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Don't Let the TPP Prohibit Capital Controls, Say 100 Economists

+++ Joint press release of the Global Development and Environment Institute and the Institute for Policy Studies +++

In advance of Trans-Pacific trade talks, over 100 economists are sending a letter today urging negotiators to promote global financial stability by allowing the use of capital controls.

Signatories include prominent scholars from six of the nine countries currently involved in the Trans-Pacific talks:  Australia, Chile, Malaysia, Peru, New Zealand, and the United States. The other participating countries are Brunei, Singapore, and Vietnam. Trade officials will meet March 1-9 in Melbourne, Australia for the 11th round of negotiations.  Click here for the full statement and list of endorsers.

The economist statement reflects growing consensus that capital controls are legitimate policy tools.  It notes, however, that nearly all U.S. trade agreements “strictly limit the ability of trading partners to deploy capital controls – with no safeguards for times of crisis.”

They recommend that the Trans-Pacific Partnership agreement “permit governments to deploy capital controls without being subject to investor lawsuits, as part of a broader menu of policy options to prevent and mitigate financial crises.”

Continue reading "Don't Let the TPP Prohibit Capital Controls, Say 100 Economists" »

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Consumer groups call on Obama Administration to defend country-of-origin labels on meat

February 24, 2012

Consumer groups call on Obama Administration to defend country-of-origin labels on meat

The nation’s largest consumer groups today wrote to the Obama administration, urging an appeal of the November 2011 ruling by a World Trade Organization (WTO) panel against U.S. country-of-origin labels on meat. The ruling followed a case brought by Canada and Mexico in December 2008 against the popular U.S. law, which was also opposed by large agribusiness corporations in the U.S.

“Poll after poll show that American consumers want to know where their food comes from,” said Jean Halloran, director of Food Policy Initiatives at Consumers Union. “The WTO should not stand in the way.”

The COOL law – implemented in March 2009 - was a result of a decades-long struggle to assure consumers are provided with basic information about the origin of meat products, fish and seafood, certain nuts and fresh fruits and vegetables.

“Consumers have been pushing for country-of-origin labeling for decades only to have the new law challenged at the WTO,” said Chris Waldrop, director of the Food Policy Institute at Consumer Federation of America. “If upheld on appeal, the WTO ruling will undermine consumers’ faith
in the fairness of these international institutions.”

Countries all around the world have some form of country-of-origin labeling, including Argentina, Australia, Japan, Canada, Mexico and the European Union.

"Consumers worldwide have successfully advocated for country-of-origin labeling requirements -- most more transparent and informative than the U.S. labels," said Wenonah Hauter, executive director
of Food & Water Watch. "Neither the president nor the congress should bow to the will of international trade bureaucrats that want to take commonsense country-of-origin labels away from the American people."

While the WTO panel affirmed the right of the United States to require country-of-origin labeling for meat products, the panelists concluded that requiring companies to comply with the law was too costly for imported livestock (in violation of WTO rules), but that the flexibilities in the law (made in response to demands by importers themselves) violated other WTO rules. The consumer groups point out that this conflicted ruling demonstrates the danger of emphasizing trade over consumer regulation.

The U.S. has until mid-March to appeal the ruling. If it is not appealed or is upheld on appeal, the U.S. may be asked to weaken or eliminate COOL.

“An appeal will buy the U.S. time and may help weaken or overturn the damaging lower panel ruling,” said Lori Wallach, director of Public Citizen’s Global Trade Watch. “But consumers are calling on Congress to challenge the legitimacy of any WTO ruling against popular consumer policies.”

The letter sent to the administration can be found here: http://bit.ly/wRQIfg

                                                      # # # # #

Consumer Federation of America is an association of nearly 300 nonprofit consumer organizations that was established in 1968 to advance the consumer interest through research, advocacy and education.

Consumer Reports is the world’s largest independent product-testing organization. Using its more than 50 labs, auto test center, and survey research center, the nonprofit rates thousands of products and services annually. Founded in 1936, Consumer Reports has over 8 million subscribers to its magazine, website, and other publications. Its advocacy division, Consumers Union, works for health reform, food and product safety, financial reform, and other consumer issues in Washington, D.C., the states, and in the marketplace.

Food & Water Watch works to ensure the food, water and fish we consume is safe, accessible and sustainable. So we can all enjoy and trust in what we eat and drink, we help people
take charge of where their food comes from, keep clean, affordable, public tap water flowing freely to our homes, protect the environmental quality of oceans, force government to do its job protecting
citizens, and educate about the importance of keeping shared resources under public control.

Public Citizen is a national, nonprofit consumer advocacy organization based in Washington, D.C. founded in 1971.

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Non-Compliance in Investor-state proceedings

There were some interesting press hits over the weekend from Reuters' Alison Frankel, Adam Klasfeld, and AFP about the recent investor-state arbitral ruling against Ecuador.

(The award for Chevron was made by Horacio Grigera Naón (of American University, nominated by Chevron); Vaughan Lowe (of Oxford University, nominated by Ecuador); and V.V. Veeder ("one of the stars" of investment arbitration from the UK's Essex Court Chambers, appointed by the other two).)

Alison writes:

Lori Wallach of Public Citizen's Global Trade Watch told me that Ecuador should not comply with the panel's most recent order. (Wallach went to law school with Steven Donziger, the architect of the Ecuadorean plaintiffs' case, but is not a paid consultant for the plaintiffs.) Wallach agreed that countries regularly ignore orders from private arbitrators, whom she derided as "three private lawyers in a hotel room." She said that the directive from the Chevron panel, however, is "the most outlandish one I've seen." It's unprecedented for a panel to order an injunction that calls for an executive to interfere with a domestic court system, she said. "It would be as if one of these panels ordered Obama to act contrary to the Supreme Court," said Wallach, who has been tracking international arbitration since 1994. "Ecuador shouldn't follow it." (Public Citizen put out a press release Friday asserting that the Chevron panel's "obscene" award "could lead to the implosion of the entire investor-state system, which international companies are increasingly using to try to evade justice worldwide.")

Chevron counsel Randy Mastro of Gibson, Dunn & Crutcher said suggestions that the Republic should ignore the arbitrators' instruction are absurd. "Any country ignoring the ruling of an arbitration panel would be doing so at its peril," he said. Chevron's underlying claim in this arbitration, he pointed out, is for a judgment that under an old agreement with Chevron predecessor Texaco, the Republic of Ecuador is responsible for bearing all the costs associated with cleanup of the Lago Agrio region -- including Chevron's liability to the Ecuadorean plaintiffs. With that part of the arbitration pending, the Republic would be risking an adverse result if it flouted the panel's interim order.

"Typically, nations with treaty obligations honor those obligations or face the consequences," Mastro said.

This raises an interesting question, which a colleague asked me: “Are there any penalties written in the treaty if Ecuador disobeys the ruling?"

The US-Ecuador bilateral investment treaty says: “Any arbitral award rendered pursuant to this Article shall be final and binding on the parties to the dispute. Each Party undertakes to carry out without delay the provisions of any such award and to provide in its territory for its enforcement.”

What if a country refuses to see itself as bound? What then?

Well, the BIT also says that all arbitrations “shall be held in a state that is a party to the New York Convention.” This creates a backdoor enforcement regime. When an arbitral tribunal orders a cash payment, a claimant can take the arbitral award to the national court of any signatory to the New York Convention (1958). This is about every country

Supposedly in all of these countries (but definitely in the developed countries), a national court will almost always agree to simply enforce the award, and they can order that the assets of the complainant or respondent (as needed) that may exist within national territory be impounded in order to make the payment. (Virtually every government has bank accounts or other assets in the US, UK and Switzerland, which is where most of these arbitral award enforcement actions occur.)

The situation is considerably murkier in the Chevron case, and there are not many (if any) precedents for non-cash related awards.

Chevron's counsel argues that Ecuador risks an adverse ruling in the "final award" if it flounts the interim measures award. (Interestingly, Veeder, Lowe and Grigera Naon have not even found that they have jurisdiction over the case, but assumed they did for the sake of making this injunction-like interim award.) I see a few problems with that argument. First, it's possible that there could never be a "final award." Second, if Ecuador already denounced the interim award, what would keep them from denouncing the final award?

Here's where we get to brass tacks, all extra-legal, so to speak:

  1. Chevron could argue that capital will dry up. This argument states that capital markets would refuse to lend to a country that didn’t “play by the rules.” Indeed, Argentina has had difficulty accessing international capital markets since its default and subsequent refusal to enter bond markets. However, this has not mattered since Argentina has strong internal capital markets, export markets and has been growing like gangbusters. My bet is that Ecuador (certainly under Correa) would not find this threat super credible either, although it could definitely make the government's life uncomfortable.
  2. Chevron could pressure U.S. to take foreign policy action. More recently, Obama has tried to pressure Argentina to comply with investor state rulings by voting against disbursements for Argentina in the Inter-American Development Bank. Congress may attach riders to appropriations for Argentina to pressure them to comply. This could hurt Ecuador, but the country also has been on the outs in trade preference legislation already.
  3. Chevron could press for war. In an earlier era of gunboat diplomacy, countries that didn’t “play by the rules” received a visit from the US or UK Armed Forces.

Although some of these sound absurd, they are options for "enforcing international law."

Now, Ecuador could attempt to launch a state-to-state dispute over the interpretation of the BIT. In fact, they’ve already done this in the earlier investor-state case brought by Chevron. (In that underlying case, Ecuador was ordered to pay Chevron around $100 million, essentially because Chevron argued that the Ecuadoran courts were moving too slow in hearing the case brought by indigenous people against the oil giant. Now, Chevron is essentially arguing that Ecuador is moving too fast, and they need international intervention.)

Since we don't know how that case will end up, it's hard to know how a second one could end up in Chevron v. Ecuador Part Deux, nor what if any consequence it could have on an adverse investor-state ruling. But it seems things will stay interesting in this case for a while to come.

UPDATE: Bottom line: Ecuador is stuck between a rock and a hard place. If the government complies with the investor-state ruling and therefore breaks its own Constitution, it risks revolution at home. If it ignores the investor-state ruling, it allows Chevron to continue its global campaign to isolate Ecuador in international capital markets and politics. Chevron would probably ultimately try to enforce a cash arbitral award in third country courts. I'm betting that the plaintiffs would, in this case, also try to enforce the Ecuadoran court ruling in third country courts. Essentially, compliance puts Ecuador on a constitutionally tainted collision course with its citizenry; non-compliance puts the investor-state system on a geopolitically tainted collision course with justice for the plaintiffs. Either situation is unprecedented.

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Public Citizen statement on ruling in favor of Chevron

Speaking of the Chevron case, there was just a major development. Here's the ruling, and here's our statement:

Will Chevron Case Take Down Trade Pact ‘Investor-State’ Enforcement System?

Unprecedented Ruling Today by International Investor Tribunal Orders Ecuadorian Government to Violate Its Constitution, Interfere in Its Independent Court System to Help Chevron Evade Liability for Amazonian Contamination

WASHINGTON, D.C. – An unprecedented ruling, in which an investor-state international arbitral tribunal initiated by Chevron ordered the Ecuadorian government to interfere in the operations of Ecuador’s independent court system on behalf of the oil giant, provides a chilling glimpse of how corporations are trying to use international investor tribunals to evade justice, said Public Citizen.

After having lost on the merits in Ecuador and U.S. courts and after 18 years of trying to stall judgment, Chevron turned to an ad hoc “investor-state” tribunal of three private lawyers as the last chance to help the company avoid paying to clean up contamination in the Amazonian rainforest. Chevron is trying to get this private tribunal to suspend enforcement of or alter an $18 billion judgment against Chevron rendered by a sovereign country’s court system.

The tribunal issued a ruling yesterday even though it has not even determined that it has jurisdiction over the case. Past such international investor cases in which tribunals have ordered governments to pay cash damages to corporations have led to growing controversy.

“The Ecuadorian government should not violate its own constitution and interfere with its independent courts’ order for Chevron to clean up its horrific contamination in the Amazon, because some unelected ad hoc tribunal of three private sector lawyers called together by Chevron to meet in a rented room in Washington, D.C., pretends to have the authority to second-guess 18 years of U.S. and Ecuadorian court rulings,” said Lori Wallach, director of Public Citizen’s Global Trade Watch.

“Consider the broader implications of this star chamber ‘investor-state’ system: How can a panel of three unelected private sector lawyers order a sovereign government to violate its own constitution’s separation of powers and interfere in its court system, all to help Chevron (a company whose severe contamination of the Ecuadorian Amazon has been repeatedly proven), and how can that tribunal do this all before it has even decided that it has jurisdiction over this case,” Wallach said.

Meanwhile, the three private-sector lawyers serving as tribunalists on this kangaroo court will continue to rack up large hourly fees even as they order Ecuador’s government to help Chevron deny justice to the 30,000 Amazonian indigenous people who have won a historic $18 billion clean-up of deadly environmental contamination. Tribunalists in this system, who alternate between serving as “judges” and representing corporations in cases before panels of their colleagues, are paid on an hourly basis.

“The only silver lining of this obscene ruling is that having one of these shady investor-state tribunals presume to attack a country’s constitution, justice system and 30,000 people whose futures rely on Chevron cleaning up its mess could lead to the implosion of the entire investor-state system, which international companies are increasingly using to try to evade justice worldwide,” said Wallach.

These unaccountable investor-state tribunals have issued perverse rulings in the past on behalf of corporate claimants. Recent U.S. trade agreements empower foreign corporations to use this system to skirt our domestic courts and directly use our government before these corporate tribunals to obtain payment of unlimited taxpayer funds when they claim domestic environmental, land use, health and other laws undermine their “expected future profits.”  More than $350 million has been paid by government to corporations in attacks on toxics bans, environmental issues and zoning permits under the North American Free Trade Agreement (NAFTA.) Billions in additional claims are pending. Possible inclusion of the investor-state private enforcement system for corporations to sue governments is becoming one of the most controversial issues in the first “trade” deal the Obama administration is negotiating – a new Trans-Pacific Partnership trade deal.


Public Citizen is a national, nonprofit consumer advocacy organization based in Washington, D.C. For more information, visit www.citizen.org.

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Perils of a two-track justice system

During last week's events on the Chevron v. Ecuador investor-state case, someone asked an interesting question: say the Ecuadoran domestic ruling for the plaintiffs (who allege harm from environmental contamination by Texaco, now Chevron) stands. Say their legal team moves to attempt to enforce that ruling in other courts (say courts in Venezuela, where Chevron has some assets). How would a U.S. court treat the Ecuadoran or Venezuelan ruling?

This question actually perfectly illustrates the offensiveness of the two-track justice system that the investor-state system represents: the Ecuadoran plaintiffs would actually receive more favorable treatment of their enforcement actions if their original case had been an investor-state arbitration rather than a national court case. (Not that they would have standing in any case. I'm just sayin'.)

The U.S. (along with Ecuador and Venezuela) is party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958). An investor-state arbitral award anywhere in the world can be enforced in the U.S. with respect to assets of the respondent located in the U.S., which is considered a “secondary jurisdiction” under U.S. court interpretations of the Convention.

In 1985, the U.S. Supreme Court put its stamp of approval on the enforcement of arbitral awards. This appeared to be motivated in part by a desire to avoid losing some of this “business” to France and the UK. (For a fascinating history of this, see this book by Yves Dezalay and Bryant Garth.) As the court wrote in Mitsubishi Motors Corp. v. Soler Chrysler-Plymouth, Inc.: “[C]oncerns of international comity, respect for the capacities of foreign and transnational tribunals, and sensitivity to the need of the international commercial system for predictability in the resolution of disputes require that we enforce ... agreement[s]” to submit disputes to binding international arbitration.

However, most foreign court rulings (like the Ecuadoran ruling) will have difficulty being enforced in the U.S. The U.S. (along with almost every other country in the world) is not party to the Hague Convention on the Recognition and Enforcement of Foreign Judgments in Civil and Commercial Matters, which would have set up an international framework for this.

As a consequence, legal scholar Brian Richard Paige writes, each U.S. state has different practices regarding recognition of foreign judgments. Moreover, the U.S. Supreme Court in Hilton v. Guyot, 159 U.S. 113 (1895), ruled that the U.S. would only enforce foreign rulings if the foreign government granted reciprocity, i.e. enforced U.S. rulings. Since most foreign governments hate U.S.-style class action cases, U.S. courts have been wary to recognize foreign judgments. As the Hilton case stated:

“When an action is brought in a court of this country, by a citizen of a foreign country against one of our own citizens, to recover a sum of money adjudged by a court of that country to be due from the defendant to the plaintiff, and the foreign judgment appears to have been rendered by a competent court, having jurisdiction of the cause and of the parties, and upon due allegations and proof, and opportunity to defend against them, and its proceedings are according to the course of a civilized jurisprudence, and are stated in a clear and formal record, the judgment is prima facie evidence, at least, of the truth of the matter adjudged; and it should be held conclusive upon the merits tried in the foreign court, unless some special ground is shown for impeaching the judgment, as by showing that it was affected by fraud or prejudice, or that by the principles of international law, and by the comity of our own country, it should not be given full credit and effect.”

However, as Paige writes, the Hilton Court refused to domesticate the French judgment on the ground that there was no showing that French courts would grant reciprocal treatment to judgments of the United States. As such, “the comity of our nation” did not require the Court “to give conclusive effect to the judgments of the courts of France.”

This stuff gets very complicated. Take a recent case in U.S. federal courts, KBC v. Pertamina. KBC was a Cayman company that had a contractual relationship with Pertamina, an Indonesia state owned enterprise. They agreed to arbitrate if they ran into problems, on Indonesian territory under UNCITRAL rules. On December 18, 2000, the arbitral panel issued a final decision awarding KBC more than $261 million in damages, lost profits, and costs of arbitration.

Pertamina asked for Swiss courts to overturn the award, which they did not do.

KBC, for its part, asked a Texas federal court to enforce the judgment. Pertamina appealed, but refused to post a bond. KBC then took it to New York court. Both courts upheld the arbitral award, on the basis of comity and the 1985 Mitsubishi precedent.

But then Pertamina launched a case in Cayman courts, arguing that the whole dispute was fraudulent. KBC then asked U.S. courts to enjoin the Cayman action, which they did, this time without referencing comity, but instead the need to uphold the New York Convention.

The case shows that an arbitral award in favor of Chevron is going to be given much more weight in U.S. courts than an Ecuadoran (or Venezuelan) court ruling in favor of the Ecuadoran plaintiffs.

I’m sure there’s a lot more legal complexity than what I’m capturing here in this quick review, but the comity doctrine seems to be among the most elastic on the books.

Moreover, the recent ruling in Donziger v. Chevron in the NY courts shows that U.S. judges were pretty unwilling to treat their Ecuadoran counterparts as equal. In a March 2011 ruling, Judge Lewis Kaplan wrote "that Ecuador has not provided impartial tribunals or procedures compatible with due process of law." While this was vacated in September, it definitely gives a flavor of what might go down.

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Tucker on ABC on WTO attack on food labels

See our own Todd Tucker on ABC News last night discussing the WTO attack on consumer labels:


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Tucker in Extra!: The Trade Debate That Wasn’t Reported

Our own Todd Tucker has a piece on the media distortion of last year's trade debate in this month's edition of Extra!, Fairness and Accuracy in Reporting's magazine. Here’s a snippet:


In the 16 months leading up to the congressional vote on a set of trade deal with Korea, Colombia and Panama in mid-October, new reporting on the agreements scarcely mentioned that critics existed; when they were acknowledged, their objections were frequently mischaracterized. With media doing little to evaluate misleading claims made by the trade pacts' proponents, all three were approved by Congress by considerable margins.

There were two major points that opponents of the trio of deals – including  labor, environmental, consumer and even Tea Party groups – consistently emphasized in reports, press releases, letters and direct outreach to reporters.

First, these trade deals were modeled on the controversial North American Free Trade Agreement (NAFTA), a pact whose actual content reporters have historically paid little attention to (Extra!, 11-12/97). The combined text of the three new deals was nearly 4,000 pages; as with NAFTA, the bulk of the provisions were not related to "trade" issues per se, but rather restrict how the U.S. and the other nations might regulate their domestic economies. For instance, corporations are given new rights to challenge environmental and other regulations outside of national court systems, and demand that taxpayers compensate them for regulations' potential impact on profits.

Second, unlike earlier trade deals, even the government's own projections showed that the pacts would increase the U.S. trade deficit (Extra!, 10/11). The projections were produced by the independent U.S. International Trade Commission (ITC), which typically produces overly rosy estimates of trade deals' impacts.

But at two of the country's most prominent papers, the New York Times and the Wall Street Journal, such criticisms were almost entirely absent.


The full article is available by subscription.

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Will Chevron case take down trade pact investor-state system?

Photo2015After having lost on the merits in Ecuador and U.S. courts, Chevron has turned to an ad hoc “investor-state” tribunal of three private lawyers to help the company avoid paying to clean up horrific contamination in the Amazonian rainforest.

Chevron is trying to get this private tribunal to suspend enforcement of or alter an $18 billion judgment against Chevron rendered by a sovereign country’s court system. The closed-door tribunal will meet in a rented room in Washington, DC Saturday and Sunday (February 11-12).

These unaccountable panels, from which no outside appeal is available, have issued perverse rulings in the past on behalf of corporate claimants. Recent U.S. trade agreements empower foreign corporations to use this system to skirt our domestic courts to directly use our government before these corporate tribunals to obtain payment of unlimited taxpayer funds when they claim domestic environmental, land use, health and other laws undermine their “expected future profits.” Really! This is becoming one of the most controversial issues in the first “trade” deal the Obama administration is negotiating - a new Trans-Pacific Free Trade Agreement (FTA).

Public Citizen, Amazon Watch and the Rainforest Action Network are standing up to Chevron's kangaroo court by organizing a rally and conducting a Teach-In at American University about Chevron's attempt to use the investor-state system to evade justice. They also will be conducting a press briefing. You are invited to attend all events.

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