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Friday 18 Aug 2017 | 23:03 | SYDNEY
Friday 18 Aug 2017 | 23:03 | SYDNEY

CETA breakdown highlights need to share the spoils of globalisation



26 October 2016 17:23

The ground-swell against globalisation has tripped up the Canadian-European Comprehensive Economic and Trade Agreement (CETA). The French-speaking Wallonia region of Belgium objects, leaving the EU 'not capable' of signing an agreement. If Europe can't agree a trade deal with Canada, what hope is there for the Trans-Atlantic Trade and Investment Partnership (TTPI), Australia's negotiations with Europe or, for that matter, of a 'soft' Brexit which would leave the UK economy still closely integrated with Europe?

The core problem for CETA is that agreements of this nature are not just about trade: they impinge on a range of 'behind the border' issues such as labour laws, the environment and food regulation. Thus they cut across the laws and regulations of individual countries. While the negotiations are done by Brussels, they have to be ticked off by 38 regional and national parliaments to make sure there is no conflict with the laws of member states. One region of Belgium, with a population not much more than 0.5% of the EU's total, can stymie the deal. Wallonia is typical of globalisation's losers: a former industrial area unable to withstand foreign competition, with some heavily-protected agriculture which survives only because of the EU's Common Agricultural Policy.

It would, however, be wrong to see this as a minority complaint that can be resolved by some ad-hoc placatory measures for the Walloons. Some 190,000 Germans also petitioned the German Constitutional Court, which ruled that the agreement could go ahead but only if it doesn't cut across 'national competences'. Plurilateral trade deals are in trouble. The much wider TTIP between the US and the EU is in negotiating limbo. The Trans-Pacific Partnership is opposed by both presidential candidates and the hope of sneaking it through in the 'lame-duck' pre-inauguration period seems set to be thwarted by those in Congress who think it should be renegotiated to make it more favourable to American interests.

What's gone wrong? Of course globalisation is taking the blame for the full gamut of society's ills. The failure to compensate those who are genuine losers hasn't helped. The criticisms directed at the biased benefits of these trade agreements make them hard to defend, even by advocates of the undoubted benefits of globalisation. When Bernie Sanders describes the TPP as 'a disastrous trade agreement designed to protect the interests of the largest multi-national corporations', it's hard to disagree. The TPP, and the agreements that came before it such as the Trade-Related Intellectual Property Agreement (TRIPS), were initiated by American commercial interests. They were designed to enforce intellectual property rights, commercial access for investment, free movement of capital and provide foreign investors with an alternative forum of dispute resolution.

If you are already experiencing the down-side of globalisation, it's easy to characterise this as a form of neo-colonialism. The discontent is picked up by others who have been left behind by technology, who feel the competition of immigrants, who observe the reluctance of foreign investors to pay a fair tax in the host country, or who feel cheated by the mal-distribution of income. The manifestations of globalisation, such as CETA, TTIP and TPP, are magnets that attract and consolidate all these amorphous discontents.

Of course it's easy to show where these criticisms are exaggerated or misguided. In fact, the new agreements may actually be an improvement on those that came before.

Let's spell out a specific example here. There is substantial, intuitively-based opposition to the Investor-State Dispute Settlement (ISDS) clauses that routinely form part of these agreements. ISDS provisions give foreign investors the right to take disputes with host governments to international arbitration. But for decades these have been included in trade agreements – and in fact often took the form of stand-alone Bilateral Investment Treaties (BITs).

With experience, it has become widely accepted that the early ISDS were abused by foreign investors. A relevant example is the (unsuccessful) attempt by Philip Morris to overturn Australia's tobacco plain-packaging legislation.

This may have been instrumental in the Gillard government's decision not to agree to any further ISDS. The current government takes a 'case-by-case' approach, with the self-serving implicit understanding that ISDSs would be included in treaties where Australian firms had doubts about the legislative environment in the host country (e.g the Korean FTA) but not on those where the foreigner was more likely to use the ISDS to take on the Australian government (e.g the Japan FTA and the USA FTA). The plurilateral TPP includes ISDS, thus muddling the rationale for a selective, case-by-case approach.

More recent drafting (such as in the TPP) has limited the scope for foreign investors to oppose domestic legislation, requires greater transparency in the arbitration process, and affirms the right of countries to make laws and regulations that adversely affect the profitability of foreign investors. Thus to the extent that the new ISDS overrides an old version, they may be an improvement. 

Even if the new versions are better than the old (which of course acknowledges there were faults), ISDSs still have the flavour of overriding sovereignty, giving foreigners a better deal than domestic investors. Foreigners investing in countries with questionable legal systems should take this into account when they make their investment decisions. When foreigners invoke these treaties with dubious arguments (such as in the Philip Morris case), this not only undermines the case for globalisation, it draws down the stock of goodwill between the countries involved. In the future, Australia will almost certainly want to shift the goal posts on environment and climate rules, and we don't want that process to fall foul of international agreements, or to form the basis of acrimonious litigation.

There can be no doubt that international trade requires more rules to facilitate its expansion. International agreements that produce more uniform behind-the-border regulation are desirable. But now that the anti-globalisation forces have been mobilised, how can they be placated? The groundswell against globalisation may make domestic governments take greater care to ensure that the losers are compensated. Governments should also endeavour, perhaps through G20 and other broadly representative international forums, to shift the international rule-making into forums where there is some chance that the very real benefits of globalisation will be shared equitably by all.

Photo courtesy of Flickr user Vincent Ferron

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