USTR Says No ISDS in US-UK Free Trade Agreement

By Melanie Foley

At a June 17, 2020 hearing of the Ways and Means Committee of the U.S. House of Representatives, Rep. Lloyd Doggett (D-Texas) asked the U.S. Trade Representative Robert Lighthizer an important question. Doggett, one of Congress’ leading critics of the controversial Investor-State Dispute Settlement (ISDS) regime, inquired: 

Do you envision in the agreements that you're currently negotiating to maintain the progress that we made in the USMCA with regard to dispute resolution so that when we're dealing with a developed country like the United Kingdom, we rely on a mature legal system rather than a closed dispute resolution system following the precedent that you set in Canada and which is applied successfully in Australia?

The reply from Lighthizer, the administration’s top trade official, was one word: “Yes.”

In layman’s terms, this exchange confirms that ISDS will NOT be part of the U.S.-United Kingdom Free Trade Agreement (FTA) that is currently being negotiated!

ISDS grants rights to multinational corporations to sue governments before a panel of three corporate lawyers. These lawyers can award the corporations unlimited sums to be paid by taxpayers, including for the loss of expected future profits, on claims that a nation’s policy violates their rights. Their decisions cannot be appealed.

With ISDS included in many trade and investment agreements, more than 1,000 ISDS attacks have been launched against climate, financial, mining, medicine, energy, pollution, water, labor, toxins, development and other non-trade domestic policies. Taxpayers have shelled out millions or even billions of taxpayer dollars to corporations in individuals ISDS awards. Some countries have revoked democratically enacted policies in order to reduce their payouts or settle a case. 

ISDS being off the table in U.S.-UK trade talks is a major victory for the vast, international movement that has been fighting ISDS for decades. It reinforces that the U.S. rollback of ISDS in the revised North American Free Trade Agreement (NAFTA) represents a new U.S. policy that will carry forward. ISDS was largely eliminated in the new NAFTA. (The original 1995 NAFTA was the first trade pact to include ISDS.)

The United States has historically been a leading proponent of this system and forced it on its trading partners.

But public outrage over ISDS has been growing for years and was a significant reason why the Trans-Pacific Partnership (TPP) could not get close to majority support to pass the U.S. Congress. The unusually large, bipartisan votes in the House and Senate for the new NAFTA set a new standard that to be politically viable, U.S. trade pacts can no longer include extreme ISDS terms.

One important part of Doggett’s question was that he specifically mentioned the ISDS provisions of the new NAFTA with respect to Canada. The new NAFTA totally eliminates ISDS between the United States and Canada, a change that goes into effect on July 1, 2023, three years after the new NAFTA went into effect. Between the United States and Mexico, ISDS is significantly scaled back. The revised pact eliminates the extreme investor rights relied on for almost all payouts, but allows a small group of U.S. oil and gas companies that have contracts with a specific Mexican government agency to still make claims related to those contracts using the most dangerous ISDS rights. Doggett clarified, and Lighthizer confirmed, that this will not be the approach with the United Kingdom.

Lighthizer did not comment on whether ISDS would be a part of ongoing trade negotiations with less developed countries. This is of note because Kenya started FTA talks with the United States just last week. Nearly 7,500 public comments were submitted to the U.S. government urging an approach to Kenya trade talks that puts people and the planet first, including by excluding ISDS.

And, the ISDS threats still looms large because there are thousands of existing agreements that include the corporate-favoring tribunals. Indeed, countries around the world are under a potentially devastating new ISDS threat. The law firms that profit enormously from the ISDS system have been advertising to multinational corporations about the lucrative opportunities to use ISDS to attack government actions to address the COVID-19 pandemic.

The law firms have specifically targeted pandemic policies such as restrictions on business activities to limit the spread of the virus and protect workers, requirements for manufacturers to produce ventilators, mandatory relief from mortgage payments or rent for households and businesses, measures to ensure access to clean water for hand washing and sanitation, and more.

Specialist law journals have speculated that “the past few weeks may mark the beginning of a boom” of ISDS cases.

That’s why more than 600 labor, consumer, environmental, development and other civil society organizations from around the world are sounding the alarm. These groups sent a letter in July to heads of government worldwide urging action to avoid this new ISDS threat. They outlined an array of practical steps governments could take to immediately suspend the use of ISDS over pandemic response measures, as well as to put an end to the risks of all ISDS cases forever.

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Law Firms Are Recruiting Corporations to Attack COVID-19 Policies in ISDS ‘Corporate Courts,’ Warn 600-Plus Civil Society Groups From 90 Nations

Corporations Could Claim Billions From Taxpayers in ISDS Cases Against Pandemic Protections

The threat of Investor-State Dispute Settlement (ISDS) claims from multinational corporations for compensation from taxpayers for governments’ COVID-19 responses is dire, warned more than 600 labor, consumer, environmental, development and other civil society organizations today in a letter to heads of government worldwide.

In the letter, the groups revealed that numerous law firms specializing in ISDS lawsuits attacks are trolling for multinational corporations to attack government actions, such as restrictions on business activities to limit the spread of the virus and protect workers, requirements for manufacturers to produce ventilators, mandatory relief from mortgage payments or rent for households and businesses, measures to ensure access to clean water for hand-washing and sanitation, and more.

Specialist law journals have speculated that “the past few weeks may mark the beginning of a boom” of ISDS cases. As governments are taking urgent actions to stem the COVID-19 pandemic, save lives, protect jobs, counter economic disaster and ensure people’s basic needs are met, some law firms are advertising about the opportunities to use ISDS to profit from these necessary government actions.


The controversial ISDS mechanism is written into many trade and investment agreements and grants rights to multinational corporations to sue governments before a panel of three corporate lawyers. These lawyers can award the corporations unlimited sums to be paid by taxpayers, including for the loss of expected future profits, on claims that a nation’s policy violates their rights. Their decisions cannot be appealed.


The 630 organizations are calling on governments to take practical steps that would immediately suspend the use of ISDS over pandemic response measures, as well as to put an end to the risks of all ISDS cases forever. Organizations signing the open letter include:

  • Major U.S. labor and civil society groups, including the AFL-CIO, Sierra Club, Public Citizen, United Auto Workers (UAW), NRDC, United Brotherhood of Carpenters, Communications Workers of America (CWA), Methodist Board of Church and Society and the Presbyterian Church USA;
  • International and regional union confederations including the International Trade Union Confederation, Public Services International, IndustriALL, the Trade Union Confederation of the Americas, and the International Union of Food, Agricultural, Hotel, Restaurant, Catering, Tobacco and Allied Workers’ Associations (IUF);
  • International environmental and development groups such as Oxfam, Greenpeace, Friends of the Earth International, Action Aid, Third World Network, the European Environmental Bureau, the Asian Peoples’ Movement on Debt and Development and the Arab NGO Network for Development; and
  • Global health networks such as the Médecins Sans Frontières (Doctors Without Borders), Peoples’ Health Movement, Access Campaign and the International Treatment Preparedness Coalition.

View the letter and the full list of signatures.

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Launch of New NAFTA Marred by Detainment of Mexican Labor Activist, Hundreds of Court Challenges Against New Labor Law

Statement of Lori Wallach, Director, Public Citizen’s Global Trade Watch

Note: The revised North American Free Trade Agreement (NAFTA) goes into effect today, July 1. The U.S. Senate passed the new NAFTA in January 2020 by a margin of 89 to 10 after the U.S. House of Representatives voted by a margin of 385 to 41 in December 2019.

On paper the new NAFTA –with improved labor terms added and extreme Big Pharma monopolies and ISDS investor rights removed – is better than the original, but it won’t benefit people unless it’s effectively enforced.

It’s a terrible start that on Day One of a deal Trump said would transform trade, a leading Mexican labor lawyer has spent weeks in jail on trumped up charges for helping workers use USMCA’s labor rights and Mexico’s new USMCA-compliant labor law is bogged down by hundreds of lawsuits aimed at derailing it.

Maybe Trump hoped to distract from myriad failures by spotlighting the new NAFTA on July 1, but it’s also the date that 100 of the 600 legal challenges against the pact’s labor rights rise to Mexico’s Supreme Court and Susana Prieto, a famous Mexican labor lawyer detained for weeks for helping workers organize a union, has a high visibility hearing.

Meanwhile, Trump’s claims that the new NAFTA will restore hundreds of thousands of manufacturing jobs have proved baseless as U.S. auto firms announced plans to increase production in Mexico from Ford’s Mustang electric SUV to GM closing U.S. plants and moving popular vehicle lines to Mexico. But the U.S. Department of Labor has certified more than 175,000 Americans as losing jobs to trade during the Trump administration’s first years while the NAFTA trade deficit jumped 88% under Trump.

The new NAFTA’s greatest impact may be that it began a long overdue rethink of the U.S. trade-pact model. The unusually large, bipartisan congressional votes on the new NAFTA showed that to be viable today, U.S. trade pacts no longer can include extreme corporate investor privileges or broad monopolies for Big Pharma and must have enforceable labor and environmental standards. The 2016 Trans-Pacific Partnership, which failed these tests, never got close to majority congressional support.

Renegotiating the existing NAFTA to try to reduce its ongoing damage is not the same as crafting a good trade deal that creates jobs, raises wages and protects the environment and public health. The new NAFTA is not a template, but rather sets the floor from which we will fight for trade policies that put working people and the planet first. Any new trade deals must include climate standards, stronger rules to stop race-to-the-bottom outsourcing of jobs and pollution, and enforceable rules against currency misvaluation and not limit protections needed to ensure our food and products are safe, our privacy is protected and big banks do not crash the economy.

BACKGROUND INFO

Susana Prieto Terrazas, a well-known Mexican labor lawyer, has been locked up since June 8 for trying to use the core labor right guaranteed by the revised NAFTA and Mexico’s new labor law; a July 1 hearing is scheduled after several punitive bail denials. Prieto, a key advocate for exploited workers in border maquiladora factories in Matamoros and Juárez, has been held without bail for three weeks on trumped-up charges of “mutiny, threats and coercion” after trying to register an independent union to replace a corrupt “protection” union in Matamoros. Prieto became well-known in Mexico for helping maquiladora workers win higher wages in factories along the Texas border last year. Recently, she supported workers demanding COVID-19 safety measures after dozens of maquiladora workers died from workplace coronavirus exposure. Wildcat strikes and mass protests have grown throughout the border region as U.S. companies and officials push for plants to reopen without safety measures. Dozens of members of the U.S. House of Representatives sent a letter yesterday demanding Prieto’s release. At June 17 hearings, members of Congress raised concerns about Prieto’s arrest with the U.S. Trade Representative, who confirmed he was closely following her case and found it a “bad indicator” of compliance with NAFTA’s revised labor standards. Prieto livestreamed her arrest as she tried to register the Independent Union of Industrial and Service Workers “Movimiento 20/32,” chosen by workers to replace a “protection” union. Last week, Prieto’s daughter delivered a letter from U.S. unions and civil society groups to the Mexican National Human Rights Commission seeking help on Prieto’s release. U.S. fair trade activists will deliver the letter to Mexican consulates nationwide on July 1. After decades of worker intimidation, Mexican manufacturing wages are now 40% lower than those in China. The Department of Labor has certified more than one million U.S. jobs (1,015,948) as lost to NAFTA just under one narrow retraining program called Trade Adjustment Assistance, which represents a significant undercount of total jobs lost.*

The first 100 of 600 challenges to Mexico’s new labor law will hit Mexico’s Supreme Court on its July 1 reopening. The new NAFTA requires that “protection” contracts signed by unions not elected by workers all be reviewed and that contracts be approved directly by workers within four years after the revised NAFTA goes into effect. This requirement is at the heart of the reforms to Mexico’s labor laws enacted on May 1, 2019. Under the new labor law, workers in Mexico could finally have legal protections to fight to raise abysmally low wages. This would also reduce incentives to outsource U.S. jobs to Mexico, benefiting U.S. workers. Within weeks of the new law’s enactment, hundreds of corrupt local “protection” unions and other interests opposed to reform began to file what are now more than 600 lawsuits, which both try to block the law’s application to specific union contracts and workplaces and to gut the law altogether on grounds that it is  unconstitutional. Mexico’s judiciary has been out of session since mid-March for COVID-19 precautions. On July 1, the court system goes back into operation, with the first 100 challenges hitting Mexico’s Supreme Court. If the court rules against the challenged terms, Mexico will be in violation of NAFTA labor obligations that are essential if the new deal is to slow U.S. job outsourcing. This memo has the latest updates on the cases

The Department of Labor has certified 176,982 trade-related job losses during Trump’s presidency, and the manufacturing sector is hurting. Under the narrow Trade Adjustment Assistance worker training program alone, 176,982 workers have been certified as losing jobs to trade since the 2017 start of the Trump administration. The data mainly covers 2017-2018, as there is typically a 12-18 month gap between layoff dates and certification. Whether the new NAFTA can slow ongoing job outsourcing or the 88% increase in the overall NAFTA trade deficit during the Trump administration remains to be seen over time. What is clear now is that the U.S. manufacturing sector has been severely harmed by the ongoing COVID-19 pandemic, with 1.1 million manufacturing jobs lost in May 2020 compared with the same month last year.

*Data Note: The trade data is sourced from the U.S. Bureau of Economic Analysis and the U.S. Census Bureau. We present deficit figures adjusted for inflation to the base month of May 2020. The overall percentage change in the U.S.-NAFTA trade deficit under Donald Trump represent the change in total goods and services trade deficit since 2016, Barack Obama’s last year, and 2019, the last full year of data available during the Trump administration. Manufacturing job data is sourced from the U.S. Bureau of Labor Statistics. The government-certified job loss data is sourced from Public Citizen’s Trade Adjustment Assistance (TAA) Database. The U.S. Department of Labor certified trade-impacted workplaces under its TAA program. This program provides a list of trade-related job losses and job retraining and extended unemployment benefits to workers who lose jobs to trade. TAA is a narrow program, covering only a subset of workers who lose jobs to trade. It does not provide a comprehensive list of facilities or jobs that have been offshored or lost to import competition. Although the TAA data represent a significant undercount of trade-related job losses, TAA is the only government program that provides information about job losses officially certified by the U.S. government to be trade-related. Public Citizen provides an easily searchable version of the TAA database. Please review our guide on how to interpret the data here and the technical documentation here.

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NAFTA Notice: A Final Deal Must Be Judged on Whether It Will Stop NAFTA’s Serious Ongoing Damage

NAFTA-Announcement-Homepage-2

Statement of Lori Wallach, Director, Public Citizen’s Global Trade Watch

Note: The Trump administration gave notice to the U.S. Congress on Friday, Aug. 31 of its intent to sign a renegotiated North America Free Trade Agreement (NAFTA). Aug. 31 is the last day to give notice for a deal to be signed by outgoing Mexican President Enrique Peña Nieto. The U.S. reached agreement with Mexico on new terms, but talks with Canada are ongoing. The text of any deal would be made public only after 30 days’ notice. While much attention has been given to whether various deadlines can be met and the political and legal implications of various scenarios, the fundamental question is whether the content of a new agreement can halt NAFTA’s ongoing damage:

“We understand that progress has been made on some essential NAFTA changes we have long sought, like razing NAFTA’s investor tribunals where multinational corporations have grabbed $392 million in compensation from North American taxpayers after attacking environmental and health policies. But swift and certain enforcement of what we understand are improved labor standards is lacking and must still be added or U.S. corporations will keep outsourcing jobs to Mexico to pay workers a pittance, dump toxins and import products back to the U.S. for sale here.

Given the encouraging news about some of the key NAFTA changes we have long sought, we are closely monitoring the ongoing process with respect to improvements in labor enforcement that are necessary to counter NAFTA job outsourcing. We also closely monitoring the ongoing negotiations with Canada where several important consumer protection issues are at stake, including extended monopoly rights for pharmaceutical corporation that would increase medicine prices. Ultimately, we must see the final text to know whether our demands have been met.

Any final deal must be judged on whether it will stop NAFTA’s serious ongoing damage, given the pact now helps corporations outsource more jobs to Mexico every week (Almost one million American jobs have been government-certified as lost to NAFTA) and launch new NAFTA investor attacks on health and environmental laws after already $392 million has been grabbed from taxpayers. 

As we have made clear since Day One of renegotiations, the only agreement that can achieve broad support must end NAFTA’s job outsourcing incentives and Investor State Dispute Settlements tribunals – where corporations can attack our laws – and add strong environmental and labor terms with swift and certain enforcement to raise wages.

It may seem improbable that this administration could be making changes progressives have long sought, but public anger over outsourcing has made it impossible for business-as-usual trade agreements to get through Congress. The big questions are whether Trump will deliver a final deal strong enough to meet his election promises to return manufacturing jobs and cut the large NAFTA trade deficit and if so, whether Republicans in Congress would buck the corporate lobby and support a deal that would end NAFTA’s job outsourcing incentives and ISDS tribunals where corporations can attack our laws and add strong environmental and labor terms with swift and certain enforcement to raise wages.”

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Remarks at the National Press Club Panel on the Proposed Inclusion of ISDS in the TPP

Delivered by Lise Johnson, Head: Investment Law and Policy, Columbia Center on Sustainable Investment, at the National Press Club in Washington DC on February 11, 2016

With the TPP, we are currently at a crucial crossroads. We either take this time to thoroughly evaluate ISDS and its costs and benefits, which, I believe, would take us in a new and more thoughtful direction, or we simply move forward with the TPP, entrenching and expanding a failed experiment in economic policy.

I refer to ISDS as an experiment because, although it is commonly noted that there are 3,000 investment treaties around the world and, therefore, that the ISDS mechanism is nothing new, the first investment treaty with ISDS was actually not concluded until the late 1960s. Investment treaties with ISDS were not widely negotiated until the 1990s, and ISDS claims only really emerged in earnest in the late 1990s and early 2000s. Thus, we really only have roughly 15 years of experience with this mechanism. ISDS is still a new area of law. An experiment.

I note that ISDS is a failed experiment because it does not appear to have achieved three of the commonly stated objectives of the mechanism. It has not led to increased investment flows, nor to a set of predictable international legal rights for investors, nor to an increase in the rule of law in host countries.

If the TPP were concluded with ISDS, we would not only be entrenching this failed experiment, but significantly expanding it. Currently, the US only has an investment treaty with one major capital exporting state, Canada, meaning that only a relatively small share of foreign direct investment in the US – roughly 10% -- is currently protected by a treaty with ISDS. With the TPP, the percentage of covered investment will more than double; and if we continue the trend in the TTIP as well, the amount of covered FDI in the US will rise significantly to approximately 70%, and along with it, the US’s exposure to costly litigation and liability.

Now, the US has said that the experiment has not cost the Government anything, frequently highlighting the point that it has yet to lose an ISDS case. But there are a few reasons why I don’t think we should count on the past to predict the future:

  • As I noted, the US’s exposure has been fairly limited; this will change with the TPP;
  • Second, in the cases the US has defended, the US has had near misses in which even the government officials working on the case thought the Government would lose; one explanation given for why arbitrators have been reluctant to rule against the US is that, if the US were to lose, it would back away from the system to the ultimate detriment of the arbitrators and counsel who make their living from ISDS cases. Thus, at least while the future of ISDS felt uncertain, it has been in the best interest of arbitrators to take it easy on the US.
  • Third, recent decisions reflect the significant delegation of authority under ISDS to arbitrators to interpret and apply the treaty, without any meaningful review or opportunity to appeal the arbitrators’ decisions. The tribunal in a recent case against the US, for example, stated that although all three NAFTA states unanimously agreed that the treaty meant “X”, it didn’t consider itself bound to that interpretation and proceeded to disregard it. This shows that there is no guarantee that tribunals will interpret treaty provisions in a way that is consistent with the US’s understanding of what treaty obligations mean.2
  • Fourth, the US has lost on key issues that have resulted in an expansion of exposure to future claims and damages.3

Moreover, irrespective of data on wins and losses, the system of ISDS itself is fundamentally flawed in that it creates a privileged and powerful system of protections for foreign investors that is inconsistent with, and erodes, the power of domestic law and institutions.

The USTR has defended ISDS against such charges by saying that the standards of protection investors receive under it mirror, but do not go beyond, the protections provided under domestic law and that therefore ISDS does not represent any change or threat to domestic law as we know it.4 But there are two key problems with the USTR’s assertion. One is that it is not correct that investment treaties do not provide foreign investors any greater rights than are provided under domestic law. We’ve done significant research comparing the protections provided under domestic law with those provided under investment treaties, and conclude that the protections provided under investment treaties in fact give foreign investors greater rights than they or anyone else have under domestic law.5 In fact, this seems to be why TransCanada, which is suing the US government as a result of the denial of the Keystone permit, is pursuing its major claim for $15 billion through the NAFTA as opposed to through domestic litigation.

But, even accepting the USTR’s argument that the substantive standards in investment treaties simply mirror substantive standards provided under US domestic law still does not address some of the significant concerns about ISDS. In this context, it is important to recall that ISDS allows investors to challenge actions of officials at any level of government – local, state, and federal, and conduct by any branch – executive, legislative and judicial. The fact that a measure is entirely consistent with domestic law is no defense or shield against liability.

What ISDS does is give private arbitrators the power to decide cases that, at their core, are merely questions of domestic constitutional and administrative law dressed up as treaty claims. Instead of recourse through local, state or federal domestic institutions, investors are able to take their claims to a panel of party-appointed international arbitrators and ask them to determine the bounds of proper administrative, legislative, and judicial conduct.

One might ask: what does it matter if we permit foreign investors to bring their claims against the government before international arbitrators as opposed to before domestic courts if the substantive standards of protection are the same? The answer is that it matters a great deal.

  • One, there is no route for a meaningful appeal. Even if a tribunal gets the law or facts wrong, its decision will likely stand;
  • Two, the decision makers in ISDS are free of the requirements of independence, impartiality, and high ethical standards that are mandatory for US judges;
  • Three, in domestic litigation, if a court issues a decision that is inconsistent with legislative intent, the legislature can pass a law correcting that decision; the legislature, however, has no power to undo or otherwise override an ISDS decision;
  • Four, the procedural rules and remedies are significantly different depending on whether an investor brings its claims through ISDS or through domestic courts, with meaningful impacts on the government’s potential exposure to claims and liability; and
  • Five, even if the law looks the similar, it is not the same. So, for example, although the TPP incorporates what superficially looks like the US’s test on regulatory expropriations, tribunals are not in any way bound to apply that test in the same manner as US courts.

Fundamentally, supranational adjudication—where the decisions of a supranational body can penetrate deep into a domestic society—is rare and raises a host of complex legal and policy questions. Much more consideration of these issues is important before we inadvertently dilute constitutional protections, weaken the judicial branch, and outsource our domestic legal system to a system of private arbitration that is isolated from essential checks and balances. This is not to say that supranational adjudication has no place in the American legal system, but rather that ISDS is an extreme, discriminatory and unnecessary version that will have undue negative effects on our domestic law and institutions.

  1. Data from the Bureau of Economic Analysis.
  2. See Lise Johnson, “New Weaknesses: Despite a major win, arbitration decisions in 2014 increase the US’s future exposure to litigation and liability,” (CCSI 2015), at p. 8, available at http://ccsi.columbia.edu/files/2013/12/9.-Johnson-New-Weaknesses-US-roundup.pdf
  3. See cases discussed Id.
  4. USTR, Fact Sheet: “Investor-State Dispute Settlement (ISDS),” (March 2015), https://ustr.gov/about-us/policy-offices/press-office/fact-sheets/2015/march/investorstate-dispute-settlement-isds (“These investment rules mirror rights and protections in the United States and are designed to provide no greater substantive rights to foreign investors than are afforded under the Constitution and U.S. law”).
  5. See, e.g., Johnson and Volkov, “Investor-State Contracts, Host-State ‘Commitments,’ and the Myth of Stability in International Law,” 24 American Review of International Arbitration 361 (2013); Lise Johnson, Lisa Sachs, and Jeffrey Sachs, “Investor-State Dispute Settlement, Public Interest, and U.S. Domestic Law,” (May 2015), available at http://ccsi.columbia.edu/files/2015/05/Investor-State-Dispute-Settlement-PublicInterest-and-U.S.-Domestic-Law-FINAL-May-19-8.pdf
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