Free trade isn’t about trade. Free trade is about bureaucrats. And guns. Simple stories about how one country is good at making wine, and should trade with another country that is good at making cloth, explain very little about today’s trade agreements. Instead, agreements are about which bureaucrats make decisions about markets that operate between countries. Who has the power to settle international disputes between massive multinational corporations and the states they do business with? This issue, otherwise known as investor-state dispute settlement, is at the heart of the controversial Trans-Pacific Partnership (TPP) President Obama is seeking to sign with twelve Asia-Pacific region countries.
Investor-state dispute settlement is a method of private arbitration by which private companies operating in foreign countries can bring lawsuits if that country violates the terms of agreed-upon trade. It’s a core element of modern trade agreements. Senator Elizabeth Warren has warned about these agreements, and economist Joseph Stiglitz has argued that they “most seriously threaten democratic decision-making.” On the other hand, economists David Autor, David Dorn, and Gordon H. Hanson recently argued that “this mechanism would protect U.S. firms against predatory regulatory interventions by member governments. “
Let’s dig into an example. In 2011, Australia passed the Tobacco Plain Packaging Act 2011, designed “to discourage the use of tobacco products” by, among other things, requiring cigarette packages to have larger warnings, ugly colors, and no logos or advertisements. This act is clearly a “predatory intervention” against tobacco companies, designed explicitly to reduce their business in Australia by lowering smoking rates. As a result, Philip Morris Asia, a part of the American company Philip Morris International, is using an investor-state dispute settlement to stop enforcement and demand compensation, claiming this is a discriminatory “expropriation.” Instead of just the bureaucrats at the Australian government creating and administering rules for the selling of cigarettes, there’s an additional layer of international bureaucrats—positions created by trade agreements—who can overrule them.
Many people argue that this is corporate welfare, and it is. But it also goes deeper than that. This episode perfectly encapsulates the problem described by David Graeber in his new collection of essays, The Utopia of Rules. He argues that globalization now isn’t about technology leveling distances or speeding trade, but about piling private bureaucracies on top of public ones.
The Australian attorney general’s website has the play-by-play. The globalization story told by the documents on that site isn’t one of new products sweeping across the globe, but a level of bureaucratic paper-shuffling that approaches parody. The big headlines are everything from the exciting “In accordance with the timetable in Procedural Order No. 9, on 7 July 2014 Philip Morris Asia submitted its Counter-Memorial on Preliminary Objections” to the electrifying “On 26 August 2014 the tribunal issued Procedural Order No. 10, which provided a revised timetable up to the Hearing on Preliminary Objections.” Reading about it, you can almost picture the hapless clerk suffocating under reams of paperwork and forms.