Ministers from a dozen countries finalized the TPP document earlier this month
Authors: Investor-state dispute settlement gives multinational companies outlandish sway over regulatory policies
Editor’s Note: Lise Johnson is the Head of Investment Law and Policy at Columbia Center on Sustainable Investment (CCSI), a joint center of Columbia Law School and the Earth Institute. Lisa Sachs is the director of the CCSI. Jeffrey Sachs is director of The Earth Institute, Columbia University. The views expressed are their own.
There has been plenty of criticism leveled at the Trans-Pacific Partnership (TPP) – the trade pact signed earlier this month by the United States and 11 other nations.
Over the past year, we have been warning, for example, of the threat the deal poses to sustainable development and the environment. Unfortunately, recent developments have done nothing to dispel these fears. Indeed, there is growing evidence that a mechanism in the deal represents a major grant of power to corporations, one greatly disproportionate to the rights of all other domestic actors including local governments, tribal governments, environmental organizations, citizens, and companies.
That mechanism, investor-state dispute settlement (ISDS), gives multinational companies outlandish sway over regulatory policies, including environmental protection. The Obama administration told us not to fear, but the use of ISDS in an existing deal, NAFTA, underscores the seriousness of the threat as one of the President’s most important environmental decisions is now at risk.
On November 6, 2015, President Barack Obama took the landmark decision to deny TransCanada’s application for a permit to construct the Keystone pipeline, which would transmit heavy crude oil from Canada through the United States and on to the world market. The President’s decision was based on the conclusion that the pipeline did not serve the country’s national interest and would undercut the fight against climate change. It was a major victory for those fighting to keep dirty fossil fuels in the ground and to promote a shift to a low-carbon economy.
Yet just two months later, ISDS has come back to haunt the President’s landmark decision. On January 6, TransCanada initiated a case against the U.S. government under the ISDS mechanism in NAFTA’s Chapter 11, challenging the President’s decision and seeking $15 billion in lost future profits and other alleged damages from the cancellation of the project. The case might sound ludicrous, but ISDS cases challenging similar determinations on environmental or other policy grounds have won, so some observers are giving this one decent odds of succeeding, too. And one of TransCanada’s lawyers who believes in the merits of the case is a frequent ISDS arbitrator, so he would presumably know.
We are certainly not alone in sounding the alarm bell over ISDS. Sens. Elizabeth Warren and Bernie Sanders, Professors Joseph Stiglitz, Laurence H. Tribe, and Judith Resnik, representatives of state and local governments such as the National Conference of State Legislators, and environmental organizations such as the Sierra Club, are just a few of the individuals and groups that have expressed alarm about the possibility that the TPP would expand the reach of this deeply flawed, and indeed dangerous, mechanism.
While ISDS is already included in NAFTA and many other U.S. treaties, the TPP and the companion treaty with Europe, the Trans-Atlantic Trade and Investment Partnership (TTIP) would result in its remarkable expansion.
How? Right now, about 10% of foreign investors in the United States have access to ISDS to challenge U.S. policy decisions; but this percentage stands to grow dramatically in the near future if the TPP and TTIP are ratified. Thankfully, there’s still time to change course and to reject the massive expansion of corporate power that the ratification of these treaties would allow.
For example, courts in the United States have affirmed that domestic citizens and organizations do not have rights to contest presidential decisions to approve cross-border pipelines. The ability to challenge the President’s decision, U.S. courts have concluded, depends on authorization from Congress, and – in order to protect separation of powers and shield the government from excessive litigation and liability – Congress has not given permission for domestic actors to challenge presidential decisions regarding approvals of pipelines on environmental or other grounds. Thus, a presidential decision to approve a cross-border pipeline is, effectively, final.
In contrast, because of investment protections and ISDS in treaties such as the NAFTA, the fact that Congress has not authorized private actors to sue the President in domestic courts for permitting decisions is irrelevant. Those foreign investors can sue the United States in international arbitration, and the arbitrators who decide the investors’ cases are not bound by any domestic U.S. law.
The arbitrators have the authority to review the President’s decision, give their own opinion on what the appropriate course of conduct should have been, and order the U. S. government to compensate the investor if they believe a different decision should have been made or if they disagree with the policy rationale for the decision.
ISDS therefore leads to two separate tracks of rights and remedies. Domestic citizens must play by the rules established by Congress, which give us the important right to challenge government action, but also set democratically determined limits on our ability to bring claims, balancing the need for policy space of the government with the rights of domestic constituents. But with ISDS, foreign companies don’t have to follow those rules. When government action – even action taken for a legitimate and important public purpose – hurts foreign companies’ economic interests, those companies can sue the government for their lost profits. This distorts the rules of the legal system and makes the economic interests of some foreign corporations much more powerful than the interests of domestic constituents.
That ISDS would be expanded so significantly by the TPP and TTIP should cause great concern for citizens who care about America’s policies on climate change, environmental protection, food and drug safety, national security, public health, and responses to economic crises. Foreign-owned companies have challenged all of these types of measures and more under ISDS, turning to arbitrators to secure more favorable rights and remedies than they would be entitled to under domestic law.
This threat to the law and to democratic processes has no place in a 21st century trade agreement and should be removed before these agreements can be seriously considered.