[Nyeleni - Food sovereignty - Newsletter, Bulletin, Boletin]

Home > Newsletters Nyéléni in English > Newsletter no 29 - FTAs and Agriculture > Newsletter no 29 - In the spotlight 2

Newsletter no 29 - In the spotlight 2

Tuesday 14 March 2017, by Manu

Investor state dispute settlement, what is at stake?

One of the most damaging elements of free trade agreements and investment treaties is the "investor state dispute settlement" (ISDS). The mechanism stems from colonial times, when powerful empires wanted to protect their companies working overseas to extract minerals or produce cash crops. They created legal texts that evolved into today’s investment treaties, aiming to protect investors from “discrimination” and expropriation by foreign states.

To do this, the treaties grant transnational corporations (TNCs) a special right to take foreign governments to binding arbitration when they consider themselves treated unfairly. This means that TNCs can ‘sue’ governments when they adopt public policies like anti-smoking laws or regulations to cut air pollution that might restrict their investments and profits. Domestic companies don’t get this same right: the mere threat of such a lawsuit can drive policy-making (chilling effect).
International investment disputes are taken to special arbitration panels, usually at the World Bank in Washington DC or at arbitration courts like the one in The Hague. This allows them to bypass national courts altogether, on the grounds that they may be biased. Proceedings are conducted by private lawyers and usually in secret with no appeal possible.

In the last 15 years, ISDS disputes have skyrocketed. In most cases, the investor’s demands are fully or partially satisfied. As a result, governments have payed awards that typically amount to millions, if not billions, of dollars – taxpayer money that could be used for public benefit. This threat has some governments putting their investment treaties on hold as they rethink strategies.

ISDS affects food sovereignty in several ways. It gives companies powerful legal leverage to overturn domestic policies that support small farmers, local markets and the environment. Initiatives to fight climate change in the food sector – e.g. to promote short circuits by granting preferences or subsidies to local producers – can be challenged by TNCs if they expect to be negatively affected. Recently, Canada stopped a US company from proceeding with an open pit mining project in Nova Scotia because the damage it would bring to local fisherfolk was too great. The company took Canada to an ISDS tribunal and won, costing Canadian taxpayers US $100 million.

Mexico had to pay US $90 million to Cargill, because of a tax on beverages containing high fructose corn syrup – a sweetener linked to obesity, produced by this corporation. The tax helped safeguard the Mexican cane sugar industry, with hundreds of thousands of jobs, from the influx of the US-subsidized syrup.

ISDS gives foreign investors more rights than domestic investors, and they use this to their benefit in the agricultural and fisheries sectors. Trade deals generally assert that foreign investors should have equal access to farmland and fishing grounds as domestic ones ("national treatment"). ISDS gives these corporations an extra tool to assert that right that national companies – or farmers or fishers and their cooperatives – don’t enjoys. Sometimes national agribusiness investors set up companies abroad and then invest in their home country just to avail of these extra protections.

The linchpin of strengthening food sovereignty in the context of international and even regional trade relies on states’ power to give preference to local and national food producers through subsidies and procurement policies. These subsidies and preferences are generally banned under free trade commitments (even though they are widely used by big actors such as the US or the EU), and ISDS gives foreign corporations a tool to make sure that competition from domestic producers supported by such policies does not threaten their bottom line.