By Judith Resnik, Cruz Reynoso, Honorable H. Lee Sarokin, Joseph E.
Stiglitz and Laurence H. Tribe, Reader Supported News
09 May 15
Dear Majority Leader McConnell, Minority Leader Reid, Speaker Boehner, and
Minority Leader Pelosi:
We write out of grave concern about a document we have not been able to
see. Although it has not been made available publicly, we understand that
the Trans-Pacific Partnership (TPP) trade agreement currently being
negotiated includes Investor-State Dispute Settlement (ISDS) provisions.
ISDS allows foreign investors—and only foreign investors—to avoid the
courts and instead to argue to a special, private tribunal that they
believe certain government actions diminish the value of their investments.
Courts are central institutions in the rule of law. Americans have much to
be proud of in the evolution of our court system, which has evolved over
the centuries and now provides equal access for all persons. Courts enable
the public to observe the processes of development of law and to watch
impartial and accountable decision-makers render judgments.
We write because of our concern that what we know about ISDS does not match
what courts can provide. Those advocating using this alternative in lieu of
our court system bear the burden of demonstrating why such an exit is
necessary, and how the alternate system will safeguard the ideals enshrined
in our courts. Thus far, the proponents of ISDS have failed to meet that
burden. Therefore, before any ISDS provisions are included in the TPP or
any future agreements, including the Transatlantic Trade and Investment
Partnership (TTIP), their content should be disclosed and their purposes
vetted in public so that debate can be had about whether and if such
provisions should be part of proposed treaties. Below, we detail the ways
in which ISDS departs from the justice opportunities that U.S. courts
Our legal system rests on the conviction that every individual, regardless
of wealth or power, has an equal right to bring a case to court. To protect
and uphold the rule of law, our ideals of fairness and justice must apply
in all situations and equally to everyone. ISDS, in contrast, is a system
built on differential access. ISDS provides a separate legal system
available only to certain investors who are authorized to exit the American
legal system. Only foreign investors may bring claims under ISDS
provisions. This option is not offered to nations, domestic investors, or
civil society groups alleging violations of treaty obligations. Under ISDS
regimes, foreign investors alone are granted legal rights unavailable to
others – freed from the rulings and procedures of domestic courts.
ISDS also risks undermining democratic norms because laws and regulations
enacted by democratically-elected officials are put at risk in a process
insulated from democratic input.
Equal application of the law is another critically important hallmark of
our legal system—one that is secured through the orderly development of
law. Court decisions are subject to appeal, ensuring that conflicting lower
court decisions are resolved by a higher authority. Judges also must follow
legal precedent. The goal is uniform application of the law regardless of
which judge or court hears a case. This law development allows people,
entities, and nations alike to order their behavior according to
well-established legal principles.
In contrast, ISDS does not build in the development of the law. An ISDS
arbitral panel’s decision cannot be appealed to a court. The ISDS
provisions of which we are aware provide only limited— private—review
through a process called annulment that does not permit decisions to be set
aside based even on a “manifest error of law.”1 Moreover, ISDS
arbitrators, like other arbitrators, do not make law because their
decisions have no precedential value, and ISDS arbitrators in turn are not
obliged to follow precedent in reaching their own decisions.
None of the hallmarks of our court system would be possible without a fair
and independent judiciary. Federal judges take an oath to uphold the
Constitution and are nominated and confirmed by our democratically elected
representatives. State judges likewise commit themselves to upholding the
constitutional order. In contrast, ISDS arbitrators are not public servants
but private arbitrators. In many cases, there is a revolving door between
serving on ISDS arbitration panels and representing corporations bringing
ISDS claims. Yet, although such a situation would seem to call for
more—not less—oversight and accountability, ISDS arbitrators’ decisions
are functionally unreviewable.
As noted at the outset, we have not been able to read the terms of the
proposed ISDS chapters for the upcoming TPP and TTIP treaties. But what we
know from the past gives us many grounds for concern. During the past few
years, foreign investors have used ISDS to challenge a broad range of
policies aimed at protecting the environment, improving public health and
safety, and regulating industry. These challenges have been around the
world, including under trade agreements to which the United States is a
party. The publicly available information about these challenges raises
serious questions as to whether the United States should be entering into
more ISDS agreements with a broad array of nations.
Pharmaceutical giant Eli Lilly’s pending ISDS proceedings against Canada
provide an example of how corporations have used ISDS to challenge a
nation’s laws outside the courtroom. After a Canadian court invalidated one
of Lilly’s patents, the company initiated ISDS proceedings against Canada
under Chapter 11 of the North American Free Trade Agreement (NAFTA).2 In
seeking $500 million (Canadian), Lilly has challenged as violative of NAFTA
the standard the nation uses for granting patents.
Although ISDS tribunals are not empowered to order injunctive relief, the
threat and expense of ISDS proceedings have forced nations to abandon
important public policies. In the third ISDS proceeding brought under
NAFTA, Ethyl Corporation brought an ISDS proceeding against Canada for $251
million for implementing a ban on a toxic gasoline additive. The proceeding
took place not in a court, but before an arbitration panel of the
International Centre for the Settlement of Investment Disputes (ICSID).
After the arbitration panel rejected Canada’s argument that Ethyl lacked
standing to bring the challenge, Canada settled the suit for $13 million.
Moreover, Canada lifted the ban on the toxic additive as part of the
It is particularly noteworthy that the three NAFTA countries are each in
the top 11 most-challenged countries under the ISDS system. This high rate
of challenge in our view has little to do with a rule of law deficit in the
U.S. and Canada. Instead, it represents investors taking advantage of easy
access to a special legal right available only to them in an alternate
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.
Proponents of ISDS have failed to explain why our legal system is
inadequate to the task. For the reasons cited above, we urge you to uphold
the best ideals of our legal system and ensure ISDS is excluded from
upcoming trade agreements.
Judith Resnik Arthur Liman Professor of Law, Yale Law School
Cruz Reynoso Professor of Law Emeritus, University of California, Davis
School of Law Former Associate Justice of the California Supreme Court
Honorable H. Lee Sarokin Former United States Circuit Judge of the United
States Court of Appeals for the Third Circuit
Joseph E. Stiglitz University Professor, Columbia University
Laurence H. Tribe Carl M. Loeb University Professor, Harvard Law School
cc: Ambassador Froman and Chairs & Ranking Members of Finance & Ways &
Please note: Organizational affiliation for all signatories is included for
identification purposes only; individuals represent only themselves, not
the institutions where they are teaching or other organizations in which
they are active.
h/t Mark Fernald