Investor rex

The beast that won’t lie down and die – the ISDS ‘investor protection’ racket is still with us, in all but name.

ISDS the ISDS ‘investor protection’ racket is still with us, in all but name

Imagine your government does not want you to die a horrible and preventable death. It has listened to calls for action and put in place legislation to help protect you and other citizens.

But those new rules might affect the profits of a company dishing out the product that is risking your health. And that company has special rights – that you and I do not have – to sue your government for millions, maybe billions, not only for loss of current revenue, but also what the company speculates might be its possible future revenue loss.

Actually, you don’t need to imagine any of this. It’s the reality:

• In 2014, US tobacco giant Philip Morris sued Uruguay for $25 million for the introduction of graphic warnings on cigarette packages and other control measures to promote public health.

• Swedish energy giant Vattenfall filed a lawsuit for $6 billion after Angela Merkel announced a phase-out from nuclear power following the 2011 Fukushima accident.

• TransCanada sued the US for former President Obama’s decision to reject the Keystone XL pipeline as part of the US’s (then) commitment to tackling climate change. It dropped its whopping $15 billion lawsuit after Donald Trump reversed the climate-friendly decision in 2017.

All these actions and hundreds more were made possible through ISDS – or Investor-State Dispute Settlement – mechanisms that have been written into about 3,000 trade and investment agreements since the 1990s. At first governments did not realize how bad they were. Then, from the year 2000 onwards, corporations wised up and a surge of lawsuits followed.

Energy and fossil-fuel companies have been the most aggressive users of these investor powers, under the Energy Charter Treaty. But many others are in on the game, including pharmaceutical giants.

This creates ‘regulatory chill’ – governments becoming afraid to pass laws for the public good that might upset international corporations.

For speculative high-risk investors, ISDS can be a kind of insurance policy, says Cecilia Olivet, a Uruguayan academic and researcher with the TransNational Institute. For example, Spain is currently being sued for pulling back from renewable energy subsidies – not by renewable energy companies but by hedge funds which invested in them.

Good news

Now, the good news is that public revulsion against this affront to natural justice has borne fruit. The collapse in 2016 of the Transatlantic Trade and Investment Partnership (TTIP) negotiations between the EU and US was thanks largely to civil-society campaigns and Germany deciding to reject the inclusion of ISDS.

Attracting rather less media attention have been the painstaking activities of governments, especially in the Global South, to review their trade agreements and terminate those that contain the ISDS mechanism.

South Africa, prompted by some alarming cases, took the lead. In 2007 the Italian and Luxembourg investors Piero Foresti et al lodged a claim against South Africa for $350 million. Their grievance: a new mining law contained anti-discrimination rules from the country’s post-apartheid Black Economic Empowerment Act, requiring mining companies to transfer a portion of their shares to black investors.

Mustaqeem De Gama, a trade consultant in South Africa’s mission to the WTO, was a key player in reviewing the country’s trade and investment agreements and devising a better idea.

‘We created a model that other countries have followed,’ he says. These countries include Nigeria, Sri Lanka, Indonesia, India, Ecuador and, most recently, Tanzania.

‘We didn’t just uproot the system,’ explains the careful and softly spoken De Gama. A domestic act was created to ensure that foreign investors got fair and non-discriminatory treatment in national courts. There is also an early warning and dispute-avoidance mechanism.

Countries are often told, by their more powerful trading partners, that they will not get foreign investment unless they sign up to these investor-protection clauses.

But research from India, South Africa and Ecuador shows that this is not the case. There is no correlation between a bilateral treaty which includes ISDS and getting investment.

Another good sign is the growing acceptance, within the EU at least, that the system has to be reformed.


Mutant mechanism

The bad news is that the reforms make little difference. The toxic acronym might have been dropped and the EU may have declared the ‘death of ISDS’, but the mechanism is alive and kicking.

‘It has not disappeared,’ says Cecilia Olivet. It just mutated into the EU’s Investor Court System (ICS) which is now embedded in new agreements – CETA, the Comprehensive Economic and Trade Agreement recently negotiated between Canada and the EU, for example; and MXEU, the ‘modernized’ deal between Mexico and the EU. Investor protection is also embedded in a new EU-Japan deal and in a recent agreement between the EU and Singapore. The ink had barely dried on this deal when British vacuum-cleaner tycoon and Brexiteer nationalist James Dyson announced that he would be making electric cars in Singapore, not Britain, after all. It was a timely, if ironic, move – just before Britain was due to leave the EU.

The toxic acronym might have been dropped and the EU may have declared the ‘death of ISDS’, but the mechanism is alive and kicking

To be fair, the ICS is in some ways an improvement. ‘It is less ad hoc and there is greater transparency than with ISDS,’ says Olivet. ‘But it is still biased in favour of corporations.’

A joint investigation undertaken by a group of European and Canadian institutions put the ICS to the test by looking at what would happen to some of the most egregious cases under the ISDS system were they subjected to the ICS instead.

The report found: ‘Every one of these controversial disputes could still be launched and likely prosper under ICS. There is nothing in the proposed rules that prevents companies from challenging government decisions to protect health and the environment. And there is nothing to prevent arbitrators from deciding in their favour, ordering states to pay billions in taxpayer compensation for legitimate public policy measures.’

Even if they win cases against them, the cost to sued countries can be massive. Lawyers have a vested interest in bringing cases and corporations have ever deeper pockets. Some individual corporations today have wealth exceeding the GDP of several countries.

the ISDS ‘investor protection’ racket is still with us, in all but nameThough the ICS is in its infancy, there is already recognition at official, political and academic levels that it is flawed. So, enter another variant: the Multilateral Investment Court. (If you have lost the will to read on – or even live – my apologies.)

This newcomer is the brainchild of the EU and Canada. It is much like the ICS but establishes a permanent body to decide investment disputes. It would adjudicate disputes under future and existing investment treaties and would replace the Investment Court System included in the recent EU-level trade and investment agreements.

Yet again, it does nothing to tackle the issue of investor powers.

‘The reforms are a response to the backlash, an effort to legitimize and keep the system running,’ says Olivet. ‘When people see the impacts they will see it for what it is – a rigged system.’

In case you think this is all just another evil trick of Western capitalism, similar investor powers have crept into the China-led Regional Comprehensive Economic Partnership (RCEP) – the biggest and most secretive trade deal being negotiated in the world today.

And they also exist in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (a resuscitated version of TPP, also known as TPP11) between 11 countries, including Japan, Australia, New Zealand/Aotearoa, Canada, Peru and Malaysia. There is talk of post-Brexit Britain joining too.

Tipping point

There is a solution, however.

Scrap them. Investor protections – whatever their names – have no place in trade agreements.

If companies have a grievance they can always have recourse to the national court systems like anyone else.

‘ISDS has become a core component of trade deals and for me the most worrying part. Investment as a whole should be taken out of trade deals,’ says Nick Dearden of Global Justice Now, one of the organizations taking part in a renewed campaign.

‘Ecuador, Indonesia and others have ripped up bilateral deals that include ISDS, saying “we are not doing this any more”. It feels like a tipping point.’

Former New Internationalist co-editor and regular contributor Richard Swift, who has been looking at this topic from Canada, puts it succinctly: ‘The investor/state system is a mug’s game and should be rejected along with any “free trade” agreement that hosts it.’