WASHINGTON – After seven years of negotiations, the Trans-Pacific Partnership, or TPP, was signed by the U.S. and 11 other countries on Feb. 4.
TPP is a 12-nation trade and investment agreement that is set to boost exports and economic growth in the U.S. However, as elections draw near, it remains unclear if TPP will ever work.
Just because the agreement was signed does not mean it’s working already. In order for it to come into effect, it has to be ratified by all member states within two years. The agreement would then cover about 40 percent of the world’s trade, but it has not been without controversy.
Over the years, it has been critiqued for its secrecy, its control of the Internet, its effect on medicine pricing and how it might push down U.S. wages, among other things.
But there’s another side to it. One that is much harder to explain, but that is already worrying many. It’s called the ISDS.
ISDS stands for Investor State Dispute Settlement.
It means a multinational company, or the investor, can sue a country (the state), in an international court over changes in policy that affect them. It is normally used to encourage investment in developing countries.
For example, a company exporting rice can sue a country if it decides to suddenly increase tariffs for rice exports. Or an energy company can get compensation if the local government decides to expropriate – or take over – its business without paying for it.
However, more and more lawsuits are being directed to developed countries.
If there were no ISDS, a company can either sue at local levels or have their countries sue for them. Using local courts sometimes means being exposed to justice systems that are biased against foreign companies. Having a company’s home state suing in what is called a state-to-state arbitration is also not ideal as it can bring politics to the table and have states fighting their investor’s battles for them.
Those opposing ISDS, however, point to many flaws in the system, arguing that it could lead to weakened health and environmental standards.
Joseph Stiglitz, a Nobel Prize-winning economist, said ISDS allows companies to sue for any government action that could negatively affect their profits. “Imagine if we had ISDS 30 years ago, when we found out about asbestos,” he said. “We would have had to compensate companies for not killing people.”
The U.S. Trade Representative Office website has its own explainer of ISDS, and it is clear in saying no ISDS arbitration can make the U.S., or any TPP country for that matter, change its laws. If a country loses arbitration with an investor, the worst thing that could happen is it would have to pay the investor money.
The money, however, can also be an issue. Investors can sue over any earnings they will no longer get because of the government action. This led Chevron to sue Ecuador for $1.77 billion. TransCanada also recently announced it intends to sue the U.S. for $15 billion over the Keystone Pipeline.
Though states usually win arbitrations, the average case costs $8 million and can take years to resolve.
So far, the U.S. has not lost any arbitration with a foreign investor. In general, most claims are for administrative procedures. Those aimed at legislative measures (like most environmental and health regulations) are rarely successful.
The U.S. is not safe from ever losing a case, however. Lise Johnson, an investment and policy lawyer at Columbia University, said even though the U.S already has agreements with ISDS with six of the TPP countries (Canada, Chile, Mexico, Peru, Singapore and Vietnam), the remaining five (Australia, Brunei, Japan, Malaysia and New Zealand) have a much larger number of investors in the country. Investors which could potentially sue.
“Ten percent of our investments are covered by investment treaties today. TPP would double that. TTIP [a trade and investment treaty with the European Union still in negotiation] would raise that to 70 percent. We shouldn’t count that we’ll keep winning,” she said.
In the TPP, measures are included to prevent companies from suing just for the sake of it, limiting its scope in areas such as education and public safety. Efforts have also been made to improve transparency in investment agreements, since a main issue was arbitration procedures that were done in secret or without full disclosure.
This all of course takes into account that the TPP will be ratified. The Senate is probably going to postpone that discussion until after the elections, and there’s a chance the new president taking office next year won’t support the TPP. If either the U.S. or Japan (the biggest economies in the partnership) fails to ratify the agreement, then the TPP will never come into action.
The Obama administration has pushed the TPP not only as a means to benefit the U.S. economy, but also to establish its presence in Asia.
“TPP allows America – and not countries like China – to write the rules of the road in the 21st century, which is especially important in a region as dynamic as the Asia-Pacific,” President Barack Obama said in a statement before the signing in Auckland, New Zealand earlier this month.
Reach reporter Karina Meier at [email protected] or 202-408-1491. SHFWire stories are free to any news organization that gives the reporter a byline and credits the SHFWire. Like the Scripps Howard Foundation Wire interns on Facebook and follow us on Twitter and Instagram.
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