For Public Banking, Dangers of TPP are in the Definitions

The key concern over the Trans-Pacific Partnership is its potential effects on the public's right to control common assets. Both the treaty and its underlying economic philosophy are blatantly hostile to state-owned enterprises and, in the larger sense, the idea of noncommercial or extracommercial economic activity, even when such activity may be necessary to create stable markets. 

In particular, TPP advocates voice open contempt for countries like Vietnam, Malaysia and Singapore, that "manage their economies through a state-capitalist model in which the government directly or indirectly controls many of the economy's productive assets, formal financial systems, and activities . . . They benefit from preferred access to bank capital, [and] below-market rate financing . . ." Sabina Dewan of the Center for American Progress expresses this concern in the context of protecting American workers from foreign competition. But Dewan doesn't add the obvious: that creating such protections also enables foreign financial enterprises to declare that a bank like the Bank of North Dakota will constitute unfair competition--or that enterprises, state or otherwise, benefitting from BND's low interest rates and more publicly-informed access to credit "unfairly" disadvantages private financial institutions that primarily serve shareholder profit rather than the public. 

In the analysis below I will often cite World Trade Organization precedent, in an effort to use field-contextual definitions that could be applied to the adjudication of disputes under the Trans-Pacific Partnership. The question is how trade representatives view their policy objectives, and how they define the terms in those objectives. Consider the statement available at the "State-Owned Enterprises and Competition Policy" page of the Office of the United States Trade Representative. The objectives include:

Ensure that SOEs make commercial purchases and sales on the basis of commercial considerations.

According to the World Trade Organization's 2004 Dispute Settlements Reports,

There is no definition of the phrase 'commercial considerations' . . . in . . GATT provisions." The question "must be assessed on a case-by-case basis . . . the structure of the markets, competitions, and other situations particular to the market would determine whether the STE is acting in accordance with commercial considerations.

However, the WTO holds that revenue itself is a commercial consideration (see paragraph 4.549). And the WTO unambiguously states that the "standard should be that a STE shall take the same considerations into account as what a private-sector enterprise of the same type of entity should do." But in the case of banking, the state-owned enterprise, the bank, may take precisely those considerations into account that a private-sector enterprise would not. These considerations may result in policies minimizing rather than maximizing interest rates and returns. More than in other services, the very essence of a public bank is its ability as a noncommercial entity to facilitate other entities' commercial activity. 

Ensure that SOEs that receive subsidies do not harm U.S. businesses and workers.

What is a subsidy? A subsidy doesn't need to be a direct cash transfer. It could be any benefit given by the government to groups or individuals. The WTO acknowledges the broad array of possible meanings of the term.  Some kind of "financial contribution" is required, but this can include "grants, loans, equity infusions, loan guarantees, fiscal incentives, the provision of goods or services, the purchase of goods." Loans and loan guarantees could be potential target points for public banks; equity infusions and fiscal incentives might also describe some things that public banks either do or have done to them.

But in fact, the very existence of public banks is a subsidy to the WTO--it's a category in a list of the organization's definitional examples of subsidies:

Category 2: State-owned banks:

In the past, banking services were often provided by state-owned banks and this is still the case in numerous countries, particularly in the developing world. Public ownership of banks has, for instance, been justified on the grounds of the “systemic risk” that bank activities can involve. The presence of information asymmetries in financial markets, with respect to the credit worthiness of potential clients, has also been used as an argument in favour of public supply of financial services.

That's a pretty powerful precedent for actors in a TPP regime treating public banks as subsidies. 

Ensure that SOEs do not discriminate against the enterprises, goods, and services of other Parties.

Finally, there is the anti-discrimination principle. According to William J. Davey in his Non-discrimination in the World Trade Organization: The Rules and Exceptions, the WTO Appellate body often utilizes the New Shorter Oxford English Dictionary to define "discriminate" as making unwarranted distinctions between actors in otherwise similar situations. According to Davey, there are many different criteria for what constitutes similarity of situations--such as "like products" and "substitutable products."

TPP_Protest.jpgIt doesn't seem far-fetched to imagine a country arguing that a government allowing a public bank discriminates against the interests of private finance, where such interests provide "like" or "substitutable" financial service products. With its captive deposit base, The Bank of North Dakota has additional advantages private financial institutions do not enjoy. Those advantages are the point of having a "public option" in banking, which is necessary either because of "market failure" (if you reason from a market-dominant paradigm) or because central banks shouldn't be market-active entities at all, but rather facilitators of both markets and the public sector. WTO logic and TPP ideology both default to a hypermarket-centric paradigm that doesn't even do full justice to market failures, let alone contemplate a government's decision to invest in a primarily public economy. 

One possible conclusion from all this is that the mission contained in a public bank's charter may include mandates that do not prioritize commercial considerations, and/or may be construed as subsidies. And a government favoring a public bank for, say its massively lower interest rates than a private bank, may be "discriminating" against a private business (Les Leopold has expressed this very concern).

And because the TPP supercharges the ability of participating countries to object to and litigate those practices, the TPP has the potential --and, given the attitudes of players in the trade arena, the likelihood-- of discouraging or sanctioning public banking.  

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