Trade Pact: How The Trans-Pacific Partnership Gives Corporations Special Legal Rights

In promoting a proposed trade pact covering 12 Pacific Rim nations, President Obama has cast the initiative as an instrument of equity. The Trans-Pacific Partnership (TPP) would, in his words, “level the playing field” and “give our workers a fair shot.” But critics argue that within the hundreds of pages of esoteric provisions, the deal -- like similar ones before it -- includes a glaring double standard: It provides legal rights to corporations and investors that it does not extend to unions, public interest groups and individuals.

Recently leaked drafts of the agreement show the pact includes the kind of “investor-state dispute settlement” (ISDS) provisions written into most major trade deals passed since the North American Free Trade Agreement (NAFTA). Those provisions allow companies to use secretive international tribunals to sue sovereign governments for damages when those governments pass public-interest policies that threaten to cut into a corporation’s profits or seize a company’s property.

But also like past trade deals, the TPP is not expected to allow labor groups, environmental groups or other nonprofit organizations to bring their own suits in the same tribunals to compel governments to enforce labor, environmental and human rights laws. Meanwhile, Congress has refused to act on legislation that would empower citizens to bring their own cases.

The discrepancy is a deliberate effort to make sure trade policy includes a “tilt toward giant corporations,” Sen. Elizabeth Warren, D-Mass., said.

“If a Vietnamese company with U.S. operations wanted to challenge an increase in the U.S. minimum wage, it could use ISDS,” Warren wrote in a Washington Post op-ed in February. “But if an American labor union believed Vietnam was allowing Vietnamese companies to pay slave wages in violation of trade commitments, the union would have to make its case in the Vietnamese courts.”

In response to International Business Times’ questions about the discrepancy, the Office of the U.S. Trade Representative (USTR) referred to its fact sheets defending the ISDS process. Those documents argue ISDS “creates a fair and transparent process, grounded in established legal principles, for resolving individual investment disputes between investors and states.” While the United States has faced such suits from companies targeting some of America’s environmental laws, the USTR argues that concerns from TPP opponents are exaggerated because to date the federal government has “never once lost an ISDS case.”

But those opponents counter by noting that those cases are on the rise across the globe. The United Nations reported recently ISDS cases "have proliferated in the past 10-15 years, with the overall number of known treaty-based arbitrations reaching 514." The U.N. noted the true number could be even higher than that because there is no public registry of the secretive proceedings.

While trade deals include rhetoric saying the international tribunal process is not designed to undermine public interest policies, some of the cases brought by corporations have directly targeted those laws.

Philip Morris, for example, has filed suits against Australia and Uruguay, arguing those nations' laws mandating health warnings on tobacco products are an expropriation of its property, denies the company fair treatment and unduly cuts into its profits. A Swedish energy firm has used ISDS to target Germany's restrictions on coal-fired and nuclear power plants, and Eli Lilly is using the process to try to fight Canada's efforts to limit drug patents and reduce the price of medicine.

Most recently, Canadian Finance Minister Joe Oliver said bank regulations passed in the wake of the 2008 financial crisis could be a violation of trade provisions under Nafta, raising the prospect the tribunal process could be used by banks to try to get the federal government to eliminate those laws. In a letter to U.S. Trade Representative Michael Froman, Warren and fellow Senate Democrats Ed Markey and Tammy Baldwin said they were concerned his office’s testimony to Congress about its TPP objectives suggests the trade deal could “expose American financial regulations to challenge on the basis that [they] frustrated a foreign company’s expectations.”

While the Obama administration says the intent of the ISDS process is not to undermine public interest laws, it recently published a report deriding such laws in other countries as “barriers to trade” -- a legal term often employed to justify punitive action under U.S.-negotiated trade pacts.

In promoting the TPP, Obama has said the deal "will have the kinds of labor and environmental and human rights protections that have been absent in previous agreements." But Damon Silvers of the AFL-CIO noted that unlike corporations, unions and nonprofit groups have no ISDS-style power to unilaterally try to make sure the trade provisions they care about are actually enforced.

"Corporations under ISDS can bring cases without their national government’s permission, while unions and environmental groups in order to enforce the labor rights and environmental rights in these agreement have to get their government to bring the case," said Silvers, the labor federation's associate general counsel. The problem, he said, is "if their government doesn't bring the case, they don’t have any recourse."

In 2007, U.S. Reps. Keith Ellison, D-Minn., and Mike Michaud, D-Maine, tried to change that. The two Democrats authored pilot legislation to try to give individuals some of the power corporations currently have under American trade agreements. Their first-of-its-kind bill would have given American citizens the right to sue in court to force the federal government to enforce environmental, human rights and labor provisions in a U.S.-Peru free trade deal. But Congress did not act on the bill, and their proposal was not included in the Peru deal or other pacts that followed.

While citizens and nongovernmental organizations lack the right of private action, the government can still take its own enforcement actions. But recent reports from federal agencies suggest trade treaties’ public interest provisions are going unenforced.

In 2009, the Government Accountability Office issued a report noting recent trade accords had resulted in “commercial benefits” but enforcement of labor and environmental provisions remained a “challenge.” In 2014, GAO criticized “limited monitoring and enforcement” of trade deals’ protections for labor rights. Meanwhile, reports from the Labor and State departments have noted various countries governed by U.S. trade deals that include human rights provisions nonetheless continue to permit human rights violations, including forced and child labor.

Opponents of the TPP say the lack of enforcement is not for lack of groups petitioning the U.S. government to act. As a report from Warren’s office noted, “Prior to 2008, the Department of Labor had not accepted a single formal complaint about labor abuses in free trade agreements,” and under Obama, the Department of Labor “has accepted only five claims against countries for violating their labor commitments.”

In one particularly illustrative episode reported by IBTimes, Secretary of State Hillary Clinton was pushed by human rights groups to take action against Colombia as its military reportedly helped repress workers at an oil company founded by a top Clinton Foundation donor. Colombia’s free trade accord with the United States was passed as a "Labor Action Plan" that proponents said would combat the country’s record of labor abuse. But Clinton did not move to enforce those labor provisions, instead approving more military aid to Colombia.

The Obama administration has asserted in the tribunal process, “No government can be compelled to change its laws or regulations, even in cases where a private party has a legitimate claim that its basic rights are being violated and it is entitled to compensation.” Technically, that is true: As groups pushing the trade deal note, international arbiters can only assess fines for damages against state and local governments if they rule their laws unduly violate a corporation’s rights under a trade treaty.

But watchdog group Public Citizen argues the possibility of paying costly fines can end up prompting governments to rescind labor, environmental and human rights laws -- or avoid passing them altogether.

“If a corporation launches an ISDS case against a given consumer or environmental protection, the government may feel compelled to roll back the challenged policy to avoid costly legal and tribunal fees, the risk of an even more costly tribunal order to compensate the firm, and the potential for other firms to launch further ISDS cases against the policy,” Public Citizen said. Citing examples in Canada, the watchdog group also argues even a mere threat of ISDS action “may well lead policymakers to think twice about enacting protections that could expose the government to a costly investor-state dispute.”

Michael Wessel, a Democratic trade expert appointed to serve on the U.S.-China Economic and Security Review Commission, told IBTimes citizens should be given more legal rights under trade pacts and enforcement of trade deals’ public interest provisions must be less reliant on the whims of the federal government.

“If you think ISDS is appropriate and if you accept that it is not going to change -- which at this point this administration has made clear it has no intention of changing -- then certainly individuals should have similar rights to ensure that their rights are protected,” he said. “No matter how good the rules may be in any agreement, if they aren’t enforced it does nothing to promote growth and prosperity and employment opportunities. We have to change the entire paradigm to make sure that the rules are made more automatic so that if a trade agreement goes into place and is approved, people have confidence that in fact that the rules are going to be enforced.”