On free trade, the rights of multinationals and the dilemma of the State

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On free trade, the rights of multinationals and the dilemma of the State




On free trade, the rights of multinationals and the dilemma of the State: "The FTAA is a stronger MAI, and Canada is letting it happen."
"By trying to win it all, large private corporations are making class struggles reappear."



Jacques Parizeau, economist, Premier of Quebec from Sept. 1994 to Jan. 1996.
It is regrettable that the Peoples' Summit of the Americas ended in a kind of general rejection of free trade. Several of the participants had shown perspicacity in their study of the multiple facets of the Free Trade Area of the Americas. But, finally, all distinctions and nuances grew blurred to the profit of a dogmatic judgement. You do not condemn tides. You build dams, piers, in a word, you protect yourself. You cannot excommunicate the sea.

International free trade expends in the world as intranational free trade was established inside each country, a long time ago.

Contents

The role of the GATT

The movement began in 1947, with the creation of the GATT. The depression of the Thirties and the Second World War left us with very high trade barriers; commercial reprisals had destroyed trade movements. The objective of the GATT was simple: to gradually lower tariffs and to gradually remove quotas on imports. The privileged instrument to reach these ends was also simple: the reduction of trade barriers granted by a member State to another member State was automatically granted to all the other members. This was the clause of the most favoured nation. As nobody was willing to authorize a reduction on a product without obtaining, in return, a reduction on another product, the negotiations of the GATT became a kind of immense fair where its members exchanged reductions which were automatically extended to all.

The instrument was powerful. At the beginning, there were only two dozen members. They are 140 today. Everyone wants to be part of it. Even, and especially, China.

The barriers were gradually reduced. The GATT obviously lived very well with the fact that some of its members were in a rush to organize free trade areas or customs unions.

And thus appeared the European Common Market, the European Free Trade Area, the Canado-American Agreement on Free Trade, the NAFTA, the Mercosur, the FTAA (at least, the project...). These are the better known ones, but there are others.

The negotiations became more sophisticated than the former bilateral exchanges. And the fields of application more numerous. Whereas the first negotiations normally had to do with products, we started to liberalize services (financial, transportation, data processing, commercial, etc). But one does not provide a service of insurance, financing, or consultation as one moves an oil barrel. One usually needs a local establishment. The company which sought to establish itself in a foreign country wanted to be treated like a local company. The clause of national treatment appeared.

The objective of multinationals

Why limit the application of this clause to services? It would have to apply, some said, to all foreign investments. Why would a country agree to let in the franchise of a foreign steel company and not agree to offer national treatment to the company that wanted to build a steel factory?

If a conflict appears between a foreign investor and a government, how will it be regulated? For a long time, commercial conflicts were recognized only between governments, and an arbitration was established to decide the type of reprisals to which a country could resort with regards to the delinquents.

How to regulate a conflict between a company and a government today? The conflicts are all the more likely to arise as the objectives of the private sector are increasingly demanding. In 1995, the president of the Dutch-Swedish company ABB (which is strongly established in Québec by the way) summarized the objective of multinationals and transnationals in a concise way:

"I would define globalization as the freedom for my group to invest where it wants, when it wants, to produce what it wants, to get supply from or sell where it wants while having to support the least amount of constraints as possible with regards to labour laws and social conventions."

The International Chamber of Commerce embraced this vision with enthusiasm and the pressures became increasingly strong so that, in the conflicts that such a vision would not fail to cause, a company could sue a government in front of an international court and obtain financial compensations from them for the profits lost because of the policies pursued by this government. Vast program!

The Canado-American Treaty

At the end of the Eighties, the American Congress became very protectionist. The bills to limit the importation of such and such product multiplied. The list ended up reaching more than 200 proposals. As the principal supplier of the United States, Canada was directly aimed. That only a few of these projects be adopted and Canada would be exposed to a serious recession. The White House, conscious of the danger, won the Congress by proposing a free trade area to Canada. Mr. Mulroney accepted. Ontario, which greatly benefited from the installation of American branches, sheltered by the Canadian tariff, was against. In Québec, the Prime Minister Robert Bourassa was rather for but hesitated. The official opposition, the Parti Québécois, was rather against but hesitated. An agreement between the two political parties made it so that the non-partisan support of Québec to Mr. Mulroney gave him the political force to conclude. Under the influence of the Ontario labour unions, the labour unions of Québec were against, but the most important labour union in the private sector, the Metal-workers, refused, in the name of the interest of its members, to align itself on Ontario's fears. The game was won.

And yet, the interest of Québec was clear. What creates jobs here, are less the branches of American companies than indigenous small to medium businesses. For them, the lifting of the American tariffs was a gift from heaven. Their exports to the South were going to explode. Never again could English Canada blackmail the sovereignists as it had done for so many years: if you leave, we will no longer buy your products. Canada ceased to be the largest market for Québec; it was now the United States. To remove a sovereign Québec from the recently created free trade area? Difficult, very difficult, since, after the extension to Mexico, the United States were aiming for the FTAA.

A great number of general exemptions were included in the treaty, for what pertains to trade as well as investments: products and cultural industries, transport services, telecommunication services, maritime services, financial products (except insurance) and stock markets.

All things considered, the Canado-American Free Trade Agreement ensured an important liberalization of exchanges but did not throw the baby out with the water of the bath. Governments kept the possibility of exerting a structuring action and culture was clearly recognized as a general exception.

NAFTA

The slip began with NAFTA. The Canado-American Agreement had come into effect in 1989. For NAFTA, it was 1994. American investors were wary of the behaviour of Latin American governments. They wanted rock-solid protections. Neoliberalism was raging. The governments of the Soviet kind were gone. The great search for foreign investment was everywhere. Governments yielded. Investors had their international arbitration obligatory for governments.

It is not obvious if the Canadian government saw the extent of what it signed. It is true that the Mexican government caused a lot of mistrust. And the arbitration clause seemed so logical in order to encourage foreign investment in Latin America. When the American company Ethyl sued Canada on the basis of the NAFTA provisions, the alarm clock was brutal.

For the remainder, however, and particularly for the general exceptions, the clauses of the Canado-American agreement, on the whole, were maintained. The cultural exemption remained, but as a clause of the American agreement rather than as a clause of NAFTA. It is not indifferent to what followed.

The MAI

What followed was, for our matter, a kind of detour outside of the Americas. It is the draft treaty of the MAI (Multilateral Agreement on Investment). It is an initiative of the OECD, which includes, as we know, only modern industrialized countries, of which Canada and the United States.

The members of the OECD named negotiators who, without the Parliaments being really informed, worked out a charter of investments which came close to what the president of ABB desired.

The examples are too numerous to all be quoted here, but here are some:

  • A government had to respect a long list of prohibitions of performance conditions or results. The list of NAFTA lengthens. It was even be prohibited to force a foreign investor to recruit a given share of its labour locally.
  • Was expressed the wish that foreign companies do not require a foreign State to lower its environmental standards before investing but one forced the governments to pay a compensation to companies for losses in profit arising from an increase of the environmental standards.
  • The cultural exception disappeared. Any country that wanted to register specific exceptions did it in an appendix, and they were negotiable.
  • All these provisions were prone to compulsory arbitration by companies.

The text of the draft agreement was made public on the Internet by an American association of consumers. Protests took place a little everywhere (of which that of the SalAMI in Montréal). In all parts of society, we began to realize that governments were about to give up some of their essential responsibilities. Free trade overflowed a resignation by the State.

The last negotiations of the MAI were to begin in Paris, on October 20, 1998. On October 13, Lionel Jospin (PM of France) declared that if it is normal for a country to transfer some elements of its sovereignty to an international organization, it should not transfer some elements of its sovereignty to private interests. And he asked the French delegation to withdraw from the negotiations. That was enough for the project to collapse.

Québec escaped it by luck. The federal government informed us very badly on what was happening. It gave up the general cultural exception without stating it. And if the project had passed, a good chunk of what we call the Quebec Model of Development would have become illegal. Since this episode, Québec demands to be present at international negotiations crucial to its future.

Another attempt came with the WTO meeting in Seattle but protesters prevented the meeting from taking place.

The FTAA

The following occasion was the FTAA meeting in Quebec City. In this case also, a leak on the Internet revealed the content of the chapter of the FTAA which dealt with foreign investment. The responsibility, this time, was that of the Institute for Agriculture and Trade Policy.

Reading this text, we soon realized that it is a new attempt at writing, for the three Americas, a great charter of the rights of multinationals. It is a stronger MAI, if that is possible. The rights of the governments are even more reduced, more diluted than they already were in the MAI.

The negotiation was secret. The Group of negotiations on investment sat on five occasions during the year 2000. It submitted a report to the ministers responsible for trade after their meeting of November 27 to 29. It is the text of their report that we have. It was discussed again during the Committee of trade negotiations held in Lima, Peru, in January 2001. We do not know what occurred there. All that we know, is that the Quebec Summit, which was supposed to deal with the free trade agreement, dealt with democracy instead; it is interesting, but it is not what the initial objective of the conference was supposed to be.

The majority of governments on our continent seek to get as much investment as possible. They look at what Mexico obtained with NAFTA and they drool. Brazil, whose population is close to 180 million inhabitants, whose industrial development makes it the leader of Latin America and created the Mercosur, is nevertheless hesitant even though its economy develops quickly. Argentina, which is going through a serious economic crisis, is ready to accept anything.

Mr. Pettigrew, Canadian Minister of International Trade, promised that the FTAA agreement did not contain the most controversial clauses of the NAFTA agreement and that, in particular, that of the obligated arbitration imposed to private corporations. He is not denying that the object of the leak in the media is authentic. He only tries to indicate that this document was a draft and that Canada has not yet taken its decision on the matter. After the five meetings of the Group of negotiations on investment in 2000? Not even after the meeting of Lima? You have to take people for imbeciles to declare something like that. In fact, as with the case of the MAI, Canada was impressed by the importance of the issue and decided to let it pass. "Laisser faire, laisser passer." Not only do we give no opposition to the sea, we are not even trying to build dams.

And the Government of Québec can't do anything to proclaim the presence of Québec, its existence, and the nature of its interests. It is doing that quite well.

Thank God for the existence of the so-called "civil society". That is the conjugation of various labour unions, students, political activists in need of a cause, the Monde diplomatique and a few old-style liberals (in the original sense of the word) such as myself, who wish to establish something resembling an acceptable balance, to assert that there is a life beyond multinational corporations and their interests and that the State must not abdicate its responsibilities.

Conclusions

I conclude with some observations on the debates concerning the Québec Summit.

  • Had it not been for the finale declaration of the Peoples Summit of the Americas, we should salute one more time the revealing role of those who call themselves, pompously, civil society. Some claimed their method of action was undemocratic. It certainly is not less democratic than that of the Americas Business Forum, which was granted an official consultative status by the head of states and governments; neither less democratic than the admission of business people to the negotiation tables. When we have no access to the meetings rooms nor to the reports, the only place left is the street.
  • Québec is in a delicate situation and a potentially dangerous one. Kept aside from the negotiations, it is not truly aware of what is going on. To erect a public sign in front of the meeting place to signal who we are has something pathetic to it. It probably had to be done, no doubt, but we can't escape the thought that short of 52 000 votes, Québec would have participated to the meetings along with other countries much smaller than itself.

Some are saying that since a sovereign Québec would only be a fraction of today's Canada, it would have little influence on the direction of these meetings. It is not so. It would be a progress. And by the way, the little importance of the small countries in international negotiations does not correspond to reality.

  • We can be in favour of free trade and at the same time refuse the course that neoliberalism is trying to impose.
  • We can recognize the merits of a free market economy without wanting to impose the domination of great multinational corporations whose interests often coincide with the common interest but not always and not necessarily.
  • By trying to win it all, great multinationals are in the process of making a class struggle reappear. One now sees fear, suspicion and confrontation spreading. The governments have their share of responsibility in that they are letting accredit the impression that between politics and businesses, there is more than collaboration, there is collusion.

Jacques Parizeau

See also

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