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

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Irish Taoiseach Enda Kenny with Apple CEO Tim Cook

This is the second article in a 4-part series on tax avoidance in the Irish state.

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 Double Irish is the most notorious way that the Irish tax regime has facilitated tax avoidance over recent decades, but it is far from the only way. The MNCs engaged in the most blatant and aggressive tax avoidance in Ireland are technology giants Apple, Google, Microsoft and Facebook, and pharmaceutical corporations. Use of the Double Irish has relied on Irish-incorporated companies in tax havens including Bermuda, the Netherlands and Luxembourg, which are the top three locations for both outward and inward Irish direct investment.

A Moody’s report released on May 20 this year shows that US companies have accumulated $1.68 trillion in cash, with 72 per cent of it held in offshore tax havens. This sum has increased by almost $1 trillion since 2007. Apple, Microsoft, Google, Cisco and Oracle were the five multinationals holding the largest amount of wealth, with $504 billion combined.

The top three, Apple, Google and Microsoft, have all used Ireland as the center of their tax avoidance strategy, and can continue to do so until 2021 – while the government announced in 2014 that the Double Irish was to be scrapped (by changing residency rules to make companies that are incorporated in Ireland Irish-resident for tax purposes), it will remain in place for existing companies until 2021. Transfer pricing, cost-sharing agreements, inversions and tax rulings are some of the key ways MNCs avoid tax in Ireland, and unlimited liability status under Irish law has provided them with a cloak from public scrutiny. These mechanisms are complemented by failures in the US tax code. The top three US MNCs engaging in tax avoidance in Ireland are Microsoft, Google and Apple.

Microsoft

Microsoft established a plant in Ireland in 1985 following the introduction of a 10 per cent rate on software export profits in 1983. Its operations remained minor until the tech boom in the 1990s. Microsoft may not have been the first US MNC to exploit the Double Irish and other tax loopholes but it was the first to be comprehensively exposed, in the Wall Street Journal’s 2005 report. The investigation revealed how Dublin law firm Matheson Ormsby Prentice’s offices hosted a letterbox subsidiary of Microsoft Corporation which was established by Microsoft Ireland Operations Ltd in 2001, called Round Island One Ltd. (Matheson Ormsby Prentice, now called Matheson, also represents Google.)

In 2005 Round Island was controlling $16 billion in Microsoft assets and had gross profits of $9 billion in 2004. Another Dublin-based subsidiary, Flat Island One – a holding company of Round Island – was used to license rights to software throughout Europe, the Middle East and Africa. The revelation of the scheme posed several questions regarding the valuing of IP contributed by offshore units. To try to meet the US arms-length requirement, US MNCs rely on cost-sharing agreements, which Flat Island had with a US-based Microsoft unit called MELLC. In 2006 the two Irish subsidiaries applied for private unlimited liability company status, which exempts companies from filing detailed public accounts.

In hindsight, the scheme revealed in 2005 actually seems naïve – it apparently only relied on exploiting a cost-sharing agreement and Ireland’s 12.5 per cent tax rate. The establishment of letterbox companies in Bermuda, Singapore and Puerto Rico soon followed. Another subsidiary was later created in Ireland, Microsoft Ireland Research (MIR). The US Senate Subcommittee inquiry into tax avoidance by Microsoft in 2012 showed that the company had avoided paying at least $6.5 billion between 2009-2012 through the use of its subsidiaries in Ireland, Bermuda, Singapore and Puerto Rico. While it was estimated that more than 85 per cent of the research and development was carried out in the US, and MIR carried out one per cent of R&D, a cost-sharing agreement gave MIR 30 per cent of the credit for R&D. The Senate inquiry memorandum stated that MIR reported making $4.3 billion profits in 2011, about $11 million per employee in Ireland, with an effective tax rate of 7.2 per cent.

These days Microsoft routes its European, Middle Eastern and African sales through three separate subsidiaries, all registered in Ireland, before the profits finally end us in Bermuda (in an Irish-registered letterbox company). The first company where sales income arrives is Microsoft Ireland Operations Ltd. MIO Ltd is owned by MIR, which is part of the cost-sharing agreement with the US parent, and licenses products to MIO Ltd. Then profits move in the form of royalties to Round Island One, which although it is Irish-registered is now based in Bermuda. Finally the profits end up in another Irish-registered Bermuda letterbox company, RI Holdings. In February 2014 it was reported that an unidentified foreign government was investigating Microsoft’s three Irish-registered Bermuda letterbox companies for tax avoidance and tax evasion through the OECD’s 2005 Tax Information Exchange Agreement.

Google

In 2010, Bloomberg reported that Google had reduced its tax bill by $3.1 billion in the previous three years by using the Double Irish and moving profits through Ireland and the Netherlands to Bermuda. By first passing through the Netherlands, the profits were exempt from an Irish withholding tax for outgoing royalties as Irish law exempted royalties flowing to the Netherlands (and other EU-registered companies) from this tax. Google Inc. had secured an advanced pricing agreement (APA) with the IRS in 2006 after three years of negotiations, in which its intangible property for Europe, the Middle East and Africa was licensed to Google Ireland Holdings. Google Ireland Holdings owns Google Ireland Ltd, which has tangible property and employees in Dublin. Google Ireland Ltd is the entity through which the vast majority of non-US sales pass.

But while in 2009, 88 per cent of its $12.5 billion worth of non-US sales went through Google Ireland Ltd, it reported pre-tax profits of less than one per cent of these sales in 2008 because it shifted the profits to Google Ireland Holdings through royalty payments. While Google Ireland Holdings was incorporated in Ireland it was not tax resident there but in Bermuda where it based its ‘effective centre of management’. In reality it is a letterbox company with no employees located in a tax haven with a corporate tax rate of zero.

The ‘Dutch Sandwich’ aspect of the strategy – sending money first through the Netherlands and then to Bermuda or another tax haven – was used to prevent patent royalty profits from being subject to a 20 per cent withholding tax by Irish Revenue through a tax treaty but it became no longer even necessary for MNCs to use the Netherlands in this way after July 2010 when the US Chamber of Commerce successfully lobbied the Irish government to amend its tax code to get rid of the withholding tax. As revealed by the Financial Times in May 2013, the US Chamber of Commerce submission to the Irish government suggested Ireland’s attractiveness as a location for IP investment could be “significantly improved” by scrapping the withholding tax on patent royalties.

In 2012, Google Inc. transferred all of its foreign income – $8.1 billion – through Ireland and paid an effective global tax rate of 4.4 per cent, a total of $358 million, including $22 million to Irish Revenue. The British HMRC struck a deal with Google in January this year in which Google agreed to pay £130 million in back taxes that it had avoided paying on British sales through routing the money through Google Ireland Ltd. This was a fraction of the amount Google actually owed, and ending the practice was not part of the agreement. French authorities began investigating Google’s transfer pricing arrangements in 2011 and in January this year the French government announced it was seeking €1.6 billion in back taxes. In May this year French police and tax inspectors raided Google Ireland Ltd’s headquarters in Paris, as part of an investigation into “aggravated financial fraud and organised money laundering”. The French authorities also said they are seeking to prove that Google Ireland Ltd has a “permanent establishment” in France which would be subject to paying French taxes.

Apple

Apple has gone above and beyond all other MNCs in using Ireland to avoid paying tax – for a period of five years its main European, Middle East and Africa subsidiary didn’t just reduce its tax bill but avoided paying any tax anywhere. The scheme was outlined comprehensively by US Senator Carl Levin in the Senate Subcommittee inquiry into offshore profit-shifting by Apple in May 2013, in a concluding speech accompanied by a detailed memorandum.

Apple structure.jpg

The Senate report outlined how through the use of three Irish-registered letterbox companies, Apple Inc could claim they existed nowhere for tax purposes. Apple Operations International, or AOI, is solely owned by Apple Inc and in turn owns most offshore entities. AOI is incorporated in Ireland but not tax resident there. The second company, Apple Sales International (ASI) holds IP rights to sell Apple products in Europe, the Middle East and Asia. The third, Apple Operations Europe, is also registered in Ireland but not resident there. Sales income for ASI from 2009-2012 was $74 billion.

In 2011, ASI paid tax of 0.05 per cent – $10 million of $22 billion income – to Ireland. Levin said: “[These three ghost companies’] decision makers, board meetings, assets, asset managers, and key accounting records are all in the United States. Their activities are entirely controlled by Apple Inc. in the United States. Apple’s tax director acknowledged to the Subcommittee staff that it was his opinion that AOI is functionally managed and controlled in the United States. The circumstances with ASI and AOE appear to be similar.”

More than 95 per cent of Apple’s R&D is carried out in the US. Levin outlined how through a cost-sharing arrangement on R&D between Apple Inc and ASI, from 2009-2012 ASI paid $5 billion to Apple Inc, while Apple Inc paid $4 billion under the cost-sharing agreement over the same period. But while Apple Inc declared profits of $38 billion (subject to the US corporate tax rate of 35 per cent), letterbox company ASI declared profits of $74 billion and paid less than one per cent in tax to Ireland. “Common sense says Apple would never have offered such a lucrative arrangement in an arm’s-length deal with an unrelated party.”

The Apple case demonstrates not only exploitation of the Double Irish residency rules, but also the use of supposedly informal ‘advanced opinions’ – private tax rulings – issued by Revenue to certain MNCs. In Levin’s words: “Why Ireland? Another highly successful but, until now, hidden tax strategy: Apple has quietly negotiated with the Irish government an income tax rate of less than 2 percent, well under the Irish statutory rate of 12 percent as well as the tax rates of other European countries and the United States. And as we’ve seen, in practice Apple is able to pay a rate far below even that low figure.” Apple representatives told the Senate Subcommittee: “Since the early 1990’s, the Government of Ireland has calculated Apple’s taxable income in such a way as to produce an effective rate in the low single digits …. The rate has varied from year to year, but since 2003 has been 2% or less.”

The Senate Subcommittee memorandum examines the relationship between Irish tax law on residency and loopholes in the US tax code (subpart F), specifically the ‘check-the-box’ and ‘look-though’ rules. The check-the box loophole was introduced in the 1990s and allows companies to literally check a box on its declarations to the IRS stating what kind of entity they are for tax purposes – meaning MNCs can declare offshore subsidiaries as part of one single corporation and therefore not taxable. The look-through loophole introduced in 2006 provides relief from the anti-deferral rules for Controlled Foreign Companies in the US tax code.

The European Commission opened an investigation in June 2014 as to whether the tax rulings, or advanced opinions, provided by Irish Revenue to Apple subsidiaries in 1991 and 2007 constitute illegal state aid that selectively preferenced the companies. The key points of the Commission’s preliminary findings in September 2014 were that the 1991 tax ruling appeared to have been “reverse engineered”, and that the 2007 amended tax ruling which calculated a 10-20 per cent increase on AOE’s costs was “meaningless in relation to the computer industry”. Unlike most tax rulings, which usually last for three to five years, the 1991 ruling had no end date. The Commission said there was evidence the tax rulings was “motivated by employment considerations”, and that the terms of the tax rulings did not comply with the arm’s length principle for setting conditions between companies of the same corporate group.

Three figures have been estimated regarding what amount Apple would owe in back taxes to the Irish state if the Commission finds the tax rulings were illegal. Bloomberg Intelligence has estimated $8 billion, while JP Morgan Chase & Co has estimated it may owe $19 billion. Pro-corporate lawyers reported in the media have estimated Apple will face just $200 million in back taxes.

One of the most important facts to come to light in the US Senate Subcommittee inquiry’s 2013 report, and highly significant for the European Commission’s investigation, is that the last accounts that had been filed for AOI (then called Apple Computer Inc Ltd) was in 2005 for fiscal year 2004. As Finfacts founder Michael Hennigan points out: “Irish Revenue officials must have been aware of the change of status of AOI from a tax-paying company in Ireland to a tax-exempt status?” As evidence of the “reverse-engineered” nature of the advanced opinion issued by Revenue in 1991, the Commission released the following excerpts of a note of a meeting between Apple and Revenue in 1990, where a figure of taxable profit was agreed upon without reference to the actual profits of the company, shifted to the manufacturing category with a corporate tax rate of 10 per cent (which did not expire in Irish law until the end of 2010), and then left in place until 2007 despite the massive rise in Apple’s profits over this period:

[The tax advisor’s employee representing Apple] stated that the company would be prepared to accept a profit of $30-40m assuming that Apple Computer Ltd. will make such a profit. (The computer industry is subject to cyclical variations). Assuming that Apple makes a profit of £100m it will be accepted that $30-40m (or whatever figure is negotiated) will be attributable to the manufacturing activity. However if the company suffered a downturn and had profits of less than $30-40m then all profits would be attributable to the manufacturing activity. The proposal essentially is that all profits subject to a ceiling of $30-40m will be attributable to the manufacturing activity.

[The representative of Irish Revenue] asked [the tax advisor’s employee representing Apple] to state if was there any basis for the figure of $30-40m and he confessed that there was no scientific basis for the figure. However the figure was of such magnitude that he hoped it would be seen to be a bona-fide proposal.

Continued: Ireland’s IP Knowledge Box – another tool for tax dodgers

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.

Ongi etorri, Arnaldo Otegi!

Sinn Féin welcomes release of Basque pro-independence leader

Otegi

Arnaldo Otegi leaving prison this morning, 01/03/16

Sinn Féin representatives have warmly welcomed the release of Basque pro-independence leader Arnaldo Otegi from prison in Logroño this morning after six and a half years.

Otegi’s release has also been welcomed by Spanish left parties Podemos and Izquierda Unida, as well as Catalan pro-independence forces Popular Unity Candidacy (CUP) and Esquerra Republicana de Catalunya (ERC).

Pat Sheehan, Sinn Féin MLA, said that the release of Otegi is an opportunity to advance the peace process in the Basque country.

“Arnaldo Otegi was one of the main architects of the peace strategy developed by the Basque pro-independence movement and should never have been imprisoned,” he said.

MEP Martina Anderson added her congratulations, saying: “I am delighted that today Arnaldo Otegi is being welcomed home by his family and community, and I send warm congratulations to him from Sinn Féin.

“We also welcome the news that Arnaldo Otegi has confirmed he will take part in internal party elections later this month seeking to stand as a candidate for EH Bildu.

“But I’m appalled that he received this sentence in the first place. The fact that Otegi was jailed for more than six years solely for his ideas and political activism is an indictment of the Spanish authorities.”

Since the 1990s, Arnaldo Otegi has been acknowledged as the leader of the Basque pro-independence political movement – and he has also faced unrelenting political persecution by Spanish authorities. Already the Spanish authorities have sought to restrict rallies welcoming Otegi’s release from prison.

Among the political charges that have been brought against him include being sentenced to jail in 2006 for participating in a commemoration marking the murder of an ETA leader by a Spanish death squad in 1978, and being jailed again in 2010 for comparing a long-term ETA prisoner to Nelson Mandela.

In 2005 Otegi was sentenced for ‘insulting the king’ after he commented at a press conference held on the torture of Basque journalists that the King bore ultimate responsibility for this torture as the official head of the armed forces. In March 2011, the European Court of Human Rights ruled that Spain had infringed Otegi’s right to freedom of expression in this case.

In October 2009, 10 central leaders of the Basque pro-independence movement including Otegi were arrested as they met to discuss a new peace initiative, and five of them were jailed. Despite such provocation, this peace initiative has led to the permanent ETA ceasefire of 2011 and its move in 2014 to begin the process of disarmament. It has also led to the legal registration of new pro-independence party Sortu in 2013, which has rejected violence and reached unprecedented levels of popular support in the Basque Country.

Martina Anderson spoke at the launch last March of the international campaign to free Otegi, which was endorsed by several former Latin American presidents, and Nobel Prize winner Nobel Peace Prize winners Desmond Tutu, Adolfo Pérez Esquivel, among many others.

“As well as being acknowledged as the leader of the Basque pro-independence movement, Otegi is also indisputably the leader of the Basque peace process, and that is why he was jailed in 2011,” she said.

“I warmly welcome the release of Arnaldo Otegi and offer him our full support in his efforts to develop the Basque peace process. The Spanish government should finally engage with this process. It should release all seriously ill prisoners and those who have been jailed for purely political work, and immediately repatriate all Basque prisoners to prisons within the Basque Country as the first step towards an early-release programme.”

Sheehan added: “Sinn Féin are convinced the release of Arnaldo Otegi will invigorate efforts to create a lasting peace and self-determination for the Basque people, and we will continue to provide assistance in bringing that about.”

Background: https://emmaclancy.com/2015/03/28/global-campaign-demands-free-otegi-bring-basque-prisoners-home/

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.

Global campaign demands: ‘Free Otegi, bring Basque prisoners home’

Fermin Muguruza, Martina Anderson and Brian Currin at the campaign launch in Brussels

Fermin Muguruza, Martina Anderson and Brian Currin at the campaign launch in Brussels

An international campaign for the release of jailed Basque pro-independence leader Arnaldo Otegi was launched at a conference in the European Parliament in Brussels on March 24. A statement calling for Otegi’s release was announced at the conference, which has been endorsed by international figures including former Latin American presidents, Nobel Prize winners, political representatives and former political prisoners.

Senator José Pepe Mújica, who was president of Uruguay until his term ended in March; Fernando Lugo, president of Paraguay until he was ousted in an impeachment that has been described as a coup in 2012; and José Manuel Zelaya, former Honduran president who was deposed in a right-wing military coup in 2009, are among the first signatories to the campaign.

The statement has also been signed by Nobel Peace Prize winners Desmond Tutu, Adolfo Pérez Esquivel and Mairéad Maguire. Former leading Black Panther activist and retired professor Angela Davis, Leyla Zana (ex-prisoner and the first Kurdish woman elected to the Turkish Parliament), Palestinian National Council member Leila Khaled, Sinn Féin President Gerry Adams, former London Mayor Ken Livingstone and author Tariq Ali have also added their endorsement.

The campaign was formally launched by popular Basque punk musician Fermin Muguruza, and also heard from South African lawyer and conflict resolution expert Brian Currin and Sinn Féin MEP and ex-prisoner Martina Anderson.

As well as calling for the release of Otegi, the campaign calls for an end to the ‘dispersal’ of Basque political prisoners prior to an early-release scheme being established, and for them to be brought to jails closer to their homes – as is required under international human rights law. Under Spain’s dispersion policy, around 500 prisoners are held in jails across the Spanish and French states at distances of up to 1,200 kilometres from their homes and families. A large proportion of these are held in jail for purely political work such as membership of a political party or youth organisation.

The Spanish government responded to the announcement of the international campaign by arresting four people the next morning, March 25, on ‘terrorism’ charges. They were held for two days and then released on bail. Two of those arrested are activists in Etxerat (Home), the prisoners’ relatives association, and the other two are psychologists part of an organisation, Jaiki Hadi, that promotes the health and wellbeing of the prisoners.

One of the Etxerat representatives had been in the European Parliament just weeks ago on March 4-5 to discuss the campaign for an end to dispersal with a range of MEPs from across the political spectrum. The other Etxerat representative had met with president of the Basque Government Iñigo Urkullu last month in his first formal reception for the relatives of prisoners.

‘The leader of the Basque peace process’

The campaign statement says: “Five years ago the Basque independence movement began an unprecedented and far-reaching debate. That debate concluded with an unequivocal commitment to an exclusively peaceful and democratic pursuit of self-determination for the Basque Country. The movement renounced the use of violence and committed to the goal of ending the long and violent conflict by means of dialogue.”

More than any other individual, Otegi is the person most responsible for convincing ETA that its armed campaign needed to end, and for initiating and guiding the broad democratic discussion among pro-independence political activists that reached a consensus firmly in support of this strategy. He has been described by Desmond Tutu as the “leader of the Basque peace process”.

Born into a Euskera (Basque) speaking family in 1958 during the heyday of the Franco dictatorship when speaking Euskera was a crime, Otegi attended underground Basque language schools as a child and became involved in the militant Basque struggle for independence from Spain and France when he was 17. Otegi was jailed in 1989 for involvement in the 1979 ETA kidnapping of Michelin factory director Luis Abaitua during a bitter industrial dispute; Abaitua was released weeks later.

Otegi served his sentence and was released in 1993. This 1979 action was the only armed action he has ever been associated with. Otegi became increasingly involved in political activism and was elected as an MP for the pro-independence left party Herri Batasuna (People’s Unity) in the Basque Autonomous Community in 1995. He was thrust into a critical leadership role in Herri Batasuna when the party’s entire national executive was jailed by the Spanish judiciary in 1997, becoming the party’s key spokesperson. Since this point, Otegi has been acknowledged as the leader of the Basque pro-independence political movement.

But together with hundreds of other pro-independence political activists, Otegi has faced charges and sentences for ‘terrorism’ for purely political work since 1998, when the Spanish government introduced its policy that claimed “everything that surrounds ETA is ETA”. The chief architect of this strategy, Judge Baltasar Garzón, argued that any political party, youth organisation, newspaper or community centre that shared the goal of Basque independence was supposedly a part of ETA.

The two main pieces of legislation drawn up by the Spanish government to prosecute political activists were the 2000 law on ‘glorifying terrorism’ and the 2002 ‘Law on Political Parties’. The Law on Political Parties was explicitly designed to criminalise Batasuna, which at this time was polling between 10 and 18 per cent of the vote in Basque elections. Batasuna was officially outlawed in 2003. Both laws are still in place.

In his December 2008 report, then-UN Special Rapporteur on Protecting Human Rights While Countering Terrorism, Martin Scheinin, said the Law on Political Parties defined terrorism so vaguely that it “might be interpreted to include any political party which through peaceful political means seeks similar political objectives” as those pursued an armed group.

Commenting on the law against “glorifying terrorism” in the same report, Professor Scheinin said the law “should include the requirements of an intent to incite the commission of a terrorist offence, as well as the existence of an actual risk that such an offence will be committed as a consequence”.

Political sentences

Otegi has been brought before the courts a dozen times since 1998, and has been in and out of jail, through the majority of these cases have eventually been dismissed.

Among the blatantly political charges he has been convicted of are:

* In November 2005, the Spanish Supreme Court sentenced Otegi to a year in jail for “insulting the king”. This case arose from comments made by Otegi at a 2003 press conference discussing the closing down of the moderate Basque-language newspaper Egunkaria, and the arrest and torture of 13 of its editors and staff by the Guardia Civil. Otegi commented that as the official head of the armed forces, King Juan Carlos was effectively in command of those in the Guardia Civil who had carried out the torture and bore ultimate responsibility.

The Egunkaria case prompted then UN Special Rapporteur on Torture Theo van Boven to visit the Basque Country in 2004. He produced a report on Spain in which he condemned the state’s system of incommunicado detention. In 2010, seven years after the closing of the newspaper, the charges against it and its staff and editors were dropped, and in 2012 the European Court of Human Rights condemned the Spanish government for its refusal to investigate the allegations of torture.

In March 2011, the European Court of Human Rights ruled that Spain had infringed Otegi’s right to freedom of expression in this case, and ordered Spain to pay his legal costs and 23,000 euros in damages.

* In April 2006, Otegi was sentenced to 15 months in jail by the Audiencia Nacional (Spanish National Court) for “glorifying terrorism” due to his participation in a December 2003 commemoration of an ETA leader, Jose Miguel Beñarán, or Argala, who was assassinated by a Spanish government death squad in 1978. The commemoration marked the 25th anniversary of Argala’s death. Otegi’s lawyer pointed out that this commemoration was an annual event with many participants but Otegi was singled out for charges based on his participation for political reasons.

* In March 2010, Otegi was sentenced to two years in prison for “glorifying terrorism” for a speech he made in 2005 in which he compared long-term ETA prisoner Jose Maria Sagarduy to Nelson Mandela. Most significantly, part of his sentence was that he was banned from holding public office for 16 years.

Bateragune Five

Otegi has been one of the main participants in all of the attempts to find a political solution to the five-decade long Basque conflict since 1998. In October 2009, key leaders of the abertzale (pro-independence) left, led by Otegi, were preparing a new peace initiative in which they were to call for Basques to commit to using exclusively peaceful and democratic methods in their struggle for Basque independence.

Arnaldo Otegi

Arnaldo Otegi

On 13 October 2009, as they prepared this new peace initiative, 10 central leaders of the political movement were arrested – five of them, including Otegi, in raids on the headquarters of the left-wing, pro-independence trade union confederation LAB. Former LAB Secretary General Rafa Diez was also among those arrested. The case has become known as ‘Bateragune’ (meeting place). Four days after the arrests, 50,000 Basques marched in a demonstration for their release. Five of the 10 were jailed without bail by Judge Garzón for “attempting to reconstitute the leadership of Batasuna”.

Despite the arrests, the peace initiative was announced at a press conference of 100 abertzale left leaders the following month. The initiative has led to developments including the adoption of the proposal by the political movement following widespread discussions and debates that involved more than 10,000 activists; the announcement of a permanent ceasefire by ETA in 2010; the further confirmation of a ‘definitive cessation’ of armed actions by ETA in October 2011, and its move in 2014 to begin the process of disarmament. It has also led to the formation and legal registration of the new pro-independence party Sortu in 2013 that has rejected violence and reached unprecedented levels of popular support in the Basque Country.

In September 2011, Otegi and Diez were sentenced to 10 years jail each, while the three others, Sonia Jacinto, Arkaitz Rodriguez and Miren Zabaleta, received eight years. The Supreme Court later reduced Otegi’s sentence to six and a half years. In July 2012, the Spanish Constitutional Court ratified this sentence in a decision which split the court, with five out of 12 judges dissenting. Otegi’s case is now being appealed to the European Court of Human Rights.

Five years of provocation

At the time of Otegi’s arrest in 2009, a Batasuna spokesperson responded by saying: “The aim of these arrests is to stop political initiatives that the Basque pro-independence movement was due to activate, political initiatives to resolve the ongoing conflict and to create a democratic scenario for the Basque Country.”

The Spanish government’s response to the attempts to build a peace process in the Basque country appears baffling to many international observers.

The arrest of the architects of the new peace initiative was just the first step in more than five years of intensely provocative measures by the Spanish government, which seems determined to avoid a resolution of the conflict at all costs.

In response to the announcement of the peace initiative by 100 leaders of the abertzale left in November 2009, the Guardia Civil carried out a massive series of raids, arresting 40 youth activists alleged to be members of the peaceful political youth organisation Segi, 32 of whom said they were tortured during their five-day incommunicado detention. The youths were acquitted of all charges in June 2014.

A group of international leaders issued the ‘Declaration of Aiete’ in October 2011 that called on ETA to declare a definitive cessation of armed actions, and urged Madrid and Paris to enter into negotiations on dealing with the consequences of the conflict. Despite ETA’s positive response and commitment to a definitive cessation three days later, both governments have dismissed these international calls for dialogue.

The new pro-independence party Sortu was formed in February 2011 and renounced violence – yet the Spanish government attempted to ban it anyway. After a 15-month legal battle, Sortu was legalised.

In January 2013, a massive demonstration of 115,000 people marched in Donostia/San Sebastian for a peaceful resolution and the repatriation of Basque prisoners. The rally was organised by broad new civil society organisation Herrira (Return Home), which had been founded the previous year to build a public campaign for the end of dispersal. On September 30 that year, the Spanish security forces launched a major raid against Herrira, arresting 18 activists who were charged with terrorism offences, and shutting down the organisation.

In December 2013, the Basque Political Prisoners Collective (EPPK) confirmed its support for a peace process and publicly committed to aiming for repatriation of prisoners on an individual basis through engaging with Spanish legal framework. This was the first time pro-independence prisoners have acknowledged the authority of the Spanish judicial system. Madrid responded weeks later in January 2014 by arresting and jailing eight mediators of the EPPK, including two  lawyers, and by attempting to ban the annual demonstration in favour of prisoners’ rights – this time being organised by Tantaz Tanta (Drop by Drop), the organisation established after the banning of Herrira.

Basque society united to defy the ban, and the LAB union, Basque Nationalist Party (PNV) and Sortu called a new rally for ‘Human Rights, Peace, Resolution’ that drew 130,000 people onto the streets of Bilbao on January 11, 2014. It was the largest demonstration ever to take place in the history of the Basque Country and the first time since 1998 that the PNV and pro-independence left held such a joint rally.

The following month, February 2014, a group of international conflict resolution experts, the International Verification Commission, confirmed at a press conference in Bilbao that ETA has begun the process of putting its weapons beyond operational use. The Spanish government responded by claiming the IVC are “working for ETA”, and summoned the six IVC members to appear before the Audiencia Nacional for questioning.

80,000 march in Bilbao in Sare rally for prisoners' rights in January 2015

80,000 march in Bilbao in Sare rally for prisoners’ rights in January 2015

When more than 80,000 people marched again on January 10 this year in favour of the repatriation of prisoners – organised by yet another new broad campaigning organisation, Sare (Network), established after the banning of Tantaz Tanta – the Spanish government responded two days later on January 12 by arresting 16 people. Twelve were lawyers for the prisoners and four were alleged to be members of banned prisoners’ solidarity organisation ‘Herrira’.

Three of the lawyers were arrested in Madrid as they were due in court on the first day of a trial of 35 activists alleged to have been members of Batasuna and other banned left parties. Several are current or former elected representatives, including Sortu spokesperson Pernando Barrena, but the prosecution is seeking between seven and 10 years jail and 10 years’ disqualification from public office. The Guardia Civil also raided the LAB headquarters and seized the 90,000 euros that had been donated to Sare collection bags by participants in the prisoners’ rights rally. More than 33,000 Basques protested against the lawyers’ arrests in Donostia/San Sebastian on January 17.

Finally, as outlined above, in response to the launch of the new international campaign, ‘Free Otegi; Bring Basque prisoners home’ in Brussels on March 24, the Spanish government arrested four prominent prisoners’ rights activists, this time targeting the prisoners’ relatives association.

A convenient conflict?

This approach by the Spanish government was described in the Financial Times in March last year as “bizarre” by Jonathan Powell, who was chief negotiator for the British government throughout much of the Irish peace process.

But this approach becomes more understandable when we consider the words of the former Ulster Unionist leader, the late Jim Molyneaux, in relation to the Irish conflict. He described the IRA ceasefire of 1994 as “the most destabilising event since partition”.

It has become abundantly clear that Madrid is very comfortable with a low-intensity conflict in the Basque Country, which can be used to justify its array of repressive legislation and attacks on rights to freedom of expression and to politically organise across the entire Spanish state. In the context of constitutional threats such as the increasing power of the pro-independence political movement in the Basque Country, the rising movement for recognition of a referendum on independence in Catalonia, and the deep opposition to austerity among Spanish society which is shaking the two-party system that has been in place since the 1980s, the prospect of keeping the Basque conflict alive is understandably appealing for the Spanish government.

In an interview from jail with Mexico’s La Jornada, Otegi said in December 2013: “The disappearance of ETA’s armed violence creates a serious problem for Spain, to the extent that there’s now no excuse not to tackle the real political debate, which is none other than respect for the Basque people’s right of self-determination.”

‘First you go to prison, then you become President’

The international statement released at the campaign launch in Brussels says: “We call for the immediate release of Arnaldo Otegi, a man who took risks for peace and democracy and who tirelessly persuaded many others to believe in the power of the word alone as the mean of resolving this conflict. His release and the end of the dispersal policy, prior to an agreed early release process, are necessary steps to achieve a just and lasting peace in the region.”

Speaking at the launch, Basque musician Fermin Muguruza said: “Nelson Mandela famously said, ‘In my country, first you go to prison, then you become president’. We hope that Otegi can repeat those words.”

Otegi is due to be released in April next year – but he has been banned from holding political office for more than a decade beyond that. At the last elections in the Basque Autonomous Community held in October 2012, the pro-independence left coalition EH Bildu won 25% of the vote, coming second behind the conservative Basque Nationalist Party. Many commentators speculated that had the high-profile and popular Otegi been free to participate as the candidate for Lehendakari (Basque president), EH Bildu would have won the election.

The popularity of the pro-independence left has continued to rise, and EH Bildu topped the poll in the European elections in May last year.

Otegi’s ongoing imprisonment is not only an infringement on his individual human rights – it is depriving the Basque movement for a peaceful resolution to the conflict of its most articulate proponent, and it is disenfranchising the hundreds of thousands of Basques who would elect him as President of the Basque Autonomous Community of their right to choose who leads their government.

For more information on the campaign and a full list of signatories, see freeotegi.com.