by Lori Wallach, Director of Rethink Trade & Daniel Rangel, Research Director of Rethink Trade.
The president’s extended national Bidenomics tour touted the administration’s break with “neoliberal” policies and the resulting increase in wages, manufacturing jobs, and infrastructure investment. That fête should extend through the month: On July 1, the United States also celebrated an important rollback of one of the most controversial aspects of the hyperglobalization era, the investor-state dispute settlement (ISDS) regime.
ISDS elevates multinational corporations and foreign investors to equal status with national governments, empowering them to skirt domestic courts and sue governments before panels of three corporate lawyers to enforce special privileges and rights included in trade and investment agreements. The lawyers can award corporations unlimited sums to be paid by a country’s taxpayers — including for the loss of expected future profits.
Foreign corporations need only convince the tribunals of lawyers that a country’s environmental law, judicial decision or safety regulation violates their extraordinary investor rights. The tribunals’ decisions are not subject to appeal and the amount awarded has no limit. After ISDS attacks on critical environmental, energy, health and even racial justice policies, countries have either paid corporations hundreds of millions in taxpayer funds or rolled back public interest policies.
Shamefully, it was the U.S. government that was one of the world’s major pushers of ISDS, including by inserting it into the 1994 North American Free Trade Agreement (NAFTA) and then other free trade pacts.
Almost 30 years later, more than $859 million in compensation has been granted to corporations in NAFTA ISDS attacks on oil, gas, water and timber policies, toxics bans, health and safety measures, and more. This does not include demanded compensation in pending claims, such as the Keystone XL case against the United States through which a Canadian corporation currently seeks $15 billion from U.S. taxpayers over the revocation of a permit to build an oil pipeline across North America.
As the record of outrageous ISDS rulings grew and as the United States faced investor challenges that infuriated members of Congress and state and local officials, more scrutiny was focused on the obscure process few originally even realized was embedded in a dozen U.S. trade pacts.
The fight came to a head during the Obama Administration, which was pushing for a massive expansion of ISDS through the Trans-Pacific Partnership (TPP) and the Trans-Atlantic Trade and Investment Partnership (TTIP). The two pacts would have empowered tens of thousands of new foreign investors to challenge U.S. policies and demand taxpayer compensation, while also enabling U.S. investors’ ISDS challenges against dozens of countries.
Opposition to ISDS was a major factor for the Obama Administration’s failure to garner a congressional majority for the TPP in the year after it was signed in 2015. The TTIP was sunk by ISDS opposition in Germany, which had been a major ISDS proponent until being faced with billions in claims in two cases filed by Swedish energy firm Vattenfall over improved coal-fired electric standards and phase-outs of nuclear power.
Associations of U.S. local and state government officials voiced their opposition to ISDS, including the U.S. National Conference of State Legislatures (NCSL), representing the mainly Republican-controlled U.S. state legislative bodies: “NCSL will not support Bilateral Investment Treaties (BITs) or Free Trade Agreements (FTAs) with investment chapters that provide greater substantive or procedural rights to foreign companies than U.S. companies enjoy under the U.S. Constitution. Specifically, NCSL will not support any BIT or FTA that provides for investor/state dispute resolution.”
The 2018 renegotiation of NAFTA provided the opportunity to begin the U.S. extraction from ISDS liability. Eliminating ISDS has long been a priority demand of congressional Democrats lawmakers while then-U.S. Trade Representative Robert Lighthizer opposed ISDS for subsidizing the offshoring of U.S. manufacturing jobs and undermining national sovereignty.
The result was NAFTA’s ISDS was altogether phased out over three years between the U.S. and Canada and its scope and reach drastically reduced with Mexico, as part of the July 1, 2020 U.S.-Mexico-Canada Agreement (USMCA) that replaced NAFTA.
Much of the world has turned against the ISDS regime as attacks against domestic public interest policies mounted and econometric studies found no proof that countries’ exposing themselves to ISDS liability gained more foreign direct investment.
Numerous countries, starting with South Africa and now including Bolivia, the Czech Republic, Ecuador, India, Indonesia, and Poland terminated their ISDS-enforced agreements or otherwise reduced their ISDS liability. Brazil refused to enter into such agreements in the first instance.
In 2020, 23 EU countries adopted a multilateral treaty to terminate all ISDS treaties among them. And 11 of them, including Germany, France, the Netherlands and other countries that had previously joined the United States in pushing ISDS worldwide, announced their exit from the ISDS-enforced Energy Charter Treaty (ECT) after ISDS attacks on green energy policies. As a matter of fact, last month the European Commission announced the EU’s coordinated exit from the ETC.
As a candidate, now-President, Joe Biden committed to excluding ISDS from any commercial agreement he negotiated if elected. We urge President Biden to be more ambitious.
Soon, talks are expected to start for an Americas Partnership for Economic Prosperity (APEP), a forum Biden launched at the June 2022 Summit of the Americas. The United States should use the APEP process to partner with its neighbors to free the hemisphere of ISDS.
With U.S. leadership, APEP could provide the participating countries, Barbados, Canada, Chile, Colombia, Costa Rica, the Dominican Republic, Ecuador, Mexico, Panama, Peru, Uruguay, and the United States a path to liberty from ISDS.
All but two of these countries (Barbados and Canada) have an agreement in force with the United States that includes ISDS. Plus, many have additional investment agreements with ISDS in effect between them. This thicket of deals exposes the countries to multimillion-dollar corporate attacks on public interest policies for a just energy transition and the creation of resilient public health systems that are in the interest of all people in the hemisphere. Recently elected leaders of APEP countries, such as Gabriel Borich in Chile and Gustavo Petro in Colombia, have also expressed opposition to ISDS.
A U.S.-led ISDS exit via APEP would be a true win-win. The U.S. acting in cooperation with its allies would achieve an outcome beneficial to all and strengthen its ties in the hemisphere in doing so. It would be extremely difficult for Biden officials to find a similar opportunity in any other trade negotiation.
