Investor-State Dispute Settlement (ISDS): Extraordinary Corporate Powers in "Trade" Deals

At the heart of today's "trade" agreements like NAFTA are provisions that grant multinational corporations shocking new rights and powers that make it easier to offshore jobs and attack the environmental and heath laws on which we all rely.

Individual foreign corporations are empowered to sue governments before a panel of three corporate lawyers to demand unlimited compensation from taxpayers if they think a law or government action violates their new rights.

This corporate power grab is formally called Investor-State Dispute Settlement (ISDS).

How ISDS works

Deals like NAFTA give multinational corporations the power to sue the U.S. government in front of a tribunal of three corporate lawyers. These lawyers can order U.S. taxpayers to pay the corporations unlimited sums of money, including for the loss of “expected future profits” that the corporation would have earned in the absence of the public policy it is attacking.

The multinational corporations only need to convince the lawyers that a law protecting public health or the environment violates their special “trade” agreement rights. The corporate lawyers' decisions are not subject to appeal. And if a country does not pay, the corporation can seize a government’s assets - bank accounts, ships, airplanes – to extract the compensation ordered.

Not only do corporations get a special system of “justice” outside our courts, but it’s totally rigged in their favor.

One day a corporate lawyer can sit on an ISDS tribunal deciding cases and the next day they can attack our laws on behalf of a corporation. And, the lawyers deciding cases also get to decide who pays their large hourly fees. That means even when government’s “win” they often have to pay millions in legal costs.

Consequences of Expanded Corporate Power

This extreme ISDS system already has been included in a series of U.S. "trade" deals and investment treaties. ISDS tribunals have ordered  taxpayers to hand more than $4.5 billion to corporations for toxics bans, land-use rules, regulatory permits, water and timber policies and more.

And sometimes governments cave before the final ruling to try to limit how much they will pay. For instance, Canada lifted a ban on a gasoline additive banned in the U.S. as a known human neurotoxin after an investor-state attack by Ethyl Corporation under NAFTA. Canada also paid the firm $13 million and published a formal statement that the chemical was not hazardous.

Increasingly, the tribunals of lawyers are ordering massive payments. A tribunal ordered payment of more than $1.4 billion to a multinational oil firm after it violated the terms of its contract with the Ecuadorian government to explore for oil in the Amazon. TransCanada demanded $5 billion from the U.S. when the Obama administration rejected the Keystone XL pipeline.

Just under U.S. deals, more than $54 billion remains pending in corporate claims against climate and energy laws, medicine patent policies, pollution cleanup requirements, and other public interest policies we rely on to protect the environment, our health, safety and financial stability.

In the past few years, the number of such investor-state attacks has surged. From the 1950s – when this system was first established – until 2000, only 50 cases were initiated.

But now, more than 50 cases have been filed each year for the past five years, with a total of 760 cases launched. A whole industry of third-party financing and specialized law firms has sprung up to help multinational corporations extract our taxpayer dollars and roll back key public interest policies using the ISDS system.

Some countries are challenging this outrageous system: South Africa, Indonesia, India and Ecuador are  terminating or renegotiating their treaties with ISDS provisions. Venezuela and Bolivia have already done so.

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