Alliance for Responsible Trade

Background

The role of the state, in its broadest sense, is to look after the common good of its people. The democratic state should be a tool for society to use to address the economic and social problems the market cannot solve. The discussion should not be posed in terms of a polarization between the state and the market. The role of the state in leading hemispheric economic integration is irreplaceable if this process is to promote social justice, equity among regions and social groups, and sustainability.

There is no historic experience demonstrating that the market alone can achieve general economic equilibria, much less sustainability and social justice. Historical experience shows that the state is necessary to deal with the flux of the market. Furthermore, the economy is broader than the market, encompassing all production (not just what is traded), and requires the involvement of the state to establish adequate conditions for stable, sustainable growth and social welfare. Opening up economies to the dynamics of the global economy does not necessarily mean leaving them to the whims of international markets. There is no such thing as the free market, because of the large corporations that dominate and drive the market. Opening markets actually means letting these corporations drive and dominate the market to suit their own interests.

The key is for nations to open themselves to the world based on their own plans for fair and sustainable development led by democratic governments, rather than leaving the future of such development to market forces. Economies that are open are all the more reliant on regulation at the national and international levels and require a state strong enough to promote and enforce them. Under the prevailing dominant economic model, state intervention in the economy is reduced, except in the promotion of the export sector and finance capital. By favoring exports, workers and most of the population cease to be seen as valued consumers since their impoverishment no longer affects the top strata of capital. When financial capital is prioritized, the real economy is often neglected or negatively affected, diminishing its capacity to generate employment or to contribute to the population's well being.

The dominant discourse discredits the government and assumes that the market does everything better. Adjustment programs imposed by the World Bank and the IMF increase this pressure, leading to a growing trend toward privatization. Governments see privatization as a short-term remedy for financial crisis and unbalanced budgets. It can also be a mechanism for the illegal transfer of wealth or favoritism toward certain economic interests.

There are four problems inherent in privatization: 1) it reduces the state's ability to lead the process of sustainable and fair development; 2) over the long term, government revenues fall, which normally results in reductions in public spending; and 3) serious injustices are created in public services, with a disproportionate burden of such cuts affecting women and people who are poor; and 4) privatization is used to lower wages and benefits for organized workers, as the sale usually results in the replacement of collective agreements by more "flexible" working conditions entailing fewer rights, less negotiating power, and lower benefits. In Argentina, for example, the number of employees in such public services as telephone, postal airlines, sanitation, electricity, rail transport and gas distribution was just under 250,000 in 1989. By 1999, after privatization, just 75,000 persons work in those industries.

We propose the establishment of a new, fully democratic state. As such, governments should ensure, by all means, the participation of its citizens, especially women and impoverished people, at the local, regional, national and international levels. Participatory democracy, which is concomitant to access to information and public education, should be understood as the most important aspect of a healthy society. This new state should be economically and socially accountable to its citizens and must radically challenge corruption at every level. It should be a state with a qualitatively new role within the economy, which should assume its irreplaceable responsibility in ensuring human rights, including the right to development, economic, cultural and social rights and those of indigenous peoples. We are not proposing an oversized state burdened by huge, inefficient enterprises. The number and size of public corporations is less important than the role they fulfill. Society, not only governments, should make decisions relating to industries in the public realm.

This would not be a traditional protectionist state, but rather a state that is accountable to society, that can implement a democratically established national development plan. This may involve the protection of certain sectors considered strategic within a country's plan, but more importantly, it means promoting forward-looking development. Regulation does not imply inhibiting private initiative. On the contrary, it means establishing clear rules balancing rights and obligations, and ensuring that both national and international capital promote a country's fair and sustainable development.

This renewed role for the state implies international regulations, which must be determined democratically and through consultation with citizens. Sovereignty belongs to the people, who may decide to submit to international regulations if it is in the collective interest. International regulations are becoming increasingly necessary in the face of the supra-national power of certain corporations operating within our economies and due to the weight and mobility of footloose capital. The necessary supranational regulations should not serve to increase the already excessive power of transnational corporations but instead should ensure nations' capacity to uphold the rights of their citizens and to ensure that corporations play a positive role in national development. This point is developed in the chapter on foreign investment, particularly in the discussion on dispute resolution between investors and the state.

This new and strategic role for the state in the economic and social spheres requires comprehensive fiscal reform capable of generating sufficient resources to ensure a social security net for all and to avoid fiscal deficits so large that they impede development. Such fiscal reform should focus both on production and on redistribution of wealth.

Nothing in an international agreement should constitute a renunciation or reduction of the state's ability to meet the economic and social demands of its citizens. This principle must take precedence if the state's capacity to meet these demands is diminished by such agreements.

Guiding Principles:

1. Economic and Social Responsibilities of the State

1. The first and foremost role of the state should be to look after the common good. As such, the state must promote participatory democracy, facilitating debate and establishing permanent consultation mechanisms with respect to domestic and international policies.
2. Sovereignty. The state must be the guarantor of national sovereignty. National sovereignty should not be understood as autarchy, isolationism or as a pretext for disguised violations of universal human rights. Sovereignty continues to be a right of nations and the basis for legal equality of states within the universe of nations. Sovereignty does not prevent the establishment of international regulations as long as they are democratically arrived at with the explicit consensus of the citizens of each country. Sovereignty resides with the people, who may decide democratically to submit themselves to supranational regulations or laws that they consider appropriate for their welfare and to safeguard their rights. Any binding international agreement should be submitted for ratification of popular sovereignty and must not annul the rights of peoples to their sovereignty or diminish states' obligations to preserve and strengthen that sovereignty.
3. Culture. The international human rights system includes cultural rights. It is an obligation of states to guarantee those rights. International agreements on cultural issues should favor exchange among and enrichment of diverse cultures, but culture should not be treated as just another commodity, ruled by the law of maximizing profits. The right to ones own culture is essentially the right to diversity, and free trade in a highly unequal cultural industry tends to put an end to that diversity. Nations should preserve their ability to strengthen and promote cultural diversity. Culture is also an element of a country's sovereignty and social cohesion. This does not imply isolationism or hostility to other cultures, but rather valuing one's own culture and the right to be different. Therefore, in the chapter on services, we have proposed that cultural services be subject to regulations that favor exchange and enrichment while preserving the ability of the state to strengthen their own national cultures. Nation-states arise and develop on the basis of national identity and culture. However, historically this has implied the negation of the multiple cultures in many of our countries. The right to ones' own culture should be guaranteed by the state, not just in dealing with the imposition of foreign cultures but also within each country. The state should ensure the conservation and development of the diverse cultures that exist within its territory.
4. National Security. National security should not be understood as state security, that is, security for established powers, but rather as public security, i.e., the security of a country's citizens. The state's obligation is to ensure the security of its population, not to defend itself as the established power. International agreements should establish international cooperation to defend citizens and to ensure their rights, including their right to a safe and peaceful life. International agreements on security issues should be oriented to ensuring peace, overcoming poverty and strengthening participatory democracy. Toward that end, a true multilateral system for the peaceful resolution of conflicts should be established, putting an end to the undemocratic veto power in the United Nations' Security Council and restructuring the Council so that it addresses the issues of security of all nations in a transparent, fair and participatory manner. No hemispheric agreement should establish or strengthen military alliances intended to preserve, extend or consolidate hegemonies or to strengthen the political and military dominion of the United States.
5. It is the state's responsibility to lead a consensual economic strategy and enact related social policies that strengthen citizens' welfare. The state should spare no effort to promote the creation of well-paid jobs, which are the best vehicle for achieving that well being and combating poverty. Participation in the global economy entails a strong export sector, but this should not be pursued to the neglect of the domestic market. The strength of the export market should be measured not by the volume of exports but by qualitative indicators, which implies promoting the integration of productive national linkages so that exports foster economic growth and therefore generate high-quality jobs, both within the sector and in sectors connected to exports. The focus on strengthening the domestic market would mean that citizens would be viewed as valued consumers. Thus, raising standards of living would become an economic necessity for market expansion rather than merely a social justice issue. The state has the inescapable responsibility to create conditions that favor competition among domestic companies in the international as well as internal markets. Competition punishes corporations with low levels of productivity, but it does not necessarily increase productivity. To achieve this, the promotion of technological research and development as well as education is indispensable to each country's viability. An explicit industrial policy must be established which includes building infrastructure, access to credit, education and research for the promotion of appropriate technology and integration of productive linkages.
6. The social role of the state requires it to provide public security and services and to promote everyone's well being. This implies specific policies directed at the most vulnerable sectors. This should involved legislation that establishes rights instead of discretional policies or favoritism. The state's central objective should be just and sustainable development for all, while not excluding emergency or compensatory assistance for specific groups.
7. Education. States should fully take up their responsibilities for financing education. Education, much more than a good or service is a right, which should not depend on the ability to pay. Education is also a fundamental element in the formation of culture and national identity so that each nation should exercise, without undue foreign interference, complete sovereignty on issues of education. Therefore education should be excluded from agreements on the liberalization of trade in services, including in the Free Trade Area of the Americas. We have developed a special chapter on education as an example of our proposals on the treatment of services associated with fundamental rights.
8. Health. As with education, access to health and medications is a fundamental right, which should not depend on the ability to pay. It should be considered the responsibility of the state to provide high quality health care to all within a reasonable geographical distance of any local community. Therefore health care systems should not be included in any agreement on the liberalization of trade in services. As such, subcontracting of health care services, a symptom of the state's withdrawal of its social responsibility toward universal access to health care, should not be allowed. Specific international funds should be set aside for health care, including a portion of revenues accruing from speculative financial transactions in the international sphere (see Investment Chapter). Access to health care services should be universal and not limited to those with jobs in the formal sector, since in most countries in the Americas, the majority of people experience unemployment, often turning to precarious employment in the informal sector. Health services should address women's specific needs and be designed to ensure women's access to such services. Elderly people should as well be guaranteed access to heath care services. Access to public health care services for indigenous communities and peoples should be guaranteed. At the same time, they should be based on the development and increased availability of traditional medicine and the age-old knowledge held in these communities, often by women. Social security systems (including pensions) should be under the state's jurisdiction, and the savings funds used to finance them should be managed by the state and invested in high-priority national development projects. The funds should not be used as speculative capital, which would only serve to concentrate social wealth in a few hands. The state should reserve the right to produce generic medicines for use by the public healthcare system. Pharmaceutical companies should understand that their profits cannot be generated through the violation of people's right to health care, nor should they experiment with drugs whose safety has not been sufficiently demonstrated.
9. The Right to Housing. As with education and health care, the right to have a place to live should be guaranteed by the state as a basic human right. A true agreement for hemispheric development should contribute to this goal. Toward that end, we have proposed a tax on speculative transactions, which could provide international funding sufficient for states to guarantee this right.

2. Criteria for Economic Regulations:

Regulations should:

1. be clear and explicit and designed to prevent bias on the part of officials whose job it is to apply them;
2. be decided democratically;
3. be simple and easy to apply;
4. be kept to the minimum needed to achieve their objectives; and
5. preserve the sovereignty of provinces, regions or states to make their own regulations within their areas of competence as long as they act for the good of their communities and not to perpetuate individual privilege, or gender- or race-based discrimination.

Areas for Special Regulation

Each country may establish special regulations for sectors it deems to be especially important for its national development such as the following:

1. the exploitation of natural resources;
2. financial and monetary policy, especially the management of its payment system and shortterm investment;
3. basic food production and/or agricultural production by small family farms; and
4. strategic sectors linked to national sovereignty or national economic stability. The intention should not be to protect or block certain sectors from foreign investment or external trade but to recognize those sectors that need special regulation.

3. Public Sector Corporations

Corporations known as "state-owned enterprises" in fact belong to society and are only administered by the state. These public sector corporations are not established for personal profit, but are vehicles for healthy economic development, safeguards of sovereignty, and instruments of social and environmental justice.

Nevertheless, states should ensure that public sector corporations are sound and efficient. Corruption should be avoided by legislative and societal checks. Their preservation, creation or privatization should be decided by legislatures representing the popular will. In the case of strategic enterprises, laws should require broad and direct consultation with the public.

1. Some public sector corporations may exercise exclusive management, production, transportation or sales rights over specific goods and services where national laws so provide.
2. Public sector corporations should not be treated as monopolies or subject to anti-monopoly laws.
3. The administration and evaluation of public-sector corporations should not be based solely on considerations of price and quality but also on their achievement of the specific objectives for which they were created, including the provision of services to poor or marginalized sectors.

4. Government Procurement and Public Works Contracts

Government purchasing and public works contracts have a significant influence in some productive sectors. They are carried out with taxpayers' money and should therefore continue to be instruments of economic policy for national development. They should accordingly be subject to certain criteria, as follows.

Government procurement of goods and services should be subject to open and transparent competition to avoid corrupt practices in their allocation, with specific exceptions discussed below. Criteria for competition need not be based exclusively on price and quality, but may also include the following:

1. national content for the good or service involving some degree of integration into the domestic productive economy;
2. kinds of technology used and their environmental effects;
3. transfer of technology;
4. number of jobs created and wages paid;
5. special safeguards to support medium, small and micro domestic enterprises.

Countries may establish lists of high-priority suppliers whose development they consider strategic for reasons of national development (such as the development of appropriate technology, spin-off effects on other economic sectors or the number of jobs they generate or on the achievement of gender or racial equity) and give them priority over foreign suppliers. To ensure that the priority given to nationals does not protect inefficiencies or place an excessive burden on public resources, suppliers should be required to offer bids within a certain percentage of competing foreign bids, comply with other criteria of the tendering process, and receive privileged status for a limited time. These preferential terms will be negotiated in conjunction with the supports necessary to bring the domestic suppliers up to the international competitive standard within a set timeframe.

Government procurement should also be used to protect and benefit groups affected by discrimination and marginalization, such as certain ethnic groups, cooperatives or producers in particularly depressed regions or those with high levels of extreme poverty. Disputes over government procurement should be based explicitly on the above criteria, and be dealt with first by mechanisms within a country, and proceed only to international arbitration after recourse to national processes has been exhausted.