Topic: Investor State Dispute Settlement (ISDS)
In a Nutshell
Originally designed to protect foreign investors from weak and often corrupt local legal systems in developing countries, the Investor-State Dispute Settlement provisions embedded in many trade agreements are now widely used by multinationals to challenge and subsequently bypass domestic laws when they feel such health, environmental, labour and other public interest legislation threaten the company’s profits.
Multilateral, mega trade deals like the TransPacific Partnership (TPP), TransAtlantic Trade & Investment Partnership (TTIP, Comprehensive Economic & Trade Agreement or CETA for Canada) and Trade in Service Agreement (TiSA) even further strengthen these provisions in favor of the foreign investors.
The number of publicly known ISDS related cases has mushroomed from just 50 from 1960 through 2000, a span of four decades, to more than 50 for each of the last three years through 2013 for which the latest data is available.
The whipping boy on the shit end of the stick goes to Canada. Canada caught itself on the defense in 36 of the 78 cases (70%) filed under NAFTA, earning itself the dubious honor of being the most sued developed country in the world. (link)
Encouraged by a new-found bottomless well of taxpayer funded defendants, multinationals are increasingly seeking staggering amounts under current treaties. New investment treaties such as the TTP and TTIP/CETA will virtually guarantee that the amounts would escalate further since the ISDS clauses in these treaties are ‘strengthened’ in favor of foreign investors.
Here is a small sample of ISDS challenges against various countries. (more cases)
- AbitiBowater against Canada: $130 million won
- Lone Pine against Canada: $250 million pending
- Bilcon against Canada: $300 million won
- Eli Lily against Canada: $481 million pending
- WindStream against Canada: $568 million pending
- Mesa Power against Canada: $746 million pending
- Occidental against Ecuador: $2.4 billion won
- Vattenfall against Germany: $4.6 billion pending
- TransCanada against US: $15 billion pending
Key Problems with ISDS
- It is a one-way only, parallel and privatized system of arbitration, a privilege enjoyed only by foreign multinationals but not domestic companies. It allows a foreign corporation to bypass a country’s entire legal system, including its supreme court.
- It allows multinational corporations to sue sovereign governments over public interest legislation which threatens their profits.
- ISDS cases are decided by secret tribunals made up of un-elected and unaccountable private sector attorneys. The system has a built-in conflict of interest in which these attorneys can act as panel judges in one case and in an other represent a client in suing a government in the next.
- Knowing full well they might be representing a client corporation next, tribunal panelists are incentivized to become increasingly expansive in their interpretation of the rules and in giving out damage awards. As a result, the awards given out have ballooned from only millions to well into the billions in recent years.
- Even larger compensation amounts are expected under the latest proposed investment treaties such as the TPP and TTIP/CETA, because their ISDS clauses protect not only the investors’ capital such as their factories but also the theoretical profits they expect to receive.
- The decisions of these secret tribunals override even a country’s Supreme Court, with little ability to appeal.
- As such, ISDS neuters the rights of sovereign nations to enact domestic policies. Worse still, the mere threat of a lawsuit would put enough regulatory chill for legislators to contemplate enacting health, labor, environmental and other public interest policies. (report)
Call To Action
- the presence of ISDS provisions embedded in trade negotiations encompass an ever larger group of nations and their citizens;
- the critical deficiencies in its design result in a regime with a built-in conflict of interest which overwhelmingly favors the multinational corporations;
- there’s a jaw-dropping lack of consultation with civic organizations, environmental and other non-profit organizations, labor, small and medium enterprises, and the population at large;
- it threatens to bypass a sovereign country’s legal system and endanger the ability of governments to legislate health, labor
ISDS should be removed from any and all bilateral or multilateral trade/investment treaties in which the member countries involved have competent legal systems.
ISDS is used by corporations when domestic governments enact legislation which threatens their profits. Such legislation commonly involves health, environmental, labor and other public interest issues.
- Banning a toxic substance from being sold for public health reasons (see examples here, here and here)
- Failing to issue operating permits for environmental reasons (see examples here, here, here and here).
- Encouraging local R&D and job creation (see examples here, here and here).
- Enacting minimum wage law (see example here)
In case you have not heard, the US just got sued over the cancellation of the Keystone Pipeline. See other examples of how ISDS is used to go after public interest legislation.
Not domestic companies and only foreign companies. That’s why under ISDS a foreign company is more equal than a domestic one.
Take, for example, a country enacting some health legislation resulting in, say, a ban of certain substance produced by a domestic corporation. Knowing that it is a public health decision, the company affected by the decision has no legal recourse but has to deal with the impact for the benefit of society as a whole.
Not so in the case where the product is manufactured by a foreign corporation. In this case the multinational would sue the country under ISDS for hurting their profits (see examples here, here, here and here). Sorry folks, it’s just business; nothing personal.
Hilariously, – except it’s not funny – in order to sue its own government, domestic companies which feel harmed by the government can incorporate and set up a mailbox in another jurisdiction which has an ISDS provisioned trade agreement and can then use that mailbox location to sue its government under ISDS (see example).
The tribunal is made up of three panelists or tribunalists, one each can be chosen by the claimant and the country. These tribunalists are from the private sector and are (1) unelected, (2) unaccountable to the countries involved, and (3) under no obligation to take legal precedents and historical, cultural and other contexts into account as judges typically do.
And worst of all, they can represent a corporation suing a government today, and act as a tribunal panelist passing judgment – and handing out compensations – against another country the next.
Imagine you got run over and injured by a drunk driver who is now before the courts. How would you feel and what confidence do you have in the legal system if you know that the judge presiding over your case also happens to represent drunk drivers in other similar cases? How do you think his past decisions in similar cases, and, more critically, his pending decision on your case, would influence his ability to attract future paying defendants?
The conflict of interest is so glaringly obvious that such lawyer-judge head-switching arrangements would be considered illegal in any country with a competent legal system. And for good reasons.
See more details here.
Obviously not the governments and the taxpayers, as the best outcome they can possibly have is not being sued.
Small and medium enterprises do not benefit since they operate mostly domestically and would not have the financial resources to take a foreign government to court.
The most obvious beneficiaries are multinational corporations who have the financial resources to bet against a country and hope for an even bigger payout.
Other prime beneficiaries are a small number of legal firms who are making a killing representing client corporations and acting as tribunal panelists at the same time. (study)
ISDS is primarily written by multinational corporations and their lobbyists and embedded into investment treaties during secret negotiation phases. Even politicians, let alone labor organizations, non-profit organizations, advocacy and civil society groups are excluded. So it is pretty safe to assume that the provisions are written for the sole benefits of multinationals.
As details of the ISDS provisions become publicly known, more and more organizations and the general public are alarmed and become opposed to it.
Here are a few snippets.
First the people
The largest ever survey conducted by the EU revealed that the vast majority of replies, around 145,000 (or 97%) submitted by the citizens were against TTIP. In addition, the Commission received individual replies from more than 3,000 individuals and some 450 organisations representing a wide spectrum of EU civil society, including NGOs, business organisations, trade unions, consumer groups, law firms and academics. (link)
Stop-TTIP, a European citizens’ initiative against TTIP and CETA, has collected over 3.4 million signatures as of this writing, the largest collection of signatures ever.
Small and Medium Enterprises (SME)
A growing rank of time-pressed SME owners across Europe are spending precious time to organize and speak out against the TTIP.
SME owners in Britain have formed the Business Against TTIP initiative, spearheaded by Titus Sharpe, 2015 Entrepreneur of the Year, who has this to say:
We know that TTIP means our higher European standards are under threat undermining the social, health and environmental standards that we enjoy in Europe.
And we believe that our democracy itself is under threat: through the “investor-state dispute settlement” (ISDS) process, US companies will be given a special private justice system where they can challenge any new laws in Europe affecting their profits. (link)
The German association of medium-sized enterprises (Bundesverband mittelständische Wirtschaft), the country’s mostly family-run SME sector which represents 99% of firms in the country, is adamantly opposed to the trade deals. 94% of the owners complained about the lack of information while 50% felt their interests were being endangered, according to a recent survey. (link)
BmW , considers ISDS in TTIP “unnecessary” and “strictly rejects” it because the proposed provisions “discriminate against medium-sized businesses, undermine the rule of law and are therefore at the expense of the EU member states,” (link)
Advocacy groups and NGOs
Over 100 Canadian and EU groups strongly oppose the dangerous ‘investors’ rights’ in CETA, including among the Canadian ones the Canadian Union of Postal Workers (CUPW), Canadian Union of Public Employees (CUPE), Communications Workers of America (CWA) Canada, Council of Canadians and National Farmers Union (link)
Dozens of environmental advocacy groups, led by the Sierra Club, sent a letter to the US Congress urging it to reject ISDS and the TPP. (link)
Fed up with the EU turning a deaf ear to their opposition against the ISDS provisions in TTIP and CETA, many local municipal councils have declared their city ‘free TPP/TTIP/CETA/TiSA/ISDS zones’ in a symbolic show of their frustration. The same movement is also spreading to the US.
- Austria: 83 municipalities have resolutions (link)
- France: hundreds of municipalities (link)
- Spain: 64 no TTIP councils, including Barcelona (link)
- Switzerland: Geneva, Lausanne, Zurich declare TiSA Free Zone (link)
- UK: 32 TTIP Free Zones (link)
- Many councils in Germany, and Belgium
- US: New York City declares TPP Free zone (link)
- Other US municipalities passing similar resolutions: San Fran, LA, Seattle, Pittsburgh, St. Paul… (link)
What about corporate media
Oh, the mainstream corporate media in general consider it a ‘necessary evil’ as part of a good trade deal or stays silent about ISDS. Realizing that 90%+ of the world’s English media is owned by six corporations, I’d refer you back to the first paragraph to draw your own conclusion.
ISDS is nothing theoretical; it is clear and present danger. Not only have the lawsuits been exploding in recent years, the amounts claimed – and won – are also taking off. A few examples:
Eli Lily sues Canada for $100 million over patent invalidation. (case)
Occidental sues Ecuador for $2.4 billion over oil concession termination, and wins (case)
Meyers sues Canada for $6 million for closing its border trade in toxic PCBs, and wins. A classic WTF case. (case)
Metalclad sues Mexico for $15.6 million over ecological preserve, and wins. (case)
Mesa Power sues Ontario for $746 million for preferring local green power generators. (case)
Dow Chemical sues Quebec over banning lawn pesticides containing toxic 2,4-D. (case) Another WTF case.
AbitibiBowater sues Newfoundland for $130 million for taking back timber and water rights after company closed last mill, and wins. (case)
Vattenfall sues Germany for $4.6 billion over early nuclear plant phaseout. (case)
Bilcon sues Nova Scotia for $300 million for failing to approve quarry terminal, and won. (case)
Lone Pine Resources sues Quebec for $250 million over fracking moratorium. (case) A case of a Canadian company suing its own government using a mailbox location in the States. Hilarious, except it is not funny.
For more real life cases, click here.
It varies, depending who is involved. Unsurprisingly, the largest cost component is lawyers’ fees. A typical lawyer involved in an ISDS case cost up to $1,000 an hour and you typically need an army of them working on a case. And a case can drag on for years. So it can easily run into the millions without breaking a sweat, and is pretty lucrative for the legal firms involved.
They vary, and the plaintiff’s imagination is the limit. The amounts sought are calculated based on how much future profits the company could theoretically make if it was not for the evil government.
Given that the private attorneys can represent client corporations in one case and turn judge the next deciding how much to compensate a victimized corporation, is it any wonder why the interpretation of ISDS laws are getting more creative and expansive by the day and the penalty amounts handed out get bigger and bigger?
Objections are being raised left and right, literally.
Elizabeth Warren, US Congresswoman and a leader in fighting financial crimes and monied influence in politics, says ISDS offends everyone along the entire spectrum of political ideology.
“Conservatives who believe in American sovereignty are outraged that ISDS shifts power from American courts as envisioned by our constitution to unaccountable international tribunals. Libertarians are offended that ISDS effectively offers a free taxpayers’ subsidy to countries with weaker legal systems. And progressives should oppose ISDS because it allows big multinationals to weaken labor and environmental rules.
Giving foreign corporations special rights to challenge our laws outside of our legal system is a bad deal.” (link)
The Cato Institute, a conservative and pro-multinational corporation think tank, raise the following red flag even as it endorses the TPP.
But under ISDS, U.S. investors abroad and foreign investors in the United States can collect damages from the treasuries of their host governments by virtue of the judgments of arbitration panels that are entirely outside of the legal structure of the respective countries. This all raises serious questions about democratic accountability, sovereignty, checks and balances, and the separation of power. (link)
As mentioned, ISDS might have been a mechanism designed to protect foreign investors against corrupt governments and legal systems not atypical in emerging economies decades ago.
Whether that was justified or not is immaterial at this point. Over the decades, multinationals have learned and proven successful in navigating through the legal systems of those challenging emerging economies. In addition, there is insurance which are specifically designed to cover such jurisdictional risks.
More importantly, as countries are pulling together mega trade pacts such as TTP, TTIP/CETA and TiSA involving such major trading blocs as North America, the EU and major Asian countries, we are no longer dealing with countries with questionably legal systems.
As Europe, North America and other major Asian countries all have very competent legal systems, the argument for a privatized and parallel legal system putting private corporations as equals with sovereign countries is getting increasingly impossible to justify.
ICS stands for Investment Court System and is a alternative conjured up by the EU and Canadian trade negotiators in the face of mounting opposition especially from Europe over the ISDS provisions in the Canada/Europe Comprehensive Economic Trade Agreement (CETA; sister agreement between the EU and the US is TTIP). Instead of private tribunals, ICS proposes to set up a permanent public tribunal whose panelists are appointed by the states.
Despite the fact that it removes the biggest stench that is the conflicted private tribunal, the ICS remains a bandage solution in that (1) it permanently enshrines multinationals’ rights to bypass domestic courts in favor of a parallel legal system, and (2) the legitimacy of such an entity is highly questionable, as the German Magistrates Association pointed out (link).
There is no evidence to date that a lack of ISDS in trade treaties deters multilateral corporations from investing in a country. Quite the contrary, these corporations have become well adept in negotiating the political systems and regulations of emerging countries over the years, and there are political insurance which can be purchased of that purpose.
As a matter of policy, Brazil, a country which witnessed billions of foreign investments, has never signed trade agreements containing ISDS provisions.
South Africa and Indonesia have started terminating BITs that contain ISDS provisions, while Venezuela and Bolivia have withdrawn from the World Bank Forum where most investor-state cases are tried.
These countries are doing so after carefully weighing and pros and cons of ISDS.
By the way, foreign investors know full well that the vast majority if not all countries currently involved in TTIP/CETA and TTP negotiations have competent legal systems.
The answer to this question almost becomes rhetorical once you understand how some of the trade deals, including TTIP/CETA, TTP and TiSA are being hammered together – more specifically, who is involved in putting together these deals.
Before looking at who is involved, let’s take a look at who is not involved. These trade negotiations are held in secret. During the negotiation phase, not even legislators or members of parliament are allowed to find out what is being discussed, let alone labor organizations, non-profit organizations, advocacy and civil society groups, and…gulp… the public.
Who is involved is the army of lobbyists who ‘advise’ and lobby on behalf of their client industries. In fact, it is no stretch of any imagination that the text of the treaties pretty much came out of these lobbyists’ keyboards.
Then there are the negotiators bargaining on behalf of their respective countries on the other side of the negotiating table. Guess what the makeup is for these teams? Surprise, surprise, there is also an army of lobbyists representing the companies, many of which, as in the case for Canada, are subsidiaries of parent companies headquartered in the States.
Did I hear your brains screaming “aren’t they sitting on both sides of the table negotiating with themselves?”
There are a few things you can do depending on how strongly you feel about the this.
- Learn more about ISDS so you can form an educated opinion about the subject and lead an informed conversation with others .
- Share this message and bring this into plain view so the general public knows what this is all about.
- Engage your community and affiliated organizations to tell them about the dangers of ISDS.
- Talk to your politicians and voice your concerns. Remember when people take the lead, leaders will follow.
- If there is a local election in your area, make this an election issue.
Where to Double Click
- List of real life ISDS lawsuits
- In-depth look at the incestuous ISDS arbitration system
- The ultimate intention of multi-million/billion ISDS lawsuits
- List of organizations opposed to ISDS and the Trojan horse treaties in which the provisions are embedded, including the TPP, TTIP/CETA and TiSA.
Government of Ontario lost its case in a private ISDS secret tribunal with its moratorium on offshore wind turbines. $28 million assessed.
Under the country’s prior military dictatorship, Australian Newcrest Mining plus 12 other companies were granted ‘exemptions’ from Indonesia’s law banning environmentally destructive form of mining in protected forest areas. When the newly democratized …
If peoples of different nations, not just transnational corporations, have a say in multilateral trade treaties like the TPP and TTIP, what provisions would be prominently featured?
A very comprehensive look at the history of ISDS from GATT to NAFTA.
125,000 Germans joined the largest yet filed against CETA (Canadian version of TTIP).
This article exposes yet another toxic element of ISDS – how it is used by executives of transnational convicted of crimes escape punishment.
According to the UN, 35% of all ISDS cases in which corporations are suing governments are related to climate change. In 2014, half of the new ISDS cases targeted policies affecting oil and gas extraction, mining, or power generatio
While it is indeed comforting to learn that Uruguay has won its ISDS arbitration case against Philip Morris, a deeper, more fundamental question remains unanswered.
Following the footsteps of South Africa and Bolivia, India is the next country trying to re-negotiate or cancel a large number of treaties with ISDS provisions.
At the risk of over-generalization, ‘gut feel’ tools are generally effective first rules, and the smell test is one of them. Case in point – the great lengths the governments go to hide the TTIP/TPP details from the public. The stinky smell is indicati …
If peoples of different nations, not just transnational corporations, have a say in multilateral trade treaties like the TPP and TTIP, what provisions would be prominently featured?
As much as the outrageous rulings handed out by conflicted, private and secret ISDS tribunals have been drawing the ire from the public, the real benefit for multinationals to sue lies somewhere else.
An in-depth look at the genetic wiring of the ecosystem governing ISDS arbitrations. Mind your jaw hitting the keyboard.
There is a ground-swell of opposition to ISDS trojaned in investment treaties such as TPP, TTIP, CETA and TiSA. Check out this list.
A living collection of lawsuits filed under the Investor-State Dispute Settlement provisions of various bilateral and multilateral trade agreements.
With the TransPacific Trade Partnership ever closer to getting passed by the US Congress, and with a rare opportunity of access to the political parties thanks to the upcoming federal election, what should Canadians do to ensure their social values and those of the political parties are aligned?
Part 2 of the series lays out the major flaws of the ISDS regime and key liabilities faced by sovereigns, along with real cases faced Canada, Australia and other developing countries.
From being an obscure clause originally designed to protect foreign investors from weak local legal systems, the Investor-State Dispute Settlement provisions embedded in many trade agreements are increasingly used by multinationals to bypass domestic legal systems.
Elizabeth Warren, one of the few US senators not captured by monied interests, speaks out against the TPP ISDS in this WaPo op-ed.