WASHINGTON — An ambitious 12-nation trade accord pushed by President Obama
would allow foreign corporations to sue the United States government
for actions that undermine their investment “expectations” and hurt
their business, according to a classified document.
The
Trans-Pacific Partnership — a cornerstone of Mr. Obama’s remaining
economic agenda — would grant broad powers to multinational companies
operating in North America, South America and Asia. Under the accord,
still under negotiation but nearing completion, companies and investors
would be empowered to challenge regulations, rules, government actions
and court rulings — federal, state or local — before tribunals organized
under the World Bank or the United Nations.
Backers
of the emerging trade accord, which is supported by a wide variety of
business groups and favored by most Republicans, say that it is in line
with previous agreements that contain similar provisions. But critics,
including many Democrats in Congress, argue that the planned deal widens
the opening for multinationals to sue in the United States and
elsewhere, giving greater priority to protecting corporate interests
than promoting free trade and competition that benefits consumers.
The
chapter in the draft of the trade deal, dated Jan. 20, 2015, and
obtained by The New York Times in collaboration with the group
WikiLeaks, is certain to kindle opposition from both the political left
and the right. The sensitivity of the issue is reflected in the fact
that the cover mandates that the chapter not be declassified until four
years after the Trans-Pacific Partnership comes into force or trade
negotiations end, should the agreement fail.
Conservatives
are likely to be incensed that even local policy changes could send the
government to a United Nations-sanctioned tribunal. On the left,
Senator Elizabeth Warren, Democrat of Massachusetts, law professors and a
host of liberal activists have expressed fears the provisions would
infringe on United States sovereignty and impinge on government
regulation involving businesses in banking, tobacco, pharmaceuticals and
other sectors.
Members
of Congress have been reviewing the secret document in secure reading
rooms, but this is the first disclosure to the public since an early
version leaked in 2012.
“This
is really troubling,” said Senator Charles E. Schumer of New York, the
Senate’s No. 3 Democrat. “It seems to indicate that savvy, deep-pocketed
foreign conglomerates could challenge a broad range of laws we pass at
every level of government, such as made-in-America laws or anti-tobacco
laws. I think people on both sides of the aisle will have trouble with
this.”
The
United States Trade Representative’s Office dismissed such concerns as
overblown. Administration officials said opponents were using
hypothetical cases to stoke irrational fear when an actual record exists
that should soothe worries.
Such
“Investor-State Dispute Settlement” accords exist already in more than
3,000 trade agreements across the globe. The United States is party to
51, including the North American Free Trade Agreement. Administration
officials say they level the playing field for American companies doing
business abroad, protect property from government seizure and ensure
access to international justice.
But
the limited use of trade tribunals, critics argue, is because companies
in those countries do not have the size, legal budgets and market power
to come after governments in the United States. The Trans-Pacific
Partnership could change all that, they say. The agreement would expand
that authority to investors in countries as wealthy as Japan and
Australia, with sophisticated companies deeply invested in the United
States.
“U.S.T.R.
will say the U.S. has never lost a case, but you’re going to see a lot
more challenges in the future,” said Senator Sherrod Brown, Democrat of
Ohio. “There’s a huge pot of gold at the end of the rainbow for these
companies.”
One 1999 case gives ammunition to both sides of the debate. Back then, California banned the chemical MTBE from the state’s gasoline,
citing the damage it was doing to its water supply. The Canadian
company Methanex Corporation sued for $970 million under Nafta, claiming
damages on future profits. The case stretched to 2005, when the
tribunal finally dismissed all claims.
To
supporters of the TPP, the Methanex case was proof that regulation for
the “public good” would win out. For opponents, it showed what could
happen when far larger companies from countries like Japan have access
to the same extrajudicial tribunals.
But
as long as a government treats foreign and domestic companies in the
same way, defenders say, it should not run afoul of the trade
provisions. “A government that conducts itself in an unbiased and
nondiscriminatory fashion has nothing to worry about,” said Scott
Miller, an international business expert at the Center for Strategic and
International Studies, who has studied past cases. “That’s the record.”
Similar
chapters exist in the North American Free Trade Agreement and the
Central American Free Trade Agreement, but their use has been limited
against the United States. Over 25 years, according to the trade
representative’s office, the United States has faced only 17
investor-state cases, 13 of which went before tribunals. The United
States has lost none.
Civil
courts in the United States are already open to action by foreign
investors and companies. Since 1993, while the federal government was
defending itself against those 17 cases brought through extrajudicial
trade tribunals, it was sued 700,000 times in domestic courts.
In
all, according to Public Citizen’s Global Trade Watch, about 9,000
foreign-owned firms operating in the United States would be empowered to
bring cases against governments here. Those are as diverse as timber
and mining companies in Australia and investment conglomerates from
China whose subsidiaries in Trans-Pacific Partnership countries like
Vietnam and New Zealand also have ventures in the United States.
More than 18,000 companies based in the United States would gain new powers to go after the other 11 countries in the accord.
A similar accord under negotiation with Europe has already provoked an outcry there.
Senator
Brown contended that the overall accord, not just the investment
provisions, was troubling. “This continues the great American tradition
of corporations writing trade agreements, sharing them with almost
nobody, so often at the expense of consumers, public health and
workers,” he said.
Under
the terms of the Pacific trade chapter, foreign investors could demand
cash compensation if member nations “expropriate or nationalize a
covered investment either directly or indirectly.” Opponents fear
“indirect expropriation” will be interpreted broadly, especially by
deep-pocketed multinational companies opposing regulatory or legal
changes that diminish the value of their investments.
Included
in the definition of “indirect expropriation” is government action that
“interferes with distinct, reasonable investment-backed expectations,”
according to the leaked document.
The
cost can be high. In 2012, one such tribunal, under the auspices of the
World Bank’s International Centre for Settlement of Investment
Disputes, ordered Ecuador to pay Occidental Petroleum a record $2.3
billion for expropriating oil drilling rights.
Under the Trans-Pacific Partnership, a member nation would be forbidden from favoring “goods produced in its territory.”
Critics
say the text’s definition of an investment is so broad that it could
open enormous avenues of legal challenge. An investment includes “every
asset that an investor owns or controls, directly or indirectly, that
has the characteristic of an investment,” including “regulatory permits;
intellectual property rights; financial instruments such as stocks and
derivatives”; construction, management, production, concession,
revenue-sharing and other similar contracts; and “licenses,
authorizations, permits and similar rights conferred pursuant to
domestic law.”
“This
is not about expropriation; it’s about regulatory changes,” said Lori
Wallach, director of Global Trade Watch and a fierce opponent of the
Pacific accord. “You now have specialized law firms being set up. You go
to them, tell them what country you’re in, what regulation you want to
go after, and they say ‘We’ll do it on contingency.’”
In
2013, Eli Lilly took advantage of a similar provision under Nafta to
sue Canada for $500 million, accusing Ottawa of violating its
obligations to foreign investors by allowing its courts to invalidate
patents for two of its drugs.
All
of those disputes would be adjudicated under rules set by either the
International Centre for Settlement of Investment Disputes or the United
Nations Commission on International Trade Law.
The
Obama administration pressed for — and won — clear transparency rules
mandating that tribunals be open to the public and arbitration documents
be available online. Outside parties would also be allowed to file
briefs.
“Here’s what I can tell you as these negotiations proceed,” President Obama
told reporters in Brussels last year when questioned on the trade deals
in the works. “I have fought my entire political career and as
president to strengthen consumer protections. I have no intention of
signing legislation that would weaken those protections.”
There
are other mitigating provisions, but many have catches. For instance,
one article states that “nothing in this chapter” should prevent a
member country from regulating investment activity for “environmental,
health or other regulatory objectives.” But that safety valve says such
regulation must be “consistent” with the other strictures of the
chapter, a provision even administration officials said rendered the
clause more political than legal.
One
of the chapter’s annexes states that regulatory actions meant “to
protect legitimate public welfare objectives, such as public health,
safety and the environment” do not constitute indirect expropriation,
“except in rare circumstances.” That final exception could open such
regulations to legal second-guessing, critics say.
Correction: March 27, 2015
An article on Thursday about provisions in the Trans-Pacific Partnership, as outlined in a classified document, that would allow foreign corporations to sue the United States over actions that hurt their business or investment expectations misstated when the document was made available to members of Congress. Drafts were available for review soon after being written; it is not the case that the latest document was not made available until last week.
An article on Thursday about provisions in the Trans-Pacific Partnership, as outlined in a classified document, that would allow foreign corporations to sue the United States over actions that hurt their business or investment expectations misstated when the document was made available to members of Congress. Drafts were available for review soon after being written; it is not the case that the latest document was not made available until last week.
