A Trade Rule that Makes It Illegal to Favor Local Business? Newest Leak Shows TPP Would Do That And More

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A Trade Rule that Makes It Illegal to Favor Local Business? Newest Leak Shows TPP Would Do That And More

The leaked text is full of dense legal jargon. But a close reading makes its corporate agenda crystal clear.

Activists project messages about the Trans-Pacific Partnership during a meeting of negotiators in Salt Lake City. (Photo by Jerrick Romero / Backbone Campaign / Flickr)

Secret negotiations on the Trans-Pacific Partnership (TPP), a trade and investment agreement involving 12 nations of the Pacific Rim, are coming to a close, and President Barack Obama will soon submit the final agreement to the U.S. Congress for approval.

Presumably, he will urge the deal’s passage with the same unsubstantiated and misleading claims his administration has offered all along: that the TPP will support Made-in-America exports, enforce fundamental labor rights, promote strong environmental protection, and help small business.

But a newly leaked document belies those claims. The Trans-Pacific Partnership’s text consists of a number of chapters, among the most important of which is the one on investments. On March 25, WikiLeaks released a confidential draft of that chapter dated January 20. The draft contains instructions indicating that it will be declassified only “Four years from entry into force … or, if no agreement enters into force, four years from the close of the negotiations.”

A quick reading of the leaked chapter makes it clear why TPP sponsors have gone to great lengths to keep their negotiations secret. The document substantiates claims by opponents that the TPP is a corporate-rights agreement designed to facilitate the export of U.S. jobs, allow corporations to sue governments for enacting labor and environmental protections, make it illegal for governments to favor local businesses, and advance the colonization of national economies by global corporations and financiers.

As problematic as this chapter is, we can be thankful that it is out in the open. Now the need is to understand what all the legalese means.

The leaked document includes many technical details decipherable only by trade lawyers. Here are the Cliffs Notes in simple English.

1. Favoring local ownership is prohibited

Let’s start with the Investment Chapter’s section on how the TPP’s member countries should treat foreign investors:

Each Party [country] shall accord to investors of another Party treatment no less favorable than that it accords, in like circumstances, to its own investors with respect to the establishment, acquisition, expansion, management, conduct, operation, and sale or other disposition of investments in its territory.

Put in plain English, the above paragraph means that signatory countries renounce their right to favor the domestic ownership and control of the lands, waters, and other productive assets and services essential to the lives and well-being of their people.

The 12 countries further renounce their right to favor locally owned businesses, corporations, cooperatives, or public enterprises devoted to serving their people with good local jobs, products, and services. They must instead give equal or better treatment to global corporations that come only to extract profits.

2. Corporations must be paid to stop polluting

Another provision limits what member countries can do in regard to corporate investments:

No Party may expropriate or nationalize a covered investment either directly or indirectly through measures equivalent to expropriation or nationalization (“expropriation”), except: (a) for a public purpose; (b) in a nondiscriminatory manner; (c) on payment of prompt, adequate, and effective compensation [emphasis added] … ; and (d) in accordance with due process of law.

This provision may sound reasonable, until you look at the chapter’s definition of “investment,” which includes “the expectation of gain or profit.” This odd definition means that a corporation can sue a signatory nation if the country deprives the corporation of expected profits by enacting laws that prohibit the company from selling harmful products, damaging the environment, or exploiting workers. Other language in the chapter makes it clear that this applies to actions at all levels of government.

In other words, a country in the TPP has every right to stop a foreign corporation from harming its people and the environment—but only if the country compensates the corporation for the expense of not harming them.

Similar provisions are already on the books in the North American Free Trade Agreement (NAFTA). According to Public Citizen’s Trade Watch,

Foreign firms have won more than $360 million in taxpayer dollars thus far in investor-state cases brought under NAFTA. Of the 11 claims currently pending under NAFTA, demanding a total of more than $12.4 billion, all relate to environmental, energy, land use, financial, public health and transportation policies—not traditional trade issues.

3. Three lawyers will decide who’s right in secret tribunals

The leaked chapter also describes how disagreements will be settled:

Unless the disputing parties otherwise agree, the tribunal shall comprise three arbitrators, one arbitrator appointed by each of the disputing parties and the third, who shall be the presiding arbitrator, appointed by agreement of the disputing parties.

The arbitrators are private lawyers who are not accountable to any electorate. They are empowered by the TPP to order unlimited public compensation to aggrieved investors. The proceedings and the identities of the tribunal members are secret, and the resulting decisions are not subject to review by any national judicial system.

According to The New York Times, NAFTA tribunals, on which the ones in the TPP are modeled, even have the power to overturn judgments of national courts—including the U.S. Supreme Court. John D. Echeverria, a law professor at Georgetown University, has called this method of dispute settlement “the biggest threat to United States judicial independence that no one has heard of and even fewer people understand.”

4. Speculative money must remain free

Yet another provision prohibits restrictions on movement of money from one country to another:

Each Party shall permit all transfers relating to a covered investment to be made freely and without delay into and out of its territory. …

Forms an investment may take include: (a) an enterprise; (b) shares, stock, and other forms of equity participation in an enterprise; (c) bonds, debentures, other debt instruments, and loans; (d) futures, options, and other derivatives.

Thus, the TPP guarantees the right of speculators to destabilize national economies through the manipulation of exchange rates and financial markets, without interference from national governments.

In so doing, the TPP strips national governments of the right to limit speculation in favor of investment in strong, stable, and productive national economies.

5. Corporate interests come before national ones

Another passage assures that corporations need bear no obligation to serve the interest of the people who live in the countries where they do business:

No Party may ... impose or enforce any requirement or enforce any commitment or undertaking: (a) to export a given level or percentage of goods or services; (b) to achieve a given level or percentage of domestic content; (c) to purchase, use or accord a preference to goods produced in its territory, or to purchase goods from persons in its territory.

The article continues on with six additional provisions, which together prohibit governments from requiring that a foreign investor be under any obligation to serve the host country’s people or national interest.

The 12 countries would renounce their right to favor locally owned businesses

Obama administration officials say these provisions are needed to level the playing field for American companies doing business abroad. This raises an important question: What is an American company?

The Institute for Policy Studies reports that U.S. corporations and their subsidiaries currently hold $2.1 trillion in profits offshore to avoid paying taxes to the government of the United States. These include highly profitable companies like Microsoft, Google, Apple, General Electric, Exxon Mobil, and Chevron. One wonders on what basis we should consider these globe-spanning, tax-dodging, job-exporting corporations to be American.

Approval of the TPP means sacrificing our democracy and our right to manage our markets and resources for the public good. And for what gain? To secure rights for corporations—which claim an American identity only when convenient—to exploit the peoples and resources of other countries that have signed the same nefarious agreement.

David Korten

David Korten

Dr. David Korten is the author of Agenda for a New Economy, The Great Turning: From Empire to Earth Community, and the international best seller When Corporations Rule the World. He is board chair of YES! Magazine, co-chair of the New Economy Working Group, a founding board member of the Business Alliance for Local Living Economies, president of the Living Economies Forum, and a member of the Club of Rome. He holds MBA and PhD degrees from the Stanford University Graduate School of Business and served on the faculty of the Harvard Business School.

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