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How the Pending Trans-Pacific Partnership and EU-US Trade Deals Will Gut National Regulations, Hurt Budgets, and Undermine Sovereignity

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Yves here. We’ve written from time time about the latest plans underway to further degrade the lives of ordinary citizens in order to fatten the bottom lines of major multinationals, namely, two major US-led international trade pacts. Even though the US media has given these pending deals scant attention, they represent a far-reaching effort to restructure basic legal and regulatory frameworks. As we wrote earlier this year:

By way of background, the Administration is taking the unusual step of trying to negotiate two major trade deals in the same timeframe. Apparently Obama wants to make sure his corporate masters get as many goodies as possible before he leaves office. The Trans-Pacific Partnership and the US-European Union “Free Trade” Agreement are both inaccurately depicted as being helpful to ordinary Americans by virtue of liberalizing trade. Instead, the have perilous little to do with trade. They are both intended to make the world more lucrative for major corporations by weakening regulations and by strengthening intellectual property laws. The TPP has an additional wrinkle of being an “everybody but China” deal, intended to strengthen ties among nations who will then be presumed allies of America in its efforts to contain China…

Baker describes in scathing terms why these types of deals are bad policy:

…these deals are about securing regulatory gains for major corporate interests. In some cases, such as increased patent and copyright protection, these deals are 180 degrees at odds with free trade. They are about increasing protectionist barriers..
These deals will also lead to more upward redistribution of income. The more money that people in the developing world pay to Pfizer for drugs and Microsoft for software, the less money they will pay for the products that we export, as opposed to “intellectual property rights”….

This is yet another case where the government is working for a tiny elite against the interests of the bulk of the population.

If that isn’t bad enough, there’s another side of these planned pacts that is often simply ignored. These “trade” deals are Trojan horses to erode or eliminate national regulations. Baker anticipates that these deals will include sections that would limit government regulation (including at the state and local level) on fracking and could revive much of the internet surveillance that reared its ugly head in the failed SOPA [notice this was written in the innocent pre-Snowden era].

And this sort of erosion of the right to regulate will most assuredly extend to financial services. Dodd Frank? The Brown-Vitter bill that some see as a great new hope for tougher financial regulation? They are already unworkable under existing trade agreements.

Back to the current post. The article below describes the likely mechanism by which international investors will be able to vitiate national laws and regulations. Notice also that Australia has managed to get an exception to the Trans-Pacific Partnership on this issue. Who there has the 5×7 glossies on Obama? Will he share?

By Martin Khor, Executive Director of the South Centre, Geneva. Cross posted from TripleCrisis

In the recent public debate surrounding the Trans-Pacific Partnership Agreement (TPPA), an issue that seems to stands out is the investor-state dispute settlement system (ISDS).

It enables foreign investors of TPPA countries to directly sue the host government in an international tribunal.

In most US free trade agreements, the tribunal most mentioned is ICSID, an arbitration court hosted by the World Bank in Washington.

The ISDS is a powerful system for enforcing the TPPA’s rules. Any foreign investor from TPPA countries can take up a case claiming that the government has not met its relevant TPPA obligations.

If the claim succeeds, the tribunal could award the investor financial compensation for the claimed losses. If the payment is not made, the award can potentially be enforced through the seizure of assets of the government that has been sued, or through tariffs raised on the country’s exports.

The ISDS is related to relevant parts of the TPPA’s investment chapter. One of the provisions is a broad definition of “investment” which includes credit; contracts; intellectual property rights (IPRs); and expectations of future gains and profits. Investors can make claims on losses to these assets.

Under the national treatment provision, foreign investor can claim to be discriminated against if the local is given preference or other advantage.

Under the clause on fair and equitable treatment, investors have sued on the ground of non-renewal or change in terms of license or contract; and changes in policies or regulations that the investor claims will reduce its future profits.

Finally, investors can sue on the ground of “indirect expropriation”. Tribunals have ruled in favour of investors that claimed losses due to government policies or regulations, such as tighter health and environmental regulations.

The arbitration system has come under heavy criticism, including that the tribunal decisions are arbitrary and can contradict decisions of other tribunals in similar cases.

There is often a conflict of interest situation. A few lawyers monopolise the international investment arbitration business; they act as lawyers in one case and as arbitrators in other cases. In a few cases, an arbitrator was on the Board of Directors of the parent company of the investor that took up the case.

There is a pro-investor bias in many cases, with decisions or arguments that are quite clearly unfair to the governments being sued. However there is no appeal possible.

Another issue is the high awards and the strong enforcement, including seizure of assets.

The claims have tended to be very high in recent years, running to billions of US dollars.

Awards are usually lower, but recent ones can also be very high, for example the US$2.3 billion award granted to an American oil company against Ecuador.

The ability to enforce these awards through seizure of assets owned and located abroad by the government makes the ISDS a very powerful instrument.

Among recent cases was an award by ICSID to a US oil company against Ecuador for US$2.3 billion; a case taken against South Africa by a European mining company claiming losses from the government’s black empowerment programme and a US$2 billion claim against Indonesia by a UK-based oil company, after its contract was cancelled because it was not in line with the law.

Australia has also been sued for billions of dollars by the tobacco company Philip Morris because of its regulation that the cigarette boxes cannot promote the logo and brand names.

An American company Renco sued Peru for $800 million because its contract was not extended after the company’s operations caused massive environmental and health damage.

There are several implications of the ISDS. Not conforming to TPPA rules can carry a heavy penalty, since government can be sued in an international court, and thus government will be constrained when formulating future policies or implementing existing ones.

It is difficult for government to make new policies, as it cannot predict whether certain policies it wishes to introduce or change is allowable, since it is uncertain or unpredictable how a tribunal will view this, i.e. the view of a particular tribunal can differ from that of another tribunal.

The country’s judicial sovereignty will be affected. Investors will choose to take up cases in the international tribunal where their chances of success and the pay-out are higher than in local courts.

The country will become vulnerable to multi million-dollar and billion-dollar legal suits taken by foreign investors. Potentially this may cost government a lot of financial resources.

The TPPA negotiations are still going on, and thus the ISDS component can still be negotiated. However, there is probably limited room for negotiation on the key aspects, since the USA is unlikely to deviate from the main points in its FTAs.

If the ISDS is deemed to contain too many problems, one option is to ask for an exception, i.e. that it does not apply to the country, similar to what Australia has requested. It is doubtful however whether such a request will be granted by other TPPA countries.

This Piece First Appeared on the Third World Network

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27 comments

  1. MaroonBulldog

    What do you suppose the legal fees for recovering a $2,000,000,000 international arbitration award would be? Enough to attract the attention of a lawyer who was also a former president?

    In the olden days, former presidents who were lawyers became law professors after leaving office (Benjamin Harrison at Stanford, William Howard Taft at Yale), but there are so much more lucrative opportunities now, even disregarding the opportunities a president might create for himself by instituting a treaty he understood better than anyone else.

    Poor Bill Clinton, getting himself disbarred and so cut off from this sort of opportunity.

    1. Hugo Stiglitz

      In the olden days, former presidents (and similarly empowered persons) were less likely to be sociopaths. In the olden days, there were social, ethical and legal systems in place that helped stifle bad and harmful behavior of powerful people – though still they did manage to sneak through occasionally. In the olden days, powerful people had good reason to fear the serfs/peasant/plebs if their behavior exceeded the limits of what was acceptable and proper. In the olden days even scoundrels had some sense of basic commitment, obligation and connection to the society in which they existed.
      What we have today, at least in the US, is the result of losing many of the mechanisms that punished harmful behavior. The US is a nation run by sociopaths, in pretty much every social institution of significance it seems to me, at least at the national level.

      1. MaroonBulldog

        Taft did become Chief Justice of the Supreme Court in the 1920′s, after the Republicans took the White House. He was a Yale law professor from 1913 until then.

      2. RepubAnon

        It would be interesting to see President Obama and Justice Scalia on the Supreme Court – but I’d be worried that President Obama would enter into a “grand bargain” with Justice Roberts.

  2. albrt

    National sovereignty is overrated. Our sovereign Obama, for example, quite obviously sucks. The sooner he finishes selling us out the better, so we can figure out who the real boss is and then try to consolidate our position.

    Whatever deal Obama negotiates will have as much legitimacy as Mohammed Morsi’s orders granting himself unlimited power. If people act accordingly, the Obama deals won’t matter. If people submit, then they get screwed.

    My money is on submit, but that part actually isn’t Obama’s fault.

  3. sd

    The sooner he finishes selling us out the better, so we can figure out who the real boss is and then try to consolidate our position.

    Robert Rubin.

  4. timotheus

    And how curious that all the America-Firsters howling with outrage over any supposed UN-based plot to infringe on sovereign rights like, heaven forfend, the International Criminal Court, are completely silent on this one.

    1. C

      It is mystifying isn’t it. Perhaps they are fine with loss of sovreginity for profit (after all much of the crazy is funded by multinationals who just want to avoit environmental laws) or perhaps they don’t know.

      1. Synopticist

        maybe they don’t know about it?

        I’ve hardly heard or read anything about this except on NC.

        1. nonclassical

          http://www.thenation.com/article/168627/nafta-steroids#

          “While the Occupy movement has forced a public discussion of extreme corporate influence on every aspect of our lives, behind closed doors corporate America is implementing a stealth strategy to formalize its rule in a truly horrifying manner. The mechanism is the Trans-Pacific Partnership. Negotiations have been conducted in extreme secrecy, so you are in good company if you have never heard of it. But the thirteenth round of negotiations between the United States and eight Pacific Rim nations will be held in San Diego in early July.

          Tom Hayden and Lori Wallach
          The TPP has been cleverly misbranded as a trade agreement by its corporate boosters. As a result, since George W. Bush initiated negotiations in 2008, it has cruised along under the radar. The Obama administration initially paused the talks, ostensibly to develop a new approach compatible with candidate Obama’s pledges to replace the old NAFTA-based trade model. But by late 2009, talks restarted just where Bush had left off.

          Since then, US negotiators have proposed new rights for Big Pharma and pushed into the text aspects of the Stop Online Piracy Act, which would limit Internet freedom, despite the derailing of SOPA in Congress earlier this year thanks to public activism. In June a text of the TPP investment chapter was leaked, revealing that US negotiators are even pushing to expand NAFTA’s notorious corporate tribunals, which have been used to attack domestic public interest laws.

          Think of the TPP as a stealthy delivery mechanism for policies that could not survive public scrutiny. Indeed, only two of the twenty-six chapters of this corporate Trojan horse cover traditional trade matters. The rest embody the most florid dreams of the 1 percent—grandiose new rights and privileges for corporations and permanent constraints on government regulation. They include new investor safeguards to ease job offshoring and assert control over natural resources, and severely limit the regulation of financial services, land use, food safety, natural resources, energy, tobacco, healthcare and more.

          The stakes are extremely high, because the TPP may well be the last “trade” agreement Washington negotiates. This is because if it’s completed, the TPP would remain open for any other country to join. In May US Trade Representative Ron Kirk said he “would love nothing more” than to have China join. In June Mexico and Canada entered the process, creating a NAFTA on steroids, with most of Asia to boot.

          Countries would be obliged to conform all their domestic laws and regulations to the TPP’s rules—in effect, a corporate coup d’état. The proposed pact would limit even how governments can spend their tax dollars. Buy America and other Buy Local procurement preferences that invest in the US economy would be banned, and “sweat-free,” human rights or environmental conditions on government contracts could be challenged. If the TPP comes to fruition, its retrograde rules could be altered only if all countries agreed, regardless of domestic election outcomes or changes in public opinion. And unlike much domestic legislation, the TPP would have no expiration date.

          Failure to conform domestic laws to the rules would subject countries to lawsuits before TPP tribunals empowered to authorize trade sanctions against member countries. The leaked investment chapter also shows that the TPP would expand the parallel legal system included in NAFTA. Called Investor-State Dispute Resolution, it empowers corporations to sue governments—outside their domestic court systems—over any action the corporations believe undermines their expected future profits or rights under the pact. Three-person international tribunals of attorneys from the private sector would hear these cases. The lawyers rotate between serving as “judges”—empowered to order governments to pay corporations unlimited amounts in fines—and representing the corporations that use this system to raid government treasuries. The NAFTA version of this scheme has forced governments to pay more than $350 million to corporations after suits against toxic bans, land-use policies, forestry rules and more.

          The slight mainstream media coverage the TPP has received repeats the usual mantra: it’s a free-trade pact that will expand US exports. But trade is the least of it. The United States already has free-trade agreements that eliminated tariffs with most TPP countries, which highlights the fact that the TPP is mainly about new corporate rights, not trade. Besides, under past free-trade agreements, US export growth to partner countries is half as much as to countries with which we do not have such agreements. Since NAFTA and similar pacts went into effect, the United States has been slammed by a massive trade deficit, which has cost more than 5 million jobs and led to the loss of more than 50,000 manufacturing plants.

          How could something this extreme have gotten so far? The process has been shockingly secretive. In 2010 TPP countries agreed not to release negotiating texts until four years after a deal was done or abandoned. Even the World Trade Organization, hardly a paragon of transparency, releases draft negotiating texts. This means that although the TPP could rewrite vast swaths of domestic policy affecting every aspect of our lives, the public, press and Congress are locked out. Astoundingly, Senator Ron Wyden, chair of the Senate committee with official jurisdiction over TPP, has been denied access even to US proposals to the negotiations. But 600 corporate representatives serving as official US trade advisers have full access to TPP texts and a special role in negotiations. When challenged about the conflict with the Obama administration’s touted commitment to transparency, Trade Representative Kirk noted that after the release of the Free Trade Area of the Americas (FTAA) text in 2001, that deal could not be completed. In other words, the official in charge of the TPP says the only way to complete the deal is to keep it secret from the people who would have to live with the results.

          The goal was to complete the TPP this year. Thankfully, opposition by some countries to the most extreme corporate demands has slowed negotiations. Australia has announced it will not submit to the parallel corporate court system, and it and New Zealand have rejected a US proposal to allow pharmaceutical companies to challenge their government medicine formularies’ pricing decisions, which have managed to keep their drug costs much lower than in the United States. Every country has rejected the US proposal to extend drug patent monopolies. This text was leaked, allowing government health officials and activists in all the countries to fight back. Many countries have also rejected a US proposal that would forbid countries from using capital controls, taxes or other macro-prudential measures to limit the destructive power of financial speculators.

          However, we face a race against time—much of the TPP text has been agreed on. Will the banksters, Big Pharma, Big Oil, agribusiness, tobacco multinationals and the other usual suspects get away with this massive assault on democracy? Will the public wake up to this threat and fight back, demanding either a fair deal or no deal? The Doha Round of WTO expansion, the FTAA and other corporate attacks via “trade” agreements were successfully derailed when citizens around the world took action to hold their governments accountable.

    2. jrs

      When I’ve explained the TPP to those on the right, I’ve gotten sympathy for the violation of sovereignty – they agreed that it sounded like a violation of sovereignty and that that was bad. Now I’m not saying the right will be the most loyal allies out there (the real left is probably more deeply passionate in opposition – for obvious reasons, it’s making corporations dicatators). But others ARE potential allies in this issue.

      So, no, don’t write people off, many people don’t know about the TPP. Educate.

  5. Hugh

    That’s a great point about patent and copyright rights being about raising protectionist barriers and the very opposite of so-called “free trade.”

    Free trade, free markets, trickledown economics, the essential elements of neoliberalism, remind me of Hannah Arendt’s discussion of the fiction which underlies totalitarian ideology. Like it, they can never be debunked and falsified belonging as they do to a world beyond experience. As Arendt writes,

    What distinguishes the totalitarian leaders and dictators is rather the simple-minded, single-minded purposefulness with which they choose those elements from existing ideologies which are best fitted to become the fundaments of another, entirely fictitious world. The fiction of the Protocols was as adequate as the fiction of a Trotskyite conspiracy, for both contained an element of plausibility—the nonpublic influence of the Jews in the past; the struggle for power between Trotsky and Stalin—which not even the fictitious world of totalitarianism can safely do without. Their art consists in using, and at the same time transcending, the elements of reality, of verifiable experiences, in the chosen fiction, and in generalizing them into regions which then are definitely removed from all possible control by individual experience. With such generalizations, totalitarian propaganda establishes a world fit to compete with the real one, whose main handicap is that it is not logical, consistent, and organized.

    This, I think, explains in part why these ideas keep coming back. They can not fail. They can only be failed. When they and reality conflict, it is reality that is wrong.

    Hannah Arendt also pointed out another reason believers cling to these ideas in the face of reality:

    The stubbornness with which totalitarian dictators have clung to their original lies in the face of absurdity is more than superstitious gratitude to what turned the trick, and, at least in the case of Stalin, cannot be explained by the psychology of the liar whose very success may make him his own last victim. Once these propaganda slogans are integrated into a “living organization,” they cannot be safely eliminated without wrecking the whole structure.

    Free trade, free markets, and trickledown are all neoliberal tools of kleptocracy. They exist to promote looting and defend wealth inequality. Intellectually, they always work and are far superior to reality and related concepts like evidence. But beyond this, their practitioners can not desert them without abandoning the whole kleptocratic enterprise. Once you let reality in, it all falls apart. So it is that Obama will continue to pursue his free trade agreements, free markets, bailouts for bankers, defense of the rich, Obamacare, the Grand Bargain, and cuts to Social Security. It all makes sense. These all are perfectly logical, as logical as they are divorced from reality.

  6. Hugo Stiglitz

    My default setting is basically that any policy that is enthusiastically supported by Wall Street, as I presume these trade deals are, is policy I vehemently oppose.

  7. TomDor

    Maybe I am a bit loopy but:
    This Toilet Paper Product will lead to financialization of the legal profession – laws will become “Free Market Driven”
    Why not take a position on court cases and recoveries, invest in the outcome and trade on derivatives? such hubris and folly founded on an ‘economics’ system – the neo/chicago school crapola that has infused the minds since the turn of last century – propagated by plutocrats, vested interests and rent seekers who funded the ‘higher’ learning centers and news-media way back then. We talk of the last thirty years but this war has been brewing for at least 100.

    - The invisible hand will descend across all nations – just as the warped Neo-liberalism has wiped the distinction between land and capital from our collective memories.”The
    failure of economists to integrate micro and macro is an ongoing scandal of professional dereliction or incompetence.” and has “emasculated the discipline.
    has “impoverished economic thought, muddled the minds of countless students, rationalized free-riding by landowners, took dignity from labor, rationalized chronic unemployment, hobbled us with today’s counterproductive tax tangle, marginalized the obvious alternative system of public finance, shattered our sense of community, subverted a rising economic democracy for the benefit of rent-takers, and led us into becoming an increasingly nasty and dangerously divided plutocracy.” – Neo-classical Economics as a Stratagem
    against Henry George
    Mason Gaffney

    Of course, without doubt…rent seekers are the cause and perpetuate our current global melt-down (environment and financially). Their cause is clear… they wish to privatize all public space in order to extract rent. When our economic system is irrational…no actor in it can rationalize

    1. MaroonBulldog

      The movement to make laws “free market driven” is in place-it’s interchangeably called “Law and Economics” and “Economic Analysis of Law”. Judges Richard Posner and Frank Easterbrook are two of its leading lights, and its arguments have proven persuasive in the U.S. Supreme Court, which has applied “effiicent market hypothesis” arguments in Federal securities cases.

      Our president was a professor at the University of Chicago Law School, so he is well acquainted with the movement and the professors who train law students in it.

      1. TomDor

        So, is it safe to say that: President Obama is clearly showing an unwillingness to use the human’s innate abilities of curiosity and reason to explore new possibilities?. Is it that he has ensconced his learning without question – that what he learned is just rote learning? – the unquestioning kind – the kind that says – since it was taught at a prestigious school, it must be true. The kind of learning taught to our students who now must learn in order to pass a test only.
        Is this how we drop, as a species, off a cliff – blind and unquestioning.
        Unquestioning of a line of economic thought that has wrecked nations and wrecked free thought…a whimper and a splat.

        Yes, the so called ‘economy’ is a construct designed to benefit the few. It’s side effect, if carried forward, is the inability of the system to operate constructively – it’s mechanics are in opposition to this planets life – it is not rational.

        1. MaroonBulldog

          I don’t know if it’s safe to say what you say about Obama’s mind, or not. I can’t read anothr person’s mind.

          What is safe to say is that the Supreme Court justices and elite law school professors belong to the same club (Scalia taught at Chicago and Columbia, Ginsburg taught at Stanford and Columbia), and Obama is a member. From that I project that Obama has very good opportunities to peddle influence and collect rent through a post-presidency law practice, if he’s interested. And with the kind of fees potentially available under the international treaties he’s pushing, I think he has millions of reasons to be interested.

          1. MaroonBulldog

            Further to my last reply: I don’t know what economics President Obama may have learned in his political science major or law school. He likely wouldn’t have been required to learn any. I think he leans on the economics professors who advise him from the CEA, the NEC, and other bureaucrarcies.

            Concerning what is learned in presitigious schools, I observe that commencement speakers all allopathic medical schools caution their graduating MD’s to remember that “half of what we taught you here is wrong, and we don’t know which half.”

            Economists can’t make a similar claim–to 50% accuracy, I mean. I do believe that they could make a claim to not knowing what is wrong and what isn’t, but it’s not in their interest to admit that.

  8. redleg

    I saw an interview with Paul Craig Roberts a few weeks ago that brought up something about the TPP that I think is flying under the radar.
    I think it was this one: http://www.youtube.com/watch?v=AyO-xR6ZW20

    PCR’s position is that the TPP is all about keeping the US Dollar as the reserve currency. The US may be willing to sell out everything else so long as the dollar remians the standard currency for transactions within the TPP.
    I think this is an important piece of the puzzle, as it ties the Fed into the scheme.
    Opinions?

  9. Richard Lyon

    That is very interesting. I had been reading about the new trade regime over riding national law, but didn’t have any clear notion of how it might be enforced. This all makes perfect sense. The profit will be privatized.

  10. RBHoughton

    The agreements are the commercial aspect of an attempt by the Anglosphere to seize world government. The political aspect is the entrenchment of government by elections. The ideological aspect is the establishment of the AngloAmerican version of capitalism. These aims are mandatory on all nations and will be enforced by either direct military action or indirectly by inciting civil unrest.

    The concept of world government is a beguiling one which I for one will welcome but never an enforced one based on violence. There has to be agreement not just by bribing representatives but by securing the agreement of the world population.

  11. greg

    The American people are already being plundered into poverty, and their commonwealth consumed and destroyed.
    The TPP, though treasonous, is a superfluous ornament.

    Our rich masters already have too much money, and we see this in the sickness of the economy. But the wealthy think that once they have all the money, all will be well, and there will still be someone to purchase the products of their factories. It simply does not occur to them that if the people have no money, their factories, that is the factories of the wealthy, will be idled. As will their yachts. They will have no one to take their profit from.

    Further, with the comcommitant destruction of the tax base, there will be no one to pay to enforce the wealthy’s continued depradations of the people, for the people must retain a modicum of wealth, in order to finance their continued enforced servitude to the wealthy.

    You might think that the wealthy would pay their servants well. They cannot and will not, becuse paying their servants well puts them at a competitive disadvantage. The apologists who now feed at their feet will one day be disabused.

    So the police state the wealthy are busy establishing will lack a tax base. After the destruction of the middle class, the poor will be unble to pay taxes, and the rich will refuse. Indeed, the burden will become too great for even the rich to bear, because it is from the flow of resources through an economy that tax is taken, and this is what the rich, in their short sighted greed, are choking off.

    There is small profit to be made by oppressing the poor.

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