TPP and intellectual honesty

Basically, big corporations discovered how valuable the ISDS could be when dealing with foreign governments who were a bit too ambitious in the regulatory domain.

Conor J. Lynch
11 June 2015

La Oroya, Peru. Wikicommons/Maurice Chedel. Some rights reserved.Here in the United States, debate over whether to grant the President Fast Track authority for the Trans-Pacific Partnership is currently causing much inner-party strife, and fortunately, it is an uphill battle for TPP advocates.

Strangely enough, President Obama has teamed up with the Republican establishment for this massive trade deal, showing how un-socialist he really is, and how Republican’s aren’t really opposed to executive power, as long as it is in support of their policies.

Obviously, controversy over the TPP has made it a tough sell for the President, one that liberals are not buying. The TPP is full of corporate handouts, most notoriously for the pharmaceutical industry, which will be granted patent term extensions, and strengthen monopoly power on important medicines around the world, making them unaffordable in many areas. It will also strengthen intellectual property laws in other industries, specifically in the digital sphere.

The most notorious part of the TPP, however, is the Investor-State Dispute Settlement (ISDS) provision, which Elizabeth Warren wrote about a few months back in the Washington Post, saying: “ISDS would allow foreign companies to challenge U.S. laws — and potentially to pick up huge payouts from taxpayers — without ever stepping foot in a U.S. court.”

A scary thought indeed, but is it true? Well, it depends who you ask. If, for example, you were to ask the Obama administration, they would vehemently deny that the ISDS could challenge U.S. laws - and shortly after the Warren editorial, they did just this, with a Q&A blog for the ISDS. “It is an often repeated, but inaccurate, claim that ISDS gives companies the right to weaken labor or environmental standards, for example, suggesting that a trade agreement could result in the United States having to lower its minimum wage. The reality is that ISDS does not and cannot require countries to change any law or regulation,” wrote Director of National Economic Council and economic advisor to the president, Jeffrey Zients.

So, who is correct? Both, actually; but Warren is much more intellectually honest. While the ISDS cannot actually “require countries to change any law or regulation,” it can and has been used by corporations as a bargaining tool, pushing sovereign governments to back down on regulations, or fork out taxpayer money in arbitration, and possibly millions in damages.

The ISDS is barely a new instrument; it has been around since first being introduced in 1959, in a trade deal between Germany and Pakistan, but has become an increasingly popular mechanism of international law since the nineties. The original intent of the ISDS was to increase foreign investment in countries where business was risky, by providing a bit of security for investors. While the ISDS has been included in many trade deals, it was barely used before the nineties. This changed towards the end of the century, and its use rapidly increased during the 2000s, going from just a few cases filed in the early nineties, to nearly sixty annual cases filed by 2012.

Basically, big corporations discovered how valuable the ISDS could be when dealing with foreign governments who were a bit too ambitious in the regulatory domain. In many cases, the lawsuit is brought after a government regulates an industry for environmental or health reasons. This is currently happening in Australia, where tobacco company Phillip Morris is suing the government after they passed a law requiring cigarettes to be “plain-packaged” without branding. This has been shown to reduce smoking, especially in youth, and so Phillip Morris is suing for “expropriation,” or lost profit.

The United States has many trade agreements with the ISDS provision, most notably in NAFTA. In once case, the extraction company, Lone Pine, has sued the Canadian government after they filed a moratorium on hydraulic fracturing for environmental reasons. In one notable case, US company, The Renco Group, owned by billionaire Ira Rennert, has used the ISDS provision to bully the Peruvian government, after they shut down a metal smelter in the town of La Oroya, which is one of the most polluted towns in the world, when the company delayed environmental improvements. The Renco Group pressured the Peruvian government into restarting the zinc smelting operations in 2012.

So, while the ISDS cannot literally overturn a regulation or law, it can be used to bully a country’s government into doing so. Of course, the White House has said that it will be different under the TPP. In the same blog, Zients writes:

“ISDS has come under criticism because of some legitimate complaints about poorly written agreements. The U.S. shares some of those concerns, and agrees with the need for new, higher standards, stronger safeguards and better transparency provisions. Through TPP and other agreements, that is exactly what we are putting in place.”

At the time, we had to take his word, with the great secrecy surrounding the TPP; but today, we know a bit more, thanks to Wikileaks, who released the TPP Investing chapter last March, dated January 20, 2015. So, is the TPP’s ISDS provision different from that of NAFTA or the other trade agreements? Are there higher standards and stronger safeguards to prevent a company like Phillip Morris from using the ISDS to sue for lost profit? Maybe a little, but not nearly enough. There is some wording in the chapter that does try to prevent the ISDS from being used as a corporate tool to sue governments over environmental, health, or other public safety regulations. In the preamble, it is written:

“Recognizing the inherent right to regulate and resolving to preserve the flexibility of the Parties to protect legitimate public welfare objectives, such as public health, safety, the environment, the conservation of living or non-living exhaustible natural resources, and public morals.”

This is good, but NAFTA has similar wording in its investment chapter, and corporations could easily argue over what a “legitimate public welfare objective” is. Is a moratorium on fracking a legitimate public welfare objective, for example? Trade experts aren’t convinced that the TPP’s ISDS chapter is much different from previous ones, either, while the arbitration process, which has been one of the most criticized aspects of ISDS, has remained unchanged, with three highly paid lawyers selected, one by the defendant, one by the plaintiff, and one agreed upon by both. The same lawyers also tend to alternate between the “suing” and “judging” positions, which critics have said creates conflict of interest.

It is scary to think about this provision, largely unchanged from what we know, being included in the TPP, which covers about 40 percent of the worlds economy. Warren was correct when she said that “agreeing to ISDS in this enormous new treaty would tilt the playing field in the United States further in favor of big multinational corporations. Worse, it would undermine U.S. sovereignty.” ISDS was an international trade mechanism that was created in earnest, to increase foreign trade by providing investors with a sort of insurance policy. But today, it has become a dangerous weapon for multi-national corporations who do not want to play by the rules, especially if it costs them some profit. This endangers the safety of populations, the environment, and the sovereignty of nations, and it should be eliminated from any future trade agreements if our governments cannot agree on real changes.

Had enough of ‘alternative facts’? openDemocracy is different Join the conversation: get our weekly email


We encourage anyone to comment, please consult the oD commenting guidelines if you have any questions.
Audio available Bookmark Check Language Close Comments Download Facebook Link Email Newsletter Newsletter Play Print Share Twitter Youtube Search Instagram WhatsApp yourData