Legal Scholars Confront USTR on Merits of Investor-State in TPP, TTIP
Dozens of U.S. law professors and other legal scholars shot down U.S. Trade Representative proposals for free trade agreement investor-state dispute settlement (ISDS) mechanisms, in a recent letter to congressional leadership (here). USTR is aiming to include the dispute mechanism in both the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership. The agency has repeatedly defended the mechanism as a way to simply challenge discriminatory treatment against corporations, but lawmakers and other trade critics say investor-state will weaken country-specific regulations (see 1412180016). The European public in particular remains wary of the mechanism in TTIP (see 1501140016).
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Discarding investor-state in both FTAs will protect U.S. rule of law and national sovereignty, said the scholars. “ISDS grants foreign corporations a special legal privilege, the right to initiate dispute settlement proceedings against a government for actions that allegedly cause a loss of profit for the corporation,” the letter said. “Essentially, corporations use ISDS to challenge government policies, actions, or decisions that they allege reduce the value of their investments. These challenges are not heard in a normal court but instead before a tribunal of private lawyers.”
Still, the U.S. ISDS proposals would let the corporations seek recourse in the dispute tribunal, even after losing a case in domestic courts, said the letter. That tribunal amounts to “a private system lacking procedural protections,” the letter said. “There is no appeals process. There is no oversight or accountability of the private lawyers who serve as arbitrators, many of whom rotate between being arbitrators and bringing cases for corporations against governments,” said the scholars. “The system is also a one-way ratchet because corporations can sue, forcing governments to spend significant resources, while governments impacted by foreign corporations cannot bring any claims.”
Multinational corporations are increasingly setting up shop outside U.S. jurisdiction, so the inclusion of ISDS in these FTAs will likely increase the number of cases filed against U.S. regulations, added the letter. It noted that the mechanism in other trade agreements has been used to challenge roughly 100 governments. Environmental groups also readily reject ISDS (see 1501220022). Sen. Elizabeth Warren, D-Mass., reportedly said she opposed the investor-state mechanism during in a March 11 conference call (here).
USTR again hit back at the ISDS criticism in a March 11 blog post, which called the mechanism “a neutral, international arbitration procedure.” The post said no foreign company has ever successfully challenged the U.S. government through ISDS. “The most significant concern that critics raise is about the potential impact of ISDS rulings on the ability of governments to regulate,” said USTR in the post (here). “Those concerns are why we have been at the leading edge of reforming and upgrading ISDS. The United States has taken important steps to ensure that our agreements are carefully crafted both to preserve governments’ right to regulate and minimize abuse of the ISDS process.”
The investor-state mechanism is “needed because the potential for bias can be high in situations where a foreign investor is seeking to redress injury in a domestic court, especially against the government itself,” said USTR. “ISDS can be of particular benefit to small and medium-sized enterprises, which often lack the resources or expertise to navigate foreign legal systems and seek redress for injury at the hands of a foreign government.”