Irish state marketed for tax avoidance since 1950s

Revenue

This is the first in a 4-part series on tax avoidance in the Irish state, and focuses on the history of the relationship between corporation tax rates, avoidance and foreign direct investment.

1.Irish state marketed for tax avoidance since 1950s

2.Yes, we’re still a tax haven for tech giants

3.Ireland’s IP Knowledge Box – another tool for tax dodgers

4.How do vulture funds manage to pay practically no tax in Ireland?

The Irish state has pursued an economic development policy based on attracting foreign direct investment since the 1950s. A low rate on corporate income and profits tax and loose financial regulation have been features of the state since this time, though for decades they were unsuccessful at attracting FDI. In 1956, the Export Profits Tax Relief provided a rate of zero corporation tax for manufactured exports. This system of tax exemptions for certain areas and industries developed over the following two decades. In the 1970s, the Industrial Development Authority (IDA) “started aggressively marketing Ireland’s tax system internationally, under slogans such as ‘no tax’ and ‘double your after-tax profits’.”

After the Irish state joined the European Economic Community in 1973 it was forced to turn this system of specific exemptions into a single rate across the whole manufacturing sector to comply with EEC rules on non-discrimination. As a result, the Fianna Fáil government introduced a corporate tax rate of 10 per cent for all manufacturing companies in 1981, followed by a 10 per cent rate for financial services in 1987, with the creation of the International Financial Services Centre (IFSC) in Dublin’s docklands. Other sectors of the economy lobbied for a reduction in the corporate tax rate applicable to them, and in 2003 the single corporate tax rate of 12.5 per cent for all companies’ trading profits was introduced, while passive income and company capital gains were to be taxed at 25 per cent.

A significant part of the debate surrounding Ireland’s corporation tax regime has centered on the role of the 12.5 per cent rate in generating the Celtic Tiger economic growth spurt in the 1990s and 2000s. The dominant narrative expounded by establishment political parties, media and state institutions is that the introduction of the 12.5 per cent rate was the single biggest factor that contributed to the boom. But the surge in growth in GNP began in 1993, a decade before the introduction of the 12.5 per cent rate, and more than a decade after the introduction of the 10 per cent rate in manufacturing. This was the year the Irish state joined the European Single Market, with Irish citizens gaining easy access to housing finance with no exchange rate risk from the mobile financial capital available for the first time. The resulting property boom and spike in consumption were the key factors contributing to the sharp rise in GNP from 1993 onwards. Barry Eichengreen wrote: “Claims on the Irish banking system peaked at some 400 per cent of GDP… It reflected the freedom with which Irish banks were permitted to establish and acquire subsidiaries in other EU countries.”

The graph below from the Fools Gold blog (by the Tax Justice Network and Warwick University) is a visual illustration of the timing and factors associated with the boom.

Ireland-GNP-graph

Irish GNP from 1955-2012

FDI inflow into Ireland expanded on a huge scale during the 1990s. It rose from 2.2 per cent of GDP in 1990 to 49.2 per cent of GDP in 2000. There were many contributing factors to this, with accession to the single market – and the growth in GNP and consumption that this prompted – being the most crucial. Other often-cited factors include Ireland’s joining of the single currency in 1999, its geographical location and its skilled, low-waged and English-speaking workforce. Currently foreign (mainly US) multinational corporations (MNCs) account for around 90 per cent of ‘exports’ and employ an estimated 150,000 people, around 8 per cent of the workforce. There is no doubt that FDI has since the 1990s played a dominant role in the Irish economy. The low corporate tax rate has certainly contributed significantly to this inflow of FDI, in addition to the factors outlined above. The two policy factors that have been equally or even more important than the low corporate tax rate are the large number of other ‘peculiarities’ of the Irish corporate tax regime, and the creation and promotion of the IFSC in Dublin as a centre for global finance that is almost totally unregulated.

Public debate on the corporate tax regime in Ireland

There are extreme economic and social costs associated with this model of economic development, in Ireland and internationally. The costs associated with the lack of regulation in the IFSC, and its promotion of the shadow banking system, have been demonstrated clearly and painfully in the €70 billion financial collapse of the Irish banking sector of 2008. The costs associated with Ireland’s corporate tax regime are also enormous. Public policy debates around Ireland’s corporate tax regime in recent years have centered on two key issues: domestically, whether the 12.5 per cent rate is sufficient, and whether it is in fact the effective rate paid by US MNCs; and Ireland’s role in the global chain of tax avoidance. A third, more neglected, issue of debate is economic over-dependence on US MNCs and the long-term poor performance of Irish indigenous industry, though this has now come into the public domain to a certain extent with the publication of this year’s 26.3% growth in GDP as a result of distortions largely caused by MNCs’ inversions and other accountancy tricks.

Throughout the 2000s it became clear that the nature of Ireland’s corporate tax regime meant mainly US-based MNCs were using the state in conjunction with offshore tax havens to massively reduce their global tax bills. A study by tax expert Martin Sullivan published in Tax Notes in 2004 showed that Ireland was the most profitable country in the world for US corporations. The following year, an investigation by the Wall Street Journal revealed that Microsoft was using a subsidiary based in the offices of a Dublin law firm to reduce its annual tax bill by at least $500 million. In 2009, in response to plans by the incoming Obama administration in the US to tackle tax avoidance, state agency Industrial Development Authority (IDA Ireland) hired a lobbying group in Washington DC to support the status quo.

Since the rise in international tax justice activism in 2010, successive Irish governments have been at pains to insist, “Ireland is not a tax haven”. Government representatives have stated that Ireland’s low tax rate is the “cornerstone of our economic policy”; that it is statute-based and effectively enforced. A still-running debate on the effective rate paid by US-based MNCs was sparked in 2011 when Finance Minister Michael Noonan claimed the effective rate of tax in Ireland was 11.9%, while in France it was (he claimed) only 8.1 per cent. Speaking in France in 2014, Taoiseach Enda Kenny quoted a PriceWaterhouse Coopers/World Bank report (2014) that stated Ireland’s effective corporate tax rate was 12.3 per cent. He was speaking in response to questions over Yahoo’s decision to transfer finance operations to Ireland from France. Kenny also claimed that the effective rate in France was 8 per cent (in fact, this rate refers only to SMEs and the effective corporate tax rate for MNCs in France is 33 per cent). A paper from Prof Jim Stewart from Trinity College Dublin pointed out that the PwC study was based on a small, domestic company that makes ceramic flowerpots and has no imports or exports. He wrote: “These assumptions automatically rule out tax planning strategies which are widely used by subsidiaries of MNCs.”

Using data from the US Bureau of Economic Analysis, Stewart showed that: “US subsidiaries operating in Ireland have the lowest effective tax rate in the EU at 2.2%. This tax rate is not that dissimilar to effective tax rates in countries generally regarded as tax havens such as Bermuda at 0.4%.” The Department of Finance commissioned an official study later in 2014 by economists Kate Levey and Seamus Coffey to reject Stewart’s findings, which excluded in their calculations the $144 billion in profits that US MNCs move through Ireland to other jurisdictions, saying it was not taxable in Ireland as though these entities may have been incorporated in Ireland they were not ‘resident’ and therefore the money was not taxable. Tax justice activists said this was precisely the point. Meanwhile, the Irish Times carried out a survey of the top 1,000 corporations operating in Ireland that found an average effective tax rate of 15.5 per cent – which has no bearing on the debate as it was a measurement of the companies’ overall global effective rate. Finfacts has reported that the largest corporate law firm in Ireland, Arthur Cox, said in a 2011 briefing on ‘Uses of Ireland for German Companies’: “The effective corporation tax rate can be reduced to as low as 2.5% for Irish companies whose trade involves the exploitation of intellectual property… A generous scheme of capital allowances as well as a tax credit for money invested in research and development in Ireland offer significant incentives to companies who locate their activities in Ireland.”

It was of course not only tax credits that provided for the low effective rate for US MNCs but massive transfers of wealth using IP-related mechanisms. Even Coffey, author of the government-commissioned refutation of Stewart’s claim of a 2.2 per cent tax rate of US MNCs, separately explained that the relatively low rate of taxable profits made by Irish subsidiaries of US MNCs resulted from profit-shifting from Ireland to Bermuda and the Cayman Islands through the payment of massive patent royalties, which amounted to nearly €30 billion in 2011. The US BEA “attribute these profits to Ireland as the holding companies are Irish incorporated”. The Tax Justice Network reports that studies using various ways of calculating the overall effective corporate tax rate in the Irish state found rates of between 2.5 per cent and 4.5 per cent. In 2014, a study by Eurostat on the implicit corporate tax rate (a backward looking measurement of the average effective tax burden) found an effective rate in Ireland of 6 per cent in 2012, down from 9.3 per cent in 2002, while the implicit tax rate on labour was 28.7 per cent in 2012, up from 26 per cent in 2002.

Continued: Yes, we’re still a tax haven for tech giants

Social dumping and the revision of the Posting of Workers Directive

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The current proposal from the European Commission to revise the Posting of Workers Directive will not establish ‘equal pay for equal work in the same place’ nor effectively combat social dumping, and it needs to be significantly strengthened in order to have any impact.

The European Commission adopted a proposal for a Directive amending the 1996 ‘Directive on the posting of workers in the framework of the provision of services’ (Posted Workers Directive) on 8 March 2016. This ‘targeted revision’ of the PWD was announced as part of the Labour Mobility Package in the Commission’s Work Programme for 2016. The other two items in the Labour Mobility Package are a Communication on labour mobility and the revision of the Regulation on social security coordination – and the latter has now been postponed until after the British referendum on EU membership scheduled for 23 June 2016.

The Commission proposal for a Directive amending the PWD was referred to the European Parliament’s Employment and Social Affairs Committee. Since then, the ’yellow card’ procedure has been invoked by certain Member States against the revision of the PWD.

The stated goal of the 1996 PWD, which came into force in 1999, was to combat social dumping and prevent distortions of competition in the context of expanded European integration and increased posting of workers. Its central principle was that the pay and working conditions in effect in a Member State should be applicable both to local and posted workers.

The limitations of the original PWD, together with a very narrow interpretation of the rights it conferred by the European Court of Justice (ECJ), combined to make sure that the PWD only provided posted workers with a legal right to the basic minimum rights and conditions, and was largely ineffectual as a measure to combat social dumping.

Campaigns, in particular by the ETUC, for a revision of the PWD in light of the ECJ rulings were long ignored by the Commission, which eventually proposed an Enforcement Directive containing only marginal improvements to reduce abuse of posted workers in 2014. The deadline for the transposition of the Enforcement Directive by Member States is 18 June 2016.

A push in 2014 by several Member States for a revision of the PWD to establish the principle of ‘equal pay for equal work in the same place’ led to the current Commission proposal for a Directive amending the PWD.

Yellow card procedure invoked

By 10 May 2016 – the deadline for the ‘subsidiarity’ check by Member State parliaments on the Commission’s legislative proposal to amend the PWD – enough Member States had objected to the proposal on the grounds of subsidiarity for the ‘yellow card’ procedure to be invoked.

Under the yellow card system introduced as a protocol to the Lisbon Treaty, each Member State parliament can review draft EU legislation within eight weeks of receiving a proposal and produce a “reasoned opinion” objecting to the draft legislative act if it is believed the proposal breaches the principle of subsidiarity.

One-third of the total votes (at least 19 out of the total 56) is the threshold required to invoke the yellow card. In this case 11 Member States cast 22 votes for a review of the proposal. These were: Bulgaria, Croatia, Czech Republic, Denmark, Estonia, Hungary, Latvia, Lithuania, Poland, Romania and Slovakia. Five of these states also claimed the proposal was in breach of the principle of proportionality. Their submissions can be read here.

The Commission as the author of the draft legislation is now required to review the proposal, after which it may proceed to maintain, amend or withdraw the draft, and it must provide reasons for its decision. The EP’s rules of procedure mean it cannot move forward with the proposal until the author has stated “how it intends to proceed”. There is no time limit on the review.

Posted workers and social dumping

A ‘posted’ worker is one sent by his/her employer to work for that employer on a temporary basis in an undertaking the employer has established in another Member State.  The Commission claims that these are citizens “providing a service” in another Member State, and that they do not integrate into the labour market of the host state. A posted worker is paid by the company they were recruited by in their home state, and their social security contributions continue to be paid to their home state.

According to the Commission’s 2014 figures, there are more than 1.9 million posted workers in the EU, up by 10% from 2013 and up by 44% since 2010. Germany, France and Belgium were the top three destination states, receiving more than half of all posted workers, with EU-15 Member States the destination for 86% of all posted workers.

Poland, Germany and France are the top three states posting workers to other Member States. Construction accounts for more than 40% of all postings. There are three cross-border situations that the PWD covers: subcontracting, intra-corporate transfers and posting of temporary agency workers.

There is not an agreed definition of social dumping in the EU institutions but Eurofound (2012) defines it as “a practice involving the export of goods from a country with weak or poorly enforced labour standards, where the exporter’s costs are artificially lower than its competitors in countries with higher standards, hence representing an unfair advantage in international trade”. An alternative definition from the ETUI (2014) defines it as “the practice, undertaken by self-interested market participants, of undermining or evading existing social regulations with the aim of gaining a short-term advantage over their competitors”.

The tendency is for companies to use posted workers for labour-intensive jobs in low value chains, particularly in construction and transport, and for the company to pay only the minimum rate of pay legally required in the host Member State (or to illegally avoid observance of the host state’s labour laws and standards). As well as wage dumping, companies reduce other working conditions to make savings and require employees to pay high charges, for example for housing.

Concerns over the use of posted workers for social dumping within the European market became a political issue in the late 1980s and early 1990s as cross-border service provision expanded following the incorporation of Greece, Spain and Portugal. The first major ruling issued by the ECJ on the rights of posted workers versus the right to provide services was Rush Portuguesa, in which a Portuguese company posted workers to France under Portuguese pay and conditions, and was challenged by the French government for doing so without its authorisation.

The court ruled that the Company had the right to post its own workers to France under the ‘freedom to provide services’ contained in the Treaty of Rome, but also that France had the right to enforce the application of French labour laws.

Posted Workers Directive

The 1996 Directive was introduced as a result of the public debate and concerns of trade unions and some Member States regarding unfair competition on wages and working conditions arising from the posting of workers. It established a set of regulations aimed at ensuring minimum protection in destination Member States. Specifically, it guarantees the application of the host Member State’s statutory and regulatory provisions relating to:

*maximum work periods and minimum rest periods;
*minimum paid annual holidays;
*the minimum rates of pay, including overtime rates (excluding supplementary occupational retirement pension schemes);
*the conditions of hiring-out of workers, in particular the supply of workers by temporary employment undertakings;
*health, safety and hygiene at work;
*protective measures with regard to the terms and conditions of employment of pregnant women or women who have recently given birth, of children and of young people; and
*equality of treatment between men and women and other provisions on non-discrimination.

There are exceptions to the right to these minimum provisions for postings lasting less than a month, for the crew of merchant ships, for staff involved in the initial assembly, and where the amount of work to be done is “not significant”. The “temporary” nature of the posting was not defined by a time limit in the Directive.

In the construction sector “collective agreements or arbitration awards which have been declared universally applicable” must also be applied.

Interpretation of PWD as a maximum directive

While the 1990 Rush Portuguesa ruling suggested EEC members could actually extend all employment laws and regulations to posted workers, the ‘minimum’ rights outlined in the PWD and subsequent rulings by the ECJ in the 2000s enabled companies to exploit “the difference between minimum and standard levels of protection”.

The court has held that host Member States cannot require posting employers to comply with standards that go beyond the terms of the PWD – ie, posting employers cannot be required to pay wages at rates higher than the legal minimum, and cannot be required to adhere to standards not included in the minimum list of provisions above. It has also held that the right of workers and union to take collective action, including the right to strike, is subject to the right to freedom to provide services and freedom of establishment.

Some of the most significant cases include:

Laval: In 2004, Latvian firm Laval posted Latvian construction workers to Sweden and refused to acknowledge the existing collective agreement with the Swedish Building Workers’ Union. As Sweden had a well-functioning collective bargaining and agreement system and did not have an across-the-board minimum wage bound in law, Laval claimed that it was not obliged to pay the rates collectively agreed in the building sector.

The Swedish building union took collective industrial action. Laval claimed to the ECJ that it was being discriminated against on the grounds of nationality and that the Swedish union was infringing upon its right to provide services.

The court found that companies or “service providers” from another EU state are obliged to abide by the host agreement but collective action must be “proportional”. This means that the ECJ believes workers do have the right to take industrial action – but only when the minimum wage or conditions of the host country, or the minimum working conditions set out in the Posting of Workers Directive are being breached by the employer. The Laval case is viewed as the moment the PWD switched from being viewed as a minimum to a maximum directive.

Viking: In order to cut costs, the Finnish shipping company Viking Line attempted to re-flag its ships as Estonian and operate out of Estonia. When two Finnish maritime unions organised a blockade of Viking Line, Viking took its case to the ECJ: again, the claim was that the company’s right to freedom of movement was being restricted by the industrial action of the workers. In December 2007, while the court found that collective action to protect posted workers from exploitation was legal, the unions had restricted Viking Line’s right of establishment.

Rüffert: German company Objekt und Bauregie employed a Polish sub-contractor to employ Polish building workers, posted to Germany, on less than half the minimum wage agreed by German trade unions and employer associations. In 2008, the ECJ ruled that O&B should not be bound by the local Lower Saxony law that states public building contractors must abide by the existing collective agreements.

The court found that while member states may impose minimum pay rates on foreign companies posting workers in their state, the local law restricted the “freedom to provide services” and was not justified by the aim of protecting the workers because workers in the private sector were not covered by such protections.

In essence, this ruling prevents above-minimum wages and conditions being included in public tender contracts, conflicting with ILO Convention 94, which takes the approach that  public procurement contracts should not be used to exert downward pressure on wages or conditions.

Luxembourg: The European Commission took Luxembourg to the ECJ claiming that by imposing its labour law provisions – especially the mandatory indexation of wages – on all workers, including posted workers, the Luxembourg government was going beyond what was allowed under the PWD. The Luxembourg government argued that the application of these laws to posted workers was in the interests of ‘public policy’.

The court held that for public policy reasons to justify enforcing above-minimum standards, such standards must be “crucial for the protection of the political, social or economic order (in such a way) as to require compliance by all persons present on the national territory, regardless of their nationality”.

However, in February 2015 the ETUC welcomed the ruling in Sähköalojen ammattiliitto ry, which diverged from Laval and found that a host Member State can require posting companies to pay holiday allowances, daily flat-rate allowances to compensate workers for posting, and compensation for travelling time, on equal terms as local workers; and that if binding collective agreements set different pay levels for different groups of employees, these should be considered as being in line with the PWD.

Impact of ECJ’s PWD case law on right to take collective action

Overall the case law (with the exception of the more recent Sähköalojen ruling) highlights the following problems with the PWD in relation to collective action:

The right to take collective industrial action, including the right to strike, is not in fact guaranteed in the EU as it is subject to “Community law and national laws and practices”, which means it can be restricted.

The right to take collective action to prevent the exploitation of posted workers by foreign service providers is subject to the company’s right to freedom of movement and establishment under the EU Services Directive – a right which the ECJ has repeatedly and consistently upheld as being superior to workers’ rights. The Court now says that the freedom of establishment “may be relied on by a private undertaking against a trade union or an association of trade unions”. This means employers can take unions to court for any collective action by arguing it is violating their economic freedoms.

The collective action of workers and unions taken against posting companies is only deemed legitimate if it is “proportional” – that is, in defence of the most basic minimum conditions agreed on by EU bodies or set in law by the host country. The higher-than-average conditions that may be included in public sector agreements are an infringement of the right to establishment.

Enforcement Directive 2014

In response to calls for a revision of the PWD in light of the ECJ jurisprudence, the Commission claimed up until 2014 that such a revision was not necessary due to the introduction of Better Law-Making and REFIT, and that an Enforcement Directive on the PWD would resolve outstanding issues. The deadline for transposition of the Enforcement Directive is 18 June 2016.

The Enforcement Directive:

*lists criteria characterising the existence of a genuine link between the employer and the Member State of establishment (to combat ‘letterbox companies’)
*defines Member States’ responsibilities to verify compliance with the rules on posting of workers
*lists national control measures that the Member States may apply when monitoring compliance with the working conditions applicable to posted workers
*sets requirements for posting companies to facilitate transparency of information and inspections
*empowers trade unions and other parties to lodge complaints and take legal and/or administrative action against the employers of posted workers, if their rights are not respected
*ensures the application of administrative penalties and fines across the Member States if the requirements of EU law on posting are not respected.

The Enforcement Directive partially addresses a key problem with the application of the PWD in relation to subcontractors by introducing joint liability on the main contractor. This will set out who can be held liable for payment of wages, but does not determine what the wage of posted workers within a subcontracting chain should be.

The fundamental problems with the design of the PWD and its interpretation by the ECJ that have been outlined above were not addressed in the Enforcement Directive, which limited its scope to addressing fraud, circumvention of rules, and exchange of information between the Member States.

Commission’s new proposal has many limitations

In 2014, a group of Member States led by France campaigned for a revision of the PWD. Austria, Belgium, France, Germany, Luxembourg, the Netherlands and Sweden  signed a joint letter to the Commission calling for such a revision in order to establish in EU law the principle of ‘equal pay for equal work in the same place’, a demand supported by the ETUC and most European trade union federations. In response to this pressure, the Commission brought forward its proposal for a targeted revision of the 1996 Directive in March.

In doing so, the Commission finally admitted the existence of social dumping in the EU and its relationship with the PWD. In its Impact Assessment on the new proposal for a Directive amending the PWD, the Commission admits: “The 1996 Posting of Workers Directive establishes a structural differentiation of wage rules applying to posted and local workers which is the institutional source of an un-level playing field between posting and local companies, as well as of segmentation in the labour market,” and states that “the existing Directive has an in-built structural wage gap between posted and local workers”.

The key aspects of its proposal are:

*The ‘limited time’ a posted worker counts as a posted worker is defined as being 24 months or less, after which s/he will be covered by the labour law of the host state.
*The same rules on remuneration will apply to local and posted workers – but only if these are set by law or by universally applicable collective agreements.
*The rules set by universally applicable collective agreements become mandatory for posted workers in all economic sectors.
*Within sub-contracting chains, Member States will have the option to apply to posted workers the same rules on remuneration that are binding on the main contractor and even if these rules result from collective agreements that are not universally applicable.
*The principle of equal treatment with local temporary agency workers will also be applied to posted temporary agency workers, aligning the current legislation on domestic temporary agency work.

The key limitation of the Commission’s proposed revision is that it will not establish equal pay for equal work in the same place. The ‘same rules’ on remuneration will apply only when the standard is enshrined in law or in a universally applicable collective agreement, which is some Member States excludes the vast majority of collective agreements.

The two-year period before assimilation into the local labour market means most posted workers will be excluded as 90 per cent of posted workers are posted for less than 24 months at an average of 4 months.

It does not address the conflict between the right to take collective action and the right to freedom to provide services.

It also does not address the tension on the role of public procurement contracts between the Rüffert  case, the Public Procurement Directive  and ILO Convention  94, which states that conditions  under  public procurement contracts should not be less favourable than those established  for  the  same  work  in  the  same  area  by  collective agreement  or  similar  instrument.

The proposal does not make the general contractor liability at all stages of the subcontracting chain binding, and it does not require adequate proof of a pre-existing labour relationship before posting providing a service of similar nature.

All of these issues should be addressed through the process of revising the PWD in order to ensure it actually finally becomes an effective instrument to combat social dumping.

Erdoğan views Kurds as stepping stone to total power

A PKK checkpoint in Silvan, southeast Turkey, on August 19. (Reuters)

A PKK checkpoint in Silvan, southeast Turkey, on August 19. (Reuters)

Kurdish pro-independence activists have erected barricades, and elected representatives have declared self-government in several towns and villages across northern Kurdistan (southeast Turkey) since August 10. The declarations come in response to renewed attacks on Kurdish militants and civilians by Turkish security forces.

According to Kurdish media outlets, the towns, villages and districts that have declared self-government include Silopi, Cizre, Lice, Varto, Bağlar in Batman, Sur and Silvan in Diyarbakir, Bulanik, Yüksekova, Şemdinli, Edremit and Doğubeyazit, among others. Significantly, the Gazi neighbourhood in Istanbul declared self-government on August 18.

Mayors and elected representatives of the People’s Democratic Party (HDP) and the Democratic Regions Party (DBP), together with neighbourhood assemblies, have supported the declarations of self-government, saying the Turkish regime “did not represent them”. Four mayors in Diyarbakir were arrested on August 18.

The Turkish government, led by President Recep Tayyip Erdoğan’s Justice and Development Party (AKP), has given unlimited powers to the security forces and declared a state of emergency in the areas of resistance over the past week.

The Turkish army has backed up Special Forces and police in carrying out attacks, which have included aerial bombardment, the burning of homes, raids, and the shooting of combatants and civilians. Military curfews have been declared, and the affected districts are besieged by the army.

Kurdish protesters hold placards with Ekin Wan's face on August 19.

Kurdish protesters hold placards with Ekin Wan’s face on August 19.

One of the first towns to declare self-government on August 13 was Varto in Muş province, where Kurdish combatant Kevser Eltürk (with the nom de guerre Ekin Wan) was killed in a gun battle with Turkish Special Forces on August 10. Ekin Wan was a fighter in YJA-STAR (Free Women’s Units), the women’s military wing of the Kurdistan Workers Party (PKK).

After her death, Ekin Wan’s bloodied corpse was stripped naked and dragged through the streets by Special Forces who photographed the desecration and uploaded it onto the internet, sparking protests across Turkey.

Kurdish media reports that in the days following the declaration of self-government, Varto was attacked by tanks, helicopters and Special Forces soldiers. A PKK graveyard was bombed while military helicopters opened fire on villagers in Varto and several surrounding villages. Special Forces entered to conduct house raids and make arrests, while soldiers are reported to have set fire to houses and forests. The operations in Varto have been replicated in Kurdish towns and villages across southeast Turkey.

Turkish author and former war correspondent Cengiz Çandar described the developments of the past week as a “mass youth uprising by the PKK” that surpasses the scale of similar urban uprisings during the 1990s.

Kurdish activists too have said the security forces’ aggression is reminiscent of attacks on Kurdish communities during the 1990s, in which around three millions Kurds were displaced and thousands were killed. Since the PKK-led Kurdish insurgency began in 1984, an estimated 40,000 people have been killed in the conflict – the majority Kurdish civilians.

Erdoğan ended a two-year ceasefire on July 24 when his government resumed attacks on Kurdish communities in Turkey, as well as launching airstrikes against PKK bases across the border in southern Kurdistan (in Iraq).

By August 19, Turkish officials claimed that more than 50 security force members, around 400 PKK members and “at least seven” civilians have been killed in the recent violence. The PKK have rejected the claim regarding their casualties and say they have lost 30 members. The official figure for civilian deaths appears to be patently false, given that Amnesty International has verified that eight Kurdish civilians were killed in one Turkish airstrike alone in the village of Zergele in the Qandil mountains in Iraq on August 1.

After Suruç

The July 20 attack by an Islamic State supporter on a group of socialist youth activists in the Kurdish town of Suruç inside Turkey, near the Syrian border, was the spark for the collapse of the two-year ceasefire and peace talks between the Turkish government and the PKK.

Activists on the bus to Suruç before the bombing. (Victim Hatice Ezgi Sadet's Instagram)

Activists on the bus to Suruç before the bombing. (Victim Hatice Ezgi Sadet’s Instagram)

The activists who were killed were members of the Federation of Socialist Youth Associations (SGDF), the youth wing of the of Socialist Party of the Oppressed – a founding member of the People’s Democratic Party (HDP) coalition. The leftist, pro-Kurdish HDP won 13 per cent of the vote in general elections in Turkey in June; its co-leader, Figen Yüksekdağ, is a former chairperson of the Socialist Party of the Oppressed.

The youth activists were preparing to travel to Kobanê, the Kurdish city across the border in Syria, to build a library and playground, and assist in the general rebuilding of the town after the siege and conflict between the Kurdish People’s Protection Units (YPG) and Islamic State. In a crowd of around 300 people who had gathered for a public declaration to farewell the delegation in Amara Cultural Centre, a young Islamic State supporter blew himself up, killing 32 people; another later died from injuries.

The Islamist suicide bombing against the pro-Kurdish left has somehow been used by the Turkish government as a pretext to launch an all-out attack – against the pro-Kurdish left.

As international leaders sent their condolences to Erdoğan’s AKP government over what they referred to as “Islamic State’s attack on Turkey”, Kurds accused the government of collusion in the bombing. Specifically, they believe the Turkish National Intelligence Organisation (MIT) was directly involved.

Survivors asked the question: how was the bomber able to freely walk into the Amara Cultural Centre when there was a strong security presence surrounding it, and the activists had all been searched on their way in? Later, the funeral processions of almost all of the victims were attacked by Turkish security forces. The rapid pace of political developments in the days following the bombing appear to confirm the Kurds’ belief of government involvement.

Kurdish militants from the Patriotic Revolutionary Youth Movement (YDG-H), an armed youth movement associated with the PKK, claimed responsibility for the killings of two Turkish police officers on 22 July, who they said had collaborated with Islamic State.

Ankara-Washington deal

Three days later the bombing – after providing both tacit and practical support to various Islamist forces fighting against the Syrian regime of Bashar al-Assad during the civil war since 2011 – Erdoğan struck an agreement with the US on July 23. Under the deal the US can use Turkish air bases to launch airstrikes across the border against Syria, and Turkey has agreed to contribute directly to the war on Islamic State in Syria by carrying out its own strikes.

A “safety zone” along part of Syria’s border with Turkey is to be made free of both Islamic State and Kurdish militants, according to the terms of the agreement. This is the most significant element of the agreement as far as Erdoğan is concerned. There are three cantons in Rojava, the Kurdish area in Syria that runs along a large part of the border with Turkey. Following the recent victory of the Kurdish People’s Protection Units (YPG) over Islamic State in Tal Abyad, two of the three cantons, Kobanê and Cizere, were joined contiguously for the first time.

The precise area the “safety zone” is proposed to cover will ensure the YPG cannot join the two Kurdish cantons with the third, Afrin, as the US-Turkish joint “clear and hold” operation aims to rid the area of both Islamic State and Kurdish fighters. The absurdity of the US agreeing to limit the operations of the most effective military force fighting Islamic State in Syria in this way has been pointed out by many.

Announcing the agreement domestically, Erdoğan said his government would carry out a “synchronised war against terror” that would target both Islamic State and the PKK.

As of August 19, Turkey had launched airstrikes against just three Islamic State targets, and more than 300 against PKK bases in Iraqi Kurdistan. In the first three weeks of the campaign of repression, 1,300 “terrorism suspects” were arrested – 137 alleged to be linked to Islamic State, and 847 were accused of PKK membership. The Islamist suspects were quickly released; the Kurds were not. The total number of alleged activists now detained since July stands at more than 2,600, almost all of them Kurds.

‘Your silence is killing Kurds’

Yet most of the Western mainstream media has parroted the lines that Erdoğan has joined the war against Islamic State and the PKK are a secondary target in a broader crackdown, and the PKK has initiated the latest round of violence and caused the breakdown in peace talks.

A PKK member collects pieces of metal at a crater caused by Turkish air strikes on July 29 in the Qandil mountains, northern Iraq. (AFP)

A PKK member collects pieces of metal at a crater caused by Turkish air strikes on July 29 in the Qandil mountains, northern Iraq. (AFP)

The report by the New York Times on August 18 was typical of this coverage: “Mr Erdogan’s government decided to move more forcefully against the Islamic State last month after a suicide bombing in the southeastern district of Suruc that killed at least 34 people.”

The Wall Street Journal reported on August 3: “In parallel with its new military strikes against Islamic State, Turkey has targeted bases in northern Iraq used by the outlawed Kurdish separatist group PKK. The deadly airstrikes came in response to increased attacks by the PKK against Turkish security forces that are threatening a fragile peace process.”

The Huffington Post, however, reported on August 19 that Turkey pays US lobbyists and public relations firms around $5 million a year to win public and political favour. Among the lobbyists on the payroll is Porter Goss, who was CIA director from 2004-2006. Within days of renewing attacks on Kurds, Turkey hired the Squire Patton Boggs lobby group, which includes retired senators and White House officials, to propagate its version of the conflict.

There has been an almost-total media blackout in relation to the attacks on Kurds within Turkey and the urban warfare that has engulfed a major part of the country, prompting social media campaigns to target Western media with the hashtag, #YourSilenceIsKillingKurds.

In Turkey, where for decades the media has been prevented from reporting on PKK attacks and casualties among security forces, the media is now beaming a constant stream of “stories of those who were killed, kidnapped policemen, attacked government buildings and assets, along with bomb threats,” according to Pinar Tremblay, writing in Al-Monitor. “Turkish audiences have not seen this many funerals since the early days of the conflict in the late 1980s.”

Putting power before peace

The Turkish president has invested a significant amount of political capital in achieving a lasting peace settlement with the Kurds of Turkey, who number 15 million, around one-fifth of the total population. Before becoming president, Erdoğan served as the prime minister from 2003-2014. In 2005, he admitted the existence of a “Kurdish problem” in Turkey, and under his government secret peace talks were held between the PKK and the Turkish National Intelligence Organisation in Oslo.

The process eventually led to the declaration from jail of a ceasefire on Newroz day (Kurdish New Year) in March 2013 by PKK leader Abdullah Öcalan, imprisoned since 1999. The ceasefire proved durable, and in February this year a more comprehensive agreement was announced by HDP and AKP representatives, including the Interior Minister and the deputy prime minister. The 10-point Dolmabahçe Agreement dealt with conflict resolution issues including disarmament, human rights and constitutional reform.

Turkish President Recep Tayyip Erdoğan

Turkish President Recep Tayyip Erdoğan

On July 17 Erdoğan said: “I do not recognise the phrase ‘Dolmabahçe Agreement’… There cannot be an agreement with a political party that is being supported by a terrorist organisation.”

What changed? In general elections in June, the AKP lost its parliamentary majority for the first time in 13 years. The pro-Kurdish left-wing HDP won 13 per cent of the vote, meaning it met the 10 per cent threshold a political party must reach in order to sit in the Turkish parliament. This threshold was imposed with the aim of silencing voices of political opposition by the constitution adopted in 1982 following the 1980 military coup. It has meant Kurds have been largely excluded from the democratic process ever since, making the result in June historic.

The party, its candidates and campaign workers were harassed and physically attacked, sometimes lethally, throughout the election campaign. On June 5, its major pre-election rally in Diyarbakir was bombed. Four people were killed and dozens more were injured. Other HDP election rallies were attacked by fascists; its offices were shot at and bombed; and campaign worker Hamdullah Öğe was assassinated while driving a HDP vehicle.

Despite the violence and intimidation, voters turned out in large numbers to support the HDP – which also attracted votes from non-Kurdish communities on the basis of its secular, feminist and left-wing positions.

One the HDP's mass election rallies (Piczard)

One of the HDP’s mass election rallies. (Piczard)

The AKP required 276 seats to form a majority government in the 550-seat parliament; it won 258, dropping from around 50 per cent of the vote to just above 40 per cent. The social-democratic Republican People’s Party (CHP) won 132 seats, while the HDP and the fascist Nationalist Movement Party (MHP) each won 80 seats. Of the 80 HDP candidates elected, 32 were women, bringing the number of female MPs in the Turkish parliament to a record high of 98. All leadership positions in the HDP are co-chaired by a woman and a man.

The current government is an interim government; if no coalition is formed by August 23, Prime Minister Davutoglu must dissolve the cabinet. If this happens, an all-party ‘election government’ will be formed until the new elections – which must be within 90 days.

The HDP rejected the AKP’s overtures for a coalition government from the beginning, and AKP talks with the CHP, then the MHP, have broken down. But it’s highly likely that Erdoğan had no intention of forming a coalition government, and would prefer to hold snap elections in November in which he believes the AKP can regain its majority.

Erdoğan wants an executive presidency

The election results also blocked plans Erdoğan had made for constitutional reform that could only be made through the parliament if the AKP won a two-thirds majority, or 367 seats. After ruling as prime minister for 11 years, he is clearly dissatisfied with what he calls the “ceremonial” role of the president, and he intended after the election to create an “executive presidency” that would dramatically extend his personal power.

The president had formerly been appointed by the parliament, but a 2010 referendum allowed for direct election of the president, and the first such election was won by Erdoğan last August.

Immediately after his election, Erdoğan opened an opulent new 1,000-room presidential palace that cost Turkish taxpayers well over $600 million to construct. In May this year, the AKP-majority parliament granted Erdoğan a “discretionary fund” for “discreet intelligence and defence services” not subject to any form of judicial, administrative or parliamentary oversight – in other words, his own private army.

HDP co-leader Selahattin Demirtaş responded to the establishment of the discretionary fund by calling it a “civil coup”.

“The palace has its own special army authorised to collect intelligence, its own discretionary budget. That is, it has created a one-man, separate state,” he said.

On August 13, AKP leader and Prime Minister Ahmet Davutoğlu said he had failed to reach a coalition deal with the CHP. The following day, Erdoğan indicated that he will attempt to achieve an ‘executive presidency’ without the required two-thirds majority if the AKP wins a simple majority in snap elections – or perhaps even before then.

“There is a president with de facto power in the country, not a symbolic one,” he said. “Whether one accepts it or not, Turkey’s administrative system has changed. Now, what should be done is to update this de facto situation in the legal framework of the constitution.”

Demirtaş called for a referendum to be held on the proposed change, which the HDP opposes, saying: “The state regime cannot be changed with a fait accompli.”

CHP leader Kemal Kılıçdaroğlu described the statement as the “acknowledgement of a coup”.

New elections

The general election was held on June 7; from June 8 the AKP has been planning a new snap election and a way to rapidly diminish the HDP’s support base. If the HDP were to drop below the 10 per cent threshold and be excluded from parliament, then in all seats where a HDP candidate topped the poll the seat would go to the runner-up – in most cases, an AKP candidate.

In anticipation of a new election, Erdoğan and the AKP are making a concerted effort to link the HDP with the PKK, and to alienate conservative Kurdish voters from supporting the HDP, in the belief that this will result in the party failing to meet the 10 per cent threshold. At the same time the AKP is appealing to right-wing nationalists to reward its hardline position.

Many analysts have predicted that the move may backfire and drive the entire Kurdish population in Turkey to vote for the HDP. The head of polling company Metropoll, Özer Sencar, said on CNNTurk on August 18 that the HDP is likely to become the third-largest party in Turkey if fresh elections are held in November, and could win up to 17-18 per cent of the vote – an outcome he was at pains to explain he believed would be “extremely wrong” for Turkey.

HDP co-chairs Selahettin Demirtaş and Figen Yüksekdağ

HDP co-chairs Selahattin Demirtaş and Figen Yüksekdağ (AP)

Of course, the caretaker government led by the AKP may attempt to outlaw the HDP and prevent it from participating in fresh elections. On July 31, Turkish media reported that a criminal investigation has been opened into both HDP co-chairs, Demirtaş and Figen Yüksekdağ, for “inciting violence” and “propagandising for terrorist organisations” respectively, over speeches they have given in support of Kurds in Kobanê and the rest of Rojava. In Demirtaş’s case, if the case is prosecuted and he is found guilty, he faces up to 24 years in prison.

Eight opposition MPs from the CHP and HDP have also had an ‘investigation authorisation report’ sent to the parliament by the deputy prime minister, which provides legal authority to open an investigation into an MP’s activities.

The current indications are that the government will continue to target individuals and not attempt to outlaw the HDP itself – but this could change in response to the declarations of self-government across Kurdish districts.

Erdoğan’s renewed aggression against the PKK should not only be understood in domestic terms. It is also shaped significantly by the major advances made by Kurdish forces in Syria and Iraq. The dismal repercussions of attacking the most effective resistance to Islamic State in the region have yet to fully play out. But his decision to walk away from an historic opportunity to end decades of conflict, in a cynical and transparent grab for personal power, may have unleashed a rebellion by Kurdish youth in Turkey that he will not be able to contain.

Kurdish pro-independence forces are stronger now – better organised, with more territory and more international support – than they were in the 1990s.

A second article examining the Kurdish struggle against Islamic State in Rojava, and the impact of the US-Turkey deal to establish a safety zonealong the Turkey-Syria border, will follow shortly.

When free trade isn’t enough: A corporate grab for policy power

US workers protest against 'Fast Track', or the Trade Promotion Authority. Photo from AFL-CIO.

US workers protest against ‘Fast Track’, or the Trade Promotion Authority. Photo from AFL-CIO.

The new generation of free trade agreements such as the Trans-Pacific Partnership and Trans-Atlantic Trade and Investment Partnership are less about reducing already-low tariffs, and more about providing multi-national corporations with the power to determine public policy. This is the first part in a two-part article on the politics and likely impact of this new generation of trade deals.

As the US Congress resumes sitting after the Easter break, the Obama administration’s number one priority is to convince sceptical House Democrats to approve his Trade Promotion Authority (TPA), or so-called ‘Fast-Track’ legislation. The TPA would allow for the Trans-Pacific Partnership (TPP) free trade agreement currently under negotiation to be signed and entered into by the President without Congressional approval. Implementation legislation would then be fast-tracked through Congress without amendments in a filibuster-free yes-or-no vote within 90 days.

Political commentators estimate that Obama still needs to convince between 40 and 50 members of his Democratic party to support Fast-Track in the Republican-controlled 435-seat House of Representatives. The TPA is already supported by the vast majority of House Republicans, with the exception of a group of Tea-Party types who appear to be opposing it for the sheer joy of blocking any further delegation of power to Obama.

If agreement is not reached and a TPA bill tabled before Congress goes into recess in August, it is all but certain that the US will not be able to seal the deal on TPP before 2017 – after the presidential election primaries, and the election itself in 2016. It’s also highly unlikely that TPP could get through Congress without Fast-Track.

It’s a sorry spectacle: Obama trying to drum up support from his base to implement the agenda of the massive corporations that did their utmost to prevent his election and re-election – an agenda that, if successful, will unpick his key achievements in progressive domestic policy reforms, from affordable healthcare to increased regulation of the financial sector.

Environmental groups and progressive economists and academics are backing the Congressional opposition to Fast-Track led by Massachusetts Senator Elizabeth Warren. The AFL-CIO is campaigning for Democrats to maintain their stance against TPA, and it is continuing to withhold contributions to Democratic congressional campaigns to maximise the pressure. A letter to all House representatives and Senators asking them to oppose Fast-Track was jointly signed by the leaders of every union in the country in March, representing more than 20 million workers.

The total undermining of congressional oversight in Fast-Track, though alarming, is not the chief concern of those who oppose it. It’s the content of the trans-Pacific trade deal that the TPA would fast-track that is fuelling the opposition, and with good cause.

The TPP is part of a ‘new generation’ of free trade agreements that move far beyond the lowering of tariffs and aim primarily to remove ‘non-tariff barriers to trade’ by reaching regulatory coherence or harmonisation between parties. Without a doubt, this will result in a trans-Pacific race to the bottom on labour standards and environmental protections, as well as the offshoring of jobs from industrialised countries; the prising open of access to the state-owned enterprises of poor nations for multi-national corporations; and the imposition of stricter intellectual property demands on these nations. If signed, TPP will cover 800 million people and 40 per cent of the global economy. Next on the agenda is the Trans-Atlantic Trade and Investment Partnership (TTIP) under negotiation between the US and EU.

Negotiations for the TPP began in 2010 and it now includes 12 Pacific rim countries – the US, Canada, Japan, Australia, New Zealand, Singapore, Malaysia, Vietnam, Brunei, Mexico, Chile and Peru. It is to be a ‘living agreement’ – which means other countries can join further down the track, and that the content of the TPP can be altered with agreement from the parties. The text of the proposed agreement and the negotiations have been kept secret, but key chapters have leaked.

The negotiations are reportedly nearing conclusion, with the remaining sticking points being a dispute between the US and Japan over tariffs in the US agriculture sector and in Japan’s car industry. The chief negotiators for the 12 countries met for a week in Hawaii in March and will meet again at the APEC summit in the Philippines in May. Negotiators for several countries have made it clear they are not willing to sign up to an agreement unless Obama secures Fast-Track.

The secrecy that has shrouded the talks has contributed to the hostility to the TPP among the public in the US and other countries. Then US Trade Representative Ron Kirk said in an interview with Reuters in May 2012: “There’s a practical reason, for our ability both to preserve negotiating strength and to encourage our partners to be willing to put issues on the table they may not otherwise, that we have to preserve some measure of discretion and confidentiality.”

Reuters went on to say that Kirk noted during the interview “that about a decade ago negotiators released the draft text of the proposed Free Trade Area of the Americas and were subsequently unable to reach a final agreement”. When the Bush administration released the draft text of the FTAA in 2001, an expansion of the North American Free Trade Agreement (NAFTA), the resulting public outcry across the Americas was the beginning of the end for the proposed deal.

The US has existing free trade agreements with 20 states. The bitter experience of previous agreements, particularly NAFTA, signed in 1994, has made the US labour movement deeply wary of TPP, which would cover 40 per cent of the world’s GDP. During the NAFTA negotiations between the US, Canada and Mexico, then US President Bill Clinton promised the agreement would create 20 million new export-based jobs in the US. It didn’t – instead, it led to a net loss of almost one million US jobs, according to the Economic Policy Institute. Industrial investment was off-shored to to Mexico resulting in job losses and a steady downward pressure on US wages.

The impact of NAFTA on Mexico was, of course, much harsher. More than two million small farmers and rural labourers were ruined and dislocated. The minimum wage in Mexico in 2013 was 24 per cent lower in real terms than in 1993. Growth has slowed to less than one per cent annually since 1994 and the poverty rate in 2012 was 52 percent of the population.

According to US NGO Public Citizen, of the 29 chapters of the the draft TPP agreement, only five are actually related to trade issues – the rest focus on the so-called non-tariff barriers. In November 2013, Wikileaks released the draft chapter on Intellectual Property Rights, followed by the draft Environment chapter in January 2014. Observers have gleaned further information from the few public statements made by negotiators regarding the content of the agreement.

Opponents of TPP expect many aspects of the NAFTA experience to be replicated in the trans-Pacific region. One of the most objectionable elements of TPP to the US labour movement is the chapter on government procurement, which will outlaw the ‘Buy American’ laws (some in place since 1934) that favour domestic producers in government contracts as being discriminatory to foreign firms. The major discrepancy in labour conditions and wages across the 12 TPP countries will mean further offshoring of jobs – for example, to Vietnam, where the average monthly wage is US$145.

The large proportion of services delivered in Vietnam by significant state-owned enterprises are also in the sights of the US corporations backing the trade deal, with the US Trade Representative’s office claiming that “levelling the playing field” between private firms and state-owned enterprises is a central goal of the pact.

Among the most vicious proposals in TPP is the plan pushed by major pharmaceutical companies to force impoverished Pacific countries to sign up to the US model of intellectual property rights, which go beyond the World Trade Organisation (WTO)-administered agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) made in 1994.

A map of TPP countries. Image from New York Times.

A map of TPP countries. Image from New York Times.

The leaked intellectual property chapter of TPP confirmed that the warnings of public health experts and the World Health Organisation were well-founded – that the US is pushing for stricter rules in TPP countries on medicine patents, which will restrict the availability of affordable medicines. Flexibilities within the TRIPS agreement exempt ‘least developed countries’ from having to grant pharmaceutical patents up until 2016. But so-called TRIPS-plus provisions in TPP will uniformly delay the production of generic drugs for cancer and other life-threatening illnesses, by including an “automatic monopoly period” of up to 12 years for patented drugs before generic versions can be manufactured – putting treatment out of reach for potentially millions of patients across the Pacific for a decade or more.

A May 2012 briefing paper on the impact of free trade agreements on public health by the UN Development Programme and UNAIDS said: “TRIPS flexibilities were implemented and endorsed by the global community as methods to mitigate the impact of WTO Agreements on access to affordable, quality pharmaceuticals.” The report cites a study on the impact of the US-Colombia Trade Promotion Agreement that estimates an increase of almost $1 billion being spent on medicines in Colombia by 2020, or alternatively a 40 per cent decrease in medicine consumption.

The UN paper adds that in order to keep the benefits of the TRIPS flexibilities, “countries, at minimum should avoid entering into FTAs that contain TRIPS-plus obligations that can impact on pharmaceuticals price or availability”. Economist Joeseph Stiglitz has written: “In the poorest countries, this is not just about moving money into corporate coffers: thousands would die unnecessarily.”

The intellectual property chapter has also alarmed internet freedom activists, who believe the proponents of the failed US Stop Online Piracy Act (SOPA) and the Senate’s Protect IP Act (PIPA), which were scuttled due to public opposition in 2012, are aiming to implement a similar regime under the cover of the TPP. SOPA and PIPA proposed empowering the government to block internet service providers of infringing websites and to penalise individuals who accessed copyrighted content with jail terms. The leaked chapter includes text that would expand copyright periods significantly beyond TRIPS.

Digital rights group the Electronic Frontier Foundation says the leaked proposals restrict innovation and freedom of expression online, and that provisions on trade secrets mean countries will be able to “enact harsh criminal punishments against anyone who reveals or even accesses information through a ‘computer system’ that is allegedly confidential”.

And internet privacy advocates are equally concerned by the leaked detail on data flow provisions that they believe will allow privacy protections to be challenged on the basis that they act as an unfair barrier to trade. The text includes prohibitions on countries deciding where private data is stored – ie, in onshore or offshore data centres.

The protection of investors’ rights is the most controversial of all aspects of the TPP, and it is this aspect of the pact that environmentalists are most concerned about. Regardless of domestic policies that may exist or be introduced to combat climate change and reduce carbon emissions, investment in the fossil fuel industry, including in shale, will be locked in and unassailable. The leaked Environment chapter of TPP contains soft and aspirational language in comparison to the other leaked chapters. University  of Auckland Professor Jane Kelsey, who provides an analysis of the leaked text, writes of the Environment chapter: “The obligations are weak and compliance with them is unenforceable.”

Corporate justice and socialised risk

The TPP proposes to ease restrictions on investment and boost protection for investors. The centrepiece of this protection is the ISDS or investor-to-state dispute settlement mechanism. The ISDS mechanism will allow private companies to sue national governments for compensation for loss of “expected future profits” in response to government actions that impact on the company’s activities in private offshore tribunals that comprise three lawyers with the power to award damages.

The critical Investment chapter of the TPP leaked and surfaced on Wikileaks on March 25, and was dated January 20, 2015. Activists universally responded to the leak by describing the ISDS provisions as even worse than feared. Footnote 29 of the leaked chapter states that Australia is exempt from the ISDS provisions but adds: “deletion of footnote is subject to certain conditions”.

Coordinator of the Australian Fair Trade and Investment Network Dr Patricia Ranald said that the Australian government “is using ISDS as a bargaining chip in the hope of improved access to US agricultural markets” and appears to be “about to agree to ISDS” under certain conditions. Australia has existing agreements with 28 countries that include ISDS provisions.

The former Labor government in Australia banned the inclusion of ISDS mechanisms in future trade deals. But this policy has been overturned by the conservative Abbott government, which says it will assess each trade deal on a case-by-case basis. It has already signed up to a major free trade agreement with South Korea, released in February 2014, which includes an ISDS provision.

The action by tobacco giant Philip Morris against the Australian government over its introduction of plain packaging for cigarettes in 2010 has become the most infamous and emblematic example of ISDS in action. There are three main reasons why the case, which was launched in 2011 and is ongoing, has generated a deep suspicion towards ISDS among the public internationally.

First and foremost is the fact that a major corporation peddling a deadly project is entitled to sue a national government for implementing an important and effective public health measure. Secondly, there is the fact that Philip Morris exhausted its legal avenues in Australia’s national courts, having its claim rejected in the High Court before it decided to invoke ISDS – when Australian citizens and companies are not entitled to any further recourse beyond the High Court.

Finally, there is the blatant cynicism in Philip Morris’s manoeuvring, known as ‘treaty shopping’, that allowed it to launch the ISDS action over the supposed appropriation of its trademark by the Australian government. In February 2011 Philip Morris Australia, which was then owned entirely by a Swiss company, was bought by Hong Kong-based Philip Morris Asia. Australia did not have an ISDS trade agreement with Switzerland, but it did have a 1993 trade deal with Hong Kong that included ISDS provisions.

Most commentators believe Philip Morris will lose the case, but that hasn’t prevented it from threatening other countries that have expressed their intention to introduce cigarette plain packaging legislation. It had already brought a case against Uruguay in 2010 for introducing health warnings on packaging.

In March this year, Ireland became the second state in the world to introduce plain packaging. Comedian John Oliver covered the story on his Last Week Tonight programme, quoting from a June 2013 letter to the Irish government from a subsidiary of Philip Morris International threatening legal action that included the line, “As a dance is only meaningful when danced, so a trademark is only meaningful when used”. “And you know you have a pretty weak legal argument,” Oliver commented, “if it sounds like a rejected fucking Jewel lyric”.

The investor-state dispute settlement mechanism was first introduced into trade agreements and treaties in the 1950s, ostensibly to protect investors from outright government expropriation of their land or factories in countries that lacked a robust legal system. It was rarely used until the 1990s when the US-led surge in free trade agreements made it a more readily accessible option for multi-national corporations. According to the UN Conference on Trade and Development (UNCTAD), there has been a ten-fold rise in reported cases 2000.

Obama at TPP meeting in Hawaii 2011

US president Barack Obama at the TPP Leaders meeting at the APEC summit in 2011. Photo: Reuters

An ISDS mechanism is now included in more than 3,000 trade agreements around the world, around 2,700 of which are bilateral investment agreements and the remainder of which are trade treaties. According to UNCTAD, by the end of 2014 there have been a total of 608 known ISDS cases brought against more than 100 national governments that have resulted in the payout to multi-nationals of an unknown amount that totals billions of dollars.

In 2014 alone, 42 ISDS decisions were handed down, and the awards in just three of these totalled an unprecedented $50 billion. Corporations from the US and the European Union combined have initiated 64 per cent of claims that are publicly known. But because ISDS arbitration can be kept totally private, there may be many other cases the public is unaware of.

Canada, which entered into an ISDS agreement with the US through NAFTA, expected that its investors would be enabled to sue the Mexican government but was unprepared for the series of cases brought against it by US corporations, which have led it to pay out at least $158 million in compensation or settlements. Outstanding cases against Canada include damages claims of $6 billion. The US government has never yet lost an ISDS case. Just wait until it enters an ISDS agreement with Japan under TPP, observers warn.

The mechanism has repeatedly been used to directly challenge legislation by democratic governments made in the public interest. After NAFTA, the Canadian government banned a fuel additive, MMT, due to it having been found to be a risk to human health and the environment. It was sued by US MMT manufacturer Ethyl for a loss of expected future profits and settled the case for $13 million. The settlement included not only a payout but an obligation on the Canadian government to rescind the ban and publicly declare that MMT was safe.

Argentina was sued by more than 40 corporations after it took action to devalue its currency and freeze energy and water bills in the wake of its 2001 financial crisis. Compensation orders against Argentina for these actions reached $1.15 billion by 2008. In Ecuador, after the government cancelled Occidental Petroleum contracts for illegally breaching contractual terms, the US oil company was awarded $1.77 billion. Ecuador, Bolivia and Venezuela have now withdrawn from the World Bank’s investor dispute mechanism and withdrawn from many bilateral investment treaties that contain an ISDS mechanism.

In response to the Arab Spring in 2011, the then Egyptian government conceded an increase in the minimum monthly wage from $56 to $99 – only to be sued in June 2012 for almost $100 million by French corporation Veolia, which objected to having to pay its Alexandria bus station workers more.

In an intellectual property case, US drug corporation Eli Lilly is suing Canada under NAFTA over its laws that require the patentability of a medicine to be proved before a patent is granted – a law with the public policy goal of ensuring accessibility to affordable medicines.

In another case under NAFTA, Canada is being sued by US company Lone Pine Resources for $230 million for the declaration by the Quebec government of a moratorium on oil and gas exploration in 2011. The moratorium resulted in the revocation of Lone Pine’s permit to frack gas from underneath the St Lawrence River, which was an essential source of drinking water in Quebec.

In 2011, Swedish energy corporation Vattenfall claimed €1.4 billion in damages from Germany for placing environmental restrictions on a coal-fired power plant the company was building in Hamburg. The government settled – lifting the restrictions. After the Fukishima nuclear disaster, the German government made a decision to phase out nuclear energy. The same Swedish company, Vattenfall, sued under ISDS again in 2012 – this time for €3.7 billion for the loss of profits in its two nuclear power plants.

The examples go on.

If successful, the US-led drive to include ISDS provisions in TPP and TTIP – which combined, cover more than 60 per cent of global GDP – will result in an exponential rise in ISDS claims, where taxpayers are forced to shoulder the cost of the risks associated with foreign direct investment.

In response to the Europe-wide outcry against the proposed inclusion of ISDS in TTIP, the European Commission issued a ‘fact-sheet’ on October 13, 2013 that claims US investors may not want to bring an action against an EU member state in that state’s national courts, “because it might think they are biased or lack independence”.

An Australian ISDS lawyer, Sam Luttrell, offered a similarly lame justification for why investors would be reluctant to sign trade deals with Australia without an ISDS mechanism on ABC radio in September 2014 – arguing that foreign investors would be wary because Australia has a legal system based on case law, because it’s a federation, and because there’s a “perception” that investors will be discriminated against in Australian courts on the grounds of their nationality. But Australia’s Productivity Commission, hardly a beacon of protectionism, found in a 2010 report that there is no evidence that ISDS has any significant impact on foreign direct investment into a country.

Regulatory ‘chill’

As objectionable as the socialisation of risk taken by powerful multinational corporations is, the direct power these corporations are seizing over public policy is far more disturbing.

The European Commission’s fact-sheet declares: “Including an ISDS mechanism in an investment agreement will not make it more difficult for the EU or its Member States to pass laws or regulations.” It said the EU is working to ensure that “genuine regulations and laws are consistent with investment agreements”, a statement that begs the question – what exactly is a genuine regulation or law? Does the European Commission get to decide on behalf of member states which laws passed by democratic governments can be maintained and which can be discarded in the interests of multinational investors?

In an attempt to convince EU citizens that member states will retain the right to regulate under TTIP, the fact sheet continues: “A country cannot be compelled to repeal a measure: it always has the option of paying compensation instead.”

Well – that’s reassuring.

Discussing the impact of NAFTA, a former Canadian government official was quoted in The Nation as saying: “I’ve seen the letters from the New York and DC law firms coming up to the Canadian government on virtually every new environmental regulation and proposition in the last five years.” These included pharmaceuticals, chemicals, patents and pesticides. “Virtually all of the new initiatives were targeted and most of them never saw the light of day.”

World-leading ISDS lawyer and Essex Court Chambers barrister Toby Landau QC said that this so-called regulatory chill exists “without doubt”, adding that in his role as counsel, “on a number of occasions now I’ve actually been instructed by governments to advise on possible adverse implications or consequences of a particular policy in terms of investor-state cases”.

As to achieving ‘regulatory coherence’ in the new generation of free trade agreements, business associations believe it would save everyone time if they were allowed to just write regulations for governments. In the lead-up to the opening of TTIP negotiations in 2013, the US Chamber of Commerce and BusinessEurope demanded a seat at the table with regulators “to essentially co-write regulation” in an October 2012 joint statement.

The ISDS provisions that offer the highest success rate for multinationals are the “fair and equitable treatment” commitment and the “minimum standard treatment” guarantee. According to Public Citizen, in 74 per cent of cases where US investors were successful, the fair and equitable treatment provision was used. Both provisions would be extended in TPP according to the Investment chapter that Wikileaks released in March. The chapter shows that under the minimum standard of treatment provisions, a case could be taken against government action that consists of a higher degree of regulation or scrutiny than an investor expected based on its dealing with a previous government.

UNCTAD has calculated that of all known investor-state disputes, 42 per cent were won by the state, 31 per cent were won by the investor, and 27 per cent were settled – typically regarded as a win by the investor in terms of a financial or legislative reward. There is no limit on the amount that can be awarded to a corporation, and the average cost of running a case is $8 million.

So how do these tribunals actually work?

They are ad-hoc tribunals convened by the World Bank’s International Centre for Settlement of Investment Disputes (ICSID) or the United Nations Commission on International Trade Law (UNCITRAL) dispute mechanism. Three private lawyers are selected from a roster to arbitrate – one appointed by the investor, one by the state, and one that is agreed by both parties.

They meet in hotels or conference centres for a few days or a week, according to leading US ISDS lawyer – and fierce critic of the system – George Kahale. The proceedings are often kept secret and there are no public disclosure requirements.

Many lawyers alternate between representing major corporations in cases against governments and being ‘judges’ in ISDS tribunals. They do not earn a flat salary, as judges do in most countries, but rather earn more money the more tribunals they sit on. Incredibly, there is no requirement to follow precedent – the findings and the sum awarded are entirely at the discretion of the panel of corporate lawyers.

In its analysis of the leaked Investment chapter of TPP, Public Citizen outlines this extreme conflict of interest: “Since only foreign investors can launch cases and also select one of the three tribunalists, ISDS tribunalists have a structural incentive to concoct fanciful interpretations of foreign investors’ rights and order that they be compensated for breaches of obligations to which signatory governments never agreed.” An investor-friendly tribunalist clearly has a higher chance of being selected by corporations to sit on future tribunals.

Despite the wave of opposition to an ISDS being included in TTIP in Europe, demonstrated in the 150,000 responses received by the public consultation the European Commission was forced to undertake in 2014, the Commission appears determined to include it in the final agreement – with token added “safeguards”, no doubt.

The “safeguards” that were included in the Central America Free Trade Agreement in 2005 have been replicated in the TPP Investment chapter – but these safeguards have been ignored in practice by the tribunals, which have no appeal mechanism.

Regarded as the economic arm of his administration’s ‘Pivot to Asia’ aimed at containing the power of China, signing off on TPP is an urgent priority for Obama in the coming months, but it won’t happen unless Fast Track is approved by Congress. Enormous pressure by multinational corporations is being exerted on Democrats to delegate this authority to the President.

The Trans-Pacific Partnership will be followed by TTIP and the US-led Trade in Services Agreement. TISA is an even more secretive agreement aimed at the deregulation and ‘regulatory coherence’ of financial and other services that has been under negotiation between more than 50 countries since 2013.

The three agreements collectively, if signed, will result in a historic and unprecedented transfer of political and policy-making power to multinational corporations. This makes the stakes dizzyingly high for the fate of Fast Track, not only for the populations of TPP countries but for the vast majority of the world’s population that will be affected by this new generation of corporate trade deals.

Basque Country: Dealing with the consequences of the conflict

From left: Brian Currin, Mark Demesmaeker MEP, and Frieda Brepoeles

From left: Brian Currin, Mark Demesmaeker MEP, and Frieda Brepoeles

South African lawyer and conflict resolution expert Brian Currin was the main speaker at a conference held in the European Parliament in Brussels on 24 March to mark five years since the ‘Brussels Declaration’ was made in support of building a peace process in the Basque Country.

The conference was organised by the Basque Friendship Group, which includes MEPs from across the political spectrum in the European Parliament, and was introduced by New Flemish Alliance representatives Mark Demesmaeker MEP and former MEP Frieda Brepoeles.

The event ended with the launch of an international campaign for the release of jailed Basque pro-independence leader Arnaldo Otegi and for the repatriation of Basque prisoners to the Basque Country.

In her opening remarks, Brepoeles described the Brussels Declaration, a statement made by a group of 21 international conflict resolution leaders including several Nobel Prize winners, as “an indisputably pivotal moment”.

“From that point, the international community organised to take initiatives in support of the peace process. Among the Basque people, the belief in a durable peace grew. Madrid appears to fear an outbreak of peace. But pessimism, for us, is not an option,” she said.

Demesmaeker outlined his view that the role of the European Union in the final resolution of the long-running Basque conflict was to pressure Spain and France to end the current stalemate in what has been, to date, a one-sided peace process.

Brussels Declaration

Brian Currin was the driving force behind the Brussels Declaration in March 2010. He was then instrumental in establishing the International Contact Group – a group of high-profile conflict resolution experts from around the world – in November that year in order to help promote a peace process in the Basque Country.

Speaking at the conference to mark five years since the Brussels Declaration, Currin said: “The Brussels Declaration of March 2010 was a challenge to ETA – it called on ETA to declare a permanent and verifiable ceasefire.

“In January 2011, ETA responded positively and announced just that – a permanent and verifiable ceasefire. We, the International Contact Group, assumed that the Spanish and French governments would be part of any verification body. It was incomprehensible to us that they would choose not to be part of such a process.

“We established an independent international verification body of conflict resolution experts, the International Verification Commission (IVC), and in the process we approached Madrid and Paris. They didn’t respond. To this date we have had no support for the disarmament process from either government.”

A definitive end to armed activity

The next milestone in the current peace process, Currin told the conference, was Declaration of Aiete, made on 17 October 2011.

The Declaration consisted of five recommendations that called on ETA to implement a definitive cessation of armed activity and request negotiations with the Spanish and French governments; and urged the governments to respond positively to such a request and put in place a process of addressing the consequences of the conflict. three days later, ETA announced a “definitive cessation” of armed activity.

Aiete signatories included former UN Secretary General Kofi Annan, former Irish Taoiseach (PM) Bertie Ahern, Sinn Féin President Gerry Adams, former Norwegian PM Gro Harlem Brundtland, former French Interior Minister Pierre Joxe and former Chief of Staff to British PM Tony Blair, Jonathan Powell. It was soon endorsed by Blair and former US President Jimmy Carter.

“The key goal of the Aiete Declaration, in addition to obtaining a verifiable commitment to the definitive end of armed activity from ETA, was for the Spanish and French governments to enter dialogue with ETA – exclusively on dealing with the consequences of the conflict,” Currin explained.

“I stress this word, exclusively – the call was not for the Spanish and French governments to enter into political talks about the future of the Basque Country, the constitution, or any issue other than dealing with the key consequences of the conflict that lasted for five decades.

Addressing the needs of victims

“There are three main consequences that I believe need to be dealt with in order to build a lasting peace in the Basque Country – victims, disarmament and prisoners.

“Notwithstanding the failure of the two governments to move on the issue of disarmament or prisoners, a great deal of excellent work has continued in the Basque Country in recent years on the sensitive and moving issue of victims.

“Basque organisations and the Basque Government [the government of the Basque Autonomous Community] have worked tirelessly to try to move this forward. So a lot of work on the issues of victims and reconciliation is taking place – but it needs institutional support from the Spanish and French governments.”

Refusal to engage in disarmament process ‘incomprehensible’

“ETA has been unequivocal in putting its arms beyond use,” Currin said.

“It has made commitments and kept them, and it has put a quantity of its weapons beyond use through the IVC in February last year.”

For their efforts, the IVC members were summoned to appear before the special Spanish court, the Audiencia Nacional, for questioning.

“For this process to be carried out properly, it needs the cooperation of the Spanish government. It needs to involve official security personnel,” he said.

“Madrid’s approach has been to say, ‘hand over the weapons to us’. But it’s not that simple. These arms may be associated with individuals who are still in exile or being sought by Spanish authorities who would be targeted. What the Spanish government is asking for amounts to a surrender in the eyes of ETA.

“But the issue must be dealt with, and it cannot be dealt with by the international community alone. The fact is there are arms in caches in Spain and France and they need to be identified and destroyed. International actors, were they to enter the Spanish state and carry this out, would be engaging in a major crime under Spanish law.

“Can you imagine if, anywhere else in the world, a group that had been engaged in an armed campaign against the State for decades announced that it wanted to disarm, and that government refused to engage with a disarmament process?

“It would be considered to be outrageous. A solution to this stalemate needs to be found, and key to this will be the international community – particularly the EU – putting pressure on Spain and France to engage positively in decommissioning.”

Political prisoners are the key to achieving peace

Currin said that in his experience, “in every peace process, resolving the status of politically motivated prisoners is the key”.

“It cannot be overstated. This has been true for all the peace processes I have been involved in, in the Basque Country, in Northern Ireland and in South Africa.

“When I began working in the Irish peace process in the 1990s, I was engaging with both republicans and loyalists on the issue of prisoners. Soon, the British government asked me to chair their prisoner early release commission – something that showed significant political maturity on their part.

“The issue of political prisoners, again, needs to be dealt with institutionally. Before we even begin addressing the issue of early release, we need to insist that the exceptional punitive measures used against Basque prisoners come to an end.

“The words the Spanish government is asking Basque prisoners to say in order to end the exceptional measures used against them are deliberately designed to ensure the prisoners cannot say them. They’re being asked to reject everything they’ve been involved in, their beliefs and their actions. And the prisoners are not prepared to do that.”

Dispersal – an inhumane, colonial-era penal policy

Currin then spoke about his background as a human rights lawyer, and then a human rights activist in South Africa in the 1980s. Ten years later he became involved in the conflict resolution processes in South Africa and Ireland.

“But now,” he said, “I am going to be an activist again for the next five minutes to speak about an issue that I feel very strongly about, and that is the dispersal of Basque prisoners.

“Dispersal is a rather innocuous word. Is it the right word to use in this context, to convey the consequences of the policy? I don’t think it is, when I think about the policy of dispersal and what it does.

“Today around 500 prisoners are ‘dispersed’ hundreds and hundreds of kilometres away from their homes and their families. Think for a moment about the impact this has on these families – the husbands, wives, parents, grandparents, brothers, sisters and close friends of these prisoners.

“Every weekend, you drive for hours and hours; maybe it will take you 10 hours to get to the jail. You have a 40-minute visit in the jail with your relative and then you drive back. Think of the cost in terms of time and finances, and think of the emotional distress this would result in. You would almost want to forget this family member. But you can’t, and you won’t. And you will make the journey each weekend.

“If we consider that there are 500 prisoners held under this policy, I would estimate that this affects around 50,000 people in the small Basque community – around 10 people per prisoner if you take into account siblings and grandparents.

Europe has a responsibility to help break this deadlock

“And it is completely illegal. It is a violation of the European Convention on Human Rights and the Spanish government’s own Constitution. It is absolutely incredible that this is happening right here in the centre of ‘civilised’ Western Europe.

“It reminds me of the colonial days when prisoners were sent to faraway islands to make sure they lost touch with their families and communities as a punitive measure. It was a policy carried out by Spain, France, Britain, the Netherlands and other European colonial powers.

“This is happening today in Spain and France when there is no threat of violence whatsoever from ETA. What can justify the dispersal of prisoners in this way, other than simply revenge and spite?

“It is utterly inhumane and it is affecting 50,000 people in the Basque Country. We should not call this dispersal, we should call it what it really is – 21st century Spanish colonial penal policy for the destruction of Basque families. As we sit here now, it is destroying families.

“There must be a way in which the European institutions can play a role in facilitating the end of the mistreatment of Basque prisoners, and the decommissioning of ETA’s arms, and to break through the current deadlock caused by the failure of the Spanish and French governments to engage.

“I cannot accept that there is not a way for these institutions to assist this process and put this conflict in the past for good. That is our challenge – to find a way.”

 

TURC: Political theatre that’s fallen flat

The timing of the release of the interim findings of the Abbott Government’s Royal Commission into Trade Union Governance and Corruption demonstrated that even the Government now realises the Commission has failed to land a significant blow against the Australian trade union movement. Commissioner John Dyson Heydon’s interim report was released to little media fanfare on December 19, the Friday before Christmas.

The Commission’s interim report is a product of the highly political terms of reference written by the Abbott government, and of the biased approach of Commissioner Heydon and Counsel Assisting Jeremy Stoljar. Yet it still fails to paint a picture of anything nearing widespread corruption in the trade union movement.

The two relevant stories dominating the media prior to the announcement of the Royal Commission were allegations about former prime minister Julia Gillard’s role in the establishment of an Australian Workers Union slush fund more than two decades ago, and the corruption in the Health Services Union East Branch revealed by “whistleblower” Kathy Jackson, national secretary.

The sustained campaign led by Liberal politicians and the Murdoch press to implicate Gillard in wrongdoing as a solicitor in 1992 fizzled out and Counsel Assisting’s final submissions to the Commission published on October 31 stated that she “did not commit any crime and was not aware of any criminality” on the part of her former boyfriend, Bruce Wilson, and his then AWU colleague Ralph Blewitt.

In contrast, court actions during 2014 have revealed that Jackson – described as a “hero” by Abbott in 2012 and initially viewed by the Commission as its star witness – is the subject of litigation brought by the HSU, which is seeking to recover $1.4 million she allegedly stole from the union between 2004 and 2010. The Commissioner quietly averted his gaze in his interim report, and Jackson is mentioned on just six of its more than 1,800 pages.

Body count unimpressive

This approach of a Royal Commission avoiding making findings on issues that are the subject of ongoing court action is sound, and is supported by both the Commission’s terms of reference and High Court precedent, but it has not been used consistently. Heydon has produced detailed findings, including recommendations that prosecuting authorities “consider” criminal charges, in several cases involving officials from the Construction, Forestry, Mining and Energy Union that are before the courts.

The Commissioner in his interim report retreated somewhat from Stoljar’s bald statements in his final submissions that officials had “committed criminal offences” after receiving spirited responses from the CFMEU and other unions which pointed out that the Commission did not have the power to make findings of guilt.

The Commission was constituted 13 March 2014. After 76 days of hearings, 687 notices to produce, 239 witness appearances and $53 million of public money, the results must be disheartening, to say the least, to the Abbott government.

Aside from the already known existence of corruption among a number of officials in the HSU East Branch, and the Wilson-Blewitt AWU slush fund affair, it has failed to uncover systemic – or even any other significant cases of – corrupt self-enrichment by union officials at the expense of union members. Stoljar conceded in his final submissions that allegations of CFMEU officials in New South Wales and Queensland receiving or seeking bribes were “unsubstantiated”.

“The body count has been so low some in the media room took to joking about being assigned to cover [the New South Wales Independent Commission Against Corruption], where it reached double digits with 12 state or federal Liberal MPs who have resigned or stood aside,” journalist for Thomson Reuters’ industrial relations news service Paul Karp wrote on November 11.

Karp also commented on the failure to land any blows against Transport Workers Union national secretary Tony Sheldon over a union fund used in political and union campaigns. Unable to recommend that any charges should be laid, Stoljar “was reduced to observing that his conduct evinces a ‘culture of entitlement’ among the fund directors. If it was their money in their fund, perhaps they were entitled to think it could be used by them for their benefit.”

There are several cases where Heydon recommends prosecuting authorities consider charging individuals, but in almost all instances, these cases relate to industrial action.

The interim report does not make recommendations for policy reform; however, Stoljar’s submissions indicate the Commission will recommend attacks on industry superannuation funds and attempts to further regulate industrial relations by corporations law and criminal law. [These anticipated policy recommendations will be the subject of a future article in this series.]

Stage managing

Leaving aside for the moment the approach of the Commission and the content of its case studies, it’s worth taking a look back at the highlights of the political theatre of the past year that has been orchestrated by the Abbott government and the officers of the Commission itself.

From the start, Murdoch’s Herald-Sun newspaper appears to have been granted special access to the office of the Commission. A major leak in relation to the subject and content of private hearings and future public hearings in July went to several outlets, including the Herald-Sun and the Age.

On 3 July 2014, the day the CFMEU’s counsel was informed that hearings the following week would include a case study in Melbourne being the Pentridge Prison site”, the Herald-Sun said there would be “an explosive video and claims of corruption, death threats and intimidation” aired in the Commission the following week.

The following day, the Age uploaded video and audio recordings as part of its allegations around the Pentridge site. The same day, 4 July 2014, the Age also ran allegations it said were from private hearings.

The CFMEU wrote to the chief executive officer of the Commission, Jane Fitzgerald, saying: “These events suggest that not only the subject of next week’s Commission hearings but the evidence itself has been leaked to the media.” The union called on the office of the Commission to ask the Australian Federal Police to “investigate whether anyone from the Commission has been involved in the leaking of material to the media”.

Fitzgerald, and then Heydon, simply dismissed out of hand the allegation that officers of the Commission had been involved in a leak and refused to have the matter investigated internally or independently.

When a female lawyer working for the Commission was physically assaulted and injured in a car park on 18 September 2014, the Herald-Sun ran the story the following morning including the line: “The commission released a statement last night exclusively to the Herald-Sun”. The attack was random and unrelated to any aspect of the Commission, and the Herald-Sun did not explicitly claim there was a connection, though it mentioned the CFMEU and “bikies” in the article. But why is a royal commission providing selective briefings and “exclusive statements” to a favoured media outlet instead of issuing a general press release?

In July 2014, the ACTU was leaked a copy of a ‘scoping questionnaire’ that had been sent to all federal government departments and agencies by the Attorney General’s department asking them to disclose all contact with any union over the previous 10 years. ACTU Assistant Secretary Tim Lyons wrote in Working Life on 29 July 2014, “Although it’s notionally about the royal commission into unions, it goes well beyond the Commission’s terms of reference and seems to imply that any consultation with unions on public policy matters, and even negotiating a workplace agreement with unions representing public servants is somehow illegitimate”.

Those who said the union movement’s claim that the royal commission was a politically motivated witch-hunt was exaggerated should have been forced to think twice after the Attorney General department’s demand.

Then on 8 October 2014, Attorney General George Brandis announced that the Heydon royal commission would be extended by a year, and its terms of reference widened. Brandis said this was in response to the letter he received from Heydon reporting on his progress the previous week. But Heydon had clearly stated: “This letter is neither an application to widen the terms of reference nor an application to extend the reporting date.”

Brandis pushed out the reporting date by a year from December 2014 to December 2015. He boosted the Commission’s budget from $53 million to $61 million.

Clearly another year of mud-slinging against the union movement will give the deeply unpopular Abbott government a better chance of winning public support for its plan to make major reforms to the workplace relations system following the Productivity Commission’s review of the Fair Work Act which began in December. It means the Commissioner’s final report will be released in the lead-up to the 2016 federal elections.

The federal opposition pointed out that Brandis had taken just five days to respond to Heydon’s letter, but more than two months to respond to Justice Peter McLellan’s July actual request for an extension in the Royal Commission into Institutional Responses to Child Sexual Abuse.

Brandis confirmed during Senate Estimates that “the government made the decision to extend the Royal Commission”.

Election stunts

Then there was joint police task force into union-related crime that got announced twice – once by the Attorney General’s department in February 2014, and once more for luck on 31 October 2014, shortly before the Victorian state election.

Opposition leader Bill Shorten had proposed creating a “multi-jurisdictional taskforce” in February 2014. The CFMEU has written to the police commissioners of Victoria and NSW several times since January 2014 pledging the union’s full cooperation with the police in any investigation into criminal activity in the building industry.

But the theme of the Victorian state election, a contest in which the first-term Napthine government was struggling, was set.

The Victorian Police Commissioner Ken Lay was informed the night before the 31 October announcement, by email, that then Victorian Premier Denis Napthine and Abbott would be holding a press conference in the morning about the joint police task force.

That evening Tom Iggulden reported on the ABC News: “The Herald-Sun was, however, kept in the loop. Details of the taskforce unknown to the [police] commissioner were splashed across the News Limited outlet this morning.” The front page headline read, “Cops hunt union rats”.

The task force would include up to 30 Victorian and federal police officers who would investigate allegations aired by the Heydon Commission, and report back to the Commission.

Question Time in the federal parliament was dominated by feverish claims in the weeks leading up to the Victorian vote, with federal justice minister Michael Keenan saying on 26 November that “Voters in Victoria need to be aware that a vote for Labor on Saturday is literally a vote for the CFMEU to have a seat at the cabinet table.” Education minister Christopher Pyne claimed the day before that “[Victorians] do not want the bikies back running Victoria. A vote for Labor on Saturday is a vote for the CFMEU and John Setka.”

All of which of course made the Liberal loss of government, ensured by a grass-roots campaign by trade union activists led by Victorian Trades Hall Council, all the sweeter.

And lastly, the timing of the release of the terms of reference for the Productivity Commission’s review of the Fair Work Act – delayed since March 2014 and announced on the Friday before Christmas, minus Abbott, and just a few hours after Heydon’s interim report was released – was the final act in a year of politically motivated and orchestrated stunts relating to this royal commission.

Despite the combined efforts of the government and the Commission itself, it’s fallen flat. But then, the Abbott government has given it another year to do better.

Media role in TURC: Giving credit where it’s due

Since 2011, the Liberals have viewed ‘union corruption’ as both their ticket to power and as a central tool in their attempt to condition the Australian public for their industrial relations agenda.

It’s easy to forget the ferocity of the Liberal campaign against then federal Labor MP and former leading Health Services Union official Craig Thomson that was unleashed in 2011. The opposition bayed for blood and fostered a media frenzy over allegations of his corrupt behaviour as a union official in the belief that the minority Labor government, which then held power in the federal parliament by a single seat, would fall.

Liberal strategists saw the opportunity to tarnish then prime minister Julia Gillard with the same brush of ‘union corruption’ by dusting off old rumours about legal advice she was alleged to have provided in connection with the Australian Workers’ Union slush fund. Weak as the evidence was, and tenuous as the ‘union corruption’ link was, it would have to do.

Still apprehensive about the united and effective Your Rights at Work campaign that forced the Howard Liberal government from power in 2007, the AWU and HSU scandals combined did not quite amount to the ammunition the Abbott government needed to mount a full-scale attack on the trade union movement immediately following his election in September 2013.

Fairfax & ABC’s ‘joint investigation’

But the ABC and Fairfax Media stepped in to provide the government with the justification it needed to broaden its promised judicial inquiry into the AWU into a fully-fledged royal commission which targeted five trade unions and demanded the last seven years’ worth of financial, contractual and personnel records from every branch of the named unions.

A joint investigation by the ABC’s 7.30 Report and Fairfax Media resulted in a series of stories being published and aired on January 28 and 29, 2014, which alleged widespread criminality, intimidation and corruption in the construction industry. Dramatic CCTV footage of Comanchero bikies apparently trying to collect a debt from the Master Builders Association’s Trevor Evans at his home opened the 7.30 Report. The reporter failed to explain how this incident was connected with construction workers or their union.

Since January last year, the 7.30 Report in particular has provided a platform to anyone with a grievance against the Construction, Forestry, Mining and Energy Union (CFMEU). This has ranged from disgruntled union officials to dodgy builders, from organised crime figures with scores to settle to the head of the Fair Work Building Industry Inspectorate (FWBC), Nigel Hadgkiss.

The central allegation reported in Fairfax Media in January last year was: “Union officials have formed corrupt relationships with organised crime figures, receiving kickbacks in exchange for arranging lucrative contracts in the construction industry.” The ABC alleged “systemic bribery” of union officials. The investigation claimed that six Victorian CFMEU officials had received bribes.

Victorian organiser Danny Berardi resigned from his position when journalists provided evidence that he had accepted free renovation work in exchange for helping two companies get contracts. However, aside from Berardi, no other details or names were provided: “For legal reasons specific details cannot be aired,” the ABC said.

The 7.30 Report ran a story on 28 January featuring an interview with CFMEU NSW official Brian Fitzpatrick who alleged that there were links between NSW union officials and companies run by alleged crime figure George Alex.

The following night it ran a story featuring an interview with Victorian builder Andrew Zaf, who claimed he had provided $10,000 in roofing material to CFMEU Victorian Secretary John Setka, then a union organiser, in the mid-1990s. He also claimed he had written a cheque for $10,000-$12,000 to pay for Sinn Féin leader Gerry Adams to visit Australia. Against footage of Adams’s 1999 visit, reporter Nick McKenzie said: “When the union brought Irish republican leader to Australia, Zaf was asked to chip in.”

Widening the scope

The ABC and Fairfax both claimed credit for the government’s move to establish the Heydon Royal Commission into Trade Union Governance and Corruption, which was announced less than a fortnight after their joint investigation. “The scope of the inquiry was dramatically widened into a royal commission after extensive reports in Fairfax Media,” Fairfax journalists wrote in a subsequent article.

In the same edition of the 7.30 Report on 29 January that featured Andrew Zaf, host Leigh Sales later interviewed Treasurer Joe Hockey and helpfully opened with: “The revelations of union corruption have given the Abbott Government ammunition to argue both the case for more union oversight and for an inquiry into corruption.” Then, to Hockey: “Do you think that a royal commission into union corruption is warranted?”

He replied: “Well certainly we promised before the election to have a judicial review, but there is mounting evidence now that there are systemic problems in the union movement that need to be fully exposed and addressed.”

Later in the year, businessperson Jim Byrnes starred in an episode of the 7.30 Report in which he claimed he had seen his rival George Alex pass an envelope, which conveniently had “$3,000” written on it, to NSW CFMEU organiser Darren Greenfield at a meeting. Byrnes’s is to date the only “eyewitness” account of a union official accepting a bribe. Greenfield denies ever having been in any meeting together with Byrnes in his life.

Discredited

The royal commission itself has since shown many of the claims made by the ABC and Fairfax to be either totally false or unsubstantiated.

There’s a big difference between widespread corruption in the construction industry and widespread corruption in the construction union.

CFMEU leaders said they were in full agreement with the view that organised crime was rife in the industry, and that they had been pressing for years for the police and the corporate regulator, Australian Securities and Investments Commission (ASIC), to investigate criminal activity. It also pointed out that the union plays “no part in deciding whether particular labour hire companies got contracts on construction projects,” nor is it “in a position to check the property, or other interests or connections of employers and managers of companies”.

Before the Fitzpatrick allegations about CFMEU officials in NSW collaborating with George Alex were publicly aired, the claim was already the subject of an internal union investigation and the NSW branch of the union had recovered $250,000 in unpaid workers’ entitlements from Alex companies.

As the CFMEU legal team wrote in their response to the final submissions of Jeremy Stoljar, Counsel Assisting the Commission, “The investigation into allegations made by Mr Fitzpatrick about the relationship between the NSW Branch and the Alex Companies is ongoing. The most serious of the allegations arising from that investigation, that officers of the NSW branch received cash bribes, was, as Counsel Assisting submits, unsubstantiated. There was insufficient evidence. A similar allegation by [Lis-Con boss Eoin] O’Neill that officers in the Queensland branch sought cash payments is also described as unsubstantiated.”

Jim Byrnes, who later repeated his allegations before the Commission following his September appearance on the 7.30 Report, admitted on air that he had fallen out with Alex and said: “I’d like to see him in prison. Cause I’d like, I’d like him to have someone just lean over his shoulder and whisper my name in his ear.” Byrnes served time in jail for supplying heroin and assault before acting as an adviser to notoriously corrupt and bankrupted businessman Alan Bond, and has been banned by ASIC twice from managing companies.

An allegation – reported as fact by the Herald Sun in August 2014 and repeated by Victorian Police Assistant Commissioner Stephen Fontana to the Heydon Royal Commission in September 2014 – that one of the Comancheros collecting a debt in the 7.30 Report’s January 2014 footage, Norm Meyer, was a CFMEU official, was categorically denied by the union.

Fontana claimed in the Commission that he had police intelligence that showed several “union officials” were “members of outlaw motorcycle gangs”.

In a cross-examination by CFMEU counsel John Agius, which really ought to be immortalised in song, Fontana admitted that by “union officials” he meant “union official”, specifically Norm Meyer, and by “police intelligence” he meant a photo of a union rally he had seen in the Herald Sun.

After Agius informed him that not only was Meyer not a union official, he had not even been a financial member of the union for the previous two years, Fontana admitted: “I got that wrong. I apologise.” Pressed further by Agius who asked, “So there’s no intelligence or evidence that any union officials of the CFMEU are members of an outlaw motorcycle gang?,” Fontana replied, “Not to my knowledge.”

Fontana then conceded under questioning that no CFMEU official had ever been charged with blackmail, corruption or drug crimes despite his opening claims that he believed union officials were involved in these crimes. This didn’t stop the Herald Sun from running an utterly dishonest editorial on 20 September 2014 in which Fontana’s initial claims, but not his retractions, were reported. It was titled, “Muzzle union things now”.

And as for Andrew Zaf, he has emerged as the most thoroughly discredited witness to appear before the Commission yet, with the exception of Kathy Jackson. The trip by Gerry Adams to Australia that Zaf referred to was organised independently by Irish solidarity organisations, not by the CFMEU, and the international air fares were purchased by Sinn Féin’s Belfast office.

Zaf had claimed in January that he paid for the trip that occurred in 1999; before the Commission on 17 September 2014 he said his records from ANZ Bank show he had written a cheque for $10,000 in 1997, and moments later he said he wrote this cheque prior to 1994. It’s on the public record that Adams was denied an entry visa to Australia until 1999, after the Good Friday Agreement was signed in 1998.

In July Zaf told the Commission he had “no personal enemies” only to be threatened by Hells Angels over a disputed debt four days later. In his September appearance Zaf was forced to deny having pulled a gun on then CFMEU organiser Maurice Hill in 1994. Evidence was produced showing the Victorian Trades Hall Council had passed a motion condemning the incident at the time.

Finally, in November, Slater and Gordon lawyers acting for the CFMEU wrote to the Commission enclosing a statement from Victorian Trades Hall Council Secretary Luke Hilakari that included information about Zaf from a former associate that challenged the evidence he had provided to the Commission. Heydon agreed to omit any reference to Zaf’s allegations from his interim report.

Shoddy and unsubstantiated 

So what was actually demonstrated by the ABC-Fairfax joint investigation was that motorcycle gangs and organised crime figures are involved in the construction industry, and that one junior CFMEU official acted corruptly and immediately resigned after the union leadership was made aware of this. Hardly a justification for a royal commission into the entire trade union movement.

Generally when a media outlet claims it cannot publish specific details or name names for “legal reasons”, that means it doesn’t have the evidence to back up an allegation that could withstand a defamation suit. Given the dubious quality of the “whistleblowers” the ABC and Fairfax are relying on for these “specific details”, and the unbelievably woeful fact-checking of the journalists, you’ll forgive me for looking at their entire investigation with a healthy amount of skepticism.

These sensationalist, poorly researched and unsubstantiated articles, which were enthusiastically seized upon by the Abbott government to launch the Heydon royal commission, should be a source of embarrassment to the ABC and Fairfax Media, not a source of pride.

TURC: Abbott’s glaring double standards

Prime Minister Tony Abbott, right, and Employment Minister Eric Abetz

Prime Minister Tony Abbott, right, and Employment Minister Eric Abetz

Releasing the interim report of the Royal Commission into Trade Union Governance and Corruption on December 19, Employment Minister Eric Abetz said the findings showed the decision to hold a royal commission into unions had been “vindicated”. But if almost every substantial case examined by the Heydon Commission was already making its way through the legal system, surely that suggests the system was working. A royal commission is a tool the executive arm of government can effectively employ when there is a serious failure by the existing regulatory system.

Counsel for the CFMEU in the Commission, John Agius, pointed out in his oral submission to the Heydon Commission in November that the role of a royal commission “traditionally and [which] ought still to be the case is one of using its coercive powers to discover evidence that might not otherwise be available to investigative bodies”.

In December 2013, three months after his election, Liberal PM Tony Abbott announced a royal commission into the former Labor government’s home insulation scheme in which four installers died, and announced the Heydon royal commission into unions in February 2014. Kevin Rudd is the target of the first and Julia Gillard one of the key targets of the latter.

Even former Liberal PM John Howard publicly reprimanded Abbott over the blatantly political use, or misuse, of the royal commission as an instrument of government in a September 2014 Channel 7 TV interview, pointing out there had already been a coronial investigation into the home insulation scheme.

“I’m uneasy about the idea of having royal commissions or inquiries into essentially a political decision on which the public has already delivered a verdict… I don’t think you should ever begin to go down the American path of using the law for narrow targeted political purposes,” Howard said.

Admittedly, this was a bit rich coming from the man who had established the Cole Royal Commission into the building unions that cost taxpayers $60 million and did not result in a single prosecution of a union official. As the Australian Congress of Trade Unions (ACTU) has repeatedly pointed out, every Liberal government in power since 1972 has held a royal commission into trade unions.

Systemic failures?

There are several areas of Australian corporate and political life that are plagued by systemic failures and which the public would benefit from an inquiry with coercive investigative powers being held. Two examples here will suffice.

The Abbott government’s political mantra since coming to power has been that there is a need to drastically cut public spending in the healthcare, education, welfare and community sectors in order to repair the federal budget deficit. But a report released in September 2014 by the United Voice union and Tax Justice Network Australia revealed that of the ASX 200 companies, almost one-third pay less than 10% tax when the statutory rate is 30%, and 57% have subsidiaries in tax haven jurisdictions. This systemic tax avoidance by major companies results in the loss to the public purse of $8.4 billion in revenue each year, the report estimates.

This report was followed in November 2014 by the revelation that dozens of Australian corporations including Lend Lease, AMP and the Macquarie Group were among the 343 companies who struck deals with Luxembourg to shift profits through tax havens and used accounting giant PriceWaterhouse Coopers to drastically cut the amount of tax they paid – in some cases reducing it to almost nothing.

But not only has the Abbott government avoided ordering a royal commission, or any kind of inquiry, into what is clearly a systemic problem that has massive implications for the Australian public – it has dropped its pledge to take any action on tax avoidance whatsoever.

In November 2013, Treasurer Joe Hockey declared that the government would not legislate the former Gillard government’s plan to reduce tax minimisation by abolishing the loophole of generous deductions being available under sections 25-90 of the Tax Assessment Act 1997. Its abolition would have boosted public revenue by around $600 million. Hockey said in the 2013-2014 Mid-Year Economic and Fiscal Outlook (MYEFO) report that this would place “unreasonable compliance costs” on such companies, and pledged to “introduce a targeted anti‑avoidance provision after detailed consultation with stakeholders” instead. But in the 2014-2015 MYEFO report announced in November, the Treasurer quietly dropped even this watered-down pledge to tackle tax avoidance and minimisation.

Of course, the most glaring double standard of all when it comes to the use of a royal commission is the Abbott government’s failure to establish one into the systemic failures of corporate regulator the Australian Securities and Investments Commission (ASIC), particularly in relation to its investigation of the actions of the Commonwealth Bank’s financial planning subsidiary CBFL during 2006-2010.

More than a thousand CBFL customers lost millions of dollars during the global financial crisis after their bonus-seeking advisers invested their money in high-risk products without their clients’ permission. The Commonwealth Bank’s attempted cover-up and the ASIC’s incompetence on all fronts was the subject of a five-month inquiry by a Senate Committee that reported in June 2014 – specifically recommending that a royal commission be held into the ASIC’s failures. The Abbott government rejected the recommendation.

“Still, it’s only shareholders’ wealth at stake in corporate regulation — wealth that, while worth $1.5 trillion in market capitalisation, is obviously a lower priority for the government than union membership fees and assets, which perhaps total a couple of hundred million dollars,” Crikey journalist Bernard Keane commented on February 10 last year. “If unions were indeed regulated just like businesses, as many in the Coalition (and the Institute of Public Affairs) want, crooked union officials would be over the moon at the prospect of getting to keep their bribes and avoid jail.”

Political cover

The fact that Howard’s hated Work Choices reforms remained so politically toxic six years after he was booted from office meant that Abbott – under pressure from business groups to impose restrictions on collective bargaining and union power, cut penalty rates and much more – made an election promise that the Productivity Commission would review the Labor government’s Fair Work Act that replaced Work Choices within the Coalition’s first six months of government. Any proposals for change arising from the review, he said, would be brought to the electorate in the 2016 elections before being implemented.

The draft terms of reference of the Productivity Commission’s ‘Workplace Relations Framework Review’ were leaked in March last year, and it was initially due to report in April 2015. But the government delayed the announcement of the very same terms of reference for nine months, making a weak excuse about having a lot on its plate, and conveniently waiting until four state elections were over.

The claim that Coalition politicians have been repeating for years – that labour productivity has been consistently declining as a result of the Fair Work Act, while at the same time Australia is experiencing a “wages explosion” – don’t stand up to a moment’s scrutiny. Australian Bureau of Statistics data shows that labour productivity has increased by 8% from March 2011 to March 2014. But wage growth was at 2.6% in the year to September 2014, barely passing the inflation rate of 2.3%.

The facts are undermining the conservatives’ traditional economic justification for their ideological agenda. Something more is needed. Just as the so-called Commission of Audit (October 2013 – March 2014) was used by the Abbott Government as an attempt to provide political cover for its first budget, which provoked still-lingering outrage among the Australian people last May, the government lives in hope that the union royal commission will provide justification for its main game – the implementation of the anti-worker reforms that will inevitably come from the Productivity Commission review. The more mud that is slung at the union movement, the weaker the potential resistance to these reforms will be.

If anyone had any doubt that this was the government’s strategy, it has surely been dispelled by now. Abetz announced the publication of the interim report by the Heydon royal commission on the morning of 19 December 2014. The same afternoon, Hockey finally announced the terms of reference for the Productivity Commission’s review, ensuring that if it was covered by the media at all it would inevitably be reported in the same breath as the term “union corruption”.