Peru, Colombia Trade Deals Would Lock in More Bad Investment Rules

By Anderson, Sarah; Grusky, Sara | Foreign Policy in Focus, December 18, 2006 | Go to article overview

Peru, Colombia Trade Deals Would Lock in More Bad Investment Rules


Anderson, Sarah, Grusky, Sara, Foreign Policy in Focus


With both houses of the U.S. Congress now under Democratic control, the Bush Administration faces an even more difficult battle to obtain approval of stalled free trade agreements with Colombia and Peru. Shortly after their November election victory, key Democrats in the U.S. House of Representatives sent a letter to the U.S. Trade Representative requesting that both deals be re-negotiated.

However, the letter focused narrowly on concerns over worker rights. "We are dismayed that the administration has consistently declined to take the simple steps necessary to address our key outstanding concern, which continues to be labor standards," wrote Rep. Charles Rangel (D-NY) and other leading Democrats.

While the labor issue is indeed a critical matter, merely inserting a labor clause would not be enough to address the growing backlash against the U.S. government's approach to free trade--both here and abroad. A total overhaul is needed.

Based on the model of the 1994 North American Free Trade Agreement, the U.S. trade agenda is designed to increase the profits of large corporations by restricting governments' authority to ensure that trade and investment benefit the broader society. As a result, countries that sign on can expect more pressure on workers to accept poorer working conditions, more damaging natural resource exploitation, more small farmers displaced by competition with agribusiness giants, and more power for pharmaceutical companies to limit access to generic drugs.

Special Scrutiny Needed

The investment rules in the Colombia and Peru pacts deserve special scrutiny. They grant protections for private foreign investors that are virtually identical to those in NAFTA, CAFTA and myriad bilateral investment treaties signed over the past two decades. And yet these countries are being pulled on board at a time of a dramatic awakening about these rules' potential for harm. Elected officials--from California state legislators to Argentine President Nestor Kirchner--are attacking them as a threat to sovereignty. Developing country governments, with strong support from civil society organizations, have managed to block U.S. efforts to impose such rules through the World Trade Organization. In 2004, Australia became the first country to reject key elements of the U.S. investor protection agenda in the negotiation of a bilateral free trade agreement.

As the backlash against these investor protections grows, the Bush Administration is counting on the Colombian and Peru deals to keep some momentum going on their side.

Lessons Not Learned

Some of the investment rules the U.S. government is promoting actually make the International Monetary Fund (IMF) look progressive. These rules would ban the types of capital controls which helped some countries escape the worst of the global financial crisis of the late-1990s. Malaysia and Chile, for example, emerged relatively unscathed, thanks to effective use of such controls, while their neighbors suffered the devastating consequences of billions of dollars in rapid capital flight. Former World Bank Chief Economist Joseph Stiglitz has stated that the lack of restrictions on capital flows was the "single most important factor" leading to the crisis.

Since then, the IMF has stopped demanding that governments lift controls on capital flows. The dinosaurs in the U.S. Trade Representative's office, however, continue to use deals like the Colombia and Peru trade pacts to strip governments of this practical tool for protecting their people from the volatility of the financial system.

Governments that accept these rules surrender other economic development tools as well, such as requirements that foreign investors use a certain percentage of local inputs in production or transfer technology. And perhaps most disturbing, these governments are severely restricted in their authority to carry out "indirect expropriation," interpreted as any action that diminishes the value of a foreign investment, including the adoption of environmental and public health regulations. …

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Peru, Colombia Trade Deals Would Lock in More Bad Investment Rules
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