A separate law for corporations

Posted 8/21/12

In 2008, Congress passed meat labeling laws for beef, pork and chicken, in part so that consumers could know what country the meat came from. After a number of legal challenges, the labels started …

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A separate law for corporations

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In 2008, Congress passed meat labeling laws for beef, pork and chicken, in part so that consumers could know what country the meat came from. After a number of legal challenges, the labels started showing up in the past year. They might say, for instance, “born in Canada, raised and slaughtered in the United States.”

The country of origin labeling (COOL) was sought for many years by cattle ranchers in the West, and would seem like a reasonable feature to offer consumers who are increasingly concerned about where their food comes from.

It turns out, however, that beef and pork producers in Canada and Mexico do not like the U.S. law, because if they ship live animals to the U.S., those animals must be segregated from U.S. animals while awaiting slaughter. This is a process that producers say is expensive and, therefore, puts producers from those two countries at a competitive disadvantage to U.S. producers.

In the 1990s, the U.S., Canada and Mexico signed the North American Free Trade Agreement (NAFTA), which provides a path of recourse in this labeling debate some 20 years later.

Canada and Mexico have appealed the U.S. labeling law to the World Trade Organization (WTO), which has deemed that the law does, in fact, put the two countries at a disadvantage. If WTO maintains that position after further proceedings—as it almost certainly will—Mexico and Canada will be allowed to retaliate against the U.S. The two countries have said they plan to impose billions of dollars of tariffs on U.S. goods sold in those countries.

Moving to avert those tariffs, the U.S. House of Representatives on June 10 voted 300 to 131 to get rid of the COOL labeling on beef, pork and chicken. The Senate has not yet addressed the matter.

So, here is a clear example where a trade agreement, an arbitrator and foreign companies have compelled U.S. lawmakers to vote to change a U.S. law, and to do so while completely ignoring the desires of consumers.

There is a name for this kind of process. It’s called an investor-state dispute settlement (ISDS) and it’s embedded not only in NAFTA, but in many other international agreements. The NAFTA agreement is unique in international law in that it does not require a company to first exhaust appeals of state and federal courts before bringing an ISDS action.

The COOL issue may seem fairly benign, but other ISDS claims have lead to issues where companies are bringing actions against states over laws that were clearly meant to protect the public safety. Phillip Morris, for instance, has brought an ISDS action against Australia because that country passed a law requiring the plain packaging of cigarettes.

Research shows that plain packaging results in lower rates of smoking among teens, and that, in turn, negatively impacts Phillip Morris’ expected future earnings. It’s not clear that Phillip Morris will win, but at the very least taxpayers are forced to pick up the bill for the lawyers who are handling the case.

On June 29, President Barack Obama signed into law Trade Promotion Authority (TPA) legislation, which will allow the President to wrap up negotiations on the Trans-Pacific Partnership (TPP) and present it to Congress, which may then approve or not with an up or down vote, though they will not be able to offer any amendments. TPP currently includes 12 Pacific Rim countries and is expected to ultimately include China.

It seems pretty clear that TPP will significantly increase the number of corporate ISDS actions against the countries involved, but the Obama administration and the countries and industries that are negotiating the deal don’t want anyone to know what’s in it. The cover of the leaked chapter that covers investment says the contents may be revealed only four years after the deal goes into effect or, if no deal is reached, four years after negotiations end.

So if TPP is signed, it’s clear that more corporations will be empowered to bring lawsuits against countries, while countries will not be able to initiate similar actions against corporations. Further, consumers won’t even be able to learn what the rules are, although taxpayers will be forced to pick up the cost of the tribunals and any penalties.

Obviously, there are many questions. Will this development mean that a company the produces seeds that are genetically modified organisms (GMO) will be able to bring an ISDS action against, say, Vermont, which has passed a GMO labeling law? What about New York’s ban on hydraulic fracturing?

The ISDS question appears in just one chapter out of 29 that make up TPP, and many concerns have been raised by experts in various fields, but the ISDS alone should be enough to scuttle the deal. Contact your representatives in congress and urge them to vote ‘no’ on TPP.

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