March 1, 2015

White House defends ISDS

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The United States government defends its investor-to-state dispute settlement (ISDS) model. It gives the US unfair procedural advantages.

Rigged

The International Centre for Settlement of Investment Disputes (ICSID) is part of the World Bank. It is the most used ISDS forum; investors can choose this forum. The president of the World Bank has always been the candidate of the US. This president

– is ex officio chairman of the ICSID Administrative Council (article 5 ICSID),
– nominates the ICSID secretary-general (article 10 ICSID),
– appoints all three the arbitrators in annulment cases under ICSID rules (the only possible appeal, article 52.3 ICSID).

The secretary-general of ICSID plays a role in ISDS cases, both in the ICSID Convention and in the EU commission’s proposals for trade agreements. As an example the EU – Singapore trade agreement (EUSFTA) proposal.

The secretary-general
– appoints arbitrator(s) if parties fail to appoint one, or fail to agree on the presiding arbitrator (articles 9.21.2 and 9.32.7 EUSFTA),
– may decide a request for consolidation is manifestly unfounded (article 9.32.4 EUSFTA),
– appoints the presiding arbitrator in consolidation cases unless parties agree otherwise (article 9.32.6 EUSFTA),
– will decide on conflicts of interest (article 9.21.10 EUSFTA).

Executive officials who have a link with the U.S. take and would take important decisions. This gives the U.S. an unfair advantage. The U.S. can push for a very investor friendly system, knowing that they are protected because ISDS is rigged to their advantage. Other countries will suffer more from ISDS than the U.S.

Article 52.3 ICSID in action

We can see article 52.3 ICSID in action. In all (presently 80, press search) annulment procedures (the only form of appeal possible) the president of the World Bank appointed all three the arbitrators. That is more than 10% of all known ISDS cases. The president of the World Bank has always been the candidate of the US.

Exerting pressure

The U.S. could have lost the Loewen ISDS case. However, the U.S. won the Loewen ISDS case on a technicality.

After the Loewen ISDS case one of the tribunal members publicly conceded having met with officials of the U.S. Department of Justice (DoJ) prior to accepting his appointment. The DoJ put pressure on him.

Statistical data

A study finds that claimants from the US were 91% more likely to benefit from an expansive resolution than claimants from all other states combined. (Van Harten, 2012) The US never lost an ISDS case.

TTP leak

The text of the TPP (Trans-Pacific Partnership) agreement investment chapter leaked. It is rigged to the advantage of the US.

White House

United States Senator Elizabeth Warren turned against investor-to-state dispute settlement (ISDS): “Why create these rigged, pseudo-courts at all?

Jeff Zients, director of the National Economic Council, posted a response to Warren on the White House website. In turn, Simon Lester, trade policy analyst with Cato’s Herbert A. Stiefel Center for Trade Policy Studies, refuted his arguments.

US senior legal experts: “Under ISDS regimes, foreign investors alone are granted legal rights unavailable to others – freed from the rulings and procedures of domestic courts. (…) ISDS weakens the rule of law by removing the procedural protections of the legal system and using a system of adjudication with limited accountability and review. It is antithetical to the fair, public, and effective legal system that all Americans expect and deserve.”

The 2015 European Commission ISDS proposal would partly or mostly remove the US procedural advantages. The US government expressed skepticism about the proposal.