Trade: Policy space in trade agreements

By definition, international trade agreements result in a loss of signing countries’ sovereignty. The hope is that this political loss will result in larger economic gains. However, what happens in trade agreements, especially since 1994, is the increasing curtailment of governments’ ability to use policies proven to help generate employment and development resulting in decreasing growth rates. These restrictions are especially detrimental both to countries in the global south and to some U.S. state and local governments with much higher unemployment and poverty.

Starting in the early 1980s, when the economic policies now promulgated in today’s trade agreements began to be used, growth rates have plummeted in those global south countries. From 1960-1980, real per capita income in Latin America grew by 75 percent, but from 1980-2000, this rate plunged to a mere six percent. (Real per capita income is the average after-tax income after dividing by population. This number is adjusted for inflation to allow comparison across different time periods.) In sub-Saharan Africa, real income per person actually shrank by 15 percent after adopting the policies that trade agreements promote today. Those policies have not produced benefits in the U.S. either; the U.S. has experienced a pathetic 0.28 percent rise in real per capita income since Fast Track was introduced in 1974, despite average productivity almost doubling. (Fast Track is a negotiating tool used by the executive branch whereby Congress loses its authority to amend trade agreements and can only approve or disapprove them.) In fact, the only countries that have had strong growth rates in the last 20 years are the ones that have used policies considered illegal in today’s trade agreements (China, India, Malaysia, Chile, and Vietnam).

Today’s trade agreements increasingly affect state and local governments’ autonomy. Policies such as prevailing wage laws, local procurement policy, antioff- shoring measures, food safety protections, land use and zoning laws, environmental and even local tax laws can be challenged through trade agreements signed with no consultation of these governments.

Another central problem with the current trade model is that it locks countries into a development model that is completely unsustainable, heavily dependent on petroleum and aimed at reducing environmental protections. As global climate change progresses, it is clear that governments will have to make significant changes in public policies and institutions if the human race is to survive. To make these changes more difficult is illogical. Countries need to be able to experiment with different policies, but today’s trade agreements make any experimentation difficult if not impossible because foreign corporations can challenge these policies through dispute resolution mechanisms.

It is time to find a way to engage in trade without overly restricting democratically elected governments’ policy space. Also, severe ecological changes are already starting, requiring new policies which are considered illegal in today’s trade agreements. The current Bolivian government recently offered baseline negotiating positions for a trade agreement with the U.S. (see chart from the Institute for Policy Studies, This proposal represents an example of a new kind of trade agreement that benefits trade, but does not unduly undermine democratic structures and decisions.

• Would allow governments to require that foreign
investors guarantee “appropriate technology transfer;
utilization of local raw materials and inputs;
hiring of national labor and respect for domestic
environmental and labor policy.”
• Investor disputes would be resolved “in the framework
of the jurisdictions established by the Bolivian
Constitution and national laws.”

• Would not subject indigenous community and
family farmers to free trade rules. This type of
farming is valued “for its contribution to the protection
of the environment, healthy food systems and
cultural diversity.”

• Would “ensure universal access by Bolivians to
essential services, including strengthening the regulatory
capacity and provision of essential services by
the public sector.

Intellectual Property Rights
• Would “guarantee access to affordable generic
medicines and access to medical treatments.”
• Would ban patents on plants, animals and living
materials to help protect the country’s “wealth of
traditional knowledge and rich biodiversity.”

National Treatment
• Would allow Bolivia to maintain “Buy Bolivian”
programs and other mechanisms to strengthen domestic

Reducing Inequality
• Like the approach to integration within the EU, the
Bolivian proposal includes proactive measures to
reduce inequality. It calls for a “funding mechanism
for concessional credits and/or grants to strengthen
Bolivia’s productive base and market systems so that
Bolivian producers could be able to take practical
advantage of new U.S. market access.”

US Policies
• Although virtually all successful economies have
used such mechanisms in the course of their development,
existing U.S. trade deals ban such “performance
• With the exception of the U.S.-Australia FTA, U.S.
trade pacts signed since 1993 allow foreign investors
to bypass domestic courts and sue governments in
international tribunals. Investors can even sue over
public interest regulations that diminish the value of
an investment.

• The inclusion of products to be liberalized is based
purely on competitive criteria, without considering
implications for small farmers, the environment or
food security.

• Advocates full liberalization of public services
while restricting requirements being placed on new
service providers.

Intellectual Property Rights
• Increase monopoly rights of pharmaceutical firms
and limit access to affordable generic medicines.
• Require governments to make best efforts to
provide patent protection for plants and maintain
patents granted for plants and animals.

National Treatment
• Require national treatment and most-favored nation
treatment, undercutting the authority of governments
to promote domestic development.

Reducing Inequality
• Existing agreements assume that trade and investment
liberalization alone will lift all boats. To the
contrary, inequality has been on the rise in virtually
all countries that have pursued these policies, including
the United States.
Chart created by Institute for Policy Studie