The pressure is really building on the US and EU over the corporate sovereignty provisions in TAFTA/TTIP. As we reported back in January, the European Commission has put on hold the negotiations for the investor-state dispute settlement (ISDS) chapter while it conducts a public consultation on the subject. The USTR seemed to be trying to tough it out, but it has finally cracked and released what it calls “The Facts on Investor-State Dispute Settlement: Safeguarding the Public Interest and Protecting Investors” in an attempt to bolster support for the idea. Its mere existence shows that the USTR is worried about losing the ISDS argument in the court of public opinion, and the answers, many of which are misleading or downright wrong, confirm this. Here’s the rationale for releasing the document:
There are a lot of myths out there suggesting that ISDS somehow limits our ability — or our partners’ ability — to regulate in the interest of financial stability, environmental protection, or public health. Some have even suggested that a company could sue a government just on the grounds that the company isn’t earning as much profit as it wants.
These assertions are false.
The USTR gives some context for corporate sovereignty provisions:
Over the last 50 years, nearly 3,200 trade and investment agreements among 180 countries have included investment provisions, and the vast majority of these agreements have included some form of ISDS. The United States entered its first bilateral investment treaty (BIT) in 1982, and is party to 50 agreements currently in force with ISDS provisions.
Although that seeks to give the impression that corporate sovereignty is absolutely standard and nothing to worry about, what it omits to mention is that the vast majority of those 3,200 trade agreements have been one-sided: they have been about rich, Western nations investing in poor developing ones. As such, ISDS has been a means for the former’s corporations to bully the latter, who are powerless to object, since they are desperate for foreign investment, and must accept the terms imposed on them.
Contrast this with TAFTA/TTIP. For the first time, a trade agreement between two massive economic powerhouses will involve corporate sovereignty. That means that US corporations will be able to sue the EU and its member states, but also that EU corporations will be able to sue the US. The scale of the threat is unprecedented: there are 75,000 cross-registered companies with subsidiaries in both the EU and the US that could launch ISDS attacks under TTIP. This is totally unlike any of those 3,200 trade agreements the USTR mentions.
There then follow the eight “facts you should know about ISDS provisions under U.S. trade agreements”. According to the USTR these:
1. Provide basic legal protections for American companies abroad that are based on the same assurances the United States provides at home.
Investment protections are intended to prevent discrimination, repudiation of contracts, and expropriation of property without due process of law and appropriate compensation. These are the same kinds of protections that are included in U.S. law. But not all governments protect basic rights at the same level as the United States. Investment protections are intended to address that fact.
So by its insistence on ISDS in TAFTA/TTIP, is the US saying that the EU does not offer “the same kinds of protections that are included in U.S. law”? Seriously?
2. Protect the right of governments to regulate in the public interest.
The United States wouldn’t negotiate away its right to regulate in the best interest of its citizens, and we don’t ask other countries to do so either. Our investment rules preserve the right to regulate to protect public health and safety, the financial sector, the environment, and any other area where governments seek to regulate. U.S. trade agreements do not require countries to lower their levels of regulation.
Well, some people might beg to differ on the first claim there, but leaving that aside, the second claim is easily refuted. As Techdirt reported in October last year, the provincial government of Quebec in Canada is being sued over a moratorium on fracking it brought in to allow time for scientific studies of the potential impact. That was under the North American Free Trade Agreement (NAFTA), which includes ISDS, and is a clear case of environmental protection being threatened by corporate sovereignty.
3. Do not impinge on the ability of federal, state, and local governments to maintain (or adopt) any measure that they deem necessary.
Under our investment provisions, no government can be compelled to change its laws or regulations, even in cases where a private party has a legitimate claim that its basic rights are being violated and it is entitled to compensation.
Although that’s true, it misses the point, which is that the mere threat of being sued under ISDS causes governments to drop legislation before it is even introduced. Here, for example, is what happened in Canada under NAFTA in this regard:
Carla Hills, the US Trade Representative who oversaw the NAFTA negotiations for Bush I and now heads her own trade-consulting firm, was among the very first to play this game of bump-and-run intimidation. Her corporate clients include big tobacco–R.J. Reynolds and Philip Morris. Sixteen months after leaving office, Hills dispatched Julius Katz, her former chief deputy at USTR, to warn Ottawa to back off its proposed law to require plain packaging for cigarettes. If it didn’t, Katz said, Canada would have to compensate his clients under NAFTA and the new legal doctrine he and Hills had helped create [ISDS]. “No US multinational tobacco manufacturer or its lobbyists are going to dictate health policy in this country,” the Canadian health minister vowed. Canada backed off, nevertheless.
A former government official in Ottawa told me: “I’ve seen the letters from the New York and DC law firms coming up to the Canadian government on virtually every new environmental regulation and proposition in the last five years. They involved dry-cleaning chemicals, pharmaceuticals, pesticides, patent law. Virtually all of the new initiatives were targeted and most of them never saw the light of day.”
The “facts” continue:
4. Do not expose state or local governments to new liabilities.
Under our Constitution and laws, investors frequently exercise their rights in U.S. courts. For example, in recent years, the U.S. government has defended hundreds of cases in U.S. courts under the Constitution’s “takings clause,” which requires compensation for expropriations. State and local governments have likewise defended many such claims. By contrast, the United States has only been sued 17 times under any U.S. investment agreement and has never once lost a case.
As well as confirming that ISDS tribunals are quite unnecessary, since US courts can be used instead, this overlooks the fact that the US has never had ISDS clauses in agreements with nations where large numbers of well-resourced corporations were able to take advantage of them. The EU has thousands of companies who can — and will — sue once they get the opportunity.
5. Provide no legal basis to challenge laws just because they hurt a company’ profits.
Our investment rules do not in any way guarantee a firm’s rights to any profits or to its projected financial outcomes.
A year ago, we wrote about Eli Lilly suing Canada under NAFTA for “indirect expropriation” of future profits. That case hasn’t been adjudicated yet, but obviously some company lawyers think NAFTA does indeed allow challenges just because projected financial outcomes suffer.
6. Include strong safeguards to deter frivolous challenges to legitimate public interest measures.
The United States has proposed additional safeguards that include stricter definitions than are in most investment agreements of what is required for successful claims, as well as mechanisms for expedited review and dismissal of frivolous claims, payment of attorneys’ fees, consolidation of duplicative cases, and transparency.
If the US thinks its ideas are so good, it should publish them. After all, there’s nothing confidential there — what possible reason is there to discuss them behind closed doors?
7. Ensure fair, unbiased, and transparent legal processes.
The United States is committed to ensuring the highest levels of transparency in all investor-state proceedings.
…
8. Ensure independent and impartial arbitration.
Investor-state arbitration is designed to provide a fair, neutral platform to resolve disputes.
These are more aspirations than “facts” The reality is very different, as is evident from the official United Nations Conference on Trade And Development (UNCTAD) report on the reforming corporate sovereignty chapters, published in June last year (pdf), which contradicts the USTR’s assertions that everything is just fine by noting:
Concerns with the current ISDS system relate, among others things, to a perceived deficit of legitimacy and transparency; contradictions between arbitral awards; difficulties in correcting erroneous arbitral decisions; questions about the independence and impartiality of arbitrators, and concerns relating to the costs and time of arbitral procedures.
As the above indicates, the USTR’s defense of corporate sovereignty is weak in the extreme. If these “facts” are the best it has got, it’s easy to see why ISDS is in such trouble and likely to be dropped from TAFTA/TTIP.
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