TPP May Set Stage for More Challenges Of U.S. Laws, After WTO Ruling on COOL

By Catherine Boudreau

May 29 — The Trans-Pacific Partnership is likely to contain provisions that could undermine U.S. policies, similar to the effect of a recent World Trade Organization decision that U.S. country-of-origin labeling (COOL) regulations violate international obligations, according to Democratic legislators and consumer advocates.

The WTO, founded to promote free trade and settle disputes, ruled on May 18 that the Agriculture Department's COOL rules discriminate against beef and pork imported from Canada and Mexico. COOL requires that meat producers specify on retail packaging where an animal was born, raised and slaughtered, and prohibits the mixing of muscle cuts from different countries under a general label.

Canada and Mexico have threatened retaliatory tariffs on U.S. products.

As a result of the WTO decision, the House Agriculture Committee approved legislation designed to repeal COOL, which is scheduled to be considered on the House floor the week of June 8. While the Senate has yet to take action, Agriculture Committee Chairman Pat Roberts (R-Kan.) has said repeal is an option.

As the TPP nears completion, it and other free trade agreements open U.S. laws and regulations to challenges by foreign countries and businesses. Further, in a global system that promotes the concept of a level playing field, one country can't ask its trading partners to eliminate trade barriers without doing so itself.

Critics say the trade agreements can diminish U.S. sovereignty by taking down congressionally enacted policies, including those designed to protect consumers. It is a major reason that groups like Consumers Union and Public Citizen, as well as many Democratic lawmakers, oppose the TPP, which is being negotiated among the U.S. and 11 other countries on the Pacific Rim.

“The TPP will contain provisions that are similar to the WTO rules that they used in this country-of-origin labeling case, if not even worse for domestic laws and regulations,” Rep. Rosa DeLauro (D-Conn.), one of Congress's leading critics of the TPP, said during a May 19 press call. “So we should expect similar results.”

Cost of Defying Trade Rules

Ted Posner, a partner at Weil, Gotshal & Manges LLP, told Bloomberg BNA that there is a distinct difference between the ability to challenge a country's law and forcing repeal or modification of that law. Critics often merge these two very separate concepts.

A country can keep a law found to be noncompliant with trade rules after a decision like the WTO's on COOL, but it will face consequences. Posner pointed to the European Union's decision to maintain its ban on imports of hormone-treated beef, after the WTO ruled in 1997 that it violated international trade rules. As a result, the U.S. slapped tariffs on EU agricultural goods.

“That's the nature of the bargain; it's not a cost-free system,” Posner said. “But a country can’t be forced to change its law; that’s up to each country to decide based on the cost and benefits.”

Should the U.S. decide to keep its COOL regulations intact, Canada plans to seek retaliation by imposing an estimated $2 billion in tariffs on imports of U.S. goods. Mexican officials haven't announced what U.S. goods it would target.

Critics say large compliance costs of the USDA rule and the ongoing trade dispute offset consumer benefits.

“Technically it's true, nothing can require us to repeal laws, but the U.S. is facing enormous economic pressure, and [Congress] is already preceding with repealing COOL before we know what the degree of retaliation is,” Karen Hansen-Kuhn, director of international strategies at the Institute for Agriculture and Trade Policy (IATP), told Bloomberg BNA.

Rep. Peter DeFazio (D-Ore.) shared those concerns during the May 19 conference call, and said that while the U.S. can pay to keep its laws, odds are against COOL regulations and other consumer laws being upheld, considering the swift action expected in Congress. This scenario could play out regarding other policies on the environment and labor in trade agreements, for example.

ISDS Further Weakens U.S. Law

Others contend that U.S. policies could be challenged under investor-state dispute settlement (ISDS) provisions that are included in the TPP, but not WTO agreements.

ISDS allows private investors to initiate a case against a foreign government for violating terms of a treaty, whether it be a free trade agreement or an investment pact. Three arbitrators are selected by the parties involved under varying conflict-of-interest rules, according to Kenneth Vandevelde, professor at Thomas Jefferson School of Law, San Diego.

Vandevelde said these provisions are necessary to ensure an impartial, law-based approach to resolving investment disputes in countries that may not have a legal system as robust as that in the U.S.

“If we're going to have a system of treaty protections for investment, there needs to be an effective remedy to enforce that,” Vandevelde said. “Where there's no remedy there's no right. ISDS is the best mechanism we've come up with. That doesn't mean it can't be improved, and debate on that should be welcomed.”

Opponents of ISDS, including DeLauro and DeFazio, say this is another example of how free trade deals undermine U.S. sovereignty and allow foreign entities to circumvent the national judicial system in a private tribunal. Even if foreign corporations lose a case, the U.S. and other countries still have spent hundreds of millions of dollars defending their laws.

The lawmakers cited tobacco companies that used ISDS to challenge cigarette labeling requirements intended to discourage smoking in Uruguay and Australia, and the Canadian generic drug company Apotex, which challenged U.S. Food and Drug Administration rulings on certain medications. U.S. COOL rules could be a target as well.

International trade lawyers like Vandevelde and Posner said it was far-fetched to say that COOL regulations would be challenged using ISDS. The North American Free Trade Agreement (NAFTA) of 1994 already includes ISDS provisions, as do 50 other treaties the U.S. has signed.

The lawyers again pointed to the difference between bringing a case and winning one. “So far, 17 [investment] claims have been brought against the U.S., and we have prevailed in every one,” Vandevelde said. “The reason for that is investment treaties are designed to incorporate U.S. legal norms. So as long as we're acting consistently with our own federal laws, there shouldn't be a legitimate claim against us.”

Prioritizing Trade Over Safety

International rules favor trade flows over consumer information and safety laws, critics said. These rules will likely be adopted into the TPP, with additional mechanisms for settling trade disputes.

COOL was challenged under the WTO agreement on Technical Barriers to Trade (TBT), while the EU lost its beef hormone case under the Sanitary and Phytosanitary (SPS) measure that allows countries to enact policies to protect human, animal or plant life or health. Both the TBT and SPS agreements aim to ensure that countries' laws don't create unnecessary obstacles to trade and serve a legitimate objective.

“Rules in the WTO go beyond just treating imports and domestic exports the same; they prioritize trade flows over other kinds of policy priorities, and in the case of COOL, consumer information,” Lori Wallach, director and founder of Global Trade Watch, a division of Public Citizen, said. “The WTO ordering the U.S. to gut a key consumer law is a little bit of a canary in coal mine reminder that we know everything in WTO is in TPP, plus.”

Posner said he doesn't see trade flow and consumer laws as being incompatible with one another. Free trade agreements are adopted on a broad spectrum of issues, including investments and goods, against a backdrop that acknowledges governments regulate in the interest of public health and the environment. In some cases, a country may have ulterior motives.

“There are governments around the world that do things under the pretense of protecting welfare, but really want to protect a local industry against foreign competition,” Posner said, adding that WTO cases should be put into perspective. The global organization has been around for 20 years and heard nearly 500 cases, most of which didn't challenge health and safety.

Encouraging Compliance

The U.S. should comply with WTO decisions to set an example for the more than 150 members of the organization, should they lose a case in the future, Scott Miller, senior adviser and Scholl Chair in international business at the Center for Strategic and International Studies, said.

“Encouraging compliance is superior to other approaches because it protects our export interests and makes sure the U.S. plays by the rules,” Miller told Bloomberg BNA.

Critics say that while a rules-based international trade system is important, the rules matter. Hansen-Kuhn of IATP said the rules are already problematic, so including them in the expansive TPP deal with countries like Japan, Malaysia and Vietnam is dangerous.

“I think there's different ways to adopt trade agreements, like focusing on specific areas, such as the U.S. has done in equivalency agreements,” Hansen-Kuhn said. “Focus on one issue instead of within a larger context so it can be done right.”

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