Shadow Courts: The Tribunals that Rule Global Trade
By Haley Sweetland Edwards
Review by David Wineberg
Investor-state dispute settlements (ISDS) are a clause routinely inserted into bilateral investment treaties and free trade agreements worldwide. They allow foreign companies to sue host countries, and risk nothing but their arbitration costs. Countries are not allowed to sue the companies and there is no appeal provision. Doesn’t matter what the country’s constitution or judicial system might say. This supra-national court system has been made the highest court in the world, and hardly anyone even knows about it. What is terribly wrong is that companies get to sue not just for contract damages, but for all the profits they were ever anticipating. Who would ever agree to such a treaty? Everyone.
The country Canada had to pay millions to an American company that expected to make huge profits forever from a toxic chemical that Canada banned. Canada paid and unbanned it, to prevent further financial damage. Health issues for Canadians would have to wait. Philip Morris is suing Uruguay for legislating against cigarettes. Little Uruguay is on the hook for billions.
Not only do long term contracts put foreign firms above sovereign law, but even short term contracts that are not renewed can cause governments to cough up millions. All the company has to say is that it expected the contracts to be renewed. Because they weren’t, the company lost profits going forward.
It costs governments an average $4.5 million to defend each case, and there are hundreds every year, mostly in developing countries that can’t afford either the cost or the legal talent. If the country is sued, it looks bad on the country. If it loses, it’s bad for the taxpayers. If it wins, it still costs. ISDS restrains countries from passing beneficial legislation or making needed changes. These treaties usurp sovereign rights in favor of foreign corporations.
But all is not lost for domestic corporations either. This whole ISDS situation reminds me of an American legal tool called SLAPP (see my review of Blocking Public Participation: The Use of Strategic Litigation to Silence Political Expression) . If strikers or protestors prevent (for example) trucks from entering a plant or rolling down a street, the company can sue say, a Greenpeace or a local neighborhood association for lost future profits. Nothing can stop a march like a billion dollar lawsuit.
It is way past time for the pendulum to start its return trip. Haley Sweetland Edwards says it is starting to, as more countries renounce their treaties, and even lawyers are beginning to say this is just not right. Edwards has provided a valuable service explaining just precisely why activists are rightly upset by all the so-called free trade deals mindlessly signing away taxpayer access to justice. Shadow Courts just should not be.
Editor's note: This review has been published with the permission of David Wineberg. Like what you read? Subscribe to the SFRB's free daily email notice so you can be up-to-date on our latest articles. Scroll up this page to the sign-up field on your right.