The Big Problems in Obama's Big Trade Deals

Framed as the biggest trade deal in the history of the world, trade representatives from the United States and the European Union meet in Washington this week to begin transatlantic trade talks. This is one of two major trade deals on President Barack Obama's docket this year.

The U.S.-EU Transatlantic Trade and Investment Partnership (TTIP) and the Trans-Pacific Partnership (TPP) make up the majority of the world's global domestic product and are already plagued by oversight and accountability issues. The vulnerable communities that will be impacted are wide-ranging, spanning the environmental, labor and health sectors.

Discussions are happening fast and furiously. TTIP is already underway and the administration hopes to finish the TPP negotiations by October. Beyond the disembowelment of environmental and labor standards, there's a larger issue that remains out of the spotlight. It is the plan for extrajudicial "investor-state" tribunals as the final arbiter on trade disputes.

While it sounds innocuous enough, the operative word here is extrajudicial, and Democrats and Republicans should be concerned with the sovereignty issues. As the Huffington Post's Zach Carter explains, "Foreign corporations operating within the U.S. would be permitted to appeal key American legal or regulatory rulings to an international tribunal. That international tribunal would be granted the power to overrule American law." Furthermore, the tribunals can order taxpayer compensation for health and environmental policies that inhibit foreign investors' "expected future profits."

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Here is what it looks like in practice. Let's say a foreign company wants to do some business in California, but a state law fashioned in Sacramento prohibits or puts limits on parts of the firm's operations due to local environmental standards. (A company only needs to be operating in, not based in, a TPP country to use the regime.) In response, California, a leader nationally on environmental protection, sticks to its standards and enforces its laws.

The firm counters by taking California to one of these extrajudicial TPP trade "courts." Except in this case, the court "judges" are not part of a more reputable international tribunal based in an international institution on par with United Nations or the International Criminal Court. No, in this case, the judges are often private sector lawyers that "rotate between acting as ‘judges' and as advocates for the investors suing the governments." If the company wins the suit, the settlement, which is often in the tens of millions of dollars and occasionally in the billions of dollars, is paid by the "losing" country's taxpayers.

Keep in mind that companies won these lawsuits 70 percent of the time last year. Even when governments win, they have to shell out $8 million on average per case just to defend existing public interest policies. The three cases below are exemplary of what we're dealing with under current trade agreements and what we'll likely see more of with TPP and TTIP.

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Consider Ecuador. Under U.S.-Ecuador's Bilateral Investment Treaty, which mimics the investor-state system enshrined in the North American Free Trade Agreement (NAFTA), the largest ever reward from one of these tribunals has hit the poor country of Ecuador hard. In a decision by a World Bank tribunal last year, Ecuador lost to Occidental Petroleum and now is being forced  to pay a penalty of $2.4 billion for ending their oil contract. Ecuador, reeling from decades of environmental pollution by Chevron/Texaco in the Ecuadorean Amazon, had concerns with Occidental illegally selling off portions of the agreed-upon oil contract without government authorization, a move that abrogated the contract. Now the country is billions of dollars in debt.

Consider Peru. This case, involving Peru and a company called Renco Group Inc. and its subsidiary Doe Run Peru, owned by U.S. billionaire Ira Rennert, is equally disconcerting. Pollution from the company's lead and zinc smelters, which are operated in the mountain town of La Oroya, was linked with high lead levels in the town's children. After myriad cases emerged of mental retardation, convulsions, anemia and stunted growth, Peru ordered an environmental cleanup, to which Renco responded by launching an $800 million claim against the government under the U.S.-Peru Free Trade Agreement. The company claimed that the cleanup ran Doe Run Peru into bankruptcy. Meanwhile, the kids get sicker and the town poorer. 

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Consider Canada. After Quebec passed a moratorium on fracking two years ago because it wanted to conduct an environmental impact assessment on the impacts of leached chemicals and gases from fracking, U.S.-based company Lone Pine Resources demanded $250 million, saying Canada violated its NAFTA obligations. The company had planned to frack 30,000 acres near the St. Lawrence River, injecting toxic chemicals into a critical watershed. These kinds of cases where a nation's laws are usurped by extrajudicial tribunals are only becoming more common. 

Recall that Obama was against this a few years ago: According to Barack Obama on the campaign trail, "We will not negotiate bilateral trade agreements that stop the government from protecting the environment, food safety, or the health of its citizens; give greater rights to foreign investors than to U.S. investors; require the privatization of our vital public services; or prevent developing country governments from adopting humanitarian licensing policies to improve access to life-saving medications." U.S. Trade Representative Michael Froman will be asking Congress for fast-track authority to move forward these investor-state provisions within any forthcoming trade agreements. Two-thirds of the Democratic freshman class in the House of Representative came out opposing it.

Fast-track means little Congressional oversight, hardly the appropriate pursuit for a president who's already having transparency problems on the National Security Agency and Internal Revenue Service fronts. What's needed going forward, then, on both TPP and TTIP, is more oversight and accountability by both Congress and the constituents they represent.

The overwhelming majority of the trade advisory boards are stacked with private sector representatives with little nongovernmental participation. If these trade deals are the "win" the White House claims, there should be no reservations whatsoever in opening up the process for full participation by the stakeholders who will be at the receiving end of these trade agreements. That would make it truly trans-pacific and transatlantic. And that would make it a real partnership.

Michael Shank, Ph.D., is the director of foreign policy at the Friends Committee on National Legislation.