Super-powers of corporate capita

1 Reflections on the super-rights and super-powers of corporate capital

2 [ Published by: Observatorio de la Deuda en la Globalización (ODG) Chapter & Transnational 1: Institute (TNI) Tratados de Libre Comercio (TLC) y derechos laborales Coordinators: Mónica Vargas (ODG) and Brid Brennan (Economic Justice Programme - TNI) Contributors: Jesús Carrión, Olivier Chantry, Fernando Fernández, Delphine Ortega, Albert Sales and Mónica Vargas Online maps: Alfons Pérez, Delphine Ortega and Raül Sánchez General review: Nick Buxton and Lyda Fernanda Forero (Transnational Institute TNI) Reflections on the super-rights and super-powers of corporate capital Review of Chapter 1: Maria Mestre and Miquel Ortega (Fundació ENT) English translation: Sara Shields Design: Toni Sánchez Poy (flaperval@yahoo.es) Place and date of publication: Barcelona, June 2013 (original Spanish version published in December 2012) Contact: observatori@odg.cat, tni@tni.org Cover photo: Resting on the Cerro Rico. Miners from the La Candelaria Mine chewing coca leaves (akulliku). Potosí, Bolivia (October 2004). Photo: Toni Sánchez Poy. Back cover photo: Camp at the 9ª Romaria Da Terra e Das Águas de Rondônia protest against the Madeira River mega-dams in the Amazon region, Rondonia State, Brazil. Photo: ODG, 10 July 2011. Report commissioned by the Transnational Institute (TNI) as part of the Economic Justice, Corporate Power & Alternatives Programme [ The digital version of this report includes a maps section, with links to online maps showing the location of the case studies analysed.

3 Contents Executive Summary... 8 Introduction...10 Chapter 1: Free Trade Agreements (FTAs) and workers rights [Albert Sales, Jesús Carrión, Fernando Fernández] 1.1. Morocco s FTA with the EU: benefits for Inditex...14 International trade and the importance of the garment sector...15 The social consequences of trade liberalisation...17 Inditex and Morocco s trade policies...20 The EU-Morocco Free Trade Agreement... 23 Lex Mercatoria takes priority... 25 1.2. The Association Agreement between the European Union and Central America: advantages for Pescanova in Nicaragua... 28 Brief historical review of the EU s relations with Central America...28 Pescanova and the fish-farming sector in Nicaragua...29 The Association Agreement between the European Union and Central America... 32 Chapter 2: European capital s dealings in commodities from South America and Africa: the case of Glencore [Delphine Ortega, Olivier Chantry, Mónica Vargas] 2.1. The needs of Europe s metabolism...38 2.2. Mining footprint in South America and Africa...45 Colombia: The market to the extent possible and the state to the extent necessary......45 Glencore in Bolivia: Sombríos días de socavón...51 In pursuit of the Democratic Republic of Congo s cobalt...56 2.3. Agribusiness in MERCOSUR... 61 Expansion in Argentina...61 The agrofuels business in Brazil... 67 2.4. How do trade agreements benefit a company like Glencore?... 68 EU Peru and Colombia Free Trade Agreement...69 EU-MERCOSUR Association Agreement...70 EU-Africa Economic Partnership Agreements...71 2.5. Glencore in the financial casino...73 Financial speculation: what is it and where does it take place?...73 Glencore: just one more player in the financial casino... 75 The consequences of food speculation for the global South... 77 Chapter 3: IIRSA-COSIPLAN and European capital s responsibility [Mónica Vargas] 3.1. Interests at work in South America s infrastructure mega-projects...86 From IIRSA to COSIPLAN, via UNASUR...86 A development strategy for capital, which continues to fragment the territory and leave it depopulated...90 The role of the EU and the EIB...91 European capital s involvement and the financialisation of infrastructure projects... 92 3.2. The case of the dams on the Madeira River... 95 Conclusions... 106 ANNEXES Annex I. Exports from South America and Africa to the EU... 108 Annex II. The EU s mineral dependence on Latin America and Africa... 110 Annex III. Europe s commodities business...111 Annex IV. Diagram of the inter-corporate relationships between Katanga and its subsidiaries...112 Annex V. Glencore and Credit Suisse: the perfect marriage...113 Annex VI. Financial information on the IIRSA mega-projects...114 Annex VII. COSIPLAN priority projects...116 Annex VIII. EIB loans for infrastructure projects in South America (2005 2012)...117 Annex IX. European private equity funds (or funds that include European capital) active in Latin American infrastructure projects...120 Annex X. Hydroelectric dams (Jirau and Santo Antonio) on the Madeira River and indigenous peoples (Brazil)...122 Bibliography...124

4 12 13 Online map The digital version of this report includes an online map prepared by ODG s social and environmental conflicts interactive mapping team. The interactive map showing the issues and case studies analysed in the report can be accessed by clicking on the icon below whenever it appears. It is necessary to be connected to the internet to access the online map. Icon linking to the interactive map The complete map can also be accessed by clicking on the following link: http://www.odg.cat/mca/impunityinc/impunityinc.html

5 Chapter 1: Free Trade Agreements (FTAs) and workers rights [Albert Sales, Jesús Carrión, Fernando Fernández] Mgouga industrial complex in Tangier. Photo: Carlos Castro, October 2011 1.1. Morocco s FTA with the EU: benefits for Inditex Since the late 1980s, Morocco has become an important manufacturer of clothes for Spain and much of the rest of Europe. In the industrial complexes of Rabat, Tangier and Casablanca, clothes are manufactured for many companies, including large corporations with a global presence. The early offshoring by Spain s textile industry had Morocco as its first-choice destination, given the country s proximity to the Iberian Peninsula and because of the restrictions imposed by the Multi-Fibre Arrangement (MFA) on the import of clothes from Asia until 2005. The growth of employment in industry has turned cities like Tangier, Casablanca and Rabat into a magnet for migrants from other parts of the country. Many thousands of jobs have been created in the textile and clothing industry, but living conditions for the workers in those jobs are particularly harsh. Successive reports and research by the Clean Clothes Campaign 5 since 2002 have provided evidence of the abuses and violations of fundamental labour rights taking place in the factories making clothes for export. The everyday reality for Moroccan textile workers comprises working days of up to 16 hours, and wages lower than both the legal minimum and the subsistence minimum. An extremely high percentage of workers most of whom are women work without a contract or any form of social security, and endure unhealthy working conditions. Thus, many of these women continue to live in poverty while also working extremely long hours. In one leading factory, which advertises itself to international clothing companies as a regular supplier, the average working week is 9 hours per day from Monday to Friday and 5 hours on Saturdays, with wages of around 250 euros per month. In other factories, where the majority of workers are employed, overtime is compulsory and prolongs the working week to 11 or 12 hours per day, six days a week. Workers are not usually paid for overtime, and their wages are no higher than 200 euros per month. Most workers do not have a contract or any social security. In the small workshops, wages may be less than 100 euros per month and contracts are non-existent. This chapter will analyse the ways in which the international trade agreements signed by Morocco have contributed to trade liberalisation and the deterioration of labour relations in the country, as well as enabling the business elites directly connected to European transnational corporations to become even richer and more powerful. Because of the size of its business, its international position and its importance to the Moroccan economy, the focus will be on Inditex and the commercial benefits it enjoys as a result of the agreement on the free movement of goods between the EU and the Kingdom of Morocco. This provides an example of how transnational corporations profit from the same laws and production arrangements that are eroding human and labour rights. International trade and the importance of the garment sector In contrast with the global tendency to lift tariffs, Morocco (in common with its neighbour Tunisia) has shown a certain reluctance to lower its trade tariffs. Following an initial reduction

6 16 Chapter Chapter 1: Free 1: Free Trade Trade Agreements (FTAs) (FTAs) and and workers workers rights rights 17 between 1993 and 1997 (from 65% to 22%), Morocco s tariff levels have since increased, remaining at around 30% in recent years (Dennis 2006). In contrast with other Arab and Maghreb countries, Morocco and Tunisia have not undertaken far-reaching tariff reforms. 6 But although the World Bank classifies the Maghreb countries in general and Tunisia and Morocco in particular among the countries with the most restrictive tariff regime in the world, the existence of export processing zones, together with a web of preferential trade agreements, has reduced real tariffs, turning the region into an attractive market for the EU. In 1995, the EU signed an Association Agreement (AA) with Morocco that would enter into force in March 2000. The agreement established a Free Trade Area between the EU and Morocco which was launched in 2000, with the aim of gradually reducing tariff barriers until they reached 5.2% in 2012. Even so, Morocco already had special conditions in place for trade with its EU partners before the AA was signed. Its manufactured goods have had free access to the European market since 1976, and the quotas established by the EU allow 20% of the country s agricultural products to be exported under preferential treatment. Trade relations between the EU and Morocco are currently governed by the agreement reached in an Exchange of Letters on 7 September 2012. 7 This was published in the Official Journal of the European Union and replaces the Euro-Mediterranean Agreement dated 18 March 2000. 8 Although Morocco signed a free trade agreement with the United States in 2004, 96% of Morocco s clothing exports are destined for the European market. It should be emphasised that the trade link between the EU and Morocco runs both ways and is extremely asymmetrical. 76% of Morocco s imports come from EU countries, while for the European market Moroccan products account for just 0.21% of total imports. 9 Table 1. International trade-related agreements signed by Morocco Treaty, agreement or proposal Timeline Implications Bilateral agreements Association Agreement with the EU Free Trade Agreement with the United States Fisheries agreement with the EU Agreement on the free movement of goods between the EU and Morocco Signed in 2000 Signed in 2005, entered into force in 2006 Renewed in February 2011 Published in the Official Journal on 18 March 2012 Reduction of tariffs on goods, services and capital. Ban on subsidies for agricultural exports. Morocco agreed to allow US agricultural products preferential access by gradually eliminating import tariffs. In 2 years, the trade balance in favour of the US went from 65 to 565 million euros. Opening up of Moroccan and Western Saharan waters to European fishing fleets Free movement of goods originating in Morocco and the EU. Regional integration agreements Agadir Agreement (Morocco, Egypt, Tunisia and Jordan) Greater Arab Free Trade Area (GAFTA) The treaty was signed in Rabat in February 2004 and entered into force in March 2007 Established in 1997 Proposed integration arrangements led by the US and the EU U.S. - Middle East Free Trade Area (MEFTA) Euro-Mediterranean Free Trade Area (EMFTA) Before the uprisings began in 2011, it was envisaged that this would be signed in 2013 The process began in 1995 with the Barcelona Declaration Free trade area among the signatory parties. Open to all members of the Arab League to join. Linked to the EU through an Association Agreement. Reduction of 10% per year in tariffs between the Arab League countries. On 1 January 2005, tariffs were practically eliminated. Seeks to establish the free movement of goods, services and capital between the EU and GAFTA members. In direct competition with the MEFTA project. Sources: http://www.bilaterals.org, http://europa.eu/legislation_summaries/external_relations/, http://www.webislam.com/ The social consequences of trade liberalisation Despite the harshness of their working conditions, the industrial complexes attract constant waves of migrants from rural areas seeking employment in the factories. Although it is very difficult to monitor rural-urban migration rigorously, the growth in the rural population has clearly stagnated in recent decades, while the industrial cities have become a magnet for migrants and new neighbourhoods are being built to house workers.

7 18 Chapter 1: Free Trade Agreements (FTAs) and workers rights 19 Figure 1. Evolution of the urban, rural and total population of Morocco (1960-2008) 35,000,000 30,000,000 25,000,000 20,000,000 15,000,000 10,000,000 5,000,000 1960 Rural population Urban population Total population Source: United Nations. World urbanization prospects 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 As in other recently industrialising countries, the factories in Morocco take on workers who live in urban and peri-urban areas with high rates of poverty and unemployment. This situation makes it more likely that people will accept insecure employment conditions and encourages informal workshops to spring up alongside the large factories. The pool of potential workers mainly comprises migrants who come from rural areas to the city. To a great extent, this migration is triggered by the political and economic conditions in rural areas. The effects of neoliberal modernisation on traditional farming communities The structure of agricultural production in Morocco took shape during the French colonial administration (1912-1956), a time when the farming sector began to be integrated into the global economy by bringing large areas of rain-fed agricultural land under irrigation to grow vegetables. Together with this French legacy, a system of hierarchical clientelistic relations was established at the same time. This system still influences the allocation of land ownership titles and decision-making with regard to farming sector planning today. During the reign of Hassan II (1961-1991), the newly independent Moroccan government consolidated the reforms started during the French colonial administration by allocating the best land to be used to produce export crops such as citrus fruit. The first World Bank loans were awarded in 1964 precisely in order to expand irrigated agriculture, following plans laid out by the colonial administration, and leaving the traditional rain-fed sector in a state of neglect (Davis, 2006). The consequence of this was that cereal production failed to adapt to the new needs arising from the population increase and led to the start of cereal imports. A country whose farming system had hitherto been self-sufficient was now affected by a significant balance of payments deficit due to the import of food commodities. As a result of this crisis, Morocco received advice from the International Monetary Fund (IMF) for the first time. The country s dealings with the IMF intensified after the subsequent crises that resulted from contingencies such as the huge increase in public expenditure required to finance the invasion of Western Sahara in 1975 as well as the fall in phosphate prices. In 1975, Morocco s debt amounted to 20% of its Gross Domestic Product (GDP), creating the situation that was used by the IMF to propose a Structural Adjustment Plan (SAP) to the Kingdom of Hassan II. Thus, in 1983, began a decade of adjustments and economic tutelage by the IMF which took the form of nine SAPs and Morocco becoming a signatory to the General Agreement on Tariffs and Trade (GATT) in 1987 (Morrisson 1991). As in the rest of the world, the objective of the SAPs was to create a favourable environment for foreign investment, promote exports and abolish tariffs. There are many indicators that the IMF failed to take into account when it designed its plans for Morocco: already in 1978, 68 families controlled 55% of the country s private industrial capital. 10 business groups (owned by the 10 most influential families) held a third of the capital, while a fifth of the country s total wealth was in the hands of the royal family (Davis 2006). In the farming sector, the SAPs intensified the process of enclosing and privatising communal grazing land. USAID had been recommending to Hassan II s government since the 1960s that this land should be turned over to irrigated agriculture for reasons of environmental degradation, and in 1969 it and the World Bank provided technical assistance to Morocco to draw up the Agricultural Investments Code. The Code s objectives were to improve agricultural productivity, reverse the fragmentation of plots of land and issue property titles. The aim of all this was to modernise the country s agriculture. The process was speeded up and consolidated with the SAPs in the 1980s, which triggered a wave of neoliberal legislative changes including the Privatisation Law, a new labour code, and regulations on water and agricultural land. Extensive recent independent research has demonstrated that the fragmentation of land has no negative impact on its productivity and that land titling and the joining together of plots of land is a means to hand out political favours and clientelistic rewards (Kamrava 2004). Most of the modernisation projects have required intervention in areas of land that were collectively owned and used. The six priority areas targeted for action in the macro-

8 20 Chapter 1: Free Trade Agreements (FTAs) and workers rights 21 projects financed by the World Bank fell into that category. By way of compensation, the government tried to restrict traditional livestock grazing to fifteen enclosures with pasture improvement projects (Davis 2006). The areas of collectively farmed land that remained outside the modernisation projects have been reclassified as useful land under the control of the state. At the same time, traditional farming systems have been criminalised, and those who break the law are punished by up to six years in prison. For millions of citizens in rural areas of Morocco, these changes and, above all, their lack of access to collectively used land meant the loss of an essential source of food, medicine and basic products. This has worsened rural poverty and obliged people old enough to get a job in a factory to migrate to the cities in search of work. Those rural families who still have access to a piece of communal land or who have the modest means to produce and sell food try to preserve their way of life by sending their daughters to work in the factories in the industrial cities to top up the family s income. As in many other parts of the world, these girls are seen as the ideal workers, as they have no knowledge of their rights, no tradition of union organising, and no support networks in the cities they migrate to. They are also under the obligation to subsist on an extremely low income and send part of their wages to their family. The nomad livestock herding peoples have been the worst affected by the wave of neoliberal reforms. The direct beneficiaries of the restructuring, in contrast, have been the royal family and the elite that surround them. The royal family s business holding, Omnium Nord Africain (ONA), has bought up the majority of the privatised enterprises (Coupe 1997 and Dillman 2001). Likewise, it is the royal family that directly receives the proceeds from the Office Cherifien des Phosphates, the state-owned monopoly phosphate trader and the most profitable company in the country (Dillman 2001). Inditex and Morocco s trade policies If the garment sector is key to Morocco s international trade, Inditex is a strategically important company for the country s trade policies. The Galician fashion giant, owner of the Zara, Bershka, Pull & Bear, Massimo Dutti, Stradivarius, Oysho, Uterqüe, Tempe and Zara Home brands, has a strong presence in Morocco. As the company itself stated in its 2010 Annual Report, 10 it has 103 suppliers and 143 outsourced workshops there making clothes for its brands. A total of 41,742 people work in the Inditex supply chain in Morocco. Table 2. Morocco: manufacturing exports By sector, in millions of Moroccan dirhams (MDH), 11 comparing January-February 2009 and 2010 2009 2010 Sector January February Total - months January February Total - months Road vehicles 602.6 733.0 1,335.6 697.0 1,146.8 1,843.8 var % +15.7% +56.5% +38.1% var in MDH +94.4 +413.8 +508.2 Electronics 335.9 369.4 705.3 414.8 406.0 820.8 var % 23.5% 9.9% 16.4% var in MDH +78.9 +36.6 +115.5 Fish & seafood 772.1 979.2 1,751.3 1,078.8 1,211.8 2,290.6 var % +39.7% +23.8% +30.8% var in MDH +306.7 +232.6 +539.3 Textiles & clothing 1,800.6 1,545.7 3,346.3 1,285.3 1,037.6 2,322.9 var % -28.6% -32.9% -30.6% var in MDH -515.3-508.1-1023.4 Knitwear 650.7 552.0 1,202.7 502.7 416.5 919.2 var % -22.7% -24.5% -23.6% var in MDH -148.0-135.5-283.5 Footwear 287.6 244.7 532.3 220.9 208.9 429.8 var % -23.2% -14.6% -19.3% var in MDH -66.7-35.8-102.5 Aeronautics 235.0 209.2 444.2 142.3 161.2 303.5 var % -39.4% -22.9% -31.7% var in MDH -92.7-48.0-140.7 Source: Office des Changes, 29 March 2010 The research carried out by Spain s Clean Clothes Campaign in Tangier in 2011 (Sales and Piñéiro 2011) found that despite the corporate social responsibility commitments announced by Inditex in its statements and its code of conduct, labour conditions for its workers are very similar to those of the workers producing for other brands. Of the 188 women workers surveyed for this study, 60 were making clothes for one of the Galician company s brands at the time when the field work was carried out, and 71 had worked for its supply chain at an earlier time. The Inditex code of conduct 12 sets out the minimum labour standards that must be respected by all its supplier factories. It states that the maximum number of hours per week for workers throughout its supply chain should be 48, although they would occasionally

9 22 Chapter 1: Free Trade Agreements (FTAs) and workers rights 23 the commitment to pay a wage that enables workers to cover the basic needs of themselves and their families as well as other reasonable needs. The study found that 75% of the women surveyed who work for suppliers of the Galician company receive the SMIG. 13 Compliance is somewhat higher than in the firms that are not in its supply chain. But despite this higher level of compliance with the payment of the SMIG, when the workers were asked how difficult it is to meet their needs, the responses of those who work for Inditex suppliers reveal that their level of hardship is the same or even somewhat worse than that of the women who work for other employers (Sales and Piñéiro 2011, 46-47). 40% stated that they are unable to cover their own needs or those of their families, or that they find it very difficult to do so. Among the workers unconnected with Inditex, this proportion was 31%. It should be pointed out that in its 2010 annual report the company states that it has worked together for years with unions, manufacturers, governments and universities to improve working conditions in the sector, and that among its suppliers in Africa the level of compliance with trade union freedoms is more than 90%, while compliance with the legal limits on working hours and wage levels is 70%. 14 Mgouga industrial complex in Tangier. Photo: Carlos Castro, October 2011 be allowed to work a maximum of 12 hours overtime. According to the responses of the women surveyed, the normal working week for 68% of the workers employed in factories supplying Inditex is between 45 and 54 hours, while 30% regularly work more than 55 hours per week. Furthermore, 62% of these workers slightly more than the 57% of the rest of the workers surveyed state that the busy times with a heavier workload occur very frequently. Thus, reality seems to clash with the text in the company s code of conduct, which reads: [overtime] shall not be demanded on a regular basis and shall always be compensated at a premium rate, pursuant to the provisions of the prevailing regulations in force. On the matter of wages, the Inditex code of conduct requires its suppliers to pay the minimum wage in their country. In addition, the fact that the Galician company has joined the Ethical Trading Initiative (ETI) implies that it accepts its base code, which states that a living wage shall be paid in the supply chain. This means that wages must cover basic needs, with a certain amount left over for discretional spending. The international framework agreement that Inditex has signed with the main international trade union federation in the sector - the International Textile and Garment Workers Federation (ITGWF) - likewise includes The EU-Morocco Free Trade Agreement The liberalisation of trade between the EU and Morocco reduces import and export costs for the factories supplying Spain s garment industry. Article 1.2 of the Agreement states that its purpose is to establish the conditions for the gradual liberalisation of trade in goods, services and capital, based on harmonious economic and social relations through dialogue and cooperation, so as to foster the development and prosperity of Morocco and its people. In terms of its relevance to this report, what stands out in the Association Agreement between the European Union and Morocco are two legislative changes specifically set out in two articles (9 and 12) that directly or potentially benefit companies like Inditex, part of whose supply chain is located in Morocco. Firstly, the Agreement eliminates customs duties on products originating in Morocco when they enter the EU. In Title II, Chapter I, reference is made for the first time to what are called products originating in the Community and Morocco. Thus, Article 7 of the new Agreement put in place by means of the Exchange of Letters between the European Union and the Kingdom of Morocco, 15 which replaces the Euro-Mediterranean Agreement, 16 states which products from the European Union and from Morocco are considered products originating there for the purposes of the Agreement. Article 9 then reinforces this by stating that products originating in Morocco shall be imported into the Community free of customs duties and charges having equivalent effect. This article

10 24 Chapter 1: Free Trade Agreements (FTAs) and workers rights 25 in turn is backed up by certain other articles in the Agreement: 13, 19.1, 19.2 and 19.3. This means that products originating in Morocco may circulate in the European Union as though they were products originating in the EU itself. To avoid giving the wrong impression, however, we should analyse what the concept of products originating in the European Economic Community (EEC) and Morocco actually includes. It is understood to include not only those products that, for example, come directly from the farmland or subsoil of Morocco or the EEC s member states (in the sense indicated in Article 5 of Protocol Nº 4 17 ). As Article 29 of the Euro-Mediterranean Agreement makes clear, Protocol Nº 4 is the text that establishes the quantity of raw materials that any given product must contain in order to be considered an originating product. If the product s component materials have come to the producer country (in this case Morocco) from another state, the text establishes what type of processing the objects thereby produced (and thus their component materials) must undergo in order to be considered also as originating in the producer country in question. To this end, Article 2.2 b of this Protocol states that products obtained in Morocco incorporating materials which have not been wholly obtained there shall be considered as originating in Morocco, provided that such materials have undergone sufficient working or processing in Morocco within the meaning of Article 6. This latter article makes reference to Annex II, which lists the working or processing required to be carried out on non-originating materials in order for the manufactured product to obtain originating status. This Annex II lists numerous textile materials, together with the way to get them considered as originating products. Thus, a European company may relocate its production to Morocco and providing it meets the conditions stipulated in this Annex get permission for its product (in this case clothes) to cross the border tax-free. This operation will also be profitable for it due to less costly working conditions in the producer country, simply because the product is processed, as is the case in garment manufacturing, for example. Moreover, according to the stipulations made in Articles 3 and 4 of Protocol Nº 4, products are considered as originating in Morocco or in the Community even if they incorporate materials originating in Bulgaria, Switzerland (including Liechtenstein 18 ), Iceland, Norway, Romania, Turkey or in the Community, as well as [ ] the Faroe Islands or in any country which is a participant in the Euro-Mediterranean partnership, based on the Barcelona Declaration adopted at the Euro-Mediterranean Conference held on 27 and 28 November 1995, other than Turkey [ ], provided that they comply with the conditions stipulated in the rest of the clauses in the above-mentioned articles. European fashion companies such as Inditex import articles of clothing from Morocco as though they were products originating in the Community, despite the fact that Moroccan industry is mainly involved in clothing manufacture (and, therefore, turning cloth into garments). Furthermore, the door is left open to the import of materials from tax havens, and the financial engineering practised by the large transnationals to avoid paying tax is thus protected. The second shift in favour of offshoring that emerges from reading the Agreement is found in Article 12, which says in point 1 that Morocco undertakes to eliminate the reference prices applied to the products listed in Annex 5 within three years at the latest. Textiles and clothing were included among the products to which reference prices could be applied, and had a tariff that was levied on them when they were exported from the European Union to Morocco. Now, the Agreement made sure that these prices would be progressively eliminated over a period of three years dating from the entry into force of the Agreement. The pace at which elimination of the reference prices took place had to ensure that products originating in the European Union would retain a margin of preference of at least 25% over the reference prices which Morocco applies on an erga omnes basis (i.e., with regard to all). These reference prices have now been eliminated because the article in question is in the Agreement dating from the year 2000, and the three years have now elapsed. This article is therefore essential to complete and close the circle that the Agreement opened with Article 9. In other words, for a company in this case Inditex to be able to benefit from the stipulations made in Articles 7 and 9, it actually needs to ensure that any raw material that does not originate in Morocco (and therefore that the country does not possess) may be taken there to be worked on and processed at the lowest possible cost. Thus, the company benefits firstly from the export of the raw material and secondly from the import of the finished product at a much lower cost, given the progressive or total elimination of tariffs. Lex Mercatoria takes priority In the preamble to the Agreement, the parties commitment to human rights is expressed as follows: CONSIDERING the importance which the Parties attach to the principles of the United Nations Charter, particularly the observance of human rights and political and economic freedom, which form the very basis of the association. Likewise, Article 2 states that respect for the democratic principles and fundamental human rights established by the Universal Declaration of Human Rights shall inspire the domestic and external policies of the Community and of Morocco and shall constitute an essential element of this Agreement. These are the only two points in the text of the Agreement that make reference to human rights, and in both they are seen as a framework that provides moral justification and legitimacy to the parties. The possibility of non-compliance is not considered, and neither are any sanction mechanisms established.