Last week, Washington Governor Jay Inslee sent a letter to US trade negotiators expressing concerns about a controversial provision in three major pending trade agreements—Investor-State Dispute Settlement (ISDS).
Opposition is mounting in the US and abroad to Investor-State Dispute Settlement, a legal provision that has been quietly included in countless trade agreements over the last few decades. ISDS significantly expands the rights of foreign investors in three ways. It allows foreign corporations to sue governments when regulations reduce future profits. It creates shadowy, corporate-friendly tribunals to hear these claims, separate from national courts. Finally, it sets standards that put investor rights above public interest, contrary to the legal traditions in America and other developed countries.
These provisions put taxpayers at risk for long legal battles and costly damage awards. They also have a chilling effect on state and national policy-makers, making them think twice before passing public health and environmental regulations.
In his letter, Governor Inslee emphasizes these risks,
“In its current form, the liabilities of investor-state provisions outweigh their potential value.” Governor Inslee further explains, “It certainly appears that we are susceptible to losing a case if the legal reasoning used in favor of U.S. investors under certain cases in the past were to be applied against our country’s policies in the future.”
Under NAFTA alone, Mexico has already paid more than $200 million in penalties while Canada has shelled out $157 million, with billions of dollars still in dispute.
ISDS was originally promoted as a way of encouraging foreign investment by providing protections for investors. Instead, it has become a powerful tool by which corporations are challenging social and environmental policy, creating new corporate rights but no responsibilities.
Recent trade challenges include lawsuits by a Swedish nuclear power producer against Germany’s decision to phase out nuclear power in the wake of the Fukushima meltdown; a $2 billion lawsuit by US tobacco giant Philip Morris against Uruguay for their requirement that cigarettes are sold in plain packaging, which has already resulted in a weakening of the regulations; and a $250 million lawsuit against Quebec’s moratorium on fracking under their principal waterway, the St. Lawrence Seaway, by a fracking company incorporated in the US but with all of its operations in Canada. Over 500 dispute settlement claims have been filed and the number is growing rapidly.
To worsen matters, language has been proposed for these new trade agreements that would require any government regulation pass a “necessity test,” outlawing any regulation that is “more burdensome than necessary to ensure the quality of the service.”
As Governor Inslee pointed out in his letter, “States maintain many nondiscriminatory regulations to advance important policy objectives that are not related to the quality of service at issue, including those related to environmental protection, land use, labor standards, fair competition and economic development. U.S. law generally permits states to pass nondiscriminatory rules related to such considerations that may burden economic transactions, as long as a rational basis for these rules can be demonstrated. Adopting a necessity test could alter this basic principle and improperly replace it with a standard less deferential to state authority.” (Emphasis added)