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Uruguay Takes on London Bankers, Marlboro Mad Men and the TPP

12 December 2014

Michael Meurer

What the hell is happening in tiny Uruguay? South America’s second smallest country, with a population of just 3.4 million, has generated international headlines out of proportion to its size over the past year by becoming the first nation to legalize marijuana in December 2013, by welcoming Syrian refugees into the country in October 2014 and by accepting the first six US prisoners resettled to South America from the Guantánamo Bay prison on December 6, 2014.

Outgoing President Jose Mujica, a colorful former Tupamaros rebel who was imprisoned and brutally tortured by the military during the era of the disappeared in the 1970s under US-supported Operation Condor in Uruguay, Chile, Argentina and other nations of the Southern Cone, is a favorite media subject and has been at the center of these actions.

Yet an even larger story with deeper historical roots and global implications is unfolding simultaneously in Uruguay with minimal media attention. Uruguay has spent the last decade quietly defying the new transnational order of global banks, multinational corporations and supranational trade tribunals and is now in a fight for its survival as an independent nation. It is a rich and important story that needs to be told.

The 2014 Presidential Election

For the past 10 years, Uruguayans have been conducting a left-leaning experiment in economic and social democracy, turning themselves into a Latin American version of Switzerland in the process. Under the leadership of the left-leaning Broad Front party, the International Monetary Fund (IMF) reports that Uruguay has enjoyed annual economic growth of 5.6 percent since 2004, compared to 1.2 percent annual growth over the last five years in Switzerland. The Swiss have decriminalized marijuana and gay marriage. Uruguay has legalized both. Prostitution is legal in both countries, and each provides universal health care. According to the Happy Planet Index, Uruguay has the same low per capita environmental footprint as Switzerland, with a similarly widespread sense of well-being among its people in spite of significantly lower per capita GDP.

Yet unlike Switzerland, with its highly developed financial services sector and, until recently, safe haven tax policies for global capital, Uruguay has become a prime target for the wrath of multinational corporations and the London bankers who fund them.

In November 2014, Uruguayan voters voiced approval for their government’s policies of social tolerance and public spending on early childhood education, affordable universal health care and social safety net programs by re-electing former president Tabaré Vasquez from the ruling Broad Front party. With support from allied green and radical left parties, Vasquez won a landslide victory against a neoliberal opponent who ran on a platform of slashing public sector spending and opening the nation’s economy to foreign investors. Instead, Vasquez’s return to the presidency in 2015 will extend the Uruguayan social democratic experiment another five years to 2020. London’s neoliberal, supply-side bankers are not amused.

Less than a week after Uruguayan election results were certified, Capital Economics, a London-based financial think tank aligned with British Prime Minister David Cameron’s brand of aggressive neoliberalism, issued an economic report sternly warning that Uruguay is going to face tough economic times after electing another leftist president unless they change their ways. The language of the Capital Economics report is telling:

Capital Economics concludes that given Vazquez’ promises of continuity and more social spending, and the Uruguayan economy running at full capacity, any attempt to bolster domestic demand most likely will generate more inflation and more strains in the balance of payments.

“Our view is that policymakers need to tighten fiscal policy and pass supply side reforms to boost medium-term growth,” says the report.

Likewise wage indexation is widespread in Uruguay and according to the IMF, as many as 90 percent of labor contracts are indexed, which contributes to high and persistent inflation. “More generally, reducing the power of trade unions will help to ease labor market rigidities.”

This report reprimanding Uruguay was published against the backdrop of the most aggressive assault on the public sector in British history. The Cameron government is proposing cuts of 22.2 percent to the national budget by 2020, with cuts of 41 percent to “unprotected” programs, which translates as discretionary social welfare spending.

The leftist economic experiment taking place at the opposite end of the globe in tiny Uruguay is more than the bankers in London can tolerate, never mind that Uruguay, with minimal military expenses, has annual deficits nearly 600 percent lower than the UK as a percent of GDP. From the bankers’ perspective, Uruguay is setting a bad example by taking care of their people instead of catering to global financial speculators.

If the Capital Economics report is decoded, it functions as a virtual thesaurus for the language of financial tyranny, bullying and terror used by the new regime of global capital headquartered in London and New York.

Decoding the Language of Neoliberal Bankers

Capital Economics wants to ensure that Uruguay adopts polices that ease “labor market rigidities.” While the preciosity of this formulation is not without entertainment value, in plain language, it means union busting in order to lower wages.

Capital Economics also insists that “supply-side reforms” are essential for Uruguay’s survival. Here is a typical list of such reforms.

  • Cutting government spending, taxes and policies to cut government borrowing
  • Passing laws to control trade union powers
  • Reducing red tape to cut the costs of doing business
  • Implementing measures to improve the flexibility of the labor market, or reforming employment laws
  • Enforcing policies to boost competition such as deregulation
  • Privatization of state assets
  • Opening up an economy to overseas trade and investment
  • Opening up an economy to inward labor migration

In sum, the London financial establishment is telling pesky leftist Uruguay that it needs to crush its unions by encouraging an influx of low-wage, immigrant workers to reduce labor costs, slash social spending and privatize as much of the public sector as possible.

It is important to note that 55 percent of Uruguay’s government bond debt is held by foreign investors, many of them British. The anti-labor austerity program being recommended by Capital Economics would be disastrous for Uruguay’s domestic programs and quality of life, but it would provide a profiteering opportunity for speculative bankers in London by temporarily increasing the value of Uruguayan bonds. This is what is really meant by “a boost in medium-term growth.”

The TTIP and TPP

The neoliberal assault on export-dependent Uruguay is likely to intensify in the next few years, and not solely because of their deficit spending on popular social welfare programs that fly in the face of economic austerity recommended by London bankers and the IMF. Uruguay has also become a lightning rod for the global financial elite because they are challenging the legitimacy of international trade tribunals that lie at the heart of the proposed TTIP (Transatlantic Trade and Investment Partnership) and TPP (Trans-Pacific Partnership) trade agreements.

Contrary to advance PR by cheerleaders such as Cameron and US President Barack Obama, the TTIP and TPP are not designed to promote trade. The cumulative effect of TTIP and TPP would be the establishment of a transnational governing structure that supersedes the current order of sovereign nation-states that are, at least in theory and sometimes in practice, democratically accountable to their own people.

Proposed signatories to the TTIP and TPP all fall within the sphere of US-UK-EU economic influence, which explains why Russia, Africa, the Islamic nations and the leftist regimes of Latin America are excluded. This is the fabled capitalist “new world order” dreamed of by George H.W. Bush more than 20 years ago.

Uruguay looms disproportionately large on the global stage at the moment because they have unwittingly vaulted into the vanguard of a global backlash against the TPP and TTIP due to a seemingly unrelated dispute with the international tobacco industry.

Enter Marlboro’s Mad Men

Uruguay’s encounter with the emerging regime of transnational corporate governance started in 2005, under the first administration of incoming president Tabaré Vasquez, when the National Ministry of Public Health mandated that vivid written and pictorial warnings about health risks from smoking needed to cover 50 percent of cigarette package surface area. In 2009, this was increased to 80 percent of surface area. Uruguay was tackling an epidemic of smoking-related health problems, especially among young people and pregnant women. Smoking has since dropped from 40 percent of the adult population to 23 percent in 2014, and from 33 percent to 12 percent among teenagers.

In the ultimate irony, Phillip Morris, which moved its global headquarters to Switzerland in 2002 for tax and liability avoidance, sued Uruguay in 2010 over the new labeling requirements under the terms of a bilateral trade agreement between the two countries. The Phillip Morris suit, which seeks $25 million in damages and weakening of the Uruguayan labeling requirement, is being prosecuted through the International Centre for the Settlement of Investment Disputes (ICSID) in Washington, DC. The ICSID is chaired by the president of the World Bank and funded from the Bank’s budget. It is a supranational trade tribunal that specializes in international state dispute settlements (ISDS).

ISDS are at the core of both the TPP and TTIP, but on a truly global scale. If Uruguay were to prevail against Phillip Morris, the ramifications for TPP and TTIP enforcement, and the new global order the treaties represent would be far reaching.

Phillip Morris, which makes Marlboro, the world’s best-selling and most valuable cigarette brand, has annual revenues greater than Uruguay’s entire GDP – $80 billion vs. $59 billion. According to Ellen R. Shaffer, co-director of the Center for Policy Analysis, “The costs of defending these cases are enormous, so tobacco companies are trying to pick off lower-income countries that can’t spend the money and political capital to defend themselves against industry.” Uruguay is so fiscally constrained, it has been receiving financial assistance to cover its legal fees from Bloomberg Philanthropies, headed by Michael Bloomberg, the billionaire former mayor of New York City and an avid anti-smoking crusader.

Phillip Morris argues in its suit that both its profits and its “brand” are being severely damaged by Uruguay’s anti-smoking campaign, noting that the company’s brand represents “a long-term significant investment.” In a further punitive action, the company closed its cigarette factory in Uruguay after filing the suit, throwing 40 people out of work. The Uruguayan government responded by rehiring eight of the workers as anti-smoking health advisers, and in October 2014, they filed a 500-page defense and rebuttal to the Phillip Morris suit with the ICSID.

In the defense document, which has not yet been publicly released, Uruguay reportedly cites its obligations to protect the health of its citizens under the World Health Organization’s 2005 Framework Convention on Tobacco Control, an international agreement that has been signed by nearly 200 nations and includes recommendations for health warnings on cigarette packages.

Silvina Echarte Acevedo is the legal adviser heading the Uruguayan Ministry of Public Health’s defense. She recently told The Independent: “They [Phillip Morris] are bullying us because we are small. This is like David and Goliath. But we will fight because it is our right and duty as a government to protect our citizens’ health.”

While Uruguay’s brave and principled stand against Phillip Morris is heartening, it is also a preview of what could become the prevailing reality if the TTIP and TPP are allowed to go forward. The tobacco behemoth is also using international trade tribunals to sue the governments of Australia and Thailand over their attempts to place more prominent health warnings on cigarette packaging. The lawsuit against Thailand was successful and is being appealed by the Thai government. The litigation in various trade tribunals against the governments of Uruguay, Australia and Thailand has already intimidated both New Zealand and Britain into delaying proposed cigarette label changes similar to Australia’s.

Organizations aligned with Uruguay against Phillip Morris include the World Health Organization and the Pan American Health Organization, as well as a loose coalition of anti-smoking NGOs.

In this moment, we are all Uruguayans. Their little heralded stand against the emerging model of transnational governance by multinational corporations and global banks is everyone’s battle. A Uruguayan victory at the ICSID tribunal has the potential to set a welcome precedent in favor of local governance versus the kind of transnational order envisioned in agreements such as the TTIP and TPP, yet it is a battle that is being fought on enemy territory. The fact that a sovereign nation trying to protect the health of its people is being forced to defend itself in expensive litigation against the profiteering of a multinational corporation in front of a supranational World Bank tribunal is already far down the wrong path.

In a touching display of bipartisanship, passage of the TPP is a top priority for President Obama, Sen. Mitch McConnell (R-Kentucky) and Rep. John Boehner (R-Ohio) when the new Republican-controlled Congress convenes in January 2015. However, there is opposition in both the Democratic and Republican congressional caucuses that may be responsive to public opinion.

More troubling for proponents of TPP and TTIP is the resistance of several proposed member states who are balking at the erosion of their national sovereignty. These states include Japan, Thailand and most recently, the European Union, which is concerned about being forced to import US meat, poultry and produce, which they deride as “Frankenfoods,” due to lax US regulation of additives, hormones and GMOs.

For anyone interested in voicing support for Uruguay’s position, contact information for ICSID can be found online. To register support for Uruguay and opposition to the TTIP and TPP within the United States, contact information for the White House and individual senators is available online, while Public Citizen has a portal for registering opposition with House members.

In the interim, viva Uruguay!

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