The Virtual Club of the Global Progressive Forum
 
The GPF has created a virtual club to which we will invite leading personalities in different fields to become a member, and to contribute by sending us their reflections on the global challenges which we are currently facing. From time to time these reflections will be published on our website and will constitute a 'virtual collection' which will provide material for the debate for the next GPF World Conference in 2012.
 
The success of the last GPF World Conference held in Brussels in April 2009, which served as a platform for more than 3000 participants, is an indication of how important it is now to continue with reflection, initiatives and actions within the framework of the GPF.
 
Peter Julian
 
Peter Julian is a Member of Parliament (Burnaby-New Westminster) and an International Trade Critic, and a Member of the New Democratic Party of Canada. In the New Democratic Party Shadow Cabinet, Julian is the Industry Shadow Cabinet Minister. Julian is also currently the Deputy and Interim NDP Caucus Chair. Julian previously Served as NDP Critic on International Trade, Transportation, Persons with Disabilities, Treasury Board, Western Fisheries Critic and the 2010 Vancouver-Whistler Olympics.
 
Are Free Trade Agreements a potential threat to public policies?
During the past decade, and particularly after the failure of the Doha round, we have seen an exponential rise in the number of bilateral and regional free trade agreements (BTAs) as countries seek to achieve, through serial bilateralism, what they failed to accomplish multilaterally through the WTO.
Touted as a “second best” alternative to the multilateral approach to trade liberalisation, bilateral free trade agreements are being sold to the public as significant contributors to general prosperity. We are told that these BTAs are not just in the interest of signatories, but that they will also move the global economy towards universal free trade and gradually accomplish the purpose of the WTO. We are also told BTAs increase exports and benefit the public by creating more jobs and increasing standards of living. The post-Doha era of serial bilateralism has arrived.
Moving a country’s trade agenda in this direction raises multiple concerns for progressive policy makers. Broadly speaking, the strategy is questionable. All 150 WTO member countries maximising BTAs with everyone else cannot in the end produce the same outcome as a multilateral approach to trade would.  BTAs link economies that are often vastly different in size, development and power. Therefore, with BTAs, the dominant partner can easily increase leverage and extract more concessions from the smaller economic participant. In a multilateral setting, weaker members are part of a larger group and are in a better negotiating position to protect their collective interests and move slowly and progressively together towards a more open economic environment under a common set of rules.
BTA ideology relies on 19th century free trade economic theory of comparative advantage, which is no longer relevant to today’s world and is used to legitimate the trade agenda of multinational consortiums. Ricardo’s theory of comparative advantage is based on the assumption of full employment, capital immobility and barter economics. While BTAs are designed to eliminate tariffs, quotas and preferences on most, if not all, goods and services, they also seek to maximize the mobility of capital by carrying significant investment protection provisions. Those investment provisions are in fact at the heart of most BTAs. In the Canadian case, for example, most of the bilateral free trade deals ratified by Canada have been modelled on the North American Free Trade Agreement (NAFTA) template, which includes investment protection rules and investor to state dispute settlement mechanism. These provisions have no relation to conventional free trade doctrine and can strongly impact democratic governance, as I will show.
Putting aside economic theory and ideological justification, the past twenty years of experience in Canada and in the Americas with BTAs-FTAs provides an abundant source of empirical evidence which allows us to document how this one-size-fit-all approach to trade has adversely affected the public policy space.  The discussion below considers some of the major undesirable effects of FTAs on public policy:
Transfer of Political and/or Economic Power to Unelected Bodies:
 
Investor-State Provisions (ISPs) trump democratic will
 
ISPs have proven to be a deterrent to the establishment of certain social, environmental and economic policies. For instance, investment chapters in NAFTA include provisions to protect investors against the direct or indirect nationalization or expropriation of their assets as well as provisions that entitle investors to compensation. The investor-state provisions in NAFTA’s Chapter 11 were intended to protect foreign firms from arbitrary regulations and back-door protectionism. In fact, Canada’s experience with NAFTA shows that Chapter 11 has empowered firms to sue governments when regulation in the public interest violates their “right” to profit. It has also weakened the role of Canada’s domestic legal system, given that panels operating as part of the NAFTA dispute settlement mechanisms have been overridden by the United States, which has the right to change its laws without Canada’s agreement, as we have clearly seen in the case of the softwood lumber dispute.
 
To date, 28 NAFTA investment claims have been filed against Canada, challenging a range of policy decisions. Over half of the claims were initiated within the last 5 years. The most significant example is Ethyl Coporation’s 250 million challenge to Canada’s ban on its gasoline additive MMT (a suspected neurotoxin). The federal government caved, lifted the ban and paid Ethyl’s legal fees.
 
More recently, Abitibi Bowater inc., a pulp and paper company, sued the federal government in reaction to the decision of the provincial government of Newfoundland and Labrador to expropriate certain lands and assets to return the company’s water use and timber rights to the Crown. The expropriation came in reaction to the closure of a century-old pulp and paper mill, and the ensuing layoff of 700 workers, in addition to leaving behind a burden of costly environmental messes. In spite of the fact that the loss of water and timber rights are not compensable rights under Canadian law, the federal government chose to settle, paying the company $130 million.
 
What was originally intended as a mechanism of last resort to protect investments against unscrupulous governments in countries lacking legal systems strong and mature enough to uphold the rights of foreign investors has quickly evolved into something very different. Now this mechanism is being used between countries with developed and reliable domestic systems of justice, such as is currently the case in the negotiations between Canada and the EU over CETA..
 
NAFTA-style FTAs and investor-state provision like those contained in Chapter 11 have created a permanent threat that a foreign company may use file a compensation claim whenever a government takes any action that could be deemed to limit investor rights or affect corporate profits. This creates a regulatory chill that acts as a deterrent to developing and implementing social, economic or environmental policies.
NAFTA style BTAs establish technical committees or working groups to facilitate trade and investment and therefore transfer decision making in certain areas to unelected bodies that are not accountable to citizens and that are solely focussed on trade liberalization. [1] .
 
 
Increased Inequality
In addition to their much more ambitious agenda, BITs generally accelerate over a period of a few months what would have otherwise occurred over the course of years through the WTO. Some economists have shown (Chang) premature free trade has been one of the leading reasons behind the explosion of poverty in the less developed world. Free trade has been shown to worsen inequality in a society. Higher levels of health and social problems occur in societies with greater income inequality. It's not just the poor that are affected by an unequal society: even the wealthy fare worse when inequality increases. It's not absolute levels of poverty that create the social problems, but the differentials in income between rich and poor[2].
In North America, NAFTA provides one of the best possible examples of this pattern since it was initially implemented under the FTA between Canada and the US in 1988 and then added Mexico and became NAFTA in 1994. While supporters of NAFTA claim that free trade has brought unprecedented prosperity to North Americans, statistics show that since 1989, the real income of the majority of families in Canada has actually decreased.  Any economic prosperity generated by NAFTA has gone to the wealthiest upper 20%, who now consume more than 50% of the income pie in this country.  A similar situation has occurred in the United States and to an even more shocking degree in Mexico. 
 
The lack of conclusive evidence on exports
 
Despite the proclaimed economic benefits of trade agreements, historical evidence shows that the trade agreements Canada has signed in the past have almost universally led to greater merchandise trade deficits and little increase in the value of exports. In the cases of Chile, for example, Canada had a merchandise trade surplus with Chile before signing a BTA in 1997. Afterwards, exports to Chile dropped, not reaching 1997 levels until almost ten years later. Even today, exports to Chile have barely improved from 1997 levels. Imports from Chile, on the other hand, have increased substantially and today Canada imports almost three times as much from Chile as it exports.
 
The scenario is similar in the cases of Mexico, Israel, and Costa Rica. In fact, with the sole exception of the United States, all free trade agreements signed long enough ago for data to be collected have produced similar results: the creation of trade deficits or the exacerbation of existing ones, often with little or no increase in exports.
 
However, Canadian corporate investment into key sectors of these countries has increased significantly, which demonstrates that the critical heart of these BTAs lies more in its investment protection chapter rather than in conventional trade. The BTAs are much more useful for dominant multinationals because they provide them with the necessary protection of their capital, as they seek to shape these countries into crucial pieces of their strategy of globalisation. They now have a stronger ability to bind governments and redirect their policies to suit their own bottom line.
 
 
BTAs curtail the Use of Procurement as a Local Economic and/or Social Development Tool
 
The European industry lobby Business Europe estimates the value of public procurement potentially open to international trade as $2.1 trillion globally. Government procurement accounts for a substantial part of a country’s economy and BTAs are increasingly pushing for unfettered access to this market.
 
Canadian provinces have always been reluctant to negotiate procurement. NAFTA contained provisions to include provinces in the procurement process, but these provisions were not acted upon. Current CETA negotiations threaten to take away provincial governments options in procurement. One of the main requests of the EU is that Canadian provincial governments and major municipalities be covered by CETA, which a first, given that historically the scope of trade agreements negotiated by Canada has not extended to sub-central governments.
 
The precedent created by the Harper government signing an agreement on government procurement with the US (“Buy America”) under the WTO Government Procurement Agreement, committing Canadian provinces (without guaranteeing any access to the US public procurement market) reinforces EU’s requests for full access to Canada’s provincial and territorial public procurement.
 
Any potential short term benefits of price reductions for local government associated with increased competition in their procurement market comes with a higher cost. Including government procurement commitments in BTAs- FTAs,[3] as is currently the case with CETA negotiations diminish the governments’ flexibility to decide the circumstances under which they will contract with foreign companies.
 
This will adversely affect the number of government contracts awarded to local companies and therefore the ability to deploy a full employment policy. It can also compromise local content requirements for specific equipment or services aimed at creating local employment (e.g., Ontario’s Green Energy Act).. Had CETA been in place in 2003, the province of Quebec would not have been able to insist on 60% content in wind project. And Ontario may have to revoke its Green Energy Act, an initiative that could create tens of thousands of jobs while making Ontario’s economy far more environmentally-friendly.
 
 
 
Reduced Labour and/or Environmental Standards
 
 
FTA negotiations can also target the harmonization of regulations and standards that indirectly affect the movement of goods and services between and among countries. In that context some parties could agree to reduce their labour and environmental standards and regulations to establish a "level playing field".  Future labour and environmental policies would then be bound by the regressive provisions included in the text of the agreement.
 
Countries can use BTAs to exploit their own citizens, such as in the cases of setting up “free trade zones” where various labour abuses are tolerated. The sweatshop goods produced would then be exported to the high income market. For instance, despite having a free trade agreement with the United States with labour rights protection entrenched in the body of the agreement, Multinational corporations are using Jordan to house factories with foreign workers in sweatshop conditions. In one example, the Passports of approximately 2,000 guest workers were illegally confiscated by factory management. All overtime is mandatory, and workers are routinely at the factory up to 99 ½ hours a week. Overtime hours exceed Jordan’s legal limit by 214 percent. Workers report being cheated of 41 to 46 percent of the wages legally due them. Physical abuse, beatings and threats by management are the norm while workers have no freedom of movement.
BTAs can also prevent governments from dealing with environmental issues like climate change and diminishing energy resources by tying their hands and blocking them from creating effective environmental policy. Over half of the complaints under NAFTA’s Chapter 11 have directly challenged environmental policies. Such agreements can also be used to allow one country to impose a reduction in environmental standards upon another, such as the Canadian government is currently trying to do in CETA negotiations with the EU in pushing to allow for the export of large-footprint tar sand oil.
 
Reduced policy options in strategic areas
 
Energy:
 
In addition to issues commonly addressed in FTAs (e.g., most-favoured-nation and national treatment provisions), some agreements include commitments in specific sectors. An example is the so-called “proportionality clause” in Article 605 of the NAFTA, which covers energy and petrochemical goods. This article states:
 
A Party may adopt or maintain a restriction … with respect to the export of an energy or basic petrochemical good to the territory of another Party, only if:
 
a) the restriction does not reduce the proportion of the total export shipments of the specific energy or basic petrochemical good made available to that other Party relative to the total supply of that good of the Party maintaining the restriction as compared to the proportion prevailing in the most recent 36-month period for which data are available prior to the imposition of the measure, or in such other representative period on which the Parties may agree;
 
b) the Party does not impose a higher price for exports of an energy or basic petrochemical good to that other Party than the price charged for such good when consumed domestically, by means of any measure such as licenses, fees, taxation and minimum price requirements. The foregoing provision does not apply to a higher price that may result from a measure taken pursuant to subparagraph (a) that only restricts the volume of exports; and
 
c) the restriction does not require the disruption of normal channels of supply to that other Party or normal proportions among specific energy or basic petrochemical goods supplied to that other Party, such as, for example, between crude oil and refined products and among different categories of crude oil and of refined products.[4]
 
Provisions similar to Article 605 obligate a country to make a certain level of its resources available for exports. It therefore limits the ability of that country to develop its own energy and/or economic policies. This principle would apply to any good or service addressed in an FTA in such a manner. This is why most of the recent growth in Canada’s exports has been tied to energy and oil exports and stems from NAFTA locking Canada into a subservient position as an American energy supplier. NAFTA has drastically reduced Canada’s ability to chart its own energy policy.
 
Intellectual Property Rights:
 
The ability of governments to set their own Intellectual Property laws is eroded by BTAs agreements driven by the agenda and priorities of Multinational corporate interests (reference)
For example, according to Professor Michael A. Geist’s Analysis of a leaked draft of CETA’s intellectual property chapter, the European Union proposal for the intellectual property chapter of the Canada - EU Comprehensive Economic Trade Agreement demonstrates that it calls for a near-total loss of Canadian sovereignty on intellectual property matters[5]. The EU is pressuring Canada to match its approach. EU demands include extensive new broadcaster provisions, extension of the term of copyright protection, and longer terms for secrecy of pharma data.
 
IP policies have a huge impact on pocketbook issues and the cost of delivering key government programs. The changes proposed by the EU for CETA, for example, would increase the cost of drugs to the Canadian government by approximately $2.8 billion per year[6]. This is likely to get even worse in the near future, as our population continues to age and becomes more reliant on drugs, which already comprise a huge proportion of our healthcare expenditure in Canada. An inability to produce generic drugs would only exacerbate this problem.
 
Many other key policy issues are touched by NAFTA style BTAs. These include supply management, the ability to protect water resources as well as public delivery systems and services from unfettered commercial control.  The consequences are extremely vast and varied in scope.
Conclusion:
Fortunately there is not just one way to do trade in the 21st century. I am absolutely in favour of rules-based trade.  However, these rules cannot be a charter of rights for multinational corporations, to the detriment of the democratic rights of citizens and the ability of all levels of governments to set industrial and social policy.
We support a different approach to the globalization in order to achieve a stable, rules-based global economy that promotes and protects the rights of workers and the environment, provides for cultural diversity, and ensures the ability of government to act in the public interest.
All these agreements have in common the fact that they were conceived in the first place to restrict the ability of democratically-elected governments to act in the public interest, to act on behalf of the common good.
In the interest of the few we are being asked to give up our way of life. We are told that this leads to jobs. It may well do so. If at the same time we have to give up a large degree of control, even give up the possibility of being a distinct country having distinct social and economic values. Then the price is too high. No country can prosper without a healthy dose of trade. But not at the cost of our democracy, our health, the environment, human rights and our existence as a nation. The loss of democratic political control is not an option.
Progressive forces respect the importance of international trade to economies, to jobs and to future prosperity. It is precisely because we recognize the importance of trade that it is critical for our government to enter into proper trade deals.  That is why it’s impossible to talk about FTAs-BTAs in some absolutely ideological, uncritical way -- but about fair and sustainable trade as the only foundation of our common future.
If the foundation of trade deals is to be fair and sustainable, we must no longer adopt the attitude that reproduces failed BTA templates. Each trade deal must be designed and assessed with benchmarks that reflect the specific circumstances and priorities of participating countries. Fair and sustainable trade agreements must be in sync, both in terms of structure and content, with progressive policies that make trade serve the public good. Trade agreements should not be used to threaten public policies that are put into place in the public interest.
 
Peter Julian, Member of Parliament (Burnaby-New Westminster)
International Trade Critic, New Democratic Party of Canada
Ottawa, February 2010
 

[1]       Ricardo Grinspun and Robert Kreklewich, “Consolidating Neoliberal Reforms: ‘Free Trade’ as a Conditioning Framework,” Studies in Political Economy (no 43), 1994, http://spe.library.utoronto.ca/index.php/spe/article/viewFile/11253/8144.
[2]       Richard Wilkinson and Kate Pickett “The Spirit Level: Why Equality is Better for Everyone” Penguin, 2010,
[3]       This statement assumes that commitments in this area have not already been made in the World Trade Organization WTO Government Procurement Agreement.
[4]       North American Free Trade Agreement, Chapter Six: Energy and Basic Petrochemicals, http://www.international.gc.ca/trade-agreements-accords-commerciaux/agr-acc/nafta-alena/texte/chap06.aspx?lang=en.
[5]       EU demands Canada Completely overhaul its intellectual  property laws  http://www.michaelgeist.ca/content/view/4914/125/
 
[6]       Aidan Hollis and Paul Grootendorst, The Canada-European Union Comprehensive Economic & Trade Agreement: An Economic Impact Assessment of Proposed Pharmaceutical Intellectual Property Provisions