Sign Up

ISDS: Corporations Overpowering Governments and Democracy?

Investor-state dispute settlement provisions in trade deals have backfired and undercut public confidence in global integration.

October 28, 2016

Credit: Chaser - WikiMedia Commons

After Wallonia’s recent stand on the Canadian-European Trade Agreement highlighted the issue of investor-state dispute resolution provisions in the context of developed markets – and with TPP and TTIP still on the horizon, bearing similar plans – it is worth taking a closer look at them.

Corporate-friendly ISDS provisions feed into a public fear that the biggest corporations are themselves becoming sovereign governments that are unrestrained by democratic accountability. That is actually a reasonable fear in light of recent history.

Denuclearizaton

After the Fukushima nuclear disaster in 2011, Germany’s government (at the time led by a conservative coalition) decided to gradually phase out its nuclear power plants and redouble its efforts toward developing renewable energy.

Vattenfall, a Swedish utility company that was operating two nuclear plants in Germany, sued for €3.7 billion in compensation through an ISDS provision.

Incredibly, rather than being smacked down, this claim is still in arbitration. It is just one of a growing number of such cases, according to The Economist.

Public health

Australia successfully waged a long and costly legal defense against an ISDS lawsuit by tobacco giant Philip Morris’s Asian division.

That suit alleged Australia’s domestic efforts to curb smoking and other tobacco consumption were a violation of the country’s trade deals with countries in which Philip Morris happens to have subsidiaries – such as its Asian division based in Hong Kong.

The Australian government only prevailed when the arbitration court agreed after several years that this was frivolous jurisdiction shopping and was not the relevant venue for a suit.

Fracking prevention

In Canada, after the Quebec government filed a moratorium on hydraulic fracturing for natural gas, Canadian energy company Lone Pine relocated its headquarters to the United States to sue its own country through NAFTA’s ISDS provision.

The United States and Canada originally had pushed for the ISDS as a safeguard for U.S. and Canadian business investments in politically unstable Mexico.

But what a bitter pill – because now the Canadian government has been sued numerous times by corporations through NAFTA, and has lost 7 out of 20 cases, costing them at least $158 million paid to U.S. companies.

One of the higher ISDS awards worldwide so far has been a $2.3 billion settlement awarded to the oil company Occidental for its claim against the government of Ecuador over its termination of an oil-concession contract.

Corporate sovereignty?

Making matters worse, these corporate ISDS lawsuits against Germany, Canada, Ecuador and many other countries proceeded in near-secret, notoriously lacking in transparency or public input or oversight.

Giving multinational corporations the legal ability to sue sovereign governments — the so-called Investor-State Dispute Settlement (ISDS) — not only raises suspicions, both in theory as well as in practice, but seems hopelessly outdated.

Takeaways

Corporate ISDS suits proceed in near-secret, notoriously lacking in transparency or public oversight.

The evidence for the dangers of ISDS trade deal provisions is now clear even in developed economies.