Foreign corporations are controlling US policy and costing taxpayers billions — here's how 

That the Sunday shows did not even mention President Biden’s summit this past Friday in Washington with heads of state from the 12-nation Americas Partnership for Economic Prosperity (APEP) reveals how crises elsewhere have shifted the spotlight from Biden’s efforts to strengthen ties with countries in the Americas.  

The theory behind APEP, which Biden launched last year, is that uniting to tackle common climate, health and economic inequality challenges is good policy and good geopolitics. But a major problem threatens those goals: 43 legacy Investor-State Dispute Settlement (ISDS) agreements between the APEP countries.  

These pacts empower foreign corporations to sue governments before ad hoc tribunals of three corporate lawyers operating outside any country’s domestic court system over laws countries may enact to protect the environment or health or other public interests. The corporations seek, and often get, enormous — and we believe totally unjustifiable — compensation from countries’ taxpayers. These attacks can, and in many cases almost certainly will, undermine the policies that APEP prioritizes.   

With ISDS, a corporation need only convince the ad hoc tribunal that an environmental law, court decision or zoning rule violates vague and expansive special “rights” granted in the agreement — rights that go beyond protections domestic laws provide domestic firms. The lawyers, many of whom rotate between suing governments for corporations and “judging” cases, can award the corporations unlimited sums, including for the loss of expected future profits. Decisions are not subject to outside appeal.   

Corporations have launched 231 ISDS challenges, with billions already quietly paid out. There are now 73 pending cases with corporations demanding $47 billion in compensation from APEP countries’ taxpayers, including a demand for $15 billion from U.S. taxpayers by a Canadian firm that sought to build an oil pipeline across the United States. That this contradicted U.S. climate goals and was opposed by indigenous tribes, communities and farmers whose land and water would be threatened is apparently irrelevant in ISDS world.  

This Keystone XL pipeline case is not unique: Construction projects are one of top targets of ISDS attacks in the Americas. A group of researchers estimated that global measures to combat climate change could generate upward of $340 billion in ISDS claims from fossil fuel corporations alone. The Intergovernmental Panel on Climate Change reported that ISDS could deter governments altogether from actions affecting fossil fuel corporations.  

A white paper just released by legal researchers from Columbia and Georgetown law schools and Rethink Trade shows that most ISDS claims against APEP countries have had nothing to do with nationalizations or discrimination against foreign investors. Rather, an entire underworld of ISDS lawyers, case financiers and user corporations have specialized in attacks against environmental, energy, water and other public-interest policies with the goals of derailing the policies and extracting large sums from taxpayers.  

While the costs of these agreements have been enormous, the benefits have been nil: The promised boost in foreign investment that led countries to sign ISDS deals never materialized. 

Thankfully there is way out of this regime, where only foreign investors have rights and can initiate claims while governments alone have responsibilities and liabilities. The white paper 

shows the legal mechanisms to extract countries from the ISDS regime in both the U.S. and internationally. The APEP process could be leveraged to negotiate a multilateral instrument to exit the 43 ISDS deals; alternatively, willing countries could do so bilaterally. 

After European countries were ordered to pay hundreds of millions of dollars to fossil fuel companies over climate and energy polices, Germany, France and others withdrew from the ISDS-enforced Energy Charter Treaty (ECT), after which the European Commission announced a coordinated EU-wide ECT exit.   

Prior to this, Ecuador, Bolivia, South Africa, India, Indonesia, New Zealand and other countries had started exiting such agreements. Even the United States, once one of the main ISDS promotors, terminated ISDS with Canada and drastically reduced it with Mexico when the Trump administration replaced the North American Free Trade Agreement in 2019. This move obtained broad congressional support. 

President Biden has stated repeatedly that ISDS will not be part of any future U.S. agreements, spotlighting the U.S. bipartisan consensus against such agreements. But not signing new agreements doesn’t deal with the huge legacy of past agreements. There are thousands of ISDS-enforced agreements worldwide. The U.S. government pushed our neighbors into dozens of these deals, which also expose U.S. policies to attacks and pose liability for U.S. taxpayers.  

A regional ISDS exit through the Americas Partnership for Economic Prosperity would show true partnership with our neighbors and help clean up a mess the United States helped to make. The question is whether the Biden administration will harness the APEP process to lead the Americas in exiting the ISDS trap.  

Joseph Stiglitz is university professor at Columbia University. A former chief economist of the World Bank (1997-2000) and former chair of the US President’s Council of Economic Advisers, he was awarded the Nobel Prize in Economics in 2001. Follow Joseph Stiglitz @JosephEStiglitz 

Lori Wallach is director of the Rethink Trade program at American Economic Liberties Project. Follow Lori Wallach @WallachLori