Free trade disproportionately favors international corporations

Free trade is the boogeyman of modern political discourse. As jobs in traditional blue-collar industries become scarce in developed countries, unions and other labor groups have been quick to point to free trade deals like the North America Free Trade Agreement as the culprit. This protectionist fervor has scared former Secretary of State and Democratic nominee Hillary Clinton––who helped negotiate the Trans-Pacific Partnership––into opposing its passage, thus feeding the recent rise of populism on the international political stage.

In many cases, the opposition to free trade deals becomes hysterical, and the criticism of them may seem to fall into a repudiation of free trade itself. Basic economics says that free trade makes all participants unambiguously better off; the critics of free trade deals are often cast as ignorant of these basic principles. But modern trade treaties are extremely complex, and many of them contain provisions that reasonable people can object to without opposing free trade in general. The TPP is one of these treaties.

Environmental groups, consumer advocacy groups and health groups have joined the clamoring labor interests in opposing the TPP. Their concerns extend beyond the job losses to a clause included in most free trade agreements: the Investor-State Dispute Settlement system. This clause allows transnational corporations to sue governments for opposing their interests.

ISDS clauses are included in NAFTA and many other free trade deals to prevent member states from discriminating against foreign firms. This is certainly a reasonable thing to protect them from, but the protections offered by ISDS go much further.

To establish standing for an ISDS, a company need not have established any contracts with member states to gain standing to sue in these courts. They can sue a member state for having a regulatory framework that does not match the expectations the company had when it made the investment, and they can sue for unlimited amounts of money. In some cases, they can sue for the expected profits they would have made had their investment gone undeterred.

These protections mean that foreign firms can sue the government on grounds not available to domestic firms. An example is the Keystone XL Pipeline, which was denied a permit by the Obama administration in 2015 on the grounds that it would contribute to climate change. TransCanada—the company responsible for the pipeline—is currently suing the United States for $15 billion under an ISDS clause of NAFTA.

TPP not only contains ISDS clauses, but it actually expands them past those of many previous trade treaties. The TPP would double U.S. ISDS exposure and give more than 5,000 U.S. companies the right to sue the government for passing laws that are not in their interests. It would also allow financial firms to challenge many U.S. regulations, and pharmaceutical companies to claim cash rewards for perceived intellectual property rights violations.

Governments and large international corporations negotiate free trade deals; the concerns of less-powerful interest groups often go unheeded during these agreements. Free trade certainly has the potential to benefit everyone, but if politicians and economists want it to proceed, they have to bring the interests of people other than those in corporations and the economic elite to the table.