PRESIDENT OBAMA’S proposed Trans-Pacific Partnership trade agreement is in trouble on Capitol Hill. Senate Finance Committee Chairman Orrin Hatch (R-Utah) says a bill to enable expedited consideration of the pact will be delayed until April because of opposition from liberal Democrats and a few tea party Republicans. The latest rallying cry for TPP foes is that it would allegedly threaten environmental and labor regulations, as well as U.S. sovereignty, for the benefit, as Sen. Elizabeth Warren (D-Mass.) noted recently, of “the biggest multinational corporations in the world.”
The supposed menace is the TPP’s Investor-State Dispute Settlement mechanism, similar to language in more than 3,000 agreements among 180 countries, including 50 agreements to which the United States is a party. It would permit companies to challenge unfair or discriminatory treatment by TPP governments in binding arbitration rather than an ordinary court. The useful purpose of the settlement provision is to encourage the free flow of capital by protecting foreign investors from uncompensated expropriation and other abuses in countries where they are, as outsiders, disfavored in court — or in countries that may lack well-developed court systems at all.
Contrary to predictions that these processes are stacked in favor of multinationals, the United Nations reports that governments won 37 percent of cases and business only 25 percent; 28 percent were settled before the arbitrators ruled. In the history of ISDS, 356 cases have been litigated all the way to conclusion. Only 17 complaints were lodged against the United States. The number of such cases has increased in recent years but mainly because foreign investment itself has increased.
Critics trumpet ISDS horror stories, but upon closer inspection they generally turn out not to be so horrible. Take the oft-made accusation, repeated by Ms. Warren and others, that a French firm used the provision to sue Egypt “because Egypt raised its minimum wage.” Actually, Veolia of France, a waste management company, invoked ISDS to enforce a contract with the government of Alexandria, Egypt, that it says required compensation if costs increased; the company maintains that the wage increases triggered this provision. Incidentally, Veolia was working with Alexandria on a World Bank-supported project to reduce greenhouse gases, not some corporate plot to exploit the people. The case — which would result, at most, in a monetary award to Veolia, not the overthrow of the minimum wage — remains in litigation.
Obama administration negotiators have sought to minimize the misuse of this settlement provision under the TPP by recognizing each country’s “inherent right” to regulate for health, safety and quality-of-life objectives. The vast majority of TPP countries are legally well-developed (Canada, Australia, New Zealand) or already free-trade partners with the United States (Mexico, Peru, Chile). So the TPP changes the status quo hardly at all.
It seems that the opponents’ real beef is with the administration’s view that the United States and its trading partners should encourage private investment in one another’s economies. On balance, though, free-flowing capital creates more jobs and wealth than it destroys. The TPP would not only increase economic activity but also enhance geopolitical ties between the United States and its East Asian allies, especially Japan. No amount of alarmism should distract Congress from these benefits.
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