Obama's Arbitrary Approach to Arbitration

Much noise has been made in recent months about the pending Trans-Pacific Partnership (TPP) agreement currently working its way through Congress. While recent reports have indicated that the deal may have stalled in Congress, I think its still worth noting one element of the deal that reveals a startling hypocrisy from the Obama administration.

While the Consumer Financial Protection Bureau (CFPB) begins its foray into regulating the world of private arbitration clauses, a different agency of the Obama administration is taking on the opposite approach. While the CFPB's efforts are to be applauded,any improvements that may result domestically will be offset by the international devastation that would arise from a particularly nasty provision of the TPP.

A little background on arbitration:

The CFPB's rulemaking, if finalized, would be the first attempt by the federal government to crack down on the ballooning use of what are called "forced" arbitration clauses, which appear in all sorts of commercial contracts: from real estate leases, to cellphones, and cars. Forced arbitration clauses routinely are inserted into the fine print of contracts that people must sign to buy a product or service or get a job. Millions of Americans are inadvertently signing away their rights to sue the entity they are doing business with when they sign these agreements. Arbitration is a process in which a private firm is hired to settle a dispute without going to court. It was designed as a voluntary alternative to actual litigation.

While the language varies, the point of arbitration is to shield business from their customers suing them, especially through class-actions suits. Whether they know it or not (usually not), the consumer agrees to have their issues settled by a private arbitrator, who is not an appointed judge of any town, county, or state. These arbitrators are often selected by the business itself, which presents a obvious conflict-of-interest problem and stacks the deck against the consumer and their attempt at redress.

Arbitration is now a tool used by corporations large and small, to force consumers and employees to surrender their right to hold corporations accountable for wrongdoing before a real, governmental court. The main selling point of the pro-arbitration crowd is that it is "discount justice"-- consumers can get some form a redress quicker and cheaper than through the actual justice system. No need to hire one of those slimy lawyers, file a lawsuit, or appear before some crotchety old judge.

While at first glance it may seem like a more efficient system, arbitration is a way for powerful corporations to evade responsibility and rule of law. Under forced arbitration, individual consumers or employees must fight it out before a private arbitrator essentially chosen by the company that cheated or discriminated against them. Arbitrators do not need to be lawyers or follow precedent, yet their word is nearly always final and unappealable.

Nearly all forced arbitration clauses also ban class-action suits, which allow individuals to band together to bring their common claims against big corporations. Without the ability to band together, individual claims are usually too small for any one person to bother with the costs of litigation, allowing shady companies to do small amounts of harm to a large number of people without consequence. The whole false right-wing narrative about "frivolous lawsuits" has empowered the stunning growth of these clauses over the past decade.

In my view, these hidden arbitration clauses also violate the very spirit of our Constitution, which supposedly provides equal protection by, and access to, government for the redress of grievances.

So while CFPB (an agency which Obama himself signed into law) takes on the issue domestically, the White House is burning through what is left of its meager political capital to push through the widely-despised Trans-Pacific Partnership "trade" deal on the international level. At the core of the TPP is the so called "investor-state dispute settlement" (ISDS) system, which is basically a globalized arbitration panel.

These international panels grant extraordinary new rights and privileges to foreign corporations and investors that formally prioritize corporate rights over the right sovereign nations to govern their own affairs. These terms empower individual foreign corporations to skirt domestic courts and directly challenge any policy or action of a sovereign government before World Bank and UN tribunals.

Comprised of  private attorneys, the extrajudicial tribunals are authorized to order unlimited amounts of compensation for health, environmental, financial and other public interest policies that don't fit corporate interests. The amount awarded to corporations is based on the "expected future profits" that the corporation would have earned in the absence of the public policy it is attacking.

This panel would provide a super-national platform for multi-national corporations to sue sovereign governments. If a government proposes, for example, a new series of environmental regulations that impose costs on a corporation, that corporation can bring suit against the government with the ISDS, in an attempt to stop the regulation or receive compensation for compliance costs and any potential profit losses emanating from the regulation. This arrangement already exists in a more limited form at the World Trade Organization, where suits can be brought against countries who impose trade barriers.

ISDS is essentially arbitration on steroids. Just as consumers are disempowered by forced arbitration domestically, sovereign nations are disempowered by arbitration internationally. This expansion of private, unaccountable corporate power is antithetical to every democratic ideal, and is a horrifying reversal in the gradual expansion of global democracy that occurred in the 20th century.

The passage of TPP would symbolize yet another weakening of national democratic sovereignty. Democratic government would be powerless to appeal decisions of this international arbitration panel, which is controlled by neoliberal, corporate interests and ultimately not accountable to anyone. By creating a platform for corporations to overpower national governments, the TPP would codify the dominance of global corporate power, which has grown exponentially in the past 30 years.

Despite widespread opposition from American citizens and public interest groups, the Obama administration has continued to push the TPP, with a level of vigor that it never demonstrated for progressive causes. That a former Constitutional law professor would have anything to do with such a flagrant offense to a core principle of the US Constitution is notable enough. But the fact that his White House is pushing to expand corporate-friendly arbitration on a global scale is particularly disgusting.

So while this scheme may seem rather odd, I don't mean to suggest that this policy incongruity is surprising. In fact, it fits right into the current dynamics of DC policymaking- make some highly visible domestic policy moves to keep people placated, while moving behind the scenes in opposite, more pernicious ways.

Thankfully, the threat of the TPP has mobilized grassroots movements and mass protests across the globe in opposition. And just about every presidential candidate, both Republican and Democrat, currently opposes the TPP. Neoliberalism may have finally gone to far. The tide may finally be turning.