Many people would be surprised to learn that their government has given up its sovereign right to
pass laws protecting citizens' health, the environment, and labor rights. They would likely be more surprised to find out
that the wheels are in motion to enact trade agreements that further threaten democracy by granting additional rights to giant
multinational corporations (MNCs). This, however, is the frightening reality underlying a new trade agreement between the
United States, five Central American countries, and the Dominican Republic. Investment rules within the U.S.-Dominican Republic-Central
American Free Trade Agreement (CAFTA), pending before the U.S. Congress, would ensure that democracy is further eroded in
exchange for corporate profit maximization.
It is not surprising, however, that the average citizen is not aware that the current situation is unfolding. This is no
accident. The negotiations around these new agreements have been undemocratic, without transparency, and conducted without
input from the very citizens whose lives will be affected. It is ultimately in the interest of MNCs to push for passage of
these agreements in virtual secrecy, as they would likely be met with strong resistance in the face of a public dialogue.
The Growth of Foreign Investment
Foreign direct investment (FDI) is one of the most politically sensitive 'trade' issues, as it involves foreign corporations
exercising control over national assets and resources through investment. When a company closes a factory in the U.S. and
moves it to China to take advantage of cheap labor, it is 'investing' in China. The expansion of this FDI in the global economy
has reached an unprecedented level. In 2001 more than 65,000 transnational corporations had expanded FDI through the creation
of more than 850,000 foreign affiliates. That companies invest in foreign production is fine, as long as they do it in ways
that respect local laws and benefit local development. Not unexpectedly, MNCs have actively lobbied governments to ensure
that rules were included in CAFTA to strengthen the rights of investors at the expense of the rights of citizens.
Investment rules included in CAFTA would greatly restrict the ability of governments to implement national policies for
development and poverty reduction -- the same policies that were used effectively by the industrialized countries in their
own development. Furthermore, such agreements conflict with the 1962 United Nations Resolution on Permanent Sovereignty over
Natural Resources, whose mandate is to regulate foreign investment by recognizing the state's permanent sovereignty over natural
wealth and resources as a key component to the right of self-determination.
Investment Agreements: Following in the Footsteps of NAFTA
Investment rules within CAFTA have been drafted to model the North American Free Trade Agreement (NAFTA) enacted in 1994,
maximizing the rights of foreign investors while minimizing the authority and rights of governments to pursue policies crucial
to their national interest.
Preventing Opportunities for Development
Under CAFTA, governments must allow foreign investors to enter their countries and must grant them "national treatment,"
or treatment that is no different than that afforded to domestic investors. Specifically, they would be prohibited from providing
many tax incentives, subsidies, or purchasing contracts to local developing industries that allow them to compete against
foreign firms. Because of the natural advantages the MNCs have as large experienced firms, the predictable result of such
disastrous policies would be a significant and unfair advantage for foreign investors at the expense of local development.
That means that under CAFTA, developing countries would be prevented from taking the very same actions that developed countries
took in their early stages of industrialization -- kicking away the ladder of prosperity.
Outlawing Performance Requirements
Countries typically have performance requirements for investors, to ensure that investment benefits the local economy in
the long run and helps countries eventually become independent of the need for foreign investment. Performance requirements,
crucial for meeting development goals, would be prohibited under CAFTA and similar agreements. If this happens, developing
countries would lose the ability to demand use of local materials, local labor, or technology transfer, which stimulate growth
in the local economy. Additionally, the improvement of environmental and labor standards would be nearly impossible as countries
would be pressured to compete in a "race to the bottom" to attract investment. Under CAFTA, governments would be prohibited
from screening investors on the basis of such criteria as worker compensation or environmental conduct.
Investor Rights Over Citizen Rights
Perhaps most alarming are the provisions in CAFTA that mirror those in the disastrous Chapter 11 of NAFTA. Under these
rules, foreign corporations are given the power to legally challenge national and local laws which adversely affect the business
of foreign investors, regardless of the role that such legislation has in meeting national social and development goals. These
suits are filed in closed trade tribunals presided over by un-elected trade bureaucrats - bypassing domestic court systems.
If the corporation wins, the accused government must then compensate the corporation in the amount of profits they claim to
have lost - including hypothetical profits that they claim they would have made twenty years into the future! These expansive
investor protections confer new rights on MNCs that neither domestic companies nor citizens -- who have to obey national laws
-- enjoy, creating a class of "supercitizenship" for foreign corporations at the expense of citizen sovereignty.
Multinational Corporations in Action
NAFTA's Chapter 11 has already proven a powerful tool for corporate deregulation. According to the group Public Citizen,
over 40 claims have been filed by corporations in NAFTA courts, demanding over $6 billion in compensation, threatening public
interest laws in all three NAFTA countries.
- In 1997, the U.S. company, Metalclad, filed a NAFTA suit against the Mexican municipality of San Luis Potosi. Metalclad
had applied for a permit to open a toxic waste dump, but was denied after the site was declared an ecological reserve. Metalclad
argued its case before a NAFTA tribunal which ruled that Metalclad's "property," in essence its expected income, had been
"indirectly expropriated." The Mexican government was forced to pay Metalclad $15.6 million.
- In 1998, the U.S. waste company S.D. Myers sued Canada for $20 million in compensation over a Canadian environmental law.
S. D. Myers's case alleged that Canada's ban on the export of the toxic chemical PCB, a ban that was consistent with the Basel
Convention, an international environmental agreement, was discriminatory to the U.S. company which wished to import PCBs to
the U.S. The NAFTA tribunal ruled in favor of S.D. Myers, forcing Canada to pay the company $4.8 million. Canada later eliminated
- In 2003, Glamis Gold, a Canadian mining firm, filed a NAFTA suit against the U.S. over a California environmental law.
Glamis had planned to construct a large open-pit, cyanide heap-leach gold mine in a California Desert Conservation Area adjacent
to sacred and ancestral lands of the Quechan Indian Nation. When the proposal was denied by the Interior Department, Glamis
took the case to a NAFTA tribunal, seeking $50 million in compensation for lost profits due to a California regulation requiring
backfilling and restoration of open pit mining near Native American lands. Glamis is arguing that the California environmental
law makes it cost-prohibitive for the corporation to conduct its mining operations, and in such that the U.S. has "expropriated"
the corporation's investment.
Other pending NAFTA suits include a suit filed in 1999 by United Parcel Service claiming $160 million in compensation on
the basis that Canada's state-run postal service is discriminatory to private parcel delivery companies. Canadian cattle producers
have recently filed a challenge to the United States Department of Agriculture's public health decision to close the U.S.
border to Canadian cattle imports after a Canadian cow was found to have been infected with Mad Cow disease. These powerful
NAFTA challenges to public interest regulations not only impact the specific laws they challenge, but they have a chilling
effect of deterring lawmakers from enacting future laws to protect the public. In CAFTA, investor-to-state suits will be expanded
to six more nations. For countries in Central America which are still developing better public interest law, the effect of
million and billion-dollar lawsuits could be devastating.
Successes of Global Resistance
In September 2003, during negotiations of the World Trade Organization Ministerial in Cancun, rich countries employed strong-arm
tactics to attempt to force the introduction of similar Investment rules in the WTO, despite clear opposition from the majority
of developing nations. While the wealthier nations had more power, on the last day of the ministerial, large groups of developing
countries came together and voiced their total opposition to the launching of new negotiations on investment and other attempted
expansions of the WTO. This strong coalition of diverse developing countries maintained solidarity to oppose the rich countries'
agenda, and scored a clear victory for democracy and the poor. It is imperative that developing countries continue to oppose
the launching of investment negotiations in the WTO, and that citizens continue to hold their representatives accountable
in fighting against CAFTA and similar free trade deals.
Developing countries must retain the autonomy to pursue strategies that ensure that foreign investment contributes in a
positive manner to the realization of national goals. Additionally, developed countries should pursue trade positions that
will benefit the public welfare rather than the bottom line of a few large multinational corporations. To this end, binding
obligations on investors should be instituted to ensure that they behave in a manner that is consistent with international
human rights and development objectives. A fair and equitable trade agreement would include measures to counter corporate
predatory business practices, anti-labor policies, and environmental degradation. Finally, in order to make corporations more
accountable, enforceable international standards should be established for the reporting and disclosure of information.
Ten years of experience with NAFTA has shown that trade agreements which grant unrestrained rights to corporations are
devastating to the public interest. Rather than expanding NAFTA's problems through CAFTA and other agreements, our governments
should be negotiating investment rules that raise global standards, and protect the public interest. It's time for a fundamental
redirecting of globalization and trade policy so that it works for positive development, and not at its expense.
For more information, see the new Public Citizen report on Ten Years of NAFTA's Investor Rights Agreement, available at
For more information on Free Trade and Services:
Citizens Trade Campaign www.citizenstrade.org
Public Citizen's Global Trade Watch www.citizen.org/trade/
Polaris Institute www.polarisinstitute.org
GATS Watch www.gatswatch.org
SPEAK OUT to your Member of Congress by calling 202-225-3121 and urging them to vote NO on CAFTA. Find helpful resources
and more ideas at our Get Involved section.
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