By
Tom Barksdale
In October, the United States and 10 other Pacific rim countries, after five years of secret negotiations, reached an agreement on the Trans-Pacific Partnership, the largest free-trade agreement ever concluded. President Obama must wait 90 days after the formal announcement of the final TPP agreement before signing the pact and sending it to Congress; that could happen by Feb. 4. Lawmakers would then work with the administration to determine when a vote would take place. However, media reports on December 10 reported that Senate Republican leader Mitch McConnell had told the White House that the TPP agreement should not be sent to Congress for approval until after the 2016 elections — and maybe not until after Obama leaves office. He reportedly was clear that the TPP would be defeated if it were sent to Capitol Hill next spring or summer, as the administration was planning to do.
According to previously agreed on rules, the vote must be yea or nea, all or nothing. Congress will not be able to make any changes in the draft presented to them.
Diverse voices from across the political spectrum are arguing against approval, including Donald Trump, Ted Cruz, Hillary Clinton, Bernie Sanders, and Martin O’Malley. People concerned about American jobs label it “NAFTA on steroids,” implying it will be a net loss for American workers. Equally, or more, onerous to many of us is the TPP’s incorporation of the procedure known as Investor-State Dispute Settlement (ISDS). Here is my assessment of the threat ISDS poses to American sovereignty.
The Trans-Pacific Partnership is about much more than establishing another free-trade zone. The TPP deals a body blow to United States sovereignty, to the democratic process, and to the U.S legal justice system by establishing supra-national tribunals to resolve disputes between international corporations and the countries that are a party to the agreement. These tribunals will act totally apart from the domestic judicial systems. U.S. laws, rules, regulations and precedents will not amount to a hill of beans in these hearings.
The mechanism for doing this is a well-established one known as Investor-State Dispute Settlement—ISDS. ISDS has been around for a long time. The provisions have been included in every significant trade pact the United States has signed since the 1980s.
ISDS was established years ago mainly to help international corporations cope with conditions in third-world or developing countries. Meaning, essentially, the near total absence of anything approaching an effective, independent judicial system. Imagine General Electric having some legal dispute in a country like Pakistan or Burkina Faso. The outcome would be arbitrarily decided in favor of whatever tribe, faction, family, dictator or powerful local interest GE was in conflict with. Plus, GE would be pressured to pay bribes just to get into a courtroom.
The solution: allow for the creation of an extra-governmental, three-member international tribunal that would hear the case and issue a ruling totally outside the local governmental and judicial system. Who sits on the tribunals? Corporate lawyers. The same lawyers who make a living employed by international corporations. They could be lawyers representing a client in one case and sitting as a judge in another. This is the same ISDS mechanism included in TPP.
Let me make this clear. ISDS does not kick in as a last court of appeal after domestic courts have issued a ruling. A corporation can initiate a hearing anytime it decides its financial interests are being harmed. If the tribunal finds in favor of the corporation, the country can be required to pay a fine. It’s Investor-State Dispute Resolution.
Example. Suppose a Vietnamese company is operating in the United States. Congress passes a law tightening some environmental regulation, the president signs it, it’s challenged in court, and the U.S. Supreme Court finally rules, this law is perfectly constitutional. But if the Vietnamese company claims its expected profits have been harmed by the imposition of this law, it can invoke the ISDS mechanism, and if those three lawyers rule in favor of the company, the United States government must pay a fine to the Vietnamese company. There are no appeals.
As some critics have summed it up: The Supreme Court declared corporations to be people. The TPP declares them to be nations. This supra-national system would allow foreign corporations to subvert U.S. laws and bypass U.S. courts on financial, environmental, health, food-safety and worker rights laws.
Only multinational corporations enjoy this special mechanism. Other players in the economy—labor unions, environmentalists, ordinary consumers—do not.
Recent results of ISDS proceedings seem to make a mockery of a nation’s laws:
• Germany 2009. The Swedish energy company Vattenfall wanted to build a coal-fired power plant. The German government conditioned its approval on Vattenfall taking measures to protect the Elbe River from waste products. Vattenfall invoked ISDS and sued the German government, asking $1.9 billion in damages. The government dropped its conditions.
• Germany 2011. Germany looked at the Fukushima nuclear plant disaster after the earthquake and tsunami and decided to phase out nuclear power plants. Vattenfall sued the government under ISDS for alleged financial losses. German companies had no such recourse.
• Australia 2010-2015. An ISDS case brought by a subsidiary of Philip Morris, involving government stipulations about labeling packaging for tobacco products.
The way the Australian case developed is a perfect example of how the ISDS mechanism can be manipulated to by-pass domestic laws:
• 1993: Australia and Hong Kong signed a bilateral agreement that included ISDS.
• 2010: The government announces its intention to introduce cigarette packaging legislation opposed by the tobacco industry.
• 2011: Philip Morris restructured itself so that its Australian subsidiary became wholly owned by the Hong Kong-based Philip Morris Asia. This allowed Philip Morris to sue Australia under the 1993 ISDS provisions.
• 2012: The regulation became law. The PM subsidiary sued the government in an Australian court and lost. The subsidiary promptly invoke ISDS.
The tribunal apparently has not reached a decision—and the Australian government has already spent $35 million challenging it.
The chilling effect has already been felt in neighboring New Zealand, where the government’s plans to put warnings on its own tobacco packaging were held up pending a decision in the Australian case.
Even a cursory review of the decisions of ISDS panels reveal a pattern of trampling on commonly accepted legal practices:
• Disregard for the actual legal bases for bringing a case in the domestic courts.
• Complete contradiction of domestic court rulings.
• Disregard of well-established and respected precedents that guided domestic courts.
A backlash against ISDS has already begun.
• The German government has expressed opposition to including ISDS in future trade agreements.
• European Union officials have expressed opposition
• ISDS provisions have been criticized by Australian judicial and political leaders
• Brazil has never accepted ISDS at all
Proponents of the TPP who argue that the United States so far has faced few ISDS cases under existing agreements gloss over the fact that the number of ISDS cases have exploded in recent years. From 1959 to 2002, there were fewer than 100 ISDS claims worldwide. But in 2012 alone, there were 58 cases. They are almost certain to grow as more multilateral corporations are headquartered abroad. Plus, a trade pact involving 11 countries will expand almost exponentially the number of corporations with access to ISDS.
My question in regard to TPP: why ISDS to begin with? Surely, fully functioning civilized nations can rely on the normal functioning of international economic system based on the laws, practices, and agreements established over centuries. The libertarian think-tank Cato Institute said it succinctly in a study of TPP and ISDS: “ISDS is not even essential to the task of freeing trade. So why burden the effort by carrying needless baggage?”
The issue here is not what interests gain or lose from what specific cases.
The problem with ISDS is that it undermines democracy, in a major way. For me, you can make the pro-TPP case all you want. It will not outweigh the damage the pact’s ISDS provisions inflict on democracy, transparency, and the rule of law. I find repugnant the idea that the whole democratic process can be subverted by three lawyers, sitting on an ad hoc panel and overruling the will of the people as expressed in laws passed by the legislature, signed by the executive, and ratified by the judiciary. That is not how democracies do business.
Remember: Congress itself set the rule that the TPP pact will be decided in an up or down vote. No changes allowed. I have no qualms about opposing the TPP on the basis of ISDS alone.
Future analyses in this forum will examine the impact of TPP on particular issues, including immigration, health care, and worker rights. Here are some sites for information and analysis:
Flush the TPP
Coalition for a Prosperous America
Public Citizen