The Global Trade System is Broken, is Brexit the UK’s Moment
By Global Justice – In response to the seismic political and economic events that have shaped the past decade, a growing number of countries are rethinking their trade relations. This has been most apparent in the spate of cancelled Bilateral Investment Treaties (BITs) and new investment protection models. Countries are also now beginning to flex their muscles in response to Brexit.
When many of the world’s 2,318 BITs were signed, the IMF’s structural adjustment programme was in full swing, demanding market liberalisation in return for finance laced with toxic conditionality, and very few countries had faced any investment arbitration cases against them. BITs were signed as ‘diplomatic sweetners’ meant to signify to partner governments and investors that countries were toeing the Bretton Woods line and were a ‘safe places to do business’. As the IMF’s policies started to go wrong, investors began turning to BITs to ensure that no matter how much profit they had made from those countries in the good times, they bore none of the pain of the bad times.
Fast-forward to 2016 and countries are reeling from the explosion in the number of cases – from around seventy cases in 2000 to 696 by the end of 2015. South Africa has cancelled all of its agreements and introduced a new model which, amongst other things, gets rid of ISDS (the provision that allows companies to sue states if they think a policy negatively impacts the profitability of their investment) and gives a narrower definition of ‘investor’ which requires them to be able to demonstrate a reasonable level of economic activity in the country over a period of time, instead of say, just owning a few shares there.
India is the latest country to rethink its approach in the face of a significant number of claims. Some of our favourite UK companies have taken cases against them, including the tax-dodging Vodafone, Cairn Energy, (currently seeking to drill for oil in the arctic) and Vedanta Resources (known for their plans to mine sacred mountains and, you’ve guessed it,alleged tax-dodging). It may not come as a surprise to find that the subject of the disputes is…. tax – namely that the Indian government has introduced measures aimed at minimising the ways in which companies can avoid paying taxes and the companies don’t like it. India’s Minister for Commerce, Nirmala Sitharam, has stated that “the number of cases… arising out of earlier investment treaties based on old text is shocking.” Dutch colleagues at Both Ends report that the country this week moved to cancel 57 of their 84 BITs.
Brexit is just the last of the political shocks to prompt the rejection of rich countries’ recipe for trade. Economic Partnership Agreements (EPAs) have long been controversial with the 78 countries with which the EU was negotiating. This week, Tanzania had said that it will not sign the East African Community (EAC) EPA that it was to be a part of. Tanzania’s trade representative, ambassador Mlima, has said that signing now would expose East Africa to harsh economic conditions, given that Brexit can only worsen the EU’s already shaky economic performance. Mlima also reiterated concerns that the EPA would undermine local industries in the region. It has not escaped the notice of MEPs that there is a glaring contradiction between the EU’s suspension of aid to Burundi (also member of the EAC) due to concerns about human rights and its insistence that the region sign their EPA as soon as possible. But then the EPAs contain no binding commitments on things like human rights or the environment.
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Countries across the world are grabbing with both hands the opportunities presented by the failure of the current trade and investment regime. They are learning the lessons of the past, resisting the imposition of the old, damaging model of ever-expanding marketisation and liberalisation, and looking for approaches that can support human rights, environment and development goals. The challenge for us in the UK is to do the same, the good news is that we have allies across the globe who we can learn from and work with.