Steve McEllistrem

The Devereaux Dilemma

Another Reason the Rich Get Richer

The problem with global trade agreements that few know about or understand is the strength of the ISDS court system. Full disclosure: much of the information in this essay comes from this Huffington Post piece:

http://www.huffingtonpost.com/entry/isds-lawsuit-financing-tpp_us_57c48e40e4b09cd22d91f660

But here’s my take on it: First, ISDS stands for Investor-State Dispute Settlement and it is found in many international investment agreements and trade treaties. It was created to help companies that wanted to invest abroad but which were afraid a nation might nationalize their business or seize their property such that the companies would be left without recourse.

Fair enough. No one wants to invest in a facility in Venezuela, say, if the country is going to come along and take it away without paying for it.

But ISDS is so much more than that now. Like many instrumentalities created for one purpose, this court system has transformed into something else – a means for the extremely wealthy to get even richer. How?

By using these secretive courts to get payments they don’t deserve from countries that are just trying to do the right thing economically. Investors sometimes buy shares in companies that have been hampered by a country’s regulations and then sue the country in the ISDS courts to be compensated for the lost profits.

It gets worse. Investors also can buy companies or facilities or bonds that have been subjected to regulation and then sue for the lost profits they hoped to get if only the regulations hadn’t existed before they bought the companies or facilities or bonds they knew were subject to those regulations. Sound farfetched? It happened in Spain over a 2-year period ending in 2013.

Investment funds bought solar-thermal power plants that no longer got generous subsidies because of the great recession affecting Europe and America. Even though the subsidies had been rolled back for 3 years prior to the funds buying the plants, the funds sued Spain in the ISDS courts, claiming they expected the subsidies to continue despite the fact that they had been declining.

Shouldn’t a real court throw out a lawsuit like that? Of course. But these aren’t real courts. They’re tribunals composed of three corporate lawyers. They do their work in secret and they’re beholden to the massive companies that engage in this kind of dirty commerce.

Plus, the system only works one way. Investors can sue a country in the ISDS courts, but a country cannot sue investors under the ISDS system. They have to use their own domestic courts.

This is complicated stuff, which is why these super wealthy investors can get away with it. They ask for outrageous sums to make up for some shortcoming they knew existed before they bought in to the company or facility or bonds or whatever. They knew exactly what they were getting. That’s why they bought in. Not because they expected a profit, but because they expected a loss.

Then they sued in ISDS to recover for the loss they knew was coming, hoping the secret tribunal would award them a huge amount from the country being sued, putting the burden on the country’s citizens and not on some other company.

And here’s why it’s a bigger problem today than yesterday: the TPP (the Trans-Pacific Partnership) would greatly expand the ISDS system, allowing more wealthy investors to buy into known bad investments solely to bring lawsuits under the ISDS system in order to reap insane profits from a secret court that has no incentive to rein in costs.

The rich get richer. The rest of us foot the bill.

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