There is a leaked draft of the Trans-Pacific Partnership (TPP) circulating online. The background details are a Google search away, but the key point is that there is a multi-country trade agreement being negotiated in secret. The US is a relatively late entrant into the TPP negotiating process, but given the size of our domestic market US negotiators will have a major influence on any draft agreement.
Public Citizen, a US based NGO, announced they have obtained a draft of the document.
What did they find in the draft? Straight from the Public Citizen’s analysis:
“Although the TPP has been branded a “trade” agreement, the leaked text of the pact’s Investment Chapter shows that the TPP would:
- Limit how U.S. federal and state officials could regulate foreign firms operating within U.S. boundaries, with requirements to provide them greater rights than domestic firms;
- Extend the incentives for U.S. firms to offshore investment and jobs to lower-wage countries;
- Establish a two-track legal system that gives foreign firms new rights to skirt U.S. courts and laws, directly sue the U.S. government before foreign tribunals and demand compensation for financial, health, environmental, land use and other laws they claim undermine their TPP privileges; and
- Allow foreign firms to demand compensation for the costs of complying with U.S. financial or environmental regulations that apply equally to domestic and foreign firms.”
They go on to make the following claim:
“There are many provisions in the leaked TPP investment chapter text that replicate (identically or almost so) the damaging NAFTA investment chapter model.”
A few others have added fuel to the fire, including this contribution on the Huffington Post.
Before I launch into some criticisms, here is a quick 30 second background on the topic.
There’s been a bunch of published studies on Bilateral Investment Treaties (BITs) in the past few years. These investment treaties specifiy some basic rights for investors and obligations of signing governments. A really nice (quick) overview of BITs (or International Investment Agreements) can be found here.
Thousands of BITs have been signed, with some variation in content. But the US is notorious for having a “model BIT” where the US negotiators have a boilerplate BIT and then negotiates from there. Most of the US BITs look very similar.
What does this have to do with TPP? Quite a few things.
- Many trade agreements include “embedded BITs” or investment agreement clauses. Why? The same reasons the WTO has tried to make more progress on Trade Related Investment Measures (TRIMS) and General Agreement on Trade in Services (GATS). Trade isn’t only goods moving across borders. Services are an important component of international trade, and many services, like banking, often require an investment in the host country. So if you want to open financial markets, allow foreign companies to operate ports, invest in power provision, you need to cover investment. Governments can also restrict trade by forcing firms to only use domestic suppliers (local content requirements). We can obviously debate if this type of trade liberalization is a good thing, but including investment agreements as part of trade agreements isn’t some sinister secret. Trade agreements generally include these provisions.
- Did I mention the US likes to use boilerplate agreements? The fact that the US wants the same types of investment provisions in TPP as they have in NAFTA isn’t a surprise. We have a little paper on BITs where we look at the variation in the “exceptions” in US BITs (gated). But the structure is pretty similar. You don’t need a leak to figure this out.
- In my opinion, the criticism of limiting the ability of governments to regulate foreign firms really misses the mark. Trade and investment agreements often specify two ways that foreign producers/firms can be treated. They can be granted “most-favored national status”. This means that if the US cuts Canada a sweet deal, allowing Canadian airlines to investment in U.S. airlines (currently restricted), we would have to extend this benefit to other countries that are granted most favored nation status. National treatment is generally a step above this. You treat foreign firms that same as you treat domestic firms. If you decide that auto producers should have certain fuel efficiency standards, you apply these standards to foreign and domestic firms
I personally think national treatment is quite important, not just for attracting investment. It limits the political power of domestic industries to try to carve out goodies for themselves. These often can come under the veil of protecting the environment, labor rights, etc. Daniel Kono has a really nice paper on this topic.
To be clear, I’m an environmentalist and also think labor rights are important. But I think we should apply the same standards to domestic and foreign companies operating in the US.
- The final point of Public Citizen, on the role of foreign tribunals, is pretty silly to me. They are correct that investment arbitration allows foreign firms to bypass domestic courts. The idea is that a neutral arbitrator can be used to enforce investment agreements. This is especially important in countries where you don't trust the courts.
But, domestic courts also act as arbitrators, limiting the sovereignty of states. The 5th amendment of the US constitution has similarities with the expropriation provisions being criticized. Governments have to compensate if they seize property. Again, we can debate the implications of restrictions on government ability to seize private property, but let’s not act that these investment agreements are so divorced from domestic law. Jeff Staton and Will Moore have a great (gated) review article on the similarities between domestic and interational law.
What really bothers me most about the Public Citizen report is the language they use on the leaked report and the sinister tone.
This post isn't meant to dump on Public Citizen. My casual reading of many blog posts is that the tone if often nasty and that they often become unnecessarily personal. I want avoid this unhelpful tone here. So what are the interesting issues that emerge from this leaked document?
First, the point on the lack of transparency of trade negotiations is interesting. Mike Moore’s “World Without Walls” has a thought provoking section on how politicians negotiated the WTO in private versus how they communicate their trade posiitons with their own public. There's tons of related social science research ranging from international negotiations to the use of roll call voting in legislatures (as opposed to unrecorded votes) that could be useful here.
Second, a good book that looks at a failed investment agreement (the Multilateral Agreement on Investment) is Edward Graham’s "Fighting the Wrong Enemy". Graham has his own policy views on the matter, but I think it is a good book that provides some evidence for the importance of NGOs in pushing for transparency, and more generally the expected impact of these investment agreements. This is the sort of analysis of trade and investment agreements that can help illuminate and maybe even change some minds.
Third, the major investment arbitration body, ICSID, is very good at posting their concluded and pending cases. Are these cases major constraints on sovereignty? I think this is debate worth having, but let’s look at the data and talk about how these bodies constrain states, and if these constraints are any greater or different than the constraints of than domestic courts. There are lots of research design pitfalls here, but the question is important.
Finally, I applaud NGOs that hold governments accountable by pulling the fire alarm. Often these NGOs follow government activities more closely than average citizens and journalists, and have the expertise to analyze government activities.
I don’t have very strong opinions on the TPP. I personally think this is going to be a very long and drawn out process that in the end will have a very limited impact on the US. But it is an agreement worth analyzing. Unfortunately Public Citizen’s analysis leaves a lot to be desired.
Sorry to any academic reading this for not providing citations to the many studies relevant for this post. Sorry to the non-academics for the links to gated articles. Sorry to my mom, the sole reader of this blog, for picking such a narrow topic. To be honest, I don't think my mom actually reads this blog.