clock menu more-arrow no yes mobile

Filed under:

What Bernie Sanders gets wrong about Obama’s trade deal

(Photo By Al Drago/CQ Roll Call)

Bernie Sanders is, I think it's fair to say, not a fan of the Trans-Pacific Partnership trade deal.

"Now that the text of the Trans-Pacific Partnership has finally been released, it is even worse than I thought," Sanders said in a Thursday statement.

He goes on to list a litany of broad complaints with the TPP. But one in particular touches on the investor-state dispute settlement provisions — a section of the deal that's been particularly controversial. But as far as I can tell from reading the text and talking to experts on that issue, Sanders's concerns are completely unfounded.

"The TPP would allow foreign corporations to sue federal, state, and local governments in an international tribunal for passing an increase in the minimum wage or any other law that could hurt expected future profits," Sanders says.

I asked Gary Hufbauer, a trade expert at the Peterson Institute for International Economics, about Sanders's comments. He was not impressed.

"I don’t know if he’s read the agreement or the text of the investment chapter," Hufbauer sighed. "But this is just bunk."

Sanders was wrong on both ends, Hufbauer said. For one thing, ISDS covers discriminatory regulations — but an increase in a minimum wage law wouldn't discriminate between foreign and domestic companies.

"You can't sue over an increase in the minimum wage," Hufbauer says. "Both foreign and domestic corporations pay a minimum wage. It’s not discriminatory. Now, if you said foreign corporations have to pay double the minimum wage of local corporations, that would be a different story."

The other problem with Sanders's argument, Hufbauer said, is that harming "expected future profits" is not a cause for action. You simply couldn't, as a company, launch a suit just because a labor regulation harmed your future profitability.

The text is fairly clear on this point: "[T]he mere fact that a Party takes or fails to take an action that may be inconsistent with an investor's expectations does not constitute a breach of this Article, even if there is loss or damage to the covered investment as a result," it reads.

The Veolia versus Egypt case

Sanders's concerns here seem to be based on an infamous ISDS case in which the French firm Veolia sued the Egyptian city of Alexandria over an increase in the minimum wage. Except it wasn't actually an increase in the minimum wage that Veolia was suing over.

As the Washington Post's editorial board noted, that case is often misinterpreted. Veolia had a contract with Alexandria that said the city was responsible for increases in operating costs, and employee compensation was one of those costs. So Veolia argued that the increase in the minimum wage increased compensation costs and that the city was on the hook for the difference.

What's worth noting there is the case is about the contract, not the minimum wage — Veolia isn't trying to roll back the new wage, but to argue that the resulting increase in labor costs is covered under a certain clause of the contract. (It's also worth noting that that case, which is still being litigated, is going through an ISDS agreement between France and Egypt that's different from the one in the TPP.)

There's a case to be made for and against the ISDS provisions of the TPP, and I'll be writing more on that soon. But the case Sanders is making goes way too far.