Ways and Means Committee Democrats: Trading Views on TPP Investment Chapter

The Ways & Means Committee Democrats held the second installment of the Trading Views on the Trans-Pacific Partnership (TPP) series last week. This forum focused on the TPP’s Investment Chapter which details the Investor-State Dispute Settlement (ISDS) mechanism for foreign investors doing business in TPP countries. Expert ISDS practitioners, academics, and a labor advocate gave their testimony, answered questions, and submitted statements regarding the TPP ISDS process.

Ted Posner, former Director of the National Security Council under the Obama Administration and now partner at Weil, Gotshal & Manges LLP, testified saying:

“First, investment disciplines in treaties and trade agreements provide valuable protections to U.S. individuals and companies. These rules put investors’ relationships with foreign governments on an international law footing… Although critics profess concern about encroachment on regulatory prerogatives, it is difficult to see how adhering to any of these standards would interfere with a government’s right to regulate. In other words, it is difficult – perhaps impossible – to think of a situation in which a government would be forced to choose between adopting or implementing a regulation to advance a legitimate public interest, on the one hand, and abiding by its trade agreement investment obligations, on the other.

…[W]hile investment rules govern relationships between governments and foreign investors, they surely affect the interests of a broader group of stakeholders. The rules ought to reflect those broader interests. In my view, they do. Provisions such as the clarification on when a regulatory act results in a compensable taking and the greater transparency in Investor-State arbitration are the direct result of efforts to take account of the broader public interest.”

Mr. Posner did take issue with the provisions that departed from the U.S. 2004 Bilateral Investment Treaty Model, but concluded:

“As I stated at the outset of my remarks, the key challenge in developing a treaty- and trade agreement-based investment policy is achieving an appropriate balance between investor protections and regulatory prerogatives. In my view, the United States has found that balance. While the TPP investment chapter alters that balance somewhat, it does so in ways that should be modest in their effect.”

Another expert, Michael Smart, former trade counsel for the Senate Finance Committee under then Chairman, Democrat Max Baucus and current Vice President of Rock Creek Global Advisors LLC stated:

“Although the United States began negotiating investment treaties in the early 1980s, it did not face its first claims until the mid-1990s. The United States prevailed in every one of those cases – as it has in every case since then – but the experience sensitized U.S. policymakers to the perspective of respondent governments. This experience is reflected in Trade Promotion Authority (TPA), both the 2002 and 2015 legislation, which sets forth specific negotiating objectives regarding the substantive investment rules and the procedures for resolving disputes. The TPP investment chapter is fully aligned with those instructions from Congress.

The TPP investment chapter also meets TPA objectives related to the investor-state dispute settlement mechanism, or ISDS. It establishes procedures to dismiss frivolous claims and award costs and attorney’s fees to the respondent government. It enhances public participation, including through acceptance of amicus submissions. And it ensures transparency, including by making documents and hearings open and available to the public.”

Although Mr. Smart did not agree with all aspects of the Chapter including the exclusion of financial institutions from ISDS, he concludes that:

“Despite these shortcomings, the TPP investment chapter represents a good outcome for the United States that will promote the interests of U.S. companies while ensuring ample room for governments to regulate. It gives U.S. investors new international protections in four markets where they do not currently exist, including Japan and Malaysia. It also includes reforms to investment rules and procedures that earned the support of all TPP parties, including Australia, which rejected ISDS in the context of our existing bilateral FTA.”

The panel clarified some of the most pressing concerns and common misunderstandings of ISDS. Mr. Smart addressed the question of whether ISDS would put state efforts to regulate for the public interest at risk, stating:

“It does not put state regulations at risk, this is exemplified by the Methanex case where the ISDS tribunal dismissed the company’s claim and upheld California’s ban on methanol recognizing the state’s right to regulate for the public interest.”

And Mr. Posner emphasized that ISDS cannot change a country’s laws and regulations:

“There is never a right to have a regulation or statute undone. A foreign investor claim cannot compel the reverse of a regulation found to be inconsistent of an investor’s TPP claim.” And it is not the case that we would have to pay to keep a regulation. “Under ISDS the claim is with respect to past harm... whereas in WTO and NAFTA, the cases are forward looking.” Therefore, changing the regulations would not satisfy an ISDS claim.

You can watch the full forum here or read Mr. Posner and Mr. Smart’s statements here.