This is a memo emailed to trade reporters last week. To my knowledge, it has not been posted on the USTR website, though another ISDS fact sheet is available at ustr.gov. This particular email was the topic of an AFL-CIO response by Celeste Drake, posted here.
MEMO TO REPORTERS: ISDS Q & A
From: USTR Public Affairs
Date: March, 11th 2015
Re: ISDS Q and A
Below please find helpful questions and answers on ISDS that pertain directly to incorrect claims being made about the Investor-State Dispute Settlement (ISDS) process.
Today, USTR has also posted a detailed fact sheet on what ISDS is, facts that address common criticisms, and important information about how the United States is leading efforts to update ISDS provisions in TPP: https://ustr.gov/about-us/policy-offices/press-office/fact-sheets/2015/march/investor-state-dispute-settlement-isds
For more information please also read National Economic Council Director, Jeff Zients’ blog post on ISDS questions and answers: https://www.whitehouse.gov/blog/2015/02/26/investor-state-dispute-settlement-isds-questions-and-answers
Investor-State Dispute Settlement – Questions and Answers
Q: Does ISDS tilt the playing field in the United States further in favor of big multinational corporations?
No. ISDS allows for neutral and transparent enforcement of a limited and clearly specified set of basic rights and protections already offered to U.S. and foreign investors alike under U.S. law.
Q: Does ISDS grant corporations the right to initiate dispute settlement proceedings based on claims of lost profits?
No. Our investment rules do not in any way guarantee a firm’s rights to any profits or to its projected financial outcomes. Rather, they only provide protections for a limited and clearly specified set of basic rights – like non-discrimination and compensation in the event of an expropriation – that are already consistent with U.S. law. Our investment rules seek to promote standards of fairness, not protect profits.
Q: Does ISDS undermine U.S. sovereignty, giving companies the right to challenge U.S. laws, or to weaken labor or environmental standards?
No. ISDS does not threaten domestic sovereignty, it is an exercise of sovereignty to resolve international disputes. States fully retain their sovereignty, regardless of ISDS, including to impose any measure they wish (whether to protect labor rights, the environment, or other public welfare objectives). That cannot be changed by an arbitration. ISDS strengthens rule of law by creating incentives to ensure that basic due process and rights are being recognized.
Q: But isn’t ISDS outside domestic judicial systems?
All dispute settlement under trade agreements is done through international dispute resolution mechanisms because they inherently involve parties of different nationalities. This includes enforcement of commercial provisions as well as labor and environmental provisions.
Q: Does ISDS shift power from American courts?
No. On the contrary, American courts are extremely busy handling cases filed by individuals and corporations against the U.S. government, including cases brought by foreign investors. In the same time period that there have been only 17 ISDS cases brought against the United States, there have been hundreds of thousands of cases brought against the federal government and state and local governments in U.S. courts.
Q: What transparency and procedural protections are part of ISDS?
U.S. investment agreements contain (1) detailed transparency provisions, (2) limitations and conditions on the consent of the respondent to arbitrate, (3) provisions to ensure the independence and impartiality of arbitral tribunals, (4) mechanisms to ensure that unmeritorious claims can be dismissed on grounds similar to those in the Federal Rules of Procedures, and (5) numerous other procedural protections detailed in our recent blog posts.
The transparency provisions and procedural protections in our agreements afford respondent governments and interested members of the public the ability to monitor the progress of ISDS proceedings in a way that they could not if the claims were filed in many countries’ domestic court systems. Investment arbitration hearings under recent U.S. trade and investment agreements, as well as all key documents submitted to investor-state tribunals and tribunal decisions, are public and available on the State Department website. Recent U.S. trade and investment agreements also give NGOs and other non-parties to a dispute the ability to participate by filing amicus curiae or “friend of the court” submissions, similar to non-parties’ ability to make filings in U.S. courts.
Q: Is the use of ISDS on the rise?
Not under U.S. agreements. In fact, fewer ISDS cases have been reported under U.S. agreements in recent years than in previous years despite the fact that there are more agreements that have ISDS and ever-growing volumes of cross-border investment. The peak number of cases under U.S. agreements occurred more than a decade ago. Last year there were only 3 cases, brought against any country by any party under any U.S. agreement, none of which were against the United States. That is the lowest number of ISDS cases since the mid-1990s.
Q: Have American taxpayers been required to pay millions or even billions of dollars in damages as a result of ISDS?
No. ISDS is part of dozens of international agreements that the United States currently has in place. In the three decades that the United States has had ISDS, only 13 cases have been brought to conclusion – and the United States has won all of these cases.
Q: But don’t state and local governments have to expend significant resources defending their policies in ISDS?
No. In any dispute arising out of a trade agreement, the Federal government defends the United States, even if the disputes relate to state or local issues.
Q: Are ISDS panels more likely to find in favor of governments or of investors suing governments?
A review of all concluded ISDS cases brought against the United States shows that ISDS proceedings have resulted in wins for the U.S. government in 100 percent of cases. When looking at ISDS cases globally the evidence is more mixed, but governments have won the majority of cases that have been fully adjudicated.
Q: But aren’t the judges biased?
No. Arbitration rules require the independence of arbitrators and provide for challenge and disqualification of arbitrators in the event of conflicts of interest, bias, and other issues. We also guard against bias by ensuring that the government being sued plays a central role in choosing who the panelists are that handle the arbitration.
Q: Where’s the right of appeal?
All ISDS awards under our agreements are reviewable either under the terms of ICSID Convention or by domestic courts in the jurisdiction where the arbitration is seated.
Q: Is ISDS primarily used by multinational corporations?
No. Most ISDS cases are brought by individuals or small and medium sized enterprises – organizations that often have fewer resources than multinational corporations and are thus more easily discriminated against or mistreated.
Q: Could a foreign company use ISDS to successfully challenge an increase in the U.S. minimum wage?
No.
Q: If an American labor union believed a TPP country was allowing forced labor in violation of trade commitments, would the union have no recourse but to make its case in that country’s domestic courts?
No. If TPP is passed into law by Congress, it will create new enforceable labor rights that would allow the United States government to take action against other TPP countries – either on its own initiative or on the basis of a petition from labor unions or other interested parties. The same is true of violations of environmental obligations.
Q: Should we rely on market competition to put in place investor protections?
No. We know well from history that relying on the free market to put in place the rule of law has been not effective. ISDS strengthens the rule of law by creating incentives for States to ensure that basic due process and rights are being put in place.
Q: Haven’t there been outrageous ISDS cases under other agreements?
Yes. There have been outrageous claims brought. But these claims have been made under very different agreements, using different standards, and with different safeguards. It is precisely these kinds of cases that U.S. agreements are designed to avoid. The U.S. has been a leader in the reform of the ISDS system. The success in creating a different, American model of ISDS is reflected in the fact that we haven’t lost any cases. TPP will incorporate the highest standard safeguards to prevent abuse of the ISDS system, including new safeguards beyond past agreements.
