Twenty-five Silicon Valley firms are now lining up against the Trans Pacific Partnership (TPP) at a time when the secret trade agreement‘s tactics to eviscerate derivatives regulation is exposed.
The Trans Pacific Partnership is a “trade” agreement promoted by multinational corporations as a method to open Asian markets to US products, but is it really crony capitalism at its worst, as critics charge?
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Market reformers look at the turn of the century as a period in history when derivatives legislation was rolled back, leading to the 2008 market crash. Some have said if they were aware of the generally lightly reported efforts in 1998 – 2001 they would have vocally opposed the powerful bank lobbying efforts that led to the abrupt dismissal of former CFTC Chairperson Brooksley Born and the repeal of common sense derivatives and banking legislation.
Is history repeating itself as the little-known trade agreements work their way through Congress? This agreement could literally turn back the clock on regulation of not just derivatives, but render ineffective food and drug labeling protections, reduce product safety regulations and empower high frequency trading — as well as restricting internet freedom, which is the concern of the Silicon Valley group.
As major corporations flex political power, the first Congressman to see the trade deal says “US Sovereignty is being handed to corporate interests”
Based on what is known and has been leaked to the public, major corporations with their powerful lobbying apparatus– pharmaceutical corporations, large banks, Agri business, high frequency trading concerns – have loaded the legislation with provisions that, under a cloak of secrecy, provide them special advantages that neuter regulators.
“The most alarming aspect of the Trans Pacific Partnership is that most of the pact has nothing to do with traditional trade,” said Ben Beachy, Research Director of Public Citizen’s Global Trade Watch. “Only five of the 29 proposed chapters of TPP actually pertain to trade matters. Many of the chapters, with binding rules, cover everything from monopoly patent protection, rules on financial regulations that directly contradict efforts designed to rein in Wall Street, environmental provisions, binding rules on copyright which threatens to revise some of the failed provisions of the Stop Online Piracy Act (SOPA), and binding provisions that would restrict domestic rules regarding food safety and inspections. These are rules one would not expect to be typically inserted into a so called ‘trade pact.’”
The trade agreement’s contents are secret and details cannot be disclosed, which is a problem for Congressman Alan Grayson (D-FL), who has seen the agreement and says “US Sovereignty is being handed to corporate interests,” he wrote. “Lobbyists are more familiar with the details than those in Congress, who are expected to vote on it without serious discussion.”
After reading the agreement, which could only be done by the Congressman and not his staff, Grayson was forbid from discussing the individual details for “national security reasons” but could express his broad opinion. “There is no national security purpose in keeping this text secret,” he wrote after reviewing the details.
What is clear is that if passed the agreement’s secret provisions would trump US laws and regulation. Instead, hard-fought US protections would be subject to the lowest common denominator of those countries in the agreement. For instance, under the guise of “lowering trade barriers,” if food labeling laws in Vietnam were weaker than those in the US, this new agreement would nullify US regulations in favor of laws in the more lightly regulated country. The nullification of US laws would occur not only in food labeling, but would also reduce internet freedoms and derivatives regulations, among other items. None of this is discussed in public, which is the concern. “The United States appears to be using the non-transparent Trans-Pacific Partnership negotiations as a deliberate end run around Congress on intellectual property, to achieve a presumably unpopular set of policy goals,” Susan Sell, a professor of political science at George Washington University, wrote in the Washington Post.
25 tech companies send letter to Senator asking him to oppose Trans Pacific Partnership “fast track”
Silicon Valley, which vigorously opposed the unsuccessful Stop Online Piracy Act (SOPA) campaign, is starting to publically hate on the agreement that activists have privately called a near “criminal” attempt to alter US laws and regulations without debate.
The component of the pact that would limit internet freedom through copyright restrictions, rolling back the SOPA debate, was released by Wikileaks in 2013 to little media attention. If passed, the Trans Pacific Partnership would enable user’s web sites to be shut down for “violations” of the Trans Pacific Partnership copyright provisions and would place an onus on Internet service providers to police web sites hosted on their servers.
“These highly secretive, supranational agreements are reported to include provisions that vastly expand on any reasonable definition of ‘trade,’ including provisions that impact patents, copyright, and privacy in ways that constrain legitimate online activity and innovation,” said a letter from the tech companies to Sen. Ron Wyden (D-OR), the new Senate Finance Committee Chairman.
Noting the trend for US government to increasingly operate as an arm of large multinational corporate interests, who benefit from trade agreements that enable them to offshore US jobs, Ron Yokubaitis, Co-CEO of Golden Frog and Data Foundry, was clear. “We strongly urge Senator Wyden to not bend to the narrow interests of a few large corporations,” he said. “Instead we hope he stands up for the small companies that continue to create innovation on the open Internet, but get left out when legislation is proposed that is not transparent and participatory.”
While backers of trade agreements point to the potential for US job gains, in fact in the decades that such trade agreements have been in place, high paying manufacturing jobs have been off shored, replaced by lower paying service jobs. Numerous academic studies have noted that trade partnerships have a statistical tendency to harm the US middle class. For instance, a US-Korea free trade agreement increased exports from Korea to the US while the US did not see a net gain in exports to Korea.
Trade pacts increase flow of trade — against the US
Perhaps the most notable trade pact was the North American Free Trade Agreement (NAFTA). What was the economic fallout? “The flow of goods has increased,” said Global Trade Watch Director Lori Wallach in an interview with Bill Moyers. “Unfortunately, that flow has been a huge surge of imports into the United States, from Mexico, and, interestingly, from Canada, so that we’ve seen the displacement of one million jobs on net because of the huge increase — a 450 percent increase — in our trade deficit in the 20 years since NAFTA went into effect. The year before NAFTA, the United States had a small trade deficit with Canada — about $20 billion dollars — and a slight surplus of $2 billion dollars with Mexico. Now, 20 years later, we have almost a $200 billion dollar trade deficit with those countries. So the surplus with Mexico turned into a huge, huge deficit, as all those companies relocated there to produce goods with lower wages.”
Nonetheless, US mega corporations, flexing their political might, are now bullying through the “trade” legislation that is really a disguise for special interest corporate welfare. “Corporations have increasingly found over the years these pacts are a convenient way to try and get into law what they would otherwise not get through the legislative process,” Beachy said, noting that Trans Pacific Partnership “is a backdoor for narrow private interests to get the protections and accommodations they otherwise wouldn’t see. In many cases this is antithetical to free trade.”
Roll back of derivatives protections, stealth aid to high frequency traders
The richest and most powerful corporate force in the history of democracy is the US financial services lobby. As you might expect, the largest banks and high frequency trading concerns have their hands all over the Trans Pacific Partnership.
Beachy notes that the Trans Pacific Partnership could negate large trader position limits by stating that a Trans Pacific Partnership government cannot place limits on the value of a bank’s transactions. Rules in the trade agreement would also eliminate the potential for a financial transaction tax, a measure currently being considered by US President Barack Obama to fund the Commodity Futures Trading Commission but strongly opposed by the high frequency trading lobby.
In regards to the big banks, Beachy notes their most important lobbying battles are addressed in the Trans Pacific Partnership. “There is a rule that conflicts with the usage of firewalls,” he said. “This contradicts regulations restricting banks holding saving deposits from engaging in risky hedge fund bets.” As one example, Beachy notes a seemingly innocuous little line proposed for the Trans Pacific Partnership that says “Countries that sign on to this trade agreement cannot engage in policies that restrict or require specific types of legal entity through which a service supplier may supply a service.” This line could be interpreted to say if you are a bank there can be no restrictions put on the type of products you sell, Beachy observed. “This contradicts Dodd-Frank provisions that do not allow bank holding companies to perform risky exotic SWAPs through their federally insured deposit taking bank affiliates.”
Judicial process skewed in favor of large corporations
If there is one skill the financial services lobby has sharpened to perfection, it is in the manipulation of regulators and their interpretation of rules. Typically their influence is subtly peddled through the “revolving door.” This is where cooperative regulators are financially rewarded by financial firms after they leave government service. This influence has been hard to prove and limit. The Trans Pacific Partnership, however, dispenses with any such pretense of judicial neutrality in interpreting Trans Pacific Partnership disputes.
According to Beachy if there is a trade dispute, it goes before an international tribunal of three private attorneys who are appointed “judges.” These judges can be lawyers for large corporate interests who may also be subject of a tribunal review. So in other words, the Trans Pacific Partnership dispenses with subtlety and legislates corruption of the dispute process, a component of the program Beachy calls an “extreme chapter.” He notes that corporations can circumvent the US legal system and challenge domestic policies directly with the tribunals. The tribunals can then levy fines on local sovereign governments if their laws and regulations conflict with the Trans Pacific Partnership’s provisions. The US could find itself subject to trade sanctions just for enforcing current regulatory policy, Beach noted.
Agreement status and “Fast Track” fight
Currently Trans Pacific Partnership legislation is working its way through Congress, but the “Fast Track” provisions of the agreement that restrict Congress and its staff from viewing provisions before a vote – and keep the public in the dark – are currently being challenged. “Fast track creates legislative luge run,” Beachy said. The constitutional legality of this approach has been in dispute, as Congress is designed to have authority over trade issues.
Current opposition is to Fast Track, which is the Nixon era maneuver that empowers the executive branch to unilaterally negotiate and sign so called “trade deals,” locking in the content of the deal before Congress gets a vote. Once Congress does get a vote on the deal, debate is limited, it runs on a expedited schedule and no amendments are allowed. “This is a blow to the democratic process,” Beachy said. “Conservatives see it as a blow to the U.S. Constitution, an abdication of power. Liberals see it as a power grab by large corporate interests.”
Trans Pacific Partnership is not the first time we’ve seen a trade agreement expand beyond trade, but this is the most expansive we’ve ever seen a bill get beyond trade. “It’s very worrisome to us,” Beachy said. “We see it as a backdoor means of getting through policies that would not survive if they were brought on through a normal democratic process in the light of day.”
Many political leaders have opposed the Fast Track provisions, including Congressperson Nancy Pelosi (D-CA) and US Senators Harry Reid (D-NV) and Dick Durbin (D-IL), and Beachy indicates the Fast Track aspect of the Trans Pacific Partnership “is on life support.”
“Congress has already expressed displeasure at being shut out of this process,” Professor Sell said. “When its members see how provisions that had been defeated in a domestic, democratic, and deliberative process in January 2012 (SOPA) have been included in Trans Pacific Partnership I suspect that they will not be happy.”
“Don’t cry for the Trans Pacific Partnership”
While the media has generally been silent on the issue, Nobel Prize winning economist Joseph Stiglitz recently came out with a New York Times column saying Trans Pacific Partnership was on the “wrong side of globalization.”
When discussing the potential demise of the Trans Pacific Partnership, another Nobel Prize winner, Paul Krugman, wrote in the New York Times: “So don’t cry for T.P.P. If the big trade deal comes to nothing, as seems likely, it will be, well, no big deal.”