Opposition to Investor Dispute Settlements

Opposition is growing to investor-state dispute settlement (ISDS) provisions in trade deals, according to a report in The Guardian.

ISDS began when former colonies became independent and provided compensation to companies if their assets were expropriated. But the system has developed concepts that allow corporations to seek compensation by claiming that regulatory changes reduce the value of their investment and/or that they were not fairly consulted about the change.

Philip Morris famously used the ISDS provision of the Australia-Hong Kong investment after Australia’s High Court in 2012 held that Australia’s plain cigarette packaging laws were legal and did not constitute an unjust confiscation of trademarks and intellectual property.

In 2015, the tribunal decided that the plaintiff was not a Hong Kong company and had moved ownership of its Australian operations to Hong Kong only to take advantage of the ISDS provision. While prevailing in the case, Australia spent nearly AUD24 million ($18.59 million) to defeat the challenge and only half of this was recovered. Critics say poor countries lack the resources to defend themselves against ISDS challenges.

There are now 1,104 known ISDS cases, with increasing numbers against health and environment laws, including laws to address climate change and to protect Indigenous rights.

Community opposition has pressured increasing numbers of governments to reject ISDS. The 27 EU member states have terminated ISDS arrangements between themselves, and ISDS has been excluded from current talks for the EU-Australia free trade agreement. The U.S. and Canada have excluded ISDS cases against each other from the revised North America free trade agreement, known as the United States-Mexico-Canada Agreement.

More recently, strong community campaigns resulted in exclusion of ISDS from the Regional Comprehensive Economic Partnership signed in November 2020 between Australia, New Zealand, China, Japan, South Korea and the 10 ASEAN nations.

Despite such moves, ISDS provisions are not on their way out quite yet. For example, the British trade minister has confirmed to The Guardian that corporate rights to sue governments are being discussed in the final negotiations for the Australia-U.K. free trade agreement.