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Secret Trade Pacts Have Broad Ability to Thwart U.S. Regulations

Ed Brayton’s excellent investigative piece today for TWI’s sister site, The Michigan Messenger, raises a larger issue about how trade agreements often undercut domestic regulation of toxic industries, without the public ever really knowing about it.

It’s an issue that’s gotten lots of attention in other countries, such as Bolivia, where I was reporting on this a few years ago, but has remained largely under the radar here in the United States. Like the World Trade Organization rules that Ed wrote about, Bilateral Investment Treaties, which are negotiated between two countries, allow a foreign company to challenge the domestic laws of the country it’s investing in, and to claim they act as an unlawful restraint of trade by expropriating the value of the company’s investment.

In Bolivia, the fear was that multinational oil companies would use bilateral investment treaties to challenge President Evo Morales’s attempts to gain more control over the nation’s natural gas industry, which had long enriched foreign companies but did little to raise the living standards of Bolivians. (In fact, the companies did use those treaties to limit the president’s actions.)

When President George W. Bush was negotiating the Central American Free Trade Agreement, which contained similar protections for foreign companies, environmental groups worried that the treaty would make it impossible for the government to pass rules limiting the use of toxic chemicals — like cyanide — that could contaminate groundwater, a problem I wrote about at the time for The Washington Post.

In South Africa, bilateral trade treaties have been used by mining companies to challenge post-apartheid laws aimed at opening up the mining industry to black South Africans who’d for years been kept out of the nation’s most lucrative industry.

The point is that these complex trade agreements allow a foreign corporation to sue a national government for monetary damages if it believes that the actions of the federal, state or local government in a given country are discriminatory, violate international law or can be considered — directly or indirectly — an expropriation of the company’s investment. If complying with an environmental regulation makes a project no longer worth the cost, then, a company can claim that its investment has been expropriated by the state.

What makes matters worse is that whether the company is in the right won’t be decided by an independent judge. Instead, under a World Bank-governed system, it’s decided by a panel of three private international arbitrators chosen by the parties involved. These arbitrators are often corporate lawyers, who, in another case, could be representing the multinational corporation investor. Local residents of the countries affected by the project — whether in Michigan or Guatemala — are not parties to the case. The government’s right to protect the water supply in Guatemala or the residents living near an explosive natural gas facility in Michigan, then, could be decided by private British or American lawyers.

Although the WTO system is a little different, the principles are the same: they give foreign companies rights that domestic corporations don’t have, and an unelected, nonjudicial foreign body the right to decide whether and how domestic authorities can regulate corporations to protect the local people most affected by them.

It’s not just foreign countries that are affected: Canadian mining companies have similarly tried to assert these rights in California.

These are broad and dangerous rights ceded in poorly designed trade agreements that, as Ed points out in his groundbreaking and carefully reported story today, demand renewed scrutiny by Congress and the new administration.

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