CETA: Taking away the means to deal with a financial and a EURO crisis

6 October 2014 by Myriam Vander Stichele

The negotiated text of CETA (leaked on 5 August 2014) has some very alarming provisions about financial services and investments. These CETA rules seriously undermine the power of parliaments, governments and regulators to introduce, change or even maintain financial regulations and measures not only to strictly regulate the financial sector but also to take preventive measures and take action once a financial crisis is taking place.

Canada has been less affected by the financial crisis because, as is widely recognized, that it had stricter rules and better supervision than the EU. However, the negotiators have not learned from the Canadian regulatory system and the financial crisis, and have introduced problematic provisions. Very worrying is that CETA will allow some financial regulations to be sued by investors against the state (ISDS) ! Worse, CETA allows investors in bonds that are being restructured or not paid due to a financial crisis, as happened in Greece, to sue the relevant government for loss of profits. Consequently, the tax payers and population will again pay the price – we have seen the socially damaging consequences in Greece, Spain, Portugal and Ireland. The text even does not provide any scope for reforming the financial sector at the service of the public interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. .

The following list sums up in short some of the problematic rules (scattered throughout the text):

· Financial investors and investments receive the right to sue a state before an international private arbiters’ panel (ISDS) in case they consider that they have not been treated fairly and equitably, equal to national or third party investors/investments, or their financial cross border payments have been hindered, amongst others. Note that Belgium, Greece and Cyprus have been sued for measures they took during the financial crisis.
· Financial sector regulations and reforms (including prudential regulations: see below) can only be prevented from being subject to ISDS if two committees reach a consensus that the regulation is prudential ! Experience so far has been that large banks and other in the financial sector have enough means and political power to sue regulators for new regulations they do not like.
· Among the investments protected by ISDS are governmental bonds. In times of crisis, some governments cannot repay the bonds and do not pay out, or pay only half of the value of the bonds and/or promise to pay later (restructuring). CETA will allow investors, who should bear the risks, to sue the state. In that case, the population and especially the poor will suffer from huge budget cuts and long term economic crisis with (youth) unemployment.

· Market access rules are the same as before the financial crisis (in GATS) and prohibit financial regulators to take measures for instance to limit the value of financial transactions: this contradicts reforms that limit speculative trading Market activities
Buying and selling of financial instruments such as shares, futures, derivatives, options, and warrants conducted in the hope of making a short-term profit.
and that should trim too big to fail banks that triggered costly bail outs with tax payers money. Interestingly, there is one regulation that the EU is still in the process of deciding on, that has been indicated as not falling under the market rules. But what about other upcoming regulations that are still needed to deal with a financial sector that has clearly not been sufficiently reformed?

· CETA allows “prudential regulations” for the stability of the financial sector and the stakeholders in the financial sector. However, these rules are subject to all kind of conditions. Such regulations should also not be seen as being “disproportionate” or a “disguised” protection of the own financial sector. Yet, many financial reforms are disputed, especially by the financial industry, as being disproportionate or to be protective of the financial industry of one country, as we have seen during the EU legislative process of financial reforms. Importantly, the rules on prudential regulation do not provide the scope to reform the financial sector to be at the service of the public interest and to finance the transformation towards a socially and environmentally sustainable economy and society.

· CETA rules include ’disciplines’ that require that “domestic regulation”, such as qualification and licensing requirements to provide (financial) services, be “objective” and “as simple as possible”. But such criteria are very subjective and in the light of a future unknown financial crisis, undermining attempts to preventive measures.

· CETA only allows those financial rules and reforms to be contrary to CETA rules in case a country or the EU has listed those regulations in the agreement (’negative listing of liberalization commitments’). With other words, any new regulation that will be introduced in the future that contradicts CETA will be forbidden if not yet listed in the agreement. The financial crisis has learned that mechanisms of a crisis are difficult to predict and therefore currently unforeseen measures will have to be taken – which CETA does not allow except for clear prudential reasons after a crisis has happened.

· CETA has “transparency” rules that will give the financial industry “reasonable time” to give their comments on new measures and laws before they are adopted.

· CETA foresees a dialogue between the EU and Canada in an unaccountable way and in which the private sector has a say. This so-called “regulatory cooperation” will amongst others strive to reduce rules that are unnecessary barriers to trade. However, such rules might be necessary for preventing future financial crisis or to protect consumers, or to force the financial sector to finance in a socially and environmentally sustainable way.

Note that some improvements have been made that prevent some very dangerous wording in GATS and other trade agreements. However, both the EU and Canada are still negotiating a new trade agreement that includes this dangerous wording , namely in the Trade in Services Agreement that is negotiated in secret in Geneva.

A full analysis of the CETA text by Canadian and EU researchers and NGOs can be downloaded from: https://www.policyalternatives.ca/publications/reports/making-sense-ceta

Source: http://laoropendolasostenible.blogspot.it/2014/09/ceta-taking-away-means-to-deal-with.html



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