You may have heard of “investor-to-state dispute settlement,” or ISDS. Most people familiar with the term never heard it before the NAFTA debates of the early 1990s. NAFTA was the first so-called “free trade agreement” in which the United States included this provision, which gives foreign investors in the U.S. (and U.S. investors operating in foreign countries) the opportunity to skip traditional methods of complaining about laws and regulations they don’t like and sue nations directly in private arbitration tribunals made up of for-profit arbitrators rather than full-time judges. For example, if a foreign company operating in the U.S. wants to complain about a prohibition on the use of one of the company’s toxic products, that producer can skip state and federal courts, skip legislative hearings, skip the democratic process entirely and instead sue the United States government in a private, international panel that is not even required to consider the health and well-being of U.S. citizens protected by the prohibition.
Rather than promoting these agreements, as the U.S. does, South Africa has recently decided to stop the automatic renewal of these agreements, letting many of them expire. That’s a good thing, and a model the U.S. should follow. As Nobel-prize winning economist Joseph Stiglitz writes , these agreements “significantly inhibit the ability of developing countries’ governments to protect their environment from mining and other companies; their citizens from the tobacco companies that knowingly purvey a product that causes death and disease; and their economies from the ruinous financial products that played such a large role in the 2008 global financial crisis.”
Advocates of such agreements—such as the U.S. government—claim they are needed to protect property rights. But, Stiglitz points out, “countries like South Africa already have strong constitutional guarantees of property rights.” The U.S., too, already provides state-of-the-art property protections to all property owners foreign and domestic: It’s called the Fifth Amendment to the U.S. Constitution. Is there any reason—at all—to provide foreign firms with more property rights than America’s home-grown firms enjoy? In particular, is there a reason to include ISDS in the pending Trans Pacific Partnership ( TPP) agreement ?
If you can’t think of a reason, you’re not alone. As Stiglitz explains, “those supporting the investment agreements are not really concerned about protecting property rights, anyway. The real goal is to restrict governments’ ability to regulate and tax corporations—that is, to restrict their ability to impose responsibilities, not just uphold rights. Corporations are attempting to achieve by stealth—through secretly negotiated trade agreements—what they could not attain in an open political process.”
Perhaps the most important question is why the U.S. government wants to provide these extraordinary legal rights to U.S. firms who choose to invest abroad. Whose interests are advanced when U.S.-based firms have the right to bully developing country governments to get low taxes, low wages, low labor rights, low environmental protections and other forms of deregulation? Certainly not workers', either in the U.S. or abroad. Ask yourself, whose interests are being protected through ISDS? Then go teach someone else about it.
To read more about South Africa’s decision to fight back against ISDS, read the full Stiglitz op-ed .