ISDS: The Hidden Court System Blocking Sustainable Development

By Ayesha Mustafa

During my time working at the non-profit Traidcraft Exchange, I contributed towards a campaign to stop a system called ISDS; a court system allowing big businesses to sue poorer countries for the implementation of progressive policy. But with talks of the inclusion of ISDS in post-Brexit trade talks, the issue needs urgent attention in the current Brexit climate.  

ISDS in practice   

The little-known court system called ‘Investor-State Dispute Settlement’, also known as ISDS, is a private court system written into a vast network of treaties that govern international trade and investment. It is used by large companies to sue countries who pass policy which will undermine their profits. This can include financial stability measures, bans on toxic chemicals, mining restrictions, anti-discrimination policies, environmental protection laws, and more.  The government now wants to include ISDS in international trade agreements after Brexit to continue this pattern, but opposition is growing.  

In the past, there have been over 900 cases in which ISDS has been used. Within the system, poorer countries are particularly vulnerable as company’s profits regularly take priority over environmental and social reform. Hence, if it continues to be included within trade agreements, such as that of the post-Brexit deal, the dangers it poses to developing countries are evident. 

For example, during the Argentinian Financial Crisis in 2000, during a time when it was found that 70% of the country’s children were living in poverty, the government froze national water prices in order to maintain its affordability. In response, water companies, such as Anglian Water, used the ISDS system to sue the government for ‘lost profits’. The tribunal completely dismissed human rights arguments, calling for one’s right to water coming ahead of the company’s profit margin. Argentina was ordered to pay out £251 million as a result.

The fact that Argentina were made to pay such a sum, in the midst of what came to be known as their ‘Great Depression’, is just one example of how this use of ISDS can prevent injections of money into public service and social welfare within struggling nations, hence hindering their national sustainable development. 

Similarly, in 2017, Canadian firm Bear Creek won $18m in compensation after Peru cancelled a mining license, aften the company had failed to obtain informed consent from indigenous landowners. This verdict demonstrates the lack of political autonomy and democratic process that can come as a result of ISDS.  

The barriers to sovereignty and sustainable development  

When a State loses within the ISDS system, there is no appeal system. Moreover, if they resist the administered payments, the award can be enforced by courts almost anywhere in the world by the seizing of state property. This can mean freezing bank accounts, seizing of state aircraft, or confiscation of state vessels (Hamby, 2016). 

The ability of less economically developed countries, as a result of ISDS, becomes hindered to tackle challenges such as climate change, human rights abuses and environmental degradation. The system, therefore, completely contradicts the UK’s commitments towards the Sustainable Development Goals, and their commitments to tackle our ‘climate emergency’. (Lucas, 2019) 

Not just its use, but its mere inclusion in trade agreements is enough to cause foreign governments to defer or threaten progressive policies. The fear of legal action can lead to a situation called “regulatory chill”. For example, Canada entered the North American Free Trade Agreement (NAFTA) with the United States and Mexico in the mid-1990s, which included ISDS. Five years later, a former Canadian government official told a journalist:  

“I’ve seen the letters from the New York and DC law firms coming up to the Canadian government on virtually every new environmental regulation and proposition in the last five years. They involved dry-cleaning chemicals, pharmaceuticals, pesticides, patent law. Virtually all of the new initiatives were targeted and most of them never saw the light of day”. (Greider, 2001) 

The issue, thus, becomes ever more pressing in the wake of the current global climate crises, as environmental protection is made drastically more difficult in cases where ISDS is used or threatened to defer developments in environmental policies.  

The fightback against ISDS – and how you can get involved 

Opposition to ISDS is growing as people become more aware of its consequences. Governments are speaking up and countries, including South Africa and Ecuador, have now cancelled deals which include it. ISDS is undemocratic and unjust. Therefore, we must seek for better alternatives.   

Our government still wants to press ahead and include ISDS in new trade deals post-Brexit. That’s why NGOs and trade unions around the country – including Traidcraft Exchange – have launched a campaign to stop ISDS.  

More than 40,000 people have already signed a petition to the government. However, with Brexit only around the corner, there is limited time to stop it. So please share the campaign on social media, and sign the petition to stop this unwanted and unfair court system.  

Header Image: Photo by Hunters Race on Unsplash

References

Greider, W. (2001). The Right and US Trade Law: Invalidating the 20th Century. The Nation

Hamby, C. (2016). Inside The Global “Club” That Helps Executives Escape Their Crimes. [online] Buzzfeednews.com. Available at: https://www.buzzfeednews.com/article/chrishamby/super-court [Accessed 21 Aug. 2019]. 

Investmentpolicy.unctad.org. (n.d.). International Investment Agreements Navigator | UNCTAD Investment Policy Hub. [online] Available at: https://investmentpolicy.unctad.org/international-investment-agreements [Accessed 25 Aug. 2019]. 

ISDS Red Carpet Courts. (n.d.). ISDS Primer – ISDS Red Carpet Courts. [online] Available at: http://10isdsstories.org/isds-primer/#_edn4 [Accessed 21 Aug. 2019]. 

Lucas, C. (2019). We cannot allow Liam Fox’s post-Brexit trade plans to go scrutinized | Caroline Lucas. [online] the Guardian. Available at: https://www.theguardian.com/commentisfree/2019/feb/21/liam-fox-post-brexit-trade-plan-go-unscrutinised [Accessed 21 Aug. 2019]. 

Woodcock, A. (2019). Post-Brexit trade deals could expose poorer countries to corporate legal action, warns charity. [online] The Independent. Available at: https://www.independent.co.uk/news/uk/politics/brexit-trade-deals-liz-trust-developing-countries-a9037406.html#comments [Accessed 21 Aug. 2019]. 

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