'Trade' Deal Would Elevate Corporations to Equal Status With Nation States

10/22/2013 01:24 pm ET | Updated Jan 23, 2014
  • Lori Wallach Director, Public Citizen's Global Trade Watch

The United States and European Union (EU) are in closed-door negotiations to establish a Trans-Atlantic Free Trade Agreement (TAFTA) that would elevate individual corporations to equal status with nation states. Seriously.

The pact is slated to include a foreign investor privileges scheme that would empower foreign corporations to bypass domestic laws and courts and demand taxpayer compensation for government actions or policies to safeguard clean air, safe food and stable banks.

This "investor-state" enforcement system would grant foreign firms the power to drag the U.S. and EU governments before extrajudicial tribunals -- comprised of three private attorneys -- that would be authorized to order unlimited taxpayer compensation for domestic health, financial, environmental and other public interest policies the corporations claim undermine their "expected future profits." And, there would be no outside appeal.

While the United States and Europe are doubling down to further expose consumers and taxpayers to the controversial investor-state system, the governments of many other countries -- from Australia to South Africa and beyond -- are taking action to avoid further damage from the existing regime.

And damage it has wrought. The extreme "investor-state" system was included in a series of U.S. "free trade" agreements, forcing taxpayers to hand more than $400 million to corporations for toxics bans, land-use rules, regulatory permits, water and timber policies and more. Ecuador was just ordered to pay Occidental Petroleum $2.3 billion -- after the firm breached an oil contract with the nation. Specialized private equity firms have sprung up to finance this system of foreign corporations raiding countries' public treasury funds.

Just under U.S. pacts, more than $15 billion remains pending in corporate claims. That includes a U.S. pharmaceutical corporation's attack on Canada's medicine patent policies, a natural gas company's case against Quebec's fracking moratorium, and Chevron's efforts to dodge payment of $18 billion in cleanup costs related to the horrific contamination of a Rhode-Island-sized swath of Ecuador's Amazon.

Corporations' use of this dangerous regime is exploding. From the 1950s until 2000 there were a total of 50 such cases. Today more than 450 have been launched. That includes a corporate attack on Egypt's minimum wage increase, Phillip Morris' assaults on Australian and Uruguayan anti-tobacco public health measures and a nuclear energy corporation's case against Germany's plan to phase out nuclear power.

As the evidence grows that this regime formally prioritizes corporate rights over the right of governments to regulate and the sovereign right of nations to govern their own affairs, some countries are wisely taking action. In 2010, during a conservative government, Australia's decidedly free-market Productivity Commission conducted an in-depth study of the regime and concluded that it was not in Australia's national interest. Australia is refusing to be bound to investor-state rules in the Trans-Pacific Partnership (TPP) agreement it is negotiating with the United States and ten other countries.

South Africa recently completed a similar in-depth, multi-stakeholder governmental review, came to a similar conclusion, and is now reviewing past agreements and smartly beginning to terminate some of them. Brazil, the top recipient of foreign investment in Latin America, has rejected any agreement with such extreme foreign investor privileges. Scores of other countries are beginning to question the system.

And it turns out that these pacts have not delivered on their ostensible purpose -- attracting foreign investment. Repeated studies have shown that there is no relationship between signing such agreements and boosting inflows of foreign investment. The unfulfilled claim was that the investor-state regime's extraordinary circumvention of domestic legal systems would reassure foreign investors considering investing in countries with unreliable domestic courts or weak property rights laws.

That brings us back to TAFTA, where that claim can be rejected outright. With court systems and property rights laws that rank among the strongest in the world, one cannot possibly argue that it is necessary for the EU and United States to allow foreign corporations to skirt domestic legal systems in order to attract their investment. Even so, TAFTA would newly grant this power to the thousands of corporations doing business in both the United States and the EU, enabling them to more directly attack public interest policies.

More than 3,300 EU parent corporations own more than 24,200 subsidiaries in the United States, any one of which could provide the basis for an investor-state claim. This exposure to investor-state attacks far exceeds that associated with all other U.S. "free trade" agreement partners. Similarly, the EU would be exposed to a potential wave of investor-state cases from any of the more than 14,400 U.S.-based corporations that own more than 50,800 subsidiaries in the EU. In sum, TAFTA would newly enable corporate attacks on behalf of any of the U.S. and EU's 75,000 cross-registered firms. You can see a map of these firms here.

Either by awarding corporations that win investor-state attacks with millions in compensation or by preemptively chilling government actions to address critical public needs, inclusion of these foreign investor rights and their private investor-state enforcement in TAFTA would impose an outer bound of the possible for progressive reform.

As the Obama administration pushes this dangerous agenda, it is worth noting that opposition is also brewing at home. The U.S. National Conference of State Legislatures, representing all 50 state bodies -- most of which are GOP-controlled -- issued a resolution last year announcing that it will oppose any U.S. trade agreement with investor-state enforcement. Let's hope their common-sense position spreads.