Here a VAT, etc., part two
Now with an update at the foot of the story. (10/3)
And a second update. (10/4)
In an earlier story, I wrote about value added taxes everywhere but the US, and how they can disadvantage US business. There is much more to this story, of course.
One of the first thing we must realize is what a giant sitting duck the US is in international trade. With a large, although declining, middle class, we have a lot of affluent consumers both per capita and in absolute numbers. Everybody wants to sell here; who could blame them?
This fact alone means that the US will be on the short end of any free trade agreement. A country that concludes one with us gets better access to a market of 310 million rapacious consumers; we get better access to Mexico, or Colombia. Great. Just great.
It doesn’t take a genius to see who’s the net beneficiary here.
For anybody who wants to take a trip down memory lane, I recommend Bill Clinton’s stirring speech from December, 1993, just before he signed the enabling legislation for the North American Free Trade Agreement. I seriously recommend this, so that you can compare what Bubba said would happen with what actually happened.
We know that a lot of US manufacturing headed south of the border, and continues to do so. Just earlier this year, Carrier announced that it would move at least a couple of thousand jobs from Indiana to Monterrey, Mexico.
This is not, my friends, because Carrier wants to serve the unmet needs for air conditioning in Mexico. It is obviously because Carrier can move to a tax-advantaged climate in Mexico, with cheap labor, and import into the US without barriers, improving its profit margin and bottom line. (I invite you see if Carrier products decrease in price, passing the cost savings on to you.)
That isn’t to say that some US exporters haven’t done well under the NAFTA. The US agricultural multinationals have done very well, flooding Mexico with US #2 corn and decimating small Mexican maize farmers. I’m told you can’t get a decent-tasting tortilla in Mexico these days, but such is the price of progress.
But don’t worry about the displaced Mexican maize farmers; many of them got jobs assembling cheap saxophones for American fifth graders, or became gardeners in the US. All at a few dollars an hour. So all’s well that ends well. I mean, right?
It bears repeating, though: this whole game is about selling into the United States at a lower tax and customs cost. Nobody gives the smallest rat’s ass about how many alto saxes are bought in Mexico City.
Let’s return to Carrier as an example. The accountants have run the numbers, and they tell the bosses, “We’ll make out like bandits.” The bosses reply, “What if Mexico treats us badly, confiscates our property, or taxes us in a discriminatory way?
The accountants will reply that it won’t be a problem, because the NAFTA essentially promises national treatment for investment from another NAFTA country. In addition, the agreement provides that any disputes about it will be resolved, not in national courts, but by panels of appointed business-friendly arbitrators from each of the member countries.
So, you see, Carrier can safely move its manufacturing to Mexico, and the tariff elimination means that it can import its manufacturing equipment (gutted from its US plants) into Mexico tariff free, and export manufactured air conditioners to the US, also duty free. Parenthetically, the final assignment of many US Carrier workers will be to train the Mexican employees how to run the equipment. I am sure the US employees can get temporary work visas in Mexico to do that.
You don’t read about it much, but the investment and dispute resolution chapters are a very important part of modern trade agreements, and the NAFTA is the template.
You might also think that it’s our diplomats, like the United States Trade Representative, who negotiate these deals. Well, they sign them of course, but most of what goes in them comes from the multinationals. And they don’t want you, my friends, or even the Congress to have much opportunity to know what’s in ’em, at least before it’s too late.
If the TPP passes, we’ll stop collecting tariffs from countries like Malaysia, Peru, Brunei Darussalam, and Vietnam. Maybe more important, we’ll also create more protected low-wage Shangri-Las for US businesses to set up off-shore manufacturing.
The NAFTA is the template in this, too.
There is one more wrinkle in the investment and dispute resolution free trade regimes that I would like to mention. Foreign companies investing in the US can use them to attack environmental, safety, and other regulatory systems as discriminatory. For example:
You denied our permit to open a copper sulfide mine just because we’re Canadian.
And the lawsuit against the State of Minnesota won’t be tried before US judges in US courts. It’ll be tried before one of those business-friendly arbitration panels that will include at least some Canadian citizens.
Our water, our land, our air, our fish, our wild rice, but their decision, at least in part.
Many years ago, I attended a lecture by a member of the Court of International Trade; I was a member of the bar of the CIT for many years. He was adamantly opposed to these multi-national dispute resolution panels, saying they represented a serious loss of authority for the US judicial system, and a loss of sovereignty for the country and its citizens.
And I think that’s right.
Update 10/3: Here are a couple of grafs from an article about a Canadian mining company planning to make a NAFTA investor dispute claim against the US:
Northern Dynasty Minerals is threatening a lawsuit against the U.S. government for not approving a permit allowing them to dig one of the world’s largest open-pit gold and copper mines in Alaska’s Bristol Bay wilderness.
The Pebble Mine would have produced as much as 10 billion tons of contaminated waste (3,000 pounds for every person on Earth.) The mine threatened one of the world’s most valuable salmon habitats and the corresponding fishing industry. The Bristol Bay wilderness is home to grizzly bears, wolves, caribou, wolverines, foxes, otters, moose, and many more species, making it a major tourist area. These animals also depend on clean water.
Northern Dynasty is threatening to sue for a massive payout unless the government changes course. The infamous North American Free Trade Agreement (NAFTA) enables them to do this.
And here’s an article from Salon that tells Democrats to own up to the fact that NAFTA is the Clintons’ baby. And here are the consequences of the NAFTA, from the article:
In late 2013, just before NAFTA turned 20, Jeff Faux, founder of the Economic Policy Institute, wrote an assessment of its impact, calling it “A Template for Neoliberal Globalization.” He highlighted four main ways NAFTA had impacted American workers:
First, it caused the loss of some 700,000 jobs as companies moved their production to Mexico, where labor was cheaper ….
Second, NAFTA strengthened the ability of U.S. employers to force workers to accept lower wages and benefits ….
Third, NAFTA drove several million Mexican workers and their families out of the agriculture and small business sectors, which could not compete with the flood of products — often subsidized — from U.S. producers. This dislocation was a major cause of the dramatic increase of undocumented workers in the United States ….
Fourth, and ultimately most importantly, NAFTA created a template for the rules of the emerging global economy, in which the benefits would flow to capital and the costs to labor. Among other things, NAFTA granted corporations extraordinary protections against national labor laws that might threaten profits, set up special courts — chosen from rosters of pro-business experts — to judge corporate suits against governments, and at the same time effectively denied legal status to workers and unions to defend themselves in these new cross-border jurisdictions.
Mexico has lost at least five disputes under Chapter 11, totaling more than $200 million in penalties, and many more cases may result from the privatization of mining concessions in the country. According to the Mexican Ministry of Economy, today there are 857 mining projects planned or in operation — of which two thirds are destructive gold and silver operations, which can badly pollute soil and drinking water. Any future legislation to halt or curb any of these projects could incur a claim under NAFTA rules, since the great majority of foreign mining companies in Mexico are of U.S. or Canadian origin.
Indeed, as the Institute for Policy Studies noted in the report “Mining for Profits in International Tribunals,” extractive industries are increasingly using investment protection rules under free trade or bilateral investment agreements to sue governments when public resistance, environmental assessments, or legal decisions interfere with destructive mega-projects. More than half of these ISDS cases, under NAFTA and other agreements, have been filed against Latin American countries. (Mexico itself has so far avoided this fate, since its government is notoriously permissive about issuing operating permits to extractive industries, but the rules don’t make finding the political will to resist them any likelier.)
Update 10/4: There was a story on the website Naked Capitalism in April about claims in Colombia for mining investor disputes:
Today the [Latin American] region faces a fresh deluge of ISDS claims. The countries most affected include Uruguay, whose anti-tobacco legislation has been challenged by Philip Morris at an international arbitration panel; Argentina, Ecuador and Colombia, which until a few years ago had never been on the receiving end of an investor-state dispute settlement (ISDS). Now it is the target of multiple suits that could end up setting its government back billions of dollars.
The claimants include Glencore, the world’s biggest and most heavily leveraged commodities trader; Carlos Slim-owned América Móvil, the leading wireless services provider in Latin America and the third largest in the world; the Spanish insurance company Sanitas; the Swiss pharmaceutical giant Novartis; and the Canadian miner Eco Oro and US miner Tobie Mining and Energy.
Each company on that list feels that decisions or actions taken by the Colombian government have in one way or another cost or will cost them profits to which they feel entitled. And each company is doing what it has the right to do under today’s trade treaties — suing the government of that country for damages.
It is the last company on the list — Tobie Mining and Energy — that is the biggest concern to the Colombian government for the damages it seeks: $16.5 billion. That’s a lot of money for a nation with per-capita GDP of $7,831 and whose currency has lost 40% of its value against the dollar over the last 18 months. It’s the equivalent of 20% of its national budget.
The dispute revolves around a gold mining concession in the Taraira region near Colombia’s border with Brazil. In 2009 the Colombian government created the Yaigoji Apaporis national park in the Amazon rain forest. . . .
Glencore is the real party of interest in the efforts to open the PolyMet copper sulfide mine.
If a national park in the Amazon rain forest is not off limits for these kinds of claims, there isn’t much hope for the Boundary Waters and the St. Louis River watershed, is there?
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