PHM-Exch> Investor-state dispute settlements (ISDS) enable TNCs making more money from losses

Tue Aug 18 22:16:21 PDT 2020

From: Jomo <jomoks at yahoo.com>

*ISDS enables making more money from losses *

*Jomo Kwame Sundaram*

KUALA LUMPUR: With the Covid-19 contagion from late 2019 spreading
internationally this year, governments have responded, often in
desperation. Meanwhile, predatory international law firms are encouraging
multimillion-dollar investor-state dispute settlement (ISDS) lawsuits
citing Covid-19 containment, relief and recovery measures.

*Sharing the pain*

Most governments failed to introduce sufficient precautionary measures
early enough to prevent Covid-19 contagions from spreading. And when they
did act, they often believed they had little choice but to impose
nationwide ‘stay in shelter’ lockdowns to enforce preventive physical
distancing.

To enable businesses and households to survive the adverse effects of such
lockdowns, governments have provided relief measures, for at least some of
those believed to have been adversely affected, especially for businesses
better able to lobby effectively.

Meanwhile, there are already thousands of mainly bilateral investment
treaties as well as bilateral and plurilateral trade agreements worldwide,
enabling foreign investors to sue governments before private arbitration
tribunals to profit from their wide-ranging treaty rights.

Transnational corporations (TNCs) can claim staggering sums in damages for
alleged investment losses, for either alleged expropriation, or more
typically, indirect ‘damage’ caused by regulatory changes, in this case,
Covid-19 government response measures.

As some such measures try to share the burden of the crisis, e.g., with
asset owners and other contracting parties, the international law firm Shearman
& Sterling
<https://www.shearman.com/perspectives/2020/04/covid-19-international-investment-protection?sc_lang=ja-JP>
advises
financial firms, “While helping debtors, these measures would inevitably
impact creditors by causing loss of income”, referring to debt relief and
restructuring efforts among others.

Foreign registered real estate or property companies can also sue
governments that protect lessees or tenants who cannot make their lease or
rent payments as contractually scheduled after their operations are shut
down or disrupted by emergency regulations imposed.

Pharmaceutical and medical supplies companies can also appeal to such
arbitration tribunals to claim losses due to price controls and ‘violated’
intellectual property rights for Covid-19 tests, treatments, medical and
protective equipment as well as vaccines.

*Lucrative ISDS lawsuits*

In recent months, international law firms have been encouraging ISDS
lawsuits citing government measures to check contagion and mitigate their
economic consequences, urging clients to invoke investment and trade
agreements to claim for allegedly lost income or additional losses or costs
due to new government policy measures.

Another firm Ropes & Gray
<https://www.ropesgray.com/en/newsroom/alerts/2020/04/COVID-19-Measures-Leveraging-Investment-Agreements-to-Protect-Foreign-Investments>
advises:
“Governments have responded to COVID-19 with a panoply of measures,
including…limitations on business operations, and tax benefits.
*Notwithstanding
their legitimacy*, these measures can negatively impact businesses by
reducing profitability, delaying operations or *being excluded from
government benefits*…For companies with foreign investments, investment
agreements could be a powerful tool to recover or prevent loss resulting
from COVID-19 related government actions.” [my italics]

Shearman & Sterling
<https://www.shearman.com/perspectives/2020/04/covid-19-international-investment-protection?sc_lang=ja-JP>
advises,
“Some interventions will be protectionist—they will seek to support or
benefit domestic enterprises (strategic or otherwise) but not foreign
investors”, without mentioning their generally far lower tax contributions
and generous investment incentives enjoyed.

*Profiting from the pandemic *

After advising clients to look out for discriminatory measures which could
become the bases for such claims, law firm Sidley
<https://www.sidley.com/en/insights/publications/2020/05/investment-treaty-claims-for-covid19-losses>
warns
governments that proceedings can be very costly as “it is not only the
actually invested amounts that can be considered recoverable damages, but
also lost future profits”.

Such law firms remind their clientele that many of the more than thousand
ISDS lawsuits filed worldwide have arisen during political or economic
crises. Covid-19 pandemic response measures are now being widely studied as
possible pretexts for another round of lawsuits.

These corporate lawsuits can impose massive fiscal burdens on governments.
As Pia Eberhardt <https://longreads.tni.org/cashing-in-on-the-pandemic>shows,
legal costs average well over US$6 million per party, but can be much
higher. Hence, such suits can drain government fiscal resources.

Although it becomes much more expensive if governments lose, they still
have to cover their own legal expenses even if they do not lose. As of
2018, governments had been ordered to pay US$88 billion for settlements
made public.

There is considerable scope for such cases given the still growing, broad
range of government Covid-19 measures, e.g., foreign-owned water supply
companies can sue governments for insisting that more public water supply
sources be provided, or household water supplies remain uninterrupted, even
if water bills are not settled, to enable more regular hand washing.

*ISDS undemocratic, illegitimate*

International investment law is generally independent of national
legislatures and biased toward TNC interests. Investment agreements
prescribe foreign investor rights and privileges very broadly, but their
duties and obligations, usually rather minimally.

Sovereign national societies, parliaments and governments have considerable
scope for discretion in addressing complex political issues involving
diverse social and economic interests. Also, national courts generally do
not award damages for lost future profits as these are considered
completely conjectural.

But ISDS provides much more favourable treatment to powerful TNCs. Also,
international arbitration tribunals ignore and undermine the legitimate
scope for national courts, law-making and democratic government
decision-making.

The typically transnational arbitration tribunals that interpret such law
generally ignore recent legal developments, which take more account of the
rights and responsibilities of various other stakeholders in national
societies. Thus, arbitration awards tend to be much more lucrative, for
both TNCs and their lawyers, than ordinary national court decisions.

A South Centre Southview
<https://www.southcentre.int/wp-content/uploads/2020/08/SouthViews-Sornarajah-1.pdf>
urges
considering various measures in response to the threat such as terminating
or suspending investment treaties, withdrawing consent to arbitration,
statutorily prohibiting recourse to arbitration and appealing to TNCs’
corporate moral responsibility

Already, there are growing appeals for an immediate moratorium on ISDS
lawsuits and to end ISDS proceedings involving Covid-19 emergency measures,
while some countries, e.g., India, South Africa and Indonesia, had scrapped
some of their bilateral investment treaties even before the crisis.

The Southview opinion also chides the United Nations Commission on
International Trade Law (UNCITRAL) for trifling with marginal reforms,
instead of radically reconsidering the very illegitimacy of international
investment arbitration itself.
https://www.ksjomo.org/post/isds-enables-making-more-money-from-losses
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