|Description||Investor-to-state dispute settlement (ISDS) gives multinationals the right to sue states before special tribunals if changes in law may lead to lower profits than expected. Multinationals can challenge reform of copyright and patent law, challenge environmental and health policies. A growing number of civil society groups see ISDS as a threat to democracy.|
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This page gives background to a lightning talk on investor-to-state dispute settlement (ISDS), Day 2, Saal G, scheduled 13.25.
A growing number of civil society groups see ISDS as a threat to democracy.
ISDS gives multinationals the right to sue states before special tribunals if changes in law may lead to lower profits than expected. Multinationals can challenge reform of copyright and patent law, challenge environmental and health policies.
How does the ISDS system work?
International trade and investment agreements give foreign investors greater rights than citizens and local companies, even expected future profits are protected.
On top of that, investor-to-state dispute settlement gives foreign investors the right to bypass the local court system and use international arbitration. Tribunals consisting of three investment lawyers decide the cases. These tribunals can overturn decisions of supreme courts.
Let me give three examples.
After the nuclear disaster in Japan, the German government decided to close down two nuclear reactors. The Swedish company Vattenfall now claims 3.7 billion euro using investor-to-state dispute settlement.
Second example: Australia introduced health warnings on tobacco packaging. Tobacco company Philip Morris claimed that their trade marks lost value, and sued Australia in local courts. Philip Morris lost the court case and then started an ISDS arbitration case. As a result, Australia decided not to sign treaties with ISDS clauses any more.
Third example: Canada made some minor adjustments to its patent system to ascertain better access to medicine. United States pharmaceutical company Eli Lilly now claims 500 million dollar in ISDS arbitration.
Arbitrators have enormous powers. They also have a negative incentive. Unlike judges, they are paid by the hour or by the day, very well paid. They have an incentive to let cases drag on. And they have an incentive to make the system more important by taking multinational friendly decisions.
The negative incentive has negative consequences. The legal costs are skyrocketing, in some cases the legal costs are more than 30 million dollar. The number of cases is rising sharply. The damages are rising.
Arbitrators wear many hats. They may also act as government official negotiating investment treaties, corporate lobbyist advocating investor-to-state dispute settlement, council defending the interest of corporations, media commentator and professor. The editorial boards of key journals consist of 50 to 100 percent arbitrators. (CEO and TNI, 2012)
International investors and investment lawyers are natural allies. The small community of arbitrators is a captive in-crowd (they share ideas and interests with the investors). A very powerful captive in-crowd.
The ISDS tribunals can overturn decisions of supreme courts. ISDS is best understood as a transfer of sovereignty. It gives investors equal standing to states. And it gives investment lawers the power to decide in conflicts between investors and states.
Investors and investment lawyers are natural allies. So, in conflicts between investors and states, the natural allies of investors take the decisions. The system is fundamentally flawed.
There is no excuse for this. Nobel laureate in economics Joseph Stiglitz points out that companies can take an insurance against expropriation:
"There is no reason that foreign-owned property should be better protected than property owned by a country’s own citizens. Moreover, if constitutional guarantees are not enough to convince investors (...) foreigners can always avail themselves of expropriation insurance provided by the Multilateral Investment Guarantee Agency (a division of the World Bank) or numerous national organizations providing such insurance." (Joseph Stiglitz, 2013)
He also explains what is really behind ISDS:
"But those supporting the investment agreements are not really concerned about protecting property rights, anyway. The real goal is to restrict governments’ ability to regulate and tax corporations – that is, to restrict their ability to impose responsibilities, not just uphold rights. Corporations are attempting to achieve by stealth – through secretly negotiated trade agreements – what they could not attain in an open political process."
ISDS threatens our ability to reform copyright and patent law, to protect our privacy, to protect our health and environment. Vital interests are at stake.
What can we do?
European countries signed many bilateral investment treaties, but since the Lisbon Treaty, the EU gained competence. From now on, the European Commission will negotiate and the European Parliament has a veto. We have a unique chance now to get things right. Consumer and environmental groups already did a lot of work. The parliament is critical about ISDS. The digital community can help to tip the scale.
Note that adding safeguards to the system is not enough. A powerful captive incrowd can always find a way around safeguards. The only solution is exclusion, no investor-to-state dispute settlement in EU trade agreements.
Next year, there will be elections for the European Parliament. I suggest we try to keep proponents of investor-to-state dispute settlement out of the parliament.
Joseph Stiglitz, 2013, South Africa Breaks Out, http://www.project-syndicate.org/commentary/on-the-dangers-of-bilateral-investment-agreements-by-joseph-e--stiglitz
CEO and TNI, 2012, Profiting from injustice – How law firms, arbitrators and financiers are fuelling an investment arbitration boom, http://corporateeurope.org/publications/profiting-from-injustice
Carlos M. Correa, 2013, Investment agreements: A new threat to health and TRIPS flexibilities? http://www.bilaterals.org/spip.php?article23414
FFII, 2013, Negotiators determined to transfer sovereignty to companies, http://acta.ffii.org/?p=1963
FFII, 2013, EU faces double whammy with investor-to-state dispute settlement http://acta.ffii.org/?p=1995
CEO, 2013a, A transatlantic corporate bill of rights, http://corporateeurope.org/sites/default/files/publications/corporate-bill-of-rights.pdf
CEO, 2013b, Unravelling the spin: a guide to corporate rights in the EU-US trade deal http://corporateeurope.org/trade/2013/07/unravelling-spin-guide-corporate-rights-eu-us-trade-deal
Glyn Moody, 2013, TTIP Update II (on ISDS and software patents), http://blogs.computerworlduk.com/open-enterprise/2013/08/ttip-update-ii/index.htm
Henning Grosse Ruse - Khan, 2013, Investor–State Arbitration to Challenge Host State Compliance with International IP Treaties? http://worldtradelaw.typepad.com/ielpblog/2012/12/investor-state-arbitration-to-challenge-host-state-compliance-with-international-ip-treaties.html
NGOs, 2013, More than 100 organizations sign transatlantic statement opposing dangerous investor "rights" chapter in CETA, http://www.canadians.org/media/eu-canada-trade-agreement-more-100-organizations-sign-transatlantic-statement-opposing
UNCTAD, 2013, World Investment Report 2013 Global value chains: investment and trade for development, http://unctad.org/en/PublicationsLibrary/wir2013_en.pdf page 110 Investor–State arbitration: options for reform
Public Citizen: http://www.citizen.org/investorcases