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When countries enter into trade agreements, they need to have a way of resolving disputes that arise. There are some 3,200 trade agreements worldwide, and nearly all of them use one system to do that. That system is now included in the 12-country Trans-Pacific Partnership deal before Congress. The system has drawn a lot of criticism. NPR's Yuki Noguchi explains why.
YUKI NOGUCHI, BYLINE: Six years ago, Illinois-based Corn Products International sued Mexico for levying taxes on beverages using high fructose corn syrup. The company claimed the NAFTA agreement prohibited such taxes which protected Mexico's domestic sugar industry. And arbitration panel sided with Corn Products, now known as Ingredion, and awarded it nearly $60 million.
Linda Dempsey says companies need that - an unbiased international tribunal for trade disputes. Dempsey is vice president of the National Association of Manufacturers whose members have also brought similar suits to defend their foreign investments. She says without that system, it's like having a referee root for the opposing team.
LINDA DEMPSEY: No one wants to be in the home court of the country you're suing.
NOGUCHI: The system is called investor-state dispute settlement, or ISDS for short. It's gained in popularity in recent decades, and now some 3,200 trade treaties around the world include some version of it. Under the system, cases are arbitrated by one of two bodies - the World Bank or a division of the United Nations. To date, the U.S. has been sued 17 times and won all its cases.
The process works outside either the company or the host country's judicial system, which, at least according to proponents of the system, is the point. But critics on the left and the right say they don't want to see it codified in the new Trans-Pacific Trade Deal. They say it will open the door to more cases where U.S. laws and regulations can be challenged by foreign companies. And they say it's an unfair practice. Lise Johnson heads investment law and policy at Columbia University's Center on Sustainable Investment.
LISE JOHNSON: You take away the ability of the domestic courts to shape the law in the way that they normally would have.
NOGUCHI: She says companies abuse the trade dispute system to get around domestic law. She points to a case in Canada where U.S. drugmaker Eli Lilly is using an arbitration panel to challenge Canadian patent rules which the company finds too strict.
JOHNSON: Eli Lilly ultimately lost the decision before the Canadian Supreme Court but is now taking that case under the NAFTA to investor-state arbitration and seeking a different outcome.
NOGUCHI: There's much debate over whether this arbitration system, ISDS, is abused. Rachel Wellhausen is an assistant professor of government at the University of Texas at Austin. She says the system can be unfair.
RACHEL WELLHAUSEN: Why is it that Toyota, operating in the United States, would have access to ISDS but Ford, operating in the United States, would not have access to it?
NOGUCHI: But by that measure, Ford would have advantages in Japan that Toyota wouldn't have. Other critics say this mechanism intended to facilitate free trade actually hurts it. Dan Ikenson is director of trade policy studies for the libertarian Cato Institute. He notes the Trans-Pacific Trade Deal would bar tobacco companies from suing countries with antismoking laws. Ikenson says that carve-out proves that the dispute settlement system runs counter to free trade.
DAN IKENSON: It says ISDS is a special feature. It is a privilege. It is something that only good companies should have access to.
NOGUCHI: Michael Froman, the United States' trade representative, has been selling the TPP for weeks and says its arbitration rules improve on the old ones.
MICHAEL FROMAN: We have heard the concerns that have been raised. We've listened to the concerns. And based on those issues that have been raised, we've gone back to the negotiating table and negotiated further and stronger provisions.
NOGUCHI: Provisions that make it harder to bring frivolous lawsuits and that protect each country's right to regulate on issues of health, environment, financial stability and other public interests. The fact is, he says, neutral arbitration is an essential part of free trade. Congress will take an up-or-down vote on the Trans-Pacific Trade Deal next spring. Yuki Noguchi, NPR News, Washington. Transcript provided by NPR, Copyright NPR.