The TPP: Investor-State Dispute Procedures Are a Threat to Democracy

Mehrene Larudee

Mehrene Larudee is a Lecturer in the UMass Amherst Economics Department and Center for Popular Economics Staff Economist.

Much is wrong with the Trans-Pacific Partnership (TPP) Agreement, the final version of which was released November 5, after years of secret negotiations. Congress could vote on it any time in 2016. A feature that has been troublesome in existing agreements for twenty-some years is investor-state dispute settlement (ISDS). At the Center for Popular Economics (CPE) Summer Institute in August, I gave a short workshop on this very dangerous provision, hitting on some of the following points.

Indulge in some pure fantasy for a moment: Imagine that an international agreement is signed and ratified, guaranteeing every worker an ironclad legal right to her future wages. Imagine it says that if an employer lays a worker off, the worker has a right to file a complaint that will be judged by a panel of three long-time union activists, likely to award her full compensation—all the future pay she would have earned. Sweet? You bet.

But it’s fantasy.

Its opposite, however, is not. What could become all too real is a near-guarantee of future profits from foreign investment for investors that are based in one TPP country, investing in some other TPP country. That’s the investor-state dispute settlement provision of the TPP. It allows corporate power to take big bites out of democracy.

ISDS provisions have been in certain trade agreements, like NAFTA, as well as in some investment treaties, for a couple of decades. What they do is described by Public Citizen in a series of cases at “Case Studies: Investor-State Attacks on Public Interest Policies.” Bill Moyers’ video Trading Democracy also has very clear examples of what the ISDS provision in Chapter 11 of NAFTA has done.

One case is about a U.S. firm suing the Mexican government: Metalclad Corporation bought a toxic waste dump in Mexico, and wanted to expand it. The local community, suffering an epidemic of cancer and other ailments from leaking toxic chemicals at the site, insisted that Metalclad first clean up the dump. Metalclad did not, and was denied a construction permit, but went ahead and started building anyway. When the district governor objected, the company filed a complaint against the Mexican government under Chapter 11—saying that its future profits, and hence part of the firm’s value, had been expropriated, and demanding compensation. The NAFTA tribunal ruled that the government did have to pay Metalclad $16 million.

Such decisions oppose the public interest and have a chilling effect on future environmental policies and decisions. Why should a private foreign investor be able sue a government that is acting in the public interest? (It shouldn’t.) Why should a foreign investor be allowed to bypass existing courts and go to an unelected tribunal of “trade experts” with sweeping powers? (It shouldn’t.) Why should private foreign corporations have legal rights in a country that the country’s own citizens lack? If the TPP is allowed to pass, the ISDS provision will permit foreign investors to bully governments and will make it that much harder for governments to make policies that protect the public interest. Now, they may be forced to pay corporations for the right to make such decisions. This is madness.

Investor-state dispute settlement is corporate power strengthening its legal foothold against the will of the people—just one of the reasons why the TPP, and its cousin in Europe, the Transatlantic Trade and Investment Partnership (TTIP), must be stopped. If the TPP is ratified, could ISDS be used, say, by toxic chemical producers to overturn a U.S. ban against these chemicals? Could it be used to prevent legislation lowering sky-high pharmaceutical prices? Could it stop the IRS from reining in corporate tax evasion? Would we be prevented from protecting bees? From labeling GMO foods? It’s possible.

Based on existing agreements or treaties, there have already been ISDS complaints—or threats of complaints—by tobacco companies against anti-smoking rules in Australia, Uruguay, and Canada on the grounds that these cigarette producers will lose future profits. Under threat of ISDS action, Germany backed off requirements that a coal plant’s pollution be cleaned up. In Ecuador, the longstanding demand that Chevron clean up its pollution of indigenous people’s land and water has been counterattacked by an ISDS complaint, not yet ruled on. There are 77 disputes under NAFTA alone.

The TPP must be defeated if we are to have any chance of preserving democracy.

Sources: Public Citizen, “Case Studies: Investor-State Attacks on Public Interest Policies” (; Scott Sinclair, “NAFTA Chapter 11 Investor-State Disputes to January 1, 2015,” Canadian Centre for Policy Alternatives (CCPA), January 14, 2015 (

Originally published in the Popular Economist Newsletter by the Center for Popular Economics.

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