Oops! President Obama Vindicated on Trade by the Very Case Peddled by TPP Detractors

As a fact-check and broad educational material on one of the most widely - and ignorantly - discussed part of the TPP, this piece adds to our TPP Education Project.

Looking to manufacture a fight between President Obama's administration and Hillary Clinton's presidential campaign, three top Huffington Post reporters announced with much fanfare on Wednesday that they found a passage in Clinton's book that validates liberal fears - led by Sen. Elizabeth Warren - about the Trans-Pacific Partnership's investor-state dispute settlement (ISDS) process. They point to this passage from the book:

Currently the United States is negotiating comprehensive agreements with eleven countries in Asia and in North and South America, and with the European Union. We should be focused on ending currency manipulation, environmental destruction, and miserable working conditions in developing countries, as well as harmonizing regulations with the EU. And we should avoid some of the provisions sought by business interests, including our own, like giving them or their investors the power to sue foreign governments to weaken their environmental and public health rules, as Philip Morris is already trying to do in Australia. The United States should be advocating a level and fair playing field, not special favors. [Emphasis Huffpo’s]

The problem with the Fox-style reportage that seems to have taken over the Left's provocateurs - the Huffington Post the chief among them - is that in the interest of creating drama, they neglect to two key things that are necessary to consider what they are doing journalism.

First, they have a responsibility to investigate whether the Trans-Pacific Partnership and its ISDS provision allow for private companies to overturn public safety regulations (which encompass labor rights, environmental protections and health and human rights provisions of local law). Second, it requires an examination of whether such lawsuits have been successful in the past, particularly against the United States. After all, just because someone can sue you - even if they could - doesn't mean they'll win.

The problem is, however, investigating either one of those questions would reveal certain inconvenient truths, and as importantly, expose the petulance of members of Congress who insist on creating fiction about a trade agreement that they refuse to read.

But that's why TPV exists. We do the job fat-paycheck "journalists" won't. Let's start by investigating the boogieman that they put up: Philip Morris suing Australia for its packaging laws and an investor-state dispute process. Huffpo's three musketeers believe they are being sleek by pointing out that Philip Morris Asia is suing Australia under a "similar" trade pact. Curiously, they provide no additional detail.

It turns out that Philip Morris Asia is indeed suing Australia under an investment pact Australia signed with Hong Kong in 1993. But wait a minute. Philip Morris Asia is merely a subsidiary of Philip Morris, an American company. And there does exist a free trade agreement between the United States and Australia, which, sure enough, contains an ISDS provision (US-Australia Free Trade Agreement, Article 11.16). So why isn't Philip Morris suing under that provision?

The Australian Fair Trade and Investment Network answers that question:

The Philip Morris tobacco company is currently suing the Australian government over its tobacco plain packaging legislation, using an obscure 1993 Hong Kong- Australia investment treaty. Philip Morris is actually a US-based company, but could not sue under the US-Australia Free Trade Agreement, because public opposition kept this clause out of the agreement. Philip Morris rearranged its assets to become a Hong Kong investor in order to use an obscure treaty.

In fact, it seems that Philip Morris set up a subsidiary in Hong Kong months before they sued the Australian government precisely because they couldn't sue Australia under the US-Australia FTA.

Well, well. What is that there now? Philip Morris couldn't sue as under the US-Australia FTA despite the fact that it incorporates this big boogyman bugaboo of an ISDS? Whoa. Are you telling us that not all ISDS is created equal?

Yes, I am telling you that, and more. Dealing only with the ISDS question, further reading into the lawsuit that Philip Morris Asia has filed against Australia reveals the particular provisions of the Hong Kong Agreement's ISDS absent in the US-Australia FTA.

According to the Australian government, the section of the Hong Kong Agreement (which, I should note is a pure investment agreement and not an FTA) which PM Asia is using to claim harm and seek damages - and Australia is defending against - is Section 2.2. That section is indeed one of the most broadly written and corporate friendly, and can even be read to allow for compensation for corporations even if a government is regulating in the interest of public safety. Have a read:

Neither Contracting Party shall, without prejudice to its laws, in any way impair by unreasonable or discriminatory measures the management, maintenance, use, enjoyment or disposal of investments in its area of investors of the other Contracting Party.

The Hong Kong Australia investment agreement seems not only to limit the lawmaking power of Australia (PM Asia says as much in its notice of action), the section describing this protection doesn't even acknowledge legitimacy of regulations in public interest. In fact, the entire agreement only mentions public purpose regulating once, in Section 6, to limit damages an investor may seek (but not eliminate it).

In sharp contrast, not only does the investment section of the US-Australia FTA limit the rights of investors significantly, it nixes the entire investment protection section (not simply the dispute resolution part of it), should it come in conflict with any other part of the FTA.

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

In other words, regardless of what protection investors are granted, the other parts of the agreement overrule those protections. These other sections grant the parties the right to regulate in public interest, and specifically allow each party to adopt their own rules of labor and environmental protections, and within the right to establish each country's own environmental laws enumerate the right of each party to in turn regulate in the interest of public health and safety. (Ch. 19) Furthermore, the investment chapter of the US-Australia FTA specifically grants each party the right to regulate licenses as they see fit, and it should be noted that the right to manufacture and sell tobacco products are always subject to a license.

The difference between the US-Australia FTA and other US-FTAs and TPP will be in the opposite direction - the TPP will not only recognize each country's right to regulate in the interest of public safety and health, the environment and labor protections, it will mandate, with full enforcement powersthat each party to the TPP meet a minimum level of those protections.

The above examination of the differences between the US-Australia FTA and its ISDS process and the Hong Kong Investment Agreement should serve to strengthen and confirm the Obama administration's position that the investment dispute process the US has been party to before and that is being pursued in the TPP is nothing like the scaremongers' strawmen.

In addition to catching Sen. Elizabeth Warren red-handed trying to fearmonger about an ISDS case that the corporations ultimately lost, the White House minces no words when describing what kind of standards and limitations it is now seeking in TPP on the powers of corporations:

TPP will make it absolutely clear that governments can regulate in the public interest, including with regard to health, safety and the environment, and narrowing the definition of what kinds of injuries investors can seek compensation for.

The US Trade Representative's outline on the TPP also clearly states that parties will be able to regulate in public interest, in addition to placing minimum standards for labor, environment and human rights ahead of corporate property.

If we can assume - and I think we safely can - that similar language limiting investment protections (and rendering that section null should it come in conflict with other parts of the agreement) is being written into the TPP, then it stands to reason that TPP's protectioin for corporate rights are actually subordinate and subjugated to its advancement of the rights of working people and communities.

Further, as the US Trade Representative points out, not only is there not a shred of evidence that ISDS cases are any friendlier to corporate entities than our domestic courts, rather to the contrary, the US has never lost a case brought under ISDS where as the government routinely loses cases to corporations in American courts.

ISDS is a complex form of dispute resolution and is accompanied by similar legal costs to complex litigation in our courts. But ISDS represents just a fraction of the legal expenses governments incur defending lawsuits. Over the past 25 years, under the 50 agreements the U.S. has which include ISDS, the United States has faced only 17 ISDS cases, 13 of which were brought to conclusion. During that same time period, the United States government was sued in U.S. courts hundreds of thousands of times – more than 1,000 of those for alleged “takings”.

Though the U.S. government regularly loses cases in domestic court, we have never once lost an ISDS case and, in a number of instances, panels have awarded the United States attorneys’ fees after the United States successfully defended frivolous or otherwise non-meritorious claims.

Against other countries, the climate for corporations isn't much better under ISDS.

According to the most recent UNCTAD data, only a quarter of concluded ISDS cases worldwide have been decided in favor of investors. When investors win, the damages they are typically awarded are substantially less than the value they have claimed. Because of high arbitration costs, the low winning percentage, the potential for future retaliation against the investor by the government being sued, ISDS is typically a recourse of last resort.

The phobic environment around the investor-state-dispute-settlement process has always been, and continues to be, a ruse. It is nothing more than a boogieman behind which tradephobic ideologues can hide so that they don't have to make any real argument or collect any data supporting their positions. It is the "ZOMG hair-on-fire" mantra that saves them from having to face the facts.

We need to stop clinging to our respective corners and talking points. We need to quit the mindset of bleeding edge journalism. We need, instead, to follow the facts. That's as a media. And as citizens, we need to realize that most of our media - regardless of the ideological bend they claim - isn't trying to perform a public service. They are trying to attract your attention, and if they have to do it by causing a car wreck so everyone looks, they will.

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