As the 6th round of NAFTA negotiations begin this week in Washington D.C, the controversy over exactly what a new agreement might involve (if there is one at all) continues to generate debate. In a blog prior to the 5th round of negotiations in Mexico City, Sophia Murphy, IATP’s Senior Advisor on Trade suggested a third track that considers some elements of current position taken by Canada. Taking a page from Canada’s position to trade and protect, and acknowledging the cost of any change, the third track supports trade that protects those “least able to absorb the shock bearing all the cost of adjustment, whether it is going to be a new NAFTA or no NAFTA.”
An important part of that third track must include getting rid of one of the most controversial dispute settlement mechanisms in NAFTA called investor-state dispute settlement mechanism (a provision Canada and Mexico unfortunately still support). While dispute settlement has emerged as a sticking point, it is far from certain how the negotiations will proceed. The U.S. has reportedly proposed that countries be allowed to “opt in” (or not) to that mechanism. If this really is a serious proposal, it would be a big step toward civil society demands to eliminate it. Leading up to the 4th round of negotiations in mid-October, US groups had delivered over 400,000 petitions asking to eliminate the investor-state dispute settlement (ISDS) system. The petitions were gathered by civil society organizations ranging from farm organizations, environmentalists and trade unions to women’s organizations and church groups.
What is at stake in ISDS?
As my new report shows, ISDS gives foreign investors the right to demand compensation for environmental, public interest and other laws that undermine their anticipated profits. Cases are decided by unaccountable panels of trade lawyers, who might have conflicts of interest. This provision, initially put in place to ensure investors’ rights are protected against nationalizations or expropriations, has evolved to become a tool for corporations to tie up governments in long and expensive legal cases, with chilling effects on public interest rules around the world.
The issue has become quite controversial globally too, since ISDS is now part of most multilateral or bilateral investment agreements. In fact this was the topic of a side event (organized by IISD and Columbia Institute for Sustainable Development) on October 12, in Rome, at the 44th session of the UN Committee on World Food Security (CFS 44). This was especially relevant given the multi-agency report on the State of Food and Agriculture (SOFA) discussed at the CFS plenary earlier in the week. According to the report, the number of the chronically malnourished people started increasing again in 2016, going up to 815 million (from 777 in 2015), after declining steadily since the food crisis ten years ago, and this increase is happening in situations of conflicts including war zones.
The contexts and backgrounds of these conflicts vary, and those resulting from resource grabbing (that is land and water grabbing), often facilitated through foreign investments, is one of them. Sometimes people are displaced from their lands outright; at other times, it is only later on that communities find that their water sources are either depleted or polluted, affecting their drinking water and cooking water, let alone their irrigation water. Specifically focusing on ISDS, several presenters drew attention to the fact that the number of ISDS cases have grown exponentially in the last decades. Clearly, disputes arising from agricultural related investments directly affect food and nutrition security of the impacted communities; but so do investments in other sectors (extractive industries for example). The panelists emphasized how investment contracts need to ensure that governments retain their ability to work in public interest.
In my own presentation at the panel, I shared findings from IATP’s recent research on ISDS and right to water. This paper explores how progress along one track, such as the recognition of the right to water, can sometimes mean very little when faced with developments in another track—such as ISDS in a trade & investment regime. It is as if these two governance regimes exist in parallel worlds. For example, over the last two decades governments in every region has been making concerted efforts to improve peoples’ access to drinking water and sanitation. This has meant enacting new laws, making new regulations and, in a few cases, also enshrining it as a constitutional right. In addition, globally, the states came together at the United Nations to recognize water as a fundamental human right. In this same period, there has been an increase in the number of investor claims filed through ISDS against States initiating public interest measures to address water pollution or to reduce water tariffs.
Once investors file a case through ISDS, the respondent States need to spend hundreds of millions of dollars to defend their case, and in payment to the investor if they lose, in addition to taking care of the domestic concerns arising from the fallout of these investments. States’ counter claims related to violation of the economic social and cultural right are rarely considered by a tribunal. Even in a recent case, the first time when the tribunal award considered the host state’s counter claim related to violation of the human right to water, the tribunal ruled that for the human right obligation to exist and “to become relevant in the framework of the BIT, it should either be part of another treaty (not applicable here) or it should represent a general principle of international law.” In short, these tribunals, made up of unaccountable trade lawyers, are unlikely to rule in favor of states seeking to uphold their human rights obligations or any other public responsibilities as long as the ISDS system in place.
ISDS has no place while the world is trying to achieve sustainable development goals around food and nutrition security, health, and water security, amongst others. The NAFTA renegotiation is a great opportunity for all three countries to agree to get rid of ISDS in the North American context as a first step. Canada’s proposals in the context of NAFTA to uphold labor and environmental standards in all three countries provide important moral leadership, but its calls to ‘trade and protect’, remains empty as long as it does not propose to eliminate the investor-state dispute settlement system. The three countries should chart a path forward without ISDS, one that takes us closer to that third track.