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How colonialism shaped free trade agreements: from colonies to neoliberalism (part 3/3)

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30 mai 2023

How colonialism shaped free trade agreements: from colonies to neoliberalism (part 3/3)

by bilaterals.org

This three-part series provides a historical perspective on free trade agreements and bilateral investment treaties. It argues that the free-market ideology and the laws that have governed international trade for the past 30 years are rooted in the history of colonialism. Power relations inherited from the colonial era have laid the foundations for modern international trade. A sound assessment of the nature of these trade and investment agreements is essential to addressing the problems they create. The first part explores the development of international trade at the dawn of colonialism. The second one shows how colonial companies and states shaped international trade and investment rules. Finally, the third part examines how current free trade practices reflect their colonial legacy.

The first part showed that the development of international trade was by no means ‘natural’ but the result of deliberate action by states and merchants at the end of the Middle Ages. The second part was aimed at demonstrating that international trade and investment law was shaped by colonial companies with the support of colonial states, and later by Western transnational corporations and countries, in order to promote their interests. The triumph of neoliberalism after the fall of the Soviet empire opened up new opportunities for these corporations.

The golden age of neoliberal capitalism

In the 1980s, structural adjustment programmes sponsored by the International Monetary Fund and the World Bank to liberalise the economies of debt-stricken countries were a precursor to the paradigm shift. The collapse of the USSR meant that many countries had lost an important source of aid, trade and diplomatic protection. Such countries in the Global South and Central and Eastern Europe needed to attract foreign investment and demonstrate to their new partners that they had left communism behind, in an era when market liberalisation was the new mantra and seen as the solution to diverse and multiple economic hardships.

While about 500 bilateral investment treaties had been signed by 1990, more than 2,500 new treaties emerged by 2010. The North American Free Trade Agreement (NAFTA) came into force in 1994. It was the first modern comprehensive trade agreement, containing far-reaching corporate-friendly rules as yet unseen. In 1995, the World Trade Organisation was established to regulate international trade. Dozens of free trade agreements have been concluded in the new millennium, pushing WTO and NAFTA rules towards greater liberalisation. Many more are being negotiated today.

Through these new arrangements, corporations have shifted their focus from tariffs or protection from expropriation to laws and regulations that they see as obstacles to their profits (actual or projected), known as non-tariff barriers. Free trade and investment agreements have sought to address domestic legislation by assuring corporations that parties to such agreements will provide a stable legal environment – something foreign companies had previously sought in investment contracts. For example, once a country has signed such an agreement, it may find it more difficult to introduce stricter environmental or health standards, higher labour protections or to renationalise a public service, even in the light of new scientific evidence or democratic votes. Going ahead with such new public interest regulations can then lead to the country being taken to arbitration. Trade and investment agreements specify that companies should be treated fairly and equitably against indirect expropriation that devalues companies’ investments, which ISDS tribunals have interpreted as respecting companies’ legitimate expectations, i.e. a stable regulatory framework binding governments not to alter laws, standards or other measures. But are laws protecting people and their environment not fair and equitable?

There are many examples of countries having to pay huge fines to companies for taking measures in the public interest. Mexico was ordered to pay $16 million to Metalclad, a US waste management firm, for refusing to grant a construction permit for the expansion of a toxic waste facility. [1] Sometimes the mere threat of taking a country to an ISDS tribunal is enough to make a government question the implementation of a law, as in the case of Togo, which received such a threat from Philip Morris when it considered introducing plain packaging. [2] As in the days of colonialism, the views of capital-exporting states and their investors determine what is fair and equitable, while the populations of capital-importing countries are ignored.

Beyond these specific examples, the international trade and investment regime has, over the past 500 years, created a world economy in which the periphery revolves around the centre, and the needs of the latter determine the economic activities of the former. In the 19th century, England imposed tariff rules that heavily taxed Indian textile exports to the kingdom while giving preferential access to its cotton products. This policy turned India from a cotton exporter to an importer, while developing export crops for English factories (such as tea, coffee, rubber, opium and raw cotton). It restructured the economic landscape according to England’s needs, causing a decline in living standards and massive deindustrialisation, which eventually led to famines in the second half of the 19th century. [3]

Centre and periphery

In a similar fashion, trade agreements today put pressure on countries in the Global South in the periphery to develop activities that meet the demands of the rich countries in the centre, without any regard for local social and environmental concerns.

Free trade agreements limit the policy space available to Global South countries to promote the development of domestic industries. They can restrict the use of subsidies, trade barriers, government procurement, or any measure that could help protect national industries and redress inequalities in the face of competition from developed companies based in rich countries. For instance, the European Union’s Economic Partnership Agreements (EPAs) require African countries to eliminate their tariffs on the Union’s exports, but do not require the EU to eliminate its subsidies on agricultural products, thus encouraging the dumping of European dairy products at the expense of local small-scale dairy producers. [4] In its proposed trade deal with India, the EU is pushing the Indian government to open up its public procurement to European companies. Should this demand be included in the final text, local companies would lose out as Indian procurement is used as an active development policy tool to support small industries, village enterprises or women’s development corporations. [5]

Nascent industries need protectionist measures to grow. Companies from countries such as the UK, France, the US, China, Japan, Korea, to name but a few, have all benefited from such policies. As Nobel Laureate Joseph Stiglitz and Andrew Charlton pointed out: “To date, not a single successful developing country has pursued a purely free-market approach to development.” [6] By pushing these policies, the rich countries at the centre aim to keep the countries in the periphery in a position of subordination.

Despite rhetoric to the contrary, the recently signed Chile-EU trade deal is another example. It clearly states that “a party shall not impose a higher price for exports of energy goods or raw materials to the other party than the price charged for such goods when destined for the domestic market.” [7] Chile has some of the world’s largest reserves of lithium, and the Union is after the mineral for its so-called energy transition. By preventing Chile from protecting its domestic industry, the EU wants Chile to remain a supplier of low value-added raw materials rather than a seller of high value-added refined products.

The practices of the mining sector, largely dominated by Western (and Chinese) companies worldwide, and encouraged and protected by free trade agreements, are particularly reminiscent of older colonial methods. In the Peruvian town of La Oroya, large-scale mining began some 500 years ago, when Spanish colonisers established settlements. At that time, the Spanish forced indigenous people to work in the mines under brutal conditions and then shipped the extracted minerals back to Spain. Mining became more extensive and destructive in the early 20th century when the US firm Cerro de Pasco Corporation began operating a smelter that released large amounts of pollutants, including lead, arsenic and sulphur dioxide, making the air unhealthy for the residents to breathe. In 1997, another US company, Doe Run, acquired the smelter and operated it until it went bankrupt in 2009. The company left behind a huge debt to its workers and an ecological disaster, but still repatriated huge profits to the US. [8] To add insult to injury, its parent company, Renco, has twice sued the Peruvian state under the US-Peru free trade agreement, claiming that the country has not treated it fairly and equitably. [9] The situation in La Oroya and the damage suffered by its people shows how corporations can operate with impunity thanks to international trade rules.

This kind of lopsided logic also dominates food and agriculture. The sector has been central to international trade since the early days of colonialism, when exotic products such as coffee, tea, spices and sugar became increasingly popular in Europe. At that time, international merchants, operating on the basis of capitalistic wholesale methods, dominated foreign trade in food. Spices, for instance, were essential to the Dutch East India Company, a world leader in the business.

Similarly, food and agriculture has been a key issue in trade negotiations for the past 30 years. Free trade models prioritise exports and drive agricultural production towards international export markets. Former colonies continue to produce and export food to satisfy the demands of former colonisers, regardless of the needs of local populations, thereby following the colonial pattern. Many agribusiness companies were established during the colonial era and continue to operate today. This is the case of two French companies: the Compagnie Fruitière, founded by Robert Fabre in 1938 to export exotic fruits from Africa, and Socfin, a leading producer of palm oil and rubber in Africa, which was founded in 1909.

In Mexico, avocado production illustrates how trade agreements can damage local livelihoods and landscapes by radically transforming the economy. Mexican avocado imports were banned in the US between 1914 and 1997, but the ban was lifted after the North American Free Trade Agreement came into force. Since then, the country has undergone a dramatic shift, becoming the main exporter of avocados to the US, [10] where the demand has grown. [11] In the Michoacán region alone, where most of the fruit is produced, the area devoted to avocado orchards increased from around 79,000 hectares to 170,000 hectares between 2000 and 2020. [12] This surge in production has taken its toll on Michoacán, resulting in high water consumption, increased use of agrochemicals, threats to biodiversity, environmental degradation through deforestation, [13] and a rise in violence linked to organised crime involved in the avocado supply chain. [14]

Today, the new realm of digital trade, or ‘e-commerce’, has added other rules to the mix. Rich countries’ digital trade agenda seeks to mine data from the Global South for free, send it home where it can be processed, and sell the finished digital services back to the South. By prohibiting domestic protections in the digital sector, such as tariffs on digital products and the ability to process data locally, international trade standards prevent poorer countries from developing their own digital industries. For years, Uber was able to route some of its profits through a Bermuda subsidiary while paying little tax in the countries where it generated revenue, from Argentina to India via Kenya, and sending the data to its US servers. These rules are being pushed in many recent trade deals, such as the US-Canada-Mexico agreement and the upgraded agreement under negotiation between the EU and the Eastern and Southern Africa regional bloc. [15]

Reform impossible

World trade has not changed much since colonial times. It is still dominated by powerful corporations, mostly from the West, who have shaped and continue to shape international rules based on their own interests and conceptions of private property, land, the environment and so on. Free trade and investment agreements have a long history rooted in colonialism, the exploitation and dispossession of the Global South. They are the legacy of a long and gradual process whereby Western powers secured commercial and political domination around the world through “trading networks, colonial expansion, military conflict, imposition of capitulation treaties, the granting of extensive concessions to foreigners, and the establishment of extraterritorial jurisdiction within non-European territories.” [16]

Free trade and investment agreements are inherently instruments of corporate imperialism. They push countries in the Global South to compete with each other to attract foreign investors by adopting ‘investment-friendly’ regulations that sacrifice people’s rights, in a race to the bottom that only large corporations can win.

France, the Netherlands and the UK, all former colonial powers, have signed over 300 hundred bilateral investment treaties altogether. Corporate lawyers continue to frame what is included in trade agreements. For example, the demands of the Canadian and European lobbies can be found almost word for word in the final text of the EU-Canada trade agreement.“ [17] During the Obama administration, the former director of a major Big Tech lobby wrote the US digital trade policy. It became the US ‘e-commerce’ proposal at the World Trade Organisation and has been pushed in bilateral agreements as well. The spirit of Grotius lives on.

In this sense, as bilaterals.org has pointed out elsewhere, [18] trade and investment deal reforms that claim to serve inclusiveness, sustainability, development, social concerns and so on, should be examined with great care, as they merely accommodate corporate hegemony rather than confront it. All these buzzwords have long been present in corporate social responsibility models and are just another example of capitalism reinventing itself to survive in the face of new challenges. The mere inclusion of ‘fairer’ provisions in a free trade agreement should not hide the true nature and purpose of these deals.

Colonialism and free trade agreements also share a history of resistance. Colonialism was resisted. Many uprisings and rebellions occurred, whether in Haiti, India, South Africa, Peru, Sudan and elsewhere. They were motivated by a range of factors, including economic exploitation, political oppression, cultural marginalisation and struggles for political power. Independence was eventually won.

Free trade and investment deals have long been resisted as well. The North American Free Trade Agreement sparked strong popular opposition in Mexico, including the Zapatista uprising. The Free Trade Area of the Americas drew fierce opposition across the continent and was eventually abandoned. Public pressure in India forced the government to withdraw from the Regional Comprehensive Economic Partnership. The Economic Partnership Agreement between the EU and West Africa is still not in force due to sustained opposition. And some states in the Global South have withdrawn from treaties that include the ISDS arbitration mechanism after years of abuse and campaigns involving civil society organisations, academics and protests on the ground.

History shows that these campaigns of resistance were made possible through broad coalition-building, grassroots movement mobilisation and a serious aspiration for nothing less than system change.