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Setting the Record Straight: Debunking Ten Common Defenses of Controversial Investor-State Corporate Privileges

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Amid growing controversy over the investor-state dispute settlement (ISDS) system, the Office of the U.S. Trade Representative (USTR) has declared that critiques of the system amount to mere “myths.” Yet, in attempt to counter the critiques, USTR’s ISDS defenses rely on false and misleading statements. Below we respond to 10 common defenses of ISDS from USTR. USTR’s claims attempt to paper over 10 stark realities of the investor-state system that it seeks to expand via the Trans-Pacific Partnership (TPP) and Trans-Atlantic Free Trade Agreement (TAFTA):

  1. ISDS gives foreign corporations greater procedural and substantive rights than domestic firms by providing only foreign firms access to extrajudicial tribunals and by enabling them to obtain compensation for government policies and actions that apply equally to  domestic firms and that would not be deemed to violate domestic property rights protections.
  2. ISDS undermines the rule of law by empowering extrajudicial panels of private sector attorneys to contradict domestic court rulings, including those in which countries’ supreme courts interpret domestic Constitutions and laws, in decisions not subject to any substantive appeal.
  3. ISDS cases have led to the watering down of environmental, health and other public interest policies, and chilled the establishment of new ones, as the mere threat of an ISDS case against an existing or proposed policy raises the prospect that a government will need to spend millions in tribunal and legal costs to defend the policy, even if the government might ultimately prevail.
  4. Investor-state tribunals often order governments to pay foreign corporations large sums of taxpayer funds as compensation for future profits that the tribunals surmise the firms would have earned if not for the challenged government actions or policies.
  5. The TPP and TAFTA would expose the U.S. government, taxpayers and domestic laws to an unprecedented surge in ISDS liability.
  6. The very structure of the ISDS regime gives rise to conflicts of interest that would not be remediated by enhancement of the weak “conflict of interest” rules for tribunalists.
  7. Purported safeguards and explanatory annexes added to agreements in recent years have failed to prevent ISDS tribunals from exercising enormous discretion to impose on governments obligations that they never undertook when signing agreements.
  8. Transparency rules and amicus briefs are insufficient to hold accountable tribunals that remain unrestrained by precedent, States’ opinions or substantive appeals.
  9. State and local governments have no standing to defend the state and local policies that are often challenged in ISDS cases.
  10. The Obama administration has repeatedly ignored ISDS opposition from Congress, the bipartisan National Conference of State Legislatures, diverse public interest groups and legal scholars.

By ignoring these realities and instead choosing to hawk counterfactual claims aimed at dismissing demonstrated ISDS problems, USTR threatens to expand further the damage the ISDS system has inflicted on public interest policymaking, democratic processes and public budgets in numerous countries. To avoid such an expansion via the TPP and TAFTA, the legacy of existing ISDS pacts warrants honest examination.