The White House is once again on the defensive. Last week, Wikileaks released a document from the Trans-Pacific Partnership negotiations, which have been notoriously private and closed off to the public, and hours later, the White House posted a lengthy blog to defend the most controversial aspect of the document, the Investor-State Dispute Settlement (ISDS) provision.
For a while now, we have known that the TPP was going to include the ISDS, which allows corporations and other investors to sue foreign governments when a new law or regulation hurts the companies investment or when a government expropriates the property all together. But the public has also been clueless as to whether the provision would be worded differently than in previous trade agreements that had the ISDS, such as NAFTA. The Obama administration has quite adamantly insisted that the TPP will be transparent and that governments will not have to worry about challenges to health or environmental regulations, which has happened in previous trade agreements with the ISDS.
But now, thanks to Wikileaks, we have a full chapter with the ISDS provision, dated January 20, 2015. And alas, it isn’t all that different from previous trade agreements. Lise Johnson, from Columbia University, told Vox: “As compared to US and Canadian practice over roughly the past 10 years, there really isn't too much that is radically new...There are some tweaks here and there, but the basic model of investor-state dispute settlement those countries have been pursuing is still reflected here.”
Now, it should be said that in different sections, there is language that seems to protect countries from being sued by corporations if they enact regulations that protect the health of citizens or the environment. For example, all parties have agreed to the following in the preamble: “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.”
But this shouldn’t be taken as a guarantee for countries to avoid being sued when it comes to these issues. One only has to look at the similar writing from the ISDS chapter in the the NAFTA agreement, where companies have sued countries over legitimate environment and health issues: “Nothing in this Chapter shall be construed to prevent a Party from adopting, maintaining or enforcing any measure otherwise consistent with this Chapter that it considers appropriate to ensure that investment activity in its territory is undertaken in a manner sensitive to environmental concerns.”
The language in both is subjective and open to lawyerly debate. In the preamble, it says “legitimate public welfare objectives,” but what exactly is a legitimate public welfare objective? Is, for example, a moratorium on hydrofracturing legitimate? Currently the extractive company Lone Pine is suing the Canadian government through the NAFTA agreement after they did just this, clearly believing that fracking is not a legitimate health/environmental concern.
Beyond this, the overall picture remains largely the same, especially the arbitration process, which has been one of the most criticized aspects of the ISDS procedure. Arbitration is done through international law, between three highly paid lawyers ($600-700/hr); one selected by the plaintiff, one by the defendant, and one agreed upon by both. The same lawyers tend to alternate between “judging” and “suing” positions, which some argue creates a conflict of interest.
Same Old White House propaganda
Of course the White House, who has consistently supported the trade deal and the ISDS, has come out to sell this mechanism as an instrument used to help family-owned businesses against big bad foreign governments who take over the investments without compensation. “Under the Trans-Pacific Partnership, ISDS is specifically designed to protect American investors abroad from discrimination and denial of justice,” writes the White House, and brings up how before the ISDS, countries would have to deploy “gunboat diplomacy” to protect investments.
Lets take a look at one of the "family-owned businesses" that has used the ISDS previously. The Renco Group, owned by New York billionaire Ira Rennert, filed a suit against Peru under the U.S. -- Peru Free Trade Agreement a few years ago, after the Peruvian government ordered a pollution clean up at its metal smelter in La Oroya, which is one of the most polluted towns in the world. Around 99% of the children have high levels of lead in their blood; eight times what the U.S. government considers cause for action. The Peruvian government shut down the metal smelter after Renco delayed environmental improvements, and it is now being sued for $800 million for protecting its citizens.
Now, this case clearly shows how big corporations can pervert the use of this provision. And it is not all that surprising that Obama supports the ISDS, because American companies are an extremely litigious bunch -- about three quarters of ISDS suits are filed by American and European companies. To imply that the ISDS is about helping American families is disingenuous, and to be frank, insulting.
One other major point that the White House makes is that the ISDS cannot be used by companies to gain lost profits. “Our investment rules do not guarantee firms a right to future profits or to expected investment outcomes. Rather, they only provide protections for a limited and clearly specified set of rights. For instance, if a country decides to take away the property of a business without any compensation, that business can seek compensation through a neutral arbitration.”
This sounds legitimate; most would agree that a company deserves to be compensated if a country takes away its property through nationalization. But the document released by Wikileaks is not as clear as the White House. According to the document, parties have a right to compensation through both direct expropriation (nationalization) and indirect expropriation (regulation/moratoriums).
The document states: “The determination of whether an action or series of actions by a Party, in a specific fact situation, constitutes an indirect expropriation, requires a case-by-case, fact based inquiry...Non-discriminatory regulatory actions by a Party that are designed and applied to protect legitimate public welfare objectives, such as public health, safety, and the environment, do not constitute indirect expropriations, except in rare circumstances.” Note the “rare circumstances” at the end. This little addition opens a floodgate of possibilities for companies with creative lawyers.
If the Obama administration is serious about preventing companies from using the ISDS to sue over legitimate regulations, they would demand this last caveat be removed. There should be absolutely no circumstances where a company can successfully sue for compensation over losses due to health, environmental, or other public welfare regulations.
This latest document shows once again how important it is for these closely guarded negotiations to be more open to the public. Leaders say one thing, and the documents say another, which is not transparency. The whole deal reeks of corporate favors, and should be severely scrutinized.
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