Foreign Investment Disputes in International Courts

In a recent opinion piece, Washington Post columnist Harold Meyerson criticized something called the “investor-state dispute settlement” (ISDS) mechanism, which is included in some trade agreements. My colleague Dan Ikenson responded here; I wrote a letter to the Post, which said:

Harold Meyerson made valid points about the Investor-State Dispute Settlement (ISDS) clause in trade agreements in his Oct. 2 op-ed column, “A flawed trade clause.” However, with all the misinformation that exists on this issue, it is important to be precise. Foreign investors cannot sue “over any rules, regulations or changes in policy that they say harm their financial interests.”

Rather, they can sue if the host government has discriminated against an investor because it is foreign; if an investment has been expropriated, either directly or indirectly; or if the investor has experienced bad treatment of a more general sort (this controversial standard is known as “fair and equitable” treatment).

In a sense, the ISDS provision creates international judicial review of national laws and regulations, with such review available only to foreign investors. That is certainly a controversial proposition, but it is important to keep the debate focused on the facts, rather than on myths that have been put forward.

You only get so much space for these letters, so I thought I’d elaborate here.

ISDS allows foreign investors to challenge any and all domestic government actions before an international tribunal.  That includes local, state, and national measures, by legislators, regulators, or courts.  In terms of the substance of the claims that can be made, they look a lot like certain constitutional doctrines: Equal Protection, Takings, and Due Process.  What you end up with, in effect, is a special international “constitutional” court (of sorts), available only to foreign investors.  (It can’t strike down the domestic laws, of course, but it can award damages for violations.)

Supreme Court Shows Active Restraint in Not Taking Up Marriage Cases

Confounding the expectations of most commentators, the Supreme Court this morning denied petitions for review in all seven same-sex marriage cases pending before it. I wasn’t so bullish on the petitions’ chances – the justices are increasingly reluctant to entertain controversial subjects except when they absolutely must – but see a sort of practical wisdom in this noteworthy inaction. Although it’s unusual for the Court to deny review in those rare cases where all parties urge it, there’s no current “circuit split” – all appellate courts have struck down the challenges to various states’ marriage laws – so the justices’ demurral signals a desire to let public opinion shift even further in favor of allowing same-sex marriage before the Court wades in with a definitive constitutional ruling. By doing so, and thereby postponing any eventual ruling (perhaps until a circuit court goes the other way, if one does), the Court is lessening the chance that its involvement will warp American legal and political discourse the way Roe v. Wade did.

In the meantime, once today’s “decision not to decide” works its way through the lower courts, same-sex couples will be able to marry in 30 states and the District of Columbia. That’s a good thing.

Brazil’s Presidential Election: More Surprises to Come?

The first chapter of Brazil’s presidential election was a roller-coaster: It kicked off with the country’s demoralizing exit from the World Cup, then its economy entered into a recession and widespread corruption charges engulfed the ruling Workers Party (PT). In August, Eduardo Campos, the candidate of the Socialist Party and a rising star in Brazilian politics, suddenly died in a plane crash.  His VP candidate, Marina Silva, also a charismatic figure, ran in his stead and experienced a meteoric rise in the polls to the point that two weeks ago she looked certain to defeat President Dilma Rousseff in a runoff. But Silva’s support steadily eroded in the last week, and yesterday it was Aécio Neves, from the Social Democratic Party (PSDB), who finished a strong second and will challenge the president in a runoff three weeks from now.

With so many things going on, it’s difficult to pinpoint the precise factors behind the electoral result or predict what will happen next. But here are some of my impressions:

El-Sisi the Reformer?

Is Egypt’s economy taking a turn for the better? The government is hosting an economic summit in February next year, aiming to attract foreign investment, with the participation of not just private investors but also of the International Monetary Fund.

[Christine] Lagarde said Egyptian authorities’ “recent reform efforts” were “encouraging” and expressed her hope that participants in the upcoming summit will see how these reforms can “help restore durable economic stability and sustainable growth to Egypt.”

On the surface, it appears that Egypt’s government is making tangible progress addressing the country’s fiscal problem. The planned energy subsidies cuts are under way, although these are also accompanied by tax increases, mainly through a planned introduction of a value-added tax, hikes to tobacco and alcohol taxes and a new tax on capital earnings.

Experience from other countries, most notably from Europe in the aftermath of the global financial crisis, shows that fiscal consolidations that rely on revenue increases lead to worse outcomes than consolidations that consist of permanent reductions to government spending.

But, whatever one thinks about this particular question, there are two additional reasons to be skeptical. First, putting aside the fuel price hikes that have already occurred, much of the praise directed at the Egyptian government presupposes that it will deliver on its promise to slash subsidies by one third in the fiscal year 2014/2015. That would be welcome news but it is worth remembering that similar reform targets were set in the past and were systematically missed:

According to the budget for the past fiscal year, 2013–2014, the subsidies to oil materials were already supposed to be close to EGP100bn ($14bn). Yet, the actual spending was drastically higher, perhaps by as much as an additional EGP70bn ($10bn)

Second, it is deceptive to look at the fiscal question in isolation, as a technocratic problem that can be solved by clever tweaks to existing policies. Egypt’s economic problem is political in nature, and will continue to plague the country as long it is governed by a kleptocratic, unaccountable elite.

The government – more specifically its military forces – own and run a large part of the economy, shielded from competition, and generating rents. The military coup last year led to the strengthening of the opaque network of cronyism that has long characterized military-run enterprises. Some estimates suggest that as much as half of last year’s stimulus, worth around $4bn and funded predominantly by funds from the United Arab Emirates, has been directed at military-controlled enterprises that became involved in road construction and other forms of infrastructure works, displacing the traditional construction companies.

Just as it was a mistake to see Vladimir Putin as a market reformer in the early 2000s, notwithstanding some of the real policy shifts (such as the introduction of a flat tax), it would be a mistake to see President Abdel Fattah el-Sisi as somebody aiming to open Egypt’s economy to competition and raise the living standards of Egyptians through increased economic freedom. If economic reforms occur, they will occur with the narrow goal of strengthening his hold on power and satisfying the material needs of the generals backing him.

In Egypt, as in other countries of the region, economic and political oppression go hand in hand and are mutually reinforcing. Nothing is a bigger threat to a military dictatorship than an economically empowered citizenry. For this reason, we should not expect genuine reforms to be very high on Mr. el-Sisi’s list of priorities.

Police Misconduct: The Worst Case in September

Over at Cato’s Police Misconduct website we have identified the worst case for the month of September.

The worst case goes to the still-unnamed police officer who shot John Geer in a Northern Virginia incident last year, and the police and federal investigators who have refused to release any information on the case a year after the shooting.

Fairfax County police officers responded to a call from Geer’s longtime girlfriend who called 911 because Geer had been drinking and throwing her possessions out onto the lawn after she told him she was moving out. When officers arrived, they trained their weapons at Geer as they spoke with him in the doorway of his home for almost 50 minutes. Friends and family gathered to watch the situation. One of Geer’s daughters shouted from a neighbor’s home “Don’t you hurt my daddy!”

Geer had been speaking calmly and holding his arms above his head, resting them on the doorframe from within, but when he moved his hands down the doorframe to about face-level, one of the officers abruptly fired a shot directly into Geer’s chest, as his best friend, father, and neighbors watched. Geer spun and closed the door before collapsing. The officers then waited an hour while Geer bled to death before sending in assistance. Over four hours later, Geer’s body was still left lying on the floor of his home.

Police handling of the incident and its aftermath haven’t improved in the year since the shooting. Geer’s family and friends still don’t know the name of the shooting officer—who has been on paid desk duty ever since—whether the shooting was declared justified or not, or why trained negotiators were not called. State and federal investigators have taken no substantial public action on the case, and the family, which exhibited incredible patience for the better part of a year, has finally had to resort to a lawsuit.

The refusal of the police to disclose even the name of the officer who shot and killed an unarmed man is just another example of the same troubling lack of transparency that we saw in the shooting of Michael Brown in Ferguson. Police officers are human, and yes they make mistakes, but what possible excuse is there for circling the wagons and denying the public—and worse, the victims’ family and friends—the right to know what their public servants have done and which of them needs to be to held accountable? The resulting feeling among those affected, as Geer’s father described it, is “Frustrating to say the least—not knowing anything and having a feeling of helplessness, sadness, anger. Just wondering what’s going on and why nobody would tell us anything.”

This is a case of one man shooting another unarmed man in the chest in front of dozens of witnesses. No complication can justify forcing that feeling of helplessness and anger on John Geer’s friends and family for over a year.

Ten Reasons Portland Transit Is Not a Model for Other Cities

Secretary of Transportation Anthony Foxx came to Portland, Oregon last week to tell TriMet, the region’s transit agency, not to apologize for spending $204 million per mile on its latest light-rail line. Although that is eight times as much (after adjusting for inflation) as the region’s first light-rail line, Foxx noted that regions “need to have bold visions” and that, as a model for the rest of the country, Portland was “building for today and for the future.”

Residents of Austin, Durham, St. Petersburg, and many other cities are being told they need to emulate Portland by building their own expensive light-rail lines. Here are ten reasons why they should reject Portland as a model for their own transit and transportation systems.

Court Is Back in Session: No Huge Cases Yet, but Blockbusters Loom

While it seems like just yesterday that the Supreme Court went on vacation after its controversial (but correct) ruling in the Hobby Lobby contraceptive-mandate case, summer is over even for The Nine. Today is First Monday, the traditional start of the new Supreme Court term.

As of this writing, the Court has 50 cases on its docket, which is about on par with recent practice, such that we can expect 70-75 opinions at term’s end once the Court sets more cases for argument later in the term. Here are some of the issues: whether a policeman’s mistaken belief that someone had committed a traffic violation can form the basis for a lawful search (Heien v. North Carolina – Cato’s brief); whether a prison can prohibit a Muslim inmate from growing a beard (Holt v. Hobbs); whether a fisherman can be prosecuted under Sarbanes-Oxley’s recordkeeping provision for throwing undersized fish overboard (Yates v. United States - Cato’s brief); whether Congress can force the State Department to recognize Jerusalem as part of Israel on U.S. passports (Zivotovsky v. Kerry); the circumstances under which criminal charges can attach to Facebook posts (Elonis v. United States Cato’s brief); and whether an occupational-licensing board gets immunity from liability for anticompetitive behavior (North Carolina Board of Dental Examiners v. FTC Cato’s brief). These cases don’t yet reach the high profile of recent terms, but if the Court takes up one of the same-sex marriage or Obamacare-subsidies lawsuits now at its doorstep, all bets are off.

For more detail on these and other cases, see the “Looking Ahead” essay in this year’s Cato Supreme Court Review, as well as these two previews.