Investor-State

Hyperbole Aside, Elizabeth Warren Is Right About the Risk of Investor-State

Sen. Elizabeth Warren takes to the Washington Post op-ed pages today to warn about the dangers of the so-called Investor-State Dispute Mechanism, which is likely to be a part of the emerging Trans-Pacific Partnership deal.  In substance, if not style, Sen. Warren’s perspective on ISDS is one that libertarians and other free market advocates should share. At least, my colleague Simon Lester and I do

ISDS grants foreign investors the right to sue host governments in third-party arbitration tribunals for treatment that allegedly fails to meet certain standards, such as new laws, regulations, or policies that might have a discriminatory effect on foreign investors that reduces the value of their assets. Certainly, investors – and in this context we’re talking mostly about multinational corporations (MNCs) – should have recourse to justice when these situations arise. But under ISDS, U.S. investors abroad and foreign investors in the United States can collect damages from the treasuries of their host governments by virtue of the judgments of arbitration panels that are entirely outside of the legal structure of the respective countries. This all raises serious questions about democratic accountability, sovereignty, checks and balances, and the separation of power.

An important pillar of trade agreements is the concept of “national treatment,” which says that imports and foreign companies will be afforded treatment no different from that afforded domestic products and companies. The principle is a commitment to nondiscrimination. But ISDS turns national treatment on its head, giving privileges to foreign companies that are not available to domestic companies. If a U.S. natural gas company believes that the value of its assets has suffered on account of a new subsidy for solar panel producers, judicial recourse is available in the U.S. court system only. But for foreign companies, ISDS provides an additional adjudicatory option.

At a Minimum, Transatlantic Trade Negotiations Should Ditch Investor-State Provisions

Some exaggeration notwithstanding, Harold Meyerson, with whom the occasion to agree is rare, does a reasonably good job describing some of the pitfalls of the so-called Investor-State Dispute Settlement mechanism in his Washington Post column yesterday.  ISDS has become a source of growing controversy, which threatens to derail the Transatlantic Trade and Investment Partnership negotiations, which are reported to be floundering during the seventh “round” of talks taking place this week in Chevy Chase, Maryland.

“Under ISDS,” Meyerson writes, “foreign investors can sue a nation with which their own country has such treaty arrangements over any rules, regulations or changes in policy that they say harm their financial interests.”  That is more or less correct, but the implication that the threshold for bringing a suit is simple harm to a foreign investor’s financial interests is misleading.  What is being disciplined under ISDS is not harm to financial interests of foreign investors, but harm that comes from discriminatory treatment of foreign investors.  Thus, ISDS avails foreign investors (i.e., U.S. companies invested abroad, foreign companies invested in the U.S.) of access to third-party arbitration tribunals as venues for determining whether and to what extent the plaintiff suffered economic damages on account of host-government actions or policies that fail to meet certain minimum standards of treatment.

Meyerson suggests that ISDS provisions be purged from the TTIP negotiations because they subordinate U.S. courts to unaccountable tribunals, which “invites a massive end-run around national regulations.” Though I firmly believe the U.S. economy is racked with superfluous and otherwise unnecessary regulations, I do believe that a successful foreign challenge of U.S. laws, regulations, or actions in a third-party arbitration tribunal (none has occurred, yet) would subvert accountability, democracy, and the rule of law.  For those and several other reasons, I’m on board with Meyerson’s suggestion to purge ISDS from TTIP, and would extend the purge to all trade agreements.  In fact, I developed eight reasons for purging ISDS from the trade negotiations in this paper earlier this year.

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