“… [T]he Trans Pacific Partnership (TPP) could make it harder for Congress and regulatory agencies to prevent future financial crises. With millions of families still struggling to recover from the last financial crisis and the Great Recession that followed, we cannot afford a trade deal that undermines the government’s ability to protect the American economy.” — Senators Elizabeth Warren, Tammy Baldwin, and Ed Markey, letter to U.S. Trade Representative Michael Froman, December 17, 2014.
The Obama White House and the Republican leadership in Congress are pushing hard for three massive and environmentally- destructive trade agreements: the Trans Pacific Partnership, the Transatlantic Trade and Investment Partnership and the Trade in Services Agreement. These three agreements and similar deals going back to the North American Free Trade Agreement reflect the philosophy and culture of the Office of the U.S. Trade Representative, which assume that many forms of regulation by democratic institutions inhibit global economic growth.
This is not surprising, given that the U.S. Trade Representative and members of his senior staff frequently rotate through the revolving door to and from positions in Wall Street banks, multinational law firms, corporate lobby shops, political campaign fundraising operations and the executive suites of global corporations. The agency conducts little independent policy analysis, and is dependent on lobbyists for information.
It is no wonder that public opinion data show that, beyond the Capitol Beltway, people believe our current trade policies are imbalanced.
The Wall Street revolving door and the U.S. Trade Representatives
Take the case of Ambassador Michael Froman, the current U.S. Trade Representative. The U.S. Chamber of Commerce has called Froman someone with whom they are quite comfortable. The American Chemistry Council representing manufacturers and exporters of products associated with a range of health and environmental problems has applauded him. Wall Street banks are especially close to Froman.
This is not surprising. Ambassador Froman, a former Citigroup executive and bundler of Wall Street and other contributions to the 2008 Obama presidential campaign, has been through the revolving door between Wall Street and government service repeatedly. He is a man who, by background and mindset, responds to financiers and corporate chieftains rather than the woman or man on the street.
In the Clinton Administration, Froman served as chief of staff to Treasury Secretary Bob Rubin (and former head of Goldman Sachs) where they pushed legislation to deregulate the financial services industry: a root cause of the 2008 financial crisis and the subsequent Great Recession.
At the end of the Clinton Administration, Froman followed Rubin to Citicorp where they engaged in alleged casino gambling investments that broke Citi when the house of cards tumbled. U.S. taxpayers had to spend billions to bail out Citi and other Wall Street institutions.
But, Froman did not go to jail or lose his shirt but rather pocketed millions in compensation at Citi. He was then given a reported $4 million bonus, aka Golden Parachute, by Citi to join the Obama Administration first on the White House staff proper and now as U.S. Trade Representative — where he is pushing for the TPP, TTIP and TiSA agreements that would deregulate financial services even more and put a brake on environmental and other public interest safeguards.
Froman acts to protect Wall Street
TPP. So, how in particular has Froman acted to protect Wall Street in the investment and services chapters of the TPP and similar deals? Public Citizen sums it up: “The TPP’s Financial Services chapter ‘reads in’ Investment Chapter provisions that would grant multinational banks and other foreign financial service firms expansive new substantive and procedural rights and privileges not available to U.S. firms under domestic law to attack our financial stability measures.”… “the TPP would grant foreign firms new rights to attack U.S. financial regulatory policies in extrajudicial investor-state dispute settlement (ISDS) tribunals…”
According to U.S. Senators Elizabeth Warren, Tammy Baldwin and Ed Markey “Past trade deals have included terms that allowed foreign firms to use the investor-state dispute settlement process to challenge a wide range of government financial policy decisions.” They conclude that, “the TPP should not include an investor-state dispute resolution process…The consequence would be to strip our regulators of the tools they need to prevent the next [financial] crisis.”
Open-ended definitions of discriminatory government financial regulations. For example, so –called “too big too fail” regulations to limit the size or restrict the activities of banks because their failure would threaten the whole economy, could be challenged … on the grounds that they deny a foreign investor’s right under the TPP “to fair and equitable treatment,” a largely undefined element of the TPP’s “minimum standard of treatment” article obligation that allows pro-Wall Street investment tribunals to assess money damages of unlimited size in compensation for application of common-sense financial regulations. This is illustrated by the case ofSaluka Investments v Czech Republic, brought under provisions of a bilateral investment treaty very similar to the TPP investment chapter. More such cases can be expected if the TPP is approved by Congress.
Restrictions on capital control regulations. The TPP investment chapter also sharply restricts regulation of capital flows intended to promote financial stability. “A new “temporary safeguard” provision that might appear to a lay person to protect government authority, in fact, as Public Citizen observes, “would not adequately protect governments’ ability to regulate speculative, destabilizing capital flows. The safeguard is subject to a litany of constraining conditions…”
Sarah Anderson, at the Institute for Policy Studies, says such capital control provisions in international trade and investment agreements put governments in policy handcuffs when so called “hot money” flees a country during a financial crisis. Such panicked capital flight was a major cause of the disastrous Asian financial crisis of 1997. Fauwaz Adbul Aziz, at Third World Network , reports that, “ More than 100 prominent economists from the Asia Pacific region have urged negotiators of the…Trans-Pacific Partnership Agreement…talks to ensure that the eventual document their governments sign on to does not preclude, or impose sanctions against, the use of capital controls.” But, these calls went largely unheeded, as Wall Street flexed its political muscle.
Restrictions on regulation of risky new financial products. The 2008 financial crisis was caused in significant part by the introduction of new, risky and little understood financial products like toxic derivatives, collateralized debt obligations and credit default swaps. But, the complex language of the TPP financial services chapter might well be read to require governments to allow foreign firms to sell new financial products and services, if they are allowed in other TPP countries. Public Citizen reads this language to say that, “…the TPP’s financial services chapter would require each signatory government to allow foreign-owned firms to sell in their territory any new financial products and services that do not exist on the domestic market, but do exist in any of the other 11 TPP countries.”
The list of potential giveaways to Wall Street in the final text of the TPP goes on.
TTIP. Froman is also carrying water for his Wall Street buddies and CEOs of global corporations in negotiations on the U.S. — Europe trade deal. The TTIP chapter on regulatory cooperation would weaken regulation of the financial services industry. Regulatory review provisions in the TTIP deal would encourage business-friendly, cost-benefit analysis that would hamstring financial and other public interest regulations. It would also allow trade bureaucrats and industry representatives to screen proposed regulations and also contemplates mutual recognition and harmonization of regulations between the EU and the U.S. that could effectively reduce standards to the lowest common denominator.
Froman has also taken a hard negotiating line on TTIP services provisions of critical importance to Wall Street, calling for much broader coverage than that provided by the General Agreement on Trade in Service administered by the World Trade Organization.
Ambassador Froman and Treasury Secretary Jack Lew claim that they will not allow the TTIP to gut the relatively mild Dodd-Frank reforms of Wall Street practices. Lew has frankly admitted that, “Normally in a trade agreement, the pressure is to lower standards on things like that.” So, given that TTIP negotiations are almost certain to carry over to the next presidential administration, what would a President Trump or even Clinton do? This not an idle question given that EU negotiators appear to be pushing for a dilution of Dodd- Frank and similar standards — at the behest of the investment bankers in “The City of London,” by some measures the world’s biggest financial center and one known for its risk-taking culture.
TiSA. Michael Froman’s actions in the secretive negotiations for the massive Trade in Services Agreement clearly expose his working relations with Wall Street and his former employer, Citigroup. This is a textbook case of the policy consequences of the revolving door.
The TiSA deal being negotiated in Geneva by the United States, 23 other countries and the EU, flies in the face of the international consensus after the 2008 financial crisis that deregulation of financial services was a primary cause of the worst economic downturn since the Great Depression. As a result of the crisis, financial reforms were adopted in the United States and around the world. But as leaked documents published and analyzed by WikiLeaks demonstrate, “TISA does not support these reforms but continues to ‘discipline’ and restrict how legislators, regulators and supervisors can regulate the financial sector.”
TiSA is designed for and in close consultation with the global finance industry. In particular, Froman’s old firm, Citigroup is leading the charge for TiSA and financial services deregulation. The Chairman of the Board of a powerful trade lobby, the US Coalition of Service Industries is the Vice Chairman of the Institutional Clients Group at Citi. Citi is also a leader of Team TiSA,” a broader business coalition, including not only global services industries, but also big manufacturing firms and big agriculture interests. “Team TiSA,” is co-chaired by Citigroup and coordinates its lobbying activities with Ambassador Froman, who stated in a speech to the Coalition of Service Industries that, “We need to move forward together with a Trade in Services Agreement that unlocks opportunity for Americans, and with Team TiSA behind us, I’m confident that we are on the right track.”
It’s time to slam the revolving door shut
The trade policymaking in the Office of the U.S. Trade Representative is biased. As David Dayan has written in the American Prospect, “Michael Froman, former Citigroup executive…, runs USTR, and his actions have lived up to the agency’s legacy as the white-shoe law firm for multinational corporations.”
It’s time for institutional reform of USTR and an end to the revolving door. A tough new ethics code must be put in place. Also, like the State Department, the USTR should be primarily staffed by government professionals who plan to spend their whole careers in public service.
Reform of USTR must also address its single-minded export promotion culture and clearly mandate that the agency give equal weight to protecting domestic laws and regulations and protecting the environment, consumers and the public interest more generally. USTR must be charged with protecting the authority of our democratic institutions, as well as opening foreign markets to U.S. goods and services.
The secrecy of trade negotiations must end. Trade deals like the TPP are negotiated behind closed doors with input from official advisors, most of whom represent global corporations. This facilitates special interest capture of the U.S. negotiating agenda. Moreover, USTR is exempt from the Administrative Procedure Act and functionally exempt from the bulk of the Federal Advisory Committee Act.” Congress should explicitly require that USTR end the secrecy and release the draft text of U.S. proposals after each round of negotiations, as was the practice in the George W. Bush administration, abide by the Federal Advisory Committee Act, and end the corporate capture of the USTR advisory committee process.
Reorganization of trade policymaking in the executive branch is equally essential. The centralization of power in the Office of the U.S. Trade Representative must be unwound. The Environmental Protection Agency, Department of Labor and Department of Justice must be given more powerful roles in trade policymaking. Above all, USTR must be evicted from the White House.
Most important of all, it is time to slam shut the revolving door between Wall Street and the White House. Michael Froman is not the only U.S. Trade Representative or senior USTR official who has been through the revolving door. His immediate predecessor Ron Kirk and many others preceded him. And, many others will follow him unless there is institutional reform of the USTR office.
Why does the revolving door matter?
Senator Elizabeth Warren asks and answers, “Because it means that too much of the time, the wind blows from the same direction. Time after time in government, the Wall Street view prevails, and time after time, conflicting views are crowded out.”