News and Features
He's an archconservative who thinks big and knows how to get things done.
With NAFTA as an ugly precedent, the proposed trade pact is generating serious opposition from a number of social and economic sources.
A campaign to help sick people in need of unaffordable medicines is clashing with forces in the global pharmaceutical industry.
New York's City Council is about to open a promising new front in the global struggle against sweatshop exploitation--a city procurement ordinance that requires decent wages and factory conditions for the apparel workers who make uniforms for New York's finest. Mayor Giuliani huffily vetoed the measure, denouncing it as "socialist economics," but since the Council passed it 39 to 5, a veto override is expected. New York City spends up to $70 million a year on uniforms for police, firefighters, sanitation, park and other employees. The city is a customer with clout.
The new ordinance was drafted and promoted by UNITE (Union of Needletrades, Industrial and Textile Employees) with a unique feature--a global index for determining "nonpoverty" wage levels, country by country, based on objective economic data. The law would require any apparel manufacturer, domestic or foreign, to certify that its wages meet the standard--before the city will buy the company's goods. "The city should not spend its citizens' money in ways that shock the conscience of a vast majority," the Council report declared.
What is more significant, however, is that New York's initiative should reopen a path for local legislative activism on global issues. New York has created a model that city and state governments across the country can use to legislate their own procurement rules against sweatshop conditions. As of last year, the subject seemed closed. The Supreme Court nullified a Massachusetts law boycotting companies that do business with Burma, known for its brutal repression of workers and citizens. The Massachusetts statute was badly drawn and clearly suggested that Boston was trying to make foreign policy--power the Constitution gives to Washington. The New York ordinance has been cast to avoid those flaws, though it will certainly be challenged in court (Mayor Giuliani promised to lead the attack).
"The apparel industry has become a global factory where there are no standards," says Steven Weingarten, UNITE's director of industrial development. "This bill connects the customer with standards for decent conditions and a decent wage. The uniformed unions--police, firefighters and others--are very supportive. To wear uniforms made by people in sweatshop conditions is not what they want to stand for. There are 80,000 apparel workers in New York City, and it should at least stop rewarding the irresponsible manufacturers, both in the United States and abroad."
The principal mechanism for enforcement is disclosure. To complete a sale, a company must certify where the goods were made, including locations of subcontractors, and that it is producing as a "responsible manufacturer"--that is, complying with relevant wage, health, environmental and safety laws, not abusing or discriminating against employees and providing the nonpoverty wage determined by national economic context. If a company files a false report and violates the standards, it could be fined or barred from contracting with the city or sued for civil damages. The reporting system opens the door for citizens to submit facts, and the companies must permit independent monitoring of their factories if city officials request it.
Professor Mark Barenberg of Columbia Law School, chairman of the governing board of the Worker Rights Consortium, believes UNITE's draft legislation is immune to any accusation that New York City is poaching on federal territory, either the regulation of interstate commerce or the executive branch's exclusive domain of foreign relations. Among its flaws, Massachusetts' Burma law targeted a single country with the goal of forcing policy changes, and the boycott rule attempted to hold US corporations responsible for a foreign government's actions. In the New York legislation, the terms apply to any seller of apparel, regardless of location, and involve issues that are already accepted in state-local procurement laws (though not usually applied to foreign production). Under the interstate commerce clause, cities and states are forbidden to discriminate against other states by targeting their producers with anticompetitive restrictions. But, Barenberg explains, "when a city or state acts like a consumer--a market participant itself--it can discriminate in the ways any consumer does."
If a city decides its citizens are offended by abusive working conditions or exploitative wages by producers outside its jurisdiction, it cannot enact a law to stop them, but it can refuse to buy their goods. "It would be a radical act of the Supreme Court to overrule the 'market participant' doctrine and say states and cities may not choose to reject products from foreign countries because they don't want to buy from sweatshops," Barenberg observes.
Of course, the Rehnquist Supreme Court has demonstrated that it is fully capable of "radical acts" in pursuit of right-wing results. Among its various rationales, the Court might declare that while the New York ordinance alone does not damage constitutional balance, the prospect of scores or hundreds of communities enacting similar measures would be intolerable. In the meantime, however, widespread agitation from the grassroots is precisely what's needed to build a fire under the seat of government in Washington. That's how democracy was supposed to work--let the Supremes analyze that.
In one of the most foolish and cruelly ironic urban public policy decisions in recent memory, New York Governor George Pataki and New York City Mayor Rudolph Giuliani are planning to shower a series of subsidies, expected to total more than $1 billion, on the high citadel of self-styled free-market global capitalism, the New York Stock Exchange.
In December the city entered into a letter of intent to assist the NYSE in constructing a new trading floor. The arrangement commits the city to acquire land for the new exchange building, and for the city and state to construct a new trading floor for the NYSE and to grant it tax and subsidized energy benefits. In exchange, the taxpayers receive $10 million in annual rent, which will never come close to reimbursing the city and state for their costs.
The sole purported rationale for this corporate welfare bonanza is to retain the NYSE in New York City. If one were to credit this claim, the gift of more than $1 billion for the purpose of retaining fewer than 6,000 jobs--while not even ostensibly creating new ones--would, even by the corrupt standards of job-retention- blackmail deals between corporations and politicians, set a high-water mark for casuistry. However, the deal is even worse than that description suggests. There is no chance that the stock exchange would leave New York City. When I went on the NYSE floor last year and asked veteran traders about the possibility of the exchange moving to New Jersey, they laughed as they dismissed it out of hand. In addition to the institutional identity and reputation of the stock exchange, its personal connections to Wall Street firms--committed to New York City by history, by the Manhattan residences of many of their principals and employees and by long-term office rental commitments, increasingly sealed by yet other city subsidies--preclude the possibility of a move across the Hudson to become the Hoboken Stock Exchange.
NYSE's New Jersey ploy is nothing more than a ruse for covering public officials using what Justice Louis Brandeis once called "other people's money." As is typical of such arrangements, the corporate-politician conspiracy to ramrod the deal is shrouded in secrecy and in contempt for democratic processes. The city refuses to make available to the public a copy of the letter of intent it signed with the NYSE to proceed with the deal. The architectural plans for the building complex--expected by preservation advocates to generate outrage--remain concealed. The governor forced legislation authorizing the deal to go forward on a super-expedited basis, leaving legislators virtually no time to review the bill. They proceeded to pass it unanimously. New York City Council members also have failed to object to the bill.
The Fourth Estate, perhaps inured to the issue by the steady drumbeat of announcements regarding New York City taxpayer subsidies for big business, has done a less than stellar job covering this boondoggle. The New York Times editorial page endorsed the scheme years ago, when it was first being floated. Recognizing "why some oppose on principle any concession to the blackmailing tactics of businesses that threaten to move unless they get public assistance," the Times concluded that New York had no choice but to succumb. "If New York City refuses to play this game, other, hungrier cities and states will take advantage of that passivity." Apparently, the corporate executives at The New York Times Co. found this argument persuasive. In February the Times and New York City completed their own corporate welfare deal--giving the Times $29 million in tax breaks and other incentives to maintain its offices in Times Square.
It would be hard to script a more brazen and shameless corporate giveaway than a billion-dollar donation to the emblem of global capitalism from a city where nearly one in three children lives in poverty, and public investment necessities go begging. But the final act of the NYSE drama has yet to play out: There is still time for the citizens of New York, and at least one of the candidates seeking to replace Giuliani when his term expires at the end of this year, to demand cancellation of this corrupt deal.
Otto Reich is the vice chairman of Worldwide Responsible Apparel Production or WRAP, a clothing-industry front founded about a year ago to undermine the growing antisweatshop movement.
Resident Bush's budget brandishes the camouflaged conservatism that is the hallmark of this disingenuous Administration. It advertises a 4 percent increase in discretionary spending that's in reality virtually a freeze, after taking into account inflation and population growth. Since spending on the military is going up, the amount actually committed to domestic programs is cut by 4.7 percent in real per capita terms. Bush boasts an 11 percent increase in education funding, but much of that simply counts money committed in last year's budget. And the increase is offset by deep cuts in expenditures for job training and displaced workers, even as the economy slows.
Much of the budget is fraudulent, knowingly so. Spending must be squelched to afford Bush's tax cut while paying down the debt. But the President isn't serious about cutting popular programs. So he calls for deep cuts in farm programs, which he knows Republican senators will block. He ends subsidies to US shipbuilders, which he knows Senate majority leader Trent Lott will reverse. Otherwise, the largest losers are environmental, renewable energy and energy conservation programs. Bush's answer to the energy crisis is to drill on every jot of federal land that might hold oil. His prescription for those concerned about global warming is presumably a little more arsenic in their water. The real military budget remains a mystery, awaiting the Defense Secretary's "strategic review." Yet, even the defense marker used in the current budget returns the military to its cold war average.
Democrats and moderate Republicans are boasting that they've already abandoned the Bush budget and are falsely declaring victory because they knocked a quarter off his tax cut. Congress will surely add money to education, restore funds to children's health and disability programs, and protect farmers (read, agribusiness). And it is likely to double the funds Bush earmarks for a prescription drug benefit in Medicare. We will witness a furious debate over these numbers, with Democrats and moderate Republicans in the Senate facing off against the remorseless Tom DeLay and his conservative majority in the House.
Lost in this scrapping is any mention of the real opportunities facing the nation. Years of economic growth have generated potential government surpluses--$5.6 trillion at the most recent estimate. Now, with the economy slowing, we have the chance to invest in making the country better and help jump-start the economy at the same time. Bush's most disingenuous claim is that his budget "takes care of our needs." In reality, it merely assumes that all needs are met and projects a continued decline in federal domestic discretionary programs to their lowest levels as a percentage of GDP in history.
Instead, we could truly address the disgraceful truth that in this rich nation one in six children is raised in poverty and deprived of the healthy, fair start vital to equal opportunity. Now we have the resources to rebuild an aging and overburdened infrastructure--witnessed daily in the power blackouts, collapsing sewers and aged water systems, overburdened airports, deferred toxic waste cleanups. Now we can redress the growing shortage of affordable housing and insure that every American has access to healthcare. We could even meet the international standard for foreign assistance and lead the world in providing real debt relief for the poor nations and in launching a humane response to the AIDS pandemic. All these are within reach--but are ruled out by a bipartisan consensus that more than half the surplus ($3 trillion over ten years) must be used for debt reduction in the name of "saving" Social Security and Medicare. Bush would consume the rest of the projected surplus (if not more) with his tax cuts, about 40 percent of which will go to the millionaires in the richest 1 percent of the nation. Democrats seem ready to declare victory if they can trim Bush's ten-year tax cut by 25 percent and spend the savings primarily on a prescription drug benefit.
We are about to witness a debate about priorities in Washington. But none of the alternatives debated will address our challenges or our opportunities. If progressives in the Democratic Party are to serve any function, it's time for them to find their voice.
When NAFTA was adopted in 1993, Chapter 11 in the trade and investment agreement was too obscure to stir controversy. Eight years later, it's the smoking gun in the intensifying argument over whether globalization trumps national sovereignty. Chapter 11 established a new system of private arbitration for foreign investors to bring injury claims against governments. As the business claims and money awards accumulate, the warnings from astute critics are confirmed--NAFTA has enabled multinational corporations to usurp the sovereign powers of government, not to mention the rights of citizens and communities.
The issue has exquisite resonance with the present moment. On April 20 thirty-four heads of state gather in Quebec City to lead cheers for a Free Trade Area for the Americas. The FTAA negotiations are designed to expand NAFTA's rules to cover the entire Western Hemisphere. The Quebec meeting should provide good theater but not much substance. Tony Clarke of the Polaris Institute, in Ottawa, says the meeting is intended to be "a face lift for the whole global agenda, by portraying free trade as democracy." Protesting citizens will be in the streets, challenging 6,000 police and Mounties, with an opposite message: Democracy is threatened by the corporate vision of globalization.
Chapter 11 of NAFTA should become a defining issue for FTAA negotiations. Many, including Clarke, vice chairman of the Council of Canadians, believe corporate governance was and is the FTAA's intent. "There is a conquering spirit at the heart of all this," he says, adding that the corporations' attitude is: "We have to get into every nook and cranny of the world and make it ours."
Chapter 11 provides a model of how this might be accomplished. The operative principle is that foreign capital investing in Canada, Mexico and the United States may demand compensation if the profit-making potential of their ventures has been injured by government decisions--"tantamount to expropriation." Thus, foreign-based companies are given more rights than domestic businesses operating in their home country. For example:
§ California banned a methanol-based gasoline additive, MTBE, after the EPA reported potential cancer risks and at least 10,000 groundwater sites were found polluted by the substance. Methanex of Vancouver, British Columbia, the world's largest methanol producer, filed a $970 million claim against the United States. If the NAFTA panel rules for the company, many similar complaints are expected, since at least ten other states followed California's lead. The federal government would have to pay the awards. California State Senator Sheila Kuehl and others have asked the US Trade Representative to explain how this squares with a state's sovereign right to protect health and the environment.
§ In Mexico, a US waste-disposal company, Metalclad, was awarded $16.7 million in damages after the state of San Luis Potosí blocked its waste site in the village of Guadalcazar. Local residents complained that the Mexican government was not enforcing environmental standards and that the project threatened their water supply. Metalclad's victory established that NAFTA's dispute mechanism reaches to subnational governments, including municipalities.
§ In Canada, the government banned another gasoline additive, MMT, as a suspected health hazard and one that damages catalytic converters, according to auto makers. The Ethyl Corporation of Virginia, producer of MMT, filed a $250 million claim but settled for $13 million after Canada agreed to withdraw its ban and apologize.
§ The Loewen Group Inc., a Canadian operator of far-flung funeral homes, lodged a $750 million complaint against the United States, claiming that a Biloxi, Mississippi, jury made an excessive award of $500 million when it found Loewen liable for contract fraud against a small local competitor.
§ Sunbelt Water Inc. of California has filed the largest and most audacious claim--seeking $10.5 billion from Canada for revoking its license to export water by supertanker from British Columbia to water-scarce areas of the United States.
§ Canada's Mondev International is claiming $50 million from the United States because the City of Boston canceled a sales contract for an office building with a shopping mall. Boston invoked sovereign immunity against such lawsuits and was upheld by a local judge and the Massachusetts Supreme Court. The US Supreme Court declined to hear the appeal. So the company turned to NAFTA for relief.
"When just the threat of a Chapter 11 action may suffice to wrest a financial settlement from a government, investors have unprecedented leverage against states," Lydia Lazar, a Chicago attorney who has worked in global commerce, wrote in Global Financial Markets magazine. Mexico, Canada and the United States effectively waived the doctrine of sovereign immunity, she explained, when they signed NAFTA.
As many as fifteen cases have been launched to date, but no one can be sure of the number, since there's no requirement to inform the public. The contesting parties choose the judges who will arbitrate, choose which issues and legal principles are to apply and also decide whether the public has any access to the proceedings. The design follows the format for private arbitration cases between contesting business interests. With the same arrogance that designed the WTO and other international trade forums, it is assumed that these disputes are none of the public's business--even though public laws are under attack and taxpayers' money will pay the fines. The core legal issue is described as damage to an investor's property--property in the form of anticipated profits. The NAFTA logic thus establishes the "regulatory takings" doctrine the right has promoted unsuccessfully for two decades--a retrograde version of property rights designed to cripple or even dismantle the administrative state's regulatory powers. "NAFTA is really an end run around the Constitution," says Lazar.
The fundamental difference in Chapter 11, unlike other trade agreements, is that the global corporations are free to litigate on their own without having to ask national governments to act on their behalf in global forums. Clearly, some of the business complaints so far are more exotic than anyone probably anticipated. These initial cases will set precedents, however, that major global firms can apply later. If nobody stops this process, the national identity of multinationals will become even weaker and less relevant, Lazar points out, since they have status to challenge government as "an open class of 'legal equals.'"
In Canada a private lawsuit was filed recently challenging the constitutionality of Chapter 11, since Canada's Constitution states that the government cannot delegate justice to other bodies. The Canadian government, itself embarrassed by the cases against it, expressed doubt that Chapter 11 should be included in the hemispheric agreement, though it appears to be backing away from outright opposition. In US localities, the cases are beginning to stir questions, but lawmakers and jurists are only beginning to learn the implications.
Does George W. Bush understand what he is proposing for the Americas? Did Bill Clinton and Bush the elder understand the fundamental shift in legal foundations buried in NAFTA's fine print? They knew this is what business and finance wanted. As the public learns more, the smoking gun should become a focal point in this year's trade debate, confronting politicians with embarrassing questions about global governance. Who voted to shoot down national sovereignty? Who crowned the corporate investors the new monarchs of public values?
In the clash over tax cuts and social programs, much of what progressives need to do is defensive. But it would be a mistake not to float new ideas, too.
A tough bill is falling victim to the power of warlords and corporations. Meanwhile, diamond sales pay for wars that are killing thousands in Africa.
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