Is TPP constitutional?

Alan Morrison, The Atlantic - It is January 2017. The mayor of San Francisco signs a bill that will raise the minimum wage of all workers from $8 to $16 an hour effective July 1st.  His lawyers assure him that neither federal nor California minimum wage laws forbid that and that it is fine under the U.S. Constitution.

Then, a month later, a Vietnamese company that owns 15 restaurants in San Francisco files a lawsuit saying that the pay increase violates the “investor protection” provisions of the Trans-Pacific Partnership agreement recently approved by Congress. The lawsuit is not in a federal or state court, but instead will be heard by three private arbitrators; the United States government is the sole defendant; and the city can participate only if the U.S. allows it.

It is not a far-fetched scenario. The TPP reportedly includes such provisions, as a means of solving a thorny problem. In the United States, the courts are, by and large, independent and willing to fairly decide challenges to arbitrary government laws and rulings, no matter who the plaintiff is. The same is not consistently true in less developed countries.

The solution proposed in the TPP is to allow foreign investors to bring claims for money damages over violations of the TPP’s investor protection provisions before a private arbitration tribunal that operates outside the challenged government’s court system. One arbitrator would be chosen by the investor, one by the country being challenged, and a third by agreement of the other two arbitrators.

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.