It is no secret that tobacco company Philip Morris is indifferent to the health of its customers, and has been for many decades. Back in 1953, when the carcinogenic nature of tobacco was first discovered, Morris and other industry giants decided that a full blown campaign of denial was necessary. They funded additional research to raise doubt on the science and posed dishonest questions to trick the public and media into believing the science was not quite proven. At the same time,
show that the tobacco industry was well aware of the scientific legitimacy of tobacco’s cancerous qualities.
So it shouldn’t come as a surprise that Philip Morris is currently suing the Australian government for enacting a law that requires all cigarettes to be plain packaged, which has been shown to reduce smoking in young people. Plain packaging requires health warnings to cover 75 percent of the packs front, with no branding except for the name of the cigarette. The tobacco industry has reacted in a predictable fashion, starting a multimillion dollar campaign against the law and suing the Australian government.
What is Philip Morris suing the government for? Are they arguing that plain packaging is ineffective or denying the link between branding and youth smoking? It wouldn’t be surprising, they’ve denied plenty of research before. But they are not suing the government for these reasons, they are suing for one thing and one thing only: profit.
Phillip Morris is using a popular instrument under public international law called an Investor-State Dispute Settlement (ISDS). This wonderfully pro-corporate mechanism was first introduced in 1959, in a trade agreement between Germany and Pakistan, and has since been implemented in thousands of trade and investment treaties around the world. It has become increasingly prominent since the 1990’s, and is a notable part of the North Atlantic Free Trade Agreement (NAFTA) of 1994.
Basically, this instrument allows foreign investors to sue governments through international law whenever the government passes a domestic law or new regulation that may hurt the companies profit rate. These regulations could be anything, from enforcing plain packaging of cigarettes to protecting the environment to even protecting the health of its citizens. The thinking behind this instrument was to encourage more foreign investment around the world; a sort of corporate insurance policy for political disruption.
Since the mid 90’s, however, the ISDS has been increasingly exploited by multi-national corporations to bully governments who are trying to protect their environment or people, like Australia. In the early nineties, there were hardly any ISDS cases filed; today there are nearly 60 cases filed annually and over 500 are currently in arbitration.
The ability of a corporation to sue a country with this instrument depends solely on what treaties their recognized governments have signed together. For example, while Philip Morris is an American company, they are using a 1993 trade agreement between Honk Kong and Australia which had an ISDS provision in it. To do this, Philip Morris had to rearrange its assets to become a Hong Kong investor because they could not sue under United States-Australia trade agreements. Now, Philip Morris Asia is suing Australia.
Another recent example comes between Germany and Sweden. After the Fukushima nuclear disaster in 2011, the German government, well known for its renewable energy programs, decided to shut down its nuclear power plants to focus on clean renewable, something that every government should be doing for the futures sake. Vattenfall, a Swedish utility company that had operated two nuclear plants in Germany, has sued for compensation through an ISDS provision.
This suit against Germany and many other countries has revealed the danger of this instrument that was created a half century ago. In Canada, after the Quebec government filed a moratorium on Hydraulic Fracturing for natural gas, Canadian energy company Lone Pine shifted its headquarters to the United States to sue its own country through the NAFTA agreement, which includes the ISDS provision. The United States and Canada had pushed for the ISDS to secure investments in politically unstable Mexico. This is not the first time Canadian government has been sued by corporations through NAFTA; they have lost seven out of nearly 20 cases, costing them at least $158 million to American companies.
ISDS cases notoriously lack transparency, and the handful of private industry lawyers who work on them are usually paid handsome rates of $700-1000 an hour. Three private attorneys are chosen for arbitration; one by the foreign investor, one by the government, and one by both parties. The investor or corporation has the right to select the rules and venue, such as the World Bank, International Chamber of Commerce, or the United Nations Commission on International Trade Law (UNCITRAL). Additionally, many of the selected attorneys alternate between positions of “suing” governments and “judging” cases, which critics argue is a major conflict of interest.
Eliminating Business Risks While Sanctioning Human Risk
While this provision was created in earnest to provide confidence among foreign investors and increase investment, over the past two decades it has become more of a free insurance policy for big corporations, paid for by taxpayers around the world. This legal instrument inhibits the power of sovereign democratic governments to pass laws and regulations for the safety and health of their citizens, clearly putting profit over people.
Foreign corporations have used the instrument, not only to demand compensation, but to bully governments into lifting regulations or laws. For example, The Renco Group, owned by U.S billionaire Ira Rennert, filed an ISDS against the government of Peru after they shut down a metal smelter in the town of La Oroya because the company had delayed environmental improvements. La Oroya has been listed as one of the most polluted towns in the world, which has proven harmful to its citizens, especially children. Renco has used the ISDS as a bargaining tool, and as of 2012 got the Peruvian government to allow the smelter to restart its zinc operations.
In a free market, there is a degree of risk whenever a company makes an investment, whether it be domestic or international. The ISDS is not only a free insurance policy for multi-national corporations, but a weapon to force governments into sacrificing their citizens.
And the two massive trade deals that everyone is talking about, The Trans Pacific Partnership (TPP) and the Transatlantic Trade And Investment Partnership (TTIP), are both expected to include ISDS provisions. The TPP includes countries such as United States, Canada, Chile, Australia, Peru, Vietnam, and Japan; about 40 percent of the worlds GDP. The TTIP makes up the United States and European Union countries, another huge part of the world economy. Predictably, Republicans and President Obama are pushing for the ISDS provision.
This shouldn’t comes as a surprise; 75 percent of recent cases have been brought by American and European companies, while a small country like Ecuador has been ordered to pay a fine of $2.3 billion to Houston based oil company Occidental Petroleum. This suit came about after the oil company violated its contract by selling a part of its oil exploration concession without the governments approval, resulting in a termination of the concession. They sued for compensation and won, even though they had violated their contract. Fellow South American country Venezuela was also ordered to pay $1.6 billion to everyones favorite fossil fuel company, Exxon Mobil, for nationalizing oil projects.
So why do countries accept trade deals with this blatantly pro-corporate mechanism? The argument goes that without this provision, there would be a serious lack of foreign investment. There may be some truth to this, but other cases show that it is quite exaggerated. Brazil, for example, has never agreed to a trade deal with ISDS provision, and they continue to receive plenty of foreign investment. Indeed, companies can always buy political-risk insurance, which insures investments against future laws or regulations that could effect business. This is a much more reasonable policy than allowing corporations to sue sovereign nations whenever they enforce a rule for the benefit of their people.
Private corporations should not have the option of suing a nation whenever they feel like a rule or law has effected their profit rate. This is simply a part of doing business; an inherent aspect of capitalism. Investing is never risk-free; there are natural, social, and political changes that could always hurt an investment. More importantly, when a company’s product is hurting people or the environment, government has the right and obligation to stop it.
The ISDS instrument has proven to be detrimental to people and their governments around the world, especially for smaller countries with little political power. Imagine if a giant corporation had been able to successfully sue the American government for lost profits after passing the Food and Drug Act. It is simply absurd. The Investor-State dispute settlement it not good for the people, and despite what Obama thinks, putting it in future trade deals is NOT the right thing to do.
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