Investor-State Dispute Settlement

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If you wanted to convince the public that international trade agreements are a way to let multinational companies get rich at the expense of ordinary people, this is what you would do:
Give foreign firms a special right to apply to a secretive tribunal of highly paid corporate lawyers for compensation whenever a govt passes a law to, say, discourage smoking, protect the environment or prevent a nuclear catastrophe.
That is precisely what thousands of trade and investment treaties over the past half century have done, through a process known as 'Investor-State Dispute Settlement' (ISDS).[2]
The Economist, Oct.14.2014

The last few decades of globalisation have seen corporations expanding across the globe in search for new markets, cheaper labour and lower environmental standards. Transnational corporations are the main beneficiaries of this development; they have seen their share of profits as a part of global GDP increase by 30% between 1980-2013. As a result, inequality has risen, large-scale environmental destruction has followed, and labour conditions have become shockingly poor.
This expansion has been aided by agreements which facilitate cross-border trade and investment, such as ISDS. Companies can move their activities to wherever they can maximise their returns, and are provided with extraordinary safeguards if govt interventions affect their future profits. These agreements also diminish the ability of govts to regulate corporate activities, and hinder their ability to fulfil their human rights obligations to their own citizens.
The European Union and its Member States are some of the most important actors when it comes to shaping globalisation. The EU plays a double role in this process: spinning a web of treaties that give corporations extraordinary powers while hindering efforts to hold these very same companies accountable.[1]

International Centre for Settlement of Investment Disputes


Energy Charter Treaty

Twenty years ago, without significant public debate, an obscure international agreement entered into force, the Energy Charter Treaty (ECT). It acts like the secret magical “One Ring to rule them all” from the Lord of the Rings trilogy, granting corporations enormous powers over our energy systems including the ability to sue govts, which could obstruct the transition from climate-wrecking fossil fuels towards renewable energy. And the ECT is in the process of expansion, threatening to bind yet more countries to corporate-friendly energy policies.
Today the ECT applies to nearly 50 countries stretching from Western Europe through Central Asia to Japan. Its ISDS provisions are the ECT's cornerstone: they give foreign investors in the energy sector sweeping rights to directly sue states in international tribunals of the arbitrators (3 private lawyers).[3]

  • No trade and investment agreement anywhere in the world has triggered more investor-state lawsuits than the ECT.
  • More recently, investors have begun to use the ECT to sue countries in Western Europe.
  • Dizzying sums are at stake for states and taxpayers.
  • Corporations claim compensation for loss of ‘future profits’.
  • Govts have been ordered or agreed to pay more than $51.2 bn in damages from the public purse.
  • The majority of ECT claims are intra-EU disputes, yet sideline EU courts.
  • The ECT is prone to abuse by letterbox companies. These exist mainly on paper, usually used for tax evasion and money laundering.
  • The ECT is increasingly being used by speculative financial investors such as portfolio investors and holding companies. See also Financial Markets#Financialisation.
  • The ECT is a powerful tool in the hands of big oil, gas, and coal companies to discourage governments from transitioning to clean energy.
  • The ECT has been used to attack govts that aim to reduce energy poverty and make electricity affordable. Bulgaria and Hungary have been sued for compensation in the €hundreds of millions, partly for curbing Big Energy’s profits and pushing for lower electricity prices. In the UK, investment lawyers are considering similar action, when the govt has proposed a cap on energy prices to end rip-off bills.
  • There are concerns about self-dealing and institutionalised corruption in institutions that administer ECT disputes. The Arbitration Institute of the Stockholm Chamber of Commerce (SCC), prominent in ECT disputes, is problematic because its arbitrations are particularly secretive, prone to conflicts of interest, and potentially more biased against states than other proceedings.
  • There is an alarming lack of awareness about the ECT’s political and financial risks. Energy ministers have neither the expertise nor the acumen to negotiate these treaties, and yet they do so; hence the mess we're in. Citizens have far too much faith in govts.

Articles

  • Dec.16.2018: The legal clause which could allow Adani to sue Australia. Global corporations should not have special legal rights to undermine the policies of democratically elected governments. All major banks and financial institutions have refused to fund the Adani project. If a future govt chooses to cancel Adani's licence, it could sue the govt for $millions through the Investor-State Disputes Settlement, using the now terminated Australia-India Bilateral Investment Treaty. The cases are heard by international tribunals that have no independent judges, no precedents and no appeals. There are now over 900 known cases and many are against health, environment, indigenous rights or other public interest regulation. Even when govts win, they lose, because it takes years and $millions to defend ISDS cases. The European Court of Justice found recently that ISDS limits national sovereignty and that any trade agreement containing ISDS could not be negotiated by the European Commission, but had to be approved by each EU national parliament. Fearing rejection of ISDS, the EU has ceased including ISDS in its recent trade deals, including the one currently being negotiated with Australia link. Patricia Ranald, The Guardian.
  • Jan.11.2016: The Billions made by lawyers when Multinationals put Countries in the Dock. ... Bear Creek lodged a $522m damages claim against Peru at the International Centre for Settlement of Investment Disputes (ICSID). if previous cases filed at ICSID are anything to go by, the arbitration will take at least three years and incur legal fees that could run into tens of millions of dollars. And if Peru loses, it will be the country’s struggling taxpayers who will pick up the tab. What’s more there is no guarantee that the judgement will be made public. Today, 159 countries have signed up to the ICSID convention and the number of cases filed here has rocketed in recent years. In the 1990s, there were just 42 cases heard at ICSID. In the 10 years to 2009, there were 234 cases. In the last five years alone, 244 claims have been served. The Bureau spent two months analysing the 557 cases that have been filed at this World Bank institution since the first claim was made in 1972. We can reveal that businesses – mostly giant corporations – have in that time scooped damages payouts of at least $4.3bn in dozens of countries through this controversial arbitration system. To companies, ICSID is a forum for ensuring the global trading system provides security to investors if states damage their interests. To most countries, ICSID is an unavoidable fact of life. It is the price they pay for signing up to bilateral investment treaties. These arcane legal documents set the ground-rules for international trade. They provide the framework for companies and on very rare occasions, countries to seek redress if one party acts in a way that harms their interest. But to campaigners, the international investor-state arbitration system is the ultimate way multinationals exert a stranglehold over sovereign states. Through this system, they say, key pieces of environmental or tax regulation can be undermined. And it is companies that overwhelmingly make use of the ICSID process. Since 1972 and over 557 claims, just three countries have sued companies through this route. John Hilary, executive director of War on Want, said: “The eye-watering sums involved pose a real danger to democracy. When govts are considering the introduction of new social or environmental legislation, they are increasingly constrained by having to worry about the implications of their actions on transnational corporations". Unsurprisingly, the lawyers disagree the system is unfairly tilted in favour of the investor. Virtually always held in secret, ICSID cases are often protracted, complex and expensive to mount. Among the go-to firms are Freshfields and Allen & Overy. With such high legal fees, companies are increasingly using third-party litigation funders to underwrite the cost arbitration: Burford Capital,[1][2] and Fulbrook Capital are the main ones. With such large damage payouts, returns on cases can easily beat conventional asset classes. In fact, hedge funds, private equity firms and wealthy individuals are looking to fund international treaty arbitration. third-party funders of litigation are parcelling up mainstream commercial cases and selling them to investors like financial derivatives. A new report by campaign organisation Trade Justice Movement has pinpointed UK companies as major players in the global international arbitration landscape. British companies are responsible for 8% of total known cases. This was second only to companies headquartered in the United States, which accounted for 21% of all cases. TJM also notes many of the main law firms and third party funders involved in international treaty arbitration are headquartered in the UK. Nick Mathiason, Claire Provost, TBIJ.

References

  1. ^ a b
    • Oct.15.2018: The EU’s double agenda on globalisation: Corporate rights vs people’s rights. This briefing explores the double role the EU plays in this process: spinning a web of treaties that give corporations extraordinary powers while hindering efforts to hold these very same companies accountable. This double agenda is exemplified by the EU’s actions in two areas: its reluctance to support binding and enforceable rights for citizens through an UN Treaty on Business and Human Rights, and at the same time expanding and entrenching a system of legally binding and enforceable investor rights and privileges that grants corporations power over governments and communities. Given the fundamental flaws of the investor rights system and the strong need for the UN Treaty, it is high time for the EU to review its positions on these issues and start addressing and reversing the inequities globalisation is producing. Fabian Flues, Anne van Schaik, Friends of the Earth Europe.
  2. ^ The arbitration game The Economist, Oct.14.2014. Accessed Feb.06.2016.
  3. ^ One Treaty to rule them all: The Energy Charter Treaty and the power it gives corporations to halt the energy transition. The little-known Energy Charter Treaty gives corporations the power to obstruct the transition from climate-wrecking fossil fuels towards renewable energy. And it is being expanded, threatening to bind yet more countries to corporate-friendly energy policies. Corporate Europe Observatory, Jun.13.2018.