One Big Corporate Trade Deal That Still Must Be Stopped

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Fair Traders who are celebrating the defeat of the Trans-Pacific Partnership (TPP) may see their hard work undone if the talks towards the proposed Trade in Services Agreement (TiSA) continue under a Trump administration.

Many Democrats who minimized the importance of the negative impacts of corporate trade deals on working class Americans have now paid the price in the recent elections. As my colleagues at the Center for Economic and Policy Research have pointed out, racists and xenophobes were always going to vote for Trump but the key voters the Democrats were counting on that they lost were largely working class voters, many of them union members, in states hit hard by trade deals (supported by both parties) that put working class people in competition with lower-income manufacturing workers in other countries while preserving protections for intellectual property-holders and high income professions.

While these working class voters may have voted against their economic interests in terms of workers’ rights, social security, work/life balance, and other pro-worker provisions in the Democratic platform, they were right that both parties have become too aligned with corporate interests — and trade agreements is one of several instances where that is the case.

It is yet to be seen how or if President-elect Trump will make good on his pledges on trade to these voters, but in the initial preview of his first days in office, he has promised to withdraw from the TPP. Likewise the talks with the EU on a Transatlantic Trade and Investment Partnership (TTIP) are on hold. In the EU, the EU-Canada agreement, known as CETA, is in limbo while the European Court of Justice decides whether the dispute settlement mechanism in the agreement complies with EU law.

Fair trade advocates are rightly celebrating important victories and noting that, thanks to successful grassroots campaigning, President Obama did not ever have the votes to send the TPP to Congress for approval, and won’t be able to do so in the lame duck session as he had originally intended.

Unfortunately there is still a corporate trade agreement under negotiation that has so far received scant attention: the proposed Trade in Services Agreement (TiSA). Trump has not commented about the TiSA, so we really don’t know his views. But there are three reasons why we’re not “out of the woods” with the TiSA, and why the TiSA isn’t in the same category as the TPP and TTIP for now, despite media reports that the deal is on hold until US negotiators get new instructions:

1. Trump is not against corporate-driven trade agreements; he has said that he thinks US negotiators did a bad job negotiating and that they’ve gotten bad deals, and that he’s going to renegotiate and get good deals. So he could very well take up the TiSA as an agreement that’s still under negotiation, put his stamp on it, and then claim that “this is what happens when you negotiate a good agreement!” And you can bet that the corporations are doing their best to talk with him now about doing this, because they are not going to abandon the project when he has yet to state his position.

2. The TiSA is about locking in further deregulation and privatization, and Trump loves deregulation and privatization.

3. The TiSA is focused on services, so it may not speak to the working class in his base in the same way that agreements that result in the transfer of manufacturing jobs to low-wage, worker-unfriendly countries like Vietnam do.

Thus, there is an urgent need in the United States to not only ensure that Trump does not take up a re-packaged TPP or TTIP (and possibly negotiate an even worse deal for ordinary citizens), but also to use the short window of time before he announces his opinion on the deal to ensure that the TiSA is permanently sidelined as well.

However, it’s important not to think of TiSA as “only about services.” Now that nearly every chapter of the agreement has been leaked, a more complete picture has emerged: that the TiSA is fundamentally an offshoring and outsourcing charter.* The TiSA is intended to lock in a system of rules to allow multinational companies to operate in a borderless digitized environment with minimal regulation and maximum rights regarding the treatment of labor, capital, inputs, and the new key element of data. As promoted by the multinational financial, logistics, and big data corporations through Team TiSA, the agreement would set severe limits on the ways that governments can regulate domestic economies, removing key tools of economic management and the ability to shape the service economy while providing an extensive corporate bill of rights for multinational companies’ operations across the globe. Given the shift in employment patterns from high-paying manufacturing jobs to low-wage services jobs, and given the potential offshorability of millions more services jobs, the danger posed by TiSA is daunting.

Here are ten ways that the TiSA could fundamentally affect jobs and the labor market, based on provisions in the leaked texts, some of which have been accepted by all parties and some of which are under negotiation.

1. Companies are expanding the category of “services” in order to make it all-encompassing.Corporations no longer consider setting up a plant and producing goods to be simply “manufacturing goods.” This activity is now is broken down into research and development services, design services, legal services, real estate services, architecture services, engineering services, construction services, energy services, employment contracting services, consulting services, manufacturing services, adult education services, payroll services, maintenance services, refuse disposal services, warehousing services, data management services, telecommunications services, audiovisual services, banking services, accounting services, insurance services, transportation services, distribution services, marketing services, retail services, postal and expedited delivery services, and after-sales servicing, to name a few. Going further, a shoe or watch that measures steps or sleep could be a fitness monitoring service, not a good. A driverless car could be a transport service, not an automobile. Google and Facebook could be information services and communication services, respectively.

2. Offshoring and outsourcing of jobs and downward pressure on wages could greatly accelerate as TiSA would lock inlabor, tax, and regulatory arbitrage through rules that would allow corporations to transfer capital, inputs, workers, and data across borders without consumer, privacy, or labor protections so that they can enjoy the seamless global operations of all of the above services in whichever country provided the cheapest labor, least regulation, and lowest taxes. Note that the services classification list [DOC] being used in the TiSA includes 120 subsectors, many of which are professional categories like those listed above, that have heretofore been protected from past trade deals.

3. Not only would TiSA promote offshoring of jobs, but it would also greatly expand domestic “inshoring.” Foreign contractors (say from Japan) would be able to bring in workers (say from the Philippines) to conduct work inside a consumer country (say the United States) on terms and conditions well below minimum local pay and local standards. The workers would not even have to be from a TiSA country. The Mode 4 Annex in TISA would make many employees or workers mere “independent service contractors.” As they wouldn’t be considered formal employees, the migrant workers would not benefit from the protection of labor laws in the host country, their employment contracts being governed instead by default contract laws. The question then remains, which labor laws will apply? Labor lawyer Tony Salvador has noted: “If it is alleged that the labor laws of the [workers’] home country applies, it would be practically impossible to assert their rights since they are working and are based in the foreign country.”

4. The TiSA does not include a labor chapter, and in fact the draft texts only mention labor rights once— in one Annex supported only by one developing country. Workers’ rights provisions in past trade agreements have been weak and unenforced, but the TiSA doesn’t even meet this low bar, and does not even reference the basic standards set forth by the International Labor Organization (ILO). In addition, companies also would not be required to have local directors or managers, or even a local presence, compounding the inability to hold them accountable for misdeeds in labor (or other) disputes under national laws. TiSA’s standstill clause would constrain governments from implementing new regulations, including labor laws, that might negatively impact the conditions of competition of foreign firms vis-a-vis domestic companies.

5. Preventing governments at the national, state, and even municipal levels from supporting local businesses and local employment is a major focus of the TiSA. Foreign services corporations would also not be required to hire local staff, even though that is typically viewed as a major benefit of allowing foreign services suppliers to operate in a country. Market access rules proscribing economic needs tests, provisions requiring that foreign companies operate under “at least as favorable” conditions of competition as domestic companies, and government procurement rules opening up services contracts down to the penny to foreign bidders would eviscerate any laws resembling “buy local” or “buy American.”

6. The principle of “technological neutrality” which TiSA negotiators take as a given would have immeasurable job impacts particularly with regard to the “gig” economy. This principle means that the rules being developed in TiSA (which are not regulations, but constraints on regulating) would apply to all new services regardless of the technological mechanism by which they are being delivered. So if a country opened its market to passenger transport services, it could not apply new and different rules to Uber than to traditional taxicabs. Driverless cars, drone delivery, and other steps towards automation would have to be regulated the same way as other mechanisms of delivering a service. Given the speed of technological change, locking out the possibility of developing different regulations for different technologies is a serious usurpation of the role of the public oversight over corporate practices and would massively impact millions of jobs in these emerging sectors.

7. Job loss as a result of privatization would increase as publicly owned utilities would have to compete under the same rules as private companies, reducing the benefits of public ownership, resulting in the elimination of jobs that inevitably follows privatization. The TiSA also includes a ratchet clause, which would lock in existing and future liberalization of services, making failed experiments in privatization of education, health, water or electricity distribution, transportation, postal delivery, garbage collection, or wastewater treatment irreversible.

8. The financial services text of the TiSA is the closest thing imaginable to a guarantee of another job-killing financial crisis. If the draft texts were accepted, the TiSA would constrain governments from implementing most of the regulations that are recognized, both domestically and internationally, as essential to prevent another global financial crisis. This includes, for example, rules against banning toxic financial products and rules against establishing limits on the size of banks; governments would forego any possibility of breaking up “too big to fail” systemically risky financial institutions.

9. Workers would have to shoulder even more of the tax burden as corporate tax evasion would accelerate. Companies that supply a service would not be required to have any physical local presence, making value addition even more difficult to pinpoint, facilitating tax avoidance. The trend of companies moving headquarters to tax havens would speed up, shifting the tax burden of maintaining schools, healthcare, and infrastructure even more to workers.

10. The TiSA could potentially be used as the basis of a foreign company’s claim against the United States. The TiSA does not include the infamous Investor to State Dispute Settlement (ISDS) mechanism by which private foreign corporations can sue sovereign governments in private courts (because the aim is to bring it back into the WTO). However, under the TiSA an “investor could also refer to the breach of TiSA rules as part of its case that its ‘legitimate expectations’ of fair and equitable treatment had been violated — an extremely open ended and unpredictable concept that investors rely on most often to challenge government regulations and decisions, even when they are made in the public interest,” according to the analysis of the EU’s dispute settlement proposal in July of this year.

There are many other negative consequences of the proposed TiSA — for our democracy, the climate, our public services, global financial stability, and our privacy and internet governance, just to name a few.

But the labor implications have heretofore not been highlighted. At this point they seem to be an open door through which to reach the president-elect and his constituents, and to ensure that the increasing servicification of the economy does not result in a disastrous future for jobs, wages, and inequality in the United States.

Background Information on the TiSA

The TISA is currently being negotiated among 50 countries (or 23 parties, counting the 28-member European Union as one) with the aim of extending the coverage of scope of the existing General Agreement on Trade in Services (GATS) in the World Trade Organization (WTO).

In addition to the core text, it includes annexes setting forth specific disciplines with regard to either government functions (domestic regulation, transparency, government procurement, state owned enterprises, localization) or strategic sectors. The strategic sectors can best be understood as giving corporations the right to move labor (through the Mode 4 and Professional Services annexes), capital (through the financial services annex), inputs (annexes covering air, maritime, and road transportation, energy, telecommunications, and other services that all services companies rely on), and data (the e-commerce annex). All of these annexes and the core text have been leaked, sometimes in multiple iterations which show the evolution of various countries’ positions over time, along with analysis of the implications of each of the texts conducted by members of the global Our World Is Not for Sale (OWINFS) network.

In addition, the TiSA includes the Schedule of Commitments for each member country, in which parties set forth which sectors they are willing to commit to the six market access disciplines and which sectors they are excluding from the National Treatment disciplines.

I have written summaries of the implications of the leaked documents, on domestic regulation, financial services, air and maritime transportation, electronic commerce, transparency, telecommunications, professional services, and the natural movement of persons (called “Mode 4”) in June 2016; on financial services, telecommunications services, electronic commerce, and maritime transport, as well as domestic regulation, Mode 4, transparency, government procurement, and the Core Text in July 2015; on energy services and environmental services, in December 2015; on state owned enterprises (SOEs), professional services, and anti-localization provisions, in May 2016; and on the market access demands of the EU on developing countries in October 2016.

* I would like to thank University of Auckland law professor Jane Kelsey for several of these insights.

Deborah James is the Director of International Programs of the Center for Economy and Policy Research in Washington, DC, www.cepr.net. She coordinates OWINFS, a global network of civil society groups working for a sustainable, socially just, and democratic multilateral trading system. For more information on the TiSA, please see www.tisauncovered.org.