Slow Motion Coup d'Etat: Global Trade Agreements and the Displacement of Democracy

by Lori Wallach

In the 1980s, the same ideological and business interests behind the Thatcher and Reagan “revolutions” opened a second front in their campaign to create a world in which the role of government would be shrunk and the fulfillment of basic human rights and needs would be left to the mercies of markets and corporations.

Their strategy was to transform the 1947 General Agreement on Tariffs and Trade (GATT) into a powerful new system of global governance that would fence in the permissible scope of accountable democratic governance. This new system of global governance was envisioned to be an instrument to implement one-size-fits-all, within scores of countries, the policies that would enable corporate rule to thrive.

The GATT was a narrowly-cast 20-page trade pact created after World War II to set tariff rates and quota levels for trade in goods between countries. Countries met several times a decade for a “round” of GATT negotiations during which they agreed to cut tariffs or quotas further. In the United States and some other nations, these new tariff and quota terms would then be brought to legislative bodies for approval. However, because the narrowly construed GATT and the notion of free trade generally enjoyed broad support, these votes in the U.S. Congress were not controversial.

Press and parliamentarians assumed it was business as usual when GATT signatories met in Uruguay in the mid-1980s to launch a periodic round of GATT talks. This lack of scrutiny made these obscure “Uruguay Round” GATT negotiations an ideal Trojan horse within which an expansive non-trade policy agenda could be developed and signed, and that could then be rolled in disguise through legislatures.

The Uruguay Round eventually resulted in the creation of the World Trade Organization (WTO) in 1995. The WTO totally transformed the nature and scope of “trade” agreements — replacing a relatively brief list of objective norms (domestic and foreign goods must be treated the same, for example) that only applied to trade in goods between nations. The WTO in contrast sets subjective policy — establishing, for example, how safe a country may choose to make its food supply through regulation — and imposed policies on a range of issues reaching far beyond trade, including patents, investment rules and matters related to the service sector. Contained within the legislation implementing the WTO and in the pact’s 900 pages were many Reagan Administration proposals that already had been specifically rejected by the then-Democratic Party-controlled U.S. Congress.

During the same period as the GATT Uruguay Round negotiations, the Reagan administration also proposed negotiating new regional “free trade agreements.” A U.S.-Canada Free Trade Agreement was launched in 1988 and was replaced by the North American Free Trade Agreement (NAFTA) in 1994. Like the WTO, NAFTA exploded the boundaries of what was included in so-called trade agreements. The deals are more accurately dubbed corporate globalization agreements.

Regulating gov’t, deregulating business

International commercial agreements, like WTO and NAFTA, include a broad deregulatory agenda, slashing food safety, environmental and other public interest protections by labeling them “illegal trade barriers” that must be eliminated.

These pacts also promote commodification of common resources by, for instance, requiring signatory countries to issue patents on plant varieties or traditional medicinal plant uses so that the planet’s natural biodiversity and the common heritage of the planet’s people can be transformed into tradable units of property for profit.

The WTO and NAFTA rules covering the service sector operate to transform services like healthcare, education, electricity and other basic utility essentials into commodities by encouraging broad privatization and deregulation. The WTO and NAFTA establish a right for foreign corporations to own, operate or establish an unlimited array of providers of such critical services, which now are often either provided by governments or via highly regulated monopolies.

The agreements also create new protections for corporations, for instance by requiring all signatory nations to establish new monopoly-style intellectual property rights (patents, copyrights) for a vast array of knowledge and items — from seeds and plant varieties to medicines — many of which are otherwise available for unrestricted use. In exporting the U.S. monopoly patenting system which has contributed to high drug prices, the WTO and NAFTA’s intellectual property rules undercut poor countries’ capacity to make essential medicines available to their populations.

These trade agreements established new rights for foreign investors to operate, while limiting governments’ authority to set the terms of such foreign investment to ensure that it benefits residents of the host country — not just the foreign investor. For instance, the special privileges granted foreign investors under NAFTA forbid countries from using capital controls to avoid currency crashes during economic crises, even though such policy instruments have proven time and again to be vital for avoiding economic meltdowns. Both NAFTA and the WTO contain foreign investment protections that forbid governments from using the policies — such as requiring that manufactured goods include a percentage of domestic content, or that a percentage of products be exported — that were essential components of the industrial policies employed by the fast-growing Asian economies. Indeed, no country has moved from poverty except by employing the very policies forbidden by WTO and NAFTA. Thus it is not surprising, if horrifying, that grinding poverty has worsened in many developing countries that followed the WTO/International Monetary Fund model most faithfully, while countries like China, Vietnam and Malaysia that have either remained outside the WTO or selectively implemented its terms, have grown dramatically, bringing many to a better standard of living.

In yet another torturous twist, NAFTA and the WTO protect subsidies given to agribusiness for exporting commodities, while certain domestic subsidies to support small farms or ensure food sovereignty are characterized as “illegal trade distortions.”

All of these new corporate rights are enforced by a new, powerful and binding dispute resolution system unlike anything from any past trade agreement or included in environmental, human rights or other treaties. A key WTO provision requires nations to “ensure conformity of their laws, regulations and administrative procedures” to the WTO’s terms.

Any national or local policy of a WTO or NAFTA signatory nation that falls outside WTO or NAFTA’s terms — even if it has nothing to do with trade per se — is challengeable as an “illegal trade barrier” before a WTO or NAFTA tribunal. These panels are comprised of three trade officials meeting behind closed doors. Nations whose policies are judged not to conform to WTO or NAFTA rules are ordered to eliminate them or face permanent trade sanctions.

A corporate bill of rights

While both WTO and NAFTA represent an audacious power grab, many of the rules of NAFTA are considerably more extreme than the rules of the WTO.

Because WTO negotiations included scores of countries — including some progressive European nations and many large developing countries such as India and Brazil — it was possible to generate a critical mass of push-back against some of the most extreme proposals emanating from the Reagan administration.

In contrast, the power imbalance inherent in the U.S. relationship with Mexico and Canada meant that NAFTA was more of a dictation than a negotiation, and the first Bush Administration was able to insert into NAFTA the most complete and extreme version of the corporate-friendly agenda it favored. NAFTA is considered the gold standard for mechanisms furthering corporate globalization because it includes service sector privatization and deregulation, government procurement deregulation and foreign investor protections that go well beyond the WTO’s rules on these issues.

For instance, NAFTA requires signatory countries to provide foreign investors a much more expansive list of new privileges than is required under WTO rules, including privileges that extend beyond the property rights guaranteed by the U.S. Constitution. NAFTA gives foreign investors the right to be compensated for the costs domestic environmental or health regulations applicable to all businesses might pose to their expected future profits, for example.

Under NAFTA, foreign corporations and investors are empowered to privately enforce these new privileges and rights — where the WTO renders all disputes between governments. NAFTA contains a mechanism allowing foreign investors to sue signatory governments in private NAFTA tribunals demanding cash compensation for government policies that do not satisfy the NAFTA-guaranteed minimum standard of treatment for foreign companies.

Neither Congress nor the public must be given notice of these NAFTA investor cases, so it is unclear how many have been filed. However, more than 40 cases are known to date and several have been decided.

In one case, the government of Mexico paid Metalclad, a U.S. toxic waste company, $16 million in damages after a NAFTA tribunal ruled that a Mexican municipality’s refusal to grant a construction permit for a toxic waste treatment facility in an environmentally sensitive area violated Metalclad’s NAFTA investor rights.

In another case, Canada paid the U.S. corporation Ethyl $12 million in compensation and reversed a ban on a toxic gasoline additive called MMT after Ethyl filed a NAFTA challenge.

Not even international environmental and human rights treaties are free from these attacks: in another case, a U.S. corporation called S.D. Meyers received millions in compensation after a NAFTA tribunal ruled that Canada’s implementation of the Basel Convention, an international treaty on the handling of toxic waste, had limited S.D. Meyer’s business opportunities in PCB toxic waste disposal trade.

In pending actions, a Canadian tobacco company has challenged the tobacco settlements made by assorted U.S. states as a disadvantage to their expected market share in the United States. And a Canadian mining company has just filed a claim for $300 million against the U.S. government because California denied it a permit to dig an open-pit mine on land deemed sacred by a California Indian tribe.

Meanwhile, an array of U.S. health and environmental policies have been weakened to meet WTO or NAFTA rules: imported meat is now permitted even if the foreign plants in which it is processed do not meet U.S. safety standards; U.S. Clean Air Act regulations, dolphin-safe tuna labeling and Endangered Species Act have all been successfully attacked in trade tribunals — meaning dirtier gasoline was allowed for sale in the most polluted cities and that dolphin-safe labels on tuna cans no longer means no dolphins were killed in the tuna harvest.

The power of obfuscation

How could such a far-reaching rewrite of domestic policy have been sneaked past the public, press and Congress? The WTO and NAFTA were designed by corporate lobbyists purposely to be inaccessible. The agreements were negotiated in closed sessions where corporate leaders act as official advisors to governments. For instance, when the WTO and NAFTA were negotiated, over 500 corporate representatives were operating as official U.S. trade advisors. These presidential appointees have security clearance and are allowed to attend negotiations and have access to the confidential negotiating texts. The agreements are written in “GATTese,” a language understood only by trade lawyers. In the early 1990s, when the WTO and NAFTA votes occurred, attempts by groups such as Public Citizen to warn about these pacts’ true implications were dismissed as simply unbelievable.

If such an autocratic, anti-democratic governance system had been imposed over elected governments around the world by force, human rights monitors and UN inspectors would have been dispatched.

Instead, the NAFTA and WTO’s silent slow motion coup d’etat against democratic governance everywhere will be reversed only by citizen activism and campaigning.

There is resistance to expanding the WTO/NAFTA model — abroad and in the United States, only the most visible manifestation of which were the protests in Seattle at the 1999 WTO Ministerial Meeting. The reasons for resistance are clear: In 2005, 10 years since the WTO and NAFTA, U.S. wages have remained flat. A $600 billion trade deficit puts the United States in a precarious position of depending on foreign investment to keep the already-falling dollar from crashing. Meanwhile, the export of high-paying jobs with health and benefits in fields such as tax preparation, medicine and law is on the rise, with even conservative estimates indicating a loss of at least another three million jobs over the next decade.

It would be one thing if the decline in the U.S. standard of living contributed to improving the conditions for the majority of the world’s population living in poor countries. However, the WTO/NAFTA model is a lose-lose with wealth extracted by supercorporations from both rich and poor countries’ workers, farmers and small businesses.

If progressive forces are able to defeat a proposed deal to expand NAFTA to Central America — the Central American Free Trade Agreement (CAFTA), signed in May 2004 but not approved by Congress because of a dearth of support — the era of “trade agreements” being hijacked to impose a retrograde corporate agenda worldwide may be over.

Of the Bush administration’s second-term priorities, CAFTA remains one that does not enjoy even widespread support among Republicans. Its rejection could spell the end of the even more astounding proposal to expand NAFTA to 31 nations in a Free Trade Area of the Americas. There is momentum to restrain corporate rule, yet only the energy and will of engaged citizens at home and abroad can make 2005 the year the turnaround begins.

Lori Wallach is Director of Public Citizen's Global Trade Watch and co-author with Patrick Woodall of Whose Trade Organization? A Comprehensive Guide to the WTO.