TPP Leak Reveals Extraordinary New Powers for Thousands of Foreign Firms to Challenge U.S. Policies and Demand Taxpayer Compensation

Unveiling of Parallel Legal System for Foreign Corporations Will Fuel TPP Controversy, Further Complicate Obama’s Push for Fast Track

The Trans-Pacific Partnership’s (TPP) Investment Chapter, leaked today, reveals how the pact would make it easier for U.S. firms to offshore American jobs to low-wage countries while newly empowering thousands of foreign firms to seek cash compensation from U.S. taxpayers by challenging U.S. government actions, laws and court rulings before unaccountable foreign tribunals. After five years of secretive TPP negotiations, the text – leaked by WikiLeaks –proves that growing concerns about the controversial “investor-state dispute settlement” (ISDS) system that the TPP would extend are well justified.

Enactment of the leaked chapter would increase U.S. ISDS liability to an unprecedented degree by newly empowering about 9,000 foreign-owned firms from Japan and other TPP nations operating in the United States to launch cases against the government over policies that apply equally to domestic and foreign firms. To date, the United States has faced few ISDS attacks because past ISDS-enforced pacts have almost exclusively been with developing nations whose firms have few investments here.

The leak reveals that the TPP would replicate the ISDS language found in past U.S. agreements under which tribunals have ordered more than $3.6 billion in compensation to foreign investors attacking land use rules; water, energy and timber policies; health, safety and environmental protections; financial stability policies and more. And while the Obama administration has sought to quell growing concerns about the ISDS threat with claims that past pacts’ problems would be remedied in the TPP, the leaked text does not include new safeguards relative to past U.S. ISDS-enforced pacts. Indeed, this version of the text, which shows very few remaining areas of disagreement, eliminates various safeguard proposals that were included in a 2012 leaked TPP Investment Chapter text.

“With the veil of secrecy ripped back, finally everyone can see for themselves that the TPP would give multinational corporations extraordinary new powers that undermine our sovereignty, expose U.S. taxpayers to billions in new liability and privilege foreign firms operating here with special rights not available to U.S. firms under U.S. law,” said Lori Wallach, director of Public Citizen’s Global Trade Watch. “This leak is a disaster for the corporate lobbyists and administration officials trying to persuade Congress to delegate Fast Track authority to railroad the TPP through Congress.”

Even before today’s leak, U.S. law professors and those in other TPP nations, the U.S. National Conference of State Legislatures, the Cato Institute and numerous members of Congress and civil society groups have announced opposition to the ISDS system, which would elevate individual foreign firms to the same status as sovereign governments and empower them to privately enforce a public treaty by skirting domestic courts and “suing” governments before extrajudicial tribunals. The tribunals are staffed by private lawyers who are not accountable to any electorate, system of legal precedent or meaningful conflict of interest rules. Their rulings cannot be appealed on the merits. Many ISDS lawyers rotate between roles – serving both as “judges” and suing governments for corporations, creating an inherent conflict of interest.

The TPP’s expansion of the ISDS system would come amid a surge in ISDS cases against public interest policies that has led other countries, such as South Africa and Indonesia, to begin to revoke their ISDS-enforced treaties. While ISDS agreements have existed since the 1960s, just 50 known ISDS cases were launched worldwide in the regime’s first three decades combined. In contrast, foreign investors launched at least 50 ISDS claims each year from 2011 through 2013. Recent cases include Eli Lilly’s attack on Canada’s cost-saving medicine patent system, Philip Morris’ attack on Australia’s public health policies regulating tobacco, Lone Pine’s attack on a fracking moratorium in Canada, Chevron’s attack on an Ecuadorian court ruling ordering payment for mass toxic contamination in the Amazon and Vattenfall’s attack on Germany’s phase-out of nuclear power.

“By definition, only multinational corporations could benefit from this parallel legal system, which empowers them to skirt domestic courts and laws, and go to tribunals staffed by highly paid corporate lawyers, where they grab unlimited payments of our tax dollars because they don’t want to comply with the same laws our domestic firms follow,” Wallach said.

Public Citizen’s analysis of the leaked text is available here. 

Unhappy Third Birthday for Korea FTA Drags Down Obama Push for Fast Track

U.S. Exports Down, Imports from Korea Up and Job-Killing Trade Deficit With Korea Balloons 84 Percent on Third Anniversary of Korea Pact, Which Is TPP Template

Three years after implementation of the U.S.-Korea Free Trade Agreement (FTA), government data reveal that the administration’s promises that the pact would expand U.S. exports and create American jobs proved to be the opposite of the pact’s actual outcomes. The post-Korea FTA decline in U.S. exports to Korea and a new flood of imports from Korea have resulted in a major surge in the U.S. trade deficit with Korea that equates to nearly 85,000 lost U.S. jobs. The abysmal FTA record deals a fresh blow to the administration’s controversial bid to Fast Track the Trans-Pacific Partnership (TPP), for which the Korea FTA served as the U.S. template.

“Three years ago we heard the same ‘more exports, more jobs’ sales pitch for the Korea FTA that the administration is making for the TPP, but the reality is that tens of thousands of U.S. jobs have been lost as exports have fallen and trade deficits have surged,” said Lori Wallach, director of Public Citizen’s Global Trade Watch. “The only silver lining of the Korea FTA debacle is that it further cripples the administration’s push to Fast Track the TPP, which was literally modeled on the Korea deal, perhaps saving us from more of the same pacts that offshore jobs and push down middle-class wages.”

Contrary to the administration’s promise that the Korea FTA would mean “more exports, more jobs,” U.S. International Trade Commission and U.S. Department of Agriculture data reveal that:

• The U.S. goods trade deficit with Korea has ballooned an estimated 84 percent, or $12.7 billion, in the first three years of the Korea FTA (comparing the year before the FTA took effect to the projected third full year of implementation). In January 2015, the monthly U.S. goods trade deficit with Korea topped $3 billion – the highest level on record.

• The surge in the U.S. trade deficit with Korea under the FTA equates to the loss of nearly 85,000 American jobs, according to the trade-jobs ratio that the administration used to promise job gains from the deal.

• U.S. goods exports to Korea have fallen an estimated 5 percent, or $2.2 billion, in the first three years of the Korea FTA. 

• Had U.S. exports to Korea continued to grow at the rate seen in the decade prior to the Korea FTA’s implementation, U.S. exports to Korea in the FTA’s third year would have been 24 percent, or $9.8 billion, higher than they are actually projected to be.

• Imports of goods from Korea have risen an estimated 18 percent, or $10.5 billion, in the Korea FTA’s first three years.

• U.S. exports to Korea of manufactured goods have stagnated under the Korea FTA, growing an estimated zero percent in the first three years of the deal. U.S. manufactured imports from Korea, meanwhile, have grown an estimated 18 percent under the FTA. As a result, the U.S. manufacturing trade deficit with Korea has grown an estimated 44 percent, or $10.1 billion, since the FTA’s implementation.

• U.S. exports to Korea of agricultural goods have stagnated under the Korea FTA, growing an estimated zero percent in the first three years of the deal – even as U.S. agricultural exports to the world increased 6 percent during the same period. U.S. agricultural imports from Korea, meanwhile, have grown an estimated 28 percent under the FTA. As a result, the U.S. agricultural trade balance with Korea has declined an estimated 1 percent, or $72 million, since the FTA’s implementation.

Given the bleak data, the Office of the U.S. Trade Representative (USTR) may repeat past efforts to try to obscure bad Korea FTA results. Congressional upset about the pacts is fueling opposition to the administration’s push to Fast Track the TPP through Congress. Typical USTR data omissions and distortions regarding the Korea FTA include:

• The USTR likely will count foreign-produced goods as “U.S. exports,” falsely inflating the export figures that can be reported. It is by using this raw Census Department data versus the corrected official U.S International Trade Commission (USITC) trade data that USTR falsely claims that U.S. exports to Korea have grown and were at a record level in 2014.  Despite congressional demands to stop using the distorted data, USTR continues to report export figures that include “foreign exports,” also known as “re-exports.” These are goods made abroad that pass through the United States before being re-exported to other countries. By U.S. Census Bureau definition, foreign exports undergo zero alteration in the United States, and thus support no U.S. production jobs. Each month, the UCITC removes foreign exports from the raw data gathered by the U.S. Census Bureau. But the USTR regularly uses the uncorrected data, inflating the actual U.S. export figures and deflating U.S. trade deficits with FTA partners like Korea. In the first three years of the Korea FTA, foreign exports to Korea have risen an estimated 13 percent, or $284 million, which the USTR may errantly count as an increase in “U.S. exports.”

• The USTR might misrepresent the relatively small increase in U.S. exports to Korea of passenger vehicles under the FTA as a large percentage increase, while omitting both that the touted increase amounts to an estimated 23,000 more passenger vehicles exported from a base of fewer than 15,000 and that imports of passenger vehicles from Korea have surged by an estimated 450,000 vehicles – from about 863,000 to more than 1.3 million in the first three years of the FTA. This trick was included in the USTR’s press release on the FTA’s second anniversary. While U.S. automotive exports to Korea have increased an estimated $686 million in the FTA’s first three years, U.S. automotive imports from Korea have ballooned an estimated $6.4 billion. As a result, the U.S. automotive trade deficit with Korea has increased an estimated 36 percent, or $5.7 billion, in the FTA’s first three years.

• The USTR also may claim, as it did in its press release on the Korea FTA’s second anniversary, that the decline in U.S. exports to Korea under the FTA is due to decreases in exports of fossil fuels and corn. But even after removing fossil fuels and corn products, U.S. exports to Korea still have declined by an estimated $1.4 billion, or 4 percent, in the first three years of the FTA. Product-specific anomalies cannot explain away the broad-based drop in U.S. goods exports to Korea under the FTA.

• The USTR also may try to dismiss the decline in U.S. exports to Korea under the FTA as due to a weak economy in Korea – another claim made in the USTR’s press release on the FTA’s second anniversary. But the Korean economy has grown each year since the FTA passed, even as U.S. exports to Korea have shrunk. Korea’s gross domestic product in 2014 is projected to be 9 percent higher than in the year before the FTA took effect, suggesting that U.S. exports to Korea should have expanded, with or without the FTA, as a simple product of Korea’s economic growth. Instead, U.S. exports to Korea have fallen an estimated 5 percent in the first three years of the FTA.