By Robert A. Vella
Here’s an excerpt from the third installment of BuzzFeed‘s investigative series on free trade, titled “LET’S MAKE THEM POORER, AND WE’LL GET RICH.”:
In 2006, near the height of Wall Street’s disastrous speculative frenzy, some of the world’s biggest banks smelled an opportunity.
They saw a way to turn the soaring price of oil into hefty profits. And it involved the tiny island nation of Sri Lanka.
The bankers presented officials who ran the state oil venture there with a way to hedge against further price hikes.
What the banks were selling were derivatives, an often complex and risky type of financial instrument that became associated with the financial crisis. They amounted to a bet on the price of oil, but it was a lopsided bet. The banks — including giants such as Citibank, Deutsche Bank, and Standard Chartered Bank — bore very little risk. The risk for Sri Lanka, if the price of oil fell, was potentially catastrophic.
One Standard Chartered executive found the terms to be so “one sided” that she actually refused to sign off on the transaction, protesting to her colleagues that it could cause “unbearable losses” for the already-struggling oil venture, according to a sworn statement she later gave. But one of her bosses, she said, ridiculed her in a meeting and told her not to stand in the way of several million dollars of profits.
The deal went through, and the other banks struck similar arrangements. Then, instead of rising, the price of oil crashed. The Sri Lankan state company found itself forced to pay the banks millions. Sri Lanka’s Supreme Court ordered a temporary freeze of payments while authorities scrutinized the deals.
Deutsche Bank didn’t bother pressing its case in Sri Lankan courts or even in the business-friendly English court where the bank and the state oil company had agreed in their contract to settle disputes. Instead, the bank pursued an audacious strategy. It turned to a powerful worldwide legal system and commandeered it for a novel purpose: helping financiers profit from some of their most controversial and speculative practices.
It was a gamble, but it worked; the tribunal accepted the case. This breakthrough came as a delightful surprise to some lawyers around the world who specialize in this legal system, known as investor-state dispute settlement, or ISDS. They saw in it not just a single judgment, but also a lucrative new horizon for the financial industry.
From The Washington Post – The shortcomings of the Obama administration’s latest pitch on the TPP:
By Jared Bernstein
… the [Obama] administration has shifted its emphasis to the geopolitical advantages of the deal, or more precisely, the geopolitical costs of a potential failure to ratify the 12-nation agreement. Their warnings come in two flavors, with the second more convincing than the first. [clarification by The Secular Jurist]
First, the administration argues that after years of difficult, complex, multilateral negotiations, if Congress fails to approve the TPP, it will be a sign to our allies that the United States can’t be trusted. Politically, this seems stunningly naive. Surely negotiators, both ours and theirs, knew that Congress would never rubber-stamp a deal like this.
The second claim — that failure to pass the TPP will empower China and hurt the United States — is more serious.
Clyde Prestowitz, writing recently in the New York Times, presented a nuanced argument on this point: Yes, it is in America’s interests to try to reduce China’s global influence. But passing the TPP will be ineffectual in that regard. Regardless of the deal’s outcome, the United States will maintain its already sizable presence in East and Southeast Asia, while both we and China will continue trying to influence trade regimes.
What’s so frustrating about the administration’s sales pitch is its implication that we are somehow unable to write trade deals whose sale is not predicated on trading off workers’ and consumers’ well-being for geopolitical security. Is such a trade-off truly unavoidable?