U.S. Sovereignty and the Trans-Pacific Partnership

The Trans-Pacific Partnership (TPP) was first drafted by the United States and Pacific powers in 2005 as a trade agreement to govern overlapping bilateral regulations and investments. By 2014, twelve nations that collectively encompass 40 per cent of the world’s economy had joined the partnership, with many more in the negotiation process.

Image courtesy of El Gobierno de Chile, ©2010, some rights reserved.

Headed by the Obama Administration, the underlying goal of the TPP is to counter the economic weight of China’s rapid growing influence on global markets. So far the majority of the contents of the TPP have been drafted behind closed doors, until 25 March 2015, when WikiLeaks released information on the proposed Investor Dispute Settlement system (ISDS) to the world. The ISDS clause would allow for the creation of international tribunals that would allow multinational corporations to sue governments of countries in which they invest. It is not uncommon for trade agreements to allow a clause for multinational companies to sue foreign governments. It is, however, uncommon for corporations to be given the legal right to sue states in private courts when they lose profits, or future profits, due to social unrest and changes to the public health or environmental laws of a nation. The ISDS would also grant multinational corporations immunity from direct or indirect expropriations and any new financial legislation from member TPP nations. The ISDS clause in the TPP thus expanded the powers of multinational corporations and allowed them to interfere in domestic affairs – federal, state, or local – and the public good. U.S. president Barack Obama is thus in a delicate position as he postures to mitigate Chinese influence while simultaneously inviting a host of legal precedents that could impact the sovereignty of the United States.

The United States Trade Representative’s Office (USTR) dismissed many of the legal claims against the ISDS clause, stating that there are many ISDS clauses within past trade agreements, most notably the North American Free Trade Agreement (NAFTA). For the past 25 years, according to USTR, the United States has faced 17 investor-state cases brought by extrajudicial trade tribunals and has never lost. U.S. Senator Sherrod Brown (D) of Ohio said recently, ‘USTR will say the U.S. has never lost a case, but you’re going to see a lot more challenges in the future’ as ‘there’s a huge pot of gold at the end of the rainbow for these companies.’ One such case occurred in 1999 when California banned the chemical MTBE from state gasoline imports, citing pollution of the water supply. The Canadian gasoline exporter Methanex proceeded to sue the state of California for $970 million under the ISDS clause in the NAFTA agreement, claiming damages on future profits. The case dragged on for six years until all claims were dismissed by a 2005 tribunal. Theoretically, if Methanex had sued under the proposed TPP agreement rather than the NAFTA agreement, the outcome could have been drastically different. A non-U.S. court could have the legal authority to uphold the claims based on the loss of future profits given the mechanisms embedded in the proposed ISDS. The public good in California could have been in major jeopardy due to losses in a foreign company’s bottom-line.

Many fear that large and wealthy corporations will eventually be victorious if they are able to take the United States to international trade tribunals as imagined by the ISDS clause embedded in the TPP. According to Public Citizen, a consumer advocacy group, there are 9,000 foreign-owned companies from TPP nations operating within the United States, and the TPP would grant these multinational companies expanded powers to bring the U.S. government to trial.

The new exposed ISDS clause within the TPP is not a left or right political problem but a national problem. Conservatives are likely to be enraged by the possibility that even local policy changes could drag government entities into United Nations sanctioned tribunals. Local municipalities within the United States would not only be forced to seek what is best for the public good, but also cater to multinational companies. Senator Elizabeth Warren (D) of Massachusetts agrees with some of her conservative counterparts and concludes that the TPP poses a threat; fearing that the provisions within the ISDS would infringe upon U.S. sovereignty and negatively effect government regulation. By allowing foreign-owned companies the ability to bring the U.S. to trial in empowered courts outside of the U.S. judicial system erodes the U.S. ability to govern and regulate on its own.

On the international level the ISDS poses a significant threat to present treaties regarding trade. The World Trade Organization (WTO) has a similar mechanism to the TPP regarding disputes between multinational corporations and world governments called the Dispute Settlement Body (DSB). Within the DSB multinational corporations have to lobby their home government to press charges against other governments who violate trade agreements. The most striking attribute of the ISDS clause in the TPP is that multinational corporations can bypass their home government and directly bring other governments to trial. Granting multinational corporations the power to gloss over their home governments give them a new level of autonomy that could effect how trade is seen between foreign nations. Expanding corporate power could have long-term implications, as it is harder to rein power once granted, on future and existing trade negotiations. Time will tell if the new ISDS will become the standard in future treaties

Next month Congress is planning to debate the ‘fast-track’ authority that President Obama is seeking to expedite trade negotiations. Fast-tracking would allow the President to agree to the Trans-Pacific Partnership and submit it in its entirety to Congress without their ability to propose amendments. This is potentially dangerous because it inhibits Congress from striking or amending unfavorable clauses, such as the ISDS, from the trade agreement. The ISDS clause is one of many clauses within the TPP and there may be other sinister additions to the trade agreement that the general public may not be aware of. Therefore in the coming months Congress will decide the fate of U.S. sovereignty. If Congress does decide to uphold President Obama’s calls to fast-track the Trans-Pacific Partnership the legal precedents associated with it will be difficult to repeal.


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