Is ISDS reason to reject a trade agreement?

No, here is my latest Bloomberg column on that question.  Here is one bit:

One criticism is that the tribunals could force governments to pay compensatory “takings” to foreign companies that incur costs as a result of safety or environmental regulations. But it has long been standard practice for trade treaties to protect foreign companies, for example by limiting the nationalization of foreign investment. Investors don’t always trust the courts of the nations they are investing in, and indeed from 1990 to 2013, at least 150 foreign-owned firms were nationalized, typically in emerging economies, or otherwise subjected to confiscation of value. Agreeing to refrain from such practices can attract more foreign investment and raise living standards.


…the U.S. and Vietnam have had a bilateral investment agreement since 2001, and with few if any negative consequences. More generally, there are now more than 2,000 bilateral investment treaties worldwide, 41 with the U.S. at last measurement, and they typically have some form of investor-state dispute resolution. So does the 1994 North American Free Trade Agreement between the U.S., Mexico and Canada. Over this same period, trade and investment have brought global living standards to unprecedented heights.

National sovereignty has not exactly disappeared. Trade treaties typically recognize that governments have a legitimate interest in regulating safety and the environment, and most of the world’s trading nations have made good progress in those areas.

Part of the discomfort over dispute-resolution panels is the notion that their private deliberations circumvent the democratic process. But it is a basic feature of most democratic governments that the legislature sets up legal institutions that subsequently act outside of direct democratic control.

I do readily grant that ISDS may be a bad idea for tactical reasons, simply because it is unpopular.  But a good question to ask is this: if someone opposes a trade agreement because of ISDS, is that person a committed opponent of excess litigation more generally?  Usually not.


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