North Carolina Journal of International Law

"Connecting North Carolina to the World of International Law"

Implications of Dispute Resolution in the Trans-Pacific Partnership

By: Ethan Blumenthal

While the Trans-Pacific Partnership (“TPP”) is an extremely controversial topic in today’s political climate, there is perhaps no individual provision as hotly contested as dispute resolution.[1] There are two prongs of analysis when confronting dispute settlement in a modern free trade deal context.  This is so because there are two distinct types of challenges that can be brought: (1) state-state challenges; and (2) investor-state dispute settlements (“ISDS”).[2] While they both essentially follow the same procedures,[3] the key provisions are located in different chapters and the implications of each present vastly different problems.

First, a review of some of the pertinent facts behind the TPP is useful in order to provide context and an idea of the scope of the issue at hand. A total of twelve countries negotiated the TPP, accounting for $27.5 trillion in cumulative Gross Domestic Product (“GDP”).[4] These countries represent one third of all international trade and 40% of global GDP.[5] The text of the TPP itself is extensive, comprised of a preamble, thirty chapters, and four annexes.[6] An important note here is that both forms of dispute resolution have the potential to affect, via judicial challenge, any of these other provisions.[7] The overall scope and the breadth of applicability of these provisions shows why dispute resolution, and specifically ISDS, is so contentious.

Settlement Procedure

Before discussing the implications of the dispute resolution mechanisms within the TPP, it is necessary to briefly outline the procedures themselves in order to fully understand its critiques.

There are some marginal differences between the procedures outlined in chapters 9 (ISDS) and 28 (state-state) that bear mentioning, however, there is relatively little practical effect. The first divergence in procedure comes from the arbitrator selection proceedings.[8] Both procedures use a three member panel in order to settle disputes.[9] The difference between them is how the third member is selected.[10] In both mechanisms, each party selects one arbitrator to start and then “endeavors to agree” upon the selection of the Chair.[11] In the case of disagreement between parties, the procedures to appoint the Chair diverge between the two mechanisms.[12] For ISDS, if the tribunal has not been appointed within 75 days, by request of a disputing party the Secretary-General of the International Centre for Settlement of Investment Disputes (a subsidiary of the World Bank)[13] shall appoint the remaining, unfilled arbitrator positions.[14] In contrast, for state-state disputes where the Parties cannot agree on a third arbitrator, the decision first falls to the two arbitrators already selected.[15] If they cannot agree, then the chair is appointed via random selection from either a Roster of Panel Chairs & Party Specific Lists (Art. 28.11) or, if such a roster has not been submitted, then from three candidates agreed upon by the Parties.[16] If the relevant parties can agree, then there is no difference between the two methods. However, as the selection of the chair will potentially decide the swing vote, the stakes for this selection are very high.

The second major difference between ISDS and state-state dispute resolution has little to do with the adjudication process but everything to do with transparency. State-state dispute settlements have expressed rights as to the participation of third parties[17] and the role of experts.[18] ISDS procedures, unlike those provided for state-state disputes, contain an explicit requirement of public transparency.[19] All relevant documents must be made available to the public, and the tribunal itself shall be open to the public, with only confidential or protected information excluded.[20] This effort at transparency is commendable and it has the potential to cleanse many of the negative critiques of past ISDS provisions, though only time will tell.

The final significant difference in procedure between ISDS and state-state dispute resolution is the ability of Parties to comment on certain aspects of the adjudication decision before the final judgment is rendered.[21] State-state arbitration provides for the filing of an initial report, which can then be modified following the submission of written comments from the Parties.[22] In contrast, once the panel of arbitrators has made its decision in an ISDS claim, that decision is final.[23]

The rest of the arbitral procedures are fairly straightforward and consistent between ISDS and state-state disputes. Each mechanism contains certain representation rights before the arbitration panel,[24] consolidation and interested third party joinder rights,[25] and provisions as to the proper role of experts.[26] While very similar on the whole, there are some relevant discrepancies between ISDS and state-state dispute resolution that have the potential to be deciding factors during arbitration. With these now noted, there are other major critiques that should be addressed.

Discussion of Major Critiques

The state-state dispute settlement mechanism, while opaque to the public, is relatively uncontroversial; it is the ISDS that has been the subject of vehement opposition.[27] As such, much of the proceeding discussion will focus largely on the ISDS provisions rather than the state-state dispute resolution mechanism. The two most prevalent critiques of the ISDS process are somewhat related but are sufficiently distinct as to require considering them separately; they are: (1) judicial reviewability, and (2) interference with a State’s ability to provide for the health and welfare of its citizens and environment. The underlying link, as identified by Senator Elizabeth Warren, is a challenge to state sovereignty.[28] Allowing a panel of international arbitrators to pass judgment on a State’s laws and regulations, without being subject to appellate review within the State’s court system, facially presents a threat to a country being able to decide its own fate and control its territory, thus undermining its sovereignty.[29] The situation, in reality, is far more complex; however, that statement lays bare the foundational basis of most ISDS critiques.

The primary issue as to judicial reviewability within the ISDS is that there is none explicitly provided, nor have past free trade deals done so.[30] As of June 2015 the United States has been forced to pay $440 million to corporations, with as much as $70 billion still in contention.[31] The reason so much is still being arbitrated is because of the recent rise in ISDS challenges (1950s-2000 saw 50 ISDS cases, 2000-present has seen over 700 ISDS cases filed).[32] As for reviewability, there simply is none provided for domestic courts.[33] However, unlike past free trade deals, there is an optional provision allowing the Parties of the TPP to establish an appellate mechanism to review the arbitration panel’s findings and awards.[34] It is regrettable that the Parties did not further clarify what this body would look like or how it may function. As it stands, this provision looks like little more than a head-fake towards judicial accountability in an attempt to appease critics.[35] Other provisions such as the expanded role of amicus curia briefs (as compared to previous deals),[36] as well as the aforementioned transparency provision may help provide for more accountability; however, there are no definite terms within the TPP that increase judicial reviewability as compared to previous trade deals.

Concerns as to the effect of the TPP ISDS provision on domestic laws and regulations are not without basis, seeing how those laws have been challenged repeatedly under other ISDS provisions.[37] As compared to previous deals, the ultimate effect of the TPP ISDS provision will turn on arbitral interpretation of one, new, and very important provision.[38] This brief Article states:

Nothing in this Chapter shall be construed to prevent a Party from adopting, maintaining or enforcing any measure otherwise consistent with this Chapter that it considers appropriate to ensure that investment activity in its territory is undertaken in a manner sensitive to environmental, health or other regulatory objectives.[39]

This provision seems strong on its face, but there are a number of key terms that may limit, or undermine, its effectiveness.[40] Such terms as “otherwise consistent with this Chapter” and “ensure that investment activity” leave room for interpretations that vastly limit the scope of applicability.[41] Laws, such as the Endangered Species Act, expressly forbid looking at monetary considerations.[42] If broadly interpreted, then Article 9.16 may provide protections for domestic laws previously unheard of within free trade deals; however, if these terms of limitation are interpreted more expansively, the exception may swallow the rule as the TPP reverts back to the status quo.[43] As with many things, this can only be answered with time.

Conclusion

There are many aspects of both ISDS and state-state dispute resolution within the TPP that are unique among free trade deals. Whether or not these provisions ultimately prove to alleviate their numerous critiques is far from certain. There are many other provisions within the TPP that serve to promote engagement over isolation, such as environmental and intellectual property provisions.[44] But, with engagement comes the risk of conflict, which is why dispute resolution is such an important aspect of any free trade deal. As with many things however, the ultimate effects of the dispute resolution mechanisms within the TPP can only be fully realized and evaluated over time.


[1] See generally Elizabeth Warren, The Trans-Pacific Clause Everyone Should Oppose, The Washington Post (Feb. 25, 2015), https://www.washingtonpost.com/opinions/kill-the-dispute-settlement-language-in-the-trans-pacific-partnership/2015/02/25/ec7705a2-bd1e-11e4-b274-e5209a3bc9a9_story.html [https://perma.cc/J7MX-HY92] (expressing a belief that the dispute resolution mechanism within the TPP would undermine the intentions and effect of the more progressive chapters).

[2] See Trans-Pacific Partnership ch. 9, Nov. 5, 2015 (pending authorization) (available at: https://ustr.gov/sites/default/files/TPP-Final-Text-Investment.pdf [https://perma.cc/U66B-LH93] [hereinafter Chapter 9]; see also Trans-Pacific Partnership chap. 28, Nov. 9, 2015 (pending authorization) (available at: https://ustr.gov/sites/default/files/TPP-Final-Text-Dispute-Settlement.pdf [https://perma.cc/LYG4-JV35]) [hereinafter Chapter 28].

[3] Chapter 9, supra note 2; Chapter 28, supra note 2.

[4] Joshua P. Meltzer, The Trans-Pacific Partnership Agreement, the environment and climate change, Brookings Inst. 3 (June 2016), https://www.brookings.edu/wp-content/uploads/2016/06/Meltzer-TPP-Environment-Chapter_version-2.pdf [https://perma.cc/SUZ5-TJ69].

[5] Id.

[6] TPP Final Table of Contents, Office of the United States Trade Representative (Nov. 5, 2015), https://ustr.gov/trade-agreements/free-trade-agreements/trans-pacific-partnership/tpp-full-text [https://perma.cc/2ULB-4MSJ] [hereinafter Table of Contents].

[7] See Warren, supra note 1, at paras. 2-4.

[8] See Chapter 28, supra note 2, at art. 28.9; see also Chapter 9, supra note 2, at art. 9.22.

[9] See Chapter 28, supra note 2, at art. 28.9; see also Chapter 9, supra note 2, at art. 9.22.

[10] See Chapter 28, supra note 2, at art. 28.9; see also Chapter 9, supra note 2, at art. 9.22.

[11] See Chapter 28, supra note 2, at art. 28.9; see also Chapter 9, supra note 2, at art. 9.22.

[12] See Chapter 28, supra note 2, at art. 28.9; see also Chapter 9, supra note 2, at art. 9.22.

[13] About ICSID, Int’l Ctr. for Settlement of Inv. Disputes, https://icsid.worldbank.org/apps/ICSIDWEB/about/Pages/default.aspx [https://perma.cc/76NS-PVCF] (last visited Oct. 28, 2016).

[14] Chapter 9, supra note 2, at art. 9.22.

 [15] Chapter 28, supra note 2, at art. 28.9.

[16] Id.; see also id. at art. 28.11.

[17] Id. at art. 28.14

[18] Id. at art. 28.15.

[19] Chapter 9, supra note 2, at art. 9.24.

[20] Id.

[21] See Chapter 28, supra note 2, at arts. 28.17-28.18; see also Chapter 9, supra note 2, at arts. 9.23-9.29.

[22] Chapter 28, supra note 2, at art. 28.17.

[23] Chapter 9, supra note 2, at arts. 9.23, 9.29.

[24] Id. at art. 9.23; Chapter 28, supra note 2, at art. 28.13.

[25] Chapter 9, supra note 2, at art. 9.28; Chapter 28, supra note 2, at art. 28.14.

[26] Chapter 9, supra note 2, at art. 9.27; Chapter 28, supra note 2, at art. 28.15.

[27] See Warren, supra note 1, at paras. 1-2.

[28] Id. at para. 2.

[29] Id. at paras. 2-3.

[30] Id.; see also Investor-State Dispute Settlement (ISDS) Attacks: Empowering Multinational Corporations to Attack Our Domestic Laws, Demand Taxpayer Compensation, Public Citizen, http://www.citizen.org/investorcases (https://perma.cc/WZD9-K3HT) (last visited Oct. 28, 2016) [hereinafter Public Citizen].

[31] Public Citizen, supra note 31, at para. 3.

[32] Id. at para. 4.

[33] Warren, supra note 1, at para. 3.

[34] Chapter 9, supra note 2, art. 9.23, at para. 11.

[35] See Ko-Yung Tung, Investor-State Dispute Settlement under the Trans-Pacific Partnership, 23 Cal. Int’l L. J. 19, 22-23 (2015).

[36] Id. at 21-22.

[37] Public Citizen, supra note 31, at para. 4; Warren, supra note 1, at para. 3.

[38] Chapter 9, supra note 2, at art. 9.16.

[39] Id.

[40] Tung, supra note 36, at pgs. 20-21.

[41] Id. (emphasis added)

[42] Amy Sinden, The Economics of Endangered Species: Why Less is More in the Economic Analysis of Critical Habitat Designations, 28 Harvard Environmental L. R. 129, 129 (2004).

[43] Tung, supra note 36, at pg. 21.

[44] Table of Contents, supra note 6.

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