Trade critics continue to roll out the same tired arguments lashing out against trade deals that create critical opportunities for American businesses, workers and consumers – even though these arguments have been proven wrong time and time again.
The Sierra Club issued the latest salvo recently, with a new paper that repeats their typical criticisms of the investor-state dispute settlement (ISDS) provisions of the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP). The paper seeks to present a stark picture of the future, warning of a pending “swell” of ISDS challenges to scare governments from moving forward on public interest regulations.
Sound familiar? It should – anti-trade environmental groups have used these far-fetched arguments before, even though none of what they have predicted has ever come to pass. The Sierra Club’s claims about the United States’ free trade deal with South Korea is a good example where they warned that the deal would “significantly raise the likelihood of more costly investor-state cases targeting U.S. laws and regulations.”
These arguments are scare tactics, not grounded in facts. After four years, not a single ISDS case has been filed under the Korea-U.S. (KORUS) Free Trade Agreement (FTA). In fact, the U.S. has free trade agreements in force with 20 countries, and bilateral investment treaties in place with approximately 40 countries – and yet has faced only a small number of ISDS cases: 18 cases over the past 25 years. The United States has a strong track record here, having won every single case that has been concluded.
The truth is that ISDS is all about fair play – making sure that governments keep their international commitments, respect private property and treat all companies fairly and without discrimination. Here are some of the key facts about ISDS:
ISDS is transparent, open, and fair. Clear ISDS rules allow all parties access to a neutral, depoliticized process. The TPP adds additional rules to prohibit conflicts of interest, building on already strong provisions in previous free trade agreements that have proven successful.
ISDS does not increase the likelihood of challenges against U.S. regulation. Foreign investors in the U.S. – such as those 1,000 subsidiaries the Sierra Club mentions – already have substantive rights to challenge the U.S. government in U.S. courts. While ISDS provides another forum for legal action, it is a narrower one, both in terms of the specific challenges that can be brought and the limited potential remedies that can be obtained, compared to existing rights under the U.S. Constitution, the Administrative Procedure Act and similar U.S. laws and regulations.
ISDS claims cannot change any law, regulation or regulatory decision. By the clear language of the TPP, ISDS panels can only order the payment of compensation and cannot require any country to change its laws, regulations or decisions. Independent academic experts have confirmed that there has been no actual chilling effect on public welfare regulations from ISDS.
Most ISDS cases do not tackle broad regulation, but rather are focused on administrative and permitting decisions. Most ISDS claims focus on preexisting contracts, permits, licenses or specific promises from a government and do not challenge legislative acts. Of the small fraction of cases involving broader regulation, not a single ISDS case has ruled that a generally applicable environmental, health, or public interest law or regulation contradicts the country’s investment obligations.
ISDS cases are most often won by governments. Despite critics’ claims that companies generally win in ISDS proceedings, the reality is quite different: of all ISDS cases decided by the end of 2015, the state won 57 percent, compared with 41 percent for investors.
Contrary to these types of scare tactics perpetuated by the Sierra Club and others, there has in fact been a long track record on ISDS and it is one that reflects the best of U.S. legal traditions. ISDS ensures strong enforcement and compliance by all parties in these hard-fought trade deals, and guaranteeing that the U.S. can gain all of the benefits it has fought so hard to get.
Linda Dempsey, is vice president for international economic affairs at the National Association of Manufacturers.