THE HILL 07/11/13
By Michael Shank, Ph.D.

With 150 negotiators in 24 working groups descending on Washington D.C. this week to take part in the first round of US-EU trade talks, and with the joint EU-US High Level Working Group saying that “ambitious outcomes” should be sought for the areas of “market access,” “regulatory issues and non-tariff barriers,” and “rules, principles, and new modes of cooperation to address shared global trade challenges and opportunities,” Congress is about to witness a complete overhaul on trade.  From a transpacific agreement to a transatlantic one. Congress will be sidelined from the conversations unless it asserts itself.  It should because the impact on America will be profound.  The US-EU Transatlantic Trade and Investment Partnership (TTIP) and Trans-Pacific Partnership (TPP) make up the majority of the world’s global domestic product and are already plagued with serious accountability issues.

As a way of circumventing oversight, Congress will be asked for fast-track authority to move forward trade agreements. Thankfully, two-thirds of the Democratic freshman class in the House of Representatives came out opposing it.

Why is there such concern in Congress? One might think it’s the disembowelment of environmental and labor standards, but there’s a larger issue.  It is the creation of extrajudicial ‘investor-state’ tribunals as the final arbiter on trade disputes. The operative word here is extrajudicial.

Congress should be united in opposition as it undermines American sovereignty. As Huffington Post’s Zach Carter explained, “Foreign corporations operating within the U.S. would be permitted to appeal key American legal or regulatory rulings to an international tribunal. That international tribunal would be granted the power to overrule American law.”

The tribunals can order taxpayer compensation for health and environmental policies that inhibit foreign investors’ “expected future profits”.  This is hardly good for America and why there should be bipartisan concern.  Let’s say a Japanese company wants to do business in California but state law puts limits on parts of the firm’s operations due to environmental standards.   (A company needs only to be operating in, not based in, a TPP country to use the regime.) In response, California, a leader on environmental protection, sticks to its standards.  The Japanese firm counters by taking California to these extrajudicial TPP trade “courts”.

These court “judges,” however, are not part of a reputable international tribunal based in an international institution. The judges are often private sector lawyers that “rotate between acting as ‘judges’ and as advocates for the investors suing the governments.” If the company wins the suit, the “losing” country’s taxpayers pay the settlement, which is often in the tens of millions and occasionally in the billions of dollars.

Companies won these lawsuits 70 percent of the time last year. Even when governments win, they have to shell out $8 million on average per case just to defend existing public interest policies.  The three cases below are exemplary of what we’ll see more of:

Under US-Ecuador’s Bilateral Investment Treaty, which mimics the investor-state system enshrined in the North American Free Trade Agreement (NAFTA), the largest-ever reward from one of these tribunals hit the poor country of Ecuador hard.  In a decision by a World Bank tribunal last year, Ecuador lost to Occidental Petroleum and now is forced to pay a penalty of $2.4 billion for ending their oil contract.  Ecuador, reeling from decades of environmental pollution by Chevron/Texaco in the Ecuadorean Amazon, had concerns with Occidental illegally selling off portions of the agreed-upon oil contract without government authorization, a move that abrogated the contract. Now the country is billions in debt.

The story of Peru and the Renco Group Inc. and its subsidiary Doe Run Peru, owned by US billionaire Ira Rennert, is equally disconcerting.  Pollution from the company’s lead and zinc smelters, which are operated in the mountain town of La Oroya, was linked with high lead levels in the town’s children. After myriad cases emerged of mental retardation, convulsions, anemia, and stunted growth, Peru ordered an environmental cleanup, to which Renco responded by launching an $800 million claim against the government under the U.S.-Peru Free Trade Agreement.  The company claimed that the cleanup ran Doe Run Peru into bankruptcy. Meanwhile, the children get sicker and the town poorer.

After Quebec passed a moratorium on fracking two years ago because it wanted to conduct an environmental impact assessment on the impacts of leached chemicals and gases from fracking, US-based company Lone Pine Resources demanded $250 million saying Canada violated its NAFTA obligations.  The company had planned to frack 30,000 acres near the St. Lawrence River, injecting toxic chemicals into a critical watershed.

These cases, where extrajudicial tribunals usurp national law, are becoming common.  Oversight by Congress, then, is needed now more than ever.  The majority of the trade advisory boards are stacked with private sector representatives with little nongovernmental participation.  If these trade deals are the “win” the White House claims there should be no reservations in opening up the process for participation by stakeholders at the receiving end of these trade agreements, for which Congress must now advocate.  That would make it truly trans-pacific and transatlantic. And that would make it a real partnership.

Shank is director of Foreign Policy for the Friends Committee on National Legislation.