07 Apr Scholars Debate Investment Arbitration Chapter in TPP and TTIP
Negotiations over the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP) have highlighted the growing debate over investment arbitration. Last week the New York Times published an article summarizing objections to the TPP investment chapter. The article notes that politicians, law professors and liberal activists “have expressed fears the provisions would infringe on United States sovereignty and impinge on government regulation involving businesses in banking, tobacco, pharmaceuticals, and other sectors.”
The reference to academic opposition is based on a letter published by the Alliance for Justice with the signatories from numerous law professors. The one-page AFJ letter urges Congress to “protect the rule of law and our nation’s sovereignty by ensuring [investment arbitration] is not included.” Foreign corporations, the letter continues, can use investment arbitration to “challenge government policies, actions, or decisions that they allege reduce the value of their investments…. This practice threatens domestic sovereignty and weakens the rule of law by giving corporations special legal rights, allowing them to ignore domestic courts, and subjecting the United States to extrajudicial private arbitration.”
Today another group of prominent law professors who are experts in investment arbitration have written a lengthy response. The letter (to which I am a signatory) challenges the notion that signing an investment treaty constitutes a loss of sovereignty or undermines the rule of law. “Corporations cannot and will not gain victory simply by arguing reduced investment value.” Instead, a corporation must establish that “a host state has discriminated on the basis of nationality, has failed to accord a foreign investor due process, or has expropriated the property of a foreign investor without payment of prompt, adequate, and effective compensation.” The letter then addresses the contentious issue of regulatory takings, and highlights the limits of corporate claims challenging environmental, health, and safety regulations.
It concludes: “investment treaty arbitration does not undermine the rule of law…. The obligations commonly found in investment agreements—including non-discrimination on the basis of nationality; due process; expropriation of property only for a public purpose and on payment of prompt, adequate and effective compensation; and repatriation of profits—are the hallmarks of a society that is governed by law.”
Frankly, the rebuttal letter is substantive and faithful to the true state of investment arbitration, while the AFJ letter reads more like a piece of political advocacy than a memorandum by scholars offering legal analysis.
Of course, these battle lines are not new. The Multilateral Agreement on Investment was scuttled in the late 1990s because of similar concerns. In the meantime, over 3,000 bilateral and multilateral investment agreements have now been signed, with the United States a signatory to over 50 such agreements. NAFTA and CAFTA-DR are among the most prominent examples of such agreements.
What is new is the potential economic impact of the deals. The sheer size of TTP and TTIP significantly raises the stakes. The TPP countries collectively would represent the largest U.S. trading partner, accounting for 40% of total U.S. goods trade and 25% of total U.S. services trade. As for the TTIP, the combined share of the U.S.-EU GDP is approximately 45% of global GDP and reflects 17% of global foreign direct investment.
Any hope for a TTP or TTIP deal depends on Congress granting the Obama Administration trade promotion authority, which seems increasingly likely. Whether that authority includes investment arbitration remains to be seen. But the fact that the Obama Administration and the vast majority of Republicans in Congress strongly favor investment arbitration in both agreements bodes well for its inclusion.
There is a common belief among lawyers that Arbitration in some way affects Sovereignty. It is simply not true. Even under the 1958 New York Convention on the recognition and Enforcement of Foreign Arbitral Awards there is discretion for State Courts to have regard to Public Policy or Arbitrability.
See Arbitration and the Sovereign Power, Geoffrey M. Beresford Hartwell, The Journal of International Arbitration, Vol. 17 No. 2, April 2000, published by Kluwer Law International at http://www.hartwell.pwp.blueyonder.co.uk/Arbitration_Power.htm
While I’m not surprised that the author of one letter thinks his letter is better than his opponents’, I think Mr. Alford goes too far by dismissing what he calls the Alliance for Justice letter as “political advocacy,” while characterizing his own as “a memorandum by scholars offering legal analysis.” I would say both are 80% the former, 20% the latter. The “analysis” provided by the Alford letter, as I read it, is that the world of international investment disputes is simple and objective: when a state has acted badly, it will be held liable; when it hasn’t, it won’t. What’s the problem? The problem is that litigation is litigation, even when it’s arbitration. While “objective” facts matter, the system is driven by a competitive inter-subjectivity where the parties’ underlying resources and commitment to the dispute are often (some would say always) determinative of the outcome. States can be trusted to continue to claim they act in the global public interest; corporations can be trusted to aggressively and creatively package state regulatory actions as arbitrary, discriminatory, etc. The “truth” can be trusted to continue reside somewhere in between. The case Alford et al choose to highlight as an example, S.D.… Read more »
Aaron,
Thanks for your response. It might be useful for readers to know that you are counsel with Steven Donziger in the Chevron v. Ecuador case. In that case, of course, the Southern District of New York found that Steven Donziger and other lawyers on his team procured the Ecuadorian judgment by fraud. 974 F.Supp.2d 362 (2014). The Ecuadorian judgment was also the basis of an investment arbitration award that Chevron won against Ecuador. Chevron v. Ecuador, PCA Case No. 2009-23 (Partial Award of Sept. 23, 2013). Given these judicial findings, any concerns you express for protecting the rule of law and upholding the integrity of domestic judicial processes should be taken with a grain of salt.
Roger Alford
You’re a class act, Roger.
On the unlikely odds that readers here don’t know the background of Chevron’s fundamentally bogus fraud, extortion, racketeering, and related claims that it has churned out against the Ecuadorians and their representatives for nearly a decade now as a means to try to avoid liability for the contamination it left in Ecuador, here are a few of my recent writings on the topic. http://www.huffingtonpost.com/aaron-marr-page/slip-sliding-whats-happen_b_6911916.html http://www.huffingtonpost.com/aaron-marr-page/chevron-ecuador-litigation_b_5956484.html It’s noteworthy that for a decade Chevron has accused the Ecuadorians of “fraud” just for bringing the case because (a) they claim it has no basis in fact, and (b) even it did, the Ecuadorians’ claims were released by the government of Ecuador in the 1990s. No other than the arbitral panel Roger mentions put an end to Chevron’s “release” argument just a few weeks ago. And while the evidence of the good-faith fact basis of the claims (i.e. massive contamination linked to Chevron) is all over the internet, it is worth noting that VICE just published a reel of some pretty shocking videos of Chevron’s own technical experts trying (but failing) to NOT find contamination as they conducted “pre-inspections” ahead of the formal judicial site inspections during the Ecuador trial. Worth a look. https://news.vice.com/article/the-chevron-tapes-video-appears-to-show-oil-giant-allegedly-covering-up-amazon-contamination