Public interest groups are raising alarm about the global safety, health and environmental enforcement implications of a developing trade agreement and whether a controversial section of the accord could put the public at risk by allowing investors to skirt regulatory mandates in countries participating in the deal.
At issue is the emerging Trans-Pacific Partnership (TPP) and the scope of its investor-state dispute settlement (ISDS) mechanism, which public interest groups are deeply concerned would permit companies overseas to avoid individual countries’ regulations. The issue has also garnered the attention of Sen. Elizabeth Warren, a key Democratic lawmaker on consumer and trade issues, who recently slammed the settlement provisions.
A purported text of the investment chapter recently published by Wikileaks reveals that negotiators have reached consensus on nearly all of the chapter’s provisions except for the scope of the ISDS mechanism and the extent to which signatories would be allowed to restrict capital flows in order to mitigate a financial crisis, Inside U.S. Trade reported in late March, signaling that the potential signatories including the United States are getting closer to a deal on the chapter. The text was dated Jan. 20 and leaked March 25.
Warren suggested in a recent conference call with reporters that the ISDS mechanism could allow foreign corporations to undermine U.S. health, safety environmental and labor laws. The Alliance for Justice, which organized the call, at the same time released a letter from 90 law professors opposing ISDS because it would undermine “the rule of law and the nation’s sovereignty.”
ISDS proceedings lack many of the basic protections and procedures of the justice system normally available in a court of law, and there is no appeals process, the lawyers told U.S. officials. “There is no oversight or accountability of the private lawyers who serve as arbitrators, many of whom rotate between being arbitrators and bringing cases for corporations against governments. The system is also a one-way ratchet because corporations can sue, forcing governments to spend significant resources, while governments impacted by foreign corporations cannot bring any claims.”
“In recent years, corporations have challenged environmental, health, and safety regulations, including decisions on plain packaging rules for cigarettes, toxics bans, natural resource policies, health and safety measures, and denials of permits for toxic waste dumps,” they added. “Hundreds of cases have been filed against approximately 100 governments over the past few years. ISDS threatens domestic sovereignty by empowering foreign corporations to bypass domestic court systems and privately enforce terms of a trade agreement. It weakens the rule of law by removing the procedural protections of the justice system and using an unaccountable, unreviewable system of adjudication.”
U.S. trade officials dispute the notion that ISDS gives foreign corporations the advantage that ISDS opponents describe. The office of U.S. Trade Representative (USTR) released a fact sheet contending that ISDS “allows for neutral and transparent enforcement of a limited and clearly specified set of basic rights and protections already offered to U.S. and foreign investors alike under U.S. law.”
“ISDS does not threaten domestic sovereignty, it is an exercise of sovereignty to resolve international disputes. States fully retain their sovereignty, regardless of ISDS, including to impose any measure they wish (whether to protect labor rights, the environment, or other public welfare objectives),” USTR argued. “That cannot be changed by an arbitration. ISDS strengthens rule of law by creating incentives to ensure that basic due process and rights are being recognized. … All dispute settlement under trade agreements is done through international dispute resolution mechanisms because they inherently involve parties of different nationalities. This includes enforcement of commercial provisions as well as labor and environmental provisions.”
USTR further says the use of ISDS is not on the rise under U.S. agreements. “In fact, fewer ISDS cases have been reported under U.S. agreements in recent years than in previous years despite the fact that there are more agreements that have ISDS and ever-growing volumes of cross-border investment. The peak number of cases under U.S. agreements occurred more than a decade ago.”
Some countries including Mexico are refusing U.S. demands to extend the use of ISDS to breaches of certain public concession contracts that governments have granted to a private company and which are known as “investment agreements.” They only want investors to be able to mount an ISDS case if a government violates the investment protection obligations laid out in the TPP chapter.
These countries may be willing to consent to ISDS for their TPP investment protection obligations since they were undertaken in an international law setting. But they balk at extending ISDS to cover these other investment agreements, which were negotiated in a different context, investment experts said.
Another way in which TPP countries are seeking to narrow the scope of ISDS is by requesting carveouts for themselves for specific sectors. These carveouts are spelled out in annexes attached to the investment chapter.
For instance, Canada is seeking to exclude from challenge under ISDS any measures it adopts related to cultural industries, which it further defines as audiovisual industries such those relating to publishing, film and broadcasting.
Malaysia, meanwhile, is seeking to carve out from ISDS any measures it maintains related to government procurement. This is likely intended to shield its domestic policies that provide preferential treatment in government procurement to ethnic Malays, or Bumiputra.
Finally, Australia has requested that, in the event it ultimately agrees to ISDS in TPP, it be given a specific carveout for any measures related to four government bodies involved in health care regulation. They are the Pharmaceutical Benefits Scheme, Medicare Benefits Scheme, Therapeutic Goods Administration and the Office of the Gene Technology Regulator.
The 2004 U.S.-Chile free trade agreement did not include a blanket capital control exemption, but instead laid out special dispute settlement rules that would apply to an ISDS challenge of capitol controls. Among other things, these procedures require investors to wait one year after such capital controls are imposed before filing an investor-state claim.
The investment leak came as debate over ISDS in TPP is taking on a bigger public profile in the United States, with Warren and the White House publicly trading barbs over the issue. It also came the same day as U.S. Trade Representative Michael Froman held a classified briefing for House Democrats on the TPP investment chapter.
Members of Congress and outside groups like Public Citizen and the Sierra Club that have long been critical of ISDS blasted the leaked text, saying it illustrates how the TPP would put the interests of companies over those of consumers.
USTR declined to comment on the authenticity of the text. But it defended its approach on investment in TPP as including safeguards to protect governments and provisions to allow for transparency in ISDS proceedings. — Inside U.S. Trade.