For many liberal critics, the problem with the Trans-Pacific Partnership trade deal isn’t simply the worry that it could lead to more job loss by exposing American manufacturing to more import competition. Rather, they assert that the TPP is in many ways not even a trade agreement: Its real offense is in the areas of intellectual property and global dispute settlement, where the deal, they say, could further tilt the playing field towards major corporations.
Specifically: Many on the left have raised concerns about the Investor-State Dispute Settlement mechanism, which would allow major corporations to litigate disputes with local governments in a manner designed to create a stable legal environment for investments in participating countries.
Now a group of senior legal experts — including Obama’s old Harvard mentor, Laurence Tribe, who has been representing the coal industry against Obama’s EPA regulations — is weighing in on the controversial ISDS provision, pronouncing it contrary to American legal traditions.
In a new letter to Congressional leaders, these legal experts lay out an expansive case against the ISDS on legal grounds, as opposed to economic ones, claiming it would “undermine democratic norms.” Alliance for Justice helped organize the letter.
This takes the argument a bit outside the turf where it has mostly been fought. Elizabeth Warren has raised legal concerns but has mostly argued that TPP’s ISDS would allow foreign companies to challenge and undermine American regulations and gouge American taxpayers in settlements. President Obama has aggressively pushed back, arguing that the ISDS can’t trump American law; that there are many ISDS mechanisms already in existence; and that the U.S. has never lost a case in one.
In their letter, the legal experts — who include Tribe, Yale’s Judith Resnik, University of California’s Cruz Reynoso, former federal judge Lee Sarokin, and Joseph Stiglitz, who is not a lawyer but a major economist — argue:
Our legal system rests on the conviction that every individual, regardless of wealth or power, has an equal right to bring a case to court. To protect and uphold the rule of law, our ideals of fairness and justice must apply in all situations and equally to everyone. ISDS, in contrast, is a system built on differential access. ISDS provides a separate legal system available only to certain investors who are authorized to exit the American legal system. Only foreign investors may bring claims under ISDS provisions. This option is not offered to nations, domestic investors, or civil society groups alleging violations of treaty obligations. Under ISDS regimes, foreign investors alone are granted legal rights unavailable to others — freed from the rulings and procedures of domestic courts.
ISDS also risks undermining democratic norms because laws and regulations enacted by democratically-elected officials are put at risk in a process insulated from democratic input. Equal application of the law is another critically important hallmark of our legal system — one that is secured through orderly development of the law. Court decisions are subject to appeal, ensuring that conflicting lower court decisions are resolved by a higher authority. Judges also must follow legal precedent. The goal is uniform application of the law regardless of which judge or court hears a case. This law development allows people, entities, and nations alike to order their behavior according to well-established legal principles.
In contrast, ISDS does not build in the development of the law. An ISDS arbitral panel’s decision cannot be appealed to a court. The ISDS provisions of which we are aware provide only limited — private — review through a process called annulment that does not permit decisions to be set aside based even on a “manifest error of law.” Moreover, ISDS arbitrators, like other arbitrators, do not make law because their decisions have no precedential value, and ISDS arbitrators in turn are not obliged to follow precedent in reaching their own decisions…
ISDS arbitrators are not public servants but private arbitrators. In many cases, there is a revolving door between serving on ISDS arbitration panels and representing corporations bringing ISDS claims. Yet, although such a situation would seem to call for more — not less — oversight and accountability, ISDS arbitrators’ decisions are functionally unreviewable.
The Obama administration would argue that ISDS does not function as a shadow mechanism outside American courts; it provides a fair, stable mechanism for resolving disputes between American companies and other countries’ governments.
“Part of our goal here is to make sure that there is a neutral process that is legally recognized, so that if an arbitrary burden or tax or tariff is imposed on a U.S. company in these countries, that they have recourse to a fair, impartial venue to resolve it,” Obama said recently. “Foreign countries already have that here in the U.S.”
Meanwhile, the Huffington Post reports that Hillary Clinton’s book, Hard Choices, contains a passage that criticizes the ISDS mechanism, arguing that it empowers investors to “sue foreign governments to weaken their environmental and public health rules.” That’s the case Warren and others have already made. The new criticism from legal experts could push the debate over ISDS in a new direction.