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.

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

How Multilateral Free Trade Agreements Are Bypassing Democratic Decision-Making Around The World

from the behind-closed-doors dept

One of the most worrying aspects of ACTA -- which began life as a "simple" treaty about combatting counterfeit goods -- was how it morphed into a new approach to global policy making. This had two key aspects. First, the treaty would be negotiated in secret, with minimal input from the public, but plenty from lobbyists, who were given access to key documents and to negotiators. Secondly, the results of those secret negotiations were designed to constrain the participating governments in important ways that nullified ordinary democratic decision-making. If at all, representative bodies were presented with a take-it-or-leave it choice; changing individual details was not an option.

That, in its turn, meant that public in those countries had very little chance to fight harmful provisions in a treaty, since the only way to do that was to persuade their government to reject it completely, which was extremely difficult after the years of negotiation. The European Parliament's dramatic refusal to agree to ACTA was largely because of the unusual division of power in the European Union.

TPP has adopted exactly the same process: negotiations behind closed doors, but this time, without even the occasional official release of drafts as happened with ACTA (luckily, there have been leaks.) And assuming the negotiations are concluded successfully, it is likely that national legislatures will be presented with the same take-it-or-leave-it offer, with huge pressure to accept.

More recently, the newly-announced transatlantic free trade agreement (TAFTA) between the US and the EU is gaining momentum, not least in terms of the countries that may ask to join. At the last count, these included Mexico, Canada and Turkey. The US has also started talking to West African states about a free trade agreement, and it's easy to see that being rolled into TAFTA at some point.

TPP is also expanding rapidly. Mexico and Canada have already joined, under pretty humiliating terms, while Japan has signalled that it wishes to do so. Recently we learned that South Korea and Taiwan are considering applying.

As we've noted before, putting together TPP and TAFTA, it's striking how they include all of the world's biggest economies outside the so-called BRICS group of emerging countries -- Brazil, Russia, India, China and South Africa. The natural response to being locked out of the two US-centric trade areas would be to form their own, and in fact India has begun talks with the Customs Union of Russia, Belarus and Kazakhstan about a free trade agreement. Significantly, enlarging that to including other nearby countries is already being mooted:

Kazakhstan's neighbour Kyrgyzstan is likely to be the fourth entrant and Tajikistan could over time be the fifth country to joint the Customs Union. Ukraine, Armenia and Moldovia would also be moving close to the Customs Union but for some time they are likely to be the first three countries outside the core.

Meanwhile, China is keen to form a major trade bloc with South Korea and Japan:

"China's intention is to first form a Northeast Asian economic cooperation that excludes the U.S. while Japan can't sit still as South Korea advances to the Chinese market with Korea-China free trade talks," said Heo Yoon, a professor at Sogang University Graduate School of International Studies.

It's easy to imagine other countries that are part of the Association of Southeast Asian Nations (ASEAN) Free Trade Area joining the group if and when formal negotiations get underway, not least because ASEAN already has free trade agreements with China, Japan and South Korea.

Although bilateral trade agreements are hardly new -- Wikipedia lists dozens of them, some going back to the 1980s -- there has definitely been a step-change recently. Increasingly, the emphasis is on joining multilateral free trade agreements like TPP and TAFTA, involving significant numbers of countries. On the part of smaller nations, their interest is probably driven by a fear of getting shut out of key markets. But for the bigger players -- notably the US and EU -- it's a convenient way of imposing unpalatable policies not just on the citizens of other countries, but on their own, too.

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Filed Under: acta, democracy, free trade agreements, policy making, tafta, tpp

US And Europe Move On To TAFTA: Yet Another Chance To Push Through ACTA/SOPA Style IP Maximalism

from the it-never-ends dept

ACTA and SOPA may have flopped, but minor setbacks like that won't stop the onslaught of abuses from the entertainment and pharmaceutical industries looking to use the international treaty process to try to pressure everyone to keep ratcheting up protectionist laws concerning copyright, patents and trademarks. Obviously, we've been talking about the still worrisome TPP agreement involving a bunch of Pacific Rim countries, but it's not stopping there. Back in October, we warned that the US and EU were preparing a new trade agreement as well, and the preliminary plans noted that it would include a "high level of intellectual property protection, including enforcement."

More details are starting to come out as the main EU negotiator for ACTA, Karel de Gucht, came to DC to see about getting things kicked off, on an agreement that's being called TAFTA -- the Trans Atlantic "Free Trade" Agreement. Of course, instead of recognizing the lessons from previous failed efforts to push for broken maximalist policies, it appears that the plan is to try, try again. Some are already saying that this is "the opportunity to try to set the gold standard" in copyright, patent and trademark protection. The goal, as with ACTA and TPP is to ratchet up the laws, and then put tons of pressure on China and India to "respect" those laws. To put it mildly: this is stupid. Both of those countries recognize how protectionism works. We've already seen that China is becoming exceptionally good at using patent laws to basically punish foreign companies, while helping domestic Chinese companies. It seems downright idiotic to provide them with even more tools to do so.

Of course, the real questions are why do we keep letting our governments negotiate these kinds of deals, and why do we let them do so in secret?

Filed Under: acta, copyright, europe, free trade agreements, international agreements, ip, sopa, tafta, treaties, us

State Of The Union Address Highlights The Dirty Trick Of Hiding More Draconian IP Rules In 'Trade Agreements'

from the keep-up dept

As we've been discussing, it's great that the anti-SOPA/PIPA protests have awakened many to the horrors of ACTA. It seems that this may also help people finally learn about the nefarious practice of industry trade groups and governments to sneak bad IP legislation through "international agreements." With President Obama mentioning the importance of trade agreements and dealing with infringement in his State of the Union address, many people were wondering if it was a signal about SOPA/PIPA.

However, as Harold Feld explains, it's much more likely he's talking about these new international agreements and treaties, like ACTA and (the even worse) TPP agreement that's currently being negotiated (in secrecy, of course). Feld also highlights how these things always "ratchet up." He points to the infamous US-Korea Free Trade Agreement ("KOROUS"). The agreement, which had a lot to do with protectionism for Hollywood, rather than actual free trade, was held up for years as the kind of "good" trade agreement that the US should be negotiating with others. In fact, when complaints about ACTA first came out, the USTR kept saying that ACTA was merely modeled on the "successful" KOROUS agreement. Of course, the impact of that agreement has been pretty bad in Korea -- leading to an extreme increase in secondary liability for internet service providers, making it tougher to do business and causing them to shut off useful features. And all of this despite the fact that the Korean entertainment industry was thriving by adapting to a changing market.

But, as Feld points out, the efforts behind SOPA and PIPA show that the same entertainment industry who insisted that the trade agreement with Korea was so perfect, is now whining that the agreement is "too weak." And, apparently, that's why we need TPP. To make an already bad agreement much worse.

The good news here is that the public is becoming aware of this practice of hiding bad rules in trade agreements and then demanding we change our laws to "meet international obligations." President Obama's message may not have been directly about SOPA/PIPA, but it was an unfortunate signal about the continued use of questionable "trade agreements" to not just force the rest of the world into bad and damaging (for their own economies) IP rules, but to then turn around and use them to ratchet things up back here in the US as well.

One thing that anyone just becoming aware of these fights needs to know: the entertainment industry lobby is very, very good at what they do, and they never put all their eggs in one basket. While they love pushing for ever more draconian federal laws, they're always working multiple angles, including international trade agreements, laws in foreign countries and... state laws around the US, which they can then leverage to get other states to follow suit. If SOPA/PIPA really fails on the federal level, you'll see the same ideas pop up in all of those other places. In fact, we're already hearing stories of such plans in all three things, which we'll be covering in the days and weeks ahead.

Filed Under: acta, copyright, free trade agreements, korous, pipa, protect ip, sopa, tpp, trade agreements

Will Anti-Free Trade Protectionist Agreements Be Bad For US Citizens Too?

from the do-they-know-what-they're-doing? dept

As we've noted, the US has been using multilateral and bilateral negotiations conducted in secret as a way to craft some very one-sided trade treaties. They seem to offer pretty raw deals to the other nations involved – and correspondingly great ones for the US copyright and pharma industries. But could they turn out to have direct negative consequences for US citizens as well?

For example, recently Techdirt reported on the pharmaceutical price-fixing scheme contained in a leaked version of the Trans Pacific Partnership agreement. The way it is framed there would seem to imply that the Federal Medicaid program's preferred drug lists would be forbidden. Whoops.

And here's a troubling clause found in the bilateral trade agreements recently signed with Colombia, Panama, and South Korea:

Another section (PDF) of the trade deal seems to recognize only a limited right by Americans to create and use computer programs of their choice.

It says: "Each party recognizes that consumers in its territory should be able to...run applications and services of their choice, subject to the needs of law enforcement."

A U.S. trade official, who did not want to be named, told CNET that the language is "hortatory" and therefore not binding--in other words, it's a recognition, not a commitment to actually do anything.

Hortatory it may be, but it's there. Who's to say that the US government won't one day use the treaty as an excuse to make it happen?

The problem is that none of these back-room treaties has had the benefit of detailed scrutiny by outside experts while they were being drawn up; as a result, they may well contain clauses with unintended consequences further down the road. That's yet another reason for much more transparency during negotiations - or for avoiding them altogether.

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Filed Under: anti-free trade, free trade agreements, protectionism