Profits Above All: The Trans-Pacific Partnership and the Environment
“We are aggressively pursuing a robust, enforceable environmental standard in the TPP including U.S. proposals that go above and beyond previous free trade agreements,” [Froman] said. “We have worked closely with the environmental community from the start and have made our commitment clear.”
Michael Froman, U.S. trade representative, as quoted in “Green groups fear U.S. U-turn on Pacific trade deal vows,” Financial Times, 01/15/14
The outcry is growing about the Trans-Pacific Partnership and the proposed fast track process for approving it in the U.S. In our last post, “The Secret Scary TPP: What You Need to Know and Do,” we covered the basics of the Trans-Pacific Partnership (TPP) and some of the main issues with it. Today, we’ll explain how not only does it fail to protect the environment, it also includes tools that allow corporations to punish countries for environment and public health protections that threaten corporate profits.
The most important of these is the Investor-State Dispute Settlement (ISDS), mentioned in our last post.
Investor-State Dispute Settlements
The investor–state dispute settlement process emerged in the 1960s. It didn’t become popular until the 1990s, though, when bilateral investment treaties became more commonplace. Corporations began using the tool and discovered how useful it was, and it became more and more popular from there.
Investor-state dispute settlements have three main parties: the investor, the state, and an arbitrator. The “investor” in investor-state disputes is generally a corporation, although individuals have occasionally filed suits. The “state” is generally a country, though it can be a province as well. Only investors can initiate cases. The arbitrator comes from a rotating panel, and someone who serves as arbitrator in one case can serve as counsel for another.
The investor-state system isn’t tied to any particular country or body. However, its settlements are binding and can be enforced in domestic court. More worryingly, there is no appellate body and decisions are not made based on precedent. Because arbitration can only be initiated by corporations, if a state is successful in defending itself, it has only won that specific case. Change the parties or the details, and the corporation or a similar one can try again. Because arbitrators are paid by the hour, it is in their interest to drag on legal proceedings as long as possible.
According to the United Nations, the average cost of a tribunal exceeds $8 million per party per case. An unwelcome decision by a state can cost the state millions of dollars for defense in multiple similar cases, even if they successfully defend themselves one or every time. Additionally, there is no cap on the amount of compensation investors can seek. For example, the Swedish nuclear energy corporation Vattenfall is currently suing Germany for $4.6 billion for its planned phase-out of nuclear power. Even if a state believes they have a strong case, the threat of damages in the hundreds of millions, or even billions of dollars can be daunting. When even careful, justified decisions can lead to endless legal battles and costs, the result is a chilling effect on new domestic protections.
This is especially true for poorer, less-developed countries, which often need new environmental and public health protections the most. Investors can sue states for prohibiting or restricting processes or products that are banned in the investor’s home country or proven to be unsafe, as long as the investment arrived before the new regulation. For example, in the infamous Ethyl Corp. v. Canada case of 1996/1997, Ethyl Corp, a U.S. company, sued Canada for $251 million plus legal costs for Canada’s ban on the import and trade of MMT, a dangerous octane booster in gasoline. Use of MMT was already banned in the U.S. when Ethyl Corp. brought the case, but not only could Ethyl Corp. bring a case to the tribunal, they won. Ethyl Corp. received a $13 million settlement plus legal fees, a reversal of the ban, and a public statement from the Canadian government saying that there were no risks from the use of MMT in gasoline.
While corporations often favor undeveloped countries for the smooth operations and large profits that come from a lack of oversight and regulation, investor-state systems are a cherry on top. Because poorer countries can’t afford huge legal battles or settlements, they are reluctant to put new regulations in place. And if they do dare, corporations can always threaten–or pursue–tribunals and huge settlements. Developing countries are in a no-win situation, and corporations, as they are wont to do, capitalize on this.
We’ve covered the damage done by the mere existence of these cases–but what about the problems with the arbitration itself? Tied to no particular state or body, unmoored from any foundation of precedent, arbitration is characterized by vague, corporate-friendly guidelines. The most prominent of these are “minimum standard of treatment” and “fair and equitable treatment.” Violating the minimum standard of treatment essentially means denial of justice–violating what any reasonable neutral party would consider fair. Depending on who’s doing the interpreting, “fair and equitable treatment” is sometimes the same standard, sometimes a higher one. In the context of investor-state relations, “fair and equitable treatment” generally means that deals and new regulations or restrictions are decided on quickly and transparently, and favor investors.
Two other key terms:
“Indirect expropriation“: here generally interpreted to mean any action that takes control of or lowers the value of an investor’s assets/investments in a place.
“Regulatory takings“: regulation or similar actions that constrain a corporation’s activities, thereby lowering or preventing expected profits.
More legal definitions are available in Consumers International’s Fact Sheet. The cases cited above come from Public Citizen’s long and outrage-provoking history of all investor-state cases, available here. It’s worth a read.
The Famed Environment Chapter: Empty Hopes for Environmental Protection
On January 7th, Wikileaks released the draft Environment Chapter of the Trans-Pacific Partnership agreement. Environmental groups had been anxious to see a draft of the chapter to evaluate the strength of the language and see whether agreements against overfishing, illegal logging, and shark fin harvesting were included as required by U.S. law and previous trade agreements.
As feared, despite its title, the Environment Chapter gives essentially no assurance of environmental protection. As with investor-state arbitration, environmental protection comes after trade and corporate profits in priority. To that end, the chapter is characterized by its weak, vague language. Variations on “cooperative,” “voluntary,” and “facilitate” come up frequently. Article SS.9.1: Voluntary Mechanisms to Enhance Environmental Performance, is a typical example of this:
“The Parties recognize that flexible, voluntary mechanisms […] can contribute to the achievement and maintenance of high levels of environmental protection and complement domestic regulatory measures. The Parties further recognize that such mechanisms should be designed in a manner that maximizes their environmental benefits and avoids the creation of unnecessary barriers to trade.”
Another example: the section on Corporate Social Responsibility, which reads in part:
“Each Party should encourage enterprises operating within its territory or jurisdiction, to adopt
voluntarily, into their policies and practices, principles of corporate social responsibility related
to the environment […].”
The few tools for enforcement that the Environment Chapter does include are known to be weak. As the Sierra Club points out in their analysis, “Raw Deal: How the Trans-Pacific Partnership Could Threaten Our Climate,” “While the provisions of the environment chapter may be strong on paper, similar provisions in other trade pacts that allow one trading partner to challenge the environmental practices of another trading partner have never before been utilized.”
As for the required provisions? They’re in there, somewhat, but again with weak language. Even though the U.S. is required to seek a ban on shark fin hunting in any new international trade agreements, the Environment Chapter doesn’t include one. Additionally, in 2007, the U.S. government had agreed that any future Multilateral Environmental Agreements (MEAs) should be binding. The U.S. proposed that here, but other countries fought that as well as any other specific issue discussions in the Environment Chapter, even with non-binding language throughout. In their explanation of the Environment Chapter’s background, Grist points out that as the Environmental Chapter stands, instead of enforceable language, “if a country is found wanting, it just has to promise to work toward changing its ways.”
The TPP and Fracking
The Trans-Pacific Partnership would encourage more fracking exports. As the Sierra Club points out in their factsheet, “An Explosion of Fracking? One of the dirtiest secrets of the Trans-Pacific Partnership Free Trade Agreement,” “the DOE loses its authority to regulate exports of natural gas to countries with which the United States has a free trade agreement that includes so-called ‘national treatment for trade in gas.”
‘[…] The TPP, therefore, could mean automatic approval of liquid natural gas (LNG) export permits—without any review or consideration—to TPP countries.”
And once those agreements are in place, impeding them could lead to an investor-state case. That means that beyond its current limited respect for the people’s voice, the government would have to weigh the cost of listening to protest against potentially huge legal settlements. And even if we were victorious there, investor-state dispute tribunals could, in an arbitrary arbitration, undo all of our work.
What Can You Do?
If you’re in the United States, call your congressional Representative to oppose TPP Fast Track! Today, February 12th, is a National Call-In Day against the fast-track process. The TPP is unlikely to go through without the fast track process. If you are reading this on, or within a few days of, February 12th, use the Coalition call-in number, 1-888-925-7006. Tell your Representative that you oppose the Trans-Pacific Partnership and to vote NO on the fast track process.
After February 14th: call your U.S. Representative directly with the same urgent message. Just look up their phone number with an easy zip code-based search here: Find My Representative.
Learn More: if you’re in southeastern Pennsylvania and want to learn more or discuss more, come to the TPP Forum at the Jenkintown Library at 6:30PM on February 20th to hear representatives from Delaware Riverkeeper Network, Food & Water Watch, the Pennsylvania Sierra Club, and Pennsylvania Fair Trade Coalition talk about the TPP. Protecting Our Waters is a co-sponsor of this event. For more information and to RSVP, see the event’s Facebook page or Food & Water Watch’s event page.