The secretive private legal system written into many international trade treaties is the epitome of a “rigged game,” Sen. Elizabeth Warren told BuzzFeed News. But it is not set in stone, she said. In an interview in her office on Capitol Hill, she outlined three steps that could get rid of it entirely.
This legal system, which empowers foreign businesses to sue entire countries for hundreds of millions or even billions of dollars, was the subject of an 18-month investigation by BuzzFeed News published last week. Among the findings: Executives convicted of crimes have used the system to avoid punishment, and companies have used the mere threat of a lawsuit to gut a country’s laws.
Warren described a case, highlighted in the investigation, that she said “really jumped out in front and put the human face on what this obscure clause can actually do”: A court in El Salvador found that a factory had poisoned a village with lead, failing for years to take government-ordered steps to prevent the pollution. But by threatening to take the matter to this global super court, lawyers for the company helped it avoid a criminal conviction and the responsibility for cleaning up the community and providing needed medical care.
“The company that damaged so many people just gets to slip away,” Warren said of the case. “This is a reminder how the game is rigged.”
This legal system is known as investor-state dispute settlement, or ISDS, and it is enshrined in trade and investment treaties covering much of the world. It is open only to foreign businesses; the countries they sue have no right to bring suit themselves. The people who decide cases are not publicly accountable judges but private arbitrators — often lawyers at major US and Western European law firms who may argue a case one day and sit in judgment another. Their decisions are not subject to meaningful appeal, and many nations are required to treat their rulings as if they came from their own highest court.
Once a rarely used system designed to protect businesses from property seizures and blatant discrimination, ISDS has become a powerful weapon for businesses that feel a government’s actions — such as enacting a new environmental law or trying to collect taxes — unfairly harm their profits. Since the late 1990s, the number of known cases has exploded.
ISDS is one of the most controversial parts of the Trans-Pacific Partnership, or TPP, the massive international trade deal that has become a hot-button issue in the US presidential campaign. When Congress decides whether to ratify the pact, it will be deciding on whether to approve a huge expansion of ISDS.
Both Hillary Clinton and Donald Trump have said they oppose the trade deal. Clinton has supported some previous pacts, but she has vowed not to sign off on TPP and has voiced concern about ISDS.
“Secretary Clinton has made clear how she feels about the TPP,” Warren said. “She’s been very explicit about ISDS. She understands this and why this is a very significant problem.”
Asked by BuzzFeed News what Trump’s position is on ISDS, Peter Navarro, the candidate’s senior policy adviser for economic and trade issues, declined to say. Navarro, a professor of economics and public policy at the Paul Merage School of Business at the University of California, Irvine, said ISDS was a “technical, second-tier issue of these trade agreements,” then said he didn’t feel comfortable discussing the subject by phone and asked for questions in writing. In response to those questions, he provided a statement reiterating Trump’s “unequivocal” opposition to TPP. “The Trump Trade Doctrine also opposes any provisions in any trade deals that interfere with the sovereignty of the United States government,” Navarro wrote, “and ISDS clauses raise sovereignty issues.”
Many experts have cautioned that this global court can undermine a nation’s ability to govern itself. In a little-noticed 2014 dissent, US Chief Justice John Roberts warned that ISDS arbitration panels can review a nation’s laws and “effectively annul the authoritative acts of its legislature, executive, and judiciary.”
Lawyers and arbitrators involved in ISDS cases, however, say the system merely upholds basic rules of fairness and doesn’t provide businesses any unwarranted advantages.
Thus far, the countries that have been hardest hit by ISDS judgments are primarily developing nations, but that is changing, as businesses increasingly have used the private legal system against developed countries. The United States has not lost any cases, but, as one installment of BuzzFeed News’ series found, this is largely because of luck.
Further, the US has few treaties with wealthy nations home to businesses likely to sue. That would change dramatically if TPP is approved, opening the US to claims from companies in Japan and Australia, among other nations.
The Office of the US Trade Representative, which led the negotiations, has said that TPP includes safeguards to prevent problematic ISDS cases and that the basic fairness of US laws will always stand the country in good stead.
Warren’s response: “You want to bet our Treasury,” she asked, on the fact “that we haven’t lost one yet?”
“We’re a country that believes in rule of law,” she said. “We have courts. We have an appeals system. We don’t get it right 100% of the time, but we’ve got a process that tries to bring some fairness in and some balance. ISDS is the exact opposite of that.”
Even if TPP never takes effect, the US is already bound by other treaties containing ISDS, and it has helped convince nations around the world to include it in their treaties as well. Warren said the US should take the lead in unwinding the system it helped create by doing three things.
First, she said, “Let’s not do any more harm. Let’s not pass TPP. Let’s not put this in any new trade deals.”
Second, deal with the treaties already in effect. These agreements periodically come up for review, and, when they do, the US should renegotiate them and excise ISDS, Warren said.
Finally, she said, the US should “start sounding the alarm over this. We have got to make it so that countries around the world are pushing back against this, saying, ‘Wait a minute, this is a bad idea for all of us.’”
There is no justification for ISDS in the many countries that have developed legal systems, she said, and businesses that invest in countries without a developed judiciary can purchase political risk insurance, such as that available from the US government agency called the Overseas Private Investment Corporation.
“We don’t need ISDS,” Warren said. “It unbalances the system even more. It puts too much power in the hands of multinational corporations. It’s time to say no to ISDS, to start winding out of it.”
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