Comment for the Record to USTR: APEP Must End the Scourge of ISDS
Trade Track Docket Number USTR-2024-0009
Public Citizen, a nonprofit consumer advocacy organization with more than 500,000 members, welcomes the opportunity to submit a comment for the Americas Partnership for Economic Prosperity (APEP).
It is our understanding that APEP is not intended to result in binding trade rules, but instead will serve as a regional economic platform for sustainable and inclusive development and cooperation. We support this approach, as traditional free trade agreements (FTAs) have led to extreme income inequality, wage stagnation despite productivity gains, and incentivized corporate outsourcing of U.S. jobs and industry to benefit from worker exploitation and environmental degradation abroad. It is wise to exclude market access provisions, tariff adjustments, investor-state dispute settlement (ISDS), and intellectual property provisions. No trade deal (or framework) should place corporate interests above the interests of working people, and the exclusion of these controversial elements of past FTAs is a welcome step toward a more sustainable and equitable future for both people and the planet.
APEP Should Repair the Damage of Past U.S Neoliberal Trade Policy
In November 2023, all 12 APEP leaders released a declaration stating that they “hold a common vision for a more open, fair, inclusive, sustainable, and prosperous hemisphere” and share values of “democracy, rule of law, diversity and inclusion, decent work and well-paying jobs, environmental and social protection, labor rights, universal human rights, and fundamental freedoms in the Americas.”
Public Citizen supports the stated goals and shared values of APEP, as we recognize the importance of shaping future trade policy around democracy, inclusivity, and sustainability. To deliver on these ambitious promises, APEP will have to first work to repair the damage from past U.S. trade policy in the Western hemisphere that fundamentally undermined these goals.
For decades, U.S. trade policy across Latin America has prioritized the profit of U.S. corporations over the wellbeing of communities, workers, democracy, and human rights. ISDS provisions are an undeniable example of this legacy, as a new Public Citizen report explains. In ISDS arbitration proceedings, corporations bypass domestic courts and only have to convince a closed-door panel, often consisting of three corporate lawyers, that the host state’s law, safety regulation, court ruling, or other government action violated the extreme rights granted to the investor through the ISDS-enforced pact.
The Colonial Legacy of ISDS
Decades ago, large corporate interests based in former colonial powers feared that newly independent Latin American states would nationalize or expropriate foreign investments as they sought to reclaim their natural resources and key industries. As a result, Western nations established the ISDS system and convinced former colonies that including ISDS provisions in trade and investment agreements was essential to attract foreign direct investment (FDI).
Paradoxically, despite arguments by ISDS proponents that the system encourages FDI, studies do not provide any supporting evidence. Instead, studies show that countries with ISDS provisions in their investment agreements have not experienced substantial increases in FDI. In contrast, Brazil, which does not have such provisions, remains among the top ten FDI destinations globally, without the constraints of ISDS on their ability to implement laws and regulations that suit their nation’s needs.
The first trade agreement with an ISDS provision was signed between a colonial power and its former colony. Over 50 years ago, every single Latin American delegate present voted against the creation of the World Bank’s International Centre for Settlement of Investment Disputes (ICSID), which cemented the ad hoc ISDS provisions into an institutional structure. Chile’s representative at the time, Felix Ruiz, issued a warning that such a system “would confer a privilege on the foreign investor, placing the nationals of the country concerned in a position of inferiority.”
Chile warned of a system that, decades later, has culminated into a corporate nightmare for countries pursuing sustainable and inclusive environmental and economic policy:
- ISDS tribunals have awarded more than $100 billion of taxpayer money to corporations in known cases — a significant undercount since many cases are never made public. Fossil fuel companies are by far the biggest beneficiaries.
- Latin America faces a disproportionate number of ISDS treaty-based disputes, with 360 out of 1,303 (over one fourth) of known global cases, despite being home to less than 10% of the world’s population.
- U.S. corporations initiate the majority of corporate ISDS attacks against the region.
- Latin American governments have been ordered to pay over USD $32.5 billion in taxpayer money by ISDS tribunals, diverting critical resources away from social needs.
- The United States has ISDS pacts in force with nine of the 11 countries that have joined APEP.
- The 12 APEP countries are mired in a web of bilateral and plurilateral trade and investment agreements — with 43 ISDS pacts currently in force.
ISDS Disproportionately Harms Indigenous Communities
In the notice of this comment period, USTR specifically requested feedback on “Inclusive Trade, including for women, Indigenous Peoples, and other underrepresented groups.” ISDS and the rights of Indigenous peoples are inevitably at odds.
The right to Free, Prior, and Informed Consent (FPIC) is a cornerstone of Indigenous rights. It recognizes their inherent authority to agree to or reject proposals that may impact their lands, resources, or territories. This right underscores the sovereignty and self-determination of Indigenous communities, acknowledging them as primary stakeholders and authorities in matters affecting their people and environment. A significant challenge for Indigenous communities in Latin America is that governments might determine it is not in their best interest to enforce requirements for FPIC if a foreign investor can bring a claim under ISDS that their investor rights were violated. In such cases, states may lean towards foreign investors’ interests, potentially participating in or ignoring rights violations to try to appease the companies and avoid costly ISDS litigation.
Another challenge is enforceability. Indigenous rights are enshrined in international law and enforced by the Inter-American Court of Human Rights (IACHR). Additionally, governments are increasingly adopting them into national law. However, the enforceability in practice is often insufficient as rulings issued by the IACHR are at times not adequately respected.
In stark comparison, obligations in international investment agreements and any awards issued by ISDS tribunals are both binding and highly enforceable in domestic and international law. If a government refuses to comply with an ISDS award, the foreign investor can enforce it through the domestic courts of a jurisdiction where assets are available to seize against the ruling or find other creative enforcement measures.
Indigenous communities, even if directly impacted, are not formal parties to these disputes. Their participation, when permitted, comes in forms like intervenor status or amicus curiae submissions. However, tribunals are not required to consider these submissions, and they often have minimal influence in the final rulings. The ISDS tribunals do not have any responsibility to consider Indigenous rights, human rights, climate treaty agreements, or sustainable development initiatives.
Growing Global Opposition to ISDS
Given the documented harms of ISDS and indiscernible benefit, countries are increasingly reconsidering their involvement in the ISDS regime.
- The European Union recently agreed to exit the Energy Charter Treaty, a decades-old agreement granting ISDS powers to fossil fuel companies.
- Ecuador terminated sixteen bilateral investment treaties in 2016 after conducting an extensive audit of its treaties that concluded that ISDS was fully incompatible with the country’s ambitious sustainable development goals and unconstitutional. This year, Ecuadorian voters reaffirmed their opposition to ISDS when more than 65% of voters rejected a referendum to re-institute the system.
- Bolivia, Honduras, and Venezuela have also exited ICSID. South Africa, India, Indonesia, Pakistan, and others have also terminated ISDS-enforced treaties and otherwise taken steps to eliminate their ISDS liability.
Experts at the United Nations have sounded the alarm on ISDS. In 2015 the UN Independent Expert on the Promotion of a Democratic and Equitable International Order, Alfred-Maurice de Zayas, stated “over the past 25 years ISDS has undermined fundamental principles of the United Nations, State sovereignty, democracy and the rule of law. Far from contributing to human rights and development, [ISDS has] resulted in growing inequality among States and within them. ISDS cannot be reformed. It must be abolished.” And in 2023, David R. Boyd, the UN Special Rapporteur on the Issue of Human Rights Obligations Relating to the Enjoyment of a Safe, Clean, Healthy, and Sustainable Environment, released a report outlining how ISDS has become a major obstacle in addressing ongoing climate and human rights crises.
Domestically, pressure is building to end ISDS. Hundreds of experts across civil society have also warned of the dangers of ISDS. Last year, 200+ labor unions, faith groups, and environmental organizations sent a letter to President Biden stating, “the ISDS regime has been especially detrimental to public health, climate and environmental protections, Indigenous land rights, financial regulations, and democratic sovereignty.” This year, 300+ U.S. professors of law and economics — including a Nobel Laureate — sent a similar letter urging President Biden to eliminate this system for “enabling private companies to challenge public interest policies, resulting in squandered tax revenue and regulatory chill.”
Members of the U.S. Congress have also called on the administration to address the harmful legacy of ISDS across the Americas. Earlier this year, Representatives Linda Sánchez and Lloyd Doggett led 45 other members of Congress in a letter calling for an end to ISDS in Central America, stating that ISDS counteracts the U.S. government’s efforts to address the root causes of migration in the region. And last year, Senator Elizabeth Warren and Representative Lloyd Doggett led a similar letter with 33 members of the House and Senate calling for the elimination of ISDS from existing agreements among APEP members.
As human rights experts, Latin American government representatives, members of Congress, and civil society have warned, the ISDS system stands in stark contrast to core values of sustainability, democracy, and inclusivity. By extension, the legacy of ISDS in the Western hemisphere is fully incompatible with APEP’s stated goals and shared values.
Public Citizen welcomes the Biden administration’s decision not to pursue ISDS in any future trade deals. For APEP to successfully foster sustainable economic development, democratic governance, and inclusivity, we urge USTR to work with APEP partners to create a working group tasked with exploring the options to eradicate this system fully between APEP member states.
The elimination of ISDS is fully possible and must be on the agenda of APEP negotiators if they are serious about achieving their shared goals and values for the economic integration of the Western hemisphere. As proposed by experts, an ISDS working group can explore a number of options to get rid of the system, including unilateral or multilateral termination of bilateral investment treaties, amendment of free trade agreements, and termination by mutual consent.
Other Priorities
While the focus of this comment is on elimination of ISDS liability, Public Citizen would additionally like to associate ourselves with the broader list of labor, environmental, human rights, and economic justice priorities described in the comment submitted by the Citizens Trade Campaign (CTC), a broad and diverse national coalition of environmental, labor, consumer, family farm, religious, and other civil society organizations.
We also endorse the comment submitted by the Trade Justice Education Fund (TJEF) and leading environmental organizations providing recommendations to ensure an equitable clean energy transition that reflects this administration’s priorities of worker-centered trade and climate leadership. APEP countries are home to a substantial share of the world’s critical mineral commodities, and with the surge in demand for such minerals in the green transition, the U.S. as a trading partner through APEP and other pacts can play a determining role in ensuring a just clean energy transition.
If APEP becomes a venue for Critical Minerals Agreement (CMA) negotiations, USTR must ensure that taxpayer money does not incentivize dirty and dangerous mining practices. Members must first also seek to reduce demand for minerals, including by building capacity to recycle. To the extent that minerals must be extracted, any agreements must require strong, binding and enforceable standards for workers and the environment. Indigenous and local communities must be guaranteed Free Prior and Informed Consent, and countries must retain the autonomy to develop industries and reap the economic benefit from their own resources.
Conclusion
APEP leaders agree on shared values for regional economic integration: the facilitation of democratic institutions, rule of law, diversity and inclusion, decent work and well-paying jobs, environmental and social protection, labor rights, universal human rights, and fundamental freedoms. These goals and values are a welcome departure from decades of harmful neoliberal policy in the region, and Public Citizen wholeheartedly supports policy aimed at building an inclusive, equitable, sustainable future both in the Global North and in the Global South.
To achieve these goals, however, policymakers must reconcile the past mistakes of U.S. trade policy in the region, understanding that failure to address the legacy of extractive policy risks exacerbating the global race to the bottom instead of fostering inclusive, sustainable economic integration for the working people of the Western hemisphere. The green energy transition cannot — under any circumstances — exacerbate the global race to the bottom at the expense of workers and the planet. Trade and investment in green energy must preserve the universal human rights of frontline communities, Indigenous groups, and workers. Policymakers across the Western Hemisphere must have the policy space to act on ambitious, worker-centered climate policy without mounting threats of ISDS lawsuits. APEP must deliver for working people, and the negotiators have the opportunity to fight for provisions that do.
To build a sustainable, inclusive APEP that delivers for people and the planet, negotiators must use this opportunity to address the harmful legacy of ISDS. Otherwise, APEP risks failing to deliver on the ambitious, shared values that member states have agreed upon.