Despite the clear benefits that trade agreements such as NAFTA have delivered to the U.S. economy, the Trans-Pacific Partnership (TPP) is raising storms of concern around the country these days.
At the forefront of these concerns is investor-state exposure — the right of foreign companies to bypass the American justice system to have their investment disputes with the United States resolved by international arbitration tribunals. Critics say the Investor State Dispute Settlement system undermines the right of the U.S. and other sovereign governments to manage their own affairs and exposes our country to massive financial penalties, which can include the expected future profits of foreign companies found to have been treated unfairly by U.S. authorities. Earlier this year, for example, Canadian pipeline builder TransCanada announced it would seek $15 billion in compensation because of the Obama administration’s decision to cancel the Keystone XL pipeline.
The response of the administration, and of those from both sides of the aisle that support the TPP, has been consistent: U.S. companies and investors benefit from investor protections when they go abroad. Further, the U.S. has never lost a NAFTA investment dispute, in part because our strong commitment to due process, transparency and the rule of law protects us from the types of claims that are often levied against other countries.
Unfortunately, recent actions by the Obama administration could put this record at risk, which in turn could put at risk the future of the TPP — and future trade deals. Chief among these is the case of the proposed Pebble Mine, an effort by a Canadian company to develop a world-class copper and gold deposit in Alaska.
The Pebble Mine story will be familiar to some as a tale of regulatory zeal run amok. So badly does the Environmental Protection Agency want to kill the mine that it sought to impose a veto before proponents could even propose a project or apply for permits — a first in the 40-year history of the Clean Water Act. The EPA’s actions have led a federal judge to issue a preliminary injunction against the EPA, implying the agency may have contravened federal law.
Your authors are not qualified to judge whether the Pebble Mine should receive the required Clean Water Act permit or not. That’s a question that should be decided by expert federal regulators following the permitting process required under the Clean Water Act and the National Environmental Policy Act (NEPA). But the EPA’s efforts to short-circuit due process, to issue decisions based on an entirely new and unproven regulatory scheme, in the absence of a project proposal or the involvement of the state of Alaska and other key regulatory agencies, is clearly wrong and unfair on its face.
We are not the only ones to hold this view. Several congressional committees are investigating, and have strongly criticized, the EPA’s actions. And former U.S. Sen. and Defense Secretary William Cohen (R-Maine) has publicly criticized the EPA for undermining the NEPA, as well as for other process abuses undertaken in the agency’s actions related to the mine.
It’s not just the threat to the United States’s perfect record in defending NAFTA investment disputes that should concern us. The EPA’s actions could chill foreign direct investment in the U.S. and the American industries and workers who rely on it.
Such actions also undermine the U.S. commitment to the rule of law. This commitment is an enormous benefit to the companies — U.S. and foreign companies — that rely on it as they make business decisions.
We go to foreign countries and preach the rule of law as the foundation of American society. As John Adams said, we are “a government of laws, not of men.” We have to uphold our commitment to that principle if it is to continue to have meaning to us as a society and to others.
The NEPA, Clean Water Act and the North American Free Trade Agreement all have their detractors. But those laws and multilateral agreements have protected American companies working abroad, and we need to ensure that the rule of law continues to protect foreign companies working here. America must uphold its commitment to fairness, due process, transparency and the rule of law for all who would invest here. If the example set by the EPA at Pebble Mine is to continue, it’s not just our country’s perfect record in NAFTA investment disputes that may end — we will raise serious questions about our country’s adherence to that rule of law, one of our nation’s most important touchstones.
Jones served as a member of the House of Representatives from 1973 until 1987, and was ambassador to Mexico during the Clinton administration, when NAFTA was adopted. He is now chairman of Manatt/Jones Global Strategies. Wallace is the chairman of the International Law Institute and a professor at Georgetown University Law Center. He has extensive experience in international law, and teaches a course in investor-state dispute settlement.