Monday, June 29, 2015

I thought ISDS was only for banana republics

Trade Promotion Authority (TPA) is not just for President Obama, it is also intended for the next president after that (the term for TPA is six long years). There are two big trade agreements that are getting much of the news, the Trans Pacific Partnership (TPP) and the TransAtlantic Trade and Investment Partnership (TTIP). That's what most of the fuss is about with TPA in the news.

I say six long years because TPA will grease the chutes for 41 other trade agreements that will surely beat the stuffing out of the middle class if they are ratified. It's just a wonderful power grab for the elites without having to do all that haggling with a Congress that is trying to look like they love the middle class, when all they really want more money for their next election. TPA means that the president can negotiate an agreement and submit it to Congress for an up or down vote without amendment. That's what removes the haggling from the picture.

Despite all that fuss, there is not that much discussion about a provision common to both agreements called Investor State Dispute System or, ISDS. ISDS is a concept designed for dealing with developing nations with developing legal systems. The point of ISDS is to enable trade between two countries to minimize risk of "nationalization" or expropriation of a business by a government during times of civil unrest or crisis. You know, revolution. Or maybe, the foreign government gets greedy and decides that they want the oil industry for themselves. That's what ISDS is for.

ISDS is not for mature countries with mature legal systems like the US, Canada and just about every other member of the European Union. It is not for Japan, or South Korea, either.

Before ISDS, businesses would buy business insurance to make sure that if their foreign branch was somehow expropriated by a foreign government, they could recover their costs. That worked pretty well, but there are some emerging markets where they want in, but insurance costs are too high. I don't think those emerging countries are a party to the treaties currently in negotiations. Here is list of the TPP partners:

Brunei Darussalam
New Zealand

The point of ISDS is to have some recourse when a banana republic nationalizes your industry. Isn't it? There might be a couple of countries here that qualify as a "banana republic". Brunei still uses caning as a form of punishment in their legal system. All of the other countries are well established in their legal systems and have mature economic systems. Even Vietnam is coming along nicely with major manufacturers like Intel employing thousands there.

So if none of the parties to the agreement are banana republics, what is the point of ISDS? My guess is, legislative control, but not in the way we usually think of it.

In the United States, the government is sovereign. Jurisdiction is invited and you can't sue it directly unless there is a law that gives you standing to sue. Oh, you can try to sue, but if you have no standing, your case will be summarily dismissed.

The TPP would give corporations standing to sue the government directly in the event that the government passes some law that would interfere with a corporation's business. That includes imagined future profits that would be lost due to some law that the corporation doesn't like. This can result in payouts in the billions to said corporation - with taxpayer money. There are numerous examples and truth be told, the number of ISDS suits has exploded in recent years.

There is another aspect of ISDS: the potential for self-dealing. Lawyers working for a corporation can also serve as a judge on an ISDS panel in TPP. The Public Citizen website explains the concept rather well, here:
Comprised of three private attorneys, the extrajudicial tribunals are authorized to order unlimited sums of taxpayer compensation for health, environmental, financial and other public interest policies seen as frustrating the corporations' expectations. The amount is based on the "expected future profits" the tribunal surmises that the corporation would have earned in the absence of the public policy it is attacking. There is no outside appeal. Many of these attorneys rotate between acting as tribunal "judges" and as the lawyers launching cases against the government on behalf of the corporations. Under this system, foreign corporations are provided greater rights than domestic firms.
In a very real and legal sense, ISDS is a backdoor, a way to circumvent the host country's legal system without the checks and balances we already maintain in the US. It is a provision we should not take lightly and we should be ready to fight it.

I believe that the ISDS provisions in any of the treaties before Congress should be removed. But if they remain, then we can challenge them on one simple basis: The Constitution is still the supreme law of the land, and there is nothing in the Constitution that permits subordination of the Constitution to a treaty. Nothing.

Any country that thinks it needs ISDS in the treaty is probably making a tacit admission that it is a banana republic. Could it be that Obama is aware of that admission in his quest to sign treaties with ISDS provisions?
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