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What the Heck Is ISDS and Why Is It a Brazen Corporate Giveaway?

Since the late July negotiating round that failed to reach a final deal for the corporate-leaning Trans-Pacific Partnership (TPP) trade deal, a lot has been written about the merits of a purported ISDS carve-out and whether it played a role in the failed effort to complete a deal by July 31. (Don’t know much about the TPP? Learn more.)

What is ISDS?

ISDS stands for “investor-to-state dispute settlement,” as distinguished from “state-to-state dispute settlement,” which is how most international trade disputes are resolved. 

For example, if working people want to enforce the labor provisions of a trade agreement, we have to petition our government and ask it to pursue a state-to-state case for us. Most recently, it took the administration nearly three years to produce an initial report evaluating whether to even move forward to informal talks over Honduras’ egregious labor rights violations.

In contrast, under ISDS, investors don’t need government permission or preliminary investigations. If they want to bring a case, they bring a case. Period.

The U.S. already has ISDS in some existing trade and investment treaties, such as NAFTA. Now the U.S. is trying to cover Japan, Australia, Malaysia and other countries with ISDS through the TPP.

What is the “carve-out”?

Well, due to the TPP’s secrecy, only a select few people actually know the whole story, and those who do can’t tell the rest of us. The best that we can tell, the proposed carve-out would prevent a single industry from using the undemocratic, unaccountable ISDS process. 

What is dangerous about ISDS?

Under ISDS, if a Japanese company that invested in the U.S. (or was merely seeking to invest in the U.S.) wanted to accuse the U.S. (or a state or local government) of treating it unfairly, say by denying a construction permit for a toxic waste dump, it could bypass U.S. courts completely and sue the U.S. directly before a panel of three private, international lawyers. These private lawyers are not public servants and have no obligation whatsoever to protect the interests of U.S. citizens. 

America’s own homegrown businesses can’t do that. They have to sue in U.S. courts, and the judges are required to apply U.S. laws and consider the interests of U.S. citizens. 

So who wants foreign companies to have this special legal right? Global corporations, that’s who. It’s a brazen power grab. ISDS creates a special class of businesses with special rights and therefore special influence. As if we need more corporate influence over our economy!

Does ISDS even work?

No. Its standards, such as the broad right to “fair and equitable treatment,” are vague, and its private panels are unreliable, resulting in conflicting and poorly reasoned decisions. And there is no right to appeal bad decisions on the merits. In one particularly appalling case under a U.S. treaty, Occidental Petroleum won $2.3 billion (including interest) from Ecuador. Ecuador’s wrongdoing? Exercising its rights as clearly spelled out in a contract signed by Occidental! With cases like this, it is easy to see the system is ripe for abuse. 

Foreign corporations have used ISDS to challenge laws banning toxic chemicalsdenials of construction permitsincreases to the minimum wage and requirements to clean up pollution

So let me get this straight: The controversy in the TPP is not over how to abolish this undemocratic, unaccountable ISDS system, but over whether it should apply to all industries or all industries but one?

Yes, and some U.S. legislators agree with this. Sen. Thom Tillis, instead of fighting to protect U.S. laws from foreign challenges, is fighting to ensure that even more companies can challenge even more laws around the world in private ISDS “courts.”

Tillis has it backward. To create a level playing field for all businesses, the TPP should totally eliminate ISDS. The right answer is to abolish the ISDS and use national courts and state-to-state dispute settlement when necessary. Where national justice systems are weak in developing countries, we should help them improve as part of our trade policies—not give foreign investors the right to opt out of a system everyone else, including a nation’s working people, has to use. 

To join the fight for better trade, text TRADE to 235246. 

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Trans-Pacific Partnership

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