The North American Free Trade Agreement (NAFTA) established an array of new corporate rights and protections that were unprecedented in scope and power. NAFTA’s Investor-State Dispute Settlement (ISDS) regime empowers multinational corporations to sue our governments before panels of three corporate lawyers. These lawyers can award the corporations unlimited sums to be paid by taxpayers, including for the loss of their expected future profits. The corporations need only convince the lawyers that a law, safety regulation, court ruling or other government action violates the new rights that NAFTA grants them. The lawyers’ decisions are not subject to appeal. By elevating individual corporations to the same status as sovereign governments, ISDS drastically consolidates and formalizes corporate power.
NAFTA’s extreme rules have been replicated in other U.S. “free trade” agreements (FTAs), including the Central American Free Trade Agreement and FTAs with Korea, Colombia, Peru, Panama and Oman. Not only has more than $475 million in compensation been paid out to corporations using ISDS just under U.S. agreements, but these corporate protections make it less risky and cheaper to outsource jobs. The
corporate payoffs came after attacks on natural resource policies, environmental protections, health and safety measures and more. In fact, of the more than $55 billion in the 23 pending ISDS claims under NAFTA and other U.S. FTAs, nearly all relate to environmental, energy, financial, public health, land use and transportation policies – not trade issues or government seizures of property or investments. ISDS creates a parallel and privileged set of legal rights for multinational corporations to own and control other countries’ natural resources and land, establish or acquire local firms, and to operate them under privileged terms relative to domestic enterprises. For instance, corporations have received payouts when new policies undermine their “expectations” of a “stable regulatory environment.” The scope of the “investments” covered is vast, including derivatives and other financial instruments, intellectual property rights, government licenses and permits, as well as more traditional forms of investment.
The rigged ISDS enforcement system allows multinational firms to skirt national court systems and privately enforce their extraordinary privileges by directly challenging national governments before extrajudicial tribunals. Cases are litigated outside any domestic legal system in international arbitration bodies of the World Bank and the United Nations. A panel composed of three corporate lawyers has the power to award an unlimited amount of taxpayer dollars to corporations for the “expected future profits” that the attorneys surmise the firms would have earned if not for the challenged policy. If a corporation wins its investor-state case, the taxpayers of the “losing” country must foot the bill. States whose laws are challenged have no standing in the cases and must rely on the federal government to defend state policies
that the federal government may not support. While fewer than 50 cases were filed in the first three decades of the investor-state system, corporations launched at least 50 cases each year for the last six years, intensifying concerns about the system’s threats to democracy, taxpayers and the public interest. Countries from South Africa to Indonesia to India have withdrawn from or renegotiated their ISDS-enforced pacts. The corporate lobby is desperately trying to save their ISDS regime, but are increasingly isolated.
The U.S. National Conference of State Legislatures representing the mainly Republican GOP-controlled U.S. state legislative bodies, the U.S. National Association of Attorneys General, small business organizations, unions and consumer and environmental groups and Democratic and Republican members of the U.S. Congress alike have called for ISDS to be removed from U.S. trade agreements. Stark criticism of ISDS also has come from voices as disparate as U.S. Supreme Court Chief Justice John Roberts and pro-free trade think tanks such as the Cato Institute and progressive Democratic U.S. Senator Elizabeth Warren (D-Mass.) and former Vice President Biden’s chief economist Jared Bernstein.