On Trade Reform, Why Isn't Elizabeth Warren Teaming Up With the European Union?

05/17/2015 10:43 am ET | Updated May 15, 2016


Getting 12 Asian and North American countries to agree on a massive free trade agreement that will impact their entire economy is sometimes easier than reaching across the aisle in Congress. At least that was the image that emerged from the Hill this week, as lawmakers, vanguards, pundits and top aides harangued over granting President Obama the executive authority to fast-track the Trans-Pacific Partnership (TPP). When the vote came to the floor, Senate Democrats shot down the bill, an act of defiance that landed them a private meeting in the White House to smooth things over with the embattled President. So buckle your seat belts, because it's going to be a hot summer on Capitol Hill.

Whereas Senate Democrats held the bill hostage with pork barreling tactics and vowed to throw all the procedural spanners in the works to undermine the measure, firebrand leftist Elizabeth Warren struck a different tone. In a highly cited op-ed in the Washington Post, the Massachusetts Senator riled up spirits by attacking a somewhat arcane provision hidden in the fine print of the TPP: the Investor State Dispute Settlement (ISDS).

On paper, the ISDS sounds as if it was made to pander to greedy corporate interests. And that's because it was. Under the ISDS, corporations can basically sue foreign governments for potential revenue lost because of new regulations enacted by the respective state. The dispute is not settled in sovereign courts or under the banner of international organizations, but in special, ad-hoc arbitration panels whose decisions cannot be appealed.

But what's all the fuss about, especially since the ISDS has been around for more than half a century? Well, in recent years, faced with a ballooning number of cases, scholars have argued that companies are increasingly abusing the policy: "investor-state arbitration has shifted from being a shield of last resort to a sword of first resort in many disputes ... between governments and foreign investors." In other words, companies are turning to the laxer ISDS to fight their battles instead of going through national courts where they stand less chances of winning.

Indeed, as I wrote in a previous post, even if ISDS tribunals cannot order the government to change the contentious law, they disproportionately target Latin American countries that oftentimes lack the financial means to take on corporations whose quarterly profits exceed their GDP. In her op-ed, Warren cites several high profile cases that have sought to weaken labor or environmental rules: a French company sued Egypt over Cairo's decision to raise the minimum wage, or the case of a Swedish company that sued Germany because Berlin had decided to phase out nuclear reactors in the wake of the Fukushima disaster. In another egregious example of manipulating what was supposed to be an insurance policy against corrupt governments, Philip Morris challenged a tough tobacco regulation in Australia, prompting New Zeeland to scrap its similar law over fears of costly litigation.

Senator Warren is right that the system is in dire need of reform and Democrats are right to express concern over handing the White House a blank check to negotiate the TPP. After all, if the fast-track measure is approved, Congress will only get to decide in thumbs up/thumbs down fashion over the entire text of the bill. And who could say no to a deal that promises billions in extra growth, countless jobs and increased cooperation between Washington and Asia's Eastern seaboard? Advocates also argue that the TPP is not just a 12-country trade deal but, thanks to its requirements of raising democratic standards in signatory nations, an essential part in making sure China won't write the playbook on Asian governance

However, all the potential perks stemming from the TPP's approval do not mean that lawmakers should simply pay lip service to the White House's version of the bill - the ISDS is a case in point. But here's a thought - instead of twiddling her fingers in the media, what if Warren joins hands with another like-minded vanguard: Cecilia Malmström.

Cecilia who?

Cecilia Malmström is the European Union's Trade Commissioner, charged with negotiating the Transatlantic Trade and Investment Partnership (TTIP) between Washington and Brussels. The world's biggest trade deal, it would create a huge market of 850 million consumers and link 60% of global output. The talks were progressing at a steady pace - that is until lawmakers on both sides of the Atlantic opened the chapter on ISDS. Thereafter, harried by strong opposition from France, Germany, and the public opinion, negotiations were suspended last year. After intense internal negotiations, the European Commission (a diluted version of our own federal government) cobbled together a list of proposals to overcome the ISDS snafu. Similar to the White House's own TPP head ache, the Europeans need to secure unanimous support from member states to pass the deal and the ISDS is the main sticking point.

Bemoaning the erosion of national sovereignty, Commissioner Malmström noted that the ISDS system "is not fit for purpose in the 21st century". "I want the rule of law, not the rule of lawyers", she added in what reads like an Elizabeth Warren sound bite. Indeed, just like Warren, Malmström is aiming for the same goal: arbitration tribunals should operate like traditional courts, should allow the right to appeal, and should be endowed with a clear code of conduct for arbitrators in order to minimize conflicts of interests. Malmström went even a step further, calling for the establishment of a permanent global arbitration court to hear ISDS disputes, instead of the current inchoate system of ad-hoc panels.

As expected, Washington outright rejected the EU's offer through the voice of Undersecretary for International Trade, Stefan Selig.

So why doesn't Warren team up with Malmström? Sure, the European proposal isn't perfect, but it strikes a good middle ground between supporters and opponents of the ISDS. As things stand now, only a compromise will secure the votes both on Capital Hill and in the byzantine corridors of the European Union. Therefore, instead of spending political capital in rhetorical battles with the Obama administration in the media - a debate that got reduced to whether the President was sexist or not in his remarks - Warren should use her considerable political capital and push for Malmström's plan. Just saying "NO ISDS" and filibustering like Ted Cruz taking on Obamacare does not a good policy make, and certainly this is not what Warren's constituents expect from a US Senator.