How bad are the investor arbitration clauses in TPP?

Mood affiliation aside, these clauses do not constitute a significant reason to oppose the treaty, in my view.  Gary Hufbauer has a good discussion:

ISDS provisions enable a foreign investor to seek compensation in an amount determined by an impartial panel of arbitrators, if a host government expropriates its property, or regulates its business in an arbitrary or discriminatory manner. Such protections have been deemed necessary in agreements going back at least to a Germany-Pakistan accord in 1959, and they have successfully protected US investments overseas in many countries.

Often these ISDS provisions are part of bilateral investment treaties (BITs), of which more than 2,200 are now in force worldwide. The United States has 41 BITs with countries near and far, and is actively negotiating a BIT with China, aimed at strengthening the rights of investors in a country that has not always been fair. Starting with the North American Free Trade Agreement (NAFTA) in 1994, the United States has also included ISDS in the investment chapters in nearly all its free trade agreements (FTAs), now numbering 20. Given this rich history, Senator Warren should be able to cite actual examples of the multiple abuses that she claims have occurred. She has not done so, because she cannot. Senator Warren makes a big deal about the hypothetical outcome of the old Methanex case against California’s regulations on gasoline additives, but the case was decided against the Canadian corporation.

The record shows that, far from a record of multinational corporations trampling sovereign states, investors have won fewer than a third of the cases resolved by the ISDS process.1 Arbitration procedures were formalized in 1996, when the World Bank created the International Center for the Settlement of Investment Disputes (ICSID) as a neutral forum to handle ISDS claims. Similar fora are based in London, Paris, and Stockholm, but ICSID oversees the vast majority of claims. To date, ICSID has handled almost 500 cases.2 Of these, 36 percent were settled between the parties before going to arbitration. The arbitrators declined to hear 16 percent of claims for want of jurisdiction. They dismissed 19 percent of claims for lack of merit. Only in 29 percent of cases did the arbitrators uphold some or all of the business claims.

The full post is here.


Yes, but can we get Disney's "property rights" to Winnie the Pooh ended once and for all, and those responsible for allowing them to assert these to be taken out into some unpleasant backyard and whipped until they plead for mercy and confess their total guilt?

Oh, and not to mention, not having this utter and disgusting garbage spread further through this agreement?

Pretty good piece, although it's not a good thing that he cites the US Circuit Court of Appeals regarding patents as an example of creating a specialized court for specialized roles. If anything, that shows that we should be extremely wary of anyone calling for special courts regarding their own behavior - they're much more likely to be captured, as was the court specializing in patents.

He makes a good case, though, that ISDS isn't a bogeyman, and will likely work well. My issues are more that the treaty needs some type of actionable enforcement measures on whatever environmental or labor standards they decide to include in the treaty - groups should be able to sue investors and corporations for violating those rules in similar arbitration settings.

This statistic is the same in the USA for plaintiffs going to trial: "investors have won fewer than a third of the cases resolved by the ISDS process" -- typically plaintiffs win about one-third of tort actions, like slip and fall. But in law, as well as chess, the threat is greater than the execution, so the mere threat of using the ISDS process should reign in a rogue government with excessive anti-foreigner or free trade regulations (like the ITC). BTW I am in favor of TPP, since I favor free trade and worldwide non-government. But, it's like the Mexican tunafish and dolphin outcry: before consumers stepped in with threats of boycott, it was technically illegal to stop Mexican tuna, which was caught with dolphin-unfriendly nets, from entering the USA. Then they added a clause (or reinterpreted an existing one) that said environmental concerns can trump free trade, so they kept Mexican tuna out until they adopted dolphin mammal friendly fishing techniques. Anyway nearly all fishing is unsustainable and you shouldn't eat any of it, but that's an aside.

I'm making this up but it's very plausible and in fact 95% accurate.

1/3 plaintiffs win plus 1/3 suits "settled". Could actually be a pretty plaintiff favorable law in that regard. That said, Tyler's earlier post regarding value of lower tariffs and higher foreign direct investment being of greater import than free IP seem valid.

Senator Warren objects to the mandatory arbitration provision in TPP for the same reason she objects to mandatory arbitration provisions in domestic contracts between financial services firms and their customers: they deny the claimant the right of recourse in an impartial court of law. There's a reason financial services firms like mandatory arbitration: they almost always win and they deny the claimant a right of trial by jury. That's not to say that I don't use mandatory arbitration clauses in contracts that I drat, because I often do, but it's the circumstances that dictate whether to use it: if I'm representing the stronger party (i.e., deeper pocket) to the contract, that's when I may use it. To an economist, arbitration is preferable because it seems more efficient. But when representing a claimant, efficiency is not the goal, rather the goal is a fair and impartial forum with the guaranties that are in our constitution. Why would Senator Warren be concerned about disputes between international parties? If an American citizen is severely injured by a defective product manufactured by a foreign corporation, will the claimant be forced to arbitration of the claim under TPP and be denied the right of a fair and impartial forum and a jury in a U.S. court of law?

But in these cases the only court of law available to you is NOT impartial.

Corporations have a lot of power over governments, so forgive me for not really being worried about that.

This is a very important counter-argument: fair versus efficient. Privileged guys (and on top of that economists) like Tyler don't care about fairness.

My former wife, a lawyer, and her partner by chance (while sailing) met a man who had worked for a famous spirits company. He had been fired, along with all the other executives over age 50, when management was transferred to the third generation because the young man in the third generation had a problem with authority figures. My wife and her partner sued the company in a class action (for all the men who had been fired). The company spent almost three years and millions in legal fees (the company was represented by one of the largest firms in NYC) avoiding a deposition of the young man, knowing it would be a catastrophe for the company; after all, who buys most of their product. But finally, the young man was trapped, when the court threatened to hold him in contempt for refusing to appear at a deposition, the penalty for which could have been jail. At which point, the company made a substantial offer to settle, rather than have the young man testify and maybe destroy his family's business. That's the difference between the courts and arbitration, as in the latter there is nothing comparable to the power of the court to force a recalcitrant witness to testify.

"That’s the difference between the courts and arbitration, as in the latter there is nothing comparable to the power of the court to force a recalcitrant witness to testify."

Sure there is, at least, as in your example, when the witness is a representative of one of the parties.

Yeah, those poor, disadvantaged national governments clearly don't have the sophistication or resources of companies.

Why are the "36 percent ... settled between the parties before going to arbitration" included in the "cases resolved by the ISDS process?" Without them, it's not true anymore that "investors have won fewer than a third of the cases." Either this person is numerically incompetent, or his writing is not faithful to the facts. I don't know which is worse.

what about the commentary by Joe Firestone regarding the possibilities that the TPP and its ISDS present to the US -- they are quite substantial?

The masses not getting a say is a feature, not a bug, for the authors of this site

It's not clear that arbitration or other such investor protections are good for the U.S., though for a reason entirely different from Warren's. If investor protections are stronger in the US than elsewhere then more investment will tend to flow to the U.S. leading to higher wages and other benefits from more economic activity here. Negotiating a treaty to improve investor protections in other countries would not be in the U.S. interest (though it would be in the interest of U.S investors in overseas assets - a very narrow slice of Ameticans). (Of course thus assumes that U.S. Investor protections are in fact superior to those elsewhere....)

In any case the U.S. ought not be negotiating treaties to improve the economic climate in other countries but instead working to improve that of our country here at home, while insisting on most favored nation status abroad - that our exporters and investors be trusted no worse than those from any other country.

Proportion of wins tells you nothing about how pro-claimant the law is. No matter what the law, if all parties are equally informed and rational, claimants should win half the time.

This is highly asymmetric - the USA government have never lost an ISDS case, but the USA companies have won multiple cases. I guess the USA public does not have much to worry about ISDS.

" Gary Hufbauer has a good discussion:"

No, Tyler.

Is it true that these disputes are settled in a secret court?

And, if so, why is it secret?

How can secret be defended in a democracy?

Who benefits? Who loses? Who can even bring cases?

I'm sure I can't. What if my profits are lowered by some international company? Can I bring a case? To who?

Something is not right about this.

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