Wikileaks did us all another service yesterday by releasing the “Trans-Pacific Partnership Agreement (TPP): Investment Chapter Consolidated Text,” and collaborating with the New York Times to get the word out. Jonathan Weisman wrote the story for the New York Times. Apart from providing a very high level and very selective summary of what the chapter says, the article contains talking points used by proponents and opponents of the TPP. I think a close commentary on the article and associated issues would be useful. So here it is.
An ambitious 12 nation trade accord pushed by President Obama would allow foreign corporations to sue the United States government for actions that undermine their investment “expectations” and hurt their business, according to a classified document.
Why are we negotiating the TPP at all? Why is it the business of the Representatives of the people of the United States in Congress to support agreements that will mitigate the political risks borne by American businesses who chose to invest in other nations, as well as the political risks borne by foreign corporations, who choose to invest in the United States? Why is it their business to provide protection against such risks to foreign corporations beyond the protections we provide to our own corporations?
The “expectations” of business investors are their own business, not the public’s business; and there’s no reason why either the government of the United States or the governments of other nations should have to accommodate themselves to these expectations. If it is the will of the people of a nation as expressed through their representatives to pass legislation that destroys the “expectations” of business investors, then that’s just too bad for the investors.
Private businesses have no right to expect that their governments will protect them against risks that they alone choose to take, and that they alone will profit from. Risk is part of the game of investing. It’s business.
In free market ideology businesses are supposed to shoulder their risks. They’re not supposed to manipulate their political systems to get legislation providing them with financial protection at the expense of the public. That’s not capitalism, it’s lemon socialism; and it is also one of the key components of fascism.
How have we come to this pass that we view it as legitimate for American businesses to demand that the American public ought to ensure them against the business risks they take abroad? When did it become acceptable to insulate large multinational corporations against the hazards of their folly?
The Trans Pacific Partnership — a cornerstone of Mr. Obama’s remaining economic agenda — would grant broad powers to multinational companies operating in North America, South America and Asia. Under the accord, still under negotiation but nearing completion, companies and investors would be empowered to challenge regulations, rules, government actions and court rulings — federal, state or local — before tribunals organized under the World Bank or the United Nations.
The TPP provides for three-judge “courts” to conduct the dispute settlement proceeding. One of the judges is actually selected by the corporate plaintiffs. All of the judges are private attorneys who in other disputes may have represented corporate plaintiffs, and it is common for attorneys to be shifting roles from “corporate advocates” in one case to “judges” in another. Of course, the advocates get paid far more than the judges.
Can anyone imagine a more criminogenic environment than this, where all the incentives are aligned in such a way as to extract funds from state treasuries for the benefit of corporations and corporate attorneys alike? Where are the representatives of the various nation-states in these tribunals?
To add to the travesty, there are no limits on the tribunals in the size of the awards they can mandate. So, let’s get this straight, according to the TPP, tribunals staffed by private attorneys who frequently advocate for the very corporations whose complaints they are deciding upon have unconstrained authority to award damages of unlimited size to these same corporations and then the governments of the nations would be obligated to pay these awards. So, assuming present policies in effect for government financing in most nations including the United States, the governments would increase taxes or increase borrowing to pay these awards.
For example, in the case of the U.S. currently, an award to a corporate plaintiff in the substantial billions, say $20 billion, would then cause the US to come up with that money. Meanwhile, the politicians would be begin to debate about where the money will come from. The Republicans, of course, will insist that the award must be paid for with austerity, and they will try to take the money out of entitlement programs, other safety net programs such as food stamps, unemployment insurance, and other welfare state legislation. They would refuse to tax the rich to finance this spending, and they would also refuse to reduce military spending, because . . . national security, of course.
So, tell me do we really want an international “trade agreement” that will expose the United States to unplanned levies from multinational corporations that would create budgetary political crises in the United States? Would any sane citizen want to take this risk, to mitigate the risks American investors take when they choose to invest overseas? Where does this craziness come from?
Backers of the emerging trade accord, which is supported by a wide variety of business groups and favored by most Republicans, say that it is in line with previous agreements that contain similar provisions. But critics, including many Democrats in Congress, argue that the planned deal widens the opening for multinationals to sue in the United States and elsewhere, giving greater priority to protecting corporate interests than promoting free trade and competition that benefits consumers.
Even if the TPP investment chapter is in line with previous agreements as stated, which may or may be entirely true, that doesn’t mean that the Congress ought to make the same mistake as it committed in previous trade agreements by approving investor state dispute settlement procedures that create unlimited liability for nation states and that provide biased quasi-legal procedures stacking the deck in favor of corporate complaints.
“We’ve done this before” is no defense of a proposed agreement among 12 nations that would expose the citizens of each of them to the risks that properly belong to foreign corporations, or American corporations operating in foreign nations for their own profit. Such corporations are guests in the nations they do business in. They should not be given advantages that aren’t enjoyed by domestic businesses.
”. . . . the cover mandates that the chapter not be declassified until four years after the Trans Pacific Partnership comes into force or trade negotiations end, should the agreement fail.”
This is a true outrage. What justification of national security could possibly be brought to bear to justify classification of the TPP drafts, hiding the drafts from the Congress, as well as the people, and then keeping the proposed or actual agreement, if passed, secret so that the American people can’t even know what the law is that may result in international levies of many billions of dollars upon them. Passing the TPP, while retaining this secrecy would drive home the lesson to all that the United States is no longer a democracy where the people rule. We must stop the passage of secret laws and the promulgation of secret regulations, and we had better start with the TPP.
“This is really troubling,” said Senator Charles E. Schumer of New York, the Senate’s No. 3 Democrat. “It seems to indicate that savvy, deep pocketed foreign conglomerates could challenge a broad range of laws we pass at every level of government, such as made in America laws or anti-tobacco laws. I think people on both sides of the aisle will have trouble with this.”
The United States Trade Representative’s Office dismissed such concerns as overblown. Administration officials said opponents were using hypothetical cases to stoke irrational fear when an actual record exists that should soothe worries.
Whether a record exists or doesn’t isn’t relevant here. First, because something can present little trouble for years and then be a key factor in catastrophe. Remember derivatives? No mainstream economists saw anything wrong with them or with the ratings they received from the ratings agencies for years until the economy crashed in 2008. So, the past record of a disaster waiting to happen can indicate no problem, and suddenly we have a crisis on our hands.
But second, and even more importantly, however, the record to date can’t erase the vulnerabilities and risks presented by an agreement like the TPP. Is it or is it not true that, under the TPP, some future policy of the US Government might be challenged by a multinational corporation and that such a challenge might result 1) in an award of damages as high as $100 Billion or more, as well as 2) the negation of legislation that might save environmental damages either in the trillions, or so great as to be beyond price?
I think this possibility is clearly there, and that since this is the case it would be the height of social, environmental, and fiscal irresponsiblity, to pass the TPP and take such a risk. Especially, to pass an agreement whose concrete net benefits for the American people have in no way yet been demonstrated by its advocates. Also, it is very hard to see how they could be demonstrated without TPP advocates making public the whole text of the agreement, so people can see what it provides for and assess for themselves whether these are likely to bring any net benefits to the American people.
With the TPP Congress is being asked to buy the proverbial pig in the poke. Well, they’ve previously bought three highly touted free trade agreements, and none of them has delivered net benefits to the American people in terms of net jobs created, or a higher standard of living for most of the population, or greater economic equality. So, I think the Administration, really needs to answer the question “What’s in it for us?” in concrete terms without delivering the glittering and deceptive generalities this president is so skillful at offering.
Weisman goes on to relate the talking point of TPP advocates that investor stste dispute settlement provisions are already in 3000 trade agreements, and 51 in which the US participates including NAFTA. Opponents reply by pointing out that companies in nations that are parties to the agreements with the US thus far “. . . . do not have the size, legal budgets and market power. . . “ to challenge the United States. And then they point out that the TPP would change that because it would empower wealthy investors in nations like Australia and Japan who could engage in the necessary legal action.
Weisman then cites the Methanex case, in which this Canadian company sued California under NAFTA for $970 million, because the State banned the chemical MBTE in its water supply, thus interfering with Methanex’s future profits. California won this case in 2005, and proponents of the TPP point to this result as what will happen generally when environmental regulations are challenged under the TPP. However opponents also point to it as an example of what can happen when wealthy investors from Japan and other powerful nations challenge the US.
From my point of view, the critics have the better of this exchange because even though the State won in this action, and even granting that governments may win most of the time in cases on a scale as large or larger than that one, it only takes one such case, decided by a biased three-judge panel dominated by attorneys who primarily work for corporate clients to deliver a financial crisis to a State. What if California had lost that case? What programs would have had to be cut, or taxes raised to pay off Methanex, and why should American states or the Federal Government or state taxpayers be subject to such risks? Again, what’s in it for us?
But as long as a government treats foreign and domestic companies in the same way, defenders say, it should not run afoul of the trade provisions. “A government that conducts itself in an unbiased and nondiscriminatory fashion has nothing to worry about,” said Scott Miller, an international business expert at the Center for Strategic and International Studies, who has studied past cases. “That’s the record.
First, under the TPP, the government would not treat doemstic and multinational corporations the same way, because the agreement would provide protections against risk that would not be accorded to domestic corporations, giving multinationals protections against political risks that Ameican corporations and investors would not have. And second, even if the record so far is that nations that treat multinationals without bias have no trouble with them, what is there in the treaty that guarantees this record in the future?
Why hasn’t such a guarantee of good behavior been written into it, so that we don’t have to trust multinational corporations to behave fairly? A trade agreement has to be evaluated on the vulnerabilities and risks it presents to the nations signing it, because sooner or later some wealthy investor in a multinational will take advantage of those vulnerabilities and make those risks turn to real and severe costs. After all, why should they not? The only duty they have is to profit, not to fairness or a particular nation’s public purpose.
Weisman points to the argument that while the US has been sued only 17 times thus far under investor state provisions. US governments have been sued 700,000 times in US courts by corporations. It is a puzzle why proponents of the TPP think this is a good argument.
The US government allows corporate litigation in its own courts confident that multinational corporations will not have an unfair advantage there. Corporations must feel the same way since they have sued 700,000 times in these venues. But for reasons mentioned above, nations cannot expect fair treatment in the extra-judicial trade tribunals because they are staffed by paid corporate servants unaccountable to the people of the nations sued, including the people of the United States.
Under the terms of the Pacific trade chapter, foreign investors could demand cash compensation if member nations “expropriate or nationalize a covered investment either directly or indirectly.” Opponents fear “indirect expropriation” will be interpreted broadly, especially by deep pocketed multinational companies opposing regulatory or legal changes that diminish the value of their investments.
Included in the definition of “indirect expropriation” is government action that “interferes with distinct, reasonable investment backed expectations,” according to the leaked document.
“Investment” is defined so broadly in the TPP that it applies to any asset that is either owned or controlled. And since regulations always affect assets defined as broadly as this, the potential for legal action is there in relation to almost any new regulation that may be passed by any government. So, the significance of the TPP is that it places chains on democratic governments.
An example of what can happen under the TPP is Occidental Petroleum’s legal action against Ecuador:
The cost can be high. In 2012, one such tribunal, under the auspices of the World Bank’s International Centre for Settlement of Investment Disputes, ordered Ecuador to pay Occidental Petroleum a record $2.3 billion for expropriating oil drilling rights.
This case makes it clear that the extra-judicial trade tribunals, such as the ones envisioned in the TPP and the US-Ecuador Bilateral Investment Treaty, under which this case was decided, can have considerable power over the economic life of nations. The blow taken by Ecuador in this decision is roughly equivalent in economic importance for Ecuador to an award of $340 billion assessed against the Government of the United States. Only it may be even worse for Ecuador, since it is not a currency sovereign having adopted the US Dollar as its currency not too long ago in its history. Instead, it is just a currency user, with the limited policy space of an American state or a Eurozone nation.
Is it responsible for any state to incur the risk of this much impact to its finances due to the action of an international trade tribunal? I can only imagine what the repercussions would be here if such a fine were assessed against the United States and the Congress decided that the fine has to be “paid for” rather than financed through borrowing or through using seigniorage. The blood would flow very swiftly on Capitol Hill if such a thing happened.
Under the Trans Pacific Partnership, a member nation would be forbidden from favoring “goods produced in its territory.”
This is the provision that would conflict with “Buy American” legislation, institutionalized here since the 1930s. For myself, I think that being able to favor domestic businesses over foreign ones is extremely important.
Free trade is an ideological commitment for many. But there’s no doubt that general implementation of free trade rules would prevent the government from legislating industrial policy, and more specifically would limit the policy space of the government in nurturing industries that it viewed as vital to the American future or to American national security. In view of this, I would never approve any agreement prohibiting the government favoring the products of American companies, if the government wanted to follow such a policy.
Being able to “Buy American” is an essential aspect of the sovereignty of the United States. And in my view Congress and the President have no right to give away this aspect of our sovereignty.
Weisman’s article goes on to discuss mitigating factors in the proposed TPP agreement. There appear to be three. First, the TPP proposes:
. . . clear transparency rules mandating that tribunals be open to the public and arbitration documents be available online. Outside parties would also be allowed to file briefs.
Transparency in the quasi-judicial proceedings of the TPP is certainly good, but it cannot heal damages that are occurring because of a faulty trade agreement. All it can do is aid in reform after the cow has left the barn.
. . . one article states that “nothing in this chapter” should prevent a member country from regulating investment activity for “environmental, health or other regulatory objectives.” But that safety valve says such regulation must be “consistent” with the other strictures of the chapter, a provision even administration officials said rendered the clause more political than legal.
So, no clear legal provision allowing provisions regulating investments for public purpose is in evidence. Any attempts to pass such legislation would be subject to the interpretations of investors and the corporation dominated tribunals.
. . . regulatory actions meant “to protect legitimate public welfare objectives, such as public health, safety and the environment” do not constitute indirect expropriation, “except in rare circumstances.” That final exception could open such regulations to legal second guessing, critics say.
That’s a little better. But the critics are surely right that the exception clause would open the way to endless claims asserting that a complaint is an “exception.” Considering the composition of the three judge panels, the exception clause clearly opens the way to corporate friendly decisions invalidating legislation pursuing “legitimate public welfare objectives.”
Most importantly, what those are would then be determined by the three judge panels and not by the processes of American democracy. In fact, any delegation of Congress’s authority to determine what laws will govern the United States to these three judge tribunals is giving away part of our sovereignty, and, in my view, exceeds Congress’s authority to delegate.
All of which brings me to one final issue. Is there anything in the TPP that would compromise the monetary sovereignty of the United States and subject us to the influence of the bond vigilantes in the international credit markets, now subordinate to the policies of the Federal Reserve and the Treasury in collaboration?
I think there is. Specifically, I don’t see anything in the TPP investment chapter requiring that damages be awarded in the sovereign currency of nations incurring damage awards for lost profits, but only that they be awarded in a “freely usable currency” as specified by the IMF. That means, that complainants in these tribunals could ask for damages to be payable in foreign currencies, which the US would then owe in that currency.
Right now the US fuflfills the three essential conditions for monetary sovereignty: 1) it issues its own non-convertible currency, 2) which it allows to float on international currency markets; and 3) it owes no debts in any currency other than dollars.
So, it flows from these considerations, that passing the TPP would create the conditions for ending US monetary sovereignty for the first time since the international gold window was closed in 1971. So, to add to all other risks I’ve outlined, there is this one too. And for what? As far as I can see only for the purpose of protecting the investors in multinational corporations, both our own and those resident abroad.
In my view, this trade-off isn’t in accord with public purpose, and it gives away key aspects of the sovereignty of the United States. In addition, it undermines American democracy and takes another step down the true road to serfdom. Let’s not take that step. Instead, let’s send the TPPers packing, along with their brain child and their other current proposals, the TTIP and the TISA, two more contemptible spawn of rampant neoliberalism.