Recently Hillary Clinton joined Nancy Pelosi and many others in Congress to call on the president to reorient our trade policy so that it produces a good deal for all Americans — not just for a handful of big corporations. Here’s a realistic starting point: Fix the way we enforce trade agreements to ensure a level playing field for everyone. Many of our close allies — major trading partners like Australia, Germany, France, India, South Africa, and Brazil — are already moving in this direction. American negotiators should stop fighting those efforts and start leading them.
We live in a largely free trade world. Over the past 50 years, we’ve opened up countless markets, so that tariffs today are generally low. As a result, modern trade agreements are less about reducing tariffs and more about writing new rules for everything from labor, health, and environmental standards to food safety, prescription drug access, and copyright protections.
Even if those rules strike the right balance among competing interests, the true impact of a trade deal will turn on how well those rules are enforced. And that is the fundamental problem: America’s current trade policy makes it nearly impossible to enforce rules that protect hard-working families, but very easy to enforce rules that favor multinational corporations.
For example, anyone who wishes to enforce rules that impose labor or environmental standards must plead with our government to bring a claim on their behalf. Reports from the Government Accountability Office, the Labor Department, and the State Department have shown that the Clinton, Bush, and Obama administrations have rarely brought such claims, even in the face of overwhelming evidence of violations. Without strong enforcement, promises that American workers won’t have to compete against 50-cent-an-hour foreign laborers or promises that countries with terrible environmental records will raise their standards are meaningless.
But multinational corporations don’t have to plead with the government to enforce their claims. Instead, modern trade deals give corporations the right to go straight to an arbitration panel when a country passes new laws or applies existing laws in ways that the corporations believe will cost them money. Known as investor-state dispute settlement (ISDS), these international arbitration panels can force countries to pony up billions of dollars in compensation. And these awards stick: No matter how crazy or outrageous the decision, no appeals are permitted. Once the arbitration panel rules, taxpayers must pay.
Because of how costly these awards can be, ISDS creates enormous pressure on governments to avoid actions that might offend corporate interests. Corporations have brought ISDS cases against countries that have raised their minimum wage, attempted to cut smoking rates, or prohibited dumping toxic chemicals. Just last month, a foreign corporation successfully challenged Canada’s decision to deny a blasting permit because of concerns about the environmental impact on nearby fishing grounds, and now the company could get up to $300 million from Canadian taxpayers. Will Canada’s environmental regulators hesitate before they say no to the next foreign corporation that wants to dump, blast, or drill?
Leading economic and legal experts have called on America to drop ISDS from its trade deals. Hillary Clinton recently called ISDS “a fundamentally antidemocratic process.” The conservative Cato Institute agrees, noting that ISDS is “ripe for exploitation by creative lawyers” looking to challenge the “world’s laws and regulations.”
And here lies the double standard at the heart of our trade deals: Once they sign on, countries know that if they strengthen worker, health, or environmental standards, they invite corporate ISDS claims that can bleed taxpayers dry. But countries also know that if they fail to raise wages or stop dumping in the river — even if they made such promises in the trade deal — the US government will likely do nothing.
While American negotiators ignore this problem, the rest of the world is waking up and fighting back. After Phillip Morris targeted it for billions in ISDS compensation, Australia began raising significant objections to ISDS. Negotiations with Europe over a massive new trade deal have stalled in part because of objections to ISDS, including from Germany and France. India is considering abandoning ISDS. So is South Africa, after being hit with an ISDS action challenging — incredibly — its postapartheid policies promoting minority ownership in its mining sector. Brazil has flatly refused to include ISDS in any of its trade agreements.
America needs trade — but not trade agreements that offer gold-plated enforcement for giant corporations and meaningless promises for everyone else. If we truly want better deals that work for everyone, we should stop clinging to our enforcement double standard and start joining our allies in trying to level the playing field.