Biden Comes Out Against 'Special Tribunals' For Corporations

(July 28, 2020, 6:35 PM EDT) -- Former Vice President Joe Biden appears to be moving away from the stance on investor-state dispute resolution he adopted as part of the Obama administration, telling the United Steelworkers that he doesn't believe corporations should get "special tribunals" in order to "attack" U.S. policies.

Responding to a questionnaire sent to him by the union, the presumptive Democratic nominee said he would not include investment arbitration in future trade deals if it could weaken U.S. labor, health and environmental policies. The USW union announced in May that it was endorsing Biden in the 2020 election after reviewing his responses to the questionnaire, which it sent to candidates for federal office.

"I don't believe that corporations should get special tribunals that are not available to other organizations," Biden wrote. "I oppose the ability of private corporations to attack labor, health, and environmental policies through the investor-state dispute settlement (ISDS) process, and I oppose the inclusion of such provisions in future trade agreements."

Biden's response in the questionnaire with regard to ISDS, which appears to mark the first time that the candidate has taken a firm stance on the topic during his candidacy, signals something of a departure from the position adopted within the Obama administration. Under Obama, the U.S. supported and included investor-state dispute settlement in the now-defunct Trans-Pacific Partnership. 

But the extent of that departure is not completely clear, given that the candidate spent only two sentences on the topic and did not go into detail.

Nor is Biden's stance all that unexpected since, even while Barack Obama was in office, Democrats had already begun criticizing investment arbitration. In fact, the TPP's ISDS provision was deeply criticized by some Democratic and independent senators, who argued in the months before the 2016 election that it effectively amounted to a "special court for corporations to challenge legitimate, democratically developed public policies."

"I don't find the statement that he made in the questionnaire particularly surprising," said Marney Cheek, co-chair of Covington & Burling LLP's international arbitration practice, who was formerly an associate general counsel at the U.S. Trade Representative's office. "I would expect any Democratic candidate to be very focused on ensuring that whatever system we have would protect labor rights and environmental standards."

Biden's response also aligns with a trend over the last few years of nations gradually moving away from supporting ISDS.

The ISDS system has long been favored by the international business community, which says it promotes stability and predictability for foreign investments. But it has faced increasing criticism over the last few years from governments which argue that, among other things, it allows multinational corporations to challenge state actions that they perceive to be unfavorable.

That includes the Trump administration. During a 2018 discussion with lawmakers on the new North American trade deal that would become known as the U.S.-Mexico-Canada Agreement, U.S. Trade Representative Robert Lighthizer issued a scathing rebuke of investment arbitration, suggesting that the mechanism undermines U.S. sovereignty and encourages companies to outsource factories to foreign countries. The Trump administration nevertheless included a scaled-back version of ISDS in the USMCA.

The Obama administration's version of ISDS in the Trans-Pacific Partnership attempted to address common criticisms of the mechanism at the time. For example, the deal underscored that countries retain the right to regulate in the public interest, including on health, safety, the financial sector and the environment. It also included a new standard permitting governments to seek expedited review and dismissal of frivolous claims.

In that sense, Biden's position in the questionnaire "isn't too far off" the position the Obama administration had during the second half of the administration, according to Akin Gump Strauss Hauer & Feld LLP partner Stephen S. Kho, whose practice focuses on international trade policy and international dispute resolution.

Still, it may have been the discussions over the TPP that sparked a more fundamental criticism of ISDS, both in the U.S. and abroad.

"My sense is that antipathy to ISDS got a real infusion of energy from the debate over TPP, which Obama made a signature trade initiative of his administration, and became a target for anti-Obama forces on the left (led at the time by [Massachusetts Sen. Elizabeth] Warren) and the Trump movement on the right," said Robert Howse, the Lloyd C. Nelson Professor of International Law at New York University School of Law.

Biden's response to the questionnaire did not explain the former vice president's reasoning for his decision. Representatives for his campaign didn't immediately respond to a request for additional explanation on Tuesday.

Still, the wording pointing to "labor, health, and environmental policies" suggests that sovereignty could be a factor, Howse noted.

By the same token, however, it's worth noting that Biden's audience here is a labor union, according to Kho.

"Biden's response is very focused on this audience, i.e., opposing the ability of companies to challenge 'labor, health and environmental' policies through ISDS," he said.

In addition to global trade, the questionnaire raised a number of issues that the USW said are important to the working class, including workplace safety, collective bargaining and healthcare. Biden said his priority in negotiating trade deals would be to "build the American middle class, create jobs, raise wages, and strengthen communities." He also emphasized increased investment in green jobs being created in the U.S.

The USW, which endorsed Hillary Clinton in the 2016 election, said the Trump campaign did not respond to its questionnaire.

--Editing by Peter Rozovsky.

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