The Investor Arbitration Clauses in TPP Are Indeed Very Bad

By Lambert Strether of Corrente.

I like Tyler Cowen’s restaurant reviews a lot, but sometimes I think he should stick to doing them; I think that right now, in fact. Here’s a throwaway post from Cowen on ISDS provisions in the Trans-Pacific Partnership (TPP). tl;dr: Move along people, move along. There’s no story here. In longer though not very long form, after posing this rhetorical question in the headline:

How bad are the investor arbitration clauses in TPP?

Cowen goes on to quote a great slab of a post by Gary Hufbauer — we’ll get to Hufbauer in a moment — and frames it by answering his own rhetorical question:

Mood affiliation aside, these clauses do not constitute a significant reason to oppose the treaty, in my view.

Well, being but a humble blogger, I had to go look up “mood affiliation,” which Cowen defines this way:

It seems to me that people are first choosing a mood or attitude, and then finding the disparate views which match to that mood and, to themselves, justifying those views by the mood. I call this the “fallacy of mood affiliation,” and it is one of the most underreported fallacies in human reasoning.

You know, like when Publius wrote Federalist 51 out of pique. No, but all kidding aside, take the ISDS “lost profits” clauses — please! Yves writes:

Last week, Lambert flagged that the Administration can’t even get its story straight. The [White House] text states:

The reality is that ISDS does not and cannot require countries to change any law or regulation. …

Narrowly speaking, suing ex post facto to make a government pay a foreign investor for his future lost profits does not “require” a country to revamp its rules. But who are you kidding? The ISDS mechanism vitiates enforcement.

For example (via Public Citizen):

When an all-party committee of the provincial government of New Brunswick, Canada recommended that the province develop its own public auto insurance program, the private insurance industry used the threat of a NAFTA investor-state case to successfully lobby against the program. In response to public outcry over skyrocketing auto insurance premiums, the New Brunswick committee recommended a public plan that would achieve average premium reductions of approximately 20 percent. The Insurance Bureau of Canada, representing Canada’s largest insurers, immediately warned that the proposal could trigger NAFTA investor-state cases from foreign insurance providers in Canada as a NAFTA-prohibited “expropriation” of their market share. The proposal was soon scuttled, due in part, according to observers, to “aggressive threats of treaty litigation.”

Keeping premiums 20% higher than they would be with a public system? Impressive. Talk about expropriation! Notice also that the mere threat of ISDS litigation caused the government to back off. What’s that fact set got to do with mood or attitude? That’s an outcome the ISDS is designed to achieve; compensation for “lost profits,” or, to rephrase the term in a less Orwellian manner, “minimizing political risk” for corporations by gutting the ability of democratic governments to protect their citizens.

And not to go meta on the meta, but isn’t Cowen’s use of the “fallacy of mood affiliation” an example of the genetic fallacy? After all, minimizing political risk is what it is, whether the poor shlub bearing that message, doomed to be shot with spurious rhetorical constructs, is Sunny Jim or the Wicked Witch of the West.

And while we’re at it, what’s a well-respected academic like Cowen doing quoting a funny-numbers-for-hire guy like Gary Hufbauer, anyhow? Not that a blind pig can’t find a truffle every so often, but doesn’t the principle of altruistic punishment imply a necessary selectivity in sourcing? Hufbauer is an old friend; you can reread the whole discussion — which exemplifies academic choice theory[1] — here in this Naked Capitalism post from 2007, from which I abstract away the technical detail:

From [Dani] Rodrik:

Many many years ago …, I heard Gary Hufbauer tell an anecdote at a conference on international trade. A government economist is called in by his superior, who tells him “Look, I have to make a case for this policy in front of Congress, and I need a number real bad.” The economist responds, “well, I haven’t done a proper analysis, so I can give you a real bad number.” Perhaps it was a true story based on Gary’s own government experience.

I am reminded of this story by Mark Thoma’s post, which focuses on the magnitude of the gains from globalization. He says “there’s something important that’s generally missing from the attacks on globalization’s supporters, actual evidence.” He refers to a Bernanke speech and at length to a paper which Bernanke cites by Bradford, Grieco, and Hufbauer (yes, the same Hufbauer). The Bradford et al. study argues that removing all remaining barriers to trade would raise U.S. incomes anywhere from $4,000 to $12,000 per household (or 3.4-10.1% of GDP). That is a whole chunk of change! …

As Thoma says, we cannot dismiss “evidence” just because we disagree with it. …[W]hile I would not quarrel with the assertion that globalization increases the size of the pie for the U.S., I do have a big quarrel with the kind of numbers presented by Hufbauer and company. They seem to me to be grossly inflated. Let me take up Thoma’s challenge and explain why. [Technical detail omitted.]

… The real action is in the non-standard methodological choices made by Bradford et al.–choices which are designed to generate large numbers.

What puzzles me is not that papers of this kind exist, but that there are so many professional economists who are willing to buy into them without the critical scrutiny we readily deploy when we confront globalization’s critics. It should have taken Ben Bernanke no longer than a few minutes to see through Bradford et al. and to understand that it is a crude piece of advocacy rather than serious analysis. I bet he would not have assigned it to his students at Princeton. Why are we so ready to lower our standards when we think it is in the service of a good cause?

Finally, a few words on the putative substance of Hufbauer’s slab, as quoted by Cowen. I’ll pick just one point:

The record shows that, far from a record [sic] of multinational corporations trampling sovereign states, investors have won fewer than a third of the cases resolved by the ISDS process1.

Bollocks, on two counts. First, Hufbauer doesn’t evaluate the cases on the merits. If 100% of the cases were frivolous, than winning even “fewer than a third” of them is indeed “trampling sovereign states.” Second, being an untrusting sort, I clicked through to footnote (1) in Hufbauer’s original post that Cowen quotes. Here it is:

1. High-profile cases cited as cause for concern about ISDS cite companies that allegedly seek to rollback [sic] regulations, for example, the Philip Morris–Australia plain-packaging tobacco case and the Vattenfall–Germany nuclear energy case among others. But the fact that such cases have been launched says nothing about the utility of the ISDS system; moreover, the cited cases and others in contention have not yet been fully decided. It makes no sense to condemn the ISDS system for imagined failures.

The superscript of footnote (1) is placed so as to seem to support the “fewer than a third” claim, but the supporting logic seems to be lower in the paragraph. There, we read that Hufbauer’s 29% (< one-third) figure covers only the “vast majority” of cases tried at the ICSID. However, we don’t know what “vast” means to Hufbauer, so “fewer than a third” is spuriously precise. In addition, Hufbauer seems to think that no costs are imposed on governments or their peoples until the cases are “fully decided,” but as we have seen, that’s false.

More centrally, the fact that a corporation can sue the government of Australia at all for regulating cancer stick labels to protect its citizens is an ethical and policy collapse of such magnitude as to render the very concept of utility, at least in Hufbauer’s hands, a hilarious nullity.

If Philip Morris didn’t want to be regulated, it shouldn’t have stayed in the cancer stick business. Philip Morris should eat its losses for its own bad judgment of political risk, not seek to stick the citizens of Australia with the bill through ISDS.

Can do better!


[1] Hey, kidding!

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About Lambert Strether

Readers, I have had a correspondent characterize my views as realistic cynical. Let me briefly explain them. I believe in universal programs that provide concrete material benefits, especially to the working class. Medicare for All is the prime example, but tuition-free college and a Post Office Bank also fall under this heading. So do a Jobs Guarantee and a Debt Jubilee. Clearly, neither liberal Democrats nor conservative Republicans can deliver on such programs, because the two are different flavors of neoliberalism (“Because markets”). I don’t much care about the “ism” that delivers the benefits, although whichever one does have to put common humanity first, as opposed to markets. Could be a second FDR saving capitalism, democratic socialism leashing and collaring it, or communism razing it. I don’t much care, as long as the benefits are delivered. To me, the key issue — and this is why Medicare for All is always first with me — is the tens of thousands of excess “deaths from despair,” as described by the Case-Deaton study, and other recent studies. That enormous body count makes Medicare for All, at the very least, a moral and strategic imperative. And that level of suffering and organic damage makes the concerns of identity politics — even the worthy fight to help the refugees Bush, Obama, and Clinton’s wars created — bright shiny objects by comparison. Hence my frustration with the news flow — currently in my view the swirling intersection of two, separate Shock Doctrine campaigns, one by the Administration, and the other by out-of-power liberals and their allies in the State and in the press — a news flow that constantly forces me to focus on matters that I regard as of secondary importance to the excess deaths. What kind of political economy is it that halts or even reverses the increases in life expectancy that civilized societies have achieved? I am also very hopeful that the continuing destruction of both party establishments will open the space for voices supporting programs similar to those I have listed; let’s call such voices “the left.” Volatility creates opportunity, especially if the Democrat establishment, which puts markets first and opposes all such programs, isn’t allowed to get back into the saddle. Eyes on the prize! I love the tactical level, and secretly love even the horse race, since I’ve been blogging about it daily for fourteen years, but everything I write has this perspective at the back of it.


  1. buffalo cyclist

    Cowen is a committed neoliberal and corporatist. That free trade agreements frustrate environmental and public health regulations is, to him, a feature and not a bug.

    1. different clue

      Longer version ( should be able to fit on something)

      Free Trade is the New Slavery.
      Protectionism is the New Abolition.

  2. nat scientist

    “I call this the “fallacy of mood affiliation,” and it is one of the most underreported fallacies in human reasoning.”

    It really is the axis of faith and hope; neither of which is a strategy and both of which presuppose a belief rather than a science.
    Science requires a neutral bias between the state belief and that of active disbelief. The results of science deliver the same results no matter what the experimenter believes, the facts are observable and reproducible by anyone under the stated conditions…. that is until belief or mood affiliation overrules and games the experiment accordingly revealing a non-neutral bias . Science has led to all working technologies that have improved human ability to deal with matter, while different beliefs provide little such widely-applicable benefits outside the mood affiliation ring. The fallacy of mood affiliation is reported every day rather than “unreported”. The rest of the argument is the wrapper for this confection of non-nutritive brain candy.

    1. sufferin'succotash

      More than non-nutritive. It’s basically a toxic way of avoiding a substantive debate by psychoanalyzing the opposition. Think Charles Boyer telling Ingrid Bergman that she’s only imagining things, etc..

      1. Lambert Strether

        Ah, the “mood affiliation” trope == gaslighting. What an amazing connection. And you’re quite right.

        1. Doug Terpstra

          Aye, it must be said that Tyler Cowen, of course, is uniquely, completely immune to mood affiliation, illusions, presumptions, or prejudices of any kind. Moreover his salary as a professional journalist depends on clear-sighted, unbiased objectivity at all times. So there.

        2. Yves Smith

          The mood affiliation as fallacy BS also makes any moral position pretty much impossible. See Steve Waldman’s fantastic post on altruistic punishment in Baltimore as an example of precisely the sort of thing that Cowen would deride. Yet ever social species features both cheating and altruistic punishment to make sure the cheating does not get out of hand. It is so deeply ingrained across human societies and animal species that it is clearly adaptive and pro-survivial, yet Cowen just dismisses it.

  3. Pat

    Somewhere along the way the whole idea that the reason you made more from investment in businesses was that you risked losing it got lost. Mind you ‘safe’ investment still is not available to the person without bundles of money and connections, but at some point in my lifetime there was this sea change in both attitude and reality so that big money investors can NEVER lose. There were always people trying to game the system, but now that gaming IS the system. And the mere idea that somewhere, anywhere there are people who cannot be stripped of all assets is just not going to be allowed. Even to the point of the idea of lost profits from some future that does not exist.

    The people in charge, almost everywhere, are truly horrible human beings.

    1. Lambert Strether Post author

      Trying to view this from the tippy top of the mountain as a 0.01%er rather than from far down the slopes where I actually am….

      I’m not sure why they think “lost profits” are such a concern. (I mean, look at Apple’s cash hoard, for example.) It could be that they just want to pick the bones clean and get every last scrap, as it were. Or it could also be that they are acting pre-emptively; they really do sense “the pitchforks and torches” coming, even if we do not. After all, the top of the mountain, even if it’s a dicey place to be, affords an excellent view. Hence the experiments with normalizing us to martial law, now that the task of normalizing us to a surveillance state is done. Of course, both surveillance and militarization are self-licking ice cream cones of massive proportions.

      1. Oregoncharles

        I am absolutely convinced that ” they really do sense “the pitchforks and torches” coming, ” and that that explains a great deal of present policy – especially the destruction of civil liberties and militarization of the police. After all, they know what they’re doing to us even better than we do – we only know the results. And I say this from a position of relative, if shaky, comfort. I think this explains virtually ALL of our establishment politics.

        Sometimes, I just hope they’re right about that. Torches and pitchforks are a very destructive approach to politics, but arguably better than fading gently into that good night. Isn’t that “altruistic punishment?”

        So far, I see no sign of serious resistance outside a tiny circle of lefties and, of course, the most marginalized. Congratulations Baltimore. Not even the low-cost kind of resistance expressed in politics.

        1. Lambert Strether Post author

          However, I don’t think we would see it. From the whispers of intimations I get on the twitter, we’re looking at what I called rhizomic growth a long time ago. Very few tall poppies, and no celebrities. IMNHSO that is a very good thing.

          1. Oregoncharles

            We can hope. But something that bursts suddenly out of “nowhere” is likely to be violent. I would rather avoid that.

            I’m actually a political organizer, not a journalist; I think I would see it, though Oregon is a bit out of the way. Granted, there are hints and whispers. But it takes more than that.

            I’d really rather be optimistic.

      2. different clue

        I again suggest the acronym for 0.01%er which I saw somewhere.
        OPOOPer. For One Percent Of One Percenter

  4. human

    “…would raise U.S. incomes anywhere from $4,000 to $12,000 per household…”

    However, that it is not “households” who benefit from this increase is left unsaid.

  5. TedWa

    I’m writing my Senator Maria Cantwell nearly every day, since she was the democrat that voted trade promotion authority (fast track) out of committee. I’m treating her and her vote as if she knows nothing about the TPP and I’m educating her nearly every day in e-mails on it’s voluminous failings in even being called a trade agreement and it being a corpo-mafiaosa protection racket being run on the world. I hope Senator Wyden is getting a similar education every day from his constituents for siding with the Republicans on this.

    1. different clue

      How many people would be prepared to never ever vote for another National Office democrat if Fast Track is allowed to pass? Not just ” how many people would threaten it”? How many people would actually do it?
      If any people would actually do it, they do no harm by letting every relevant Democrat know ahead of time.
      On the other hand, if they don’t really mean it, they should not say it. Politicians can smell an empty threat the way dogs can smell fear.

      1. Oregoncharles

        I just wear my Green Party T-shirt to his Town Halls. Did that Friday. But it was the steelworkers that werre giving him hell.
        When I’m clearly labelled, I get Greens I didn’t know about coming up to me and connecting with the chapter. That, too, happened Friday.

  6. Ian

    Facebook is now censoring you. I get this message when I try to post links in regards to TPP. “sorry we can’t find that page you tried to find…” The link still leads to the appropriate article (at least for me anyway), but it looks like the link leads nowhere.

    1. Lambert Strether

      I think that’s a technical issue; FB has had trouble with NC pages in the past, and we don’t know why. (Either that, or FB is dumb and doesn’t like the word “Naked.” Try a link shortening service like Bitly and see if that helps?)

      1. Ian

        It started up recently, have sent a complaint. Probably right, just a technical issue.

  7. dingusansich

    The “arbitration process” is a further attempt to institutionalize what German finance minister Schauble said quite openly about Greece: “Elections change nothing.” Or what Jean-Claude Juncker, president of the European Commission, said: “There can be no democratic choice against the European treaties.” That’s a pretty good window on the ideology behind the ISDS, an acronym for Investor-State Dispute Settlement. Remove the hyphen to clarify what it actually stands for: a state run by and for the benefit of corporate, financial, and bureaucratic elites. That’s not something new under the sun. It’s merely a secretive, flagrantly neoliberal, globalism-warmed version of a power grab pitched by propaganda and snake oil. It just goes to show good ideas never go out of style.

    1. Lambert Strether

      Good point. If you take out the hyphen and lower-case “investor state dispute settlement” that makes the agenda completely clear, since (at least in theory) we have legislative, judicial, and executive branches to take care of such disputes. For example, the issue of investor-owned monopolies was “settled” by passing (and, for a time, interpreting and enforcing) anti-trust legislation.*

      (Yes, I know that ISDS disputes are (a) international but there’s no reason bilateral treaties can’t handle them and (b) the possibilities for corporations to game the system by setting up mutual systems of “straws” is just obvious. (That is, Corporation X, located in the US, can’t sue the US government, but it can ally with Corporation Y, located in, say, London, or, for the sake of appearances, the Caymans or some such.)

      Cue chorus of “no, because efficiency” and “no, because reputational damage” respectively!

    2. Doug Terpstra

      Very perceptive. The TPP and related SHAFTA schemes are not primarily about trade, free, fair, rigged or otherwise. They are frontal attack on the last pretences of democracy and national sovereignty in the obsessive compulsion for full-spectrum dominance — global empire — Pax (sic) Americana.

      I believe this is where Rumsfeld’s dictum “sweep it all up, things related and not” is put into operation. It would explain the confluence the full-court press on rigged trade (to the conspicuous exclusion of power rivals China and Russia), the remilitarization of Japan, Ukraine, the smoldering “civil” war on Syria, the war on cash, the crash of oil, and other otherwise perplexing chaotic events.

      1. cnchal

        It would explain the confluence the full-court press on rigged trade (to the conspicuous exclusion of power rivals China and Russia), . . .

        I found this, The Decline of U.S. Export Competitiveness for Manufactures And it’s Consequences for the World Economic Order, to be an inside look of some of the thinking going on, and right on page 27 is this:

        The proposal is for a two-stage process over the next several years to consolidate the many bilateral and regional FTAs into an open-ended plurilateral FTA within the WTO. Stage one would be completion of the two major regional FTAs under negotiation—the TPP and the TTIP—plus any other FTAs that may be concluded, especially within Asia. These two regional FTAs, in particular, would become comprehensive building blocks for the consolidation of all FTAs within the plurilateral agreement.

        This report is from MAPI – Manufacturers Alliance for Productivity and Innovation and written by Ernest H. Preeg, someone that is the definition of an insider, when one reads his bio and, just to see what MAPI thinks of itself, here is their mission statement.

        We are the thought leader and solution provider for manufacturers. Our Councils provide an opportunity for executives to share best practices, discuss solutions to shared challenges, and become more effective leaders. Our global economic research and forecasting equips members to make better decisions. We are the thought leader on issues and policies that impact the competitiveness of the U.S. manufacturing sector.

        Ernie goes to great length to present impeccably researched numbers and percentages, showing the horrific financial damage China causes to the US by currency manipulation. But there is something missing.

        China is presented as some self actualizing entity that all of a sudden decided to make all the televisions and smartphones and Walmart crapola in the world, and is using it’s currency manipulation to do so. The role of US companies, to send production to China, is simply not mentioned. Not a word.

      2. different clue

        My only quibble is that they are not about American Pax Americana empire. They are about International Overclass social class empire over everything, including over Free Trade Conspiracy Occupied America too.

  8. ifthethunderdontgetya™³²®©

    A GMU Chair pushing a make-the-rich-even-richer scheme?

    Fetch me my fainting couch!

  9. susan the other

    There is madness to their methods. I sense a fail-safe world economy. Brazil. (The movie that is.) The new engine that will stimulate just enough growth to keep big corporations alive is gonna be the IMF which will naturally be funded by all the big corporations. The smaller corporations, the one’s currently in a buying frenzy to obfuscate the fact that people are selling their stock, will be looted over the next few years, giving ever more power to the bigs. And no need for government at all. Because drones.

  10. nat scientist

    Stand TPP and all the other Globalisation Pacts on their shiny little heads, and require foreign -sourcing local US agents to take responsibility for their foreign faux-pas
    in US jurisdiction with standing based on sales volume received. So an Apple, for gross instance, can be locally responsible for the effiiciencies they extract by arbitraging the human time value of the less-protected workers. They may indeed pay more in nominal piasters or dong or whatever but the intense time-driven conditions reduce that feature to a bug. Out of sight, out of mind, off-shored billions for the very very very few.

  11. Winston Smith

    TIme to call your senator and congress critter and if they are against the TPP, ask them why they are not calling for Obama’s impeachment and arrest for sedition along with all the other TPP supporters in government. I know tomorrow I will be calling mine!

    1. nat scientist

      Be sure to ask your Congressperson for their Top Ten Most Courageous statements and decisions he-she has made in their entire careers in DC!
      They’ll run for the hills at the existential thought, or you’d already know what they were and wouldn’t need to ask.

    2. Doug Terpstra

      Your congress critter will check your ranking in their contributor ledger to verify your relevance and then act accordingly. They might even send you to the Ministry of Love for re-education (rm 101?).

      With TPP I am convinced we will face a very determined effort to purchase this legislation outright, similar to the Wall Street bailouts, other recent SHAFTA contracts and the spawning of ACA, contravening public opinion. This is the final stage of the coup, and everyone, from the top salesman on down will yank all the stops on this one. (With just a handful of notable exceptions they’ve all been bought out, and their offices are leased corporate seats)*. So … we may soon come to understand the real reasons for the militarization of municipal police departments, and all those CT reports of FEMA camps.

      * I wonder if TPP us the chief reason Senator Sanders is running in ’16. He’ll be the only one with a pulpit to raise audible objections.

      1. different clue

        Webb would also have such a pulpit if he chose to run against Obamatrade. But his window of possibility for doing so is closing very fast.

  12. Ernesto Lyon

    Astroturf and manipulation of media messages | Sharyl Attkisson | TEDxUniversityofNevada

    Published on Feb 6, 2015
    In this eye-opening talk, veteran investigative journalist Sharyl Attkisson shows how astroturf, or fake grassroots movements funded by political, corporate, or other special interests very effectively manipulate and distort media messages.

    Sharyl Attkisson is an investigative journalist based in Washington D.C. She is currently writing a book entitled Stonewalled (Harper Collins), which addresses the unseen influences of corporations and special interests on the information and images the public receives every day in the news and elsewhere. For twenty years (through March 2014), Attkisson was a correspondent for CBS News. In 2013, she received an Emmy Award for Outstanding Investigative Journalism for her reporting on “The Business of Congress,” which included an undercover investigation into fundraising by Republican freshmen. She also received Emmy nominations in 2013 for Benghazi: Dying for Security and Green Energy Going Red. Additionally, Attkisson received a 2013 Daytime Emmy Award as part of the CBS Sunday Morning team’s entry for Outstanding Morning Program for her report: “Washington Lobbying: K-Street Behind Closed Doors.” In September 2012, Attkisson also received an Emmy for Oustanding Investigative Journalism for the “Gunwalker: Fast and Furious” story. She received the RTNDA Edward R. Murrow Award for Excellence in Investigative Reporting for the same story. Attkisson received an Investigative Emmy Award in 2009 for her exclusive investigations into TARP and the bank bailout. She received an Investigative Emmy Award in 2002 for her series of exclusive reports about mismanagement at the Red Cross.

  13. downunderer

    This is so late that probably no human eye will see it, but if not here, I’d have to wait for the next TPP article. Which I will, but just in case:

    Alan Grayson tells it like it is about TPP and works to inform the public and get some momentum going. See his 9-minute video at, which he is emailing to all his contributors and getting all the publicity for that he can.

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