Companies would be able to sue foreign governments that seize or significantly damage their business, under the terms of a trade pact being negotiated by the U.S. and 11 other countries, according to a classified document.
The procedure contained in the Trans-Pacific Partnership has rekindled a debate in the U.S. over whether environmental-protection laws and other domestic rules would be endangered.
The anti-secrecy organization WikiLeaks posted online the details of what’s known as the investor-state dispute-settlement procedure. The New York Times earlier reported that it obtained the draft of the trade deal in conjunction with WikiLeaks.
That the countries were negotiating the details of the procedure was known, because it was revealed in a previous leaked draft of the confidential text in 2012. Such procedures are also part of existing trade accords, such as the North American Free Trade Agreement.
Still, the new text, dated Jan. 20, triggered a fresh round of criticism.
“It is outrageous that we have to continue to rely on leaked texts to expose the details of this trade pact — and that every leak confirms the threats of the Trans-Pacific Partnership to clean air and water,” Ilana Solomon, director of the Sierra Club’s Responsible Trade Program, said in an emailed statement.
President Barack Obama’s administration argues that the procedure isn’t a threat to U.S. laws, saying it offers protection against underdeveloped legal systems in other countries. The administration is asking Congress to grant it fast-track negotiating authority for the Pacific agreement, allowing for an up-or-down vote on the accord, with no amendments.
The draft text of the trade pact raises the possibility that an investor could sue over “indirect expropriation,” meaning a government wouldn’t have to actually seize property but only act in such a way that reduces its value. That could trigger a lawsuit charging that the government hurt the “expectations” investors had.
Yet the text contains provisions suggesting that suing on the basis of expectations would be difficult.
The procedure, in which companies can submit claims to arbitration and seek monetary damages, has drawn criticism from environmental, labor and consumer-advocacy groups since the 1990s. Sen. Elizabeth Warren, a Massachusetts Democrat, complained about it in a Feb. 15 article in the Washington Post, prompting a response from Jeffrey Zients, director of Obama’s National Economic Council.
Zients said the procedure is merely an international version of the U.S. Constitution’s requirement that expropriation of private property requires restitution.
“When government takes its citizen’s property from them — be it a person’s home or their business — the government is required to provide compensation,” Zients wrote.
In addition to NAFTA, the procedure is part of dozens of bilateral treaties aimed at promoting investment. A study by the Center for Strategic and International Studies found that while companies did attempt to use the procedure to challenge domestic laws, they are mostly unsuccessful.
About a third of the cases were settled before arbitration, while governments won 45 percent of them. Companies won the other 22 percent, but obtained damages for pennies on the dollar of what they’d asked for.