This is the third in a trilogy of posts on Hillary Clinton and trade policy.
In recent days, some of the highest-profile US critics of the TPP have refocused their sights on the provisions of the agreement that call for investor-state arbitration. Elizabeth Warren, for example, singled out the inclusion ISDS arbitration as an adequate rationale to reject the TPP, and suggested that the US should insist ISDS be taken out of existing trade and investment agreements as they come up for renegotiation and renewal. In an interview, Warren cited a sensationalist investigative series by Buzzfeed, which portrayed ISDS as the last, and sometimes first, resort of crooked businesses and rapacious bankers against poor countries trying to protect their citizens. There is much that can be challenged in the detail of Buzzfeed's presentation of ISDS. But Buzzfeed's findings put a dent in one of the most valid arguments of the defenders of ISDS: few decided cases, when properly understood, have threatened the environment or sold short domestic policy sovereignty. Buzzfeed discovered troubling examples where the harm came from the threat of an ISDS claim, which could bring small developing states to their knees.
A further development in the last days is a letter signed by over 200 professors of law and economics, including Laurence Tribe, Dani Rodrik and Joseph Stiglitz, which urges members of Congress to reject TPP "as long as ISDS is included."
One is compelled to ask whether there is any feature of TPP, aside from ISDS, that is so unacceptable to a wide coalition of activists and scholars as to be a decisive argument for rejection. Certainly other issues have been raised, including the implications for financial regulation, TRIPs-plus IP provisions and their implications for access to medicines, and the weakness of the environmental and labor provisions in TPP.
But the clear common ground of the critics is the unacceptability of investor-state arbitration. And this may provide a window of opportunity for Hillary Clinton, as well as for President Obama and Senator Warren, to start closing the gap within the Democratic Party on trade, staking out a common front of free trade on progressive terms against Trump's protectionism and xenophobia.
What if Congress were to adopt TPP subject to the United States filing a reservation opting out of the provisions for investor-state arbitration? Such a reservation has the big advantage that it would not require any changes to the text of the TPP as it now stands prior to ratification. Unlike the WTO system of multilateral treaties, where reservations are explicitly prohibited (WTO Agreement, XVI:5) there is no explicit rule on reservations in the TPP text. Some have already been filed, in the format of annexes listing non-conforming measures. But there is no language in TPP that implies that the door is shut to further reservations. When we turn to the Vienna Convention on the Law of Treaties, the general rules there contemplate that reservations may be made at the stages of ratification, acceptance or approval. Indeed the clause of the TPP on accession, 30.4, indicates that a state's accession to TPP may be subject to terms and conditions where these are consented to by the other TPP parties.
That's the legal doctrine. As a political matter, it is unlikely that the other TPP parties will refuse to consent to the US reservation if it is a necessary condition for US approval of the agreement. The US and Australia already decided to leave ISDS out of their bilateral trade and investment agreement. By contrast, in the case of Singapore,Vietnam and Chile, the US has bilateral agreements that include ISDS, and with Canada and Mexico of course the NAFTA, which has generated considerable ISDS litigation. The US reservation on ISDS in TPP would leave these arrangements in place, so investors from those countries would still have access to ISDS, thus making it difficult for their governments to oppose strenuously the US reservation. And It is hard to imagine Japan or New Zealand viewing the absence of investor-state arbitration for their nationals against the United States as a deal-breaker. (The existence of ISDS under other agreements with a number of TPP countries also limits the extent to which pro-ISDS US corporate interests would lose concretely under a scenario where the US took a reservation on ISDS in the TPP. If such interests really consider ISDS so essential with any particular TPP country where it doesn't already exist, well they can live to fight another day for a bilateral investment treaty with that country-and a fight they will have with Elizabeth Warren and other powerful critics of ISDS in general.)
An ISDS reservation might simply say that the ISDS provisions of the investment chapter of TPP are inoperative in the case of the United States. Or it might give the TPP parties a period of say two or three years to negotiate alternatives to ISDS: an international judicial tribunal as proposed by the EU and entrenched in the EU's agreements with Viet Nam and Canada; a hybrid domestic/international tribunal (there are examples from the international criminal law area); a trans-pacific political risk insurance fund; a TPP dispute avoidance and mediation facility. During that period the ISDS provisions of TPP would stay inoperative for the US and if the negotiations failed the US reservation to the traditional ISDS in the current TPP text would become permanent.
Proposing to President Obama that he present TPP to Congress on the basis of an ISDS reservation would turn Hillary Clinton from a perceived insincere opponent of TPP into an authentic supporter of better, more progressive trade agreements. Being handed the opportunity to secure his legacy in Asia on such reasonable terms, President Obama would appear obstinate, inflexible and unaccommodating if he were to reject the reservation. ( In the case of the Iran deal, the administration was endlessly inventive in the way it adjusted the structure of the accord to address critics and get Congressional approval.)
My own view is that I share many of the critics' concerns with investor-state arbitration (lack of predictable jurisprudence, no arbitrator accountability and professional standards, weak conflict of interest and ethics rules, lack of diversity in the arbitrator pool etc.) but I would prefer an alternative that preserves international dispute settlement accessible to non-state actors including investors while addressing these problems. An ISDS reservation might well speed up and fortify efforts to find a different way of guaranteeing international norms of non-discrimination, due process and access to justice in the investment area. For me the problem is that an ISDS reservation is not enough to make TPP a meritorious agreement, in the sense of moving in a progressive direction on trade. But add a couple of additional reservations/declarations and I could be persuaded to regard TPP as a worthy compromise, the basis for a united Democratic front against Trump's aggressive protectionist stance.
One such additional reservation would provide that the United States will seek over a defined period (say two years) an agreement with its TPP partners on a supplementary mechanism to enforce environmental and labor norms, which would allow non-state actors such as NGOs to bring complaints to an independent body. Failing agreement on such a mechanism, the US would reserve its right to use or strengthen trade remedy law to address instances of environmental or social "dumping", notwithstanding any provisions of TPP. The US could also declare (which would not even be a reservation since the TPP already provides for withdrawal on six-months notice), and Congress could provide that, an independent nonpartisan commission annually evaluate the impact of TPP on 1) US unemployment, 2) wages/conditions of work, and 3) social and economic inequality: If in any consecutive two-year period the commission were to find significant net negative effects on some or all of these, then the Administration would be required to bring before Congress the proposition of withdrawal from TPP, consistent with the six month notice period. Withdrawal would hardly create catastrophic uncertainty, since there is a web of treaties, in addition to the WTO rules, by which economic relations with TPP partners would continue to be governed.
These adjustments in the US participation in the TPP, none of which require renegotiating the signed text before its ratification, obviously will not silence-and should not silence-broader debates about the relationship of trade to democratic sovereignty and social and economic inequality. To some, the adjustments I suggest will simply appear to put a slightly better face on an unacceptable and discredited neoliberalism or market fundamentalism. The debates will go on but Hillary Clinton needs a defensible platform on trade right now, and one that appears genuine given her past commitments and the broader Clinton legacy on free trade; likewise, the Democratic Party needs to find common ground on this issue; and America needs to persuade the world that re-evaluating the terms on which it negotiates trade does not mean a turn inwards and an abandonment of global vision.
