can agree to have it heard in another forum. Given the one-sided rulings ICSID hands down, suing corporations have little incentive to use another forum. More generally, Chapter 31 sets the rules for settling disputes. There we find Article 31.3, which states, “If a dispute regarding a matter arises under this Agreement and under another international trade agreement to which the disputing Parties are party, including the WTO Agreement, the complaining Party may select the forum in which to settle the dispute.” Can a corporation suing a government dragoon the government into the ICSID or one of the other two similarly one-sided secret tribunals? The text later in the chapter is ambiguous on that, but does not preclude use of those fora.

Finance capital will be one of the winners from the USMCA (photo by Elisa Rolle)

Later in the chapter, the text speaks of “panels” without specifying a forum and also mandates, in Article 31.8, that a “roster of up to 30 individuals who are willing to serve as panelists” be created. The panelists are to “have expertise or experience in international law, international trade, other matters covered by this Agreement, or the resolution of disputes arising under international trade agreements.” The exact same “expertise” required under NAFTA and virtually all other “free trade” agreements! In other words, corporate lawyers who specialize in representing corporations in these kinds of disputes are those who have the “expertise” and “experience” to sit in judgment. The same hat-switching will be in force.

So even if ICSID, or the other two secret tribunals, are not used and instead a new panel specific to the USMCA becomes the new forum, the same conditions and same cast of characters, using the same precedents, will be in force. There is no reason to expect any effective difference from NAFTA.

Some better language but that is not necessarily meaningful

As to what potential improvements from NAFTA exist, there are three. One is that hearings will be conducted in public (Article 14.D.8) (although there does not appear to be a requirement that a public notice be made). The second is that a side agreement in force only between Mexico and the U.S. that purports to uphold workers’ rights by prohibiting denial of free association or the right to collective bargaining to the extent that doing so impacts the other country (Annex 31-A). A panel is supposed to adjudicate this issue should it arise, and apply International Labor Organization standards. The U.S. government can sue to enforce this annex, but can anybody imagine the Trump or any other Republican administration suing to enforce the right of workers? For that matter, would a Democratic administration seek to enforce collective-bargaining standards or the right to form a union if a Mexican government, acting on behalf of its industrialists, discourages it from filing?

Democratic supporters of USCMA are taking this provision on faith, but it remains to be seen if there will be any use of this annex or if it can be meaningfully enforced even if a future administration does seek to apply it.

The third improvement is that there is language on the environment that is stronger than in past agreements. Article 24.2 declares that “The Parties recognize that a healthy environment is an integral element of sustainable development” and are encouraged to “promote high levels of environmental protection and effective enforcement of environmental laws.” There are several articles in Chapter 24 discussing various specific environmental concerns. But seemingly pro-environment language has not been absent from existing “free trade” agreements and that language has proved to be meaningless window dressing.

Further, Article 24.2 also says “The Parties further recognize that it is inappropriate to establish or use their environmental laws or other measures in a manner which would constitute a disguised restriction on trade or investment between the Parties.” Here we find a potential giant loophole. Might environmental laws be interpreted to be such a restriction? Unfortunately, there is ample precedent here. A series of rulings culminated in the World Trade Organization ruling that U.S. dolphin-safe labeling is an unfair “technical barrier to trade,” even though the U.S. had weakened its laws in response to the earlier WTO rulings.

Among rulings handed down under NAFTA — rulings that are considered precedents when similar cases are heard — Canada had to reverse its ban on a gasoline additive known as MMT, a chemical long believed to be dangerous to health, because the tribunal ruled the ban a violation of the principal of “equal treatment” even though, had a Canadian producer of MMT existed, it would have had the same standard applied. Canada was also successfully sued over its ban on the transportation of PCBs that conformed with both a Canada-United States and a multi-lateral environmental treaty. The tribunal ruled that, when formulating an environmental rule, a government “is obliged to adopt the alternative that is most consistent with open trade.”

Not only are these types of rulings precedents, but recall, as noted above, that Article 14, which elevates expectations of profits above any conflicting consideration, supersedes all other articles. And to repeat a point made earlier, WTO standards are obligatory. “Technical barriers” to trade as the WTO defines them won’t be exceptions.

A billionaires’ club masquerading as a government

So what can we really expect if the USMCA goes into effect? Given not only the history of “free trade” agreements and the mendacity of the Trump administration, probably the same as experienced under NAFTA. Consider the evidence the Trump administration has offered. Its April 2018 “National Trade Estimate Report on Foreign Trade Barriers,” a document laying out its trade goals, no less than 137 countries were cited for raising alleged “trade barriers” to be attacked, barriers that include items like laws requiring food imported to be safe.

In July 2017, the Trump administration quietly published its “Summary of Objectives for the NAFTA Renegotiation,” which features boilerplate language that in some cases appears to be lifted word for word from the Trans-Pacific Partnership. And, not least, is the Trump gang’s infrastructure plan, a macabre joke that mostly consists of massive corporate subsidies and intends the creation of “public-private partnerships,” which are scams under which services are privatized for guaranteed corporate profit while becoming more expensive and less subject to public accountability.

We’re supposed to trust this government? NAFTA has been a “lose-lose-lose” proposition for working people and farmers in Canada, Mexico and the United States. That formula won’t be changing. The Council of Canadians has issued a strong warning about what can be expected:

“Regulatory cooperation in the new NAFTA takes away our ability to set standards and regulations to protect our health, safety and well-being. … [R]egulations cannot be prescribed for ethical or social reasons. The emphasis is on the regulator to prove that a regulation is backed by science, and not on the corporation to prove that their product does no harm. … Regulators have to vigorously defend proposed regulations and are even required to suggest alternatives that don’t involve regulating. They have to provide extensive analysis, including cost-benefits to industry. The new NAFTA encourages the three countries to harmonize, or have similar regulations. This is not about raising standards, but bringing standards down to the lowest common denominator.”

The National Family Farm Coalition, representing organizations in more than 40 U.S. states, said the USMCA “offers little” for family farmers. Coalition President Jim Goodman, a retired Wisconsin dairy farmer, said:

“Climate change is not mentioned and the new treaty does nothing to curb the environmental damage that was part of the original NAFTA. [Coalition] dairy producers do not support dumping excess US milk on the Canadian or Mexican markets, as that will force family dairy farmers out of business in those countries.”

The Sierra Club, League of Conservation Voters and National Resources Defense Council also recommended against the agreement being approved:

“The deal that the Trump administration produced … would encourage further outsourcing of pollution and jobs, offer handouts to notorious corporate polluters, and prolong Trump’s polluting legacy for years. The deal not only fails to mention, acknowledge, or address the climate crisis, but would actually contribute to it.”

The Institute for Agriculture & Trade Policy similarly gave a thumbs-down to the deal:

“[The USMCA] locks in a system of agribusiness exploitation of farmers and workers in the three participating nations, while worsening the climate crisis. … Nothing in the New NAFTA addresses urgent issues plaguing our farm economy: low prices, rising debt and increased bankruptcy. … Measures in New NAFTA that open Canada’s dairy market to increased exports from the U.S. will not significantly reduce the vast oversupply of U.S. milk or raise prices paid to U.S. dairy farmers. Instead, the opening will weaken Canada’s successful supply management program, which has achieved market-based prosperity for its farmers. Added regulatory-focused sections will delay and impede the development, enactment and enforcement of protections for consumers, workers and the environment.”

Sadly, the main union federation in the U.S., the AFL-CIO, has chosen to endorse the USMCA despite its fatal flaws. The largest Canadian federation, the Canadian Labour Congress, does not seem to have taken a position, although it did issue an ambiguous statement in October 2018 saying the deal had “some points of progress.” The Congress specifically cited the eliminating of NAFTA’s notorious Chapter 11 that elevated “investor rights” above all other considerations, but that optimism proved erroneous as it is now clear that provision remains in less direct language.

The governments of Canada, Mexico and the United States have once again put a gun to their own heads. “Free trade” agreements continue to have little to do with trade and much to do with imposing a corporate dictatorship, a lesson once again being imposed.

Look to U.S. executive suites, not Beijing, for why production is moved

The ongoing trade war between the United States and China, and the rhetoric surrounding it coming out of the White House, has served to reinforce the idea that China is “stealing” jobs from the United States. The reality, however, is that if we are seeking the responsible party, our attention should be directed toward U.S. corporate boardrooms.

The internal logic of capitalist development is driving the manic drive to move production to the locations with the most exploitable labor, not any single company, industry or country. For a long time, that location was China, although some production, particularly in textiles, is in the process of relocating to countries with still lower wages, such as Bangladesh, Cambodia and Vietnam. (The last of those is already a long-time source of highly exploited cheap labor for Nike.) It could be said that China is opportunistic in turning itself into the world’s sweatshop. And that it constitutes a colossal market is no small factor.

Beijing (photo by Picrazy2)

Low wages and the inability of Chinese workers to legally organize are crucial factors in the movement of production to China. The minimum wage in Shanghai is 2,420 renminbi per month, which equals US$349. Per month. And Shanghai’s minimum wage is the country’s highest rate and “roughly double the minimum wage in smaller cities” across China, reports the China Labour Bulletin. That does not translate into a living wage for Chinese workers. The Bulletin states:

“National government guidelines stipulate that the minimum wage should be at least 40 percent of the local average wage. In reality, the minimum wage is usually only between 20 and 35 percent of the average wage, barely enough to cover accommodation, transport and food costs. Workers on the minimum wage, including most production line workers, unskilled labourers, shop workers etc. have to rely on overtime, bonuses and subsidies in order to make a living wage. As a consequence, if the employer cancels or reduces overtime, bonuses and other benefits, low-paid workers will often demand immediate restoration.”

Even with such meager pay and the illegality of any unions other than the Communist Party-controlled and employer-friendly All-China Federation of Trade Unions, increasing numbers of employees are classified as “independent contractors,” making them even more precarious. Enforced overtime well in excess of the legal maximum, and employers demanding “flexible” working hours, are brutal on Chinese workers stuck in assembly jobs but lift corporate executives into ecstasy.

The leading culprit is headquartered in Arkansas

The single biggest culprit in the wholesale moving of jobs to China is to be found not in Beijing, but rather in Bentonville, Arkansas. Yep, Wal-Mart, the company that pays it employees so little that they skip meals and organize food drives; receives so many government subsidies that the public pays about $1 million per store in the United States; and is estimated to avoid $1 billion per year in U.S. taxes through its use of tax loopholes.

Other major United States retailers began procuring clothing items from Asian subcontractors before Wal-Mart, but the relentless drive to pay its suppliers as little as possible forced an acceleration in the shift of production to countries with the most exploitable populations. If a manufacturer wants to continue to have contracts to supply Wal-Mart, then it has no choice but to ship its operations overseas because it has no other way to meet Wal-Mart’s demands for ever lower prices.

By 2012, 80 percent of Wal-Mart’s suppliers were located in China. And because the company is so much bigger than any other retailer, it can dictate its terms. Gary Gereffi, a professor at Duke University, said in an interview broadcast on the PBS show Frontline that “No company has had the kind of economic power that Wal-Mart does, to be able to source products from around the world. … Wal-Mart is able to transfer whole U.S. industries to overseas economies.”

Beijing Opera House (photo by Petr Kraumann)

Because of its size and its innovation in computerizing its inventory and tightly managing its suppliers, coupled with its willingness to squeeze its suppliers to the exclusion of all other factors, Wal-Mart holds life or death power over manufacturers, Professor Gereffi said:

“Wal-Mart is telling its American suppliers that they have to meet lower price standards that Wal-Mart wants to impose. The implication of that in many cases is if you’re going to be able to supply Wal-Mart at the prices Wal-Mart wants, you have to go to China or other offshore locations that would permit you to produce at lower cost. … Wal-Mart’s giving them the clear signal that you can’t be a Wal-Mart supplier if you can’t produce at substantially lower prices. … You can go to China, or, in many cases, many U.S. suppliers can’t make that move, and they just go out of business, because Wal-Mart is the dominant company for many U.S. suppliers. If they can’t go offshore, those suppliers end up going out of business.”

Wal-Mart alone cost U.S. workers more than 400,000 jobs between 2001 and 2013, according to the Economic Policy Institute. That is a sizable fraction of the 3.2 million jobs that were lost in the U.S. due to trade relations with China.

To the best of my knowledge, however, no Chinese party or government official has ever walked into the headquarters of a U.S. corporation, pointed a gun at the CEO and demanded production be moved across the Pacific Ocean. Chinese business executives sometimes demand technology be shared in exchange for access to Chinese markets (a different matter), but executives from the U.S. or elsewhere do have the option of saying “no.” Even if we were to concede that there is some coercion in regards to technology transfers, there isn’t when it comes to moving production. That is a choice, a choice routinely made in executive suites.

It’s not a deficit for Apple

Competitors that wish to stay in business can be compelled by capitalist competition to make that choice, matching the “innovation” of the company that first finds moving production a way to cut costs and thus boost profitability. This applies to all industries, and not only low-tech ones. Apple, for example, accrues massive profits by contracting out its manufacturing to subcontractors. A 2010 paper by Yuqing Xing and Neal Detert found that Chinese workers are paid so little that they accounted for only $6.50 of the $168 total manufacturing cost of an iPhone. Of course iPhones cost a lot more than $168 — an extraordinary profit is generated for Apple executives and shareholders on the backs of Chinese workers.

A 2011 study led by Kenneth L. Kraemer calculated that $334 out of each iPhone sold at $549 went to the U.S. with almost the entire remainder distributed among component suppliers. Only $10 went to China as labor costs. Thus, despite the export of iPhones contributing heavily to the official U.S. trade deficit, the study said “the primary benefits go to the U.S. economy as Apple continues to keep most of its product design, software development, product management, marketing and other high-wage functions in the U.S.”

The profits flow to Apple headquarters (photo by Joe Ravi via license CC-BY-SA 3.0)

Chinese workers today likely account for somewhat more of the manufacturing cost as wages have risen in China over the past decade, but remain minuscule compared to wages in advanced capitalist countries. And the work endured is no vacation, as John Bellamy Foster and Robert W. McChesney noted in the February 2012 edition of Monthly Review:

“The eighty hour plus work weeks, the extreme pace of production, poor food and living conditions, etc., constitute working conditions and a level of compensation that cannot keep labor alive if continued for many years—it is therefore carried out by young workers who fall back on the land where they have use rights, the most important remaining legacy of the Chinese Revolution for the majority of the population. Yet, the sharp divergences between urban and rural incomes, the inability of most families to prosper simply by working the land, and the lack of sufficient commercial employment possibilities in the countryside all contribute to the constancy of the floating population, with the continual outflow of new migrants.”

The working conditions of China are not a secret; business-press commentaries can come close to celebrating such conditions. A 2018 commentary in Investopedia, for example, goes so far as to claim that manufacturing in the U.S. is “economically unfeasible” and then says this about Chinese conditions:

“Manufacturers in the West are expected to comply with certain basic guidelines with regards to child labor, involuntary labor, health and safety norms, wage and hour laws, and protection of the environment. Chinese factories are known for not following most of these laws and guidelines, even in a permissive regulatory environment. Chinese factories employ child labor, have long shift hours and the workers are not provided with compensation insurance. Some factories even have policies where the workers are paid once a year, a strategy to keep them from quitting before the year is out. Environmental protection laws are routinely ignored, thus Chinese factories cut down on waste management costs. According to a World Bank report in 2013, sixteen of the world’s top twenty most polluted cities are in China.”

The overall U.S.-China economic picture is more balanced

The components of the iPhone are sourced from several countries and are assembled in China. Because the final product is exported from China, Apple contributes to trade deficits, as conventionally calculated. But the lion’s share of the massive profits from this global supply chain are taken by Apple, a U.S.-based corporation. The profits from the actual assembly, outsourced to Foxconn, are accrued in Taiwan, Foxconn’s home. Apple’s arrangement is far from unique; the list of U.S. companies that manufacture in China is very long. If trade balances were calculated on the basis of where the profits are retained, the U.S. deficit with China would not be nearly so imposing.

As a commentary in the Financial Times points out, U.S. corporations sell far more goods and services in China than do Chinese companies in the U.S., but those sales are not counted toward trade balances. The commentary said:

In 2015, the last year for which official US statistics were available, US multinational subsidiaries based in China made a total of $221.9bn in sales to domestic consumers. The goods and services sold were produced by an army of 1.7m people employed by US subsidiaries in the country. By contrast, China’s corporate presence in the US remains small. Official figures on Chinese companies’ US subsidiary sales to American consumers do not exist, but analysts estimate they are hardly material when compared with China’s exports to the US. Thus, the US-China ‘aggregate economic relationship’ appears a lot more balanced than the trade deficit makes it look.”

A separate report, by VoxChina (which calls itself an independent, nonpartisan platform initiated by economists), calculates that although the official U.S. trade deficit with China for 2015 was $243 billion, when foreign direct investment (FDI) and sales by both countries’ companies in the other are included, the deficit was only $30 billion, and a U.S. surplus was forecast for following years. The U.S., incidentally, remains the world’s second-biggest exporter according to the latest World Trade Organization statistics.

The Trump administration continues to make a big show of blaming China for jobs being moved across the Pacific and for trade deficits, but although China is opportunistic, those vanishing jobs (and resulting deficits) are squarely the responsibility of the corporate executives who make the decision to shut down domestic operations. This dynamic is part of the larger trend toward so-called “free trade” — as technology and faster transportation make moving production around the world more feasible, the corporations taking advantage of these trends seek to eliminate any barriers to cross-border commerce.

And as the race to the bottom continues —  as relentless competition induces a never-ending search to find locations with ever lower wages and ever lower health, safety, labor and environmental standards — what regulations remain are targets to be eliminated. Thus we have the specter of “free trade” agreements that have little to do with trade and much to do with eliminating the ability of governments to regulate. And as the whip of financial markets demand ever bigger profits at any cost, no corporation, not even Wal-Mart, can go far enough.

Despite being a leader in cutting wages, ruthless behavior toward its employees and massive profitability, when Wal-Mart bowed to public pressure in 2015 and announced it would raise its minimum pay to $9 an hour, Wall Street financiers angrily drove down the stock price by a third. Wal-Mart reported net income of $61 billion over the past five years, so it does appear the retailer will remain a going concern. Apple reported net income of $246 billion over the past five years, so outsourcing production to China seems to have worked out for it as well.

The Trump administration’s trade wars are so much huffing and puffing. Empty public rhetoric aside, Trump administration policy on trade, consistent with its all-out war on working people, is to elevate corporate power. Nationalism is a convenient cover to obscure the most extreme anti-worker U.S. administration yet seen. Class war rages on, in the usual one-sided manner.

Revised NAFTA shows every sign of being another Trump scam

If the renegotiated North American Free Trade Agreement were good for working people, its content wouldn’t be hidden. Just what the Trump administration and the Mexican government of Enrique Peña Nieto have cooked up we do not know, but given the proclivities of both it is not likely to be good.

That the hurried-up deal appears to be intended to force Canada, which has the strongest regulations among the three NAFTA countries, into signing on disadvantageous terms, provides all the more reason to be skeptical. And, finally, a study of the United States Office of the Trade Representative’s “fact sheet” leaves no doubt that any new NAFTA will be a windfall for multi-national corporations, at our expense.

Let’s back up for a moment and remind ourselves that we should judge actions, not words. The contrast between Donald Trump’s empty campaign lies and his administration’s actual policies and actions are glaring, such as, for example, in infrastructure, where his plan is little more than a package of subsidies to connected corporations under the guise of “public-private partnerships,” which are scams to funnel public money into corporate pockets. So it is with so-called “free trade” agreements, especially NAFTA.

Jardin de la Conchita, Mexico City (photo by Percisco)

In July 2017, the Trump administration quietly published its “Summary of Objectives for the NAFTA Renegotiation.” The 18-page document contained almost nothing concrete but did feature boilerplate language that in some cases appears to be lifted word for word from the Trans-Pacific Partnership. The document purports to adopt standards for labor and for the environment, but the language used is very similar to the language proposed for the Trans-Pacific Partnership and in use in other “free trade” agreements. There is little at all in these stated goals that differs from the stated goals that Obama administration put forth for the Trans-Pacific Partnership. They are meaningless window dressing.

Lest we believe those objectives were some sort of aberration, the Trump administration followed up in April 2018 with its “National Trade Estimate Report on Foreign Trade Barriers,” in which it took direct aim at no less than 137 countries. In this document, “trade barriers” are defined as “government laws, regulations, policies, or practices that either protect domestic goods and services from foreign competition, artificially stimulate exports of particular domestic goods and services, or fail to provide adequate and effective protection of intellectual property rights.” Note the absence of labor, safety, health or environmental standards. Among the hundreds of pages of complaints, to provide one example, was that Norway expects food that it imports to be proven safe.

Quite clearly, the Trump administration, headed by a billionaire grifter who built his fortune on stiffing working people and stuffed with corporate raiders and Goldman Sachs executives, is wholly dedicated to furthering corporate plunder, as its tax “reform” amply demonstrates.

Corporate giveaways on financial services, IP

Although only corporate lobbyists have had access to the revised NAFTA text, the U.S. Office of the Trade Representative did provide some highlights of the agreement in its public “fact sheet.” These are not promising.

It appears that corporate wish lists for intellectual property, financial services and other areas were largely granted. New IP rules, if this agreement is passed into law, include stepped-up enforcement against “camcording of movies” and “cable signal theft,” as well as “Broad protection against trade secret theft.”

The IP rules would extend copyrights to 75 years, long a U.S. demand (and one opposed by the Canadian government); increase pressure on Internet service providers to take works alleged to infringe copyrights (in actuality a tool for censorship); and provide for “strong protection for pharmaceutical and agricultural innovators,” which can be presumed to be code for enabling further medicine price-gouging and crimping accessibility to generic and cheaper alternatives. The last of these was a prominent U.S. goal for the Trans-Pacific Partnership, which, inter alia, sought to eliminate the New Zealand government’s program to provide medicines in bulk at discounted prices at the behest of U.S. pharmaceutical companies. Related to this is a measure to include 10 years’ protection for biologic drugs and an expansion of products eligible for “protection.”

New York Stock Exchange (photo by Elisa Rolle)

Noting that the U.S. runs a surplus in financial services, the new NAFTA agreement would force Mexico wide open to U.S. financial companies. The agreement explicitly prohibits any regulations restricting foreign financial-services companies. This would be done under the guise of “national treatment,” and the Trade Office fact sheet flatly states that it is intended “to ensure that a Party does not discriminate against United States financial service suppliers.” That language is “trade speak” for allowing any predatory U.S. bank to run roughshod over other countries with no restrictions. And, as an added bonus, the IP rules also prohibit regulations against cross-border transfers of data. (Here U.S. negotiators likely have European Union privacy rules in their sights as this is a contentious point in the Transatlantic Trade and Partnership talks.)

There do appear, on paper, to be token gains for labor and the environment. But that assumes any such gains would be enforceable, which can not be taken for granted. A revised labor chapter calls on Mexico to commit to strengthening Mexican workers’ ability to collectively bargain, but this strongly clashes with the Trump administration’s unrelenting hostility to U.S. unions. In conjunction with raising the minimum North American content of automobiles, at least 40 percent of auto content must be made by workers earning at least US$16 per hour.

On the environment, the Trade Office claims there would be new protections for marine species including whales and sea turtles; “prohibitions on some of the most harmful fisheries subsidies”; and “articles to improve air quality.”

Don’t hold your breath for clean air

Unfortunately, such sentiments run 180 degrees opposite to the actual policies of the Trump administration. Nor is global warming even mentioned. Furthermore, it is necessary to pay close attention to the actual words used in various places of “free trade” agreements and, crucially, how those passages will be interpreted in the secret corporate tribunals that adjudicate disputes between governments and corporations. Those tribunals are held in secret, have no appeal process and hand down decisions by judges whose day jobs are as corporate lawyers for the corporations that bring these suits.

The U.S, Trade Office “fact sheet” makes no mention of the Investor-State Dispute Settlement (ISDS) provision. Inside US Trade reports that ISDS will remain intact for the oil and gas, infrastructure, energy generation and telecommunications industries, while for other industries, ISDS “will be limited to expropriation or failure to give national treatment or most-favored nation treatment.” Because suits by corporations against national governments seeking to eliminate regulations are almost always raised on just those issues, this “limitation” will likely prove to be of no consequence.

Spent shale from a Shale oil extraction process (photo by U.S. Argonne National Laboratory)

The announced tepid advances in labor and environmental rules aren’t likely to be enforceable. In the language of trade agreements, rules benefiting capital and erasing the ability of governments to regulate are implemented in trade-agreement texts with words like “shall” and “must” while the few rules that purport to protect labor, health, safety and environmental standards use words like “may” and “can.” It remains to be seen if there will be any change to that language, but it would be best not hold one’s breath. Promised breakthroughs in past “free trade” deals have consistently proven to be empty platitudes.

A Sierra Club analysis of the revised NAFTA text warns that environmental rules will be weakened. The analysis said:

“NAFTA negotiators have explicitly stated that they intend for NAFTA 2.0 to lock in the recent deregulation of oil and gas in Mexico, which has encouraged increased offshore drilling, fracking, and other fossil fuel extraction. A future Mexican government may want to restrict such activities to reduce climate, air, and water pollution. However, NAFTA 2.0 could bar such changes with a ‘standstill’ rule that requires the current oil and gas deregulation to persist indefinitely, even as the climate crisis worsens and demands for climate action crescendo.

NAFTA 2.0 includes expansive rules concerning ‘regulatory cooperation’ that could require Canada, the U.S., and Mexico to use burdensome and industry-dominated procedures for forming new regulations, which could delay, weaken, or halt new climate policies. These rules also could be used to pressure Canada and Mexico to adopt climate standards weakened by the Trump administration, making it harder to resume climate progress in the post-Trump era.”

Will the Canadian government allow itself to be bullied?

The Institute for Agriculture and Trade Policy, calling the rushed deal between Mexico and the U.S. a “transparent bullying tactic” intended to force Canada into a deal with unfavorable terms, also said that the deal would hurt family farmers in all three countries. The Institute said:

“Given the Trump administration’s lack of adherence to existing international agreements, a handshake deal can hardly be seen as credible. What little has been released on agriculture makes the dubious assertion that U.S. farmers have benefited from NAFTA and, even worse, promises new rules to lock in the spread of agricultural biotechnology, which would favor agribusiness interests over those of family farmers in each of the three countries.”

Food and Water Watch also threw cold water on the idea of an improved NAFTA, saying it had “no confidence” that the Trump administration would address NAFTA’s flaws. The group’s executive director, Wenonah Hauter, wrote:

“The devil resides in the details of these corporate-driven free trade deals, and we expect that the fine print will include the kind of pro-polluter, pro-fossil fuel industry, pro-Wall Street deregulation that has been a hallmark of Trump’s domestic agenda. These rumored trade provisions would codify the administration’s savage attacks on environmental protection, food safety and consumer rights into trade deals that enshrine and globalize deregulation, making it harder to restore U.S. environmental and consumer protections once this administration is shown the White House door.”

The Alberta tar sands (photo by Howl Arts Collective, Montréal)

The Canadian government has joined the NAFTA talks, although it is difficult to see how Canada can do other than concede, given that U.S. Treasury Secretary Steven Mnuchin has said that Canada has until August 31 — four days after the Mexico-U.S. agreement was announced — to come to terms or the White House will move to replace NAFTA with a Mexico-U.S. bilateral deal. On the other hand, President Trump does not have the authority to do that without congressional approval, and opinions expressed in the U.S. Senate have opposed a deal without Canada. And despite the many concessions made by Mexico, tariffs imposed on Mexico will remain in force until and unless further negotiations eliminate them.

The Council of Canadians, long a NAFTA critic, fears Canada will show weakness. The group’s honorary chair, Maude Barlow, wrote:

“Trump is threatening to push Canada out of the agreement, or making it a junior partner to the U.S. and Mexico. Our government must not give in to these tactics and hold the line on our public interest. When NAFTA was signed 30 years ago, we worried that Canada would be at the mercy of the U.S, and we were right. Now, Canada is going to have its auto workers and farmers pitted against each other.”

No reason for optimism in Mexico

There is no reason for optimism to the south, either. Mexican activist Manuel Pérez-Rocha, noting that it is “not surprising” that the NAFTA text is hidden from the public, wrote:

“Unfortunately, the public doesn’t have an idea of what the exact decisions on energy are, labor organizations have been kept completely aside from the negotiations and in terms of the settlement of disputes these mechanisms will only handcuff [President-elect Andrés Manuel López Obrador’s] government when it starts office on Dec. 1.”

Without question, NAFTA has been a disaster for working people in all three countries — a lose-lose-lose proposition that has gone on for more than two decades. Despite President Trump’s rhetoric, Mexican farmers have perhaps been hurt the most. Is an administration that is overturning every environmental regulation it can, that denies global warming, that puts industry executives in charge of regulatory agencies, that features cabinet officers such as Wilbur Ross, an investment banker who buys companies and then takes away pensions and medical benefits so he can flip his companies for a big short-term profit, really going to help working people?

Given the massive power imbalances of today, the policies of capitalist governments reflect the interests of the largest industrialists and financiers. The Trump administration is actually composed of large industrialists and financiers, to a degree perhaps unprecedented in modern times, so all the more are those interests promoted.

“Free trade” agreements are part of this process, which is why they have little to do with trade and much to do with bringing to life corporate wish lists. These agreements are an inevitable result of production being moved to places with the lowest wages and weakest regulation — with products assembled across oceans with parts delivered from yet more places, the multi-national corporations that benefit from these global production chains require ever more “free trade” deals to keep their cross-border profits coming and to maintain their sweatshop empires.

There remains no alternative to working people uniting across borders, in a broad movement, to reversing corporate agendas that accelerate races to the bottom. Opposing “free trade” deals on nationalist grounds is playing into the hands of corporate plunderers.

Fooled again? Trump trade policy elevates corporate power

Given the Trump administration’s all-out war on working people, a government by billionaires and for billionaires considerably more blatant in its class warfare than the ordinary White House, it has long puzzled me that some activists insist on giving it the benefit of the doubt when it comes to trade issues.

The Trump administration’s previously stated goals on what it seeks to achieve in the North American Free Trade Agreement (NAFTA) negotiations should have been sufficient evidence. But with this month’s issuance of the “National Trade Estimate Report on Foreign Trade Barriers” it should be painfully obvious that the Trump régime’s intent is to extend the dominance of U.S.-based multinational corporations into every aspect of life in as many corners of the globe as possible.

Directly contrary to Donald Trump’s hollow promises on the campaign trail, his administration released in July 2017 its “Summary of Objectives for the NAFTA Renegotiation.” This 18-page paper was written with boilerplate language that reads as if it was lifted from the Trans-Pacific Partnership, and some of the language appears to be repeated word for word. The intention is to strengthen corporate power, not promote the interests of working people.

Bárrás mountain, Norway (photo by Ville Miettinen)

As Friends of the Earth said at the time in its analysis of the Trump administration’s NAFTA objectives:

“Trump’s statement indicates he plans to step up his war on public health and the planet by modeling NAFTA’s provisions related to environmental regulation on the TPP. These objectives appear to set the stage for a stealth attack on strong regulation of food, agriculture, chemicals, and biotechnology.”

I was thus quite surprised recently when discussing NAFTA on the Eco-Logic environmental program on WBAI radio in New York when, summarizing the Trump NAFTA paper, I was quite rudely interrupted and addressed in a most condescending manner by another guest, the head of a Washington non-governmental organization (NGO) who purported to “correct” me by claiming that Trump’s trade advisers say they want to do away with the secret tribunals that corporations use to overturn government laws and regulations.

I was appearing on Eco-Logic as a representative of a grassroots organization I have worked with for several years, Trade Justice New York Metro, but even I as a lowly community organizer and not the head of a connected NGO know that campaign promises are meaningless. The Trump administration has put its intentions in print, and it would be folly to ignore what administration officials themselves say is their policy. There has been no attempt to do away with the private tribunals (the “investor-state dispute system”) in the NAFTA talks, only a push to eliminate panels that decide anti-dumping cases. This is simply because the White House wants to make it easier for U.S. companies to be able to sell excess production on the cheap across the border.

Trump administration takes aim at the world

In its National Trade Estimate Report (prepared by the Office of the U.S. Trade Representative, headed by nationalist Robert Lighthizer), the Trump administration takes direct aim at no less than 137 countries. And, for the few that were missed, the report’s introduction warns “As always, the omission of particular countries and barriers does not imply that they are not of concern to the United States.”

The report defines “trade barriers” in this way: “government laws, regulations, policies, or practices that either protect domestic goods and services from foreign competition, artificially stimulate exports of particular domestic goods and services, or fail to provide adequate and effective protection of intellectual property rights.”

You’ll note the absence of labor, safety, health or environmental standards, and the concern for “intellectual property rights” contrasts with the complete lack of regard for what other countries might see as their right to protect their own economy. This concern only with corporate profits, at the expense of all other human considerations, is hardly new of course. U.S. negotiators during the Obama administration consistently pushed for the most draconian rules for the Trans-Pacific Partnership, particularly on intellectual property. Any “investor” — defined as any person or entity that has “an expectation of gain or profit” in any form of participation in any enterprise, holds any financial instrument, possess any intellectual property right or has a “tangible or intangible” right in any “movable or immovable property — would have eligible to sue governments under the rules of the TPP.

The Rideau Canal in Ottawa (photo by John Talbot)

Health care, and government policies to make medicines more affordable, such as those of New Zealand, was at direct risk under TPP.

Nothing has changed. Any attempt by any government to place health or environmental concerns at least level with corporate prerogatives is what actually constitutes a “trade barrier” in the eyes of the Trump administration, true to its composition of a cabinet stuffed with billionaires and its managerial ranks with a fleet of Goldman Sachs alumni.

No country too small to be a target of U.S. capital

Let’s take the example of Norway. Not a socialist paradise as some U.S. liberals of the Bernie Sanders persuasion imagine, but nonetheless a country that does make efforts to ameliorate the conditions of capitalism and certainly a much more civilized place than the United States. Norway has an interesting relationship with the European Union, formally outside but part of the EU common market. Thus it is required that Oslo implement EU law, which it dutifully does with the exception of a couple of areas, including fishery policy, where it maintains independence.

The U.S. enjoyed a small trade surplus with Norway in 2017. Given Norway’s small population of five million one might believe the White House has bigger targets at which to aim. But no country is too small to feel the wrath of U.S. multi-national capital. The National Trade Estimate Report complains that Norway expects food that it imports to be proven safe. The nerve! The report says:

“Norway has effectively banned the importation of agricultural biotechnology products by implementing extremely restrictive policies for crops derived from such technology. The restrictions include prohibiting farmers from cultivating biotech crops and using biotech feed for farm animals. The United States continues to press Norway to recognize the applicable science on the safety of such products and accordingly to open its market to U.S. exports of such products. … Norway applies regulations developed by the European Union that ban imports of beef from animals treated with hormones, despite the absence of scientific evidence demonstrating that this practice poses any risk to human health.” [page 347]

Scientists, and not only EU officials, would differ. Note that in the Trump régime’s conception it is not up to the producer of a new product to prove it is safe; it’s up to consumers, or agencies designed to protect consumers, to prove it’s not safe after the fact. This backward formulation, unfortunately, is consistent with U.S. regulatory practice regarding chemicals.

Consistent with its attitude toward Norway, the Trump administration alleges the European Union raises “a proliferation of technical barriers.” [page 155] By no means can the EU be said to be immune to corporate pressure. But the EU does not have a policy of favoring U.S. corporations and has limitations in how far it can lower regulatory standards due to grassroots mobilization despite its best efforts to insulate itself from public opinion.

European Union, Canada and Mexico aren’t forgotten

The Trump administration’s complaints about the European Union go on for 47 pages, covering a vast array of industrial and agricultural products. We get to the heart of the matter on page 157, where the trade report complains that “technical committees that draft the European standards generally exclude non-EU nationals” and thus “The opportunity for U.S. stakeholders to influence the technical content of EU legislation setting out essential requirements (i.e., technical regulations) is also limited.”

Yes, if only Brussels would allow U.S. corporations to dictate their standards. We can all imagine the shrieking that would be heard if Europeans were to demand they dictate regulatory practices to Washington. Nationalism, in the end, is always a one-way street.

Canada and Mexico, of late subject to U.S. demands in the NAFTA re-negotiations, are not spared in the trade report, either.

The U.S. enjoyed a trade surplus with Canada in 2017, contrary to the nonsense that President Trump routinely utters. As expected, the trade report dwells on Ottawa’s protective measures for its dairy farmers and does not fail to complain about aid to Québec’s Bombardier company while not mentioning the massive corporate welfare doled out to U.S. corporations at the federal, state and local levels. But we again get to the crux of the matter when we read the complaint that Canada dares to uphold food-safety standards.

The trade report complains that “Canada’s Seeds Act generally prohibits the sale or advertising for sale in Canada, or import into Canada, of any variety of seeds that is not registered with Canada’s Food Inspection Agency.” [page 80] This is alleged to be unfair because the Canadian agency “verify[s] claims made which contributes to a fair and accurate representation of varieties in the marketplace.” Quelle horreur! How dare those Canadian bureaucrats value the safety of food above corporate profits!

Despite U.S. corporations using Mexico as a low-wage haven with low environmental standards that can be ignored, several items that met the displeasure of the White House were listed, among them Mexico’s intention to set standards for energy efficiency, alcohol and plumbing fixtures. The trade report complains that Mexico requires licensing for companies that seek to export steel there, an irony considering the Trump administration’s imposition of steel tariffs.

Although the trade report goes on to complain about other countries enforcing health and safety standards, its authors, with a straight face, claim to be upholding higher standards, asserting that the report “highlights the increasingly critical nature of standards-related measures (including testing, labeling and certification requirements) and sanitary and phytosanitary (SPS) measures to U.S. trade policy.” Perhaps in an Orwellian sense. It would be more accurate to say that U.S. trade policy, as with foreign policy in general, is best defined as “he who has the gold gets to make the rules.”

Watch out, world: The Trump gang is coming for you. Trump trade policy is set by economic nationalists determined to deepen the dominance of U.S. corporate power at the expense of working people everywhere, U.S. working people not excepted. It is the height of naïveté to expect anything else.

You are working harder and getting paid less

The bad news: Your wages are declining. The worse news: Surveys documenting falling wage actually under-estimate how much your wages are declining.

A recent entrant to this labor literature, a research paper titled “Decomposing the Productivity-Wage Nexus in Selected OECD Countries, 1986-2013,” studied 11 advanced-capitalist countries and found that in eight of them median wages have not kept pace with growth in labor productivity. To put the preceding sentence in clear language: You are producing more and getting paid less.

You likely did not need to read the above to know that. But there is nothing wrong with confirmation. The paper’s authors, Andrew Sharpe and James Uguccioni, publishing in the International Productivity Monitor, wrote:

“In eight of the 11 [Organisation for Economic Co-operation and Development] countries examined in this article, median real wage growth since the mid-1980s has not kept pace with labour productivity growth. The size of the growth gap between labour productivity and median real wages differs across countries, but the qualitative pattern is consistent: workers are growing more productive, but those productivity gains are not being matched by growth in the typical worker’s wage.”

The 11 countries studied were Canada, the United States, Norway and eight members of the European Union — Denmark, France, Finland, Germany, Ireland, the Netherlands, Spain and the United Kingdom. Working people in the United States will not be surprised to find that the widest gap between pay and productivity growth occurred there, with Germany in second place. Spain, Norway and Ireland were the three exceptions, although in each the gain in wages over productivity is small.

The opening of the 2003 World Social Forum (photo by Feijaocomarroz from pt)

There is no one single factor accounting for these results, the authors write, looking to mainstream economics for explanation. They offer conventional causes for declining wages:

“The causes of labour’s deteriorating bargaining power are hotly debated. One of the most trumpeted causes is globalization. Proponents argue that capital is far more mobile than labour in an increasingly globalized world, which makes the threat of outsourcing and offshoring far more credible. Due to the threat of offshoring from countries with less strict labour regulations and lower labour costs, workers are increasingly forced to accept lower wages. Some argue that labour’s deteriorating bargaining power is less a matter of globalization and more a matter of technological change which is biased against labour. For example, the OECD [in its 2012 employment outlook] argues that the spread of information and communication technologies have led to major innovation and productivity gains over recent decades, but have also had the effect of replacing workers altogether. The result is an increase in capital’s bargaining power, and a decrease in labour’s — particularly for workers in highly repetitive jobs which naturally lend themselves to automation. Structural and institutional reforms may also have contributed to the reduction of labour’s bargaining power.”

Globalization, yes, but what is behind globalization?

Are these causes some natural phenomenon like the tides in the ocean? Or might there be reasons behind these explanations? To this we will return. But, first, it should be noted this report under-reports the extent that wages are falling behind, which the authors readily acknowledge.

This under-estimation is revealed when the differences between average and median real hourly earnings are reported. This matters because an average is the midpoint between highest and lowest, while median represents the earner at the point where half make more and half make less. When those at the top make more and the rest make the same, the average goes up while the median stays the same; thus examining median income as opposed to average gives a more accurate representation.

The gap between labor productivity and median real hourly wages growth, 1986-2013 (percentage points per year)

Of the 11 countries examined, the authors report that median hourly earnings fell further behind average hourly earnings in 10, with France the exception and there the change was minuscule. This finding represents fresh proof of increasing wage inequality. The biggest increasing in this measure of wage inequality is — surprise! — the United States, followed by Britain. OK, United Statesians or Britons reading these lines won’t be surprised.

The paper’s authors report:

“Empirically, earnings distributions within OECD countries are positively skewed; the mean is greater than the median because the mean is dragged upward by very high earners. … This would imply that the gains from labour productivity are flowing disproportionately to workers who were already high earners relative to the median worker.”

Only the wages of the top one per cent grew faster than productivity growth.

“[R]emoving the top one percent from labour income doubled the rate of decline of labour’s share of income in Canada and the United States. In fact, the removal of the top one percent from total labour income hastened the decline in labour’s share of income in all of the OECD countries they studied except Spain.”

There are plenty more studies where that one comes from. The International Labour Organization, in its 2014/2015 Global Wages Report, similarly found that wages are declining:

“In the group of developed economies, real wages were flat in 2012 and 2013, growing by 0.1 per cent and 0.2 per cent, respectively. In some cases — including Greece, Ireland, Italy, Japan, Spain and the United Kingdom—average real wages in 2013 were below their 2007 level. … Between 1999 and 2013, labour productivity growth in developed economies outstripped real wage growth, and labour’s share of national income – also a reflection of the link between wages and productivity – fell in the largest developed economies.”

Less income and fewer protections for labor

David Ruccio, in a brief post for the Real-World Economics Review Blog, reports that the labor share of income in the United States is the lowest it has ever been since the end of World War II. The tendency throughout the period has been for decline, but the decline has been much steeper since 2001 —  labor share of income in the U.S. is 15 percent lower than it was in 2001. Skewing those results is that the share of income going to the top one percent has doubled since the mid-1970s. So the income share of working people has actually worsened more than the overall statistic indicates.

Concurrent with the increasingly precarious state of working people are dwindling labor rights. No country on Earth fully safeguards labor rights, the International Trade Union Confederation found in its 2017 Global Rights Index report. On a scale of one to five, with one representing the countries with the best ratings (merely “irregular violations of rights”) and five representing the worst (“no guarantee of rights”), Britain and the United States received rankings of four. Thus inequality being the most pronounced in those two countries, so fond of finger-wagging at the rest of the world, comes as little surprise.

(graphic by David Ruccio, Real-World Economics Review Blog)

And still less so considering the immense pressure financial capital puts on corporate executives to squeeze ever more out of employees, exemplified by Verizon Communications attacking its workforce to the point of forcing its employees to go on strike despite racking up $45 billion in profits over five years and Wall Street judging even merciless Wal-Mart as insufficiently ruthless in extracting billions of dollars in profits out of its employees.

The reasons behind these trends appear to be somewhat of a mystery to the two authors of “Decomposing the Productivity-Wage Nexus.” They disapprove of the decline in wages they document but seem to believe this is due to some unfortunately poor political decisions. They conclude their paper with these thoughts:

“The lack of inclusive growth we observe in many OECD countries has significant societal implications. There may be less political support for productivity-enhancing policies in the future if the benefits of productivity growth are not shared equitably. The incentives for employees to work hard may diminish if they believe that they are not receiving their ‘fair share’ of the firm’s productivity gains. Finally, the current taxes and transfers system may not be well equipped to offset the growing trend of wage inequality among workers if it was designed assuming labour productivity growth will lead to real wage growth for all workers.”

Writing a letter to your representative might not do the trick

Well, it’s all a misunderstanding then? If only we speak up, and point out the unfairness of this, somebody out there will do something about it. One imagines that members of parliaments and congresses are largely aware of growing inequality. But if political policies are doing what the sponsors of those policies expect them to do, just what should we expect those office holders to do? This sort of class warfare rages on because only one class is waging it, and that class has the means to dominate society through a mass of institutions paid to do their bidding, control of the mass media and ability to buy government and the legislative process.

Does anybody believe that Donald Trump, or Theresa May, or Emmanuel Macron, or Malcolm Turnbull, upon receiving a well-written letter explaining the problem, would then slap their heads to their forehead and exclaim, “I never realized this was happening!” Pigs, elephants and polar bears will all fly long before any such epiphanies. We can add leaders of the past, such as Gerhard Schröder, to the list. It was the former Social Democratic leader, when chancellor, who pushed through his “Agenda 2010” legislation to codify austerity on German workers, which, inter alia, cut business taxes while reducing unemployment pay and pensions. German wages have been suppressed since 2001 in relation to inflation or productivity gains — the prosperity of German manufacturers has come at the expense of German workers.

Globalization, pointed to by the two authors of “Decomposing the Productivity-Wage Nexus” as a culprit, doesn’t happen in a vacuum or because some capitalist somewhere woke up in an ornery mood. Globalization is the response of industrialists and financiers to the rigors of capitalist competition.

Once the limits of Keynesianism were reached in the 1970s, and the growth levels of the mid-20th century could no longer be sustained, capitalists ceased tolerating wage increases. Instead, from their perspective, they needed to force through wage cuts to maintain profit margins. Relocating production to places with lower wages and fewer regulations was the answer.

Mergers, with attendant layoffs, are another response to capitalist competition. Once one capitalist succeeds with such an “innovation,” the others must follow on pain of losing their competitive position. The need to move raw materials and finished products across borders, from the capitalists’ point of view, necessitates the lowering of barriers and borders to trade, and thus the increasing harshness of so-called “free trade” agreements that are promoted by multi-national corporations.

Globalization is not some natural process beyond human control, but rather is the result of capitalist competition — of allowing markets to decide ever more outcomes. When one side has so many more resources and weapons at its disposal, it’s no surprise that class warfare is such a one-sided affair. If we want the world to be otherwise, we’ll have to struggle for it. Everything of human creation can be changed by human effort, including the world’s failing economic system.