ISDS: the worst part of the TPP

TPP-investor-state-dispute-settlement-what-now-524-Sm-color-72-dpi-Source: What Now Cartoons.

Negotiations for the proposed Trans-Pacific Partnership agreement are essentially negotiations concerning business interests.  They reportedly are running into trouble on disagreements about dairy and auto parts imports and drug patents.

But from the standpoint of ordinary citizens, the most odious part of the TPP — and its sister proposals, the Transatlantic Trade and Investment Partnership agreement (aka TAFTA) and the Trade in Services Agreement — are the Investor-State Dispute Settlement provisions that allow an un-elected tribunal to penalize governments for enacting laws to protect the health and welfare of their citizens, if such laws unfairly deprive foreign corporations of expected profits.

Not compensation for actual losses, but compensation for hypothetical losses.

A letter signed by more than 100 legal scholars and former judges sums up the problem.

ISDS grants foreign corporations a special legal privilege, the right to initiate dispute settlement proceedings against a government for actions that allegedly cause a loss of profit for the corporation. 

Essentially, corporations use ISDS to challenge government policies, actions, or decisions that they allege reduce the value of their investments.  These challenges are not heard in a normal court but instead before a tribunal of private lawyers.

This practice threatens domestic sovereignty and weakens the rule of law by giving corporations special legal rights, allowing them to ignore domestic courts, and subjecting the United States to extrajudicial private arbitration.

Corporations are able to re-litigate cases they have already lost in domestic courts.  Further, they are able to do so in a private system lacking procedural protections.  As more multi-national corporations are based outside of the U.S., more such challenges will be brought against the U.S.

ISDS proceedings lack many of the basic protections and procedures of the justice system normally available in a court of law. 

There is no appeals process.  There is no oversight or accountability of the private lawyers who serve as arbitrators, many of whom rotate between being arbitrators and bringing cases for corporations against governments.

The system is also a one-way ratchet because corporations can sue, forcing governments to spend significant resources, while governments impacted by foreign corporations cannot bring any claims.

In recent years, corporations have challenged environmental, health, and safety regulations, including decisions on plain packaging rules for cigarettes, toxics bans, natural resource policies, health and safety measures, and denials of permits for toxic waste dumps. Hundreds of cases have been filed against approximately 100 governments over the past few years.

ISDS threatens domestic sovereignty by empowering foreign corporations to bypass domestic court systems and privately enforce terms of a trade agreement.  It weakens the rule of law by removing the procedural protections of the justice system and  using an unaccountable, unreviewable system of adjudication.

Source: AFJ | Alliance for Justice


It is true that the ISDS panels would not have authority to directly over-ride national laws and regulations, but only to force governments to compensate them for alleged damages.  So the authority of a government to protect its citizens depends upon its ability to pay tribute to foreign corporations.

It also is the case that the ISDS authority in previous trade agreements has been little used until recently, and mainly against poor, weak countries rather than rich, strong countries.  I don’t think this makes it right.  In any case, we Americans would be very naive if we thought executives of international corporations thought any more of us than they do Argentinians, Venezuelans or Czechs.

The proposed ISDS protects the right of corporations to profit at the expense of all other rights.  There is no international panel to which citizens can appeal laws and regulations that give corporations unfair advantages by allowing them to abuse workers, undermine public health or destroy the environment.


A Major Threat to the U.S.: Investor-State Dispute Settlements by Margaret Elkis for Economy in Crisis: America’s Economic Report.

People are freaking out about the Trans Pacific Partnership’s investor dispute settlement system.  Why should you care? an interview of Rachel Wellhausen of the University of Texas at Austin, a specialist on investor treaties, by Henry Farrell of the Washington Post.  She makes a case for ISDS.

The Trans-Pacific Free Trade Charade by Joseph Stiglitz and Adam S. Hersh for Project Syndicate.

The United States of TTIP: A Big Business Constitution for Europe by Nick Dearden for Common Dreams.

Forget the TPP: Wikileaks Releases Documents From the Equally Shady “Trade in Services Agreement” by Tyler Durden for ZeroHedge.

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