ISDS allows foreign investors to sue our Government

Investor-State Dispute Settlement

ISDS pitfalls

Not a fair legal system

The tribunals consist of investment lawyers who can continue to be practicing lawyers, with obvious conflicts of interest. Australia’s High Court Chief Justice and other legal experts have said that ISDS is not a fair legal system because it has no independent judges, no precedents and no appeals. There are over 850 outstanding cases, many against health, environment and other public interest laws.

'Safeguards' wont work

Public health campaigning has resulted in a specific TPP clause to exclude future tobacco regulation from ISDS cases. This is a victory and should prevent future cases like the Philip Morris case against our plain packaging law. But the need for the specific exclusion of tobacco regulation shows that the general “safeguards” for other public interest laws are weak and will not prevent corporations from bringing cases.

Increasing numbers of ISDS cases against public interest legislation

Recent ISDS cases against health, environment and other public interest legislation include:

  • Public health: The Swiss pharmaceutical company Novartis threatened to sue the Colombian government over plans to reduce the price of a patented medicine to treat leukaemia. Read about more cases here.

  • Environment: the US Bilcon company won millions of dollars of compensation from Canada of because its application for a quarry development was refused by a local government for environmental reasons. The US Westmoreland coal mining company is suing the Canadian government because the state of Alberta decided to phase out coal-powerd energy. Read about more cases here 

  • Workers wages: The French Veolia company is suing the Egyptian government over a contract dispute in which they are claiming compensation for a rise in the minimum wage.

  • Indigenous land rights: An ISDS tribunal ordered the Peruvian government to pay $24 million to the Canadian Bear Creek mining company because it cancelled a mining license after the company failed to obtain informed consent from Indigenous land owners about the mine, leading to mass protests. ISDS rewarded the company for ignoring Indigenous land rights. 

  • Privatisation: Mexican transport company ADO has threatened Portugal with a €42 million ISDS case after it cancelled plans to privatise part of Lisbon's public transport network. 

Philip Morris tobacco company vs Australia

Even if a government wins the case, defending it can take years and cost tens of millions of dollars. For example, tobacco companies lost their claim for compensation for Australia’s 2011 plain packaging legislation in Australia’s High Court.  The US-based Philip Morris company did not accept this decision under Australian law. The company could not sue under the US-Australia FTA because that agreement had no ISDS clause. The company found a Hong Kong-Australia investment agreement containing ISDS, shifted some assets to Hong Kong, claimed to be a Hong Kong company and sued the Australian Government, claiming billions in compensation. It took over four years and millions in legal fees for the tribunal to decide the threshold issue in December 2015 that Philip Morris was not a Hong Kong company.

Although the tribunal in July 2017 eventually awarded a proportion of the legal and arbitration costs to Australia, the proportion and amount of the costs were blacked out in the tribunal’s cost decision. This is a failure of public accountability both by the tribunal and the Australian government, as taxpayers have a right to know the costs of defending ISDS cases. Community organisations called for the Australian government to reveal the costs. The government initially appealed an Australian Information Commissioner decision that it should reveal the costs, but finally revealed on July 2, 2018 that the legal costs were $39 million. The proportion of costs awarded to Australia has still not been revealed.

This confirms that, even if governments win ISDS cases, defending them takes years (in this case seven years before costs were awarded) and tens of millions of dollars. 

Learn more

Updated July 2018

Coal mining company uses ISDS to sue Canada for phasing out coal fired power stations

22 November 2018: Investment Arbitration Reporter has reported this week that US company Westmoreland Coal has filed a claim against the Canadian Government under the North American Free Trade Agreement (NAFTA), because they anticipate profit loss when the province of Alberta phases out coal generated electricity.

Peru FTA is first test of Labor’s new trade policy and should not be ratified says AFTINET

Media Release 8 November 2018: “AFTINET welcomes the Labor Opposition initiative to revisit the Peru-Australia Free Trade Agreement (PAFTA) because it includes foreign investor rights to sue governments (ISDS) which the Shadow Trade Minister has pledged to oppose in all trade agreements,” AFTINET Convener Dr Patricia Ranald said today.

AFTINET joins 300 civil society organisations to urge real change at United Nations discussions on global corporate rights

Media release 31 October 2018: “The Australian Fair Trade and Investment Network (AFTINET) has joined more than 300 civil society groups to urge governments at United Nations meetings in Vienna this week to completely overhaul the controversial Investor-State Dispute Settlement (ISDS) system contained in trade agreements like the TPP-11, which the Australian government has just ratified. 

New US trade deal eliminates ISDS for Canada: partial victory for community campaigning but bad news on medicines

4 October 2018: Investor-State Dispute Settlement (ISDS) provisions in trade deals enable foreign investors to bypass national courts and sue governments in international tribunals if they can argue that a change in law or policy has harmed their investment.

The revamped NAFTA agreement between the US, Mexico and Canada, now called the United States-Mexico-Canada Agreement, will phase out ISDS between the US and Canada altogether after three years. The deal also limits the scope for ISDS cases between the US and Mexico to cases of direct government takeover of assets.

Tanzania rejects ISDS in favour of Local Courts

20 September 2018: Yet another country has rejected the undemocratic and non-transparent practices of international arbitration as a method for resolving investor-state disputes (ISDS). There is growing rejection of the inclusion of ISDS in trade agreements like the TPP.

As reported in The East African, Tanzania’s National Assembly on September 17 passed the Public Private Partnership (Amendment) Bill (2018), put forward by Attorney General Adelardus Kilangi.

ISDS Tribunal says Ecuador must pay the cost of Chevron’s pollution of indigenous communities

September 13, 2018: On August 30, 2018, a 3-person ISDS panel sitting in The Hague ruled that Ecuador’s judicial system had no right to deal with a claim for damages brought by indigenous communities against the Chevron oil company for pollution of the Amazon and damage to the health of local communities by its subsidiary, Texaco, in the period 1964-92. 

Columbia University study finds ISDS costs outweigh benefits for many governments

August 14, 2018: A recent study published by the Columbia University Centre for Sustainable Investment evaluates the costs and benefits for states of investor-state dispute settlement (ISDS) provisions in trade and investment agreements. It concludes that expected benefits in terms of increased levels of foreign investment have not clearly materialized, whereas the costs have been unexpectedly high.

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