From Public Citizen: Top 10 Most Pernicious Investor-State Dispute Settlement Lawsuits

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By Lambert Strether of Corrente.

I was going to say “crazypants” instead of “pernicious,” but if there’s one thing the now rapidly collapsing neo-liberal era of dominance teaches us, it’s that what starts out as crazy turns into conventional wisdom in near-real time (see under Overton Window).

So “pernicious” it is, then. The basic theme in all these suits is that the Investor-State Dispute Settlement (ISDS) mechanism is a method of destroying state sovereignty in favor of rule by an international investor class who own the major corporations, and in conseqence seeks to prevent the state from protecting its own citizens. (For background, see “The TPP, if Passed, Spells the End of Popular Sovereignty for The United States.”). 

Most dull normals like me, when reading about these ISDS cases, will probably react like this: “Wait. Can they really do that?” Well, they certainly think they can, otherwise they wouldn’t be expending massive efforts in setting up and rigging this international legal system, and they wouldn’t be bringing lawsuits in its so-called tribunals. (See this post by Golem XIV for a plausible first cut summary of the playbook that structures this effort; see item 7.) And if the Trans-Pacific Partnership (TPP) and the lesser-down but equally crazypants pernicious Transatlantic Trade and Investment Partnership (TTIP) trade treaties are ratified by the United States Senate, international investors and the corporations they own will be getting new rights in your town, too; here’s a handy map. Even more rights than they now have under NAFTA

The Top Ten examples are taken from Public Citzen’s new report, “Myths and Omissions: Unpacking Obama Administration Defenses of Investor-State Corporate Privileges” [PDF]. I’m not focusing on the Obama administration’s defenses because anybody who’s been paying attention knows they’ll be bullshit anyhow; I think propagating the crazypants pernicious examples will be more effective as polemic. I’m also not going into the resolution of the cases; as anybody who’s every encountered a SLAPP suit knows, even bringing a suit that’s totally without merit can intimidate, if the player bringing the suit has deep pockets. And who has deeper pockets than international investors?

So herewith, the list. Readers, regretfully I haven’t been able to rank them, because they are pernicious in so many dimensions at once. If you want to pick the worst, and the second-worst, then have at it! 

1. Loewen Group (Funeral home conglomerate)

When a Mississippi state court jury ruled against the Loewen Group, a Canadian funeral home conglomerate, in a private contract dispute, Loewen launched an ISDS claim against the U.S. government under the North American Free Trade Agreement (NAFTA). In the underlying U.S. court ruling challenged by Loewen, a Mississippi jury determined that Loewen had engaged in anti-competitive and predatory business practices that “clearly violated every contract it ever had” with a local Mississippi funeral home. After Loewen rejected an offer to settle the case, the company was hit with a jury damages award requiring it to pay the local funeral home $500 million. Loewen sought to appeal. Under both U.S. federal and Mississippi state court procedures, a bond must be posted as part of the appeal process to ensure that a losing party does not seek to move its assets to avoid paying on the initial ruling. This procedural rule, as well as the uncertainties related to jury damage awards, pertains to domestic and foreign firms alike. After a failed bid to lower the bond, Loewen reached a settlement for approximately $85 million.76 But then Loewen launched a NAFTA case for $725 million, claiming that the requirement to post bond and the jury trial system violated the company’s investor rights under NAFTA. The tribunal explicitly ruled that court decisions, rules and procedures were government “measures” subject to challenge and review under the ISDS regime. The ruling made clear that foreign corporations that lose tort cases in the United States can ask ISDS tribunals to second-guess the domestic decisions and to shift the cost of their court damages to U.S. taxpayers. [p. 11]

Dear Lord. “[T]he requirement to post bond and the jury trial system violated the company’s investor rights.” Savor that.

2. S.D. Myers  (Trash company)

When Canada imposed a temporary ban on the export of a hazardous waste called polychlorinated biphenyls (PCB), considered by the U.S. EPA to be toxic to humans and the environment, U.S. waste treatment company S.D. Myers launched a case under NAFTA that resulted in an ISDS tribunal ordering Canada to pay the company almost $6 million. [p. 15]

Eesh. If the East-West Highway ever come to the Great State of Maine, it’s a sure thing Canada’s going to want to export their trash to our landfills. But ISDS is incentivizing toxic Canadian trash!

3. Lone Pine Resources (Petroleum extractor)

When the Canadian province of Quebec imposed a moratorium on fracking to conduct a study of environmental and health effects that could result from a possible leaching of chemicals and gases into the groundwater and air, the Lone Pine Resources corporation, which had plans to frack beneath the St. Lawrence Seaway, launched a $241 million NAFTA claim against Canada. [p. 15]

Cuomo must be salivating_{MR SUBLIMINAL What an unpleasant picture}; he could pass the buck to ISDS! (And all Quebec wanted was a moratorium, not a ban!)

4. Insurance Bureau of Canada  (Insurance cartel)

When an all-party committee of the provincial government of New Brunswick, Canada recommended that the province develop its own public auto insurance program, the private insurance industry used the threat of a NAFTA investor-state case to successfully lobby against the program. In response to public outcry over skyrocketing auto insurance premiums, the New Brunswick committee recommended a public plan that would achieve average premium reductions of approximately 20 percent. The Insurance Bureau of Canada, representing Canada’s largest insurers, immediately warned that the proposal could trigger NAFTA investor-state cases from foreign insurance providers in Canada as a NAFTA-prohibited “expropriation” of their market share. The proposal was soon scuttled, due in part, according to observers, to “aggressive threats of treaty litigation.”

Pure rental extraction of 20% based on a mere ISIS threat! Impressive.

5. Pac Rim Cayman (Gold extractor)

[D]espite the inclusion of the “safeguards” in CAFTA, a subsidiary of the Canada-based Pacific Rim Mining Corporation, named Pac Rim Cayman, used that pact to challenge El Salvador’s refusal to grant a mining permit to the company amid a major national debate about the health and environmental implications of mining and the announcements, by presidents from both the right and left parties, of a moratorium on gold mining. Pac Rim launched the ISDS case because it wanted a permit to build a controversial cyanide-leach gold mine, despite the company’s failure to complete a required feasibility study.

Do note the “presidents from both the right and left” part; the needs of the international investor class transcend partisanship.

6. Vattenfall (Energy firm)

Vattenfall, a Swedish energy firm that operates nuclear plants in Germany, has levied an investor-state claim for at least $1 billion against Germany for its decision to phase out nuclear power following the 2011 Fukushima nuclear disaster. This comes after Vattenfall successfully used another investor-state case to push Germany to roll back environmental requirements for a coal-fired power plant owned by the corporation. [Page 3]

Fittingly, the first robber barons were German.

7. Phillip Morris (Nicotine pusher)

[I]n February 2013, New Zealand’s Ministry of Health announced that the government planned to introduce plain packaging legislation, but indicated that it will wait until Philip Morris’s investor-state case against Australia’s plain packaging law is resolved, and that enactment of New Zealand’s legislation could be delayed as a result. The legislation has since been introduced, but not enacted.

Shows how an ISDS suit in one country can have a chilling effect in others. Also too, cancer.

8. Renco (Smelter)

When the Peruvian government denied a request from the U.S.-based Renco Group for a third extension of its deadline to comply with its contractual commitment to remediate environmental and health problems caused by its toxic metal smelting operation, Renco launched an $800 million ISDS case against the government under the U.S.-Peru FTA. After having already granted two extensions to the company, the government ordered the plant closed, pending compliance. Even though the smelter is now shut down because of bankruptcy, the mere filing of the ISDS case assisted Renco in its efforts to evade cases brought in U.S. courts against the firm on behalf of Peruvian children allegedly injured by the smelter’s emissions.

Shows again how the effects of ISDS cascade from one country to another; and the general disinclination of the international investor class to adhere to pesky state requirements for permits, feasibility studies, deadlines, contracts, and so on.

9. Metalclad (Trash company)

When a Mexican municipality required Metalclad Corporation, a U.S. waste management corporation, to clean up existing problems before expanding a toxic waste facility, Metalclad launched a NAFTA case that resulted in an ISDS tribunal ordering Mexico to pay the corporation $16 million.

Too much to ask, I suppose, to clean up your old mess before starting a new one.

10. Occidental (Petroleum extractor)

[T]he ISDS tribunal in the previously mentioned Occidental v. Ecuador case, brought under the U.S.-Ecuador BIT, ordered Ecuador’s government to pay $2.3 billion to the U.S. oil corporation – one of the largest-ever investor-state awards. The penalty imposed by the tribunal on Ecuador’s taxpayers was equivalent to the amount Ecuador spends on healthcare each year for over seven million Ecuadorians – almost half the population. The tribunal decided on the massive penalty after acknowledging that Occidental had broken the law, that the response of the Ecuadorian government (forfeiture of the firm’s investment) was lawful, and that Occidental indeed should have expected that response. But the tribunal then concocted a new obligation for the government (one not specified by the BIT itself) to respond proportionally to Occidental’s legal breach and, upon deeming themselves the arbiters of proportionality, determined that Ecuador had violated the novel investor-state obligation.

To calculate damages, the tribunal majority estimated the amount of future profits that Occidental would have received from full exploitation of the oil reserves it had forfeited due to its legal breach, including profits from not-yet-discovered reserves. The tribunal majority then substantially increased the penalty imposed on Ecuador by ordering the government to pay compound interest. It has become increasingly common for investor-state tribunals to order governments to pay compound rather than simple interest, often requiring that the interest be retroactively compounded from the moment of the challenged action or policy to the date of the tribunal’s decision, and prospectively until the date of payment.136 In the Occidental v. Ecuador case, these interest requirements alone cost the Ecuadorian government more than $500 million.

So if ISDS tribunals can do that, what, exactly, can’t they do?

* * *

If I had to sum up this horrow show in one sentence, this would be it: “International investors are seeking to eliminate political risk[1] by eliminating politics, and replacing it with the ISDS.” (By “politics” I mean admittedly Western-centric contructs like popular sovereignty, electoral democracy, laws, regulations, citizen engagement, civil disobedience, and so forth.)

NOTE [1] In trade parlance, “political risk” is called “lost profits.”