The TPP & Investor State Dispute Settlement Process

Long before negotiators from the 12 nations involved in the Trans-Pacific Partnership (TPP) successfully concluded their talks in October, the trade agreement had drawn public attention for the ways investor-state disputes will be settled.

Businesses have sought better protections for international investments as trade and commerce has expanded into new markets, a key goal of the TPP. At the same time, critics say arbitration mechanisms such as investor-state dispute settlement (ISDS) sacrifice the public interest and give the upper hand to foreign investors.  The issue over ISDS in the TPP has been debated in op-eds in major newspapers and in white papers issued by both proponents and critics of the TPP.

The Inter-American Dialogue convened a panel of experts on December 10, 2015 to explore what’s driving the controversy over ISDS and the TPP. Have the TPP negotiators struck the right balance between sovereign authority and protection for investors? What are the implications for countries of the Americas? How could the arbitration process be improved?

Speaking on the panel were Jonathan Hamilton, a partner with White & Case; Clara Brillembourg, a partner at Foley Hoag; and Melissa Blue Sky, staff attorney at the Center for International Environmental Law. Michael Shifter, president of the Inter-American Dialogue, moderated the panel. 

In describing the reasons for creating the ISDS process to begin with, Jonathan Hamilton noted the importance of establishing the rule of law and more organized ways of settling investment disputes, as preferable to what existed in many Latin American and Caribbean countries twenty or thirty years ago, before dozens of investment treaties and trade agreements were ratified. At that time, parties were left with few transparent mechanisms to resolve conflicts, which often played out through politicized lobbying or backroom deals -- rarely to the satisfaction of the public interest.   “Thank god for lawyers,” Hamilton said, when an audience member asked whether ISDS serves the interest of lawyers ahead of everyday people.  “Absent a free trade agreement and ISDS, what are we left with?” he added, citing cases where treaties have been used to protect the environment, labor standards and procedural fairness in countries of the Americas.  

However, some legal experts on the panel thought more needs to be done to improve ISDS. “There are flaws in the system that after several decades have to be corrected,” Clara Brillembourg said, noting that the final text of the TPP had taken some small steps to address that trend, if not a giant leap forward from her perspective.

Concerns persist over the restriction of the states’ right to regulate in the public interests, Brillembourg noted.  The TPP presents new provisions that underscore general principles of public international law but leave plenty of room for interpretation for lawyers and arbitration tribunals, she cautioned.   

Melissa Blue Sky with CIEL said the TPP could have taken alternative approaches to ISDS that would have improved safeguards to protect governments, people and the environment. “The overwhelming use of ISDS by rich investors has really undermined countries’ efforts to level the playing field by enacting lays to protect the environment and their citizens,” she said. The inclusion of ISDS on the TPP is based on previous provisions of other free-trade agreements between the United States and other sovereign countries and may no longer be a model that’s appropriate for today’s world. Some countries like Brazil have embraced cooperation agreements that do not include ISDS provisions, she noted.

Watch the full recording of this event here


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