EU-US Free Trade Agreement: Race to the bottom of the Atlantic

A lot of ink has been spilt in the mainstream media, praising the role a free trade agreement between the EU and the US could play in pulling the two economies out of the crisis they are engulfed in. Richard Bruton outdid himself in the Sunday Business Post on 14 April 2013, claiming “abolishing restrictions in the EU’s services sector alone could boost EU GDP by 2.6%.” Three days later a press release from him claimed that the whole deal could boost EU GDP by a mere 0.5%!

A lot of ink has been spilt in the mainstream media, praising the role a free trade agreement between the EU and the US could play in pulling the two economies out of the crisis they are engulfed in. Richard Bruton outdid himself in the Sunday Business Post on 14 April 2013, claiming “abolishing restrictions in the EU’s services sector alone could boost EU GDP by 2.6%.” Three days later a press release from him claimed that the whole deal could boost EU GDP by a mere 0.5%!

Of course, these claims of increased growth, together with hundreds of thousands of new jobs, should be treated with a pinch of salt by those with the experience of the ‘Lisbon jobs’ promises.

These trade negotiations will be carried out in secret, away from any real public or parliamentary scrutiny. Thankfully the draft mandate prepared by the European Commission for the Council has been leaked, although it’s outrageously meant to be kept secret from most MEPs and the public at large. The draft clearly illustrates these negotiations are a means for big business including agri-business on both sides of the Atlantic to push their interests at the expense of European and American working people. They will drive for full liberalisation of public services, and a race to the bottom in terms of regulatory standards. They intend to give privileged access to ‘justice’ to major corporations and may threaten internet freedoms with the potential for ACTA by the backdoor!

The International Trade Committee of the European Parliament will vote on a resolution in April which will most likely voice support for the negotiations. Here, Paul Murphy MEP and Tanja Niemeier (Trade Advisor for European United Left in the European Parliament) provide a critical analysis and explain why  this deal will not be ‘win-win’ for workers on both sides of the Atlantic, as the free trade propaganda suggests.

EU and US rhetoric

The European Commission as well as the European Council, with the Irish Presidency at its head, are enthusiastic. European leaders have been hoping for a free trade deal with the US since the last attempt to conclude such an agreement failed to materialise in the early 1990s. They are not just focused on the economic consequences either, they also hope that a deal would convey a political signal that goes beyond the immediate implications for trade. They hope that it would indicate a re-commitment of the US to its traditional political partner and by doing so, counter the increasing influence of the emerging economies, and China in particular, on the political and trade arena.

In his State of the Union address on 13 February, US President Barack Obama announced that “we will launch talks on a comprehensive Transatlantic Trade and Investment Partnership with the European Union – because trade that is free and fair across the Atlantic supports millions of good-paying American jobs.”

Both the recession-ridden EU and US hope that this agreement will help them to trade their way out of the crisis. President Obama, for example, announced in 2010 that he wants to double US exports by the end of 2015. Karel De Gucht, European Commissioner for Trade and arch neo-liberal, argued that such an agreement “is the cheapest stimulus package you can imagine.”

The European Commission never tires of repeating that it is external trade that prevented an economically dire situation in Europe from worsening further. Some voices in the Commission suggest that it is the crisis that makes a deal more likely this time around. In an interview with EUbusiness, De Gucht also said that

“for Europe, the income effects of the deal that we are now trying to achieve should be between 0.5% and 1.0% of GDP, meaning hundreds of thousands of jobs… It brings new customers for our producers, cheaper components for our producers and more competition to make all our companies more efficient.”

Some economists are quoted as saying that such an agreement, which would create the largest free trade zone in the world, accounting for almost 50% of global GDP and one third of global trade, could create two million jobs and boost EU-US trade by more than US$120 billion within five years. Were this to be the case, this message would obviously be welcome on both sides of the Atlantic where unemployment rates are high and jobs continue to be lost as a result of low, stagnant or even negative economic growth. This is aggravated by low demand caused by the brutal austerity policies across Europe.

Around 15 million jobs have been lost in the eurozone and the US since the crisis first hit in 2008. Politicians are therefore eager to come up with a “good news story” in the face of increasing mass anger and resistance against their unpopular policies that destroy the future and livelihoods of millions of workers and young people.

However, if all the trade agreements delivered on their proclaimed benefits, the world would be a much richer place than it is! For example, the North American Free Trade Agreement was promised to bring millions of jobs to the US. A recent study concluded that jobs were actually lost.  A sceptical approach to such claims is therefore needed.

“No low hanging fruit”

On 3 March, The Financial Times quotes Max Baucus, Democrat Chairman of the US Senate Finance Committee as saying: “This is a deal that must be done, it must be done now and it must be done right.”

However, despite the general enthusiasm for this agreement, both sides admit that the negotiations will be tough and a ‘positive’ outcome is not guaranteed. For now, both sides’ engagement in the talks amounts to not much more than a formal commitment to free trade and a rejection of protectionism, which is rising as a result of the crisis.

Both sides are known for aggressive trade policies that serve their respective industries and big business; they therefore want the scope of the agreement to be as broad as possible in order to allow enough space for trade offs.

A number of issues have been identified as common objectives. These include the elimination of tariffs, a further liberalisation of services and access to each others public procurement markets – which will also mean the liberalisation and privatisation of public services as multinationals compete for tenders from public bodies. In addition, other issues highlighted include the enforcement of Intellectual Property Rights (IPR), regulatory issues and the elimination of non-tariff barriers. These so-called non-tariff barriers include the target of ‘harmonising’ regulatory standards, including health and safety standards, particularly important in terms of agricultural trade – in order to cut costs. In addition, there are likely to be pushes for strong ‘investment protection’ – to give corporations who invest in either market extra rights.

The elimination of tariffs will probably prove to be the most straight forward issue in the negotiations since tariff duties are already relatively low; 3.5% for EU products entering the US market and 5.2% for goods entering the EU market.  It is said that the dismantling of tariffs would mainly benefit the crisis-ridden car industry where tariff duties are still higher than average. Intra-industry or intra-firm trade will benefit most from the elimination of tariffs because a substantial part of the transatlantic trade is made up of intra-company or intra-firm trade (page 3 of the IfO report).

According to the Munich based IfO Institute (Institute for Economic Research), 61% of US imports were sourced from the EU subsidiaries of US companies, and 31% of US exports to the EU were calculated to be intra-industry trade. The Commission claims that tariff elimination would lead to a decrease in prices for consumers, but it will most certainly increase the profits of companies operating on both sides of the Atlantic.

Liberalisation of public services

The key ‘offensive’ interest of European big business is to use the agreement to drive for the liberalisation of public services and the reform of the ‘public procurement’ process – which is the means by which public services are contracted out to private operators. In particular they have ‘Buy American’ requirements at a state level in their sights. The draft mandate explicitly states that “the aim of negotiations on trade in services will be to bind the existing autonomous level of liberalisation of both Parties at the highest level of liberalisation captured in existing FTAs, while seeking to achieve new market access by addressing remaining long-standing market access barriers….” This is the kind of trade jargon that has major European corporations such as Veolia, licking their lips.

US Agri-Business and GMOs

One of the most sensitive items of the negotiations will be agriculture, as both the EU and the US not only have a protected and strong agricultural sector but also have different standards when it comes to food safety.

Michael Froman, Obama’s advisor on the international Economic Affairs Council described agriculture as “the elephant in the room”. There seems to be agreement across the political parties in the US that a deal that does not open up the European market to American agricultural products will be dead in the water.

Max Baucus, Chairman of the US Senate Finance Committee commented,

“the elimination of tariffs will be an important piece of any final agreement. But Congress will not settle for an agreement that fails to address the areas likely to yield some of the most significant economic gains – in particular the elimination of barriers to agricultural trade and ensuring that regulatory processes are streamlined and based on sound science.” (our emphasis).

This wording has rightly rung alarm bells for European consumer organisations, as it is a euphemism for allowing Genetically Modified Organisms (GMOs) and other restricted products entry. At the moment, regulations on  GMOs are much less stringent in the US than they are in Europe. Consumer organisations are worried that a softening of standards would allow for more GMO products to enter the European market. The same applies to hormone treated beef and chlorine-sterilised chicken. Given the experience of the recent horse-meat scandal in Europe, it should be clear that a lowering of standards in the interests of agri-business is the opposite to what is needed.

One may wonder if this is one of the “trade offs” Karel De Gucht had referred to when speaking about the negotiations. Will EU service providers get a better deal in accessing the US market in exchange for hormone treated beef entering the EU market?

There are also many other important issues at stake. Mass protests against the threat to internet freedom killed off ACTA (Anti-Counterfeiting Trade Agreement) in the summer of last year and led to an historic defeat for the European Commission. The USA is a signatory to ACTA and already have a more repressive Intellectual Property Rights (IPR) enforcement legislation in place, so we may see ACTA like provisions re-enter by the back door. The same applies to data protection.

Trade union opposition – Workers’ rights at risk

The European Trade Union Confederation (ETUC) has announced that it is aiming to reach a unified position with the American trade union federation, the AFL-CIO, on priorities for the forthcoming trade talks between the EU and the US. In initial statements, both federations have been very cautious in their assessment of the possible consequences of an agreement. However, they fell short of opposing outright a deal.

One of the reasons why the unions do not oppose the agreement from the outset seems to be that they believe an agreement between two developed countries with relatively high labour and environmental standards (compared to those in developing countries) poses less of a risk of undermining those standards. The AFL-CIO explains that “unlike trade with many other regions, increased trade with the EU offers the opportunity to trade with nations that, for the most part, have active labour market policies and strong social safety nets… Increasing trade ties with the EU could be beneficial”. European Voice describes this as “the strongest American labour endorsement of a trade deal in modern times”.

This is not only a far too optimistic assessment of workers’ and trade union rights in Europe, which are under attack as the crisis deepens, but also creates the illusion that a trade deal between the EU and the US could potentially lead to an upgrading of social and environmental standards. This will not happen in the context of these trade negotiations which are dominated by big business interests.

Their interests cannot be reconciled with those of the working class, Also, with the US government opting out of the Kyoto Protocol, the only, albeit entirely insufficient, binding agreement on emission reduction targets, it does not look as if environmental concerns are very high up on the agenda.

Workers’ representatives will not get the chance to sit around the table and determine the conditions and scope of such an agreement that could then genuinely be beneficial and in the interests of working class people, both in Europe and in the US. The agreement is likely to be used to attempt a ‘race to the bottom’ in workers’ wages and conditions, with a vendetta against workers’ and trade union rights in the name of competitiveness and free trade. Trade unions on both sides of the Atlantic should clearly oppose negotiations in which they do not even have a say.

It is true that the AFL-CIO does not give a blank cheque of support to the agreement. They explain that “any US-EU agreement must not be used as a tool to deregulate or drive down these higher standards.” This is correct. In order to counter those dangers, it will however not be sufficient to “follow the US-EU discussions closely”. It will require an active opposition prior to the start of the negotiations and throughout the whole process.

There are a number of important and very concrete issues that were raised and criticised by ETUC and the AFL-CIO which illustrate the pitfalls of such an agreement for working class people. ETUC for example noted that the US has not ratified International Labor Organization (ILO) conventions on freedom of association and trade union practices, which as ETUC correctly underlines, makes “right to work” (read: the right to break strikes) states in the US attractive to EU-based multinationals.

Privileged access to ‘justice’ for corporations

Another, extremely important aspect which both trade union federations raise very legitimate opposition to is the inclusion of an “investor-state mechanism” in a potential agreement. This is included as a goal in the leaked draft mandate.

An “investor-state” mechanism is an investment protection tool that works in the interest of private capital and restricts the ability of a state to determine policy. If for example, a state was to take any actions to threaten the profitability of a corporation, such as the imposition of improved labour or environmental regulations, or the nationalisation of foreign owned companies, an investor-state dispute settlement mechanism allows the corporation to sue the state for lost profits outside of the regular justice system. The potential outcome of this can already be seen in Canada as a result of its involvement in the North American Free Trade Agreement. Currently there is $2.5 billion worth of claims outstanding in cases taken by corporations against Canada, including one for losses as the result of an imposition of a moratorium on fracking in Quebec!

Lack of transparency in trade negotiations

The pursuit of a big business agenda is also reflected in the process leading up to the negotiations and the negotiations itself.

At a Civil Society Dialogue meeting in 2010, shortly after taking office as EU Commissioner for International Trade, Karel De Gucht explained: “My job description is to open new markets for the European industry and the European Services Sector’”. (Corporate Europe Observatory report, Trade Invaders, page 10)

It is therefore not a surprise that corporate lobby organisations like Business Europe directly influence and dictate the trade agenda of the EU. According to Corporate Europe Observatory, a Brussels based NGO:

“Business Europe (BE) is made up of 41 national employers and industry federations and, in its own words, plays ‘a crucial role’ in ensuring ‘that companies’ interests are represented and defended vis-à-vis the European institutions with the principal aim of preserving and strengthening corporate competitiveness.’ While BE is a broad alliance of business across Europe its inner structure reveals it is dominated by the interests of multinational corporations. The Corporate Advisory and Support Group which consists of 60 representatives of multinational corporations plays an important role not only within BE, but in ensuring BE’s contacts with high-level EU officials. (BE is one of the most powerful lobby groups at EU level and is therefore one of the main groups in contact with the Commission.) Due to privileged access to the European Commission it is well-placed to ensure that corporate interests are thoroughly represented in EU policy-making.”

The European Trade Union Confederation (ETUC) on the other hand explained in an article on word trade online that “it and the AFL-CIO, which de facto constitute that labour dialogue between the two partners, have been given little access to advising the Transatlantic Economic Council, unlike the Transatlantic Business Dialogue”.

The close contact of BE with the European Commission means that they have much more power to influence and determine the negotiation mandate for the respective trade agreements. Very often, they are consulted and debriefed before and after every round of negotiations. The strategy is adapted according to their needs. Their access to information is a privilege that even elected parliamentarians can only dream of. Certain MEPs get to see the draft negotiating mandate but those documents are classified as restricted documents and their content cannot be disclosed to the broader public. In meetings between the European Commission and Members of the European Parliament during negotiations, MEPs receive very little information on the content of the negotiations, and at the end of the process, all they can do is vote in favour or against. The content of the deal cannot be changed by a parliamentary process.

The next steps

The European Commission has agreed on a draft negotiating mandate which it has sent to the European Council. It is now up to the European Council to discuss and approve the mandate. Obviously, the European Council is not always one happy family and different Member States – while generally agreeing with the idea of a free trade agreement – may want to change the emphasis and the scope of the mandate. This relates to the different industry interests in the respective Member States, and as a consequence a different emphasis on what sectors should be fully liberalised.

The French government, for example, has already indicated that it wants to maintain the right to a “cultural exception”. This is a mechanism which allows the French government to restrict the number of foreign programmes on French television and radio and also provides subsidies for French film production. In the earlier attempt to negotiate a free trade agreement, the US – on behalf of Hollywood – tried to challenge the cultural exception. So, while there may be some tough talks ahead in the European Council, it is still most likely that a mandate will be adopted which would then allow the Commission to start the negotiations.

The Irish Presidency is extremely enthusiastic about a possible deal and hopes that official negotiations will begin before they hand over the Presidency to Lithuania on 1 July. If that is the case, they will most certainly portray this as an important contribution to their “Jobs, Stability and Growth” agenda they set themselves for the six months of the Irish Presidency. When it was first announced that the EU and US were willing to engage in free trade negotiations, they hoped that negotiations could be concluded within two years. This seems to be utopian. The European Commission has been negotiating agreements with Canada since 2009 and with India since 2007, the deal with Canada is still being negotiated and the deal with India may never materialise. A lot can still change – economically and politically – on a world scale which could call such a deal into question altogether.

Which model of trade?

Very often, socialists and the Left in general are accused of being “anti- trade” when they oppose free trade agreements. Is this the case? Is the Left opposed to a deal that can potentially create two million jobs? Is it true that the Left is opposed to trade in general while – according to the EU Commissioner “trade is an indispensable ingredient of prosperity”?

Let us end this myth. We are not opposed to trade. However, there are different models of trade. The current, capitalist and neo-liberal model of trade is driven by the interests of big business, its “rules” are set and dominated by the giant multinational companies and the governments around the world that serve their interests. According to UNCTAD (United Nations Conference on Trade and Development) “value chains shaped by transnational corporations account for some 80% of global trade”. Globalisation has created an ever more integrated world economy and a division of labour across the globe that is unprecedented in history.

In the context of a capitalist economy that is based on competition and the drive for profit maximisation, this means that trade is not conducted in the interests of sustainable development, an increase in living standards or the environment. Big corporations swarm across the globe to exploit raw materials and energy with no regard for local populations and the environment. They search for cheaper ways of production with no concern for labour standards or health and safety requirements.

Policy makers and corporations try to improve their image by talking about Corporate Social Responsibility (CSR). However, talk is cheap if none of the guidelines on CSR are binding or enforceable. The EU praises itself for taking the lead in negotiating what they call “sustainable development chapters” in every trade agreement, but again, these also need to be seen in the context of competitive disadvantages EU companies may face vis-à-vis their trading partners. Environmental and labour standards and regulations, which come about as a result of pressure from the labour and trade union movement and environmental organisations, are usually higher in the EU. Therefore, occasionally it is in the interests of the European based corporations that agreements contain certain standards in order not to lose their competitive edge. It does not mean that the EU has a sustainable trading policy.

A different model of trade

There is clearly a fundamental lack of transparency with regard to those trade negotiations. That is another reason why we are opposed to this process. We want a trade policy that is run by and in the interests of the majority of the people that produce the gigantic wealth on this planet but have no say on how and in whose interests this wealth is used. We want a trade agenda that applies the highest environmental, social and labour standards as possible and contributes to the development of society and the protection of the environment.

This will only be possible in a society whose structures are completely different. We defend and fight for a society and trade policy where the drive for profit is replaced by drive for sustainable human development and solidarity. A society that is not constantly undermining the foundation of its own existence but uses its wealth, knowledge and technical knowhow to lift people out of misery and poverty, invest in public research to combat diseases, reverse climate change and preserve the environment as a matter of absolute priority.


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