When the Democratic presidential candidates take the debate stage this October, they will almost surely face a question on trade. The question will be a routine one about cutting tariffs or the trade war with China. There is one question that will almost certainly not be asked — though it is a question that demands answers: Why have only three current candidates taken a stand against a trade policy that allows corporations to sue foreign governments for regulating them?
A Brief History of Investor-State Dispute Settlement
In 2013, the highest court in Ecuador found Chevron Corporation responsible for decades of mishandling toxic waste, causing extensive pollution of the Amazon rainforest and poisoning the water supplies of tens of thousands of Indigenous inhabitants.
Rather than pay the damages, the U.S. oil company sued — not through Ecuador’s justice system, but through an opaque parallel system accessible only to corporations.
Chevron won.
In a move widely condemned by Indigenous leaders and environmental groups, a tribunal of three corporate lawyers with questionable incentives overturned the decision of Ecuador’s sovereign courts.
This is the Investor-State Dispute Settlement (ISDS) system.
Built into many trade and investment agreements, ISDS empowers corporations to sue governments for actions that hurt their expected profits, including even legitimate environmental, labor and consumer protection regulations made in the public interest.
Earlier this year, more than 200 European organizations joined together to launch an alliance with two demands: No ISDS in new and replacement trade deals; and the removal of ISDS in existing investment deals.
In the United States, we must fight for the same.
ISDS mechanisms have existed in some form since the 1950s, but it was not until the rapid proliferation of trade agreements in the 1990s that ISDS became a frequent tool of corporate power. From a total of 50 cases in 30 years, ISDS use has mushroomed to well over 50 cases per year since 2011 — part of a larger trend of free-market fundamentalist globalization that has been widely condemned — now even by mainstream economists — as having primarily benefited corporations and the wealthy few at the expense of the many.
ISDS is no exception.
Using ISDS, investors have attacked policies on health, suing Australia for requiring plain, rather than branded, packaging of cigarettes; labor, suing Egypt for an increase in the minimum wage; financial stability, suing Argentina for interventions taken to stem inflation during its 2001 economic crisis; and environment, suing Canada for regulating fracking and Germany for delaying permits for coal-fired electric plants.
These cases, with serious implications for national welfare, are decided by unaccountable tribunals of corporate lawyers. Violating consensus standards of judicial impartiality, arbitrators do not have security of tenure, are hired and paid on a per-case basis, and, most egregiously, are free to rotate between acting as arbitrators and as counsel for clients.
ISDS proponents claim that the system is fair, citing the statistic that countries win more often than investors. This is simplistic. First, many cases are settled out of court, often resulting in hefty fees and the rollback of regulations. Second, the majority of country wins are jurisdictional, based on an initial question of whether or not the case can be tried. Once this hurdle is cleared, the statistics reverse. Most importantly, only corporations can sue under ISDS. Countries can never hope to “win,” only not to lose.
Even then, legal expenses average over $8 million per case. Facing such costs, governments are often frightened out of policymaking altogether — a well-documented effect known as “regulatory chilling.”
In theory, these costs are meant to be balanced by benefits. ISDS is meant to promote foreign investment by offering investors protection from unexpected policy change. The problem? There’s little evidence that it works. To the extent that investors do require protections, there are plenty of less harmful alternatives, such as domestic court systems, private risk insurance and state-state arbitration.
ISDS subordinates the public interest to the profits of foreign investors. Now, however, some countries are fighting back.
In 2016, El Salvador won an ISDS case against a mining corporation whose operations threatened the health and environment of local communities. As a result of an international solidarity campaign, El Salvador amended its investment law to prevent recourse to international tribunals and even imposed a blanket ban on metallic mining. South Africa, Indonesia, India and others have similarly begun renegotiating their trade and investment agreements to rid themselves of the ISDS yoke. And just recently, it was revealed that negotiators for what will be the world’s largest free trade agreement have taken ISDS completely off the table.
The United States must do its part to support this struggle.
It’s Time for Presidential Candidates to Challenge ISDS
Only three presidential candidates — Rep. Tulsi Gabbard, and Senators Bernie Sanders and Elizabeth Warren — have stated opposition to ISDS. Gabbard has called the policy “deeply flawed,” citing the case of a Canadian fossil fuel company that sued the United States for blocking the Keystone XL Pipeline on environmental grounds. Sanders, a longtime critic of corporate-friendly trade agreements, has said that ISDS “undermines democracy and allows multinational corporations to put corporate profits ahead of workers, the environment, public health and food safety.” During the debates over the Trans-Pacific Partnership, Warren wrote an op-ed condemning ISDS (albeit primarily in nationalistic terms). “If a final TPP agreement includes Investor-State Dispute Settlement,” she wrote, “the only winners will be multinational corporations.” Warren, Sanders, former presidential candidate Sen. Kirsten Gillibrand and others also sent an open letter to the Trump administration urging the removal of ISDS from the North American Free Trade Agreement. The remaining candidates, however, have been largely silent on the issue.
This must change. Leadership from the presidential candidates, combined with focused public pressure and the sustained efforts of grassroots organizations, can move ISDS out of the shadows and into the spotlight. All politicians must be held to the minimum standard of not selling out workers and the environment to multinational corporations.
The path to an alternative system of trade and investment — to a global economy that prioritizes people and planet over profits — begins by ending ISDS. Together, we can take the first step.
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