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< Back to Corporate Power Expanded: ISDS

Today’s “trade” agreements grant new rights to multinational corporations to sue governments before a panel of three corporate lawyers. These lawyers can award the corporations unlimited sums to be paid by taxpayers, including for the loss of expected future profits, on claims that a nation’s policy violates their rights. Their decisions cannot be appealed.

How ISDS Works

In 1994, NAFTA became the first “trade” agreement to grant multinational corporations the power to sue the U.S. government in front of a tribunal of three corporate lawyers. Since then, more U.S. agreements and those involving other countries have included these extraordinary corporate powers. Under ISDS, the three lawyers can order U.S. taxpayers to pay 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.

ISDS also incentivizes the outsourcing of jobs by providing special privileges and rights for firms that relocate abroad. The special treatment for foreign investors that the ISDS system allows eliminates many of the costs and risks that make firms think twice about moving to countries with weaker labor and environmental standards — creating a global race to the bottom.

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 over billions of dollars 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 $15 billion from the U.S. when the Obama administration rejected the Keystone XL pipeline.

Just under U.S. deals, tens of billions remain 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 nine years, with a total of 1,023 known 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.

Fighting Back Against ISDS

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.

Eliminating ISDS is a central demand for NAFTA renegotiations across the political spectrum. Groups opposed to ISDS include: the National Conference of State Legislatures, the National Association of Attorneys General, the National Association of Counties, the National League of Cities, small business organizations, hundreds of the nation’s leading legal and economics professors, and more. Stark criticism of ISDS has come from voices as disparate as U.S. Supreme Court Chief Justice John Roberts, Reagan-era associate deputy attorney general Bruce Fein, the pro-free-trade libertarian Cato Institute think tank, U.S. Senator Elizabeth Warren (D-Mass.), Nobel laureate economist Joseph Stiglitz, unions and environmental groups.

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