Will the US keep winning indefinitely? ISDS, that is
Now that Congress has given the President fast-track Trade Promotion Authority, the first agreement to be considered under these rules (no amendments allowed, up or down vote in 90 days) will be the Trans-Pacific Partnership (TPP). As you know from previous columns, one of the most worrying aspects of the TPP is its expansion of investor-state dispute settlement (ISDS), wherein private firms can bring their disputes with governments not to courts, but to international arbitration (usually through units of the World Bank or the United Nations), where legal precedent doesn’t matter and appeal is all but non-existent. Moreover, as the Consumers Union has long argued (recent example here), arbitration has a well-known pro-business bias. That’s why so many of your agreements with cable TV providers, financial services companies, and many more have fine print requiring mandatory arbitration, keeping you from getting your day in court if something goes wrong.
The response from the U.S. Trade Representative’s (USTR) office has been, “Not to worry! The United States has never lost an ISDS case.” The linked document goes on to claim that worldwide, only 1/4 of corporate plaintiffs have won cases against governments. But a new analysis by the International Institute for Sustainable Development (IISD),* using the same data source the USTR cites, comes to a very different conclusion based on its most recent update, the 2015 World Investment Report from the United Nations Conference on Trade and Development (UNCTAD). Moreover, we can see that countries with even more trustworthy court systems than that in the U.S. have lost ISDS cases. The Rule of Law Project, an initiative of the American Bar Association, has ranked 102 countries on the administration of justice and freedom from corruption, and puts the United States at #19 with a score of 0.73. Yet #14 Canada (0.78) has already lost ISDS cases, and both Canada and #10 Australia (0.80) are currently on the hook for major new cases (Eli Lilly and Philip Morris, respectively), that would overrule decisions by the countries’ respective Supreme Courts. So, even if governments have only lost 25% of ISDS cases, it’s unlikely U.S. luck will hold out indefinitely, if countries with better court systems are losing.
But it’s worse than that. UNCTAD’s database of known ISDS cases and their outcomes shows that in all cases decided through the end of 2014, the investor won 27% of the cases compared to 36% won by the state (see Figure III.10, p. 116). But another 26% of the cases are listed as “settled,” which often (but not always) means the respondent agrees to make some payment to the plaintiff to keep the case from going to arbitration. Public Citizen has a list of ISDS cases under prior U.S. trade agreements with examples of settlements that do and do not contain payments (see, for instance, NAFTA cases against Canada).
Moreover, as IISD attorney Howard Mann argues, if we separate out cases between jurisdictional determinations and determinations on the merits of the case, things look even worse for states. While only 71 of 255 cases (this excludes the “settled” cases) were concluded by a decision of the tribunal having no jurisdiction, Mann points out that all 255 cases effectively had decisions on jurisdiction, i.e., cases with final decisions had to have rulings that the arbitrators had jurisdiction. In that case, Mann says, “Investors, therefore, have won 72 per cent [184/255] of jurisdictional determinations.” And of the decisions on the merits of the cases, investors won 111, or 60%, of the remaining 184 cases. This calculation suggests that states are losing ISDS disputes at a much higher rate than normally portrayed. As if that’s not bad enough, the new World Investment Report finds that in 2014, of the 15 ISDS cases decided on their merits, states lost 10 (2/3) of them. In 2013, it was even worse for states, with investors winning 7 of the 8 cases decided that year (p. 126). If these higher proportions continue, obviously the proportion of investor victories will increase beyond the current 60% total.
Bottom line: The threat to regulation, democracy, and the rule of law posed by investor-state dispute settlement is very real. The U.S. Trade Rep’s reassurances that the U.S. has never lost in ISDS don’t even make it likely that will continue into the future. We need to pressure Congress to vote down the TPP when negotiations conclude.
* Important disclosure: I have consulted for IISD several times since 2007 on investment incentive issues.
Cross-posted from Middle Class Political Economist.
“The threat to regulation, democracy, and the rule of law posed by investor-state dispute settlement is very real.”
Democracy and the rule of law have never been a big part of governance in the US. US is a republic because the new ruling class would not allow the demos.
The last shred of the US constitution went out after the US “won” WW II and became the empire.
It was buried by the National Security Act of 1947 creating the permanent war state to secure the empire.
I’ve heard very little about ISDS in recent trade discussions. Thanks for bringing this concern to attention.
Our “appeal” on a purely practical, how-to, basis is to our own Congress — to make all this go away. Appeal to be made by unions pretty much only, once we have revived high density.
Right now nobody is complaining. Muckrakers don’t count. They don’t have any lobbyists, campaign funds or (99% of the) votes. Nobody (that matters to Congress) is complaining and by the (exact) same token nobody is listening.
Every other form of market fixing is a BIG felony. Easy enough for everybody to understand that union busting is truly market fixing. It’s not in our culture at the moment but would catch on and spread like a grass fire across the nation if the idea were ever implemented anywhere (WA, OR, CA, NV, IL, NY?). It just makes so much sense (don’t try union busting in the rest of the modern world)!
Making labor market fixing a felony also makes it a perfect target for federal RICO prosecution given the way it is practiced (33 states have their own RICO statutes).
Do this or do nothing — whine and complain but nothing will ever get done.
I know the talking point is “We don’t lose”. However, I believe we just lost with the WTO on Country of Origin labeling.
Different ruling body, same principle and results. Only with the ISDS it’s even more in the pockets of global business against the citizen state.
Typical legal MO. Take an idea to fix a real problem (like 3 rd world dictator/war lords taking private property) and apply in it a way that has no bearing on an actual moral (for lack of a better word) crime society needs to resolve to preserve it’s sanity. F’n word games it is and the citizen is losing the game.