Thank you very much for the opportunity to present.
I'll be speaking about the TPP's investment and financial services chapters, and in particular the investor-state dispute settlement mechanism or foreign investor protection system. The acronym is typically ISDS these days. I'd like to make a few points in the time I have.
By the way, you should have a short PowerPoint handout. I won't refer to it, but when you have time, if you are interested, please take a look at it. I'll emphasize just a few points in my initial presentation.
First, ISDS is very difficult to measure in terms of costs and risks associated with these trade agreements. It's difficult to measure, for example, because it's hard to track all of the implications of the pressure ISDS puts on countries, legislatures, or governments to change their decision-making in favour of the perspective of a foreign owner of assets or a foreign investor. For example, in the past Canada withdrew legislation banning a gasoline additive when sued in ISDS under NAFTA. As a result, Canada had a chemical additive called MMT in its gasoline for approximately six years when the United States did not. This was thought by the auto industry to mess up their new auto emissions technologies. A range of costs that were associated with that outcome—significantly attributable to ISDS—have never really been researched and tracked, even though this happened about 15 years ago. These were costs to health due to increased air emissions in urban areas, and costs to people taking their car to the garage when the engine light went on because the catalytic converter was messed up.
I just want to stress that these risks and costs are very significant, but they're not well understood and not well measured. What is the significance of the costs? I'd like to highlight three concerns that are typically raised with respect to ISDS and trade agreements.
The first concern involves a profound institutional transfer of power from a country's legislatures, governments, and courts to a panel of three lawyers sitting as arbitrators, who now have the ability to award uncapped amounts of compensation against a country for decisions made that affect foreign investors. When I say “foreign investors”, I'd like to add that the primary financial beneficiaries of this system to date have been very large multinationals and very wealthy individuals.
The power that the lawyers sitting as arbitrators have is very much unique in international law because of the potency of the compensation awards they can issue. In effect what it does, in a way that domestic law and other areas of international law would not do, is put this unclear price tag on any legislation, governmental decision, or even court or tribunal decisions that a foreign investor may object to. The decision-maker will not know how the arbitrators decide years down the road, but if it considers it has any risk of losing down the road, if the assets are big enough—it may entail $100 million or even billion of financial uncertainty associated with the decision—that can be a very powerful check against responsible decision-making in a country. In effect, it pits the interests of voters who elected a government to do certain things against the interests of taxpayers who want to be protected against uncertain but potentially catastrophic financial risks.
The second concern I'll flag is this. What's the rationale for giving this special access to public money to foreign investors as opposed to any other actor? It's a special access to public money to protect the foreign investors against risks associated with democracy, regulation, and judicial decision-making that's not available to anyone else. Everyone else has to settle for the usual ways of dealing with their issues in elections, in public debates, in the courts, etc. But foreign investors get this special access to ISDS. What's the justification for that?
I would simply ask you, as decision-makers, to be very rigorous in insisting upon clear, compelling evidence of benefit to the public of giving these advantages to foreign investors. It's one thing to say that foreign investors would like to have special access to public money; who wouldn't?
The question should be, what's the compelling evidence and public benefit of doing this?