Now that Congress has given the President fast-track Trade Promotion
Authority, the first agreement to be considered under these rules (no
amendments allowed, up or down vote in 90 days) will be the
Trans-Pacific Partnership (TPP). As you know from previous columns,
one of the most worrying aspects of the TPP is its expansion of
investor-state dispute settlement (ISDS), wherein private firms can
bring their disputes with governments not to courts, but to
international arbitration (usually through units of the World Bank or
the United Nations), where legal precedent doesn't matter and appeal is
all but non-existent. Moreover, as the Consumers Union has long argued
(recent example here),
arbitration has a well-known pro-business bias. That's why so many of
your agreements with cable TV providers, financial services companies,
and many more have fine print requiring mandatory arbitration, keeping
you from getting your day in court if something goes wrong.
The response from the U.S. Trade Representative's
(USTR) office has been, "Not to worry! The United States has never lost
an ISDS case." The linked document goes on to claim that worldwide,
only 1/4 of corporate plaintiffs have won cases against governments. But
a new analysis
by the International Institute for Sustainable Development (IISD),*
using the same data source the USTR cites, comes to a very different
conclusion based on its most recent update, the 2015 World Investment Report
from the United Nations Conference on Trade and Development (UNCTAD).
Moreover, we can see that countries with even more trustworthy court
systems than that in the U.S. have lost ISDS cases. The Rule of Law Project,
an initiative of the American Bar Association, has ranked 102 countries
on the administration of justice and freedom from corruption, and puts
the United States at #19 with a score of 0.73. Yet #14 Canada (0.78) has
already lost ISDS cases, and both Canada and #10 Australia (0.80) are
currently on the hook for major new cases (Eli Lilly and Philip Morris,
respectively), that would overrule decisions by the countries'
respective Supreme Courts. So, even if governments have only lost 25% of
ISDS cases, it's unlikely U.S. luck will hold out indefinitely, if
countries with better court systems are losing.
But it's worse than that. UNCTAD's database of known ISDS cases and their outcomes shows that
in all cases decided through the end of 2014, the investor won 27% of
the cases compared to 36% won by the state (see Figure III.10, p. 116).
But another 26% of the cases are listed as "settled," which often (but
not always) means the respondent agrees to make some payment to the
plaintiff to keep the case from going to arbitration. Public Citizen has
a list of ISDS cases under prior U.S. trade agreements with examples of settlements that do and do not contain payments (see, for instance, NAFTA cases against Canada).
Moreover,
as IISD attorney Howard Mann argues, if we separate out cases between
jurisdictional determinations and determinations on the merits of the
case, things look even worse for states. While only 71 of 255 cases
(this excludes the "settled" cases) were concluded by a decision of the
tribunal having no jurisdiction, Mann points out that all 255 cases
effectively had decisions on jurisdiction, i.e., cases with final
decisions had to have rulings that the arbitrators had jurisdiction. In
that case, Mann says, "Investors, therefore, have won 72 per cent [184/255]
of jurisdictional determinations." And of the decisions on the merits of
the cases, investors won 111, or 60%, of the remaining 184 cases. This
calculation suggests that states are losing ISDS disputes at a much
higher rate than normally portrayed. As if that's not bad enough, the
new World Investment Report finds that in 2014, of the 15 ISDS cases decided on their merits, states lost 10 (2/3) of them. In 2013,
it was even worse for states, with investors winning 7 of the 8 cases
decided that year (p. 126). If these higher proportions continue,
obviously the proportion of investor victories will increase beyond the
current 60% total.
Bottom line: The threat to
regulation, democracy, and the rule of law posed by investor-state
dispute settlement is very real. The U.S. Trade Rep's reassurances that
the U.S. has never lost in ISDS don't even make it likely that will
continue into the future. We need to pressure Congress to vote down the TPP when negotiations conclude.
* Important disclosure: I have consulted for IISD several times since 2007 on investment incentive issues.
Cross-posted at Angry Bear.
