Tomas Fitzgerald’s article “Sovereign risk fears around TPP are overblown” claims that critics of the investor-state dispute settlement clause in the latest leaked chapter of the Transpacific Partnership (TPP) have not read the detail “in the sober light of day.”
As one who has published on ISDS and read the leaked chapter I found that the article makes some key omissions in its description of ISDS and about the information in that chapter.
ISDS enables foreign investors to sue governments for compensation in an international tribunal if they can claim that a change in law or policy has “harmed” their investment. No-one has claimed that ISDS provisions mean, as Fitzgerald claims, that national governments “are unable to legislate in the public interest”.
Critics do present evidence that, despite claimed safeguards, there are many recent examples of ISDS cases against health, environment and other public interest legislation. The US Eli Lilly pharmaceutical company is claiming hundreds of millions of dollars from the Canadian Government because of a Canadian court refusal to grant a medicine patent. The US Clayton/ Bilcon company has in March 2015 won a case for compensation yet to be decided from Canada because it was refused a mining license for environmental reasons.
The article’s description of ISDS omits the following facts:
ISDS has no independent judiciary. Arbitrators are drawn from a pool of investment law experts who can continue to practice as investment law act advocates. In Australia, and most national legal systems, judges cannot continue to be practising lawyers.
ISDS has no system of precedents or appeals, so the decisions of arbitrators are final and can be inconsistent. In Australia, and most national legal systems, there is a system of precedents which judges must consider and appeal mechanisms to ensure consistency of decisions.
This lack of an independent judiciary, precedents and appeals is not a matter of individual bias. It is a structural flaw in the ISDS system itself which has been acknowledged by many legal experts including Australia’s High Court Chief Justice French.
Fitzgerald’s claim that ISDS provisions “only allow an investor to sue a state for expropriation”, meaning seizure of assets, is not accurate. ISDS indeed began with claims for compensation for direct expropriation. But ISDS tribunals have developed the concept of “indirect expropriation” which can result from a change in law or policy.
This concept is not recognised in most national legal systems, including Australia, as our High Court found when it threw out the tobacco companies’ claim for compensation for indirect expropriation of trademark use through plain packaging legislation. But the Philip Morris tobacco company is using ISDS in an obscure Australia-Hong Kong investment agreement to sue our government for billions of dollars. Fitzgerald’s only reference to this case is that “the recouping of money would be reasonable” as compensation for loss of trademarks.
Fitzgerald quotes “safeguards” from ISDS claims in the leaked TPP chapter for “legitimate public welfare objectives, such as public health, safety and the environment”
However he fails to mention that the leaked chapter also contains a proposal from the Australian government (page55) which seeks to exempt from ISDS cases specific institutions like the Pharmaceutical Benefits Scheme, Medicare Benefits Scheme, the Therapeutic Goods Administration and the Office of the Gene Technology Regulator. These exemptions are in brackets in the text, which shows that the proposal has not been agreed.
This proposal reveals that the Australian government does not believe that the general safeguards will protect these specific institutions. They also beg the question of what other Australian institutions need to be listed in order to protect them. What about institutions dealing with food regulation, in the wake of the contaminated berries scandal, or with environmental protection?
Fitzgerald claims that “merely because someone sues does not mean they are going to win.” The only evidence cited for this is that there has never been a successful claim against the US government.
However far more comprehensive figures from the United Nations Committee on Trade and Development indicate that of 356 known cases, 53% have been either been won by investors or settled. Settlement indicates that the state had to either pay some compensation and/ or withdraw the law or policy which was the basis of the case. US companies are the most frequent users of ISDS. The Howard Coalition government did not agree to ISDS in the Australia-US FTA. The TPP, which includes the US, would expose Australia to more examples like the Philip Morris case.
ISDS gives already powerful global corporations additional rights to sue governments over democratically decided public interest law and policy. The President of the World Health Organisation has documented how tobacco companies developed a strategy of using ISDS cases to discourage tobacco regulation. TPP governments would be foolish to expose themselves to more such cases by agreeing to ISDS in the TPP.