{"id":40871,"date":"2018-11-13T16:55:20","date_gmt":"2018-11-13T06:55:20","guid":{"rendered":"https:\/\/billmitchell.org\/blog\/?p=40871"},"modified":"2018-11-13T16:55:20","modified_gmt":"2018-11-13T06:55:20","slug":"financial-services-agreements-the-eu-as-a-neoliberal-corporatist-project","status":"publish","type":"post","link":"https:\/\/billmitchell.org\/blog\/?p=40871","title":{"rendered":"Financial services agreements – the EU as a neoliberal, corporatist project"},"content":{"rendered":"

\t\t\t\tI have been reading the new book by Costas Lapavitsas – ‘The Left Case Against the EU’ – which has been recently published. It is solid and clearly explains why the EU is not an institution or structure than anyone on the progressive Left should support or think is capable of reform any time soon. It has become a neoliberal, corporatist state and hierarchical in operation, with Germany at the apex bullying the weaker states into submission. Divergence in outcomes across the geographic spread is the norm. It is also the anathema of our concepts of democracy both in concept and operation. It is more like a cabal of elites who are unelected and, largely unaccountable. By giving their support to this monstrosity, the traditional Left political parties (social democrats, socialists etc) have been increasingly wiped out such is the anger of voters to what has become a massive coup by capital against labour. These are the themes that Thomas Fazi and I also explored in our recent book – Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World<\/a> (Pluto Books, 2017). I also just finished reading an interesting report – Financial Regulation challenged by European Trade Policy<\/a> – published by the Veblen Institute and Finance Watch (October 2, 2018), which examines “the impact of European trade policy on financial regulation”. It is essential reading for those progressives who still think that Britain should remain in the EU. If they understand the research findings they would change their minds.
\n<\/p>\n

Finance Watch “is a European NGO founded in reaction to the last financial crisis, when policymakers realised that there was no counter-power to the lobby of finance”.<\/p>\n

It aims to outline and advocate for essential finance reform” that “challenge the financial lobby’s fallacious technical arguments” and “defend the public interest in the making of financial regulations”.<\/p>\n

It receives a significant proportion of its funds from the EU and other European institutions (for example, the EIB).<\/p>\n

I do not think they go far enough but their intent is to be applauded.<\/p>\n

The Veblen Institute for Economic Reforms<\/a> is a Paris-based group that “strives for a sustainable society in which respect of our planet’s physical limits goes hand in hand with well-being, social solidarity and an economy built upon more democratic rules than at present.”<\/p>\n

It seems to be supported by donations.<\/p>\n

Their joint report, cited in the Introduction, examines the ways in which the trade policies pursued and legislated by the EU impact on the capacity of Member State governments to invoke financial regulation and maintain financial stability within their nations.<\/p>\n

They introduce the notion of “‘new generation’ trade agreements” which:<\/p>\n

\n… seek to increase trade between major global powers whose economies are already well integrated. Going far beyond the remaining tariff peaks and a few classic negotiation topics (government contracts, protection of intellectual property etc.), these agreements aim at opening service markets and eliminating “non-tariff trade barriers” – that is, discrepancies relating to rules and norms of protection …<\/p>\n

… they create mechanisms for dialogue that will make it possible to deepen and expand their content even after their formal adoption. They contain, moreover, mechanisms for protecting investments and provide for the implementation of the highly controversial mechanism for settling disputes between investors and states.\n<\/p><\/blockquote>\n

So they are like a moving feast for corporations who can use these arrangements to challenge anything an elected government chooses to do in the interests of the nation that the corporations feel infringes or undermines their own self interest.<\/p>\n

The EU is also currently negotiating the “Trade in Services Agreement (TISA)”, which:<\/p>\n

\n… seeks to circumvent existing logjams in the World Trade Organisation (WTO) to open service markets beyond what is provided for under the General Agreement on the Trade in Services (GATS) of 1994.\n<\/p><\/blockquote>\n

The services covered by TISA include:<\/p>\n

\n\u2022 all banking services, including deposit-taking;
\n\u2022 insurance and reinsurance services;
\n\u2022 securities and derivatives trading, including OTC trading;
\n\u2022 pension fund management;
\n\u2022 fiduciary services and tax consulting;
\n\u2022 transfer services and financial data processing services;
\n\u2022 commercial banks;
\n\u2022 investment banks;
\n\u2022 speculative funds and capital investment funds;
\n\u2022 stock and commercial exchanges;
\n\u2022 and financial counselling of all kinds, including credit rating agencies.\n<\/p><\/blockquote>\n

That is, “almost all financial services”.<\/p>\n

The question the Report considers is whether the global integration of these services allows the sector to adequately “respond to the real economy’s needs”.<\/p>\n

One might broaden that concern and substitute ‘society’ for ‘economy’.<\/p>\n

One of the the hallmarks of the neoliberal era has been the way it has pushed the concept of ‘society’ to the background. People live in societies not economies. Economies are meant to serve those societies (and us) not the other way around.<\/p>\n

The Report notes that:<\/p>\n

\nOver the past three decades, financial globalization has produced a highly interconnected but deeply unstable financial system.\n<\/p><\/blockquote>\n

And we should always remember that almost all of the transactions that this sector is engaged in are unproductive – wealth shuffling.<\/p>\n

The problem is that when the players get ahead of themselves the folly they create spills over into the real economy and starts damaging the well-being of all of us.<\/p>\n

We do not need a financial system that is that pervasive to extract the sort of services that are of benefit to the broad population.<\/p>\n

The old banking systems were fine at creating intermediations between savers and borrowers to permit the purchase of homes etc.<\/p>\n

What we have now is a sector that is way too large and which uses its financial clout to manipulate political systems to ensure policies structures allow it to get even larger.<\/p>\n

On September 21, 2009, the UN Commission of Experts on Reforms of the International Monetary and Financial System, published a report – Reforms of the International Monetary and Financial System<\/a> – considered the issue of “financial market liberalization” within the ambit of the “General Agreement on Trade in Services (GATS) under the WTO” and concluded that:<\/p>\n

\nThe framework of financial market liberalization … may restrict the ability of governments to change the regulatory structure in ways which support financial stability, economic growth, and the welfare of vulnerable consumers and investors …\n<\/p><\/blockquote>\n

Liberalisation has meant an enlargement of the sector, concentrated in a few “centres” around the world.<\/p>\n

The problem is that, far from reining in the financial services sector, our politicians and their technocratic support are planning to give it more scope to create mayhem.<\/p>\n

As the Finance Watch\/Veblen Institute Report notes:<\/p>\n

\n… current trade negotiations currently seek to pursue and deepen … [the sector] … The inclusion of financial services in the new agreements is meant to impose new discipline on state regulation at the national level and to promote capital movement and the supply of services at the international level, notably by encouraging the commercial presence of foreign suppliers.\n<\/p><\/blockquote>\n

The questions that arise are:<\/p>\n

1. Are there “economic benefits” from this expanded and unfettered global sector?<\/p>\n

The Report cites IMF evidence that “financial liberalization tends to increase inequality … increased vulnerability to external crises …”<\/p>\n

2. What are the “negative effects”?<\/p>\n

Such as “increased systemic risk” (financial meltdown) and the like.<\/p>\n

And the reality is that the political climate at present is back “towards deregulation”.<\/p>\n

For Europe, the reality is that the EU is pushing further “trade liberalization” in the financial services sector. The regulative aspects of the proposed agreements are being subordinated to establishing environments where capital can flow even more freely than now.<\/p>\n

While the 1994 GATT is bad enough in relation to the financial services sector, the TiSA that the European Union is involved in at present is even more ‘liberal’ in its approach to “opening service-sector markets”.<\/p>\n

The Report says that the:<\/p>\n

\nThe European Union is currently negotiating more than thirty trade and investment agreements with over sixty countries.\n<\/p><\/blockquote>\n

These “Mega” deals contain chapters on financial services which typically “reduce the leeway available to states for future financial regulation”.<\/p>\n

The specific TiSA (Trade in Services Agreement) seeks:<\/p>\n

\n… to circumvent the opposition of developing countries to further liberalize trade in services … to define restrictive and irreversible rules for services that could one day be multilateralized.\n<\/p><\/blockquote>\n

The concept of local rules would be prohibited.<\/p>\n

Governments should not restrict digital trade.<\/p>\n

And more …<\/p>\n

While most of these negotiations are shrouded in secrecy, the excellent service provided by – Bilaterals.org<\/a> – helps us keep track on the developments.<\/p>\n

Some key measures in the draft agreements threaten our democracies.<\/p>\n

1. The “list-it or lose-it approach”<\/p>\n

If something is not explicitly agreed on to be regulated, then it is free from regulation.<\/p>\n

In other words, as new products, technologies emerge, governments will not be able to regulate them because they were not listed.<\/p>\n

2. “Public services are not protected as such by these agreements” so that outside “very limited exceptions”, public services “such as, as education, health, waste disposal or transportation” would be open to competition.<\/p>\n

3. “Increasing regulatory capture”<\/p>\n

New lobbying opportunities will arise as nations will be forced to signal any regulative intent to all signatory states and commercial ‘stakeholders’.<\/p>\n

Governments are required to justify their interventions to all parties in a “‘reasonable, objective and impartial’ manner”<\/p>\n

And, with so-called ‘mutual recognition’ in play, “foreign companies could be exempt from local prudential rules if the regulations in their home country were determined ‘equivalent’.”<\/p>\n

4. “Financial regulations subject to investment arbitration”<\/p>\n

This is the thorny issue of so-called ‘Investor State Dispute Mechanisms’ that are now appearing in bi-lateral agreements between nations.<\/p>\n

I considered them in these blog posts:<\/p>\n

– The case against free trade – Part 3<\/a> (November 22, 2016).<\/p>\n

– So-called ‘free trade’ agreements should be strongly opposed<\/a> (June 30, 2015).<\/p>\n

The clauses set up mechanisms through which allow international corporations to take out legal action against governments (that is, against elected representatives of the people) if they believe a particular piece of legislation or a regulation undermines their opportunities for profit.<\/p>\n

It is that crude. Profit becomes prioritised over the independence of a legislature and the latter cannot compromise the former.<\/p>\n

In other words, a democratically-elected government is unable to regulate the economy to advance the well-being of the people who elect it, if some corporation or another considers that regulation impinges on their profitability.<\/p>\n

Corporation rule becomes dominant under these agreements.<\/p>\n

The agreements create what are known as ‘supra-national tribunals’ which are outside any nation’s judicial system but which governments are bound to obey.<\/p>\n

The make-up of the tribunals is beyond the discretion of a nation’s population, and, are typically dominated by corporate lawyers and other nominees. The notion of accountability disappears.<\/p>\n

These tribunals can declare a law enacted by a democratically-elected government to be illegal and impose fines on the state for breaches.<\/p>\n

With heavy fines looming, states will bow to the will of the corporations. Corporation rule!<\/p>\n

There have already been some astounding decisions in these ISDS under other agreements, which have denied governments the right to introduce policies regarding environmental protection (for example, toxic waste safeguards, forestry management processes, etc).<\/p>\n

The Finance Watch\/Veblen Institute Report says that typically:<\/p>\n

\n… these excessive rights are not balanced by any duty for investors regarding the impacts of their activities on society and on the environment and their responsability in that respect.\n<\/p><\/blockquote>\n

There is never a case that can be made where a corporation has primacy over the elected government.<\/p>\n

So there is never a case for so-called ‘Investor State Dispute Mechanisms’ in bi-lateral agreements between nations.<\/p>\n

A nation state is defined by its legislature and that institutions sets the legal framework in which all activity within the sovereign borders engages.<\/p>\n

Corporations have rights under that framework as do citizens. But the assumption is that the legislative framework should reflect the goals of national well-being.<\/p>\n

There is never a case that a corporation should have institutional structures available that allow it to use ‘commercial’ arguments to subvert national legal positions.<\/p>\n

5. “Refrain from regulating: new state commitments”<\/p>\n

The agreements typically have so-called “market access clauses seek to limit the ability of states to intervene through regulation”.<\/p>\n

Rules such as the limiting the “size of banks’ balance sheets” or “the share of their capital held by foreign investors” are prohibited.<\/p>\n

So, for example, government ambitions to renationalise banks would be thwarted under these provisions.<\/p>\n

6. “The diffusion of financial innovations”<\/p>\n

The EU proposal explicitly requires any agreements to allow “the proliferation of new and uncontrolled financial products”.<\/p>\n

The financial sector would no longer has to establish probity for its products.<\/p>\n

7. “An incomplete safeguard clause”<\/p>\n

The European Commission’s “safeguard clause” is seriously deficient in protecting “investors and depositors and the stability of the financial system as a whole”.<\/p>\n

8. “Limits on rules relating to data localization and transfer”<\/p>\n

We read that:<\/p>\n

\nThe freedom to hold and transfer data, however, is among the key demands made in current negotiations by the financial sector and e-commerce industries.\n<\/p><\/blockquote>\n

In other words, they want to retain secrecy and prevent governments from being able to find trails when assets disappear during a collapse.<\/p>\n

9. “Outdated protection clauses on capital controls”<\/p>\n

Agreements aim to restrict the capacity of governments to impose capital controls in an emergency or more generally to reduce speculative currency activity.<\/p>\n

Overall, the Report concludes is that:<\/p>\n

1. “TiSA and the integration of financial services in these so-called “new generation” bilateral trade agreements risk reducing the ability of states to fight effectively against financial instability and to promote a financial system that would serve the economy’s needs.”<\/p>\n

2. “these new agreements may contribute to protecting speculative and risky behaviour against the so-called “excesses” of prudential regulation, thus fuelling future crises.”<\/p>\n

3. “This risk is inherent in the new agreements’ very objective, which is to eliminate or reduce the scope of regulations that are perceived as trade barriers.”<\/p>\n

4. “In the financial realm, treating regulations as obstacles to the market’s proper functioning goes against the lessons of the 2008 crisis.”<\/p>\n

5. “several measures found in draft agreements could threaten existing rules pertaining to financial regulation – most importantly, these measures would condemn to failure any efforts to strengthen these regulations.” We have considered those measures above.<\/p>\n

The Report recommends:<\/p>\n

1. “Ensure transparency and effective democratic control over trade policy” – secrecy, lack of transparency, ‘commerical-in-confidence’ ruses, should all be abandoned by governments signing these deals.<\/p>\n

2. “Leave out financial regulation from trade negotiations”.<\/p>\n

These are not normal services and they should be dealt with separately.<\/p>\n

3. “Leave out investor-state dispute settlement (ISDS) mechanisms.”<\/p>\n

Clearly. The state is never to be subordinated to corporations.<\/p>\n

4. “Stop using the ‘negative list’ method to grant market access for services”.<\/p>\n

The state should have the power to consider what it regulates and when. Exclusion lists that then limit what can happen in the future are to be avoided.<\/p>\n

5. “Ensure that public services and social security systems are explicitly protected.”<\/p>\n

Always. Corporations should never compromise these activities.<\/p>\n

6. “Protect the ability of States to regulate efficiently …”<\/p>\n

Never compromise the capacity of the state to any sectoral interest.<\/p>\n

7. “Include a clause in trade agreements to allow States to put in place effective checks on movements of capital when deemed necessary”.<\/p>\n

The state should always have the right to invoke capital controls at its choosing.<\/p>\n

This has to be a ‘risk’ of busines and is an essential policy tool for governments to ensure economic and financial activities are consistent with public purpose.<\/p>\n

8. “Make trade and services agreements reversible”<\/p>\n

And not subject to massive financial penalties if they are abandoned. Again, this should just be seen as a ‘risk’ of doing business.<\/p>\n

Further reading: The blog post – So-called ‘free trade’ agreements should be strongly opposed<\/a> (June 30, 2015).<\/p>\n

Conclusion<\/h2>\n

This is another example of the EU acting to undermine democracy.<\/p>\n

As Larry Elliot reminded us in his UK Guardian article (July 21, 2017) – Why the moaning? If anything can halt capitalism’s fat cats, it’s Brexit<\/a>:<\/p>\n

\n… neoliberalism …[is] … hardwired into the European project.\n<\/p><\/blockquote>\n

The EU technocrats work away every day on strategies and rule designs and negotiations which explicitly undermine the capacity of elected governments to represent the best interests of their nation.<\/p>\n

Their trade agreement negotiations are just one aspect of that behaviour.<\/p>\n

This is core<\/strong> EU. If you were to eliminate it the ‘European Project’ as it has become would be terminated.<\/p>\n

Brexit is about Britain withdrawing from that sort of structure and regaining its self-determination.<\/p>\n

It is true that Tory governments might sign agreements that will tie their hands (as they have in the past).<\/p>\n

It is also true that Labour could do the same thing.<\/p>\n

But with Brexit, at least, an enlightened and truly progressive government will be able to abandon these pernicious arrangements (because they will be enshrined in EU law not British law).<\/p>\n

That is why I support Brexit. It gives Britain a chance to get out of this corporatist, anti-democratic monstrosity that the ‘European Project’ has become.<\/p>\n

That is enough for today!<\/p>\n

(c) Copyright 2018 William Mitchell. All Rights Reserved. \t\t<\/p>\n","protected":false},"excerpt":{"rendered":"

I have been reading the new book by Costas Lapavitsas – ‘The Left Case Against the EU’ – which has been recently published. It is solid and clearly explains why the EU is not an institution or structure than anyone on the progressive Left should support or think is capable of reform any time soon.…<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[6,16,55,46,67],"tags":[],"class_list":["post-40871","post","type-post","status-publish","format-standard","hentry","category-britain","category-demise-of-the-left","category-eurozone","category-reclaim-the-state","category-uk-economy","entry","no-media"],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/billmitchell.org\/blog\/index.php?rest_route=\/wp\/v2\/posts\/40871","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/billmitchell.org\/blog\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/billmitchell.org\/blog\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/billmitchell.org\/blog\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/billmitchell.org\/blog\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=40871"}],"version-history":[{"count":0,"href":"https:\/\/billmitchell.org\/blog\/index.php?rest_route=\/wp\/v2\/posts\/40871\/revisions"}],"wp:attachment":[{"href":"https:\/\/billmitchell.org\/blog\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=40871"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/billmitchell.org\/blog\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=40871"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/billmitchell.org\/blog\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=40871"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}