TPP's Dispute Settlement Limits Corporate Privileges, Safeguards Public Welfare and Environmental Regulations

As the text of the Transpacific Partnership was released to the public yesterday, AOL's Huffington Post - the anti-Obama Left's go-to publication - had reporters Daniel Marans and Ben Walsh pen a hit-piece on what is to become the global standard on trade agreements. Curiously, this article they couched as activists' and advocates worst fears being confirmed revolves predominantly: the investment-state dispute settlement process, or ISDS.

ISDS, for those who need a refreshing on the concept, despite the scaremongering around it, is a standard feature of trade agreements. It allows an international tribunal to resolve trade disputes rising between a government that is party to the agreement and a business in another country that is also party to the agreement.

In an earlier piece I had noted my disgust at the Left's evident hypocrisy of wanting to turn over Americans to be tried in international tribunals to which we are not a party while without a hint of irony pretending that applying international tribunal to trade pacts that we are part of would be the undoing of American sovereignty.

The truth is that the exact opposite of Huffpost's headline is the truth: TPP's Dispute Settlement Process is a giant leap in protecting the rights of the public - including the guarantee for governments to be able to regulate in public interest - and that of labor. In fact, corporate rights under the investment section is more limited and the proceedings more transparent than under any other trade agreement to date. Let's have a look at how:

Governments are clearly and explicitly granted authority to regulate in the interest or welfare of the public as well as the environment.

Chapter 9, Article 9.9 not only guarantees a government's full right to regulate in the "public welfare and objectives" (including, explicitly, public health) it allows domestic courts, administrative processes and other domestic arbitration to impose, as punitive measures (after due process of the law) trade restrictions on a bad actor corporation that wouldn't otherwise be allowed. In other words, not only can governments regulate in the interest of public welfare, they can revoke privileges afforded to corporations under the TPP should corporations break those laws though an entirely domestic process of law.

The governments' ability to preserve natural resources and the environment is even more encompassing under TPP. Corporations are also shut out from using the TPP to stop a government from enacting or enforcing laws in the first place:

[Rights of investors] shall not be construed to prevent a Party from adopting or maintaining measures, including environmental measures:
(i) necessary to secure compliance with laws and regulations that are not inconsistent with this Agreement;
(ii) necessary to protect human, animal or plant life or health; or
(iii) related to the conservation of living or non-living exhaustible natural resources.

Corporations lose forum-shopping

Explicit language has been added to the TPP ensuring that corporations can seek redress either in US Courts or through the ISDS process, but not both. Chapter 9, Section B - ISDS - Article 9.20

No claim shall be submitted to arbitration under this Section unless... [it is in receipt of] claimant’s and the enterprise’s written waivers of any right to initiate or continue before any court or administrative tribunal under the law of a Party, or any other dispute settlement procedures, any proceeding with respect to any measure alleged to constitute a breach...

The following section limits corporation's domestic options to non-monetary injunctive relief only once arbitration has been filed under ISDS, and only while the arbitration is pending. This is because of another important feature of the ISDS tribunal: it cannot do anything more than to award money damages (and that option is cut off in stateside courts).

This means that foreign corporations will need to pick one - the ISDS or American courts. This is all the more important from the US perspective, because this cuts off the one way for corporations to game the system. As the US Trade Representative notes, an ISDS claim against the United States has never been successful - a much better record, I might add, than US courts.

Sunlight: Every dispute, proceeding, filing, outcome will be public.

Article 9.23

the respondent [the country being sued] shall, after receiving the following documents, promptly transmit them to the non-disputing Parties and make them available to the public:
(a) the notice of intent;
(b) the notice of arbitration;
(c) pleadings, memorials and briefs submitted to the tribunal...
(d) minutes or transcripts of hearings of the tribunal, if available; and
(e) orders, awards and decisions of the tribunal.

But wait, as they say, there's more. Any ISDS tribunal itself will be conducted in and accessible to the public, with the option for the arbitrators to hear evidence that is considered trade secret in private, much the same arrangement as a US courtroom.

The tribunals under TPP will accept Amicus briefs, but their rules of such submission is stricter than the rules of submission of an Amicus brief to US courts: those who submit such briefs must not only identify themselves but also disclose any assistance, including funding from the parties to the dispute. Given that these briefs will be made public, we may find out more about who funds corporate front groups through TPP's ISDS process than we can through our own campaign finance and disclosure laws.

Profit loss alone isn't reason enough to challenge regulations.

One of the last remaining criticisms of the ISDS process has been that corporations has used the very fact that they failed to make a profit to sue governments to force them to alter or withdraw regulations. An often-referred case is the Metaclad case under NAFTA's ISDS, in which Metaclad sued Mexico, in essence on the sole ground that it lost profit due to the denial of a permit, and won a judgment of $15 million.

The TPP's Investment article makes sure that doesn't repeat. While once a case arises, a tribunal is allowed to consider the extent to which government actions interfere with reasonable investor expectations, the very fact that a corporation didn't meet expected profit margins cannot be used as evidence that a government did anything in violation of TPP. The tribunal will need to consider the action on its merits, not because of its resulting effect on corporate balance sheets.

Annex 9-B:

The determination of whether an action or series of actions by a Party, in a specific fact situation, constitutes an indirect expropriation, requires a case-by-case, fact-based inquiry that considers, among other factors the economic impact of the government action, although the fact that an action or series of actions by a Party has an adverse effect on the economic value of an investment, standing alone, does not establish that an indirect expropriation has occurred

And again,

For greater certainty, the mere fact that a Party takes or fails to take an action that may be inconsistent with an investor’s expectations does not constitute a breach of this Article, even if there is loss or damage to the covered investment as a result.
— Article 9.6

And yet again,

Non-discriminatory regulatory actions by a Party that are designed and applied to protect legitimate public welfare objectives, such as public health [this includes regulating prescription drug prices], safety and the environment, do not constitute indirect expropriations, except in rare circumstances.

Wait, wait. What is this "except in rare circumstances" business? Isn't that a loophole so big you can drive a GOP elephant through it?

No. The rare circumstances are where a regulation is made for the sole purpose of driving down corporate revenue under the guise of public benefit (like a law to only sell super armored Humvees) or the case of war or civil strife (Article 9.6bis) - meaning that war/civil strife regulations are excepted from being prima-facie public safety regulations. This isn't that different from the US Constitution's requirement that the government cannot house troops without compensating the host.

Even the International Institute for Sustainable Development recognizes a need for the rare exception (in those words).

Last, but not least:

Protections for the environment, labor and everything else take precedence over corporate rights.

Just to make sure, corporate protections take a backseat to everything else, including labor standards and environmental protections, ... Article 9.3

In the event of any inconsistency between this Chapter and another Chapter of this Agreement, the other Chapter shall prevail to the extent of the inconsistency.

This includes, of course, the very strong protections for workers throughout the TPP zone.

This clause really culminates my entire read on TPP's investment/ dispute process: the agreement actually elevates environment and public safety, welfare, and transparency at the expense of corporate privileges. President Obama's team has made sure that public welfare and the preservation of the environment is paramount over corporate privilege and so is the universal rights of the worker. More on environmental and labor protections will be discussed in my upcoming articles explaining those parts of TPP.

But right now I'll say this: This is a damn good deal.



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