Investor-State Dispute Resolution: The Monster Lurking Inside Free Trade Agreements

from the be-very-afraid dept

We wrote recently about how multilateral trade agreements have become a convenient way to circumvent democratic decision making. One of the important features of such treaties is the inclusion of an investor-state dispute resolution mechanism, which Techdirt discussed last year. The Huffington Post has a great article about how this measure is almost certain to be part of the imminent TAFTA negotiations, as it already is for TPP, and why that is deeply problematic:

Investor-state resolution has been a common component of U.S.-negotiated pacts with individual nations since the North American Free Trade Agreement in 1994. But such resolution is not currently permitted in disputes with the U.S. and EU, which are governed by the WTO. All trade deals feature some kind of international resolution for disputes, but the direct empowerment of corporations to unilaterally bring trade cases against sovereign countries is not part of WTO treaties. Under WTO rules, a company must persuade a sovereign nation that it has been wronged, leaving the decision to bring a trade case before the WTO in the hands of elected governments.

Traditionally, this proposed political empowerment for corporations has been defended as a way to protect companies from arbitrary governments or weakened court systems in developing countries. But the expansion of the practice to first-world relations exposes that rationale as disingenuous. Rule of law in the U.S. and EU is considered strong; the court systems are among the most sophisticated and expert in the world. Most cases brought against the United States under NAFTA have been dismissed or abandoned before an international court issued a ruling.
As this rightly points out, investor-state dispute resolution mechanisms were brought in for agreements with countries where the rule of law could not be depended upon. That makes no sense in the case of the US and EU, both of whose legal systems are highly developed (some might say overly so.) The Huffington Post article quotes Lori Wallach, director of Public Citizen's Global Trade Watch, who explains what she thinks is really going on here:
"The dirty little secret about [the negotiation] is that it is not mainly about trade, but rather would target for elimination the strongest consumer, health, safety, privacy, environmental and other public interest policies on either side of the Atlantic," said Lori Wallach, director of Public Citizen's Global Trade Watch. "The starkest evidence ... is the plan for it to include the infamous investor-state system that empowers individual corporations and investors to skirt domestic courts and laws and drag signatory governments to foreign tribunals."
One recent example of the kind of thing that might become increasingly common if investor-state dispute resolution is included in TAFTA and TPP is provided by Eli Lilly and Company. As Techdirt reported earlier this year, the pharma giant is demanding $100 million as compensation for what it calls "expropriation" by Canada, simply because the latter's courts refused to grant Eli Lilly a drug patent on the grounds that it didn't satisfy the conditions set down in law for doing so.

A new report (pdf) from the UN Conference for Trade and Development (UNCTAD), pointed out to us by IP Watch, reveals just how widespread the use of investor-state dispute resolution mechanisms has already become:

The Issues Note reveals that 62 new cases were initiated in 2012, which constitutes the highest number of known ISDS [investor-state dispute settlement] claims ever filed in one year and confirms that foreign investors are increasingly resorting to investor-State arbitration.



By the end of 2012, the total number of known cases reached 518, and the total number of countries that have responded to one or more ISDS claims increased to 95. The overall number of concluded cases reached 244. Out of these, approximately 42 per cent were decided in favour of the State and 31 per cent in favour of the investor. Approximately 27 per cent of the cases were settled.
Although that suggests that states are winning more often than investors, the cost of doing so is a drain on public finances, and ignores cases that never come to arbitration because governments simply give in. And when states lose, the fines can be enormous: the report notes that 2012 saw the highest monetary award in the history of investor-state dispute resolution: $1.77 billion to Occidental, in a dispute with Ecuador.

As an accompanying press release from UNCTAD points out, this growing recourse to international arbitration

amplif[ies] the need for public debate about the efficacy of the investor-State dispute settlement (ISDS) mechanism and ways to reform it
Unfortunately, against a background of almost total lack of awareness by the public that supra-national structures are being put in place that allow their governments to be overruled, and their laws to be ignored, it is highly unlikely we will get that debate.

Follow me @glynmoody on Twitter or identi.ca, and on Google+

Hide this

Thank you for reading this Techdirt post. With so many things competing for everyone’s attention these days, we really appreciate you giving us your time. We work hard every day to put quality content out there for our community.

Techdirt is one of the few remaining truly independent media outlets. We do not have a giant corporation behind us, and we rely heavily on our community to support us, in an age when advertisers are increasingly uninterested in sponsoring small, independent sites — especially a site like ours that is unwilling to pull punches in its reporting and analysis.

While other websites have resorted to paywalls, registration requirements, and increasingly annoying/intrusive advertising, we have always kept Techdirt open and available to anyone. But in order to continue doing so, we need your support. We offer a variety of ways for our readers to support us, from direct donations to special subscriptions and cool merchandise — and every little bit helps. Thank you.

–The Techdirt Team

Filed Under: free trade agreements, investor-state dispute resolution, tafta, tpp, treaties


Reader Comments

Subscribe: RSS

View by: Time | Thread


  1. identicon
    Anonymous Coward, 16 Apr 2013 @ 2:29am

    small nitpick: you should probably count the settled cases as won by the investor, because I doubt the investor gave up.

    seriously, though, while I doubt companies will actually succeed at suppressing public interest laws, it IS unfair thye can keep trying. ( also, this isn't actually massively different from what some countries do- the US has tried to force the EU to allow GM foods into the EU in the past, despite a moratorium on the grounds that more evidence is needed on the effects of GM foods. Regardless of your opinion on GM foods, it is wrong that a country should be unable to make a decision for itself. ( IOW, if the EU decided there was evidence enough to lift the moratorium, fine, if it's forced, then bad.)

    link to this | view in thread ]

  2. identicon
    Beech, 16 Apr 2013 @ 4:11am

    Solution

    "we will abide by the tribunals decision, however we don't have that much money at the moment, economy and what not. Therefore we will pay one dollar per year until the whole billion dollar debt is repaid"

    Or

    "in order to raise the funds to pay this fine in a reasonable amount of time we are instituting an unreasonably huge ass tax on (insert industry of company suing)"

    link to this | view in thread ]

  3. icon
    Ninja (profile), 16 Apr 2013 @ 4:39am

    Unless of course that's precisely what those developed countries Govts want. To have a supra-nacional mechanism to bend their laws to please greater interests.

    I wonder how much more people will accept shoved down their throats before they start protesting. Cyprus needed money seizure to go wild ;)

    link to this | view in thread ]

  4. identicon
    Anonymous Coward, 16 Apr 2013 @ 5:08am

    The US can't even follow International law so what hope does it have of somehow NOT infringing?

    Answer 0%

    link to this | view in thread ]

  5. icon
    Killer_Tofu (profile), 16 Apr 2013 @ 10:37am

    For the love of

    Please other countries, PLEASE. STOP signing treaties with the US that are designed to force our government's and corporation's absolutely atrocious views down your throat.

    Have you lost your minds?
    STOP signing onto these "free" trade agreements. They will do nothing but ruin your country.

    We the people have a very hard time fighting these internally because there is so much money focused to the top greedy 1%. We need your help! Just stop agreeing to anything they put in front of you. Please.

    link to this | view in thread ]

  6. identicon
    Ed Nathan, 25 Mar 2014 @ 5:26am

    I'm a shareholder In a coop and daughter action for a warranty of habitability and was counter sued for non payment in housing court that resulted in my filing for bankruptcy

    I would like to know if the cost of legal fees to protect the shareholders was an violation of my shareholder rights causinge to sell my private disability policy $50k, violated my rights as an investor after the housing court judge discussion in favor of the coop attorney stood up and said he did not want to wait for me to raise the funds he wanted to make a motion of my being an undesirable tenant shareholder aka a Pullman action hearing. The Jude called my wife to the bench to tell her she should appeal her decision ASAP the stress of eviction coursed me to seek help at the NYC bar assn which representede pronominal we are disabled married couple for 40 years I believe this could be a preceden state case action comment help please cell 64638785@4

    link to this | view in thread ]

  7. identicon
    Anonymous Coward, 25 Mar 2014 @ 5:35am

    Re: I'm a shareholder In a coop and daughter action for a warranty of habitability and was counter sued for non payment in housing court that resulted in my filing for bankruptcy

    Cel is 647-387-8594 Ed Nathan

    link to this | view in thread ]


Follow Techdirt
Essential Reading
Techdirt Deals
Report this ad  |  Hide Techdirt ads
Techdirt Insider Discord

The latest chatter on the Techdirt Insider Discord channel...

Loading...
Recent Stories

This site, like most other sites on the web, uses cookies. For more information, see our privacy policy. Got it
Close

Email This

This feature is only available to registered users. Register or sign in to use it.