Is America About To Experience The Billion-Dollar Pain Of Corporate Sovereignty First Hand?
from the not-your-parents'-ISDS dept
Readers of Techdirt have been hearing about corporate sovereignty -- the ability of foreign investors to sue governments directly in special courts over alleged losses, also known as Investor-State Dispute Settlement (ISDS) -- for a while now. For others who have yet to discover this particular feature of so-called trade agreements, Senator Elizabeth Warren has a good, approachable summary of the key issues in a Washington Post opinion piece. In fact, it was clearly so good that the White House Blog felt obliged to try to rebut its main arguments (there's also a great point-by-point response to that response by the Cato Institute's Simon Lester.). The White House Blogt post, written by Jeff Zients, Director of the National Economic Council, pretty much concedes that the criticisms of ISDS are valid, but would have us believe that everything has been fixed now:ISDS has come under criticism because of some legitimate complaints about poorly written agreements. The U.S. shares some of those concerns, and agrees with the need for new, higher standards, stronger safeguards and better transparency provisions. Through TPP and other agreements, that is exactly what we are putting in place.There are two massive problems with that assurance. First, the extreme secrecy of the TPP negotiations means that we have no idea just how strong those "safeguards" are. And secondly, in some sense it doesn't even matter: companies can use the mere threat of an ISDS action to cast a chill over future regulatory action. That's why the following comment is true but misses the point:
The reality is that ISDS does not and cannot require countries to change any law or regulation.The ability to use ISDS to discourage governments from introducing inconvenient laws or regulations is no mere theoretical fear. As this important 2001 article in The Nation explains:
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.Nor was that an isolated incident:
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."Zients goes on to say that corporate sovereignty chapters are needed because foreign courts can't be trusted to provide justice:
U.S. investors often face a heightened risk of bias or discrimination when abroad.But Warren already answered that with several extremely powerful points:
Countries in the TPP are hardly emerging economies with weak legal systems. Australia and Japan have well-developed, well-respected legal systems, and multinational corporations navigate those systems every day, but ISDS would preempt their courts too. And to the extent there are countries that are riskier politically, market competition can solve the problem. Countries that respect property rights and the rule of law — such as the United States — should be more competitive, and if a company wants to invest in a country with a weak legal system, then it should buy political-risk insurance.Zients also tries to argue that since the US hasn't suffered as a result of ISDS cases in the past, it'll be fine in the future:
There have only been 13 cases brought to judgment against the United States in the three decades since we’ve been party to these agreements. By contrast, during the same period of time in our domestic system, individual and companies have brought hundreds of thousands of challenges against Federal, state, and local governments in U.S. courts under U.S. law.But that line of reasoning ignores why there have been so few cases in the past: because corporate sovereignty provisions were mainly included to protect US investments in developing countries with weaker legal systems. By definition, such nations are unlikely to have the resources to make many or significant investments in the US, and therefore have few opportunities to use the ISDS system. That is what will change dramatically with TAFTA/TTIP, as this analysis by Public Citizen explains:
We have never lost an ISDS case because of the strong safeguards in the U.S. approach. And because we have continued to raise standards through each agreement, in recent years we have seen a drop in ISDS claims, despite increased levels of investment.
TAFTA would vastly expand the investor-state threat, given the thousands of corporations doing business in both the United States and EU that would be newly empowered to attack public interest policies. More than 3,400 EU parent corporations own more than 24,200 subsidiaries in the United States, any one of which could provide the basis for an investor-state claim. This exposure to investor-state attacks far exceeds that associated with all other U.S. "free trade" agreement partners.In fact, the US may be about to find out about the modern reality of billion-dollar corporate sovereignty lawsuits, thanks to the 21-year-old NAFTA agreement, and the controversial Keystone XL project, which President Obama recently vetoed. Here's Politico's explanation of how corporate sovereignty could enter the equation:
President Barack Obama may decide to kill Keystone XL for good, but that could be no easy task -- thanks in part to the North American Free Trade Agreement.So even though the President retains full powers to reject Keystone, it’s easy to see how the threat of a billion-dollar ISDS lawsuit might encourage him to approve it anyway. That would offer the perfect demonstration of how corporate sovereignty chapters can interfere with democratic decision-making -- at even the highest levels.
The 21-year-old free-trade pact allows foreign companies or governments to haul the U.S. in front of an international tribunal to face accusations of putting their investments at risk through regulations or other decisions. The CEO of Keystone developer TransCanada has raised the prospect as a potential last resort if Obama rejects the $8 billion project, although for now the company is focused on getting him to say yes.
Administration officials involved in reviewing the proposed Canada-to-Texas pipeline are aware of the potential for a NAFTA challenge and the importance of minimizing that risk in the event the president rejects Keystone.
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Filed Under: corporate sovereignty, elizabeth warren, isds, jeff zients, lawsuits, tafta, tpp, trade agreements, ttip, ustr
