A genuinely future-proof global trade model looks different

Spotlight on an unfair trade model

The conversations within the FGG member organisations are governed by a firm consensus; all those participating in FGG contribute to the countering socially irresponsible behaviour on the part of companies. We do this by problematising such behaviour and highlighting its effects to impacted governments across the globe, including  to the general public, politicians and policymakers in the Netherlands.

Trade agreements such as CETA, TTIP or the ECT reinforce the privileges and protections for large multinational corporations. They increase their market access for both products and services and help them to further strengthen their already dominant market position. As such, the development dimension of the current international economic relations is – to put it mildly – not necessarily always positive. For example, the TTIP negotiations involved a relaxation of environmental standards, which diametrically opposes the promise to promote sustainable development and combat climate change – in blatant disregard of the fact that climate change has global repercussions, with local communities, women in particular, in for example the Sahel or Bangladesh bearing the brunt. Crucially, trade agreements such as CETA, TTIP or the ECT set the wrong tone for future trade agreements, including with Southern countries. For the FGG Alliance and its partners this underscores the importance of closely following these treaties and negotiations.

Criticism of the current model for trade relations in a nutshell

Liberalisation of trade.*a new case will follow Opening up markets to foreign service providers and investments. The protection of foreign investors. That is what is at the core of modern trade and investment agreements. Liberalisation, privatisation and commercialisation go hand in hand to give market players more room for manoeuvre, even when it comes to basic services such as water, electricity, health care and education. Not least because when tariffs on goods are phased out, governments are left with less revenues and reduced funding for basic services, particularly in developing countries. Commercial companies take over and these often display little interest in providing basic services to poorer and more marginalised groups in society. After all, there is not much money to be made out off them. In this way, international trade and investment treaties can contribute to reduced access to basic services for the most vulnerable groups in society.

ISDS mechanisms

Under modern trade and investment treaties, foreign investors also gain access to government procurement. The standard rules included in these treaties make it harder for governments to pursue preferential policies to stimulate local activity and employment.
And the corporate cherry on the cake is the opportunity trade and investment agreements give foreign investors to challenge governments - outside the national courts - before international investment tribunals. Here, they can demand and be granted compensation if a government adjusts the rules in a way that threatens to harm their profit expectations. Even when that government is acting in the wider public interest. The mere threat of such investment claims under this notorious ISDS mechanism puts a serious brake on the policy freedom of governments. Investment cases generally involve tens, if not hundreds of millions of dollars, – a substantial amount of money for any government – payable out of public funds, at the expense of government spending on public policy objectives.

ISDS has a particularly negative effect, especially in developing countries. These countries often find themselves at a stage where they still need to develop their regulatory frameworks by extending and tightening regulations, for example to better guarantee human rights, to further social rights and social provisions and to protect the environment. Modern trade and investment agreements limit the possibilities for governments to take required action in these areas.

Experiences from the global South

For years, Southern partners have been sharing their stories with the Fair, Green and Global Alliance organisations. Time and again, their experiences confirm that the far-reaching opening of their markets to Northern multinationals was and is often premature, coming at the expense of the balanced development of their national economies. They shared their experiences with privatisation and commercialisation of public services (water, energy) and cherry-picking by large Northern companies that were not interested in serving poorer populations or people living in sparsely populated and remote - and therefore less commercially interesting - areas. With large pharmaceutical companies relying on the rules on the protection of intellectual property in trade agreements to protect their monopolies and try to stop the production of cheap generic drugs. And especially their experiences with large multinationals increasingly feeling large and powerful enough to take advantage of the opportunities that investment treaties offered them. And to use (the threat of) ISDS claims to oppose, water down or even halt tighter rules and regulations - even if those rules were being changed to better protect human rights or the environment.

Difficulties for small farmers

Despite an abundance of evidence of such impacts, the existing architectures continue to be extended and deepened. An example: New trade and investment treaties increasingly contain references to the so-called UPOV91 convention. This labels seeds as the intellectual property of large companies and makes it difficult for small farmers in developing countries to use and exchange their own seeds. This constitutes a deathblow to small farmers in developing countries, who feed a large proportion of the population and who use such means to ensure the diversity of their seeds.

CETA and TTIP: An entry point in Europe for critique of today’s trade model

Despite the compelling stories from the South that we had been bringing into the limelight for over a decade, it remained an uphill battle to get our fundamental criticism of the shortcomings and risks of the free trade and investment model across to our policymakers. This changed when the EU decided to negotiate trade and investment agreements with the US and Canada. Now that such treaties were no longer a distant phenomenon, this raised public and political awareness here in our own countries of the risks that these treaties entail for public budgets and policy freedom - something that developing countries had been dealing with for years.

Wake-up calls

The FGG partners joined forces with their Southern partners to take advantage of this opportunity to really put the floodlights on the issues we had for so long been calling attention to. And this caught on. The idea that US and Canadian companies, through a trade and investment agreement, might soon be getting a say in what our product safety, consumer protection, social and environmental standards would look like here in Europe – and vice-versa for European multinationals across the Atlantic – and could exert pressure on our governments  through the ISDS investment dispute settlement mechanism if their wishes weren’t met, alerted people in the Netherlands to the dangers. There were marches against TTIP and CETA all over Europe, and over 3 million people across Europe’s member states signed a citizens' initiative to stop these treaties. Adding fuel to the fire was the claim of energy giant Vattenfall, which used the Energy Charter Treaty to demand almost 5 billion euros in compensation from Germany for its policy decision to phase out nuclear energy. Another wake-up call was the claim that Canadian company Gabriel Mining brought against Romania when this country refused it an environmental permit because Gabriel Mining’s planned gold-winning activities threatened to contaminate a protected nature reserve with cyanide. Gabriel Mining is now demanding a compensation for the future profits it had expected to make with its investment and which it is now missing out on. The company is demanding an amount of $ 5.7 billion, or nearly 3% of Romanian GDP. This case acutely highlights the dangers of investment arbitration in trade and investment agreements.

Creating space for reform

Finally, there were opportunities to find an entry for our critical perspective on the export-led model of exponential growth that is not sustainable and is causing worldwide inequality between and especially within countries. Opportunities to make tangible in the Netherlands the pressures resulting from trade liberalisation and investment protection that developing countries have been dealing with. The unjustifiable position of power that this gives multinational companies to go against wider social interests. Opportunities to influence the EU's position as an agenda-setter in trade negotiations. Opportunities also to insist on and be heard about policy change.

Sustainability chapters; it's a start

With success. Under pressure from civil society organisations in the EU, supported by the experiences of social movements from the South, a sustainability chapter is now a standard element in the EU's trade agreements. The European Commission has also taken steps in CETA and its trade agreement with Vietnam to at least improve the procedure for international investment disputes. Much more needs to be done to make trade and investment treaties truly fair, sustainable and future-proof, but it is a start.

More is needed to future-proof trade relations

However, these reforms still fall short of what we and our partners would like to see. The European Commission defends CETA as its most progressive trade and investment treaty ever and promotes it as the blueprint for future EU trade treaties. But the sustainability chapter in CETA is not binding, and FGG organizations' own research has shown that the most controversial ISDS cases could still take place under CETA’s reformed investor to state dispute settlement mechanism, which was renamed as the Investment Court System (ICS): The broad protection clauses which companies can invoke to file cases against states remain untouched. Yet the EU intends to further consolidate and institutionalize the new ICS system by means of a Multilateral Investment Court. Also, there are plans to extend the Energy Charter Treaty to Asia and Africa, widening opportunities for investors to sue states on those continents.

So plenty of work still in store for the critics of the current model. And plenty of reason for us as FGG organizations to focus on both “Southern” and "Northern" treaties. And to oppose the CEPA and EU-Mercosur agreements as well as the ratification of CETA as part of a failing trade model that is not sustainable and further strengthens the economic dominance of already dominant market parties. CETA is the model that the EU will use for its future trade and investment treaties, including with developing countries. A genuinely future-proof global trade model should look very different. We and our Southern partners are more than agreed on that. That is why we will continue to advocate against unsustainable trade and investment treaties such as CETA as well as agreements such as the EU-Mercosur treaty and the CEPA with Indonesia, as long as they keep following broadly similar lines. Against TTIP, if those negotiations are resumed. Against extension of the Energy Charter Treaty if it isn’t fundamentally reformed. And against further institutionalization of investor-to-state dispute settlement in a multilateral investment court.

‘CETA’ als part of mutual capacity-development

Mutual Capacity Development remains central to the work of the Fair, Green & Global Alliance. This is no longer a top-down affair, but more than anything a cross-pollination. Our Southern partners indicate that our criticism of the European trade agenda helps to reinforce their own struggles. Just as the stories of their experiences on the ground sharpen our critical narrative. Their experiences have helped us to put the fundamental shortcomings of the model firmly on the map in the global North. The worldwide opposition to ISDS has not only helped to significantly narrow down investment dispute resolution in the USMCA (the new NAFTA): Our opposition here has provided our Southern partners in Asia with ammunition in their successful campaigns to keep investment dispute resolution out of the RCEP treaty. The critical analyses and practical experiences that we can disseminate through our networks help African countries, in negotiations on trade and investment treaties, to take a more self-assured attitude towards the demands of economic power blocks such as the EU. They have also led the Netherlands to revise its model investment protection agreement to now include provisions on sustainability and corporate social responsibility for the first time.

Joint approaches transcend traditional North-South relationships

The FGG alliance is part of a dynamic network of social organisations and social movements worldwide. With our partners and sister organisations in Europe, Africa, Asia, North and South America and even Oceania, we advance critical perspectives on the disadvantages of corporate globalisation, i.e. the export-driven exponential growth model underpinning it and the excessively dominant position of oligopolistic trans- and multinational companies.

We do not only work on trade and investment relationships between countries. In other areas too, we work together with our partners and networks to strengthen corporate social responsibility, for example in the area of taxation. And we jointly play an important role in lobbying and advocating for a UN treaty to ensure that multinational companies can no longer use clever corporate constructions to avoid their responsibility for human rights, but may be held directly responsible for human rights violations linked to their business practices. We make a similar links between corporate conduct and environmental destruction, degradation of biodiversity and climate change.

The current economic model causes major problems across the globe that demand world-wide recognition and addressing. That is what we and our networks of social organizations and social movements worldwide focus on. In the global North and in the global South. In the East and in the West. Together and in all arenas that offer opportunities to bring our analyses and solutions to the fore. Based on our understanding that the major problems we face today - climate change. environmental and biodiversity degradation, growing inequality in and between countries; and trade liberalization and investment protection as an exponent thereof - transcend traditional North-South relations.