Multinational Monitor Editors blog

A new draft global trade treaty may interfere with fair use of copyrighted materials, require Internet Service Providers (ISPs) to monitor all consumers’ Internet communications, and undermine access to low-cost generic medicines.

Does the proposed Anti-Counterfeiting Trade Agreement (ACTA) contain provisions that would actually do these things?

There’s no way to know, because the treaty text remains secret.

More than 100 public interest organizations from around the world today called on officials from the countries negotiating ACTA — the United States, the European Union, Japan, South Korea, Canada, Mexico, Switzerland Australia and New Zealand — to publish immediately the draft text of the agreement.

In any case, what possible rationale is there to keep a treaty that claims to be about unauthorized copying secret? Are the negotiators worried that counterfeiters might somehow influence the negotiations?

U.S. trade negotiators have justified the cloak-and-dagger approach to ACTA on the grounds that all trade treaties are negotiated in secret. But this is not so. Negotiating texts are commonly made public in multilateral trade negotiations, including in the current Doha Round negotiations at the World Trade Organization and the now discarded talks for a Free Trade Area of the Americas, and in treaty negotiations at organizations like the World Health Organization (for example, here), and the World Intellectual Property Organization (for example, here).

No, the reason is to keep the public in the dark.

This matters, because intentionally or not, a treaty to prevent unauthorized copying may easily go too far, and undermine important consumer interests. And it matters because, not surprisingly, there’s more to worry about than errors by well-meaning technocrats.

The recording industry, Hollywood, the software moguls, and Big Pharma are all aiming to use tough talk about “counterfeiters” and “piracy” to push governments to do much more than crack down on trademark and copyright infringers who aim to deceive consumers. They want government assistance in enforcement of trademarks, copyright and patents, even though these are private rights. And they want to impose liability on third parties that might possibly facilitate unauthorized uses, even if these third parties are unaware of the activities of alleged infringers. This is an agenda being pursued in multiple venues, of which ACTA is among the most important.

One reason that ACTA is so important is that it almost certainly is intended to apply to the entire world. Borrowing from the strategy of the failed Multilateral Agreement on Investment, the rich countries are working out a deal among themselves. Then the rest of the world’s nations will be told that they can join the treaty on a take-it-or-leave-it basis — with major pressure imposed to get developing countries to take it.

News reports, leaked documents and published material from various business associations (linked here) certainly give reason to fear what may be in the treaty. The public interest sign-on letter expresses concern that ACTA may:

+ Require ISPs to monitor all consumers’ Internet communications, terminate their customers’ Internet connections based on copyright holders’ repeat allegations of copyright infringement, and divulge the identity of alleged copyright infringers possibly without judicial process, threatening Internet users’ due process and privacy rights; and potentially make ISPs liable for their end users’ alleged infringing activity;

+ Interfere with fair use of copyrighted materials;

+ Criminalize peer-to-peer file sharing;

+ Interfere with legitimate parallel trade in goods, including the resale of brand-name pharmaceutical products (known as drug “reimportation” in the United States);

+ Impose liability on manufacturers of pharmaceutical raw materials, if those raw materials are used to make counterfeits. Such a liability system would likely make raw materials manufacturers reluctant to sell to legal generic drug makers, and thereby significantly damage the functioning of the legal generic pharmaceutical industry;

+ Improperly criminalize acts not done for commercial purpose and with no public health consequences; and

+ Improperly divert public resources into enforcement of private rights.

(See more detailed information and criticisms about ACTA from Knowledge Ecology International, Public Knowledge, the Electronic Frontier Foundation, IP Justice and Michael Geist.)

Presented with these concerns, the U.S. Trade Representative’s officials say there is no reason to be worried. ACTA won’t require more than existing U.S. free trade agreements, the officials say.

This assurance is, first, not exactly a comfort.

Meanwhile, business groups are explicit that believe ACTA should do far more than existing U.S. free trade agreements. Are they having their way? There’s no way to know as long as the draft treaty remains a secret.

It’s pretty hard these days to justify astronomical executive pay. In 2007, the average CEO’s pay of $10.5 million was 344 times higher on average than the average worker’s wage, according to Executive Excess 2008, a joint report from the Washington, D.C.-based Institute for Policy Studies and Boston-based United for a Fair Economy. The top 50 private investment fund managers each took home more than 19,000 times the average worker’s earnings.

But never fear, Jack and Suzy Welch — the former high-flying CEO of General Electric and his wife, the former editor of the Harvard Business Review — are willing to defend high executive pay by return to first principles and invocation of “the market economy.”

In a recent issue of Business Week, they write, “Yes, most CEOs make a ton of money, and sometimes they make too much, but in a market economy salaries are set by supply and demand. We also live in a market economy where companies that field the best teams win, and, because of global competition, the best teams tend to be expensive.”

There are several decisive rebuttals to this claptrap.

First, there is no plausible market-based story why executive pay should have been bid up so much over the past quarter century. Are executives working harder now? Making better decisions? Has the CEO supply and demand equation changed?

Second, executive pay is not set by the market, but by boards of directors, who frequently are CEO cronies and excuse their behavior by relying on conflicted compensation consultants.

Third, the most super-high compensation packages are typically based on performance standards, with executives cashing in on stock options as share values rise. But this is a system easily gamed, with those same shares sold before short-term thinking leads to medium-term losses. By way of example, consider the massive pay packages obtained by the ousted CEOs of the now-floundering Wall Street firms.

And now comes a new analysis that further debunks the market-based rationalization for ridiculous CEO compensation levels. Executive Excess 2008 shows how taxpayers are helping foot the bill for these outrageous compensation packages.

Executive Excess 2008 highlights five distinct U.S. tax subsidies for executive pay. These are actually market distorting, in that they let top executives and investment fund managers take home more than they would if they played by the same tax rules as regular people. Altogether, Executive Excess 2008 reports, the five tax loopholes heap $20 billion in subsidies on the corporate and hedge fund honchos.

+ The hedge fund manager loophole, involving what is called “carried interest,” enables investment fund managers to treat most of their salaries as capital gains, and to pay taxes at the capital gains rate, rather than the ordinary income tax rate. Annual cost to taxpayers: $2.6 billion.

+ The pensions for the rich loophole. While regular people can place a maximum of $15,500 in 401(k) plans — deferring taxes until they withdraw the money — CEOs can place unlimited amounts in deferred pay plans. Annual cost to taxpayers: $80 million.

+ The offshoring loophole. Although companies cannot deduct the expense of executive compensation in deferred accounts, this is no problem for businesses registered in offshore tax havens. Set up an offshore subsidiary, and you can deduct the deferred income from revenue. Annual cost to taxpayers: $2 billion.

+ The greed loophole. Money spent on wages and salaries are deducted from corporate revenues, and is not taxable. For top executives, however, U.S. tax rules impose a limit: corporations cannot deduct salaries and compensation that is more than “reasonable.” An effort to define reasonable as $1 million has been entirely circumvented — and corporations can, in effect, deduct whatever they pay CEOs. Annual cost to taxpayers: $5.2 billion.

+ The double-standard loophole. Stock options — the right to buy stock at a preset value, at a later date — are now a huge component of executive pay. For their internal accounting, corporations value stock options using the value of the stock on the date of the option grant. For tax purposes, however, they can deduct the generally much higher value of the stock on the date the options are exercised. In other words, they can deduct more than they list as their expense. Annual cost to taxpayers: $10 billion.

Not long ago, it was possible to argue that executive pay was an important but symbolic issue. But then it became clear that ever-escalating executive pay is creating a culture of greed that is fueling income and wealth inequality. And now it has become clear that executive pay schemes are contributing to corporate practices harmful not only to workers, consumers, communities and the environment, but to corporations themselves, and even to the functioning of the economy.

The foolish and inexcusable housing-related investments by Wall Street firms, Fannie Mae and Freddie Mac resulted in no small part from executive compensation-driven efforts to drive up short-term stock values. These decisions were so bad, and of such enormous scale, that they have endangered the functioning of the financial system itself, thereby necessitating government intervention and massive taxpayer expenses — an indirect but even more expensive taxpayer subsidy for executive compensation.

A “market economy” indeed.

The 2008 Beijing Olympic Games have been referred to as the “People’s Games,” the “High Tech Games” and the “Green Games,” but they could be more aptly described as the Commercial Games.

Commercialism is overrunning the Olympics. It is undermining the professed ideals of the Olympic Games, and subverting the Olympics’ veneration of sport with omnipresent commercial messaging and branding.

The Olympics have auctioned off virtually every aspect of the Games to the highest bidder. In addition to multimillion-dollar sponsorship deals between the International Olympic Committee and international companies, smaller firms are paying for designations from “official home and industrial flooring supplier” to the “frozen dumplings exclusive supplier” of the Beijing 2008 Olympic Games.

Corporate sponsors are showering money on each tier of the Olympic organizational committees: the International Olympic Committee, the Beijing Organizing Committee of the Olympic Games (BOCOG) and the International Federations governing each individual sport, to each country’s National Organizing Committees. Corporations are sponsoring many Olympic teams and national governing bodies for particular sports — including virtually every national governing body in the United States — and individual athletes themselves.

The scope of commercialism at the Olympics and the consequences of commercialization are detailed in “The Commercial Games,” a new report from Multinational Monitor magazine and Commercial Alert (both of which I’m associated with).

To its credit, the Olympics do prohibit advertising in sports stadia or other venues. The Olympics also prohibit advertisements on uniforms (other than uniform maker logos).

Everywhere else, Olympic spectators, viewers and athletes, and the citizens of Beijing should expect to be overwhelmed with Olympics-related advertising.

A record 63 companies have become sponsors or partners of the Beijing Olympics, and Olympics-related advertising in China alone could reach $4 billion to $6 billion this year, according to CSM, a Beijing marketing research firm.

The Olympic Partners (TOP) program, run and managed by the International Olympic Committee (IOC) since 1985, includes 12 companies for the Beijing Olympics. These 12 companies — among them, Coca-Cola, GE, Johnson & Johnson, Lenovo, Panasonic and Visa — have paid $866 million to the International Olympic Committee.

The U.S. Olympic system is awash in corporate sponsor money. Well over 100 corporations are sponsoring the U.S. Olympic Committee or U.S. national teams.

Besides celebrating sport, there is an official ideology of the Olympics, called “Olympism.” It aims to promote a pure blend of sport, culture and education.

Sports, of course, remain at the center of the Olympics, but commercialism has overwhelmed whatever other values the Olympics hope to embody. The overwhelming cultural influence at the Olympics is now commercial culture; and the overwhelming informational message is: buy, buy, buy.

Commercial relations interfere with proper functioning of the Olympics. In at least one notable case, commercial entanglements have called into question the integrity of a national sports governing body. A lawsuit and accusations around the activities of USA Swimming and the national team coach — both sponsored by swimwear maker Speedo — charge Speedo, the national team and the coach with antitrust violations. The lawsuit, filed by Tyr, a Speedo competitor, alleges the coach has trumpeted the benefits of LZR Racer, a new, high-profile Speedo suit, because of his financial ties to the company. Tyr says its Tracer Rise swimsuit, introduced weeks before the LZR Racer, is comparable to the Speedo product.

The Olympic race for corporate sponsors has also put the Olympics in unhealthy — and sometimes quite unpleasant — company.

+ The International Olympic Committee will not partner with hard liquor companies, but the IOC tolerates sponsorships by beer and wine companies. Anheuser-Busch says it is a sponsor of 25 national Olympic Committees, including those of China, Japan, Great Britain and the United States. A tequila maker, Jose Cuervo, is a sponsor of the U.S. Soccer Federation.

+ Notwithstanding the fundamental principles of “Olympism,” which celebrate healthful living, two of the 12 Olympic TOP sponsors run businesses centered around the sales of unhealthy food: Coca-Cola and McDonald’s. Snickers, the candy bar made by Mars, is an official BOCOG supplier. Hershey’s is a sponsor of the USOC. Coca-Cola is a sponsor of FIFA, the international soccer federation. McDonald’s and Sprite are sponsors of USA Basketball. McDonald’s and Sierra Mist are sponsors of the U.S. Soccer Federation. Coca-Cola is a sponsor of USA Softball. Hershey’s is a sponsor of USA Track & Field.

+ Many of the sports apparel and equipment makers partnered with the Olympics and official Olympic bodies — among them Adidas, Nike and Speedo — source their products from sweatshop factories. In a very disturbing development just before the start of the Olympics, Adidas reportedly announced it was transferring large amounts of its production out of China because wages set by the government were “too high” (!).

+ At least two major Olympic partners, the China National Petroleum Corporation (CNPC) and Sinopec, have been linked to gross human rights violations in Sudan. Both companies are sponsors of the Beijing Organizing Committee of the Olympic Games.

There is no doubt that the horse is out of the barn on Olympic sponsorships, and the world is unlikely to see a commercial-free Games anytime soon.

Nonetheless, the most egregious problems with the Olympics’ pervasive sponsorship arrangements can and should be addressed.

The IOC, National Olympic Committees, and international and national sports governing bodies can and should scale back the number of corporate sponsorships.

They can and should develop safeguards to ensure apparel and equipment sponsorships do not compromise sports governing bodies’ decisions. Coaches of national teams should be prohibited from serving as paid spokespeople or consultants for apparel and equipment makers.

They can and should refuse to accept sponsorships from any alcohol company, including beer and wine companies. This recommendation does not reflect a prohibitionist impulse. It merely extends the insight in the present IOC ban on hard liquor sponsorships: promoting more alcohol consumption is unhealthful, and inappropriate for an event with enormous appeal to children.

They can and should end partnerships and sponsorship arrangements with junk food, soda and fast food companies. These companies’ operations are incompatible with Olympic ideals of promoting fitness and healthful living, and the companies use the association with the Olympics to remove some of the tarnish of their unhealthy products.

They can and should insist that official, sponsoring apparel and equipment makers disclose where their products are manufactured, and ensure that their products are manufactured in a fashion that respects core labor standards.

They can and should refuse to enter into sponsorship arrangements with companies connected to gross human rights abuses. This is a simple ethical standard, and one required by the Olympic commitment to demonstrate “respect for universal fundamental ethical principles.”

Will the IOC and other committees move in these directions? They refused to respond to repeated requests for comment. It may be, however, that it will be the corporate sector driving reduced commercialization of the Olympics. The opportunity to project a high-profile in China’s fast-growing market has made the Beijing Olympics uniquely attractive; but already leading sponsors have indicated they do not intend to continue paying for the right to besiege the planet with Olympics-related marketing in connection with future Games.