October 27, 2017

The Human Costs of Exiting Trade Agreements: The Right to Development in an Era of Policy Uncertainty

Written by Diane Desierto

October 2017 has been a cliffhanger month for global policy uncertainty, especially highlighted by the mirroring acts of brinksmanship during intense trade negotiations on both sides of the Atlantic. With the looming 29 March 2019 Brexit deadline, UK Prime Minister Theresa May surprised Brexit hardliners when she announced on 23 October that there will be no implementation period or transition period for Brexit without a final trade treaty concluded between the EU and the UK. The EU’s Chief Brexit negotiator, Michel Barnier, has already announced that “it would take years to complete” such a treaty, making it clear at this point that Brexit will proceed without a transitional period unless Mrs. May reverses course. Without a transitional period before Brexit, significant uncertainty in the regulatory environment is estimated to already deter investment in British manufacturing sectors, lose 100,000 jobs in the finance sector in the UK, with small and medium enterprises (SMEs) estimated to be hit hardest because of impacts to banking, capital access, and markets for British goods. According to a 2016 OECD study estimating the economic consequences of Brexit, “Brexit would be akin to a tax on GDP, imposing a persistent and rising cost on the economy that would not be incurred if the UK remained in the EU. The shock would be transmitted through several channels that would change depending on the time horizon. In the near term, the UK economy would be hit by tighter financial conditions and weaker confidence and, after formal exit from the European Union, higher trade barriers and an early impact of restrictions on labour mobility. By 2020, GDP would be over 3% smaller than otherwise (with continued EU membership), equivalent to a cost per household of GBP 2200 (in today’s prices). In the longer term, structural impacts would take hold through the channels of capital, immigration and lower technical progress. In particular, labour productivity would be held back by a drop in foreign direct investment and a smaller pool of skills. The extent of foregone GDP would increase over time. By 2030, in a central scenario GDP would be over 5% lower than otherwise – with the cost of Brexit equivalent to GBP 3200 per household (in today’s prices).” All this, without even factoring in the cost of the Brexit divorce bill (estimated loosely so far at a gross bill of about €100 billion euros) as the financial settlement for all obligations the UK made as a member of the EU.

Similarly, uncertainty pervaded the fourth round of renegotiation talks in October between the United States, Canada, and Mexico on the future of the North American Free Trade Agreement (NAFTA) – taking place under the Damocles sword of US President Donald Trump’s threats of withdrawal from NAFTA. The US Trade Representative’s demands to “rebalance” NAFTA and restore US trade deficits, through an aggressive set of negotiation objectives, have been rejected by the US agricultural sector, and also opposed by the United States Chamber of Commerce as ‘dangerously’ intended to scuttle NAFTA altogether. Scholars, such as Joel Trachtman, have argued that the United States cannot, in any case, unilaterally withdraw from NAFTA without Congressional approval. While NAFTA renegotiation talks have been extended to the first quarter of 2018 (when the US President’s authority to negotiate trade deals under the Congressional grant of Trade Promotion Authority is also up for Congressional renewal), the persistent uncertainty is also hurting farmers, and small business owners in local communities throughout the North American region, deterring investments into the United States, threatening the loss of 14 million jobs in the United States – with 47 economists of the National Association for Business Economics reporting that the United States economy will not gain from, but will be harmed by, the NAFTA renegotiations.

The strident assertions of sovereignty notwithstanding, one has to wonder whether the States willingly inviting the policy, regulatory, and economic uncertainty in their domains are transparently discussing the human costs to these changes, and enabling the widest possible consultations with, and participation of communities, individual persons, and groups in the lasting economic decisions being taken on their behalf. Regardless of the form of the economic decision that treaty negotiators and politicians reach – whether bilateral, trilateral, or multilateral trade agreement or any other political arrangement conceived to steer the State’s course towards more economic development – do States muscling the argument of sovereignty in the current debates about global economic treaty changes recognise the higher claims of the communities, groups, and individual persons – who are the ultimate constituencies of the sovereignties that these States assert?

In this post, I point out that, in this critical time of change that could be both perilous and promising, States immersed in the processes and politics of these tectonic global economic treaty changes have muted the human costs and impacts of change in the policy debates, without giving an equal place for the independent participation of individuals, civil society groups, and local communities alongside lobbying efforts of chambers of commerce and market players. This seeming ‘business as usual’ ethos in the writing and rewriting of trade agreements undermines the right to development as a “comprehensive economic, social, cultural and political process, which aims at the constant improvement of the well-being of the entire population and of all individuals on the basis of their active, free and meaningful participation in development and in the fair distribution of benefits resulting therefrom.” (Declaration on the right to development, Preamble, paragraph 2.) I discuss four overlooked aspects in the current global debates on economic treaty changes and supposed exits from trade agreements: 1) transparency, consultations, and participation; 2) human rights impact assessments; 3) short and long-term trade adjustment strategies through labor and education policies; and 4) interacting long-term economic, social, cultural, and environmental obligations that already constrain how States rewrite the new global terms of trade for future generations.

Transparency, consultations, and participation

Brexit negotiations have thus far not created a formal channel for the time being on the participation of individuals, groups, or communities in the UK. Dr. Alan Renwick explains:

“All sides agree that public opinion should continue to influence the process, but there are two views on what that should mean. One view is that the public spoke in the referendum and the task now is simply to implement that decision. The other view is that opinion is more complex and changeable and that evolving public views should also be considered. One way public opinion might be heard is through a referendum on the final deal. The form this would take, the effects it might have, and how it might come about are complex issues. The most like version would pit the negotiated deal against remaining in the EU. Circumstances leading to such a vote are imaginable, but its outcome is impossible to predict. The prevailing public mood will, in any case, influence MPs’ and ministers’ day-to-day decisions. Direct public intervention could also come in the form of a general election.” (at p. 3)

In a letter dated 28 February 2017, the EU Ombudsman urged the EU Commission to ensure transparency and consultation with all stakeholders in the Brexit negotiations, to “assist in protecting EU citizens’ rights”. In response, the Commission has adopted a tailor-made policy of “maximum level of transparency” opening all negotiation documents on the Article 50 negotiations with the UK.

In contrast, the NAFTA renegotiations process has not built in formal channels for negotiation transparency, public consultations with all stakeholders, and public participation, although the United States Trade Representative set up a public comment period on its NAFTA renegotiation objectives. This flies in the face of the basic objective of ensuring public participation in development decisions under Article 8 of the Declaration on the Right to Development (“States should encourage popular participation in all spheres as an important factor in development and in the full realisation of human rights”). Without access to information on the terms of the ongoing negotiations, individuals, groups, and local communities who are denied stakeholder participation will not be able to weigh in on the ultimate terms of the NAFTA renegotiation, contrary to business groups, chambers of commerce, producer groups, and other supply chain firms who have a greater wherewithal of resources to make their positions known to their respective governments conducting the NAFTA renegotiations.

Human rights impact assessments

In December 2016, the UK Parliament released its report on “The human rights implications of Brexit“, noting the Government of the UK “has not been able to set out any clear vision as to how it expects Brexit will impact the UK’s human rights framework. The Government “seemed unacceptably reluctant to discuss the issue of human rights after Brexit. The Minister of State responsible for human rights was either unwilling or unable to tell us what the Government saw as the most signicant human rights issues that would arise when the UK exits the EU.” (Conclusions, paras. 1 and 2.) The ongoing omission to conduct ongoing human rights impact assessments for the UK’s departure from the EU continues to be criticised. In contrast, the European Commission Directorate General for Trade has preexisting Guidelines on the analysis of human rights impacts in impact assessments for trade-related policy initiatives as well as settled practices on sustainability impact assessments, although the Commission has not yet released any such impact assessment report in relation to the ongoing Brexit negotiations and supposed negotiation thereafter for a new UK-EU trade treaty. The NAFTA renegotiations process does not provide for any such human rights impact assessments, especially since human rights have not figured much in public discussions of the NAFTA “2.0”.

The right to development does not specifically mandate human rights impact assessments, but in the aftermath of global financial crises and upheavals in States’ economic decision-making policies in the last decade, the UN Human Rights Council issued its Resolution dated 16 March 2017 which requests the Independent Expert (on the effects of foreign debt and other related international financial obligations of States on the full enjoyment of all human rights, particularly economic, social and cultural rights) to “develop guiding principles for human rights impact assessments for economic reform policies, in consultation with States, international financial institutions and other relevant stakeholders, and to organize expert consultations for the development of the guiding principles and a mapping of existing impact assessment tools.” (para. 13.) Likewise, the Committee on Economic Social and Cultural Rights’ General Comment No. 24 (which I summarised here) emphasises the need to conduct human rights impact assessments before entering into trade and investment agreements: “The conclusion of such treaties should therefore be preceded by human rights impact assessments that take into account both the positive and negative human rights impacts of trade and investment treaties, including the contribution of such treaties to the realization of the right to development.” (para. 13.)

Short & Long-Term Trade Adjustment Strategies through Labor and Education Policies

While it may seem premature to formulate trade adjustment strategies when negotiations on Brexit and the supposed new UK-EU treaty are in early stages, and NAFTA renegotiations are nowhere near reaching agreement on discrete points, the uncertain duration of global economic treaty rule changes – whether from exiting trade agreements or concluding new ones – makes it imperative, however, for States focused on properly ensuring the right to development for their populations, to also adopt foresight in planning short-term and long-term trade adjustment strategies by forecasting worker displacements, shifts in demands for skilled and unskilled labor, corresponding needs for worker adaptability through continuing training, and for education strategies that anticipate the diversification of needed skills and relevant expertise from those expected to join the job market after the new global economic treaty rules are concluded and enter into force. NAFTA took 14 years to conclude in 1994, from the time US President Ronald Reagan first articulated a proposal for such an agreement in 1980. In that span of time, the United States has repeatedly been called upon to anticipate labor market changes and corresponding educational needs arising from changing labor markets adapting to NAFTA, such as in the United States Government Accountability Office’s 1997 Report on NAFTA Impacts and Implementation, a 2010 report filed with the National Bureau of Economic Research, and even a 2017 Congressional Research Service Report on NAFTA. In 2016, the OECD G20 Employment Working Group issued its report, Enhancing Employability, which emphasises the need for continuing evaluation of the adaptability and fit of education policies and labour market strategies in the face of structural shifts from changes in global economic rules, the challenges of obsolescence arising from technological innovation and automation – alongside the need for States to adopt policy coherence as they make economic decisions that stand to have lasting impacts on populations. In this era of expected global economic rule changes, it is troubling that States are not holding counterpart discussions on devising long-term labor and education strategies to adapt to future competitiveness under the new economic rules. The World Bank’s 2017 World Development Report just called the attention of States to an urgent learning crisis in global education, where learning outcomes and targets are misaligned with future job market needs.

Interacting Long-Term ESC Rights and Environmental Obligations

Finally, during the period of rewriting economic rules through negotiations on Brexit and the supposed new UK-EU treaty, as well as the NAFTA renegotiations, it should also be emphasised that the States involved do not negotiate in a vacuum. There are dense international obligations taken on by all States involved which do not just refer to economic agreements, but more pertinently involve the rights owed under international human rights law to all individuals, groups, and local communities to be affected in the short term by the uncertainty of the regulatory environment, and in the long-term by the new rules arrived at by States’ treaty negotiators. Especially since, as shown above, there are few direct opportunities for full participation by, and information exchange with, individuals, groups, and local communities in the NAFTA renegotiations process or the negotiations on Brexit and the new UK-EU treaty, it will be foreseeably harder for these constituencies of international human rights law and international environmental law to check their political representatives in real time during treaty negotiations. If the ultimate sources of sovereignty – which are precisely individuals, groups, communities, and populations – have to wait for a referendum to approve the new draft treaty texts; elections to replace or give another negotiating mandate to their current or future political agents; or even to seek recourse through domestic, regional, and/or international courts and tribunals (where possible), before they can vindicate their preexisting economic, social, cultural, and environmental rights as against infringing provisions of the new economic treaty rules, the exercise of sovereignty through exiting and concluding new trade agreements rings hollow.

The ends of trade and investment agreements, after all, are to realise the authentic meaning of development under the right to development, which is “the inalienable human right by virtue of which every human person and all peoples are entitled to participate in, contribute to, and enjoy economic, social, cultural and political development, in which all human rights and fundamental freedoms can be fully realised.” This right is all the more crucial in these times, when politicians are obscurely rewriting the rules for all of us and fueling the global economic policy and treaty uncertainty, without ensuring that individuals, citizens, groups, and communities actively take part in drawing the terms of bargaining for the future global economic order.