ISDS – The threat in the TPP

We have written several articles on the Trans-Pacific Partnership (listed and linked at the bottom of this one), each one focusing on very concerning portions of the highly secretive trade agreement.

In this one, we will turn our attention to one of the most dangerous aspects, the Investor-State Dispute Settlement (ISDS) provision.

What is the ISDS?

The ISDS sounds like a good idea. In principle, it is good to have a way to resolve disputes in trade agreements, since disputes are bound to happen. You want to find a fair and equitable way to resolve an issue so that business can be conducted, profit be made, people be employed, taxes be paid, and so on. At least, that is the way that such mechanisms were intended.

We are increasingly finding, however, that such dispute resolution methods are being weaponized, with giant corporations launching punitive lawsuits against sovereign states. The focus seems to be more on profit protection than on dispute resolution.

NAFTA, another free trade agreement between Canada, the United States and Mexico, has a similar dispute resolution mechanism, but with significantly less “teeth” than the ISDS. That impotence, however, has not prevented billions of dollars of lawsuits from being launched.

I have mentioned before that I am Canadian, and so I have ready information on how this agreement has affected Canada. I will feature just two lawsuits that Canada currently faces.

The first is American drug giant Eli Lilly. They tried suing the Government of Canada over their patent laws. In a nutshell, Canada’s patent laws are more stringent than the United States in that Canada requires that a patent be demonstrated to be sufficiently innovative or useful. Canada ruled that Eli Lilly’s patent applications for two drugs – Zyprexa, an anti-psychotic, and Strattera, an attention deficit drug – were invalid and did not meet this requirement, which allowed manufacturers of generic drugs to move in and create generic versions of the two drugs.

After losing their initial court battle, Eli Lilly has appealed to the NAFTA Tribunal under Chapter 11 to seek $500 million in damages. If successful, Eli Lilly will not have to make or sell even one microgram of either drug in Canada in order to extract half a billion dollars in pure profit from the country. And where do you think the Canadian government will look to recoup that loss? The Canadian taxpayer, of course.

If you believe that Eli Lilly’s Chapter 11 appeal to the NAFTA Tribunal is not about punitive damages and trying to bulldoze Canada’s patent law, and is instead about resolving a dispute in order to lubricate the wheels of international commerce, then I have a bridge I’d like to sell you. Specifically, the Detroit-Windsor bridge which is the second case I would like to highlight.

Recently, there has been some discussion about building a second bridge from Windsor, Ontario in Canada to Detroit, Michigan in the United States to complement the current privately-owned bridge. The current bridge’s owner – Detroit billionaire Matty Moroun – does not like this idea, and has made his initial Chapter 11 filing to the NAFTA tribunal, seeking $3.5 billion in damages from Canada’s government.

Now, that is the NAFTA version of the ISDS. The TPP version loses all pretense of “dispute resolution”, with the concept appearing in the name only. It is written from the perspective of “investor protection”, a thinly veiled euphemism for profit protection. If a country’s laws are such that it would jeopardize, eliminate or prevent a country’s ability to make a profit in that country, they can challenge those laws at the ISDS Tribunal.

How does ISDS relate to TPP?

Like NAFTA’s Chapter 11, the ISDS is an integral part of the trade agreement. The tribunal is a guaranteed avenue for a company to supercede the laws of a country in the pursuit of profits.

How does it affect a nation’s sovereignty?

We have heard some critics of the TPP say that the ISDS removes a nation’s sovereignty. What does that mean?

“Sovereignty” is defined as supreme power or authority, as in the authority of a state to govern itself without another state’s influence.

Allowing a corporate entity to sue a nation state over its laws could – either eventually or immediately – force that nation to remove, reduce or eliminate laws that are in the public interest in order to avoid the impact of an ISDS ruling.

How serious a threat is this?

Let’s take another look at the simple and profitable relationship between Canada and the United States and see how it could impact that relationship.

The Office of the United States Trade Representatives (OUSTR) recently prepared a report that identified some potential international trade barriers. The report is more than 400 pages long.

Canada is a good neighbour to the U.S. No two nations do more business with each other than the United States and Canada, with a total of $707 billion traded back and forth in 2012. The imports/exports are so evenly matched, the US trade surplus is only $40 million. We supply most of its imported oil (forget the middle east), we are a military ally (for the most part), and we share a lot culturally and historically. There can’t be THAT much that the US would have a problem with, right?

Well, here’s the very first potential trade barrier that the OUSTR report identified:

Canada requires cheese to be cheese. Canada has minimum standards on how much liquid milk goes into making a product that can be called “cheese”. This apparently is a problem for U.S. cheese makers, which for me raises the question of just what is in U.S. cheese.

The ISDS tribunal will not likely decree that Canada lower its standards, nor instruct America to raise theirs, but it can award damages to the American Dairy Industry. If the award is great enough, or if the awards are frequent enough, it just might cause Canada to lower its food quality standards to open the Canadian market to American Dairy.

This ability of corporations to act over and above the laws of a sovereign country is getting a name. “Corporate sovereignty”, it’s called.

Is this how good trading partners treat each other?

Let’s look at another example, featuring more contentious trading partners.

Do you recall the hysteria around 2007 over American children’s toys from China that contained lead and other heavy metals? If that happened again, instead of being forced to recall all those toys, China could instead appeal to the ISDS Tribunal and argue that the laws in the United States impede their ability to make a profit. Also, keep in mind that China wants in on the TPP.

Here is another example. Recently President Obama killed the Koch brothers’ Keystone XL Pipeline project. Just imagine the damages a petroleum giant could seek from Canada if instead it was Canadian environmental laws that put a stop to the project. The project was estimated to reap over $100 billion in profits. Under the ISDS provision, they could sue and potentially receive an instant $100 billion in profits without even having to build the pipeline or turn over one cubic meter of Albertan oil sands. I dare say that $100 billion would quite probably be incentive enough for Canada to negate its environmental laws to allow the pipeline to be built.

The Atlantic gives another example, that of a city increasing its minimum wage to $16 an hour. A Vietnamese company that owns a chain of restaurants in that city files a lawsuit that claims that the pay increase violates the “investor protection” provisions of the TPP. Off they go to the ISDS Tribunal.

I hope I have aptly demonstrated the threat of the ISDS in the TPP. Any way you slice it, this is a bad deal.

This is the seventh article we have written on the Trans-Pacific Partnership:

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