Yves here. This post makes a critically important point that the UK press has largely ignored, by instead treating the Government’s claim that Brexit is all about the UK achieving national sovereignity. As Chris Grey has often pointed out on his Brexit Blog, the UK is too small to go it alone and will have to be affiliated with a major trade bloc. And that is the result of Dani Rodrik’s trade trilemma which we highlighted in 2007. From Rodrik’s website:
Sometimes simple and bold ideas help us see more clearly a complex reality that requires nuanced approaches. I have an “impossibility theorem” for the global economy that is like that. It says that democracy, national sovereignty and global economic integration are mutually incompatible: we can combine any two of the three, but never have all three simultaneously and in full.
Here is what the theorem looks like in a picture:
To see why this makes sense, note that deep economic integration requires that we eliminate all transaction costs traders and financiers face in their cross-border dealings. Nation-states are a fundamental source of such transaction costs. They generate sovereign risk, create regulatory discontinuities at the border, prevent global regulation and supervision of financial intermediaries, and render a global lender of last resort a hopeless dream. The malfunctioning of the global financial system is intimately linked with these specific transaction costs…..
So I maintain that any reform of the international economic system must face up to this trilemma. If we want more globalization, we must either give up some democracy or some national sovereignty. Pretending that we can have all three simultaneously leaves us in an unstable no-man’s land.
As this post stresses, the Government theatrics about tossing aside its trade ties to the EU and depicting doing a series of deals with other countries, above all the US, as some sort of liberation is a con. The Tories instead are seeking to move toward a more neoliberal, less regulated economic model. Author Nick Dearden argues that this realignment will result in a greater loss of national sovereignity than remaining in the EU.
By Nick Dearden, director of Global Justice Now. Originally published at openDemocracy
The Johnson government is sabre-rattling once again over what it will accept in a trade deal with the EU. The details of the arguments appear technical and arcane, while the media like to portray it as a bitter dispute between a divorcing couple. Sadly, this obscures the real nature of what’s at stake, which is no less than the future of Britain – what sort of country we become after Brexit, and what role we play in the world.
That’s because modern trade deals set so many of the rules by which we live our lives. They have huge implications for our society and economy. Britain has a choice about the standards and rules it wants to live by. But it can’t have both European and American standards. Drawing closer to one bloc pushes us further from the other. For many on the right of the Tory Party there is no contest – tilting towards the US will embed a big business, low regulation model. Signing any sort of significant deal with the EU makes this harder to achieve.
In this piece, I look at what is at stake and how we can stop Johnson’s government using these parallel talks to change Britain for the worst. The article is taken from my new book, ‘Trade Secrets: the truth about the US trade deal and how we stop it’, which also includes full referencing and is available for free here.
There is a part of Britain’s establishment which has always looked to the United States for leadership. For these Atlanticists, Britain’s ‘special relationship’ with the USA is about much more than a shared history or culture. Rather, they look longingly at the US as a model economy in which big business can behave as it sees fit and rich individuals are free from irritating ‘burdens’ like public healthcare and redistributive taxes.
For such people, the referendum to leave the EU presented an opportunity to unleash a long‑cherished dream. One important vehicle to achieve this would be a trade deal with the USA. That’s because trade deals today go well beyond negotiations around duties on imports. They affect how we regulate food production, how we provide public services, how we’re allowed to regulate big business and foreign investment, and how much we are charged for our medicines. Particularly since the high point of corporate globalisation in the mid-1990s, trade deals have increasingly shaped what sort of society we live in, promoting a model of free market economics, together with tools to discipline governments that step away from this model.
The US trade deal is not really about importing more American products. It’s about importing the American economic and regulatory model. It is not about whether we trade with the US or not but whether we capitulate to a set of policies that enshrine the power of the market and big business.
In many ways there is nothing special about the US-UK trade deal. Rather, the deal is likely to reflect all that is wrong with our global trading system, a system which has played a key role in the creation of an unsustainable, anti‑social economy which has handed the major decisions over our lives to a super‑rich elite. The political crisis we are now living through is an inevitable product of this system.
It is possible to build something better. Trade does not have to be a problem, the important thing is the rules that govern trade and, relatedly, international business and capital flows. But that requires a significantly different set of trade rules to the ones we have today. How do we create a different trade system? For us, in Britain, the defeat of a US trade deal is an essential first step, throwing a major obstacle in the path of our government’s Atlanticist vision, and opening up a long-overdue debate on what sort of society we want, and the role we play in the world. From here, we can join with campaigners across the world who are fighting against similar trade rules, and begin to rebuild a movement capable of overcoming the ‘market knows best’ global economy.
Trade deals today are less about reducing tariffs, already at very low levels, and more about ridding the world economy of regulations that supposedly ‘interfere’ with trade. The argument runs like this: I make lightbulbs and I want to export them into another country. The lightbulbs are safe, but they don’t meet the safety standards of the country I want to export to, so that country blocks imports of my lightbulbs. As an exporter, this higher safety standard looks like a trade barrier.
Modern trade deals spend a lot of effort trying to level (or ‘harmonise’) such standards. They do this by judging different regulations that achieve the same goal as ‘equivalent’. You can trade such goods because they’re produced in a way which achieve the same goals, even if the means by which they do this is different.
The problem with this approach is that goods are very often not ‘equivalent’ at all, and by treating them as such, we risk undermining what are often hard‑fought‑for environmental, animal welfare and consumer protections.
Take food. US food standards are radically different to Britain’s. US agriculture is dominated by massive corporations, farming on an industrial scale, with intensive use of antibiotics, hormones and steroids to promote rapid growth of animals and prevent illness in what are often extremely unpleasant and unhealthy conditions, along with an excess of chemicals, and allowances for stomach‑churning things to end up in the food we eat.
The US uses what it call a ‘science‑based’ approach, and demands it aggressively in trade talks. ‘Science-based’ is a shorthand for a system which allows business to develop and market products as it wants, and only when harm is proven can action be taken against that produce – an incredibly difficult task when big business is so well resourced. Boris Johnson and his lead trade negotiator to the EU have both endorsed the ‘science‑based’ approach, which means throwing caution to the wind when it comes to embracing technologies like genetic modification.
Britain currently embraces the ‘precautionary principle’, a different approach which puts the emphasis on ensuring no harm. Perhaps ironically this approach tries to build genuine scientific certainty before allowing businesses to produce and market products. In farming it translates into a method of food production where risks to health, welfare and sustainability, at least in theory, are minimised from ‘farm‑to‑fork’. The final product might or might not taste similar, and might or might not be as safe (US food poisoning rates are much higher than European rates), but the products are certainly not ‘equivalent’.
The US is forceful in its demand that US food made to different standards should be allowed onto British supermarket shelves. This would certainly mean more genetically modified foods. It would mean chlorine-washed chicken, the now‑famous symbol of a US trade deal. The problem is less the chlorine than what the chlorine is hiding. The washes essentially remove bacteria which has accumulated over a lifetime in which chickens can barely move, cluck or eat, never see sunlight, regularly suffer heart attacks because of their unnatural size, and are covered in sores.
Much other US meat is also produced using hormones, steroids and antibiotics to make animals grow bigger faster and to prevent them getting ill in the unnaturally close conditions in which they live. Some never see sunlight, or eat grass.
The use of many of these chemicals is bad for humans too – antibiotic overuse is threatening to make these drugs useless as bacteria develop resistance to them, which would take away one of the most crucial tools of modern medicine. US pigs regularly contain ractopamine, which makes pigs collapse, tremble, suffer liver and kidney dysfunction, and even die. No wonder over 160 countries, including Russia and China, have banned it.
Proponents of allowing these types of food into our markets often argue that it’s consumer choice: “If you don’t like it, don’t buy it!” But the argument is disingenuous, not least because the same big business lobbies pushing to cut food standards are also arguing against our labelling standards. But there’s a deeper problem too. By forcing producers into competition with those practising lower standards, they make higher standards unsustainable. Farmers would have little choice but to push for lower standards here too. It’s a classic example of how modern trade rules push down standards and regulations around the world.
Food is newsworthy, but the issue is much wider. The ‘regulatory harmonisation’ agenda stretches across the economy and encompasses other disciplines on governments too, like forcing governments to prove their regulations are no more burdensome than necessary on business. This is a path already well-trodden by decision-makers in recent years, a trade deal would lock it into place. It’s a subjective criteria which leaves governments at constant threat of being challenged. And it’s at the heart of talks around the US trade deal.
Taxing Big Tech
In the late nineteenth century, a small group of businessmen captured the American economy, using new technologies like railways to build monopolies which brought them unprecedented levels of wealth and power. They were labelled the ‘robber barons’ and became synonymous with obscene levels of inequality and the capture of politics by private interests.
Today, a new group of corporations has risen, monopolising technologies which have become central to our society, using their power to amass unimaginable fortunes. Big Tech titans like Amazon, Google and Facebook have become more powerful and wealthy than most governments, and in coming decades their power will grow, as more of our economy becomes ‘digital’.
In order to cement their power on the global stage, these corporations are pushing for the development of new rules in trade deals. The US and Britain are among the countries pushing these rules the hardest, meaning there is certain to be a far‑reaching digital trade chapter in a US trade deal. And while it’s true that countries need to find ways to regulate the power of Big Tech, these trade ‘rules’ are not intended to do that – in fact they achieve the very opposite.
A digital trade chapter in a US trade deal could severely constrain the ability of governments to make these technologies work in the public interest. For instance, the British government has introduced a ‘digital services tax’ to help ensure effective taxation of these corporations. The US has made clear that such a tax would be incompatible with the any trade deal, and Big Tech lobbying groups for Amazon, Google and Facebook have demanded such a tax be made impossible under the deal.
It could also lower privacy standards. Britain is currently signed up to the EU’s General Data Protection Regulation (GDPR), regarded as a gold standard agreement for online privacy. The US dislikes these regulations. Moreover, the many issues posed by the expansion of the online world into every area of our lives are complex. There is a need for public debate and exploration of ideas by policymakers. Trade rules must not be used to shut that debate down. For instance, politicians are now looking at ways of holding corporations to account for failing to tackle fake news online. But Trump has been clear that he wants to make such action impossible under a US deal.
There’s a wider issue with these more ‘intangible’ aspects of the economy which have become so much more profitable in recent decades, and one which could fundamentally threaten the NHS. Today, many big corporations see their ‘intellectual property’ as one of their most important assets. They use it to build monopoly power and to shift (and thereby minimise) their tax responsibilities around the world.
Copyright, trademarks and patents became a part of trade rules in 1995 with the passing at the WTO of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS). During the 1990s, at the height of the HIV epidemic, countries were prevented from rolling out HIV medication because it was covered by these rules, which kept prices of key medicines very high. Campaigners fought for exemptions, which allowed countries to override the rules in certain circumstances. However, Big Pharma has fought back, persuading western governments, especially the US, to close these exemptions in new trade deals.
In a US-UK deal, the focus on Big Pharma’s wrath will be NICE – the regulator that sets guidelines for which medicines are cost effective for the NHS to provide. Given the NHS’s size, this has a powerful influence how much US pharmaceutical firms can get away with charging not just the UK, but other countries that take the UK as their source of ‘reference pricing’. Donald Trump has vowed to make pharmaceutical pricing a “top priority” in trade. US drug prices are eye‑watering, averaging more than four times the price paid in the UK. Such large increases in prices under a US trade deal would pose an existential threat to the NHS – driving costs for new drugs well beyond the health system’s ability to afford them.
In the days leading up to Christmas 2001, Argentina was engulfed by one of the worst crises in its history. A decade of economic liberalisation had seen poverty soar. Large parts of Argentina’s public sector had been privatised on terms which were great for international corporations, but terrible for the people relying on the services. As a debt crisis grew, protests toppled the government. In less than two weeks Argentina went through five presidents, defaulted on its debt and then devalued its currency to put the country on a long path to recovery.
Part of this recovery involved protecting Argentinians’ access to basic services. The government froze the price of water and energy. But big business howled in protest that this broke their privatisation contracts. They claimed they’d been treated unfairly, and sued Argentina in a ‘corporate court’ made possible under the terms of investment treaties the country had signed.
Over fifty cases were lodged, claiming an astronomical $80 billion from the government. British company Anglian Water was a party to one of the claims. Having been part of a consortium that took over the Buenos Aires water system – and despite claims of atrocious service, lack of investment and a rise in waterborne diseases – Anglian and partners claimed the price freeze breached their ‘rights’. Argentina countered that the rights of its citizens should surely be the paramount concern, but the tribunal decided human rights should not override investor rights and found in favour of Anglian.
What does this have to do with a US trade deal? Well, the same mechanism that saw Argentina hauled over the coals by big business is likely to be included in the deal, leaving governments exposed to cases brought by US‑based multinationals in secret courts.
Investor‑State Dispute Settlement (ISDS) – the formal name for these ‘corporate courts’ – was invented back in the 1950s, when it started to be inserted in investment deals, reflecting western countries’ suspicion of how their corporations would be treated in newly independent countries in the global south. But it’s really in the last 20 years that they have become a major problem.
Corporate courts allow foreign investors to sue governments in special tribunals when they believe their ‘rights’ have been infringed. The basis for such cases has been expanded to an almost ludicrous degree by City law firms. A foreign investor today might claim pretty much any government action that damages their future profits is ‘unfair’ or ‘expropriation’, even though the rest of us might regard the measure as a reasonable response to the harm a corporation is causing. Putting cigarettes in plain packaging, forcing toxic mines to put better environmental standards in place, or the controlling of water prices might well damage corporate profits, but the idea that they have infringed some fundamental right directly threatens a government’s ability to enact regulation. Yet these are all real ISDS cases.
Britain already has many ISDS agreements with countries around the world, but while these have been a huge problem for those countries, for the most part Britain is the more powerful partner. Establishing an ISDS agreement with the US would put the boot on the other foot: it would open Britain up to challenge by tens of thousands of US‑based multinationals.
Action on climate change would be particularly difficult. Currently the Dutch government is facing an ISDS case by energy company Uniper, which runs power plants in the country. Uniper is unhappy at the policy of banning coal‑based power generation by 2030. What’s interesting is that Uniper’s plant is fairly new, so the company can hardly claim it wasn’t aware of the growing movement to phase out coal power. In fact, Uniper’s strategy appears to be to carry on as usual and claim compensation from governments when the inevitable phase‑outs happen. ISDS is becoming a business model in itself – removing pressure for corporations to take environmental measures.
Democracy and Resistance
How do we defeat this frightening deal? Despite a heroic fight to secure greater power over trade deals on the part of many MPs, the government has failed to transfer the powers of democratic oversight developed within the EU to Britain. MPs do not have a right to vote or debate the government’s trade objectives, they don’t have a right to effectively scrutinise the government, and they are not guaranteed a debate or vote once the trade bill is complete. Even if they are granted a vote, they cannot stop the trade deal coming into effect.
But we shouldn’t despair. Most trade deals which have been defeated – and there are plenty – have been defeated on the streets, by campaigners undaunted by the odds they were up against. From the defeat of TTIP, and its forerunner the Multilateral Agreement on Investment, to the victory over the Free Trade Area of the Americas and removal of water sector liberalisation from WTO rules, there is much to draw lessons from.
A wide coalition has already been formed to oppose the US deal. TTIP activists have been joined by new allies. On the day he was made secretary of state for environment, food and rural affairs, George Eustice was booed by farmers when he mentioned the US trade deal. Even pro‑government newspapers like the Mail on Sunday are running regular columns on the problems of a US trade deal.
This can reach beyond the ‘Brexit divide’. True, the politicians who led the Leave campaign want to use Brexit to deregulate and liberalise the British economy, but many of their voters want something entirely different. A recent survey shows high levels of support among young Leave voters in the north of England for environmental and animal welfare regulation.
There is every reason to hope that the US deal can be defeated if we build a sufficiently large and diverse movement. By doing so, we will not only prevent the government signing a terrible deal, but will throw a spanner into the works of their attempts to push Britain down the path of further deregulation and liberalisation.