150622_r26661-320Trade-Agreement Troubles

By James Surowiecki, New Yorker.

In 2012, Australia implemented tough anti-tobacco regulations, requiring that all cigarettes be sold in plain, logo-free brown packages dominated by health warnings. Philip Morris Asia filed suit, claiming that this violated its intellectual-property rights and would damage its investments. The company sued Australia in domestic court and lost. But it had another card to play. In 1993, Australia had signed a free-trade agreement with Hong Kong, where Philip Morris Asia is based. That agreement included provisions protecting foreign investors from unfair treatment. So the company sued under that deal, claiming that the new law violated the investor-protection provisions. It asked for the regulations to be discontinued, and for billions in compensation.

The case has yet to be decided, but the concerns it raises help explain President Obama’s embarrassing setback last week, when the House failed to give him fast-track authority over one of two big trade agreements that had been envisaged as a key part of his legacy. Both agreements—the Trans-Pacific Partnership, with eleven Asian and Pacific countries, and an agreement with Europe called the Transatlantic Trade and Investment Partnership—include provisions very like the ones at the heart of Australia’s fight with Big Tobacco. Known as Investor-State Dispute Settlement (or I.S.D.S.) provisions, they typically allow foreign investors to sue governments when they feel they have not received “fair or equitable treatment,” and to have their cases heard not by a domestic court but by an international arbitration tribunal made up of three lawyers.