When Governments Ruled Corporations

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It often appears these days that international trade is something that just sprang up in the last decade, along with the Internet, cell phones and all-night banking. As business leaders and pundits rail on about how desperately the world needs new trade deals like NAFTA and the FTAA, the lurking implication is that, without them, international trade would pretty much grind to a halt and we'd all be left isolated in some backwater port of the global economy. The truth is that international trade was up and running in the global economy long before these new trade deals began to appear on the horizon about fifteen years ago.

International trade was a hot topic, for instance, way back in 1944 when the world's leading nations met in Bretton Woods, New Hampshire to map out the post-war global economy. John Maynard Keynes, the legendary economist who served as the chief British negotiator at Bretton Woods, and Harry Dexter White, the chief U.S. negotiator, were determined to create a system that would promote international trade. And they succeeded; trade flourished in the decades that followed.

In fact, what's new about the trade deals today isn't that they promote trade. What's new is that they promote trade (and investment) - at the expense of everything else.

By contrast, the delegates meeting at Bretton Woods had more balanced objectives. While keen to promote trade, they also were committed to the principle of democratic government and were anxious to ensure that democratic governments would have policy autonomy in the post-war global economy. (Yes, they also created the IMF and World Bank, but these institutions have turned out very differently than Mr. Keynes and Mr. White planned.)

Specifically, the Bretton Woods crowd viewed corporations and financial institutions as powerful special interests, and considered it necessary for governments to have sufficient power to regulate and control them, in the interest of protecting the public.

This focus on empowering democratic government is exactly the opposite of what the delegates to the Quebec City summit were up to on the weekend. Instead, the Quebec crowd was constructing a new international system in which the power and autonomy of democratic governments is limited - at least when it comes to exerting control over corporations.

Under NAFTA, virtually any attempt by government to impose restrictions on corporations - in the interest of protecting the environment, public health, culture or labour rights - can now be defined as a "trade barrier." And governments imposing such restrictions can find themselves subject to serious harassment by corporations until they remove these so-called trade barriers.

So when Ottawa banned the importation of a gasoline additive called MMT, which Environment Canada considered a health hazard, the U.S. producer of MMT sued Canada for $350-million before a NAFTA trade tribunal. Afraid the tribunal would side with the U.S. company, Ottawa settled out of court. It withdrew its ban on MMT, paid the company $19-million and even issued a denial that MMT was a health hazard.

Defenders of NAFTA see no problem with this. Trade lawyer Barry Appleton argued in the Post last week that the denial revealed Canada knew there was no scientific basis for its ban on MMT. I suppose it's possible that Environment Canada simply came to realize the error of its ways. More likely, however, Ottawa changed its tune about MMT for no other reason than to get the company off its back. Ottawa strongly suspected it would lose the case, largely because NAFTA tribunals are notoriously unwilling to recognize any health risks that aren't yet proven beyond a shadow of a doubt.

But, obviously, it can take years to amass an overwhelming scientific case proving environmental or health risks. Because of this, it's a basic principle of domestic and international environmental law that governments can take regulatory action sooner, if there's sufficient evidence of possible serious harm. But, as trade lawyer Steven Shrybman notes, NAFTA tribunals and appellate rulings have tended to reject this precautionary approach. This rejection reflects NAFTA's single-minded focus on promoting trade and the rights of corporate investors, over all other possible concerns.

The MMT case illustrates the enormous power corporations have under NAFTA to harass governments over laws they don't like, in the hope - and apparently realistic expectation - that the governments will back off. Appleton assures us that NAFTA tribunals can't actually overturn laws. But who needs the power to actually overturn laws if, as the MMT case reveals, governments will withdraw the laws themselves when corporations harass them with hefty lawsuits - lawsuits that are to be decided by tribunals known to give short shrift to any concerns but trade promotion?

Of course, all this seems to be just more evidence of the powerlessness of government these days. Certainly, the notion that governments are powerless in the global economy is one that falls effortlessly out of the mouths of pundits. Pundits usually go on to attribute this powerlessness to mysterious forces operating out there in the global economy, well beyond our control.

Here's another possibility - governments are powerless these days simply because we keep signing trade deals that render them powerless. It's no more mysterious than that. If we stopped signing these trade deals, governments would be more powerful, and could even be called upon to do things like defend the public interest.

Anyone thinking that this would mean we'd have to sacrifice trade is forgetting what John Maynard Keynes proved, and what the advocates of today's trade deals want us to forget - that it's possible to have both trade and democracy.

Originally published by the National Post. Linda McQuaig's column appears every second Monday.

For more rabble news coverage of the Quebec Summit and its aftermath, please click here.

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