HOORAY! A Little Step Forward

At long last, cross-border investing is in the spotlight for something other than money-making. It is starting to get attention for its effect on people other than the investors themselves.

Here’s what’s happening. Over the years international agreements – numbering at least 2,500 - to protect the rights of international investors have proliferated to the point that they cover most of the globe. Now, there is growing challenge to the ubiquity of those agreements and increasing pressure to have the protected investment rights balanced with corresponding responsibilities. Or (from another perspective) to balance investor rights with corresponding rights of host governments and their citizens.

Last November, the 19 governments that are member states of the Common Market for Eastern and Southern Africa, Comesa for short, took a pioneering step by adopting an area agreement that will, when put in effect, cover private investment flows into and within Comesa. Its terms will include minimum requirements on labor standards and respect for human rights.

Another sign of the way the breeze is blowing: a two-day meeting in Singapore last October brought together more than 30 government officials who negotiate international investment agreements for over 25 countries. Briefings by experts served to strengthen the negotiating capacity of developing countries in light of three circumstances:

-- The increasing complexity of the model agreements proposed by the United States, Canada, and other major countries.
-- The stark disadvantage faced by developing countries when dealing with wealthier nations, which throw greater resources into the negotiating process.
-- The uncertainties of investor-state arbitration in settling disputes.

The meeting enabled the developing country negotiators to network and to share ideas on how to achieve an appropriate balance between the need to attract more foreign direct investment and the need to serve the country’s own public policy directives.

Developing countries don’t have the help that rich countries get from their Paris-based Organization for Economic Cooperation and Development (OECD). But the Singapore meeting was only the beginning, as indicated by its formal name: the First Annual Forum of Developing Country Negotiators.

The forum’s co-sponsor, the International Institute for Sustainable Development, has just made another contribution toward highlighting the significance of “International Investment Agreements, Business and Human Rights: Key Issues and Opportunities.” That’s the title of a 43-page report that the Institute’s Howard Mann prepared at the request of John Ruggie, the UN Special Representative on Business and Human Rights.

The report addresses this basic question: Does the present international investment agreement (IIA) regime play a positive role in embedding human rights principles into the values and institutional practices of global capital markets?

Answer: No, it does not, and it often plays a negative role by preventing a government from requiring a foreign investor to respect the country’s own labor and environment regulations. ”IIAs limit the right of states to regulate, and these limits may extend to the state duty to protect and promote human rights,” the report states.

Investment agreements go into great detail on the rights of foreign investors and how those rights can be enforced. But “there is no enforcement mechanism against [foreign] corporations, as there are no obligations falling upon them.”

The Institute’s report received no attention from the media. Hopefully, its message will live on, however, since Ruggie will draw on it for a report to the Human Rights Council later this year.

Why do I keep harping on this subject? Because:

1. International investments are a major force in shaping globalization.
2. Investment policy, as written and enforced, now takes priority over the labor policies of governments in the developing world.
3. This absence of pro-worker policies facilitates the job outflow from the United States and other industrial countries.
4. Reform of investment agreements is absolutely necessary, and future trade negotiations must insure that investment agreements balance the rights of foreign investment with corresponding responsibilities, including the responsibility to respect the human rights of workers.
5. Current demands to reform trade and investment policy fall short in that they neglect to cover the practices discussed in the IISD report.

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Students Still Teaching Elders about Ethics

“Stop using sweatshop labor!” That’s the rallying cry of a group of students at the University of Houston in their campaign to persuade the school’s administrators to stop doing business with sweatshops that produce sweaters, T-shirts, caps, and other athletic items bearing the University’s logo.

On Monday (3/31) dozens of students will participate in a dramatic protest starting at noon in front of the campus library. It will feature a mock funeral ceremony , complete with a coffin, symbolizing the death of worker rights at UH. A “funeral”procession will follow, wending its way through the campus and ending at the office of President Renu Khator, who just took office two months ago.

One of her first acts was to appoint a committee to study the sweatshop issues that an activist group, the UH Students against Sweatshops, has been raising since June last year. Tim O’Brien, a graduate student in history and head of SAS at UH, sees the committee as “nothing more than a publicity stunt,” and said so in an interview with the Houston Chronicle.

His frustration is that Khator, like her predecessors, is not calling on SAS to help in solving the problem. Her new committee, headed by an economics prof, has six other members, including one student representative, who is not O’Brien or a SAS member.

SAS has the support of the UH student government association, which in January passed a resolution in favor of SAS’ twin goals: that UH join the Worker Rights’ Consortium, an independent monitoring organization, and endorse its Designated Suppliers Program, a plan for a new source system of sweatshop-free factories.

In a March 3 letter to O’Brien, President Rhator, after scolding SAS for an “antagonistic manner,” defended the university’s position as follows:

-- Although not a member of the Worker Rights Consortium, “our current practices embody the same spirit and commitment to worker rights.”
-- Adidas, one of the three largest vendors of apparel at UH, is a member of the Fair Labor Organization (FLA), “an organization created to promote a uniform international labor standard and to improve working conditions worldwide.”
-- The other two UH vendors, Collegiate Licensing Corporation and Barnes & Noble, “have adopted a code of conduct consistent with that of the FLA.”

Pointedly, Rhator mentioned that, as a newcomer, she depended on a cabinet briefing for her knowledge of the UH’s “spirit and commitment to worker rights.” The cabinet’s perspective is predictable. She would be wise to supplement it with a briefing from SAS. So far she has declined to meet with SAS.

“It is absolutely clear,” she writes, “that the University of Houston is committed to fair labor practices.” SAS is not impressed by her assurances about UH’s commitment, however. I can understand why.

How does a university carry out that commitment when the university routinely buys goods from countries where sweatshops thrive? The question is important to anyone proud of the UH logo displayed on those goods. To answer it truthfully, madam, some of your students are very much better informed than your cabinet.

The University of Houston is not the first university to face this crisis. It is not a crisis of “disruptive behavior,” as the university states, but a crisis of conscience. In the late 1990s some of the country’s leading universities – Duke, Georgetown, and the University of Wisconsin – underwent similar crises, and came to understand that their students knew how to make a genuine commitment to worker rights. I urge you and your committee to look into the experience of these “peer institutions” too.

Because of the victories achieved by those campaigns to end university complicity with sweatshops, I wrote in February 1999: “Thank the Lord for the college students, many of them just freshmen and sophomores, who are teaching their elders powerful lessons in global ethics.”

In the past decade, many universities have recognized the wisdom of listening to their students, even to students who have engaged in sit-ins and other disruptive behavior. Later, those universities wondered why they didn’t start listening much earlier. When will the elders of the University of Houston start listening?



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The Dishonesty of Economists about Trade

Trade policy is likely to grow into a larger issue in the course of the Presidential campaign. A good thing, I used to think. But is it?

A lot depends on how economists succeed in framing the issues as advisors to the candidates and as commentators in the media. Sadly, most economists cannot be trusted to portray the issues honestly.

That’s my view. Dean Baker, an economist who is co-director at the Center for Economic and Policy Research in Washington, D.C., has a similar view. He holds that “economists have been extraordinarily dishonest in their interventions in public debates over trade policy.”

He develops his case at length in an article, “Trade and Inequality: The role of economists,” in the March 15 issue of the Real World Economics Review. Leading his indictment is this charge: economists “have acted to conceal the fact that a substantial group of workers, quite likely the majority of the workforce, can expect to be losers from the recent path of trade liberalization.”

Baker’s analysis of economic theory applied to current trade patterns leads to this conclusion: “The winners are likely to be owners of capital and highly educated workers, with the rest of the populations ending up as losers.” This outcome isn’t accidental, he explains; “it is literally the mechanism through which the economy experiences gains from trade.”

Baker blasts the major media outlets for the “enormous respect” they show for the trade policy ideas of mainstream economists and for the ridicule poured on those who disagree.

As it happens, the March 16 New York Times has an example of that. It features a discourse “Beyond the Noise on Free Trade” by N. Gregory Mankiw, professor of economics at Harvard and onetime advisor to President Bush and to Mitt Romney in his Presidential campaign.

In his first paragraph, Mankiw writes: “No issue divides economists and mere Muggles more than the debate over globalization and international trade. Where the high priests of the dismal science see opportunity through the magic of the market’s invisible hand, Joe Sixpack sees a threat to his livelihood.”

Unfortunately in his view, the Muggles and Joe Sixpack don’t benefit from economic courses such as his at Harvard, and doesn’t understand that “trade between two countries creates winners and losers, but it leaves both nations with greater overall prosperity.” As a result, the general public is “less likely to take its cue from Adam Smith than from Lou Dobbs.”


For Mankiw, Senators Clinton and Obama have erred in making Nafta the “latest whipping boy of the ant-globalization crowd.” What consoles him is that their “populist rhetoric” will disappear after the election, and like President Bill Clinton, will rely on the advice of economic moderates like Robert E. Rubin, former Treasury Secretary.

Harvard economist Dani Rodrik on March 16 posted a short item on his weblog titled “Why doesn’t the public buy the economists’ advocacy of free trade?” The posting in full:

“Greg Mankiw bemoans the huge gap between the economics profession and the common people on free trade. Unlike him, I tend to think the fault with economists, who have traditionally proselytized free trade rather than communicated what economics really teaches on trade. Dean Baker offers a sensible guide.”

Rodrik’s words, really teaches, link to an earlier (September 22, 2007) posting praising an analytical paper by Robert Driskill, professor of economics at Vanderbilt, who Rodrik says “knows the theory of comparative advantage as well as anyone else.” Here is a quote from that Driskill paper:

“Unfortunately, most economic writing on the welfare implications of trade is not a balanced weighing of the evidence, or a critical evaluation of the pros and cons of arguments, but rather more akin to a zealous prosecutor’s advocacy of a point of view. As such, this writing is designed to persuade rather than to give the reader the information needed to form an educated point of view.”

To a Driskill passage on how poorly supported positions on trade can confuse people “into false positions about what economics really says about the effects of international trade,” Rodrik added the comment: “A pervasive such false belief, for example, is that trade necessarily benefits more people than it hurts.”

That such a false belief is regularly promulgated by the New York Times is bad enough. Far more troubling is that many economists are teaching this falsehood (and others) about trade in the nation’s colleges and universities.



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How Not to Win Bipartisan Support

President Bush objects strenuously to Senator Hillary Clinton’s support for a Congressional “time out” on deciding any more trade agreements this year. He certainly has a right to speak up in support of his trade program. But he has no right to distort Senator Clinton’s position.

He did so on March 12 in a long speech to the U.S. Hispanic Chamber of Commerce. Without mentioning her name, he claimed that she supports “a timeout from trade,…a timeout from growth, a timeout from jobs, and a timeout from good results.”

Mrs. Clinton’s position is a bit less sweeping. For one thing, she knows that, even without new trade deals, trade will continue to flow. Last October she included her call for a time-out in a speech in Iowa, and she later explained her reasons in a USA Today interview. She said, in part:

“I think that on balance, trade was a net positive for America and American workers during the 20th century….We have to consider carefully, What’s the role of trade going forward? How do we best position the United States to take advantage of the global economy?’ And I don’t think we’ve had serious conversation about that.”

Bush no doubt thinks all that is already settled. But that’s not enough reason for his fear-mongering about “isolationist policies and protectionist policies” that would “stop trade, erect barriers, try to wall ourselves off from the world” – positions that nobody in Congress holds. It also wasn’t the best way to win friends and influence people on the Hill.

Yet Bush used that high-visibility event, attended by six Cabinet members, to threaten to force a vote on a trade agreement with Colombia after it returns from its Easter recess. He was technically able to do that under the power he still holds under the President’s Trade Promotion Act, which expired last July when Congress refused to extend it. Wielding that club of executive power now, however, no longer strikes cringing obeisance.


The most forceful response that I’ve seen came from Change to Win, the partnership of seven unions that broke off from the AFL-CIO in 2005. Recalling that Colombia remains the most dangerous country in the world for unionists, a Change to Win press release urged Congress to reject the deal with Colombia because (as its new ad says)“Americans don’t trade with death squads.”

James P. Hoffa, head of the Teamsters and a Change to Win leader, added: “Workers need trade policies that create jobs. They don’t need more deals that destroy jobs. Voters across the country are making the point increasingly clear every time they go to the polls. America is hemorrhaging jobs because of the so-called free trade agreements. That must be stopped.”

Back to President Bush and his support for choice in the supermarket.

I couldn’t help getting a kick about one additional reason he gave for wanting Congress to hurry up and approve more free trade agreements. “We want our consumers to have choices when they walk into markets,” he said. “The more choices available, the better it is for a consumer.” But this traditional argument is somewhat outmoded.

Have you walked into a store recently to buy a product made in the United States? If so, you know how restricted your choices are. Globalization, whatever its wonders, has in too many cases narrowed our choices to goods made in China. This is especially troubling to anyone (like me) anxious to avoid buying anything from a country that is the sweatshop for the world, the home of forced labor camps, the jailer of dissidents, and the persecutors of religion.

In their 1980 book, “Free to Choose,” Milton and Rose Friedman portrayed the act of making a purchase in a store to casting a ballot in a voting booth – an essential part of economic freedom. President Bush did not use that comparison in his speech, but the Friedman point does make some sense as one way to measure the impact of trade.

Last year the United States imported a record volume of goods from China: $321,507,800,000 worth in all, according to the Commerce Department. Personally, I see it as 321,507,800,000 votes for China’s human rights policy. Yes, all too often, I voted the same way. I really tried not to, even by doing without, but usually I had no choice.


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Yahoo Sued for Aiding China’s Repression

Yahoo Inc. is in trouble again for its forced cooperation with authorities in Communist China. On February 29 three Chinese citizens filed a lawsuit in federal court in Northern California charging they had to endure torture, imprisonment, and other suffering after Yahoo handed over emails and other Internet information to Chinese authorities.

One of the plaintiffs, Li Zhi, 37, a civil servant, is still in prison, with more than three years left on an eight-year sentence for “inciting subversion of the state authority.” He claims that he was tortured and imprisoned after Yahoo gave the government Internet information about his work for a banned political group, the China Democratic Party.

An earlier lawsuit, also filed against Yahoo for allegedly aiding China’s Internet police, ended in November when Yahoo settled with the plaintiffs out of court for an undisclosed amount of money.

Both that lawsuit and the current one were filed under the Alien Tort Claims Act, which enables foreign citizens to sue for gross violations of human rights committed abroad by U.S. entities.

In a section on “Internet Giants Work With the Dictatorships” in its 2007 Annual Report, Reporters Without Border says this about “the predators of free expression”:

“China keeps a tight grip on what is written and downloaded by users, and spends an enormous amount on Internet surveillance equipment and hires armies of informants and cyber-police. It also has the political weight to force the companies in the sector – such as Yahoo, Google, Microsoft, and Cisco Systems – to do what it wants them to, and all have agreed to censor their search-engines to filter out websites overcritical of the authorities.

“This makes the regime’s job very much easier because these firms are the main entry-points to the Internet. If a website is not listed by these search engines, material posted on them has about much chance of being found as a message in a bottle thrown into the sea.”

Google is trying to get out of its awkward contradictory position as an information service complicit in suppressing information. It is urging the U.S. government to “make censorship a central element of our bilateral and multilateral [trade] agendas” and to “treat censorship as a barrier to trade,” as its vice president for global communications, Elliott Schrage, said in his testimony to the House committee on international relations two years ago.

In June last year, after AP ran a story on Google’s quiet lobbying at various cabinet agencies, Andrew McLaughlin, Google’s director of public policy and government affairs, posted a long statement on “Censorship as trade barrier” on its public policy blog.

There, he wrote, for example: “Just as the U.S. government has, in decades past, utilized its trade negotiation powers to advance the interests of other U.S. industries, we would like to see the federal government take to heart the interest of the information industries and treat the elimination of unwarranted censorship as a central object of our bilateral and multilateral trade agencies in the years to come.”

In the first part of that paragraph, McLaughlin was referring to the mercantillistic advantage won by some industries (pharmaceuticals come to my mind), but in truth Google has a stronger case for its position than old-fashioned protectionism, and McLaughlin had that in mind in another part of his statement:

“To industries that depend upon free flows of information to deliver their services across borders, censorship is a fundamental barrier to trade. For Google, it is fair to say that censorship constitutes the single greatest trade barrier we currently face.”

Google has support for its position from a scholar on telecommunications and trade law, Timothy Wu, associate professor of law at Columbia University. In a paper on “The World Trade Law of Internet Filtering,” he emphasized the cross-border nature of internet services: “Much internet can be reached from anywhere, making nearly everyone on the internet a potential importer or exporter of services (and sometimes goods). Hence, almost by accident the WTO has put itself in an oversight position for most of the national laws and practices that regulate the internet.”

Moreover: "As a condition to accession to the WTO, [China] agreed to what has been called a 'radical' reform of its service practices. Yet at the same time China is among the world's more active filterers of Internet services....These two positions are in tension, and while WTO law leaves much room for exceptions, some of China's restrictions may not be easily justifiable under the GATS [General Agreement on Trade in Services]."

Yet those restrictions keep expanding without WTO intervention. Dr. Wu points out: "Internet services have leapt beyond what was contemplated in GATS or subsequent telecommunications agreements," he noted in his paper. "The universalization of a network that is a platform for any type of service requires new thinking about how barriers may come about, and how sectoral commitments are interpreted."

New thinking. That is desperately needed about many of the international trade and investment policies patched together since the end of World War II. Those policies should be updated to the globalized 21st century. Blocking modernization are the vested interests of industries protecting the privileged status they acquired under 20th century rules.


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The 'Opting Out' NAFTA Distraction

Now that the Democratic debate over NAFTA has burst into an international incident, it is instructive to read how relentlessly NBC Moderator Tim Russert pressed Hillary Clinton and Barrack Obama to take a position on “opting out” of NAFTA.

Neither Clinton nor Obama brought up the “opting out” idea. It was Russert who introduced it by quoting this statement that he said Al Gore made to Ross Perot in their 1993 debate: “If you don’t like NAFTA and what’s done, we can get out of it in six months.” Then, given that both candidates had sharply criticized NAFTA in the Ohio campaign, Russert asked: “Will the [next] U.S. President say we are out of NAFTA in six months?”

Senator Clinton quickly responded: “I have said that I will renegotiate NAFTA, so obviously, you’d have to say to Canada and Mexico that that’s what we’re going to do. But you know, in fairness – “

Russert pressed on, in different words: “You will get out? You will notify Mexico and Canada, NAFTA is gone in six months?”

Clinton: “No, I will say we will opt out of NAFTA unless we renegotiate it, and we renegotiate on terms that are favorable to all of America.” She later repeated the same point while renewing her criticism of the absence of labor and environment in NAFTA’s core agreement.

Russert wouldn’t let go. “But let me button this up. Absent the change you’re suggesting, you are willing to opt out of NAFTA in six months?”

Clinton: "I'm confident that as president, when I say we will opt out unless we renegotiate, we will renegotiate."

Then Russert turned to Obama, and after mentioning an AP story about Obama’s supposed ambivalence toward NAFTA, asked: “Simple question: Will you, as president, say to Canada and Mexico, ‘This has not worked for us; we are out?’”

Obama: “I will make sure that we renegotiate, in the same way that Senator Clinton talked about. And I think actually, Senator Clinton’s answer on this one is right. I think we should use the hammer of a potential opt-out as leverage to ensure that we actually get labor and environmental standards that are enforced. And that is not what has been happening so far.”

So Tim Russert had his point buttoned up to his satisfaction. But were Obama and Clinton really serious?

Gripped with the same question, diplomats at the Canadian consulate in Chicago thought they would get a candid answer about Obama from someone right there at the University of Chicago: Austan D. Goolsbee, professor of economics and also an advisor to the Obama campaign.

Goolsbee obligingly accepted the invitation to brief the consulate on Obama’s views. Like good diplomats, the Canadian officers took notes, wrote a report, and sent the report to Ottawa. Somehow, it leaked, and its message hit the fan: it soft-pedaled Obama’s tough talk on the campaign trail, specifically claiming that his language was “more reflective of political maneuvering than policy.”

At first, Obama denied that the meeting had taken place (Goolsbee did not report it to the campaign, in the naive belief that he was acting only in his role as a professor). But after the Canadian memo made headlines in Canada and the United States, an Obama spokesperson insisted that Obama’s public position on NAFTA is also his private position. Hillary Clinton insisted he was hypocritical and untrustworthy. And by Wednesday this week Canada’s Prime Minister, Stephen Harper himself, spoke up publicly, saying that the consulate report was “blatantly unfair” to Obama and his campaign.

That doesn’t end the debate over NAFTA, and shouldn’t. Both Clinton and Obama need intensive briefings to be able to explain their fair trade positions more convincingly.

Especially unimpressive, in my view, was how they both buckled under Tim Russert’s pressure, and embraced the tactic of Presidential wielding the “opting out” threat to quickstart negotiations. That’s a dumb way for a government to deal with neighboring governments, so dumb that it doesn’t happen in real life, much as it may be favored by pundits and reporters keen about “gotcha” questions based on fanciful scenarios.

Final point. Obviously, Clinton and Obama are far from isolationists, opposed to trade. They know that the economic and other interests of the three nations are such that, with or without a renegotiated NAFTA, the United States, Canada, and Mexico absolutely need some kind of a formal trade agreement among them and that the dispute is only about its contents. This fact is so obvious, I guess, that nobody at the Cleveland debate thought to mention it.

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Review NAFTA? Do We Hafta?

The three NAFTA partners, the United States, Canada, and Mexico, have now lived under the North American Free Trade Agreement for 15 years. It would seem to be a good time to review our experience under it, and possibly make some changes.

What is so shocking about that? The Wall Street Journal’s editorial board makes it seem as though the North American sky is falling

What is frightening to some is that more than NAFTA is at stake. A review of NAFTA would almost certainly open up a review of the entire U.S. trade policy, and that would upset vested interests that need upsetting.

NAFTA is the U.S. government-devised model for dozens of trade and investment agreements in the past 15 years and also for agreements the Bush administration is still pursuing. That model, vigorously defended by the trade elite who wrote it, has many flaws. The most fundamental among them can be boiled down to this indictment: it creates and enforces a large set of cross-border rights and privileges for multinational corporations and investors without any corresponding duties.

You will seldom hear a criticism of NAFTA put that way. Instead, critics usually fault it for a lack of enforceable labor and environmental standards. The solution offered is to tack on those standards. But that won’t suffice, because NAFTA as a whole is unbalanced, so much so that it should be called the North American property rights and investment rights agreement.

Calling it a free trade agreement is a misnomer, because it actually restricts free trade in crucial areas. It favors intellectual property owners over intellectual property users, pharmaceutical companies over pharmaceutical users, Wall Street over Main Street, foreign investors over everyone else. Its tilt, spread ovcr most of the continent, skews income and increases the power of the superpowerful.

In a 1993 syndicated column, Henry Kissinger, a vigorous advocate of NAFTA, hailed it as “not a conventional trade agreement, but the architecture of a new international system…a first step toward the New World Order.” Though no longer expressed in such lofty terms, that vision seems to survive among NAFTA defenders who deem it sacrosanct and so beyond review.

For a dose of reality, read a book written by a noted economist who was a party to NAFTA’s adoption 15 years ago: “Fair Trade for All,” by Joseph E. Stiglitz. It makes a strong case for why all current trade and development policy, including NAFTA, urgently needs a review.


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