Senator Elizabeth Warren has noted that ISDS is a policy in the new TPP, and she, other lawmakers, environmentalists and human right activists object to ISDS for good reasons.
The full name of Investor-State Dispute Settlement sounds like a harmless process to settle disputes between a foreign government and a corporation that invests in that country. If the host country "violates" rights granted to the corporation under a trade agreement, then the investor may bring the matter before an "arbitration tribunal."
The U.S. is proud of our democracy and the rule of law so it is curious that this ISDS basically operates in direct opposition to our rule of law whenever possible.
Joseph E. Stiglitz (and other distinguished professors and former judges and justices) wrote a letter to Congressional leaders to state their opposition to ISDS based on impacts to our rule of law. The ISDS is a new legal system for only foreign investor/corporations, it is not available to "nations, domestic investors, or civil society groups alleging violations of treaty obligations." ISDS panels do not have to follow legal precedent and its decisions cannot be appealed to a court. The ISDS arbitrators are not public servants, but "highly paid corporate lawyers [who] go back and forth between representing corporations one day and sitting in judgment the next" in secret proceedings. Supporters of ISDS counter that arbitrations are generally confidential in order to foster resolution of disputes; however, this ignores that typical arbitration is between two parties of a dispute while ISDS affects the general public.
ISDS gives foreign investors an exemption from the rules of law and our judicial system. Foreign investors can skip courts and take their issues to a private tribunal to argue that government actions have de-valued their investments.
"Under investor-state, if a regulation gets in the way of a foreign investor’s ability to profit from its investment, the investor can sue a country for monetary damages based on both alleged lost profits and 'expected future profits.'There are no monetary limits to the potential award."
As noted by Senator Warren, these "corporate courts" are on the rise around the globe
. From 1959 to 2002, there were fewer than 100 ISDS claims worldwide. But in 2012 alone, there were 58 cases."
While ISDS tribunals are not based on precedent, prior cases are a good example of how ISDS can prevent effective actions to address climate change and climate justice, protect environmental resources and protect our health and safety. ISDS allows corporations to bully nations and people into changing or watering down policies in order to prevent ISDS actions. An investor/corporation claim or even the threat or concern about a claim can inhibit governments from passing effective measures to address matters of public concern that should be handled by government.
ISDS actions have changed laws that enacted bans to protect the people.
In a NAFTA ISDS proceeding, Ethyl Corporation sought $251 million against Canada because it implemented a ban on the import and transport of a toxic gasoline additive. Ethyl Corp. claimed "losses resulting from the 'expropriation' of both its MMT production plant and its 'good reputation.'" Canada settled the lawsuit for $13 million in legal fees and damages and revoked the ban on the toxic additive.
This ISDS lawsuit raises some issues for DC to consider:
The Ethyl case could set a precedent where, under NAFTA and similar agreements, a government would have to compensate investors when it wishes to regulate them or their products for public health or environmental reasons.
Can governments change their energy policies without having to pay the corporate bullies?
The threat of suits like Ethyl's can be used to intimidate lawmakers who are considering new regulations.
The Ethyl case demonstrates how domestic courts can be bypassed for international tribunals.
The Ethyl case points to the possibility that corporations could drain state treasuries. …
A company sued Canada for passing a ban on fracking:
Previous trade deals have, in fact, led to lawsuits over fossil fuels. An American mining company, Lone Pine Resources, sued the Canadian province of Quebec in 2013 for passing a ban on fracking. The company says the ban cost them $250 million and that under the North American Free Trade Agreement (NAFTA), Quebec is liable for the lost revenue. That lawsuit is ongoing.
Another company sued Germany for phrasing out nuclear power plants:
After the nuclear disaster in Fukushima, Germany decided to phase out nuclear power, which would cause financial loss to the Swedish company's "lost investments in nuclear power plants." …It was "unclear what additional costs the company may wish to add on to its claim (missed future profits, legal fees, interest, etc.)."
This Swedish lawsuit caused Germany to change its mind about ISDS
believing that investors have sufficient legal protections in the existing court system. Brazil has refused to sign treaties with ISDS and "Other countries are beginning to follow Brazil’s lead:
South Africa says it will withdraw from treaties with ISDS clauses and India is considering doing the same. Indonesia plans to let such treaties lapse when they come up for renewal."
ISDS tribunal even suspended enforcement of a court judgment.
There is the egregious case of pollution and contamination in the Ecuadorian Amazon that some call the "Rainforest Chernobyl" where indigenous people "suffered an epidemic of cancer and other illness" from the dumping of poisonous waste on land and surface waters. In 2012, an Ecuadorian court awarded $18.2 billion judgement against Chevron: "Chevron could have cut its liability by $8.5 billion if it had agreed to apologize for its actions, but the company refused to do so."
The most brazen action by the Chevron tribunal in February was issuing an injunction ordering the president, the parliament and the courts of Ecuador to suspend enforcement of the court judgment against the oil company in any court, foreign or domestic. Rather than simply seeking money damages as BITs unfortunately clearly authorize, multinational investors around the world are asking investment tribunals to issue injunctions even on questions of public policy. This would amount to a breathtaking aggregation of power by the tribunals."
In a case similar to the XL Pipeline, Canada loses an ISDS action based on its rejecting a mining project based on an environmental assessment concluding damages could not be mitigated in important environmental and cultural resource.
This decision just last March may now leave Canadian "taxpayers … on the hook for up to $300 million in “damages” to the mining company. The private trade tribunal determined that Canada violated NAFTA because it followed its law on environmental impact assessment that led Canada to reject a "company’s controversial mining project."
A U.S. mining company (Bilcon) wanted to blast rock used for construction in Nova Scotia and ship it to the U.S. The extraction site was the Bay of Fundy. In accordance with Canadian law, and similar to U.S. law, an environmental impact assessment was conducted. The environmental assessment found that blasting from the quarry would be too destructive and could not be mitigated. It could threaten several marine species, including an endangered whale. Commercial fishers feared negative impacts on fish habitats and indigenous communities were concerned about "degradation of traditional hunting areas." The government relied upon this assessment to reject the mining proposal, "citing the project’s unacceptable risk to the environment and the community."
This is the winning theory by the U.S. mining company: Bilcon argued that it was "'forced into the most expansive, expensive and time-consuming environmental assessment,' and that Nova Scotia’s recommended rejection was based on 'non-legal documents and concepts.'" That is, the environmental assessment concluded that the mining project would harm and/or threaten "community core values."
Two of the three trade lawyers in the corporate tribunal held for Bilcon because basing a decision on "community core values" was arbitrary and "frustrated Bilcon's expectations about how the approval decision would be made."
The third trade lawyer in the tribunal disagreed, finding the decision a "a remarkable step backwards in environmental protection." This lawyer stated two harmful consequences of this ruling:
First, it challenged governments’ ability to implement environmental safeguards in a way that takes into account impacts on a community, their values, and their will.
The U.S. has not yet lost an ISDS action, but that could change if TransCanada files an action against the U.S. should President Obama reject the $8 billion XL Pipeline.
…Second, McRae called this ruling a “significant intrusion into domestic jurisdiction,” because two ISDS lawyers (unaccountable to any domestic legal system) interpreted Canadian law and deemed the conclusions of a government-appointed environmental review panel as contrary to that law, and now will order Canada to compensate Bilcon even though no such right to compensation exists under Canadian law.
TransCanada CEO Russ Girling, a former Canadian ambassador and former Canadian Prime Minister have raised the possibility that TC will take the U.S. to the NAFTA
Like the mining case in Canada, the XL pipeline was subjected to environmental assessments and public input, which is considered in the ultimate decision to reject or approve.
It seems likely that if TC files a claim it will be based on a claim of unreasonable delay and differential treatment.
At the heart of it, NAFTA mandates that member countries cannot discriminate against foreign energy companies.
This means that a Canadian energy company is legally allowed the same opportunities as American companies operating in the U.S. Since we’ve allowed our oil companies to construct pipelines, it would be illegal, in most circumstances, to deny that same privilege to TransCanada.
A recent Congressional Research Service report on the XL Pipeline noted how "[e]nergy products have been traded freely back and forth between the two countries under the North American Free Trade Agreement (NAFTA) and energy transportation infrastructure generally has been constructed as needed with little fanfare
." Often cited is how TC's other Keystone pipeline obtained a permit in 2008 after "less than two years of review" by the Bush administration. TC's CEO Girling stated that his "view is that this pipeline looks no different than other pipelines that have been approved
[and] continue to be approved in the United States.” The Canadian officials view the "six-year-long delay in the administration’s Keystone decision as stepping on NAFTA’s goal of unrestricted energy trade between the U.S. and its northern neighbor."
"Administration officials involved in reviewing the proposed Canada-to-Texas pipeline are aware of the potential for a NAFTA challenge and the importance of minimizing that risk in the event the president rejects Keystone." Some GOP lawmakers, like Sen. John Hoeven, believe "Canada is entitled to move forward" with a NAFTA challenge "if the GOP Congress can’t win the project’s approval." If an action is filed and Canada wins an $8 billion judgment against U.S. for taxpayers to pay, the GOP will be cheering.
So how does the world address climate change/justice? Effective action means global action. But how many governments have received the message of investor tribunals to avoid policies unfavorable to corporate interests? Or adopt watered-down policies to avoid having to pay millions in damages to corporation profits?
Senator Sherrod Brown summed it up nicely:
State, local, and federal governments shouldn’t have to be looking over their shoulder every time they decide to pass a public health measure, or deny a permit for environmental reasons. The mere threat of costly litigation can impose a chilling effect on efforts – in the U.S. and among TPP countries – on passing laws or finalizing regulations that may be challenged under ISDS.