Congress Should Scrutinize Pending Trade Pacts

Congress Should Scrutinize Pending Trade Pacts

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POLITIX 07/05/13
By Michael Shank

President Barack Obama’s decision to suspend trade relations with Bangladesh due to worker safety concerns sets new a precedent for two major trade deals on the administration’s docket – the Trans-Pacific Partnership (TPP) and the U.S.-EU Transatlantic Trade and Investment Partnership (TTIP). These proposed pacts make up the majority of the world’s global domestic product and are already plagued by serious accountability and oversight issues.

The vulnerable communities that will be impacted, furthermore, are wide-ranging, spanning environmental, labor and health sectors. Let’s hope Obama cares equally for the innocents impacted.

Starting with what’s arguably the most troubling, since the discussions are happening fast and furiously. Early July begins the wrangling with the European Union on transatlantic trade talks – and the administration hopes to finish the TPP negotiations by October. One might think it’s the disembowelment of environmental and labor standards. And while that will likely happen, there’s a larger, more macro, issue that remains out of the media and administration’s spotlight.

What is most egregious, and already included in the trade agenda, is the plan for extrajudicial “investor-state” tribunals as the final arbiter on trade disputes. While it sounds esoterically innocuous enough, the operative word here is extrajudicial.

One might think progressive Democrats and conservative Republicans alike would be concerned with the sovereignty issues here. As Huffington Post’s Zach Carter explains it, “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.” Furthermore, the tribunals could order taxpayer compensation for health and environmental policies that inhibit foreign investors’ “expected future profits”.

This is hardly good for America, which is why there should be bipartisan concern. Here is what it looks like in practice. Let’s say a Japanese company wants to do some business in California. But a state law fashioned in Sacramento prohibits or puts limits on parts of the Japanese firm’s operations, due to local environmental standards. (A company only needs to be operating in, not based in, a TPP country to use the regime.)

In response, California, a leader nationally on environmental protection, sticks to its standards and enforces its laws. The Japanese firm counters by taking California to one of these extrajudicial TPP trade “courts”. Except in this case, the court “judges” are not part of a more reputable international tribunal based in an international institution on par with United Nations or the International Criminal Court. No, in this case, 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 settlement, which is often in the tens of millions and occasionally in the billions of dollars, is paid by the “losing” country’s taxpayers. Keep in mind that 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’re dealing with under current trade agreements, and what we’ll likely see more of with TPP and TTIP.

Take a look at the first case. Under U.S.-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 has 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 being 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 second case involving Peru and a company called Renco Group Inc. and its subsidiary Doe Run Peru, owned by U.S. 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 kids get sicker and the town poorer.

The third case involves a fight over hydraulic fracturing, or fracking. 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, U.S.-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 kinds of cases where a nation’s laws are usurped by extrajudicial tribunals are only becoming more common.

What’s remarkable is that President Obama was against this just a few years ago: According to Barack Obama on the campaign trail, “We will not negotiate bilateral trade agreements that stop the government from protecting the environment, food safety, or the health of its citizens; give greater rights to foreign investors than to U.S. investors; require the privatization of our vital public services; or prevent developing country governments from adopting humanitarian licensing policies to improve access to life-saving medications.”

Despite the about-face, President Obama and newly-confirmed U.S. Trade Representative Michael Froman will be asking Congress for fast-track authority to move forward these investor-state provisions within any forthcoming trade agreements. Thankfully, two-thirds of the Democratic freshman class in the House of Representatives have come out opposing it. Fast-track means little congressional oversight, hardly the appropriate pursuit for a president who’s already having transparency problems on the National Security Agency and Internal Revenue Service fronts.

What’s needed going forward, then, on both TPP and TTIP, is more oversight and accountability by both Congress and the constituents they represent. The overwhelming majority of the trade advisory boards are stacked with private sector representatives with little nongovernmental participation.

If these trade deals are the “win” that the White House claims, then there should be no reservations whatsoever in opening up the process for full participation by the stakeholders who will be at the receiving end of these trade agreements. That would make it truly trans-Pacific or trans-Atlantic. And that would make it a real partnership.

Michael Shank is the director of foreign policy at the Friends Committee on National Legislation, in Washington, D.C. Prior to joining FCNL, Michael served for several years as a congressional staffer, working as Rep. Michael Honda’s (D-Calif.) senior policy advisor and communications director. Michael is also an adjunct professor at George Mason University’s School for Conflict Analysis and Resolution, senior fellow at the French American Global Forum, board member of the National Peace Academy and associate at the Global Partnership for the Prevention of Armed Conflict.