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  • Helmut Scholz

Free Trade Agreements and their effects on Europe’s Labour and Social Rights

Speech of MEP Helmut Scholz at Rosa Luxemburg Foundation conference; Brussels, June 2017

Let me first of all thank the Rosa Luxemburg Foundation very much for organising this important conference on a very timely issue, and for honouring me with the invitation to address this distinguished audience.

Let me start by pointing out that I do not feel completely comfortable with the title of our panel. Yes, I want to fight against negative effects of Free Trade Agreements (FTAs) on Labour and Social Rights in Europe, BUT not only in Europe. From the beginning, our thoughts should strive for improving social and environmental conditions in all corners of our planet. This has become even more important, since Global Value Chains (GVCs) are bringing upon a direct relation between workers involved around the world in the production of different components of complex final products.

A car for instance, consists today of more than 30.000 parts. A single part may be composed of over 30 components. Parts and components may have crossed more than a dozen borders before being finally all assembled in one vehicle. What is the nationality of such a complex product? Where are the taxes being paid? What is the regulatory framework defining the standards of production? Where do responsibilities of companies involved in a production chain end and begin?

We lack the regulatory framework to respond adequately to these questions. To some extent, the new generation of so-called Deep and Comprehensive Trade Agreements addresses open issues. But they do that - at least so far - mainly from a perspective of corporations that wish to expand into foreign markets, or wish to produce themselves or through subcontractors elsewhere under cheaper conditions in order to reimport products or components into the EU. To this end, the DCFTAs regulate market access and shall abolish or prevent laws and regulations supposedly discriminating against EU firms.

The EU and its Member States have currently only two modern FTAs with strong industrialised economies: with South Korea and with Canada, with Japan and the upgrading of the Mexico agreement likely to follow later this year. Most agreements are with countries of a much less developed economy. That is the reason why detrimental effects of such agreements have been experienced more in these partner countries than in the EU.

The first targeted sector tends to be public procurement. Some partners even had to change their constitution because the European offensive interests demanded to end provisions like local content, recruitment or contracting requirements.

The agreements also define strict rules and set standards for hygienic agricultural production, often difficult to cope with for small scale farmers. The agreements ease investment, much to the delight of mining corporations and large farming companies seeking for land to buy. Land prices are on the rise globally, including within the EU. The impact assessment for the EU - MERCOSUR agreement projects that it will lead to investment and expansion of large scale agriculture into new regions of Southern Brazil. Local societies will be forced to leave or to adapt. EU farmers will experience strong competition from large scale farming in Brazil and Argentina.

Many recent agreements contain chapters on labour rights and environmental standards. The value of these chapters is in there reference to ILO conventions and the promotion of international environmental conventions. Unfortunately, there is no sanctions mechanism included. If a partner government consistently fails to comply with its obligations, the only consequence is the formation of a joint working group. In the cases of South Korea and Colombia, where many trade unionists ended up in prison, or disappeared or got killed, the chapters have proven to be toothless. A lack of regulation and missing implementation of national laws where they exist are according to the ITUC the main reason for workers’ rights coming under pressure. In particular migrant workers are very, very vulnerable, with more than 20 million people actually working in forced, slave labour conditions.

What do we want to do about it? It could be an interesting question for our debate today, whether we want labour rights to be addressed in a binding way in trade agreements. Or do we want a multilateral labour agreement within the WTO and its dispute panels? Or do we strengthen the ILO, knowing that the entrepreneurs in it questioned the right to strike last year?

In our changing economies there are other developments that will put pressure on our rights. Let me highlight some of them, as they are part of a wider rights debate as well as an issue in new trade negotiations.

Our economies go digital. The speed of electronic communications has changed the concept of location and distance. Services can be provided by someone or something on a different continent. Machines and robots can be remote controlled. An increasing number of products is being printed. What law governs the 3D printing of a gun? The law of the place where it materialises? Or the law of the country hosting the server, from which the printer downloads its instructions?

The richest corporations in the world include a growing number of data companies. The trade in data, the trade of profiles of individuals, makes companies like Google and Facebook rich. Do we want trade in data on our health collected by apps on our so-called smart devices? Can we still decide on this question, and if not, what are the data privacy laws governing this business field? Trade in profiles becomes an increasingly important derivatives of hardware business. Bose is currently being sued in the U.S. by a customer who found out that the app “connect”, which came together with his new Bose headphones, was collecting data on the music he listened to. The app submitted his profile to Bose and third parties, including a data mining company. Big data processing is still only at the beginning. Today this business is about knowing your profiles in order to make you an offer of your interest at the time when you are most likely to purchase it. Tomorrow, the business might be about manipulating your interests and choices, including your political choices.

Trade in data is a very important and still unresolved issue in the negotiations for a multilateral trade in services agreement called TiSA. All other parties are eagerly waiting for the EU Commission to provide an offer on data trade that does not break our EU law enshrined in the data protection directive. DG Trade has drafted a proposal based on the way financial data are treated, but the draft is still in the consultation process with other policy directorates of the Commission.

A final aspect of the changing global economy to be mentioned is financial capitalism. The amounts of capital that have been accumulated by private and state-owned investment funds are larger than at any point in human history. The profits available exceed employment intensive economic sectors like the car industry. Many of the major corporate players like Volkswagen, Siemens or Alphabet are operating banks, equity funds and venture capital houses themselves. Investments can be highly speculative and can put entire economies at risk. Ten years after criminal banking practices in the U.S. let to a financial services melt-down, the people of Greece are still forced to pay an unjust debt service to profiteers in private banks. While a number of regulatory measures have been implemented in order to prevent such a banking catastrophe from happening again, the mentality in the sector remained the same. President Trump has announced to withdraw part of the Dodd-Franck Act that imposed stricter regulations and controls on Wall Street. There exists no UN Agency or in charge of regulating the financial sector globally. Cooperation was established on a good will bases in the frameworks of G20 and OECD.

Financial services are among the priority offensive interests of EU negotiators in the new free trade agreements. The chapters now included in the binding agreements are not intended to tame the markets. Their effect is rather to the contrary. A study produced for the European Parliament’s ECON Committee has looked at the financial services chapters in recent EU DCFTAs. The study states clearly that “One of the most important additions has been the inclusion of comprehensive advance notice and comment obligations for proposed financial regulation, which have attracted controversy, due to their potential impact on decision-making processes within the EU and its trading partners.” The expected result is “regulatory chill”. Keep in mind that we have now already such chapters in our agreements with Central America, including Panama, and with the Caribbean, and that we might conclude this year negotiations with Mexico to include financial and other services in the existing trade agreement. Money laundering and tax avoidance is becoming easier in both directions.

I am aware that many of us would like to stop all trade agreements, hoping that this will spare us from all harm that could come. However, you might agree with me that we do need to find a way to respond to the challenges. I am a strong supporter of international dialogue. Let us agree with the Chinese on the rules of competition. Let us seek for allies in Latin America to fight financial markets crime. Let us work with partners in Africa to prevent environmental degradation. Let us convince partners in South and Southeast Asia to tackle the new forms of slave labour. And let us find partners in Europe to end aggressive trade policies and replace them by fair trade as the new norm. It is time to act.

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