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It's democracy stupid!

Container ship, Singapore (Ruben Schade)
Container ship, Singapore (Ruben Schade)

Trade is back on the policy agenda of civil society and Green parties throughout the world. But this time around the political battles are not centring on the World Trade Organization (WTO) in Geneva, as was the case at the turn of the millennium. And the main question is not about the effects of trade liberalization on developing countries. Nowadays, trade is high on political agendas because many industrialized and emerging countries are engaging in a competitive race to establish deep reaching Free Trade Agreements (FTAs) amongst themselves. And the key question is the fate of democracy.

The surge of FTAs can be traced back to a complete policy change by the European Union. In 2006, after the failure of the EU and the US to impose new WTO rules on investment, competition and procurement, the European Commission turned its back on the WTO and inaugurated the "Global Europe" strategy.  A key feature of this strategy is to negotiate bilateral FTAs with a high degree of regulatory cooperation and rule alignment regarding Non-tariff Barriers to Trade (NTBs). NTB is a catch-all term for things as diverse as licensing procedures for services, the adoption of industrial standards, rules on state aid, local content requirements for public procurement, environmental protection laws, or sanitary rules for food products. After 2009, investment policy was also added to the bilateral FTA agenda. So far, the EU has ratified FTAs with Korea, Central America, Colombia and Peru, negotiations with Canada and Singapore are concluded, and talks with Japan, Vietnam and Ecuador are in an advanced stage. The newest project is a FTA with the US (the Transatlantic Trade and Investment Partnership, TTIP) which will contain an even higher degree of regulatory alignment.

Since free trade zones create a deeper integration between participating economies, other countries have reacted to this push by the EU so as to not be left out of the emerging bigger economic blocs. China has entered into FTAs with a number of neighbours, and some smaller Asian countries started negotiations on a Trans-Pacific Partnership (TPP). Lately, the US and Japan joined the TPP negotiations, marking an important policy change in these countries. In the US, with the experience of the early North-American Free Trade Agreement (NAFTA, 1994), unions and the Democratic Party reacted negatively to the related job losses and halted new FTA projects in 2003. Japan, with its industrial model of satellite production directly in foreign consumer markets, has so far been reluctant to open its market.

The shift towards deeper economic integration among specific countries is not just an invention of some EU politicians. It is the inevitable next step of economic globalization. The pattern where the exports of one country are the imports of another is long gone. Now complex industrial products cross borders many times in the process of their assembly, before being sold and consumed in maybe yet another place. Products are ever more the result of global value chains in which the different steps of production take place wherever it is cheapest and most efficient. In the context of a global production chain, it is not tariffs but national differences in regulatory frameworks which create costs and might be the decisive factor in whether a country takes part in a given product-specific value chain or not.

Existing regulatory differences mean that to date value chains have been somewhat regionally confined and sometimes product-specific value chains compete with each other. In the end, it is mostly the country where a product is finally consumed that decides what regulations will apply to it. This is what makes the TTIP project so important: it would combine the two biggest consumer markets of the world and therefore would set the standards for global production. The TTP in the Pacific would have a similar reach and can hence be regarded as a competing project. Both projects compete, moreover, with the emerging market in China which is excluded both from the TTP and TTIP.

This sounds all like pretty rational behaviour with some geopolitical skirmishing added. So, what is so scandalous about it? It's democracy stupid!

In the world of globally reaching value chains, democracy is a Non-Tariff Barrier to trade.

What trade officials on behalf of globally acting enterprises want to eliminate as "barriers" to trade are often the result of conscious political decisions taken to satisfy specific collective preferences, such as the preservation of rural livelihoods, affordable access to basic services for all, or safeguarding the local effects of public spending. Looking at such measures as trade barriers reduces their importance to a mere nuisance hindering greater and easier access by foreign suppliers. Deep reaching FTAs negotiated by trade officials are going to define the future standards of production and consumption, of rule-making and the organization of societies under the premise of profit and capital amortization.

Letting the multinationals win this battle equals the ultimate triumph of economy over polity. It is profoundly opposed to what the Greens stand for. So let's join the fight.

By Martin Koehler, Advisor on International Trade for the Greens/EFA Group in the European Parliament, [email protected]

Container ship, Singapore (Ruben Schade)

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