Will the US Keep Winning Indefinitely? With ISDS Trade Panels, That Is

By Kenneth Thomas. Originally published at Middle Class Political Economist

Now that Congress has given the President fast-track Trade Promotion Authority, the first agreement to be considered under these rules (no amendments allowed, up or down vote in 90 days) will be the Trans-Pacific Partnership (TPP). As you know from previous columns, one of the most worrying aspects of the TPP is its expansion of investor-state dispute settlement (ISDS), wherein private firms can bring their disputes with governments not to courts, but to international arbitration (usually through units of the World Bank or the United Nations), where legal precedent doesn’t matter and appeal is all but non-existent. Moreover, as the Consumers Union has long argued (recent example here), arbitration has a well-known pro-business bias. That’s why so many of your agreements with cable TV providers, financial services companies, and many more have fine print requiring mandatory arbitration, keeping you from getting your day in court if something goes wrong.

The response from the U.S. Trade Representative’s (USTR) office has been, “Not to worry! The United States has never lost an ISDS case.” The linked document goes on to claim that worldwide, only 1/4 of corporate plaintiffs have won cases against governments. But a new analysis by the International Institute for Sustainable Development (IISD),* using the same data source the USTR cites, comes to a very different conclusion based on its most recent update, the 2015 World Investment Report from the United Nations Conference on Trade and Development (UNCTAD). Moreover, we can see that countries with even more trustworthy court systems than that in the U.S. have lost ISDS cases. The Rule of Law Project, an initiative of the American Bar Association, has ranked 102 countries on the administration of justice and freedom from corruption, and puts the United States at #19 with a score of 0.73. Yet #14 Canada (0.78) has already lost ISDS cases, and both Canada and #10 Australia (0.80) are currently on the hook for major new cases (Eli Lilly and Philip Morris, respectively), that would overrule decisions by the countries’ respective Supreme Courts. So, even if governments have only lost 25% of ISDS cases, it’s unlikely U.S. luck will hold out indefinitely, if countries with better court systems are losing.

But it’s worse than that. UNCTAD’s database of known ISDS cases and their outcomes shows that in all cases decided through the end of 2014, the investor won 27% of the cases compared to 36% won by the state (see Figure III.10, p. 116). But another 26% of the cases are listed as “settled,” which often (but not always) means the respondent agrees to make some payment to the plaintiff to keep the case from going to arbitration. Public Citizen has a list of ISDS cases under prior U.S. trade agreements with examples of settlements that do and do not contain payments (see, for instance, NAFTA cases against Canada).

Moreover, as IISD attorney Howard Mann argues, if we separate out cases between jurisdictional determinations and determinations on the merits of the case, things look even worse for states. While only 71 of 255 cases (this excludes the “settled” cases) were concluded by a decision of the tribunal having no jurisdiction, Mann points out that all 255 cases effectively had decisions on jurisdiction, i.e., cases with final decisions had to have rulings that the arbitrators had jurisdiction. In that case, Mann says, “Investors, therefore, have won 72 per cent [184/255] of jurisdictional determinations.” And of the decisions on the merits of the cases, investors won 111, or 60%, of the remaining 184 cases. This calculation suggests that states are losing ISDS disputes at a much higher rate than normally portrayed. As if that’s not bad enough, the new World Investment Report finds that in 2014, of the 15 ISDS cases decided on their merits, states lost 10 (2/3) of them. In 2013, it was even worse for states, with investors winning 7 of the 8 cases decided that year (p. 126). If these higher proportions continue, obviously the proportion of investor victories will increase beyond the current 60% total.

Bottom line: The threat to regulation, democracy, and the rule of law posed by investor-state dispute settlement is very real. The U.S. Trade Rep’s  reassurances that the U.S. has never lost in ISDS don’t even make it likely that will continue into the future. We need to pressure Congress to vote down the TPP when negotiations conclude.

* Important disclosure: I have consulted for IISD several times since 2007 on investment incentive issues.

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  1. Pete

    I’m surprised other nations supreme courts tolerate being overruled. I’m pretty sure if the US Supreme Court were to declare something unconstitutional then nothing except a constitutional amendment is going to change that.

    A Foreign corporation overriding US law would could an absolute firestorm here

    1. Min

      But rather than let that happen, Congress will change the law. See, for instance, the recent Country of Origin Labeling legislation, on the heels of a ruling by the World Trade Organization.

    2. steelhead23

      We need a constitutional lawyer to answer that question. It is my understanding that while international trade agreements are widely viewed as treaties, the U.S. has drawn a fine line that trade agreements like NAFTA are congressional-executive agreements, not treaties. A treaty with a foreign country requires the consent of the senate – a full two-thirds of those present – a tough hill to climb. Congressional-executive agreements require only majorities in both houses. Such agreements would be subject the limits of federal authority, however, that authority clearly includes managing international commerce. Hence, it would appear that international trade agreements mostly trump state laws, effectively circumventing the rights granted to the states by the 10th Amendment (but according to Wiki, this has been the case for a very long time). An ISDS arbitration panel (note – this apparently carries no precedential weight) has ruled that investors cannot use this tactic to overrule laws that existed at the time they made their investment – suggesting as a corollary that they could seek damages if a state (say California) instituted new laws in response to adverse effects from an investment (say fracking). Where this would seem to get really hinky is the lack of an appeals process. Just imagine if my imaginary California fracking law caused the U.S. Government to pay a penalty to fracking investors. Would the federal government then use its supremacy clause to nullify the state law? Yep, that sure would cause a firestorm. I suspect the real result would be a loss of will to develop legislation to protect the public and the environment, likely the true intent behind ISDS in the first place.

      The sad fact is that U.S. companies have used the ISDS provisions of NAFTA to beat the heck out of Mexico and Canada – diminishing their sovereignty and their quality of life. Probably has their citizens thinking were all really nice folks, too. I love it that my government thinks reducing the sovereignty of other nations and impoverishing their people is in the U.S. public’s interests and so go touting oursuccesses. Note to the USTR: The interests of Phillip-Morris are NOT the same as the U.S. public interest.

      Please lawyers, this stuff is pretty arcane, if I am in error, please correct me.

  2. Vatch

    The response from the U.S. Trade Representative’s (USTR) office has been, “Not to worry! The United States has never lost an ISDS case.”

    In addition to the events described in this article, the U.S. recently lost a ruling in the WTO about country of origin labeling for meat.


    I suppose this was this a government to government dispute, rather than an investor to government dispute, so it doesn’t count as true ISDS. But it’s still a U.S. loss to an international trade tribunal, and the Congress is already in the process of removing an important protection from consumers because of this ruling.

    1. David

      How does Country of Origin Labeling (COOL) protect the consumer? Bad meat can come from anywhere.

      I’m more concerned with the lax USDA inspections.

      1. Min

        For markets to work, consumers need to know what they are buying. Maybe country of origin labeling doesn’t mean much, but it is relevant information.

        1. TG

          Oh but labeling meat with the country of origin would violate the freedom of big corporations to choose to sell meat from Vietnam to people who don’t want to buy meat from Vietnam. As Milton Friedman famously said, it’s all about the freedom to choose!

          And as we are obliged to import ‘indentured’ guest workers from Malaysia, well, shouldn’t the rich be free to choose to own and employ slaves?


      2. TG

        Ah, but you see, you can’t inspect meat as it crosses the border or in a store. Safe meat – like making sterile drugs – requires control of the process at the site of origin.

        I mean, suppose you have 1000 pounds of meat, and there are 10,000 pathogenic microbes contaminating it distributed throughout. These are microbes! Even all clumped together, they’d not cover the head of a pin. It’s not like inspecting cargo containers looking for AK47’s or cigarettes. You cannot just inspect meat after it’s been slaughtered and packed and detect anything other than the grossest contamination. You need to control the production process at the start. And for meat imported form Vietnam or Elbonia, we don’t.

        When surgeons scrub in to do surgery, they are not inspected for pathogenic bacteria. Because you can’t see them! They undergo a process designed to reduce the incidence of pathogenic activity. That’s a critical thing to keep in mind.

      3. Ed Walker

        The Trader Joe’s here in Chicago sells ground beef from Uruguay. Want some? I don’t, and I’m glad there was a label.

  3. Denis Drew

    Our “appeal” on a purely practical, how-to, basis is to our own Congress — to make all this go away. Appeal to be made by unions pretty much only, once we have revived high density.

    Right now nobody is complaining. Muckrakers don’t count. They don’t have any lobbyists, campaign funds or (99% of the) votes. Nobody (that matters to Congress) is complaining and by the (exact) same token nobody is listening.

    Every other form of market fixing is a BIG felony. Easy enough for everybody to understand that union busting is truly market fixing. It’s not in our culture at the moment but would catch on and spread like a grass fire across the nation if the idea were ever implemented anywhere (WA, OR, CA, NV, IL, NY?). It just makes so much sense (don’t try union busting in the rest of the modern world)!

    Making labor market fixing a felony also makes it a perfect target for federal RICO prosecution given the way it is practiced (33 states have their own RICO statutes).

    Do this or do nothing — whine and complain but nothing will ever get done.

  4. James Levy

    It isn’t “luck”: it’s power, intimidation, bribery, and spying. The Americans also have most of the lawyers and technocrats who handle these cases.

    I’d also answer that these treaties are anti-democratic and unfair, period. I know Americans only give a shit about winning, but every “win” for out corporations overseas is a “loss” for democracy and the people of this planet. That doesn’t mean jack to Congress or its paymasters, but people of honor and conscience should stand against these treaties whether “America” (i.e. the corporations and their rich managers and stockholders) wins or not.

  5. Carla

    I don’t see that “the US” “wins” at all. Only multinational corporations “win.”

    1. djrichard

      Current or future cheerleader-in-chief: what’s good for multinational companies is what’s good for America.

    2. fajensen

      Same Thing. The US is a corporation dressed up as republic.

      Now, that is, right after the European Commission signs that thing, we also get to experience what the Iranians felt in 1953 when BP wasn’t happy with their democratically elected president.

  6. allan

    Not to worry – when the Senate votes on the TPP, Worker State Dispute Settlement (WSDS), Environmentalist State Dispute Settlement (ESDS) and Human Rights State Dispute Settlement (HRSDS) will be added as amendmen … oh, never mind.

    This is of course a feature, not a bug, putting multinationals beyond the reach of the Constitution’s Article 1, 2 and 3.

  7. sd

    My only experience with “arbitration” was with an arbitrator whose sole intent was to drag out the process as long as possible so as to make as much money as possible.

    ISDS differs how?

  8. RUKidding

    Will the US keep winning?

    It all depends on how you define the USA.


    If you’re talking about multinational corporations run by the .0001% who somehow still consider themselves US citizens, well I suppose that they will WIN and WIN BIG.

    Of course, they’ll be pit against other gargantuan corporations run by .0001% who somehow still consider themselves a citizen of some other nation.

    I dunno. Who wins?

    Certainly not the dumbo proles in the Yew Ess Aaay (or elsewhere). That much, I can guarantee.

  9. TG

    But it’s already affecting the United States.

    We can no longer label meat with the country of origin. Whether this is a good idea or not, the decision has been made and it is now out of the hands of the US government or any democratic process.

    We also must allow Mexican trucks to drive freely on US roads. We must accept Mexican licenses and driver training as equivalent to US, and allow truck drivers making way below minimum wage to deliver good in the United States, etc. Again, this is not something we as a nation have any control over.

    How long before we are told that Pakistani MDs are equivalent to US-trained MDs? Not that far I should think.

    1. Vatch

      Actually, the country of origin labeling of meat hasn’t been resolved yet. The House of Representatives voted to repeal it, but the Senate hasn’t voted yet. Of course they will vote to repeal it, and when it happens, we need to be prepared to punish the Senators who do so. We can already let the traitors in the House know what we think of them. These people co-sponsored the repeal, and here’s the roll call vote. A Yes vote is a vote for treason. Contact information here and here.

      1. TG

        Well yes, but it’s going to happen – or we will pay a zillion dollars in fines.

        I mean, ‘technically’ these tribunals can’t directly change our laws. So sure, we can continue to maintain our own licensing standards for truck drivers and meat etc., we just have to pay more than we can afford. It’s like when someone says to do something at gunpoint: they are not really physically forcing you to do anything, they are just giving you the alternative of being shot.

        Bottom line: yes, the US is losing these cases. And they cannot be over-ruled by acts of congress, not really.

  10. David

    Has there been a case where “regulation, democracy, and the rule of law” has been negated by the ISDS?

    The few cases that I’ve looked at, where the state “lost”, it looked as though the governments, IMO, made mistakes.

    I will be interested to see how the tobacco case in Australia plays out.

    Regarding TPP, when it gets enacted, will it become public or fall under the FOIA? I can’t really have an opinion on it until I see the particulars.

    1. Kenneth Thomas

      David, I would direct you to the Public Citizens case summary linked in my post. Perhaps you won’t consider them all losses for regulation, democracy, and the rule of law, but I think that is an accurate description for at least some of them.

      Also, the EU is currently in an uproar over the Micula v. Romania ISDS case under the Sweden-Romania bilateral investment treaty. It concerns state subsidies Romania was paying to Micula prior to its EU accession. These subsidies were eventually ended because they violated EU state aid law. So Micula sued. Now the EU Commission has ruled that paying the judgment against Romania would actually be illegal state aid on Romania’s part. See my article here: http://www.middleclasspoliticaleconomist.com/2015/03/wikileaks-releases-trans-pacific.html

      To say a little more about this case, Micula alleged he had a “legitimate expectation” that the subsidies would continue. It is settled EU law that the doctrine of legitimate expectations does not cover a legitimate expectation to receiving an illegal state subsidy. (See chapter 4 of my book *Competing for Capital*.) But the arbitrators ruled that Micula did have a legitimate expectation. This perfectly illustrates what I mean about arbitration not being constrained by precedent.

  11. Jerry Denim

    What about all of the times a country’s government changes their behavior before they legislate or regulate in order to avoid running afoul of these unconstitutional supranational trade agreements? I am pretty sure I read the the 2008 Economic Stimulus package sensibly included a “Buy-American” provision for obvious reasons but it was stripped out as to avoid running afoul of WTO rules against government subsidies. We shipped millions of US taxpayer dollars that were intended as domestic economic stimulus overseas for Japanese cars and Chinese built solar panels to comply with the mandates of a supranational trade body all without any lawyers being hired or any paperwork being filed.

  12. Zamfir

    I always assumed that ISDS systems were intended to make other countries follow American demands?

    1. Kenneth Thomas

      ISDS is designed to make countries follow investor demands. ISDS was first found in bilateral investment treaties, the first of which was between Germany and Pakistan. Since the biggest chunk of multinational corporations are still based in the United States, it will not surprise you that U.S. companies have also made the most complaints under ISDS. But overall, this is about corporate power rather than any individual nation’s power, IMO.

  13. Oregoncharles

    Useful, but this actually dodges the real issue, which is constitutionality and the rule of law.

    Greece is already an object lesson in the pitfalls of giving up sovereignty, which the signatories do under ISDS.

  14. different clue

    It isn’t a matter of the “US” winning. The “US” would lose every time in every case. The US would lose by the mere existence of ISDS. It is the Upper Class which would win, every single time. Just because a part of the Upper Class is currently residents-of-convenience in the US does not make that Upper Class American in any operationally patriotic sense. And that US-domiciled part of the Upper Class would have assets deployed all over the world in order to benefit from any ISDS decision no matter how it “came out” . . unless it were decided against whatever corporate trojan horse full of Upper Class Warriors happened to bring their complaint before the ISDS court.

  15. bjmaclac

    The timing on the part of US coprporations to push TPP, TTIP and TISA is well timed. in just about all the partnering countries, there are nealberal govenments only too happy to sign onto these democracy busting “trrade” agreements. I am from Canada, and there is no doubt in ind that Steven Harper, as secretly as he possibly can, will sign on to TPP without a single word to the Canadian public.

    How times have changed in Canada. Twenty some odd years ago when NAFTA was being debated (very publicly) it was very much a big part of the political discourse coming into the then federal election campaign; in fact it was THE election issue, dwarfing all other issues at hand. In effect, just about any “adult” Canadian had some measure of knowledge about NAFTA.

    Nowadays, it is very hard to find among any Canadians who know anything about TPP; thanks in large part to our Washington-friendly, corporate media (sadly, including our the once venerable CBC, which is just another US State Dept shill) hardly anyone is as politically aware as once was the case with so many Canadians.

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