Imagine it’s 2018 and that you are the owner of a small business in North Carolina with 60 employees that produces water filtration equipment used in sewage treatment plants. This year, you were particularly excited to hear of the state government’s new procurement program to help localities finance purchases of new filtration equipment to upgrade their facilities to meet requirements for cleaner water. You know this is necessary for the health of a growing population, and to attract businesses and tourists that count on high water quality.
You think it’s perfectly appropriate that the state’s law has a “buy local” provision requiring at least 60% of the new equipment to be purchased from businesses like yours that are headquartered and operated in North Carolina. After all, you’ve paid state taxes for years, as have your employees, and you know that small businesses are the backbone of job creation in North Carolina. You’re hoping to add new employees once you successfully bid for a new contract.
Imagine your consternation when you open your local newspaper and read that a Japanese corporation has filed suit against the North Carolina government claiming that this buy-local requirement is illegal, and that as a result, Raleigh has rolled back this law to avoid costly litigation. Reading on, you make the startling discovery that this suit has not been filed in any US court, but instead before an arbitration panel which the US government agreed to in a “free trade agreement” called the Trans-Pacific Partnership (TPP) in 2015.
The Japanese corporation’s claim charges that North Carolina has violated the “national treatment” provision of the TPP which states that products from a TPP country like Japan must receive treatment “no less favorable” than products of national origin, and that the new “buy local” law discriminates against this corporation. The corporation also alleges that the buy-local law constitutes a subsidy to domestic businesses violating yet another provision of the TPP. In the arbitration, the corporation has demanded that the North Carolina government pay it $2 billion in damages for violating these TPP provisions to compensate it for loss of future “estimated profits.” The state, rather than fight a costly legal battle, has simply conceded, and the State Assembly is rescinding the “buy local” program. For your small business most likely: game over.
Reading further, you become increasingly confused and angry as you learn that the arbitration panel the article mentions is part of a new form of global governance called “Investor State Dispute Settlement (ISDS) in the TPP. You read that the panel has only three members, and that they are not judges appointed by a US court, but private arbitration attorneys appointed by a unit of the World Bank. You ask yourself: isn’t this an infringement of American sovereignty? Since when does international arbitration “law” supersede the US Constitution? And when did North Carolina weigh in on creation of this “law,” which undermines states’ rights under our federal system?
In this future, the bad news is that you would be right to be worried. The “buy local” program which you’d hoped to benefit from, and keep wealth in North Carolina, is very similar to a “buy local” program created in 2009 by the province of Ontario, Canada to support its solar and wind energy industries. But Ontario’s ‘buy local” law was rescinded after a successful 2010 challenge by a Japanese corporation under the ISDS provisions of the World Trade Organization.
The good news is that it’s not 2018, but 2015. Today, Congress has granted President Obama Fast Track Authority to negotiate the Transpacific Partnership, but the treaty is not a done deal until it comes up for a “up or down” vote before the U.S. Congress later this year. Irrespective of your political party, you should be deeply concerned about the violations of US sovereignty that have been tucked into provisions of the TPP. We should all urge the North Carolina congressional delegation to vote against the TPP for the sake of American democracy.
An earlier version of this blog appeared as an Op-ed piece in the Raleigh News and Observer on July 9, 2015.