Governments are taking emergency action to fight COVID-19, counter economic disaster and ensure peoples’ basic needs are met. Now corporate law firms are targeting those actions for outrageous Investor-State Dispute Settlement (ISDS) attacks.
ISDS law firms are actively recruiting multinational corporations to sue governments before a panel of three corporate lawyers to obtain unlimited taxpayer compensation for government actions related to the COVID emergency. These ISDS tribunals can even order compensation for multinationals’ loss of expected future profits and there is no outside appeal.
In this episode, Lori explains the immediate ISDS danger and breaks down the regime’s history of attacking environmental protections, consumer safety regulations and democracy itself.
Transcribed by Mariana Lopez
Ryan: Welcome back to Rethinking Trade, where we don’t just talk about trade policy, we fight to change it. I am Ryan, and I am joined once again by our in-house trade expert Lori Wallach. So Lori, as we both know, the best and worst things can emerge in times of crisis and just recently amidst the coronavirus pandemic, we’ve seen one of the ugliest aspects of corporate trade policy rear its head once again: Investor State Dispute Settlement Tribunals. The internet now is flooded with blogs, webinars and other content from corporate law firms fishing for clients to attack governments and demand compensation over health measures taken during the pandemic. Before we get into those gory details, maybe you can just tell us about how ISDS policies work and, you know, what these law firms have been saying.
Lori: Investor State Dispute Settlement or ISDS is an outrageous scheme where trade agreements and agreements called bilateral investment agreements grant new rights and powers to multinational corporations to sue governments before a panel of three corporate lawyers. Those lawyers award the corporations unlimited sums to be paid by us, taxpayers, including for the loss of expected future profits. The corporations only have to convince the lawyers that a country’s domestic law, or policy, or safety, regulation or court decision violates their special foreign investor rights. And these decisions are not subject to appeal. The amount that gets awarded has no limit. So, literally it is a parallel system of injustice, where multinational corporations can skirt domestic courts, raid our treasuries, undermine our laws and are given an enormous amount of new powers relative to governments or to all of us, the people who are ostensibly represented by our governments.
Now if that seems like something from a science fiction novel and too crazy to be true, first of all, it was included in the original NAFTA (that was the first trade agreement that had it) and the Trans Pacific Partnership Agreement went up in flames in the U.S. Congress in part because that agreement expanded those outrageous corporate powers. And there have been hundreds of rulings where corporations have extracted billions of dollars from numerous countries’ tax payers, after these corporate tribunals have ruled against toxic bans, mining limits, water safety programs and an enormous number of energy policies. Such that, for instance, just for North America, just under NAFTA, almost 400 million dollars has been paid out after successful corporate attacks on an array of public interest safeguards.
Ryan: And so these law firms are trying to find clients willing to pursue cases under this system as a result of the coronavirus?
Lori: So globally right now, governments are taking actions to save lives and stop the pandemic. These kinds of actions are unprecedented in modern times, even as the need has been clear. But because the ISDS system is so invasive, many of the things governments are doing can be subject to corporate claims for hundreds of millions in compensation. And the kinds of things to consider are, for instance, based on previous crises like the financial crisis that hit, cases could arise, corporations could attack and demand compensation from things many governments are doing: restricting and closing business activities to limit the spread of the virus and protect workers, securing resources for healthcare workers by requisitioning the use of private hospital facilities, or putting manufacturers under orders to produce ventilators, or PPE or other emergency medical goods, or mandating relief from rent and mortgage payments to avoid people being turned out to the streets, or a bunch of countries have passed policies preventing foreign takeovers of strategic businesses stricken by the virus. Other countries have required utility companies to freeze bills and suspend disconnections to assure there’s access to clean water for handwashing. Other countries have done compulsory licensing and other actions to make sure medicines and tests and vaccines are affordable. A lot of countries are doing debt restructuring. All of those things may be applied equally to both foreign and domestic firms. But under ISDS, foreigns firms have special rights under special tribunals. They could demand compensation for any of those very necessary, even extraordinary kinds of actions that governments around the world are taking.
Ryan: Can you explain more about how the ISDS regime works and what exactly these tribunals, you know, what do they look like, provide for big companies and how they impact regular people, public health and the planet. Maybe you can talk about some of the cases.
Lori: So let me go back to some of these COVID threats. So, for instance, there were a whole series of cases after various financial crises, for instance in Argentina, where the government did things like suspend utility payments and require companies to keep water and electricity going. And foreign companies who were invested in those kinds of utilities were able to go to a tribunal where they pick one of the judges (the corporation picks one judge, the government picks another judge and then those two pick a third). The judges are paid by the house, so it is in their financial interests--they get hundred and hundreds an hour to keep the tribunal going as long as possible. And a corporation literally says, “Government of Argentina, your taxpayers owe me. You have to pay 100 million dollars because you made me keep my electricity flowing even though during this crisis people couldn’t pay the bills. And I know you did that to all the Argentine companies too, but I am foreign investor, and I have special foreign investor rights under ISDS, and I can go to this tribunal. So we’re going to have these three private attorneys decide outside your court system, just for me, the foreign investor, how much taxpayers are going to pay me, because in the middle of a crisis you took crisis actions that apply to domestic and foreign companies.”
And under that kind of regime, there have been repeated rulings in favor of the corporations. I mean one of the—there are several infamous ones about governments insisting that foreign water companies keep the water going and/or cancelling contracts when they weren’t purifying water systems when foreign companies had bought privatized water systems in developing countries. And on a regular basis, these corporate tribunals order the taxpayers of poor countries, and some wealthy countries too, to pay the corporations. I mean to some degree there is nothing like losing one of these cases to start getting public opinion to turn. Germany, with many corporations using that regime to collect hundreds of millions, was a place that was a cheerleader for ISDS until the government of Germany decided to phase out nuclear power after the Fukushima disaster and to strengthen the rules for coal-fired electric plants as part of their Paris commitments. And in both instances, foreign companies sued the German taxpayers and forced settlements where hundreds of millions were paid out because Germany changed a policy. And that change applied to German companies too, but the foreign investors went to ISDS and they got the money. And this has been a systematic problem of over 1,000 known cases. Already more than a dozen have resulted in payouts of more than a billion dollars, including for future loss of profits. And by the end of 2018, because the 2019 data is not yet available, governments worldwide ordered to pay or agreed to pay investors in just the cases we know about, because a lot of ISDS cases are secret. Eighty-eight billion dollars we know about have been paid out. And that’s not counting the developing countries that have billions and billions in outstanding ISDS payments. If you don’t pay under this regime, the corporation can seize one of your nation’s ships or seize your assets, your foreign reserves in another country’s banks, or try and take one of your national airline’s planes if it lands in a country where they have a court order to force the payment. It’s so outrageous you couldn’t make it up, except it’s the reality.
Ryan: If we got rid of ISDS tribunals, what would a fairer, more equitable tribunal system look like?
Lori: Well there should be no parallel system of justice just for multinational corporations. They’re hardly an underprivileged class that needs special rights. So the answer is there should be no ISDS. Those agreements should be abolished. The original idea of the system when it was concocted with a more narrow scope, was that European companies and governments, invested in what were about to become their foreign colonies, would flee during the period of independence because the court systems in parts of the Caribbean and Africa and Asia weren’t set up. So the idea was, here is a system for these colonial investors in the transition to independence that will keep them staying invested( Royal Dutch Shell in Indonesia, etc.). And the system has overtime morphed to be this incredible corporate power scam.
It may have been a bad idea to start with, but when it was just compensation for expropriation, you had to get your money back if your oil rig was taken, that’s one thing. Now it's just a vast system of if you change your regulation, a company thinks that’s unfair, they go in front of a bunch of corporate attorneys whose incentives are to rule for the companies because the companies start the cases, the governments can’t sue a corporation. So the tribunalists in the system want to curry favor with corporations because they’re the ones who start cases and hire the judges. It’s just so corrupt and unfair. There is no way to fix it. And what’s super disappointing is, in the face of worldwide opposition and numerous countries–South Africa, India–leaving the old ISDS regime, Europe is trying to repackage the same old thing with a new coat of paint and call it a global investment court and basically pretend (multilateral investment court is the formal name, the MIC) it is something other than ISDS even more formalized. The only answer is to get rid of the whole parallel rights for corporations.
Ryan: And Lori, I am sure a lot of listeners are wondering how real is the threat of ISDS cases around coronavirus. But then also maybe we can talk about some of the good news, which is that the tide has turned on ISDS in some places: the new NAFTA having shredded the original deal’s ISDS rules and also both Donald Trump and Joe BIden giving some indication of opposition to ISDS tribunals.
Lori: It is unfortunately very likely that a whole spate of ISDS attacks on governments’ responses to the COVID crisis will begin to be filed. And the reason why is, under this regime, an enormous amount of money can be made by both the lawyers and the corporations. It is a legalized raid on treasuries. And so, one of the ways we know that these cases are already being designed is that online every law firm you can imagine that has work in this area is trolling for clients. There are webinars, there are podcasts, there are advertisements about how exactly investors ought to structure their corporate holdings to be able to maximize their use of this system, to come out of the crisis in the best way. And it even—in some of these unlined platforms of the law firms, they describe “have you lost money because of this?” It’s, you know, sort of global, corporate ambulance chasing.
And there are some very specific things governments are going to have to do to avoid being just slayed by this, at the very time economies and jobs are shaky and health costs are up. I mean the most important thing countries can do is just to restrict the use of ISDS and all its forms with respect to any claims relating to COVID. That is narrow if they don’t want to get rid of ISDS all together, and there are different technical ways you can do that. You can do that in a multilateral agreement among the countries who sign these treaties, you can do it unilaterally, but you can have limited effect because the tribunals can just ignore the government and rule against you and then seize your government airline’s plane to pay off the corporation. But there are ways for governments to restrict the use. There certainly should be a suspension for all the cases ongoing right now while governments are focused on fighting COVID-19. There are almost 400 open ISDS cases against 83 countries right now. So there’s no bandwidth to deal with this. But one of the countries, Bolivia, has already asked tribunals in two cases to suspend proceedings, and in both cases the tribunals rejected the request and just kept going. A third thing is to make sure that no public money is spent paying the corporations for decisions during the pandemic. And really it’s two different things: don’t pay your ISDS awards, make them so that the corporations have to go to domestic courts and try to seize your stuff (it delays it), but also if you have carved out ISDS that may be existing in your agreements that may be covering anything that covers COVID, you basically can protect yourself from having to pay. Obviously, countries should stop negotiating, signing and ratifying new agreements that include ISDS, and they should terminate their existing agreements with ISDS, which if you look at our website (tradewatch.org) we’ve done a study that shows that the countries that got out—Bolivia, Ecuador, Indonesia, India, South Africa-—have not seen drops in foreign direct investment. In fact, some of them had their credit ratings go up, because there isn’t this potential huge liability of corporate money grabbing. And then, obviously, every country should be reviewing all of their agreements that might include ISDS because they just don’t fit the reality of too much corporate power in the global economy and even more so in this crisis.
And that gets to the good news. So, for many decades the United States was one of the leading proponents of ISDS, it was shoving it down every other countries’ throats. And as we saw during the Obama Administration with the fight over the Trans Pacific Partnership (TPP) in Congress, pretty much on a bipartisan basis, ISDS has lost support. And a lot of people claimed, “well maybe it wasn’t really opposition to ISDS that derailed the TPP, maybe it was just that Republicans didn’t like Obama and didn’t want him to have that vote.” But the reality is, the United States Congress just passed, by overwhelming House and Senate majorities, a new North American Free Trade Agreement that totally eliminates the existing ISDS between the United States and Canada, under which dozens of Canadian environmental laws have been attacked and millions paid out, and largely whacked ISDS between Mexico and the U.S.. And new U.S. trade agreements with the UK, Kenya, etc. aren’t going to have ISDS anymore. So if even the U.S., on a bipartisan basis, is stepping back, and you have lots of developing countries that have gotten out of their ISDS enforced agreements, then progress in the right direction is happening. And the Europeans need to stop pushing the same-old-same-old under a different brand, their multilateral investment court.
I mean, hell, we are going into a U.S. presidential election where Vice President Biden, who in the past supported these agreements, on the record, in writing, has been answering campaign questionnaires saying his future trade agreements will not have ISDS (that’s a stupendous shift). And Trump has been behind agreements that already don’t have ISDS, so that’s a big shift domestically. Every activist should be happy about the work that people in the U.S. have done for decades to get there. And, you know, all these COVID attack cases are exhibits one, two and three of why every other country should abandon, ditch, get rid of, terminate, their ISDS agreements and liability.
Ryan: That’s all for today. Thank you all for listening. Rethinking Trade is produced by Public Citizen’s Global Trade Watch. I would encourage you to visit rethinktrade.org as well as tradewatch.org, to educate yourself and to find out how you can get involved in the work we are doing to fight for fairer and more equitable trade policies.