The Panama Papers, Free Trade, and the Offshoring of National Sovereignty

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Ellin Jimmerson —


As the Panama Papers began to be rolled out, many were wondering how they connect to the Panama Free Trade Agreement, technically called the Panama United States Trade Promotion Agreement, and how they relatet to the offshoring of national sovereignty.

Now, I am wondering whether and how they also connect to Brexit. I don’t know anything about the European Union other than it was in part a free trade agreement and next to nothing about Brexit. What I am hearing is that the “exit” was fueled, in part, by a nativist and xenophobic desire to “get our country back”. While the nativist and xenophobic aspect undoubtedly is true to a certain extent, there is also a truth behind the slogan that may not be readily apparent: national sovereignty is indeed disappearing into free trade “investor states” with offshore judiciaries that are trumping (pun unavoidable) local and national efforts to protect their citizens and environments. This article may help open up that somewhat sinister reality.

It is far too soon to know what exactly the content, meanings, implications, and ramifications of the Panama Papers are. What we can say with certainty, however, is that trade agreements are not all about trade. At least not in the sense that most of us think when we hear the word “trade”. For example, in everyday life I might trade you a batch of homemade cookies for your help with my computer. So we apply that concept to trade at the national level. Mexico provides the United States with tequila and we provide Mexico with Jack Daniels. Americans get margaritas; Mexicans get whiskey sours. Seems like a win-win, right?

It is just not that simple.

Free trade is about the rich getting richer and the poor getting poorer. It is about the displacement of peoples and about the offshoring of both jobs and national sovereignty. It is about creating “investor state treaties” with extra-national legally binding means to protect corporations and their investors from such things as local environmental protections.

As the Panama Papers seem destined to prove, they also are about offshoring the profits via tax havens which should have been turned into taxes to benefit the rest of us.

As we learned with the North American Free Trade Agreement, what was really going on was what was called the “opening of markets”. How does the US’s Archer Daniels Midland [ADM], for example, a heavily subsidized, gargantuan producer of factory farmed corn, open up a market in Mexico? By taking the market away from Mexico’s often indigenous “people of the corn”.

As you can see in this video, corn is a staple of the Mexican diet, Mexican culture, and the peasant Mexican economy. There was no shortage of people wanting to produce corn in Mexico. So to open up that market, the tariffs that ADM had to pay to export its corn to Mexico, were removed. That means that by removing the tariffs, protections for the indigenous Mexican farmer, ADM was put into direct competition with peasant farmers in Mexico’s heavily indigenous, southern state of Chiapas, for example. This is what made the trade “free”. It was unobstructed by tariffs.

But, there was more to it than that. As a prerequisite for Mexico being able to enter into the NAFTA, it had to remove the subsidies it had long provided it’s peasant corn farmers, subsidies which had helped them stay on their lands and maintain their economy and their culture. It did so by repealing Article 27 of the Mexican Constitution.

However, subsidies paid to US factory producers of corn were not removed. Instead, subsidies to them increased. According to the Environmental Working Group Farm Subsidies Database, between 2005 and 2012 US factory corn producers received $84.4 billion in subsidies.

In a simplified nutshell, NAFTA created about 10 Mexican billionaires while it pushed 1 1/2 to 2 million peasant farmers off their lands and into migration including illegal immigration into the US.

NAFTA also was about the offshoring of good paying jobs in the United States. It, along with previous agreements, created a “maquiladora” zone in Mexico which took advantage of displaced farmers and others. Maquiladoras, or “maquilas” as they are often known, are factories. They are owned by US companies, for example, which export their parts and equipment for assembly, processing, or manufacturing in Mexico. The parts and equipment are exported without the paying of tariffs. The product is made by Mexican workers often making no more than $5.00 a day and with very little in the way of safety regulations or recompense for injuries sustained on the job. The products then are exported back to the US, tariff free, and sold to consumers at artificially low prices.

Of course, there had been Americans making those products before and often had received good pay and benefits. Those jobs were taken from them; they did not walk away from them.

The rich were made richer and the poor were made poorer. My film, The Second Cooler, helps explain the relationship between NAFTA, the displacement of indigenous peasant farmers in Mexico, and the offshoring of US jobs.

NAFTA and other free trade agreements, or FTAs, were also about the offshoring of national sovereignty. The offshoring of national sovereignty is not unprecedented. The International Court of Justice, also known as the World Court, was established in 1945 in The Hague, to settle legal disputes submitted to it by member states. It was in the World Court, for example, that Nicaragua successfully sued the United States over the bombing of its harbors and buzzing of its cities during the Reagan sponsored Contra counter-revolution. The International Criminal Court, established in 2002, created an international jurisdiction and a means by which individuals could be prosecuted for such crimes as genocide, crimes against humanity, and war crimes.

Both these agencies were formed to protect nations and peoples. But NAFTA and other FTAs, including the Trans-Pacific Partnership, offshored national sovereignty in a new way and with a new purpose: the protection of investors and corporations. It is for this reason that NAFTA is often said to be an “investor state treaty”. It is not just about tariffs, subsidies, and the movement of traded materials and products. It is about the creation of an international court system which transfers sovereignty from local, state, and national governments to a NAFTA panel of decision makers when legal disputes arise.

 

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NAFTA LOGO

Chapter 11 of NAFTA describes a means for “investor state dispute settlement”. It allows corporations to sue the United States, Mexico, or Canada, and the NAFTA member states for compensation when actions by their governments damage their sales or profits. Several Canadian groups have challenged the constitutionality of Chapter 11, but lost at the trial level.

 

For example, Methanex, a Canadian corporation, filed a US $ 970 million suit against the US. It claimed that a California ban on Methyl tert-butyl ether [MTBE], which had gotten into California’s wells, had hurt Methanex’s sales of methanol. In this case, the NAFTA panel found in favor of the US and Canada had to pay court costs.

But in another case, Mexico had to pay Metaclad, a California based US corporation, $15.6 million after a Mexican municipality refused a construction permit for a hazardous waste landfill Metaclad wanted to construct in San Luis Potosí. In Metaclad Corp. v. United States, the NAFTA panel ruled that the municipality of San Luis Potosí did not have the authority to ban construction on the basis of environmental concerns.

Apotex, a Canadian pharmaceutical company, is suing the US for $520 million because it says that a Food and Drug Administration generic drug decision harmed its “opportunity” at sales and profits.

Lone Pine Resources, Inc., which is incorporated in Delaware but headquartered in Calgary, Canada, is an oil and gas exploration, development, and production company. It has filed a US $250 million claim against Canada because Canada wants to prevent fracking exploration under the St. Lawrence Seaway. The lawyer for Lone Pine Resources accurately refers to NAFTA as an “investor protection treaty”.

The World Trade Organization [WTO] was organized in 1995—3 years after the signing of NAFTA and months after NAFTA began to be implemented in 1994. There are 162 member states. It provides a framework for negotiating further trade agreements and a means by which disputes can be resolved.

The aim of the WTO is to enforce participants’ adherence to WTO agreements.

The Panama Free Trade Agreement, which President Obama signed in 2011, not only was about eliminating tariffs and about consolidating access to goods and services. It was about favoring private investment in and between the United States and Panama.

I won’t pretend to have looked at the Panama Agreement as closely as I have the NAFTA and CAFTA agreements. But my research has yielded this: in addition to trade and other economic issues, it had to do with intellectual property, labor, and environmental policies, among others. Among the primary criticisms of the agreement, for example, has been its effect on copyright laws which have served to infringe upon free speech. Again, what we are seeing is about much more than trade.

The Trans-Pacific Partnership [TPP] is now creating a new “investor state system”. The signatory nations are the United States, Peru, Chile, Vietnam, Brunei, Malaysia, Singapore, Australia, and New Zealand. This is the agreement which President Obama has promoted and for which he received “fast track” authorization. That means the ability to negotiate in secret. Lori Wallach of Public Citizen’s Global Trade Watch has described the TPP as “NAFTA on steroids” and a “corporate Trojan Horse”. You can listen to an interview by Amy Goodman with her for Democracy Now! here. Wallach, Gretchen Morgenson, and other trade policy analysts emphasize that these trade deals have less to do with trade than with the offshoring of national sovereignty to international corporations.

One of the primary concerns has to do with the erosion of the right of the US Congress and state legislatures to enact public interest policies prohibited in these pacts.

If the TPP goes into effect, existing agreements like NAFTA will be reduced, they say, to those provisions which do not conflict with the TPP. As with NAFTA and other trade agreements, the TPP would create an extra-national judicial system designed to protect corporations and their investors. It would give them the right to attack US financial regulations in front of tribunals composed of three private sector attorneys. Those attorneys would operate under World Bank and United Nations rules of arbitration.

In other words, the “investor state system” with its own judicial apparatus allows corporations to bypass US courts and laws and to sue American governments for money damages over any regulatory efforts the corporations say undermine not only their current profits but their “expected future profits”. Among the TPP nations, there already are cross-registered 11,933 corporations.

Here are a two examples of what already is happening. Chevron is using an “investor state” tribunal to try to avoid paying $18 billion—that’s billion—to clean up contamination it caused to the Amazon River. This fine was ordered after 18 years of litigation and rulings in courts in Ecuador and the US. Philip Morris is using it to attack Australian and Uruguayan plain packaging laws for cigarettes.

Already governments have paid more than $675 million to corporations under these “investor state” provisions. Seventy percent of them have been for non-trade policies including environmental and health policies.

It is not difficult in my mind to understand who the primary beneficiaries of this system are. Nor is it difficult to figure out how difficult it could become for state and nations to have the legal ability to enforce environmental, financial, and other public interest regulations. I, for one, am waiting to see exactly what all the Panama Papers will reveal. It seems apparent they will reveal an insatiable appetite among the wealthiest of the wealthy for ever more wealth at the expense of the 99%. They also will reveal a clear connection, if my prediction is correct, to free trade agreements and the the offshoring of national sovereignty to a global “investor state” which protects the interests of the globalized 1% class and which makes it legally difficult for the rest of us to do anything about it.


Ellin Jimmerson

Ellin Jimmerson

Ellin Jimmerson (Author) – Public historian and theologian. She has a PhD in 20th Century US cultural and intellectual history from the University of Houston and a Masters in Theological Studies with a concentration in Liberation Theologies, especially those emanating from Latin America, from Vanderbilt Divinity School. She is an advocate for illegal immigrants, domestic labor, and those in the US legally on an H2 guest worker visa, and has produced and directed the film The Second Cooler narrated by Martin Sheen. She is an LGBTQ ally and officiated at the first same sex wedding in Madison County, Alabama. 

 

8 Comments on The Panama Papers, Free Trade, and the Offshoring of National Sovereignty

  1. Ron Berger // July 11, 2016 at 2:39 pm // Reply

    Thanks Ellin for an informative contribution to Wise Guys. I clicked on the link you provided for the Panama Papers and found an article by Luke Harding that appeared in the April 5, 2016 issue of The Guardian. I will quote an excerpt for readers who may not follow-up on the link.

    “The Panama Papers are an unprecedented leak of 11.5m files from the database of the world’s fourth biggest offshore law firm, Mossack Fonseca….The documents show the myriad ways in which the rich can exploit secretive offshore tax regimes. Twelve national leaders are among 143 politicians, their families and close associates from around the world known to have been using offshore tax havens.

    A $2bn trail leads all the way to Vladimir Putin. The Russian president’s best friend – a cellist called Sergei Roldugin – is at the centre of a scheme in which money from Russian state banks is hidden offshore. Some of it ends up in a ski resort where in 2013 Putin’s daughter Katerina got married.

    Among national leaders with offshore wealth are Nawaz Sharif, Pakistan’s prime minister; Ayad Allawi, ex-interim prime minister and former vice-president of Iraq; Petro Poroshenko, president of Ukraine; Alaa Mubarak, son of Egypt’s former president; and the prime minister of Iceland, Sigmundur Davíð Gunnlaugsson.

    An offshore investment fund run by the father of British prime minister David Cameron avoided ever having to pay tax in Britain by hiring a small army of Bahamas residents to sign its paperwork. The fund has been registered with HM Revenue and Customs since its inception and has filed detailed tax returns every year.”

    Liked by 1 person

  2. Great article. I learned a lot.

    Ellin, I want to ask you about the Apotex suit, because it sounds like I should be on Apotex’s side against the FDA. Why? Because Americans are paying far more than other countries are paying, which is another way of saying that Americans are subsidizing other countries. Of course, American tax payers are subsidizing the American pharmaceutical companies and the government is preventing competition from generics. So, if a fare trade agreement would help to lower drug prices in the United States, I would be all for it, even if it meant that other countries would have to pay more.

    I would like to point out that the goal of reducing consumer prices by lowering import tariffs began during the so-called Progressive era at the dawn of the 20th century. The Democrats (not just progressive Democrats) were for tariff reduction (and to finance the federal government with an income tax instead of tariffs). The Republicans were for the status quo. Thus, all of these free trade agreements are a direct result of what the Democrats and Progressives fought for. They have reaped what they sewed in just about every product arena, except for pharmaceuticals.

    However, while I agree with everything you say, in order to change the situation, I think the American public would have to face the fact that the cost of food would need to increase. Is that not true? In other words, if Big Ag were not subsidized, food prices would increase. (Perhaps they would “soar”.) If food prices increased, there would be hell to pay for any administration that caused it to happen. And it’s not just food that I worry about. Clothes, too. Anything that could be considered essentials for poor people. This is an issue that I grapple with in my head, but I have no solutions. It seems as though Americans are addicted to their way of life and are unable to cope with any kind of dramatic change like this. Dramatic changes will always cause some somebody to suffer.

    By the way, I wouldn’t condemn the World Court concept in general. I only wish they had charged the Bush administration with war crimes.

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  3. Hi, Ron. Thanks for the feedback.
    Apotex is looking to raise its prices, not lower them.
    Free trade agreements are not about consumer prices; they are about “opening up markets”, i.e. for large producers and their products.
    I’m not sure food prices necessarily would increase if we did not subsidize Big Ag. For one thing, the profits Big Ag and its investors enjoy could go towards stabilizing, or lowering, food prices. In addition, much of Big Ag’s corn, for example, is not used for food for people — it is used for food for livestock or for ethanol.
    When ADM, et.al. began to export their food corn to Mexico, lowered corn prices fell to artificial prices which is what contributed to the displacement of Mexican peasants in the corn sector. However, once corn was turned into tortillas, e.g., prices on tortillas skyrocketed. If you go to a grocery store in Mexico, you will see that Mexicans are paying more for products than we do in the US for identical products. At least that is what I observed the last time I went into a grocery store in Mexico and tracked prices.
    I did not condemn the World Court — it is a good thing as far as I know. What I called into question was the WTO — the World Trade Organization.
    Hope this helps.

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  4. Ron Berger // July 12, 2016 at 9:27 am // Reply

    Actually, that was my brother Jeff, not me, who wrote that comment.

    Liked by 1 person

  5. Thanks, Ellin.

    People do eat livestock. I don’t understand why the price of tortillas increased, nor do I understand all of the mechanics that affect food prices. Nevertheless, let’s consider why American corporations like free trade. It increases their profits, but why? Because it allows them to reduce their production costs by exploiting cheap labor in other countries. It also allows them to reduce the price of imports to the degree that eliminating tariffs reduces prices. Nevertheless, I think it is naive to think that if labor costs increased, or if subsidies were removed, corporations won’t try to pass along much of their increased costs to the consumer.

    At the risk of changing the subject, I’d like to talk about minimum wages. I would like to see higher minimum wages, but I am not under any delusion that the price of products (especially food) that depend on minimum wages won’t increase, because there is always a relationship between wages and prices and consumption patterns. Maybe McDonalds will be able to increase their prices without hurting consumption, but if all fast food chains were to disappear, America would eventually wean itself off of fast food and be better off for it. Or, maybe poor Americans will be willing to spend more of their paycheck on food and less on video games.

    As with higher minimum wages, I’m only trying to think about the unintended consequences and prepare ourselves if we eliminated free trade.

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  6. The price of tortillas increased by competition was all but eliminated.
    Corporations of course will increase prices to the consumer, but they will do that anyway. If we eliminate free trade and go back to tariffs, that alone would level the playing field. That’s what they are there for — to protect the smaller producers. And, without the free trade courts and the ability to sue local and national governments, there would be a greater possibility of consumer and other protections.

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  7. tertiarypander // July 21, 2016 at 8:59 am // Reply

    Powerful article, Ellin. Lots of insights you’ve provided here.

    Like

  8. Thanks so much.

    Like

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