Voices around the world calling louder against TPPA

Civil society and trade organisations within Malaysia and around the world have voiced out against the Trans-Pacific Partnership Agreement (TPPA) that Malaysia is negotiating with 11 other countries in the Asia-Pacific region.

In particular, a number of concerns have been expressed that have not been adequately addressed by the officials and leaders of the Malaysian government, aside from repeated, but yet unsubstantiated, assurances that the government would not agree to provisions that are against the country’s interests.

A recent article in Le Monde Diplomatique titled “The corporation invasion: Government by big business goes supranational” dated 2 December 2013 by Lori Wallach, global trade director of the influential Public Citizen advocacy group in the United States deserves serious attention.

While Wallach wrote primarily about the Transatlantic Trade and Investment Partnership (TTIP) being negotiated between the US and the European Union, she did make reference to the TPPA, and many of the contentions she made in the article about the TTIP are similar to the concerns that have been raised by Public Citizen, the Consumers’ Association of Penang (CAP) and many other groups outside and inside Malaysia.

For example, in the area of the regulation of the financial sector, it is apparent that very powerful interests are behind the current drive to remove all safeguards in relation to high-risk investments and controls on the volume, nature or origin of financial products on the market. This comes a mere five years after the global financial and economic crisis originating in the United States hit our own shores and caused untold hardship and suffering for thousands of Malaysians.

As Wallach put it in her op-ed, private banking interests effectively want the word “regulation” removed from the dictionary.

Just as European lobby groups such as the Association of German Banks and Insurance Europe are pressuring the US Trade Representative (USTR) against maintaining or expanding the Wall Street reforms that have taken place since the financial crisis of 2008, it is well known that the US is applying pressure on Bank Negara Malaysia and the central banks of other TPPA negotiating countries to ensure unfettered movement of capital.

We must not overlook the fact that Malaysia’s capital controls were critical to preventing the country from suffering the worst effects of the 1997 as well as the 2008 financial crises that brought other countries such as Indonesia and Thailand to their knees. It is of the utmost importance that the government maintain the policy and regulatory space to ensure financial and economic stability, particularly as financial and economic instability have spill-over effects on the non-financial and socio-economic areas of Malaysian life. It is inconceivable that such stability can be preserved, on the one hand, while greater deregulation of capital inflows and outflows takes place.

But capital controls is not the only thing that private investors seek to dismantle in the world’s economies so as to facilitate their capital flows without due regard for the public interests and welfare of the countries in which they operate. In fact, Wallach points out how countries are being forced through the TTIP and TPPA to ensure, on the one hand, the conformity of wide swathes of their laws, regulations and administrative procedures to these international agreements and, on the other, to agree to provisions allowing for punitive sanctions on these countries if the terms of the agreements are breached by policies seen as impacting on the profits of foreign investors:

“Federal, state and local authorities would be obliged to revise their policies from top to bottom so as to satisfy the appetite of the private sector in those sectors over which it does not yet have complete control. Food safety, chemical and toxics standards, healthcare and drug prices, Internet freedom and consumer privacy, energy and cultural “services”, patents and copyrights, natural resources, professional licensing, public utilities, immigration, government procurement: there is not one sphere of public interest that would not be subject to institutionalised free trade.”

Thus, health, financial, environmental and other public interest policies thought to be undermining foreign investor interests could land governments in international “extrajudicial” arbitration tribunals made up of business lawyers who are not accountable to any electorate yet are empowered to decide on matters of public law and interest. Wallach points out that many of these lawyers alternate between serving as judges in these tribunals and bringing cases for corporate clients against governments. The club of international investment lawyers is very small: 15 of them have handled 55% of all the cases examined to date. There is no appeal mechanism for their decisions.

Companies would be able to demand compensation from countries whose health, financial, environmental and other public interest policies they thought to be undermining their interests, and take governments before extrajudicial tribunals. These tribunals, organised under World Bank and UN rules would have the power to order taxpayers to pay extensive compensation over legislation seen as undermining a company’s “expected future profits” and other ‘rights’.

These rights, incidentally, refer to investor rights (but not their responsibilities) which have been interpreted in increasingly broad terms by the arbitration tribunals referred to above and in such a way that rarely serves the interests of the public. As Wallach says in her op-ed, they include:
• the “right” to a regulatory framework that conforms to a corporation’s “expectations”: governments must not make any changes to regulatory policies once the investment has been made;
• the “right” to compensation for “indirect expropriation”: governments pay even when a regulatory policy that applies equally to domestic and foreign firms diminish the value (including future value) of an investment;
• the right of investors to acquire ever more land, resources, utilities and factories.

In pursuant to these rights, companies have launched legal actions against, among the many cases:
• the raising of minimum wage (in Egypt)
• anti-toxic emissions policy (in Peru)
• anti-smoking legislation (in Uruguay and Australia)
• patent standards that help to ensure access to affordable medicines (in Canada)
• energy regulations, including the phase-out of nuclear energy (in Germany).

There is no limit to the amount of money an arbitration tribunal can order a government such as that of Malaysia to pay a foreign company if the former loses a case. Last year, Ecuador was ordered to pay an oil company over US$2 billion. Governments often prefer to settle out of court simply because of the exorbitant costs and legal fees incurred in international arbitration – on average some US$8 million per case. In these times when the rakyat are forced to pay higher prices for essential goods and services, how will the government fare when it has to pay millions of dollars in compensation merely for acting in the public interest?

While all of the above are recent developments, none are actually new issues. An example is the Multilateral Agreement on Investment (MAI) that was negotiated between 1995 and 1997. Malaysia – under then-prime minister Tun Dr Mahathir Mohamad opposed the proposed deal for some of the very reasons cited above – particularly the spectre of foreign companies being empowered to sue governments directly for cash compensation over earnings lost because of government action.

In addition to the lopsided architecture of investor rights vis-à-vis state responsibilities, Wallach also touches upon the substantive pro-investor agenda that has been built into the TTIP that mirror provisions proposed for the TPPA. We touch on just a few issues common to both the TPPA and TTIP that Wallach referred to in her op-ed:

Genetically Modified Organisms: Firms that produce and use genetically modified organisms seek to ban GMO labelling and traceability requirements, question why GMO products cannot automatically be approved by governments, complain of the “significant and growing gap” between the deregulation of new biotechnology products in some countries and the approval of those products in others; and hope for the resolution of the “burgeoning backlog of GM products awaiting approval/processing”.

Digital privacy: High-tech and Internet companies are seeking to ensure that data privacy policies do not encumber the flow of personal data across borders. Even after the recent revelations of the US National Security Agency’s (NSA) indiscriminate data spying programmes and demands to companies such as Verizone for vast quantities of personal data, these very same companies – through the TTIP and TPPA – are seeking to ensure provisions allowing them to circumscribe domestic security and privacy rules and to ensure “they are not used as disguised barriers to trade.”

Food safety: Meat industries seek to remove, or at least change, national food regulations and standards, or at least change them. Wallach points out that the US meat industry is seeking to use the TTIP to remove, for example, the EU ban on the post-slaughter dipping of meat in chlorine. Restaurants International (the owner of Kentucky Fried Chicken) has explicitly asked that the TTIP be used to change EU food safety standards so that Europeans can buy chlorinated KFC. The American Meat Institute protests that “the EU continues to maintain its unjustified ban on meat produced with beta-agonist technologies, such as ractopamine hydrochloride.” The National Pork Producers Council, meanwhile, says “US pork producers will not accept any outcome other than the elimination of the EU ban on the use of ractopamine in the production process.”[1] Whereas Europe’s largest corporate group BusinessEurope states: “Key non-tariff barriers affecting EU exports to the US include the US Food Safety Modernization Act.”[2]

Public services: The TTIP would open up to competition and market forces all public interest sectors and oblige signatory states to abandon all regulation of foreign service providers operating within their territories. This would reduce to almost nothing the room for policy manoeuvre in health, energy, education, water, transport, even immigration so as to facilitate the entry of those who have goods or services to sell to the detriment of others.

None of the pro-TPPA advocates have shown any substantial evidence of the benefits of international agreements such as the TTIP and TPPA in terms of socio-economic welfare, let alone their possible costs. Given the already low tariffs on Malaysian exports to the US and other countries with which Malaysia has free trade agreements, arguments by proponents of the TPPA that it would lead to more sales of Malaysian goods and services sound and appear transparently hollow in the face of the facts of past FTAs such as NAFTA.

Perhaps, Wallach points out, this is because nearly all the studies on the TTIP (and TPPA) have been funded by institutions in favour of free trade or by business organisations, which is why they do not mention its social costs or its direct victims, who could number in the hundreds of millions.

To conclude, we don’t believe things have changed so much between the administration of Tun Mahathir and the current government as to warrant such a complete reversal of policy towards trade and investment agreements as the MAI of the 1990s and the TPPA of this present decade. In fact, Tun Mahathir and many others maintain the position that the costs of the TPPA far outweigh the purported – but still unsubstantiated – benefits.

In view of the issues raised above, we urge the Malaysian government to withdraw from the TPPA negotiations immediately.

Letter to the Editor – 3 February 2014

[1] Ractopamine is a drug used to promote leanness of meat in cattle and pigs. It has been banned or limited in 160 nations (including EU member states, Russia and China) due to potential risks to human and animal health.
[2] In force since 2011, it authorises the US Food and Drug Administration to recall contaminated food.