Clash on Investment: Global Trade and an Opportunity for Civil Society

During the past
several months, I spent nearly 30 hours in meetings of a private sector
committee tasked with advising the Obama administration on a particular
set of international economic policies.

My seat at the table was one of many signs of the new opportunities
for advocates of progressive change in Washington. At the same time, my
experience was an up-close-and-personal look at how hard corporate
lobbyists are fighting to make sure nothing changes.

The committee was made up of about 30 people, with one-third from
labor, environmental, and other public interest groups and nearly all
the rest representing global corporations, including Citigroup,
ExxonMobil, and Procter and Gamble, as well as the major corporate
lobby groups.

Our assignment was to review the U.S. approach to bilateral
investment treaties (BITs), deals that are nearly identical to the
investment chapters of our trade agreements. The topic may sound
obscure. But for all those many hours, we grappled with what I see as
the critical question of our time: What is the proper role of
government in our economy?

Investor Protections

Even before uncontrolled corporate greed drove the global economy
off a cliff, civil society groups around the world had pointed to
so-called "international investor protections" as dangerous tools in a
deregulatory agenda.

In a nutshell, these rules give private foreign investors the right
to bypass domestic courts and sue governments directly in international
tribunals. The most controversial is the right to sue over government
actions - including health, environment, and other public interest
regulations - that diminish the value of an investment.

For example, Mexico had to pay off a U.S. company that had been
denied local permission to build a hazardous waste facility in an
environmentally sensitive area. Canada repealed a public health law in
the face of a threatened lawsuit by a U.S. chemical company. The U.S.
government has spent millions of dollars defending itself against
claims over legitimate environmental regulations.

A growing number of international cases demonstrates how these rules
threaten democracy and the public interest. Even more disturbing are
the hidden costs. We'll never know how many times governments have
decided to not take actions in the public interest - for fear of
provoking an expensive investor lawsuit.

On the campaign trail, President Obama committed to changing these rules, stating
"With regards to provisions in several free trade agreements that give
foreign investors the right to sue governments directly in foreign
tribunals, I will ensure that foreign investor rights are strictly
limited and will fully exempt any law or regulation written to protect
public safety or promote the public interest. And I will never agree to
granting foreign investors any rights in the U.S. greater than those of
Americans."

The economic crisis has added even more urgency. Beyond their
overall deregulatory thrust, these investment agreements specifically
prohibit certain policies designed to mitigate or prevent financial
crisis. Surely, I thought, the time had come for some serous
rethinking. The advisory committee seemed to present just such an
opportunity.

Corporate Pushback

The corporate representatives on the advisory committee didn't quite see it that way. Instead, as the final report
to the Obama administration reveals, they fought back hard against
nearly every proposal to increase policy flexibility. In fact, in
several areas, they pushed to further curtail regulatory powers. Their
favorite argument was that if U.S. investment deals were to allow
governments more policy space, U.S. corporations would be at a
disadvantage relative to foreign competitors. By that logic, the
regulatory race to the bottom would never end.

There was a modicum of consensus on a few narrow issues. For
example, in light of concerns over a new debt crisis in the poorest
countries, we were all able to agree that the administration should at
least take a look at the potential danger of international investors
using these treaties to undermine debt restructuring programs.

But the page numbers alone reflect the high degree of polarization.
The main body of the report is dwarfed by the annexes, where committee
members were allowed to express their views unedited.

I worked with eight others to submit a joint set of recommendations
for a dramatic overhaul of the rules that govern international
investment. While it was a shame that we weren't able to find much
common ground with the corporate representatives, this annex
demonstrates how much was learned.

Key Recommendations

We made four major recommendations: dispute settlement should be
consistent with the public interest; foreign investors should not have
greater rights than U.S. investors; our investment agreements should
protect health, safety, and the environment as well as promote good
jobs; and such agreements should help mitigate and prevent financial
crises.

More specifically, we argued that the current "investor-state"
process should be replaced with a "state-state" process. Since these
cases often concern matters of broad social impact, they should be
handled by governments representing the public interest. This is the
position supported by the more than 125 members of the House of
Representatives who have endorsed a pending bill in Congress called the
TRADE Act (HR 3012). The U.S.-Australia free trade agreement also uses
a state-state process.

We also made several recommendations to fix the fuzzy language that
some tribunals have interpreted in ways that go beyond the investor
rights under U.S. law (and most likely the laws in other countries).
For example, these rules give investors the right to so-called "fair
and equitable" treatment. These are subjective terms with no clear
legal meaning.

Similarly fuzzy language applies to the treaty's impact on the
environment and workers' rights. For example, the U.S. model bilateral
investment treaty says governments shall "strive to ensure" to protect
the environment and worker rights. I might strive to be seven feet tall
or to never eat another potato chip, but neither of those aspirations
is very serious.

Finally, current rules restrict governments from placing even
temporary controls on capital flows, despite the fact that many
countries have used this policy tool effectively in crisis situations.
We also recommended fixes for vague language that could open the door
to investor-state cases over other financial regulatory reforms.

What Next?

Our report will be part of an internal, interagency process
coordinated by the State Department to produce a new model bilateral
investment treaty. Then the Obama administration will need to figure
out what to do about BIT negotiations begun by the Bush administration
with China and India. The corporate lobby is pushing hard for new deals
based on the current model, particularly with China.

Of course, those of us who devoted much of our summer vacations to
the advisory committee are hopeful that our work will have broader
repercussions as well. Candidate Obama promised to revisit some
existing trade pacts, and the BIT advisory report should inform any
review of the investment chapters of U.S. trade agreements. Moreover,
several governments that already have a BIT with the United States
would be eager to renegotiate those pacts. Particularly in South
America, policymakers are increasingly challenging these rules as a
threat to sovereignty.

The Institute for Policy Studies has partnered with the Bolivia-based Democracy Center to help better link the U.S. debate with those in other countries. We have just launched a bilingual (English-Spanish) website
as a tool for activists, policymakers, and academics working to build a
more just and democratic system for governing global investment.

The fact that the Obama administration, early in its term, launched
a process to gather civil society input into our bilateral investment
treaties was a huge positive step toward the broad-based debate we need
about our whole approach to international economic policy. Let's hope
it's just a first step and not the last step in the process.

For More Information

Click here to read the Subcommittee's consensus report. Click here to read an annex produced by Anderson and several other members of `the subcommittee.