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Debunking USTR Public Affairs’ Memo on Investor-State Dispute Resolution

Public Citizen | March 22, 2015

Debunking USTR Public Affairs’ Memo on Investor-State Dispute Resolution

Investor-State Dispute Resolution:
Debunking USTR Public Affairs’ 3/11/15 Q&A Memo to Reporters

Below please find helpful questions and answers on investor-state dispute settlement (ISDS) that pertain directly to incorrect claims being made by the Office of the U.S. Trade Representative (USTR). For a more detailed unpacking of USTR’s common claims about the ISDS system, please visit this detailed fact sheet.

Q: Does ISDS tilt the playing field in the United States further in favor of big multinational corporations?
 USTR: No. ISDS allows for neutral and transparent enforcement of a limited and clearly specified set of basic rights and protections already offered to U.S. and foreign investors alike under U.S. law.
 FACT: Yes. ISDS provides foreign firms alone substantive and procedural rights not available to domestic firms under U.S. law. Under ISDS, only foreign firms are empowered to claim that domestic policies created by Congress and state legislatures and upheld by domestic courts violate their special investor rights and privileges that are granted in ISDS agreements. Only foreign investors can demand taxpayer compensation for the profits that they project could be lost from complying with the same laws that also apply to U.S. firms. Only foreign firms can bring such claims to closed-door tribunals staffed by private sector attorneys, many of whom rotate between serving as “judges” and representing corporations in ISDS cases against governments – an obvious conflict of interest. Neither domestic firms nor governments can sue foreign investors in these tribunals. Governments must pursue cases concerning foreign investors’ environmental violations, tax cheating or other bad acts in domestic courts.

Q: Does ISDS grant corporations the right to initiate dispute settlement proceedings based on claims of lost profits?
 USTR: No. Our investment rules do not in any way guarantee a firm’s rights to any profits or to its projected financial outcomes. Rather, they only provide protections for a limited and clearly specified set of basic rights – like non-discrimination and compensation in the event of an expropriation – that are already consistent with U.S. law. Our investment rules seek to promote standards of fairness, not protect profits.
 FACT: Opponents of ISDS do not claim a foreign corporation can initiate an ISDS case simply because a firm lost profits. But, when a corporation convinces an ISDS tribunal that a domestic law violated one of the panoply of foreign investor rights granted in an ISDS agreement that are not available to domestic firms, then the payment demanded from a government is calculated on the “expected future profits” that the law allegedly impeded. Under such logic, tribunals have ordered governments to pay more than $3.6 billion to foreign corporations under U.S. “free trade” agreements (FTAs) and bilateral investment treaties (BITs) for nondiscriminatory toxics bans, land-use rules, regulatory permits, water and timber policies and more. Meanwhile, in the 20 pending claims under U.S. FTAs alone, foreign firms are demanding more than $38 billion for environmental, energy, financial regulation, public health, land-use and transportation policies. Due to ISDS tribunals’ increasingly wide interpretations of foreign firms’ rights and increasingly investor-friendly damages calculations, the amounts that tribunals have ordered governments to pay foreign corporations have soared. While just 15 years ago tribunals typically ordered payment of millions of dollars in a given ISDS case, today it is not uncommon for a single lost case to cost a government hundreds of millions of dollars. See pending claims:

And, the foreign investor rights and privileges granted in ISDS agreements are not limited or clearly specified. Even as written, the substantive rights provided in ISDS agreements are not limited to non-discrimination, due process and compensation for expropriation of property – the rights available under U.S. law. One additional right not found in U.S. law is a guaranteed “minimum standard of treatment” that ISDS tribunals have interpreted to mean that investors must be compensated for nondiscriminatory changes to laws of general application that occur after an investment is established. There is no right to compensation in U.S. law merely because a government policy changes after the establishment of an investment in a way that may affect a business operating here. ISDS rules also require compensation for “indirect expropriation” for a wide category of property interests not subject to indirect expropriation compensation in U.S. law. Unlike direct expropriation, claims of indirect expropriation do not require that the government take ownership or control of the investment, and often involve demands of compensation for nondiscriminatory government regulations that affect the value of an investment. Under U.S. law, the right for property holders to obtain compensation for such “regulatory takings” is extremely limited. And the structure of the ISDS system, where there is no system of precedent or opportunity to appeal the merits of a decision, fosters enormous discretion for tribunalists to fabricate expansive new obligations for governments from the agreements’ elastic and vague language. See "minimum standard of treatment" memo:

Q: Does ISDS undermine U.S. sovereignty, giving companies the right to challenge U.S. laws, or to weaken labor or environmental standards?
 USTR: No. ISDS does not threaten domestic sovereignty, it is an exercise of sovereignty to resolve international disputes. States fully retain their sovereignty, regardless of ISDS, including to impose any measure they wish (whether to protect labor rights, the environment, or other public welfare objectives). That cannot be changed by an arbitration. ISDS strengthens rule of law by creating incentives to ensure that basic due process and rights are being recognized.
 FACT: Countries can impose any policy they wish, but thanks to ISDS, a government may have to pay hundreds of millions of dollars to a foreign investor that objects to such policies. Germany now faces a claim from a Swedish energy firm, reported to exceed $4 billion, against Germany’s decision to phase out nuclear power after the 2011 Fukushima nuclear disaster. Australia faces a claim from Phillip Morris “potentially amounting to billions of dollars,” according to the firm, for new public health tobacco regulation. Canada faces a half-billion-dollar claim from Eli Lilly and Company for using a legal patent standard that requires pharmaceutical companies to demonstrate or soundly predict the utility of their drugs, and a quarter-billion-dollar claim from Lone Pine Resources for a moratorium on natural gas fracking. Opponents of ISDS do not claim that ISDS rulings can overturn domestic laws. However, the mere filing of an ISDS case often chills the establishment of a policy in question, or leads to its rollback as part of a “settlement.” Canada did not only pay Ethyl Corporation $13 million in a settlement resulting from the firm’s NAFTA ISDS case against Canada’s ban on a toxic gasoline additive that is also banned from U.S. reformulated gasoline – Canada also lifted the ban. In 1994 when Canada’s Parliament started to consider the enactment of plain packaging policies for cigarettes to curb smoking – similar to the policies that Philip Morris is now targeting in ISDS cases against Australia and Uruguay – the tobacco industry responded by threatening a NAFTA investor-state case in an attempt to forestall the regulation. The Parliament never acted on the plain packaging plan, and analysts credited the NAFTA ISDS threat for helping to bury the proposed public health measure. Indeed, as noted in a recent pro-ISDS law review article, “The power to regulate operates within the limits of rights conferred upon the investor….” See memo on Investor-State Disputes AND pro-ISDS article here:

Q: But isn’t ISDS outside domestic judicial systems?
 USTR: All dispute settlement under trade agreements is done through international dispute resolution mechanisms because they inherently involve parties of different nationalities. This includes enforcement of commercial provisions as well as labor and environmental provisions.
 FACT: Yes. ISDS allows foreign firms to “sue” the U.S. government outside of Article III courts to demand compensation from the U.S. Treasury. ISDSelevates individual foreign corporations and investors to equal status with a sovereign nation’s government to privately enforce the terms of a public treaty by skirting domestic courts and directly “suing” signatory governments for compensation in foreign extrajudicial tribunals over domestic policies and even domestic court rulings. It is true that the commercial, labor and environmental provisions of trade agreements can be enforced through government-government dispute resolution, and this regime has also been criticized because it allows foreign trade officials to second guess U.S. laws. However, government-government dispute resolution does not grant any individual investor, corporation, labor union, or interested private party the ability to sue a government outside of its domestic court system.

Q: Does ISDS shift power from American courts?
 USTR: No. On the contrary, American courts are extremely busy handling cases filed by individuals and corporations against the U.S. government, including cases brought by foreign investors. In the same time period that there have been only 17 ISDS cases brought against the United States, there have been hundreds of thousands of cases brought against the federal government and state and local governments in U.S. courts.
 FACT: Yes. U.S. courts’ robust caseload does not negate the basic reality of ISDS: it provides foreign investors alone access to non-U.S. courts to pursue claims against the U.S. government on the basis of broader substantive rights than U.S. firms are afforded under U.S. law and the jurisprudence of the U.S. Supreme Court. If the U.S. government enacted new automobile safety standards and automakers believed that the rules were unfair, U.S. companies could take their claims to the U.S. court system. Foreign automakers could turn to U.S. courts also. And what the U.S. courts determined would be the law of the land. Except if the Trans-Pacific Partnership (TPP) were to go into effect with ISDS, Japanese automakers with plants in the United States, like Honda, Toyota and Nissan, would be granted additional recourse to ISDS arbitration panels. There tribunals that are entirely outside of the U.S. legal structure could second-guess U.S. courts’ interpretations of U.S. law and demand the U.S. government pay compensation to these foreign firms for policies validated by U.S. courts.

Indeed, time and again, foreign corporations have used ISDS under U.S. pacts to undermine the deliberations and decisions of domestic courts. For instance, when a Mississippi state court jury ruled against the Loewen Group, a Canadian funeral home conglomerate, in a private contract dispute with a local funeral home, Loewen launched an ISDS claim against the United States under NAFTA. Loewen demanded $725 million, claiming that the trial-by-jury system, and the requirement common to U.S. federal and state courts that a party must post a bond when appealing a case involving a damages award, violated the company’s investor rights under NAFTA. The tribunal explicitly ruled that court decisions, rules and procedures were government “measures” subject to challenge and review under the ISDS regime. The ruling made clear that foreign corporations that lose tort cases in the United States can ask ISDS tribunals to second-guess the domestic decisions and to shift the cost of their court damages to U.S. taxpayers. On the merits, the tribunal agreed with some of Loewen’s claims. Luckily for the U.S. government, Loewen’s lawyers filed for reincorporation as a U.S. firm under bankruptcy protection, thus destroying Loewen’s foreign investor status, and the case was dismissed. See:

Currently, Canadian courts’ rulings on patent issues are being challenged by Eli Lilly in an ISDS case under NAFTA. And after Australia’s highest court ruled against Philip Morris in a lawsuit claiming that the country’s cigarette plain packing public health law violated its property rights, the corporation proceeded with an ISDS case against Australia to seek a different outcome. That case remains pending. And in response to Chevron Corporation’s ISDS demand under the U.S.-Ecuador BIT that the government of Ecuador reimburse the firm for damages it was ordered to pay by a domestic court for toxic contamination in the Amazon, the ISDS tribunal reversed Ecuador’s highest court’s interpretation of the country’s constitution. See:

Q: What transparency and procedural protections are part of ISDS?
 USTR: U.S. investment agreements contain (1) detailed transparency provisions, (2) limitations and conditions on the consent of the respondent to arbitrate, (3) provisions to ensure the independence and impartiality of arbitral tribunals, (4) mechanisms to ensure that unmeritorious claims can be dismissed on grounds similar to those in the Federal Rules of Procedures, and (5) numerous other procedural protections detailed in our recent blog posts. The transparency provisions and procedural protections in our agreements afford respondent governments and interested members of the public the ability to monitor the progress of ISDS proceedings in a way that they could not if the claims were filed in many countries’ domestic court systems. Investment arbitration hearings under recent U.S. trade and investment agreements, as well as all key documents submitted to investor-state tribunals and tribunal decisions, are public and available on the State Department website. Recent U.S. trade and investment agreements also give NGOs and other non-parties to a dispute the ability to participate by filing amicus curiae or “friend of the court” submissions, similar to non-parties’ ability to make filings in U.S. courts.
 FACT: Actually, past U.S. agreements do not contain some of the terms claimed by USTR. Nor did the leaked TPP investment text. Who knows what will be in the final TPP text - because it is secret. But even if these terms were included transparency is a necessary, but not sufficient, condition for reining in ISDS tribunals’ ability to fabricate new obligations for governments to compensate foreign investors attacking common domestic policies. As investor-state documents have become more publicly available, tribunals have not indicated greater hesitance to use overreaching interpretations of investors’ rights. That is because the very structure of ISDS, with no system of precedent or outside appeal, continues to grant tribunals wide discretion to concoct such interpretations. And while it is important for public interest groups to be able to submit amicus briefs in ISDS cases, they will be inadequate to halt the threat that those cases pose to public interest policies, given the structural incentive and ability for ISDS tribunalists to simply ignore submissions that call for greater policy space. Indeed, these structural problems permit tribunalists to ignore the submissions of the sovereign governments whose agreements they are ostensibly interpreting. The RDC case under CAFTA is a recent example: the U.S. , Salvadoran and Honduran governments all joined Guatemala in making formal submission that the tribunal simply dismissed.

Q: Is the use of ISDS on the rise?
 USTR: Not under U.S. agreements. In fact, fewer ISDS cases have been reported under U.S. agreements in recent years than in previous years despite the fact that there are more agreements that have ISDS and ever-growing volumes of cross-border investment. The peak number of cases under U.S. agreements occurred more than a decade ago. Last year there were only 3 cases, brought against any country by any party under any U.S. agreement, none of which were against the United States. That is the lowest number of ISDS cases since the mid-1990s.
 FACT: Yes. The number of ISDS cases brought under all U.S. FTAs that have either reached a decision or are still pending has been rising. In the last four years, there were 4.5 such cases launched on average each year. In the previous four years, the average annual number of new cases was 3.5. In each of the three four-year periods before that, it was less than three new cases per year. These figures do not count ISDS claims where arbitration never actually began or where the case was withdrawn. USTR appears to be counting such spurious claims to misleadingly assert that “the peak number of cases under U.S. agreements occurred more than a decade ago.” And globally, the number of ISDS cases has been surging. While no more than 50 total ISDS cases were launched in the first three decades of the ISDS regime combined, at least 50 cases were launched each year from 2011 through 2013 (the full data for 2014 is not yet in). And new ISDS cases increasingly have been targeting developed countries. A recent UN report concludes, “the relative share of cases against developed countries has been on the rise.” See: AND

Q: Have American taxpayers been required to pay millions or even billions of dollars in damages as a result of ISDS?
 USTR: No. ISDS is part of dozens of international agreements that the United States currently has in place. In the three decades that the United States has had ISDS, only 13 cases have been brought to conclusion – and the United States has won all of these cases.
 FACT: The United States has not lost an ISDS case because our past ISDS-enforced agreements have been almost exclusively with developing countries with few investments here. The exception in Canada under NAFTA, and all 13 of the concluded ISDS cases challenging U.S. policies were initiated by Canadian investors. The United States has already nearly lost ISDS cases to Canadian firms and we only dodged the ISDS bullet because cases were dismissed on narrow procedural grounds. And even when governments win cases, they are often ordered to pay for a share of the tribunal’s costs plus their own legal fees – these expenses average $8 million per case.

But the U.S. ISDS track record thus far says little about the ISDS liability that the United States would face if the TPP or Transatlantic Trade and Investment Partnership (TTIP) were to take effect with ISDS included. More than 33,000 firms in the United States with parent corporations in the EU (24,258 firms) or TPP countries (8,942 firms) would be newly empowered to launch ISDS claims against the U.S. government. If TPP and TTIP empower tens of thousands of addition foreign firms to attack our policies, U.S. laws and taxpayers will be exposed to an unprecedented degree of new ISDS liability. In addition, a recent study conducted by Columbia University’s Center on Sustainable Investment found that decisions by ISDS tribunals in 2014 increase the U.S. government’s ISDS liability and decrease the likelihood that we can continue to dodge the ISDS bullet: “The US did not lose a case, but did lose on important issues which not only resulted in the US having to bear certain costs of litigation, but which will likely have the effect of increasing future investment claims against the country.”

Q: But don’t state and local governments have to expend significant resources defending their policies in ISDS?
 USTR: No. In any dispute arising out of a trade agreement, the Federal government defends the United States, even if the disputes relate to state or local issues.
 FACT: Yes. When state policies are attacked, state attorneys general (AG) offices spend millions of dollars in staff hours helping to defend against the ISDS attacks. Even in the rare instance when a tribunal orders a corporation to pay a government’s legal costs, the states’ costs are not included. For instance, under NAFTA, California has faced ISDS attacks from Canadian firms on a mining policy and a toxics ban. The state AG’s office reported spending several million dollars per case on the defense, but obtained no compensation for these costs.
State and local governing bodies have expressed strong opposition to U.S. ISDS pacts due to the threats to limited state resources and the basic tenets of federalism. The National Conference of State Legislatures (NCSL), a bipartisan association representing U.S. state legislatures, many of which are GOP-controlled, has repeatedly approved a formal position of opposition to such pacts. The association’s most recent position states: 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. NCSL firmly believes that when a state adopts a non-discriminatory law or regulation intended to serve a public purpose, it shall not constitute a violation of an investment agreement or treaty, even if the change in the legal environment thwarts the foreign investors’ previous expectations.

Q: Are ISDS panels more likely to find in favor of governments or of investors suing governments?
 USTR: A review of all concluded ISDS cases brought against the United States shows that ISDS proceedings have resulted in wins for the U.S. government in 100 percent of cases. When looking at ISDS cases globally the evidence is more mixed, but governments have won the majority of cases that have been fully adjudicated.
 FACT: A recent UN report reveals that investors won two out of three cases decided in 2014. Typically when USTR contests the lopsided decisions, it cooks the data to exclude cases settled in favor of the investor, which is most of the 28 percent of cases that settle. So, USTR’s calculations do not count, for example, the NAFTA water rights (Abitibi-Bowater) or toxics ban (Ethyl) cases that resulted in Canada paying these U.S. firms $122 and $13 million respectively – as well as scores of cases with secret settlements. Indeed, because only investors can initiate cases and directly select a tribunalist to “judge” the case, tribunalists have an incentive to twist the rules in investors’ favor to gin up more business.

Q: But aren’t the judges biased?
 USTR: No. Arbitration rules require the independence of arbitrators and provide for challenge and disqualification of arbitrators in the event of conflicts of interest, bias, and other issues. We also guard against bias by ensuring that the government being sued plays a central role in choosing who the panelists are that handle the arbitration.
 FACT: As noted in the Bloomberg exposé on the inherent bias in the structure of the investor-state system, ISDS tribunals are comprised of three private sector attorneys, unaccountable to any electorate. Many of the tribunalists rotate between serving as “judges” and bringing cases for corporations against governments, creating inherent conflicts of interest. In the small “club” of international investment tribunalists, 15 lawyers have been involved in 55 percent of all ISDS cases known to date. Tribunals often operate behind closed doors, lack basic due process guarantees and have absolute discretion to set compensation amounts, order payment of compound interest and allocate costs. Decisions are not bound by precedent and are not appealable on the merits. And, because investors alone are allowed to choose if and when to initiate cases and to select one of the “judges” directly, the ISDS system creates structural incentives for tribunalists to decide in investors’ favor and thus attract future business. And the ISDS business is lucrative, given that, unlike salaried judges, tribunalists bill by the hour at rates ranging from $375-700. See:

Neither U.S. FTAs nor the 2012 U.S. model BIT directly stipulate requirements for investor-state tribunalists to be independent or impartial. Rather, the pacts rely on weak impartiality rules set by the arbitration venues themselves. The rules of the World Bank’s International Centre for Settlement of Investment Disputes (ICSID) – the most commonly used rules for investor-state cases – state that tribunalists need to be “relied upon to exercise independent judgment.” However, the rules make it very difficult for a government to disqualify a tribunalist even when she or he exhibits a clear conflict of interest. The government must convince both of the other tribunalists, or the president of the World Bank, to remove the biased tribunalist. In ICSID’s 48-year history, this has only happened on four occasions while in 37 other ISDS cases brought under ICSID rules, tribunalists have dodged attempts at disqualification on grounds that they exhibited bias or had conflicts of interest. This track record hardly inspires confidence in the impartiality of tribunalists. Consider just one case when a direct conflict was revealed: one of the ISDS tribunalists ruling that Argentina had to pay Vivendi $105 million for reversing a failed water privatization served on the board of a bank that was a major investor in Vivendi. The tribunalist did not disclose the conflict, much less recuse herself and Argentina’s effort to annul the ruling was dismissed.

Q: Where’s the right of appeal?
 USTR: All ISDS awards under our agreements are reviewable either under the terms of ICSID Convention or by domestic courts in the jurisdiction where the arbitration is seated.
 FACT: There is no right of appeal on the merits of a decision. Under the ICSID Convention, governments can seek annulment of a ruling for limited procedural errors. And annulments are extremely rare. Domestic court review, when permitted, is also limited to procedural issues and in some instances the amount of damages orders. There is no review on the merits of a tribunal’s decision.

Q: Is ISDS primarily used by multinational corporations?
 USTR: No. Most ISDS cases are brought by individuals or small and medium sized enterprises – organizations that often have fewer resources than multinational corporations and are thus more easily discriminated against or mistreated.
 FACT: Yes. By definition, a corporation launching an ISDS case under a U.S. FTA must be doing business at least in both its home country and in the country whose policies it is attacking. Another way to describe a corporation doing business in multiple nations is: “multinational corporation.” Though not all corporations that launch ISDS cases are household brand names, the notion that ISDS cases are primarily brought by small mom-and-pop businesses, as USTR implies, is bogus. Launching an ISDS case requires significant financial resources, in addition to cross-border investments – neither of which are characteristic of Main Street businesses. Indeed, many of today’s ISDS cases are being brought by large, multinational firms, such as the case launched by Chevron – the third largest corporation in the United States – against Ecuador’s court rulings ordering the company to pay for cleanup of toxic Amazon pollution. Or the cases that Philip Morris – the 100th largest U.S. firm – has launched against the tobacco control policies of Australia and Uruguay. Or the case that The Renco Group – owned by billionaire Ira Rennert, the 81st-richest person in the United States – has brought against Peru for being required to remediate environmental and health problems caused by its toxic metal smelting operation. Or the case that a subsidiary of ExxonMobil – the world’s fifth-largest corporation – launched and recently won against Canada after being required to support research and development in one of Canada’s poorest provinces.

Q: Could a foreign company use ISDS to successfully challenge an increase in the U.S. minimum wage?
 USTR: No.
 FACT: Maybe. The substantive privileges investors obtain under the ISDS regime include a highly elastic right to a guaranteed “minimum standard of treatment.” Investor-state tribunals have interpreted this provision to mean that investors must be compensated for nondiscriminatory changes to laws of general application that occur after an investment is established that could have an adverse effect on the investment. In U.S. law, there is no right for government compensation if a new policy of general application – such as an increase in the minimum wage – frustrates the “expectations” an investor had at the time an investment was established. Yet, many ISDS tribunals have granted such rights to foreign firms and ordered compensation by interpreting the minimum standard of treatment guarantee to mean that investors must be guaranteed a “stable and predictable regulatory environment” that does not frustrate the expectations they held at the time they established their investment. Violations of the “minimum standard of treatment” rule have been the basis for tribunal rulings against governments in three out of every four investor-state cases under U.S. FTAs and BITs in which the investor has “won.” Currently, a French firm, Veolia, is pursuing an ISDS case against Egypt, arguing that changes to Egypt’s labor laws – including increases to minimum wages – violated the government’s contractual commitments to keep payments to Veolia aligned with cost increases.

Q: If an American labor union believed a TPP country was allowing forced labor in violation of trade commitments, would the union have no recourse but to make its case in that country’s domestic courts?
 USTR: No. If TPP is passed into law by Congress, it will create new enforceable labor rights that would allow the United States government to take action against other TPP countries – either on its own initiative or on the basis of a petition from labor unions or other interested parties. The same is true of violations of environmental obligations.
 FACT: An American union could request via petition that the U.S. government initiate a claim through the government-government dispute resolution system under an agreement. However, the U.S. government would have absolute discretion about whether or not to pursue such a claim. And, to date, union efforts to persuade the U.S. government to do so have been thwarted. In contrast, under ISDS a foreign investor has the sole discretion over whether to initiate a claim against a government, when to do so, and at what arbitral venue the claim should be filed.

Q: Should we rely on market competition to put in place investor protections?
 USTR: No. We know well from history that relying on the free market to put in place the rule of law has been not effective. ISDS strengthens the rule of law by creating incentives for States to ensure that basic due process and rights are being put in place.
 FACT: In the past two years alone, hundreds of law professors, former judges and attorneys general from Europe, Canada, Australia, New Zealand, and the United States have sent letters opposing ISDS as a threat to the rule of law and domestic legal systems’ integrity. You choose who to believe: the 139 U.S. law professors on a March 2015 letter and the 121 European, Canadian, Australian, Chinese, New Zealand, South African and U.S. legal scholars on a July 2014 letter and the 100 jurists from the United States, Canada, Australia, New Zealand, Peru, Singapore and Malaysia on a May 2012 letter – or USTR. See: AND AND

With respect to how the ISDS investor protections relate to market competition, the Cato Institute put it bestin a blog opposing ISDS: “As a practical matter, investment is a risky proposition. Foreign investment is even more so. But that doesn’t mean special institutions should be created to protect multinational corporations from the consequences of their business decisions. Multinational companies are savvy and sophisticated enough to evaluate risk and determine whether the expected returns cover that risk. Among the risk factors is the strength of the rule of law in the prospective investment jurisdiction. MNCs may want assurances, but why should they be entitled to them? ISDS amounts to a subsidy to mitigate the risk of outsourcing. While outsourcing shouldn’t be denigrated, punished, or taxed – companies should be free to allocate their resources as they see fit – neither should it be subsidized.” See:

Q: Haven’t there been outrageous ISDS cases under other agreements?
 USTR: Yes. There have been outrageous claims brought. But these claims have been made under very different agreements, using different standards, and with different safeguards. It is precisely these kinds of cases that U.S. agreements are designed to avoid. The U.S. has been a leader in the reform of the ISDS system. The success in creating a different, American model of ISDS is reflected in the fact that we haven’t lost any cases. TPP will incorporate the highest standard safeguards to prevent abuse of the ISDS system, including new safeguards beyond past agreements.
 FACT: Actually, U.S. ISDS-enforced agreements have generated a string of outrageous rulings with governments being ordered to pay corporations for natural resource policies, land-use rules, environmental protections, financial stability measures, health and safety measures and more. Just in the known ISDS cases occurring under U.S. FTAs and BITs, tribunals have ordered governments to pay investors almost four billion dollars. Thirty eight billion dollars in additional claims are pending – from Eli Lilly’s attack on the Canadian medicine patent system to Lone Pine’s attack on a Canadian fracking moratorium – just under U.S. ISDS-enforced pacts. There is nothing special about U.S. ISDS agreements. See:

Indeed, the United States already has included in its past ISDS pacts the very “reforms” that USTR touts. ISDS tribunals have simply ignored new provisions. And, they do so with impunity because under the ISDS system, tribunal rulings cannot be appealed on the merits and there is no system of precedent. Consider the CAFTA RDC ISDS case against Guatemala: the tribunal simply ignored the very “reform” annex found in the leaked TPP ISDS text that ostensibly limits tribunals’ discretion to cook up new reasons to make governments pay. Then the tribunal dismissed instructions that the U.S. government and governments from other CAFTA nations had submitted about the proper interpretation of certain obligations and provisions, announcing that the governments did not understand the ISDS rules – that the governments had written. These same “safeguards” were also included in the 2009 U.S.-Peru FTA’s ISDS provisions. But they did not stop a U.S. company from launching an $800 million ISDS case because the Peruvian government decided to enforce the firm’s contractual commitment to remediate environmental and health problems caused by its toxic metal smelting operation in one of the world’s most polluted towns.

Indeed, the leaked TPP investment text shows that U.S. negotiators are trying to expand the types of domestic policies that foreign corporations could attack. U.S. negotiators are pushing for certain government procurement decisions and contracts between the U.S. government and foreign firms over natural resource concessions on public lands to be added to the list of policies that would be exposed to ISDS attacks.

For more information, contact Public Citizen’s Global Trade Watch

Lori Wallach
Director, Public Citizen’s Global Trade Watch
215 Pennsylvania Ave SE, Washington, DC 20003 USA

 source: Public Citizen