The arbitrators are often lawyers who specialize in international trade and investment, for whom serving as arbitrators is only one source of their income. Unlike U.S. judges, they are not salaried but paid by the hour, and they can rotate between arbitrating cases and representing investors suing governments.
Despite the fairness of our court system, the U.S. government has consented in prior trade agreements, and in a leaked version of the still-secret TPP, to allow foreign investors to bypass our courts and instead move to “investor-state” arbitration. Thus, challenges based upon TPP to our duly enacted laws and other regulatory actions would be decided by three individuals who are not government officials and need not be American citizens. And they would have the final word as to whether the federal government will be compelled to pay damages, because there is no judicial review in any U.S. court of the merits of these arbitral rulings.
If such a case were brought, the foreign investor would sue the United States and ask that the arbitrators find that “investor-based expectations” under the TPP were violated. So, for example, it might claim that doubling the minimum wage from its prior level violated the TPP’s provisions requiring fair and equitable treatment of foreign investors. If the arbitrators agreed, they would assess money damages that would be paid from the federal treasury, but the San Francisco wage law would not be directly affected. However, because the ruling would open the door for other foreign investors in any number of businesses to bring similar claims, Congress would almost assuredly step in and override the wage increase to prevent opening the doors to the Treasury to every foreign investor in San Francisco. Indeed, in a similar situation Canada reversed a toxics ban and published a worldwide advertisement that the chemical was safe in order to avoid the possibility of having to pay substantial damages.
In recent years, there has been a major increase in the use of arbitration in the United States to decide commercial disputes, but those cases involve contracts in which the parties agreed to arbitration, with the outcome generally depending on how factual issues are resolved. TPP arbitrators, by contrast, will decide what is essentially a legal question: whether governmental actions, which are designed to protect our health, safety, environment and economic well-being, are consistent with the TPP. Those protections extend from locally enacted laws like the San Francisco minimum-wage provision, to state statutes and regulatory actions, to laws passed by Congress and decisions of federal regulatory agencies. And under the TPP, as under other trade agreements, decisions of a majority of the arbitrators on compliance with the TPP will not be subject to review in any court, federal or state. Among the other important public policy measures currently being debated that might be the basis for a TPP claim by a foreign investor include water rationing in California, the legality of selling e-cigarettes to minors, and the state regulation of medical facilities performing abortions. If a foreign investor won a TPP arbitration in these situations or the wage increase discussed above, that would not only cost the Treasury, but it would disadvantage American competitors who cannot benefit from TPP arbitrations, unless the offending law were set aside. And if governments feel compelled to set aside such laws in response to adverse rulings, the three arbitrators will effectively have substituted their own judgments for that of the electorate.