Undemocratic and bad for working people: it’s time to reform the ISDS

Trade unions and civil society organisations across Europe and the United States oppose the private justice system commonly known as investor-state dispute settlement (ISDS). As a result, they are calling for it to be excluded from the pending Transatlantic Trade and Investment Partnership (TTIP) agreement between the European Union and the United States. But why?

What is ISDS? 

ISDS is a special legal right that only those who invest in a foreign country can use to challenge a law, regulation, judicial or administrative ruling, or any other government decision. Investors are those who buy property—whether it’s a hectare of land, a factory, or stocks and bonds. Without knowing anything else about ISDS, it’s clear that there is something wrong with it. Systems of justice should be public, democratic, and available to all in a society on an equal basis.

Why do people call the legal rights under ISDS “

ISDS allows a foreign property owner to skip national courts, administrative procedures and legislative battles, etc., (all the processes that domestic property owners use) to sue the host-country government before a panel of private “arbitrators”. Like judges, arbitrators have the power to make decisions in cases, but they are not democratically elected or appointed, and they are not subject to stringent conflict of interest rules. Not only that, but the foreign property owners don’t lose access to domestic processes—they can ‘double dip’ to get what they want.

What’s at risk? 

The risk is that foreign property owners can use this system to challenge anything from plain packaging rules for cigarettes, to denials of permits for toxic waste dumps, to decisions expand public services, to increases in the minimum wage! If a foreign investor doesn’t like a law, rule, judgment or administrative decision, all it has to do is argue that the decision or measure violated its right to “fair and equitable treatment” or that it might reduce its expected profits.

For example, in the Metalclad case, a US corporation sued the Mexican federal government over a local government’s decision to deny a permit to operate a toxic waste dump. Local citizens felt the dump would pollute their water supply and petitioned their government to deny the permit. Metalclad won more than US$15 million, which was paid by Mexican tax dollars.

Currently, a Swedish corporation is using ISDS to sue Germany over its decision to phase out nuclear power, and a French company is suing Egypt over a number of labour market measures, including an increase in the minimum wage.

In response to the widespread protests against ISDS, the European Commission has instituted a public consultation process to provide an opportunity for public examination and debate of this undemocratic system.

But the US has not yet followed suit. That’s why more than 40 labour, business, public health, environmental and consumer organisations, as well as legal scholars, have called on the US Trade Representative’s office to institute a similar public review process on the other side of the Atlantic.

ISDS isn’t good for working people. That’s why countries like South Africa and Ecuador have been working to reduce their exposure to ISDS and the United Nations Conference on Trade and Development (UNCTAD) has recommended reform.

The TTIP should not include a discredited system like ISDS. If the TTIP is to be a new, “gold standard” in trade agreements, as European Trade Commissioner Karel de Gucht has stated, it must begin with a transparent review of ISDS on both sides of the Atlantic.