Congress: Investor-state harms U.S. sovereignty

Conversations on the Hill this week have been dominated by discussions of Trade Promotion Authority (TPA), the mechanism that rams free trade agreements like the Trans-Pacific Partnership (TPP) through Congress. Sen. Elizabeth Warren (D-Mass.) and President Obama have been trading barbs, and the Senate first prevented, then passed a motion to proceed with discussions of the TPA. While there are numerous reasons why members of Congress should oppose the TPP, and therefore TPA legislation, they should be especially concerned with the investor-state dispute settlement (ISDS) mechanism, which will undermine local, state, and national sovereignty.

Supporters of ISDS maintain that the mechanism was written into trade deals to prevent countries from seizing corporate property without compensation. However, ISDS allows foreign corporations to sue countries for failing to give them “minimum standard of treatment,” and corporations have been using this clause to seek compensation for lost profits due to changing policies in the host country. This mechanism, therefore, greatly harms sovereign attempts to create environmental, financial, and public health regulations.

{mosads}An ISDS lawsuit cannot overturn a democratically determined law, but pending lawsuits from multinational corporations have a chilling effect on those who want to enact similar laws or regulations. ISDS cases are decided by undisclosed three-person panels of private sector lawyers, and the decisions are not appealable. The typical ISDS case is between a developed-country investor and a developing-country government, however, the TPP includes nations like Australia, Japan, New Zealand and Canada which leaves the U.S. exposed to a host of potential new lawsuits.

Just take a closer look at what happened this week. Canadian Finance Minister Joe Oliver stated on Wednesday that the “Volcker Rule,” a Dodd-Frank Act provision, violates NAFTA because it doesn’t allow U.S. banks to trade Canadian debt. The Volcker Rule was originally designed to prevent big banks from taking high-risk trading bets for their own profits, as a way to protect U.S. consumers. The U.S. Treasury Department has since argued that “the Volcker Rule is clearly not a violation of NAFTA or any other trade agreement,” and maintained that “NAFTA does not weaken our ability to implement Wall Street Reform now or in the future.” However, using ISDS, a Canadian bank could feasibly bring a lawsuit against the U.S. in an international tribunal, rather than U.S. courts, if it felt that it wasn’t receiving “minimum standard of treatment.”

In reality, U.S. multinational corporations have already brought ISDS cases against other developed countries. Under NAFTA, the U.S.-based oil and gas company Lone Pine Resources has a pending lawsuit for $250 million against Quebec for “lost profits” because the citizens passed a moratorium on fracking under the St. Lawrence River, and Lone Pine had already purchased leases to explore for natural gas. This should be disturbing to U.S. lawmakers as citizens in New York and Colorado pass and work for their own moratoriums on fracking due to environmental and health concerns. While an ISDS case could not force New York to overturn its fracking ban outright, it could cause other states to think twice before enacting similar regulations. Regardless of one’s stance on fracking, this boils down to an issue of sovereignty and protecting democratic laws determined by the people.

As Congress deliberates on TPA legislation in the coming weeks, members must remember that their Constitutional authority and obligation lies in protecting the health and safety of their citizens, not the profits of foreign corporations. Members of Congress must oppose both Trade Promotion Authority legislation and the Trans-Pacific Partnership.   

Wirzba is a policy associate on Sustainable Energy and Environment for the Friends Committee on National Legislation: A Quaker Lobby in the Public Interest.