Trade agreements have severe downsides
Thirty years after the North American Free Trade Agreement (NAFTA) kicked off the first wave of free trade agreements containing investorstate dispute settlement (ISDS) provisions, we’ve largely seen only isolated reporting as to their effect on policy-making.
And that lack of public information arose by design.
The intention of ISDS is to offer multinational corporations the ability to avoid normal courts, and so we only know either what parties have agreed to tell the public or what’s been leaked to the media.
Recently, Buzzfeed’s Chris Hamby has assembled a series of reports that at least scratch the surface of the effects of ISDS rules — and show those agreements far exceeding the fears of even their most severe critics.
And in light of Hamby’s reporting, we should tread all the more carefully before locking ourselves into new deals such as the Trans Pacific Partnership, the Comprehensive Economic and Trade Agreement with Europe and Trade in Services Agreement — all of which stand to cut into democratic governance even further (while also being more difficult to escape than previous deals).
Hamby’s first key observation is that trade deals have been used to challenge a wider range of action than anybody would have reasonably anticipated.
It was entirely predictable that ISDS would allow corporations to challenge intellectual property policies that valued patient health over pharmaceutical profits, or laws that protected the environment from pollutants. And the best-reported examples of ISDS cases involve those scenarios.
But Hamby’s investigation discovered that agreements intended to allow businesses to operate had, in fact, been applied for obviously unconscionable purposes. ISDS provisions have been used in various cases to lock in the preferential treatment granted by kleptocratic governments to business allies, to force states to drop criminal charges or even convictions against corporate offenders, and to pressure governments to assist in the torture and death of protesters trying to save land from environmental destruction.
Similarly, Hamby found that the use of ISDS provisions isn’t limited to businesses looking to protect their own interests in continued or planned operations. Instead, a cottage industry has developed in which investors buy claims or finance litigation for the sole purpose of extracting money from a government based on a challenge to public policy.
In turn, the financial consequences to governments have proven to be far more extreme than reasonably expected.
The ability to claim for speculative future profits has always been a problem with ISDS provisions, and that has been exploited to the fullest possible (including threats of a claim for half of Indonesia’s total yearly budget in one case).
But unpaid ISDS claims also have been treated as being entitled to privileged status when a country needs to renegotiate its debts. And ISDS provisions may also limit a government’s ability to participate in the international financial system as long as claims are outstanding or unpaid.
No reasonable assessment of the costs and benefits involved could see those severe restrictions on democratic action and costs to the public treasury as an acceptable trade-off for economic impacts that are at best marginal, and in some cases outright negative.
But because they’re not widely known, we’re sleepwalking toward another, even more alarming set of deals — rather than following the lead of countries including India, Brazil and South Africa, which are rightly exercising caution in their willingness to sign (and stay in) agreements with unduly broad ISDS provisions.
Aside from exposes like Hamby’s, we have little way of knowing exactly how ISDS rules have affected governments’ choices over the past few decades.
But we should at least avoid making matters worse now that the truth is starting to come to light.