US Suddenly Discovers Why Supranational Tribunals Are A Problem, Just As It Starts Losing In Them

from the probably-just-a-coincidence dept

There's a bit of a battle going on in an obscure part of the World Trade Organization (WTO) called the Appellate Body, which has extremely wide-ranging powers within the WTO:

It is a standing body of seven persons that hears appeals from reports issued by panels in disputes brought by WTO Members. The Appellate Body can uphold, modify or reverse the legal findings and conclusions of a panel, and Appellate Body Reports, once adopted by the Dispute Settlement Body (DSB), must be accepted by the parties to the dispute.

Here's what's been happening, as reported by Bloomberg:

The U.S. won't support the reappointment of Seung Wha Chang of South Korea to the World Trade Organization (WTO) appellate body, a U.S. official said at a meeting in Geneva.

"We do not consider that his service reflects the role assigned to the appellate body by WTO members in the WTO agreements," Deputy U.S. Permanent Representative Chris Wilson told members of the WTO dispute settlement body (DSB) May 23. "Any failure to follow scrupulously the role we members have assigned through these agreements undermines the integrity of, and support for, the WTO dispute settlement system."

As the article explains, that's not going down too well with other WTO members, including Brazil, the European Union, Japan, and South Korea, who are traditionally allies of the US in trade matters. So what exactly has Chang done to incur the wrath of the US?

The U.S. said it was troubled by four recent panel decisions that Chang was involved in because they "raised systemic concerns about the disregard for the proper role of the appellate body and the WTO dispute settlement system."

Which seems to be a polite way of saying that Chang hasn't been toeing the US line. That's confirmed by the following section from a WTO news item about the DSB meeting where this argument took place:

Canada, the European Union, India and Viet Nam added that the United States' statement of opposition [to Chang] based on previous Appellate Body decisions could create a dangerous precedent for other reappointment proceedings and affect an Appellate Body member's decision-making during their first term.

Here's one of those panel decisions that the US doesn't like:

In the fourth ruling -- which upheld China's allegations about U.S. duties on non-market economies -- the appellate panel "took a very problematic and erroneous approach" that risks turning the DSB into "one that would substitute the judgment of WTO adjudicators for that of a member's domestic legal system as to what is lawful under that member's domestic law," Wilson said.

The interesting part is the bit at the end there, where the US complains that the WTO's dispute settlement system is effectively overruling national law. Techdirt readers will recognize that as a common complaint about the tribunals that adjudicate on disputes between investors and governments -- the so-called "investor-state dispute settlement" (ISDS) system, aka corporate sovereignty. Until now, the US has been a solid supporter of these tribunals, so it's rather significant to see it moaning about the problem of uppity adjudicators here. It raises the question why the US is unhappy with the DSB tribunal, but doesn't seem to have a problem with those used in ISDS.

It might have something to do with the fact that the US has never lost a corporate sovereignty case -- something it uses to justify the inclusion of ISDS in TPP and TAFTA/TTIP -- but is increasingly on the wrong end of decisions at the WTO. As to why the US never loses ISDS cases, Ante Wessels, writing on the FFII.org blog, has a provocative theory: he says the "Investor-to-state dispute settlement is a rigged system" that is tilted in favor of the US. Whether or not you agree with his analysis, it's certainly interesting to see how the US seems to be changing its mind on the value of supranational tribunals that can ride roughshod over domestic legal systems now that it finds itself on the losing side.

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Filed Under: corporate sovereignty, isds, seung wha chang, trade agreements, tribunals, us, wto

Corporate Sovereignty Finally Enters The Political Mainstream

from the yet-another-ratchet-clause dept

Techdirt has been writing about investor-state-dispute settlement (ISDS), aka corporate sovereignty, for more than three years now. During that time, we've published well over a hundred articles on the topic. Increasing numbers of people have become aware of the threat that ISDS represents to democracy because of the privileged access it grants companies to a parallel legal system. Now, it seems, it's beginning to enter the political mainstream around the world.

A couple of weeks ago, the leader of the UK's Labour Party, Jeremy Corbyn, promised to reject TAFTA/TTIP if he were in power, and to vote against it if he were in opposition. One reason for that, he said, was his concerns over:

the facility for corporations to sue national governments if regulations impinged on their profits.

The Labor Party in Australia has also started to make pronouncements about corporate sovereignty:

The opposition's trade spokeswoman, Penny Wong, said Labor would try to remove so-called investor state dispute settlement (ISDS) clauses from every trade agreement, and every bilateral investment treaty, that Australia has signed.

It means Labor plans to review three major trade agreements concluded by the Abbott-Turnbull governments -- with China, Korea, and the Trans-Pacific Partnership -- that have ISDS provisions.

That comes at a time when the current Australian government is thinking about doing exactly the opposite:

The Turnbull government is considering adding a controversial provision to the Japan-Australia free-trade agreement that would allow foreign corporations to sue the Australian government.

Here's why it's taking that odd course of action:

The negotiations have been triggered by a relatively unknown clause in the Japan-Australia agreement, which was signed by the Abbott government in 2014.

The clause states that if Australia's government signs any future trade deal with another country that includes an ISDS provision then the Japan-Australia deal would be subject to an automatic review "with a view to establishing" an ISDS provision in it.

The trigger for such a review was the China-Australia free-trade agreement, which came into force on 20 December 2015, because it included an ISDS provision.

In other words, this is yet another "ratchet" clause that ensures changes only ever move in one direction -- to the benefit of companies, and against the interests of the public. It's yet another reason never to include corporate sovereignty chapters in these so-called trade deals.

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Filed Under: corporate sovereignty, isds, tpp, trade agreements, tribunals, ttip

Is The UK Government Trying To Sneak Through Its Own Corporate Sovereignty Rules?

from the downward-regulatory-ratchet dept

As their name suggests, corporate sovereignty chapters in trade deals are problematic in part because they place corporations on the same level as nations, allowing the former to sue the latter in special tribunals outside national courts. What's particularly troubling is that companies are now claiming that basic democratic functions, like passing laws promoting health, should be considered a form of "expropriation", because future corporate profits are reduced. That effectively turns investor-state dispute settlement (ISDS) into a downward regulatory ratchet that makes it very difficult -- or at least very expensive -- to bring in any new regulations that reduce profits for some business sector.

Despite this -- or possibly even because of this -- the UK government is currently trying to bring in its own, domestic version of this ratchet. It's found in a new Bill, simply but significantly called "Deregulation Bill". It's a rag-bag of legislative odds and ends, covering things like religious exemption from wearing safety helmets, selling yarn, erection of public statues, repealing the power to block Web sites (brought in by the Digital Economy Act), late night refreshments and -- tucked in near the end -- the following:

83 Exercise of regulatory functions: economic growth

(1) A person exercising a regulatory function to which this section applies must, in the exercise of the function, have regard to the desirability of promoting economic growth.

(2) In performing the duty under subsection (1), the person must, in particular, consider the importance for the promotion of economic growth of exercising the regulatory function in a way which ensures that--

(a) regulatory action is taken only when it is needed, and

(b) any action taken is proportionate.

The Bill goes on to clarify what a "regulatory function" might be:

(a) a function under or by virtue of an Act or subordinate legislation of imposing requirements, restrictions or conditions, or setting standards or giving guidance, in relation to an activity, or

(b) a function which relates to the securing of compliance with, or the enforcement of, requirements, restrictions, conditions, standards or guidance which, under or by virtue of an Act or subordinate legislation, relate to an activity.

As that makes clear, the proposed law would apply to pretty much any kind of regulation and its enforcement, and would require the effects on the UK's economic growth to be considered above everything else. Indeed, there's no obligation to consider anything else. Its effects would reach far beyond the obvious areas. For example, this post by the journalist David Hencke explains what the Bill's implications for human rights in the UK would be (pointed out to us by @AnitaBellows12):

The Deregulation Bill -- promoted as liberating business from silly bureaucratic rules -- includes what sounds like a rather arcane provision saying that all regulators for the first time must consider the impact on economic growth before they launch criminal or civil proceedings (see clauses 83/84) against a company.

In other words if the [UK's Equality and Human Rights Commission -- ECHR] doesn’t do this -- big companies with loads of cash can take them to judicial review and get cases where they break the law on discrimination annulled. It would also make the EHRC -- not the most radical of bodies -- even more careful before it takes up your case.

But it's not just limited to the field of human rights: it would also apply to the enforcement of environmental laws, or controls on financial services, say. It's true that the Bill doesn't make it impossible to carry out those functions, but it does open up an important new way for corporates to challenge any government enforcement actions against them: all they have to do is to complain that the implications for the UK's economic growth weren't properly considered. As with ISDS, it doesn't matter whether they win every such case: the mere threat of being able to bring these cases will inevitably have a chilling effect on people working in UK government departments, and result in them being much more cautious in their enforcement of UK laws against companies. If enacted, then, the new Bill would have a large-scale, deregulatory effect that will go far beyond the other, rather minor measures it contains.

As Hencke's post points out, this Bill is still in the early stages of its passage through the UK Parliament, so these particular clauses could be modified or even deleted -- although it is likely the UK government will just put them back if they are. Still, their appearance here, hidden away among mostly trivial matters, should act as a wake-up call that corporate sovereignty is not just a matter for international trade agreements, but may start cropping up in national legislation too.

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Filed Under: corporate sovereignty, deregulation bill, economic growth, isds, profits, tribunals, uk

Why Tribunals Imposing Corporate Sovereignty Are Even More Dangerous Than We Thought

from the above-the-law dept

Back in October, we introduced the term "corporate sovereignty" as an alternative to the standard but misleading phrase "investor-state dispute settlement" (ISDS) that is generally used. We noted that perhaps the worst manifestation of corporate sovereignty so far can be seen in Ecuador, where one of the secret tribunals used in these cases had ordered the Ecuadorean government to place Chevron above the country's constitution.

A detailed and important post from Public Citizen's Eyes on Trade blog not only sketches the background to that extraordinary demand, but also explains how things have since become even worse:

Now Chevron is asking the same extrajudicial tribunal to order Ecuador's taxpayers to hand over to the corporation any of the billions in damages it might be required to pay to clean up the still-devastated Amazon, plus all the legal fees incurred by the corporation in its efforts to evade justice.

Yes, you read that correctly: the oil giant's latest outrageous plan is to force the Ecuadorean government -- and hence the people of Ecuador -- to pay for the massive clean-up of the damage Chevron's predecessor company, Texaco, caused to the country, its environment and local communities. As the Eyes on Trade post points out, this means:

[the ISDS tribunal] is acting as if the sovereign court ruling and two decades of trial never happened. In its recent decision, the tribunal barely made mention of the domestic ruling in Ecuador, or of the preceding 18 years of litigation spanning two nations. Many of the arguments that Chevron is bringing before the tribunal are the very same ones the corporation used before Ecuadorian courts -- arguments that were rejected. Rather than even examine the domestic courts' logic, the tribunal has invited Chevron to make the same arguments again as if for the first time.

The case of Ecuador shows how a company can use the corporate sovereignty chapter in international agreements to ignore years of adverse decisions by a country's highest courts, and to appeal to three arbitration lawyers who take no account of local legislation, practice or traditions, and are literally a law unto themselves.

But maybe Ecuador is just an exception: perhaps ISDS tribunals in other cases have been more respectful of national laws and existing decisions. New research from Gus Van Harten, associate professor at Osgoode Hall Law School of York University in Toronto, suggests otherwise. Studying 162 corporate sovereignty cases, Van Harten reports that 37% of them involved reviewing a government action, while 44% were about disputed legislation or judicial decisions. In other words, in these cases, ISDS tribunals were clearly placing themselves above a country's politicians and judges. Worryingly, Van Harten found:

there was little evidence that arbitrators demonstrated restraint in ways commonly adopted by domestic and international courts.

Moreover:

the field has apparently offered arbitrators a fertile environment for creative lawyering alongside expansive approaches to their authority.

Unlike traditional judges, whose scope for action is tightly circumscribed by national laws, tribunals that ruled on cases brought under corporate sovereignty clauses had far more leeway for interpretation or -- even worse -- "creative lawyering." Van Harten concludes:

In policy terms, the observations indicate a need for closer scrutiny by a range of actors -- such as national associations of legislators or judges -- of how arbitrators exercise their power and about whether their performance accords with considerations of public accountability, judicial restraint and basic even-handedness.

He also has some advice:

states facing a reasonable prospect of investor claims, or seeking protection for non-Western investors, should systematically assess their anticipated exposure or protection and consider their options to avoid downside risks.

Of course, one obvious way to avoid those risks is for nations to refuse to agree to corporate sovereignty chapters in the first place.

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Filed Under: corporate sovereignty, ecuador, investor state dispute settlement, isds, tribunals
Companies: chevron