2010 midterm congressional elections in the United States: Implications for new U.S. International Investment Agreements

The Republican victories in U.S. congressional elections on 2 November 2010 are widely assumed to have increased the odds that the Obama administration will proceed with new bilateral investment treaties (BITs) and free trade agreements (FTAs) containing investment chapters[1] such as the Trans Pacific Partnership (TPP),[2] as well as seek congressional approval of FTAs negotiated by the Bush administration with Colombia, Panama, and South Korea.[3] Indeed, the conventional wisdom is that international trade and investment policy is one of only a handful of issue areas where President Obama and Republican leaders can forge a bipartisan deal resulting in congressional action.[4] But these assumptions bear closer examination. The post-election situation is complex.

On the House side

Republicans gained control of the U.S. House of Representatives, including significant gains in states that have recently leaned Democratic. The House Republican leadership is in a good position over the next two years to seek ratification of the pending Colombia, Panama, and South Korea FTAs, which include investment chapters. Republicans are also in position to bolster the Obama administration’s attempts to negotiate an investment chapter in a Trans Pacific Partnership (TPP) agreement.

The new Speaker, John Boehner of Ohio,[5] the prospective chairman of the House Ways and Means Committee, Dave Camp of Michigan,[6] and the likely chairman of the Ways and Means Subcommittee on Trade, Kevin Brady of Texas, are strong supporters of International Investment Agreements (IIAs). Brady’s rise is particularly significant. He is an outspoken supporter of IIAs, in part because the results of international investment litigation lopsidedly favor the United States,[7] and is likely to set the party line on IIAs for the House Republican leadership.

Moreover, the new Republican House leadership team is unlikely to face opposition to new IIAs within their own caucus comparable to what Democratic House leaders faced for the past three years. That said, the huge freshman class of Republican House members, including many Tea Party types, may be less disciplined than traditional Republicans and more concerned about loss of American sovereignty and anti-trade sentiment in their districts.[8]

As for the House Democrats, some members of the leadership, possibly including the Whip, Steny Hoyer of Maryland, and the likely ranking member on Ways and Means,[9] Sander Levin of Michigan, may want to accommodate the White House and take a nuanced approach to investment and trade issues. But, rank and file House Democrats may be itching for a fight. The re-election of Nancy Pelosi, the feisty San Francisco Democrat, as party leader, despite the loss of over 60 seats in the election, suggests the caucus is in no mood to compromise in search of bipartisan deals. Although, it must be said that Pelosi, who participated in the so-called 2007 bipartisan trade deal, is not a rigid opponent of international trade and investment agreements. [10]

More members of the new Democratic caucus appear to be skeptical of trade and investment agreements. A Public Citizen analysis of the 2010 election results in House races shows that “Democrats who ran on fair trade were more likely to survive the GOP tidal wave than those that did not run on fair trade.”[11]

Some of these House Democrats may see political advantages in opposing new FTAs leading up to the 2012 elections, regardless of whether the agreements are supported by the Obama administration. The largely Democratic House Trade Working Group, led by Mike Michaud of Maine, was the core of successful opposition in the House to new FTAs over the past three years. Although the President has been reaching out to Michaud, there may be little incentive for the Working Group to back down now, especially with polling that suggests that trade could be a wedge issue for Democrats in 2012.[12] Michaud, who made trade his signature issue, was reelected in Maine, even as the Republicans turned Maine’s politics upside down by taking the governorship and both houses of the state legislature.

Michaud and the Trade Working Group are very clear about their views on international investment agreements. In 2009, Michaud sponsored, along with 133 House co-sponsors, the Trade Reform Accountability Development and Employment (TRADE) Act. It sets out in detail the Trade Working Group’s vision for U.S. trade and investment policy, including the conditions that IIAs provide only for government-government dispute resolution and preserve the ability of each country to regulate foreign investment consistent with its own needs and priorities.[13]

The potential for conflict with the Obama administration is obvious. Lori Wallach, the director of Public Citizen’s Global Trade Watch, who has a close relationship with the House Trade Working Group and Mike Michaud, has charged President Obama with flip-flopping on 2008 campaign promises to reform IIAs and warned that his support for a U.S.-South Korea trade pact and similar agreements threatens his 2012 reelection.[14]

Nonetheless, few House Democrats can relish the idea of a fight with President Obama going into 2012; maybe the Obama-Michaud conversation will lead to a compromise.

On the Senate side

The Democrats retain control of the Senate, even after losing six seats. Despite the loss of seats and the fact that Senate Democrats have always been more amenable to international trade and investment agreements than their counterparts in the House, it is still too soon to assume that IIA issues are settled for the new Senate.

With 22 Democratic seats to be contested in 2012 in 33 races,[15] neither Republican nor Democratic leaders may be eager to have their members cast controversial votes on trade and investment measures that could tip the balance of party control. Harry Reid of Nevada, the Democratic Majority Leader, who is not always a friend of international trade and investment agreements, will have a lot to think about as he schedules Senate floor votes.[16]

The Republican Minority Leader, Mitch McConnell of Kentucky, flatly stated that his goal over the next two years is to focus on repealing health care and other measures passed by the previous Congress and to set the stage for defeating President Obama in 2012, not necessarily passing a lot of new measures.[17] But, a few days later McConnell softened his remarks to say that the two sides might be able to work together on a few issues, including passage of the U.S.-South Korea FTA. [18]

The new ranking Republican on the Finance Committee, Orrin Hatch of Utah, may also be in an ambiguous political position. Hatch may face an even more conservative Republican opponent, connected to the Tea Party, for the 2012 Senate nomination, and for this reason may be reluctant to make common cause with Finance Committee Democrats.[19] In addition, many Utah Republicans have concerns that IIAs could be used to challenge the state’s prohibition on gambling and other public morals regulations.[20]

Nonetheless, opponents of the current U.S. model for FTA investment chapters and BITs have reason to be concerned about the Senate. There is solid support for IIAs in the Republican Senate Caucus, while for the Democrats, opposition to IIAs in the Senate may be even weaker as a result of the departures of Senators Feingold, Dorgan, and Specter, all of whom were replaced by Republicans.[21] However, there is more to the story.

Max Baucus of Montana, who is generally favorable to IIAs, but may stand in the way of the U.S.-South Korea FTA as long as cattlemen are dissatisfied, will remain chairman of the Finance Committee: the Senate’s most important arbiter of international trade and investment proposals. He also supports BIT negotiations with China and others. However, Baucus is a transactional legislator who often puts his state’s interests as his highest priority. [22]

The chairman of the Finance Committee trade subcommittee will probably be Ron Wyden of Oregon once again, having handily won re-election. Like Baucus, Wyden is amenable toward, but not reflexively supportive of, FTAs.[23] Wyden cares about environmental issues and may be influenced by constituents at home who are concerned about the potential threat of IIAs to Oregon’s environmental and land-use regulations. [24]

Baucus, Wyden, and other members of the Finance Committee, however, will not be the only authoritative and persuasive voices among Senate Democrats when it comes to BITs.

Under the U.S. Constitution, the Senate alone must approve treaties, including BITs, with a two-thirds vote of members present.[25] Also, Senate rules give jurisdiction over treaty resolutions, including those pertaining to BITs, to the Foreign Relations Committee,[26] which will likely be chaired again by John Kerry of Massachusetts. In the course of Senate deliberations on the 2002 trade act, Kerry expressed concern about overbroad IIAs threatening domestic environmental laws and other forms of bona fide economic regulation in the public interest and offered an amendment on the floor. Although unsuccessful, this prompted the inclusion of the so-called Baucus-Grassley amendment, a milder measure directing the USTR to grant “no greater substantive rights” to foreign investors in new investment chapters.[27] Kerry reportedly is not ready to repeat the effort in order to seek additional protections for environmental and other regulations in future U.S. BITs, but it may be too soon for environmental advocates to write him off.

Conclusions
Even with Republicans gaining control of the House, uncertainties remain about the prospects for FTA approval over the next two years. On the Senate side, both Republicans and Democrats will be cautious about taking record votes on such controversial issues before the 2012 elections that will determine party control in the upper chamber. Also, if he seeks congressional approval of new or pending FTAs, President Obama will likely face significant opposition from members of the House Democratic caucus, which will be even more left-leaning and skeptical of globalization in 2011 and 2012. The odds are hard to calculate, but the strong support of the House majority leadership for approval of new FTAs surely will make some difference.

It is doubtful, on the other hand, that the odds for ratification in the Democratic-controlled Senate of new BITs have changed significantly as a result of the 2010 elections per se. In the past, “advice and consent” resolutions ratifying BITs, such as the 2006 measure approving the U.S.-Uruguay BIT, have been approved by the Senate with little controversy.[28] Therefore, Senate action on new BITs will probably have less to do with party control and more to do with how the negotiations with China, India, Pakistan, and others progress. The Obama administration is likely to finally make a decision on the provisions of a new U.S. model BIT as soon as it concludes consultation with congressional leaders, which at least allows formal BIT negotiations to proceed. [29]

Yet many questions remain. Will the Senate get hung up on trade issues like beef exports, or environmental and labor standards? Will human rights abuses in Colombia or Panama’s status as a tax haven continue to complicate efforts to ratify those two FTAs? Will Speaker Boehner find his freshman class hard to discipline? Will House Democrats distance themselves from the President? Most important, how will the public react to new trade and investment deals?

Author: Bill Waren is policy director for the Forum on Democracy and Trade. For 17 years before assuming his current position, Bill closely studied the workings of the U.S. Congress in his role as federal affairs counsel for the National Conference of State Legislatures.

[1] Pursuant to the “Bipartisan Trade Deal of 2007,” which facilitated House Democratic leadership support for the U.S.-Peru agreement despite objections from rank and file in the party caucus, President Bush included labor and environment protections in the Colombia, Peru, and South Korea FTAs. More relevant here, the 2007 deal also included a small reform of the investment chapter of the pending FTAs: the preamble of the investment chapters includes language stating that foreign investors will not be granted greater substantive rights with respect to FTA investment protections than those provided to domestic investors under domestic law. See M. Angeles Villareal, “The U.S.-Colombia Free Trade Agreement,” Congressional Research Service, October 1, 2010.

[2] Negotiation of the Colombia, Panama, and Korea FTAs were conducted under so-called fast track or trade promotion authority provided by the Trade Promotion Act of 2002, which has now expired. Fast track authority provides for expedited congressional approval of trade and investment agreements, without amendment (although the details of implementing legislation are negotiated in advance with the Senate Finance Committee and the House Ways and Means Committee through a so-called mock mark-up process). Presumably if negotiations on the TPP are concluded before 2012, Obama will ask for fast track authority to facilitate its ratification. The likely reactions of congressional Republicans to such a request are hard to anticipate at this time.

[3] President Obama in his January 2010 State of the Union Address stated that “…we will strengthen our trade relations with Asia and with key partners like South Korea, Panama, and Colombia…” “Text: Obama’s State of the Union Address,” New York Times, January 27, 2010, available at, http://www.nytimes.com/2010/01/28/us/politics/28obama.text.html?_r=1&pagewanted=all. See also, J.F. Hornbeck, “The Proposed U.S.-Panama Free Trade Agreement,” Congressional Research Service, RL 32540, Febuary 27, 2010; William H. Cooper, Mark E. Mangin, Remy Jurenas, Michaela D. Platzer, “The Proposed U.S. –South Korea Free Trade agreement (KORUS FTA): Provisions and Implications,” RL 34330, Congressional Research Service, July 2, 2010; Villareal supra. The Obama Administration is negotiating understandings with Panama on tax and labor issues, with Colombia on labor and human rights issues, and with South Korea on auto and beef trade in order to facilitate congressional approval of the three FTAs.

[4] King and Spalding, “The Impact of the November 2 Elections on International Trade,” November 12, 2010 (“We will likely see the revival of certain free trade agreements and other pro-trade initiatives.”), available at http://www.Kslaw.com/imageserver/KSPpublic/library/publications/ca111210.pdf. Helene Cooper, “Obama Sails Trade Sea, Where Friends Are Foes,” New York Times, November 17, 2010; Peter Baker, “The Education of a President,” New York Times Magazine, October 12, 2010 (Rouse and Messina [Obama aides] see areas of possible bipartisan agreement like…passing long pending trade pacts…).

[5] Boehner voted for the CAFTA, Australia, Singapore, Chile, and Peru FTAs. OnTheIssues, “John Boehner on Free Trade,” available at http://www.ontheissues.org/OH/John_Boehner.htm#Free_Trade.

[6] Camp also has a record of strong support for FTAs. Camp, however, was concerned about the effect on the auto industry of the South Korea FTA. Committee on Ways and Means Republicans, Dave Camp, Ranking Member, “Chairman Levin and Ranking Member Camp Joint Statement on U.S.-South Korea FTA Negotiations,” November 11, 2010, available at http://republicans.waysandmeans.house.gov/News/documentsingle.aspx?DocumentID=214484. The December 3, 2010 agreement between U.S, and Korea on supplementary provisions in the FTA related to autos addressed the concerns of Camp and U.S. automakers. Sewell Chan, “South Korea and U.S. Reach Deal on Trade,” New York Times, December 4, 2010, p, B1.

[7] According to Brady: “….the U.S. has used this [investor-state] successfully throughout the years to resolve disputes. California-based Metalclad successfully used NAFTA to challenge issues in Mexico. S.D. Meyers from Ohio, the same with Canada. We have had U.S. companies challenge bilateral investment trade issues in Poland to our benefit, Motorola in Turkey, Occidental in Ecuador, CMS and Sempra in Argentina, all using this provision to protect U.S. investors… But, if you look at the number of foreign investors who have used this process to successfully challenge the U.S., you will see a blank piece of paper, because it hasn’t been done.” Committee on Ways and Means, U.S. House of Representatives, 111^th Congress, 1^st Session, Transcript, Hearing on Investment Protections in U.S. Trade and Investment Agreements, May 14, 2009, available at, http://waysandmeans.house.gov/Hearings/transcript.aspx?NewsID=10394.

[8] King and Spalding, supra (“The position of the Tea Party members has not been fleshed out fully, but it appears that a slight majority of those elected are more likely to be against government intrusion and for free trade.”).

[9] It is unclear, at this writing, who is likely to be the ranking Democrat on the Trade Subcommittee of Ways and Means. The incumbent, John Tanner of Tennessee, declined to run for reelection.

[10] After several FTAs, including the Chile, Singapore, and CAFTA agreements that were approved by only slim margins and in the face of increasing Democratic congressional opposition, the Bush administration negotiated a deal with Democratic as well as Republican leaders, and leaders of the House Ways and Means Committee and the Senate Finance Committee, in particular, to include some labor and environment protections and other provisions that would garner more Democratic support for future agreements. See, Office of the U.S. Trade Representative, Trade Facts, “Bipartisan Trade Deal,” May 2007, available at http://www.ustr.gov.sites/default/files/uploads/factsheets/2007/asset_upload_file127_11319.pdf. The House Trade Working Group strongly protested the deal. The next FTA to come before Congress, the U.S.-Peru FTA, did get substantially more Democratic support. But, the Colombia, Panama, and South Korea agreements are bogged down in controversy.

[11] Todd Tucker, “TRADE Act Cosponsors Fared Better than Anti-Fair Traders,” Eyes on Trade, November 11, 2010.available at http://citizen.typepad.com/eyesontrade/2010/11/before-many-election-results-were-in-the -chamber-of-commerce-was-gleeful. See also the complete analysis, “Election 2010: the Best Defense Was a Fair Trade Offense,” available at http;//www.citizen.org/documents/2010_election_Trade_report.pdf.

[12] Pew Research Center for People and the Press, “Americans Are of Two Minds on Trade: More Trade, Mostly Good; Free Trade Pacts, Not So,” November 9, 2010 (“The public wants increased trade with Canada, Japan and several other countries [China and South Korea being notable exceptions], but support for free trade agreements is at a 13-year low, and more say trade agreements have negative rather than positive impact on jobs, wages and economic growth.”), available at, http://pewresearch.org/pubs/1795/poll-free-trade-agreements-jobs-wages-economic-growth-china-japan-canada..

[13] H.R. 3012, pp. 29-30, available at http://thomas.loc.gov/cgi-bin/query/z?c111:H.R.3012.JH.

[14] Lori Wallach, “2010 Election Focus on Trade and Offshoring Exposes Obama’s G-20 Political Peril: Pushing Bush’s Korea Trade Pact Endangers Obama’s Reelection,” available at, http;//www.citizen.org/documents/G20%Korea%FTA%20Reporter%20memo.pdf. See also, Public Citizen, “Selected Campaign Statements by President Barack Obama on U.S. Trade and Globalization Policy, 2008,” available at http;//www.citizen.org/documents/ObamaTradeCampaignstatementsFINAL.pdf.

[15] Paul Steinhauser, “2012 Senate Battle Already Under Way,” CNN Politics, November 5, 2010, available at http://cnn.com/2010/POLITICS/11/05/senate.battle/index.html.

[16] Reid voted against the U.S.- Peru FTA, for example.

[17] Manu Raju, “Mitch McConnell Doubles Down on President Obama,” Politico, November 4, 2010, available at http://www.buzzbox.com/top/default/preview/mcconnell-defeat-obama-in-2012/?clusterId=23393258&id=12519759&topic=barack-obama%Aboehner.

[18] Politics Daily, “Mitch McConnell: Agreement with White House Possible on Some Issues,” November 6, 2012, available at http: http://www.politicsdaily.com/2010/11/06/mitch-mcconnell-agreement-with-white-house-possible-on-some-issues

[19] Steinhauser, supra (Republican senators up for reelection who could come up for attack by the Tea Party movement include Orrin Hatch of Utah…).

[20] The author has spent considerable time in Salt Lake City discussing the relationship of IIAs to public morals regulation with members of the Utah legislature and members of the state’s trade policy oversight commission.

[21] In November of 2009, Senator Sherrod Brown of Ohio introduced the most-recent Senate version of the TRADE Act. His co-sponsors, all Democrats, included Byrd of West Virginia (deceased), Casey of Pennsylvania, Dorgan of North Dakota (retired), Feingold of Wisconsin (defeated in general election), Franken of Minnesota, Merkley of Oregon, Sanders of Vermont, and Specter of Pennsylvania (defeated in primary). Open Congress, “S. 2821 – TRADE Act of 2009,” available at http;//www.opencongress.org/bill/111-s2821/show. As another indicator of die- hard opposition to international trade and investment agreements among Senate Democrats, consider the roll call vote on the U.S. – Peru FTA of 77 yeas, 18 nays (including only one Republican), and 5 not voting. United States Senate, U.S. Senate Roll Call Votes, 110^th Congress, 1^st Session, on the Passage of H.R. 3688, available at www.senate.gov/legislative/LIS/roll_call_lists/roll_call_vote_cfm.cfm?congress=110&session=1&vote=00413.

[22] See, United States Senate, Committee on Finance, “Baucus Comments on U.S. China Talks,” available at http://finance.senate.gov/newsroon/chairman/release/?id=8dfcd6a9-43e2-4975-970e-93daccd7bf5.

[23] In the past, Wyden has voted for agreements that contain investment chapters, including the Central American Free Trade Agreement (CAFTA), which even Max Baucus voted against. He voted against FTAs with Chile, Singapore, and Oman, but for the U.S.-Peru FTA. OnTheIssues, “Ron Wyden on Free Trade,” available at http://www.ontheissues.org/international/Ron_wyden_Free_Trade.htm.

[24] Oregon Fair Trade Campaign, “Oregon Legislators Warn of Trade Deal’s Threats to State Sovereignty,” August 31, 2010 (“A bipartisan group of Oregon State Legislators sent U.S. Senator Ron Wyden (D-OR) a letter today urging him to use his position as chair of the Senate Subcommittee on International Trade to strip provisions from a pending trade agreement that threaten to expose Oregon laws to attack in international tribunals.”)

[25] U.S. Constitution, article II, section 2, paragraph 2.

[26] U.S. Senate, Committee on Foreign Relations, “Committee Rules,” 111 Congress, 1^st Session, September 2009, available at http://foreign.senate.gov/about/jurisdiction.

[27] The Kerry Amendment, No. 3430 to H.R. 3009, was tabled (rejected) by a vote of 55 to 41. Emergency Committee for American Trade, “Senate Trade Scorecard, 107^th Congress, 2^nd session, 2002,” available at http;//www.ecattrade.com/keytrade/scorecard2.asp.

[28] U.S. Senate Committee on Foreign Relations, Legislative Activities Report, March 29, 2007, 110^th Congress, 1^st session, Report 110-40, p.3, p.7; Organization of American States, Foreign Trade Information System, “United States – Uruguay,” available at http://www.sice.oas.org/TPD/URY_USA/URY_USA_eASP.

[29] World Trade Online, “Hormats Says Administration To Seek Further Vetting With Congress On Model BIT,” November 16, 2010, available by subscription only (“The Obama Administration plans to seek further consultations on a new model bilateral investment treaty [BIT] with the incoming Congress as part of its efforts to conclude an ongoing review that was to have been wrapped up late last year…).