Trans-Pacific Partnership negotiators from a dozen countries in North America, South America, and Asia announced agreement late last year on what would be the biggest trade pact ever. The TPP would supplant NAFTA and US accords with Chile, Peru, and Australia, and add Japan and Vietnam, among others. Most of those countries will quickly ratify it, eager to demonstrate a favorable climate for investors and deference to US economic power.
At first, a confident Obama administration set out a timetable for signing the TPP in February and sending it to Congress for a vote in May 2016. Those goalposts might slip, though, as presidential candidates jockey for advantage. Already Hillary Clinton has said “maybe not” to the TPP, in spite of her support for it while Secretary of State. Bernie Sanders is a thundering “No.” Donald Trump has labeled the TPP “insanity,” and Ted Cruz announced he would vote against it. The anti–Republican establishment surge has even conventional pro-business candidates voicing doubts. In his State of the Union address, President Obama pitched the TPP as a counterweight to China’s influence in the region—an argument that falls flat, with the Chinese economy tanking.
A key focus of TPP debate is the controversial investor-state dispute-settlement chapter. With the text now open for review, supporters and critics alike are parsing the ISDS language. Is it “the clause everyone should oppose,” as Senator Elizabeth Warren has argued? Or does it “promote development, rule of law, and good governance around the world,” as the US trade representative says?
ISDS allows foreign corporations to sue governments for what firms see as unfair treatment. The alleged wrongdoing might be expropriation of a firm’s assets without compensation. It might be new regulations, such as stricter environmental or product-safety rules that differ from those in effect when the investment was made.
TPP negotiators carved out a shield for rules on tobacco products without fear of tobacco companies’ challenge. But in countless other matters that might be ripe for regulation, the ISDS chapter leaves governments vulnerable to costly legal battles when foreign investors say they suffered losses because of government actions. On January 6, for example, the Canadian energy firm TransCanada invoked NAFTA’s investor-state clause in demanding $15 billion from the United States because President Obama halted the Keystone XL pipeline project.
Instead of going to court, ISDS lets investors force sovereign governments into a private arbitration system. Arbitrators are chosen from an inbred cadre of international-trade lawyers and economists. They preside over an opaque process that skirts due-process requirements applied by courts, and can order governments to pay companies for investment losses.
All the while, workers, unions, consumers, communities, and other stakeholders who might be protected by new government regulations are shut out of the process. This is what’s missing in the investor-state system: the ability of civil-society stakeholders affected by a corporation’s unfair treatment to seek redress.