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Seven Ways TPP Favours Mega-rich Foreign Investors, Not Canadians

And why there's still time for Trudeau to reject it.

Gus Van Harten 18 Jan

Gus Van Harten is a professor at Osgoode Hall Law School and the author of Sold Down the Yangtze: Canada's Lopsided Investment Deal with China (Lorimer, 2015), Sovereign Choices and Sovereign Constraints (Oxford University Press, 2013), and Investment Treaty Arbitration and Public Law (Oxford University Press, 2007).

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The Harper government agreed to the text of the Trans-Pacific Partnership, a trade deal with 12 countries including the U.S., Canada and Japan, shortly before the federal election on Oct. 19. Yet the TPP text was not made public until after the election.

Before it can enter into force, the TPP must be signed and then ratified by member countries. Therefore, the Trudeau government has options to push for renegotiation or to decline either to sign or to ratify the deal on Canada's behalf.

In this article, I offer seven reasons why the TPP's provisions on foreign investor protection -- mostly found in its chapters on investment and financial services -- should be rejected. These provisions reveal how the deal carries unacceptable risks for voters and taxpayers in TPP countries, while giving unjustified benefits to big multinationals and the super-wealthy.

1. The TPP would give special protections to foreign investors at significant public cost, without compelling evidence of a public benefit.

Like other trade agreements, the TPP would give foreign investors special rights to protect their assets by suing countries for compensation in the face of laws, regulations and other decisions that the foreign investor thinks are unfair. These potent international rights are not available to domestic investors or anyone else, even in the most extreme situations of mistreatment.

Why should foreign investors have a special global status and, effectively, a generous public subsidy against the economic risks of democracy and regulation that apply to everyone? The onus should be on promoters of the TPP to give compelling evidence of a corresponding benefit of foreign investor protections for the public. To my knowledge, they have not yet done so.

On the other hand, foreign investors have used their powerful rights again and again to attack legitimate laws and policies around the world. Some of the best known cases are the Philip Morris challenge to anti-tobacco regulations in Australia and Uruguay, the Lone Pine Resources challenge to fracking restrictions in Canada, the Ethyl Corp. claim against a ban on a gasoline additive, and the Vattenfall claim against Germany's nuclear phase-out. With the TPP, more of these claims would become possible, even if the country in question had already won a similar case in the past.

2. When the TPP refers to "foreign investors," we should understand that to mean large multinationals and the super-wealthy.

Overwhelmingly, the foreign investors that have benefited financially from the foreign investor protections in trade and investment agreements have been huge companies and extremely rich individuals.

In a recent study, it was found that over 90 per cent of ordered compensation in foreign investor claims against countries went to corporations with over US$1 billion in annual revenue -- mostly those with over US$10 billion -- or to individuals with over US$100 million in net wealth.

So, the clearest financial effect of foreign investor protections has been to require the transfer of billions of dollars in public money to multinationals and the wealthy (as well as to enrich foreign investment lawyers and arbitrators, who have earned huge fees). The threat of claims has also put pressure on governments to appease foreign investors behind the scenes in order to avoid claims.

Worse, while the TPP gives powerful rights to foreign investors, it does not attach equivalently enforceable responsibilities to respect basic labour, environmental and anti-corruption standards, for example, where a country's institutions fail to uphold such standards.

Basically, the TPP is an example of how global rules are written to give more privileges to the least needy among us. No one else has anything like the protections enjoyed by foreign investors in agreements like the TPP. It's not even remotely close.

3. The TPP is worse than existing agreements such as NAFTA.

The TPP's special rights for foreign investors mimic other trade and investment agreements. Yet the TPP goes beyond other agreements in important ways. First, it would expand greatly the range of foreign investors who enjoy these rights. Second, it would expand the rights themselves beyond current agreements agreed to by Canada.

As an example, the TPP would let foreign investors claim compensation for violations of "investment agreements" (i.e. contracts) with the federal government. Canada has not given this right to foreign investors before in a trade or investment agreement. Instead, Canada has held to the position that a foreign investor's contractual disputes should be resolved according to the agreed terms of the contract, including its terms on dispute settlement.

By allowing foreign investors to bring international claims for "investment agreements," the TPP would expand the risks for taxpayers when governments enter into contracts with multinationals to supply goods and services or to deliver or operate privatized services and infrastructure.

In turn, the TPP would distort the marketplace in favour of the multinationals by giving them an advantage when they bid on government contracts. Domestic companies have to live with the terms of their contracts; foreign investors would get a new TPP right to skirt those terms and resort to generous TPP protections instead.

4. Anything new and apparently better in the TPP, compared to NAFTA, is very likely lost because the TPP adds to, instead of replacing, existing trade agreements.

The TPP almost certainly creates the worst of all possible worlds for taxpayers and governments. Unlike other treaties in which countries agree clearly to replace earlier agreements, the TPP "affirms" and thus adds onto the existing trade and investment agreements.

As a result, for Canada, anything that is apparently better in the TPP compared to NAFTA will almost certainly be lost in practice because a U.S. investor could bring a claim under NAFTA instead of the TPP. Moreover, anything that is worse in the TPP would not be displaced by NAFTA because a foreign investor could choose simply to bring a claim under the TPP.

Indeed, if a foreign investor was unsure which agreement offered the best chance for compensation, it could bring a claim under both the TPP and NAFTA, making a different argument under each and getting compensation if it won under either. I am not being outlandish here; this sort of manoeuvring is common in investor-state dispute settlement (ISDS) based on trade and investment agreements.

For this reason, claims by U.S. President Barack Obama and others that the TPP is more "progressive" than other agreements are highly misleading. The TPP does not replace other agreements, no matter how comparably "regressive" they might be. It adds onto them.

5. The TPP would make it easier for global banks to resist regulation.

If one compares the TPP to NAFTA, the TPP has more protections for global banks and, once again, the added protections come at public expense. The TPP negotiators appear to have decided that banks need more, not less, protection against financial regulation.

In particular, the TPP's financial services chapter allows foreign banks to bring claims for compensation that would not be permitted under NAFTA. Unlike NAFTA, the TPP allows these claims based on the TPP's so-called "minimum standard of treatment" for foreign investors. This supposedly "minimum" standard includes far-reaching rights of foreign investors to be compensated if they do not get "fair and equitable treatment" and "full protection and security." These rights have been interpreted very expansively by arbitrators.

By going beyond NAFTA in this way, the TPP would give arbitrators more power to award compensation to banks during a financial crisis. In turn, the TPP would make it harder for regulators to predict what arbitrators will decide years down the road when a TPP arbitration takes place. That uncertainty would give banks more leverage to resist regulations at the time they are being devised, at the expense of consumers and anyone else who may benefit from financial regulation but lacks the power to threaten a costly claim against the country.

6. The TPP is incompatible with the rule of law.

The TPP's arbitration process to protect foreign investors contradicts judicial independence and the rule of law. It does so by giving for-profit lawyers -- sitting as arbitrators -- the power to decide what sovereigns are allowed to do and then, without any cap on the amount, to award public money to foreign investors.

TPP arbitrators are "for profit" because they are paid by the day or by the hour. Unlike judges, they do not have secure tenure and a set salary to remove any financial interest of the judge to encourage claims by foreign investors. Unlike other kinds of arbitrators, their decisions are subject to little or no scrutiny in any court.

The financial interest of the arbitrators is uniquely present in this type of arbitration because only one side -- the foreign investors -- can bring the claims that trigger the arbitrators' appointments and payday. In turn, the often-repeat arbitrators have a unique incentive to interpret the law in ways that encourage foreign investors to bring more claims.

I think it fair to describe this situation as absurd, from the perspective of judicial independence and the rule of law.

7. The TPP is disrespectful of domestic institutions, including the courts.

The TPP would operate on the assumption that foreign investors should never have to resort to a country's courts, no matter how fair and independent they are. This bizarre over-reach comes from the TPP's omission of the usual requirement in international law that an individual must go to a country's courts first, where they offer justice, before bringing an international claim.

Foreign investors alone -- in trade and investment agreements -- have been relieved of this basic duty. They are not required to use a country's courts. They are not even required to explain why the courts are inadequate. Instead, foreign investors could skip the courts under the TPP or use the TPP to seek compensation for a country's court decisions.

Not worth the risk

The TPP is a threat to our institutions of sovereignty, democracy and the rule of law. At the core of the threat is the uncertain and potentially huge price tag that the TPP puts on any law or regulation opposed by a foreign investor. The problem is not that foreign investors would be too big to fail. It is that the TPP would make the biggest and richest ones too risky to regulate.  [Tyee]

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