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  • Posted December 4th, 2015

    Corporations suing elected governments for introducing laws that reduce their profits isn’t new, but TTIP will make it much worse

    Corporations suing elected governments for introducing laws that reduce their profits isn’t new, but TTIP will make it much worse

    It’s called Investor-state Dispute Settlement (ISDS), and it’s a mechanism whereby corporations can sue governments that introduce legislation that they claim reduce their potential to make profit – for example, requiring plain packaging for cigarettes (Australia and Uruguay sued) or introducing a minimum wage (Egypt sued) or introducing a moratorium on fracking (Canada sued). In our current economic system, reducing corporate profits cannot be allowed, and ISDS is a way of ensuring that they’re not. These cases are heard in special tribunals outside the normal court system, and rulings are by a team of privately-appointed arbitrators – corporate lawyers who may be advocating in other cases for the same corporations that are involved in ISDS tribunals that they are arbitrating. Oh, and they’re held in secret.

    It’s not surprising that when people understand the nature of ISDS, they are totally opposed to it. So obviously, our ‘leaders’ have to do something. And they have. They’ve changed the name. No more ISDS – these secret tribunals are now called ICS, or Investment Court System. Don’t you feel better already? Actually, the Investment Court System would be better than ISDS, as cases would not be in secret, and they would be heard by judges rather than corporate lawyers – but the principle of corporations suing governments in special courts because of perceived threats to profits would remain.

    Corporate-friendly politicians are fond of telling us that ISDS / ICS within TTIP and other new trade deals won’t be a problem because they haven’t been a problem with existing trade deals. However, that’s not true – they have cost EU taxpayers a lot of money, because their governments have tried to do things that most people would consider positive, or at least benign.

    We know that around 3.5 billion euros in fines have already been imposed on European countries in ISDS cases, but it could be much more than this, as in many cases, even the results of the cases are permanently secret. This money has to come from taxpayers, of course. TTIP, the world’s biggest ‘free trade’ deal, will make this much, much worse.

    Glyn Moody at Arstechnica gives some examples of recent cases:

    For example, when Poland decided to reverse the privatisation of some insurance services, a Dutch company was able to use a bilateral investment treaty between the Netherlands and Poland to sue the latter for future losses it would allegedly suffer as a result. The ISDS tribunal sided with the company and made an award of over €2 billion (£1.4 billion). The same Dutch company sued the Slovak Republic when its government decided to reverse the privatisation of health insurance services, and won yet more “compensation” for indirect expropriation.


    A provisional contract for the construction of a coal-fired power station in Germany was granted to Vattenfall by the City of Hamburg in 2007, which included some environmental limitations in order to protect the River Elbe. Additional environmental requirements were added in order to meet the EU’s water framework directive, and final approval was given in 2008. Vattenfall then argued that the tighter environmental protections would make the project “unviable,” and claimed damages of €1.4 billion (£1 billion)—plus costs and interest—under an agreement signed by both Germany and Sweden called the Energy Charter Treaty. This included an ISDS mechanism that Vattenfall invoked.

    The case was finally settled in 2011, when the city of Hamburg capitulated, and agreed to accept lower environmental standards than it had demanded in the final approval. This case is an important demonstration of how ISDS can be used to bully governments into backing down from attempts to protect the public, through demands for prohibitively high damages.


    Finally, Austria too has recently joined the club of ISDS victims, with a case that sees Meinl Bank demanding “at least” €200 million (£140 million) damages in recompense. As well as being the first ISDS case brought against Austria, the Meinl Bank action is notable because the harm is allegedly the result of investigations by the county’s justice department. According to an article in Wiener Zeitung, the Austrian government pointed out that it could not interfere in or be held responsible for the actions of the investigators, to which the claimant’s lawyer replied that this well-established separation of powers was not recognised by ISDS tribunals, and was therefore irrelevant. That’s another demonstration of how the lawyers that make up such tribunals believe they can simply ignore national laws.

    And as Moody rightly points out – this is all before TTIP – we ain’t seen nothing yet!

    Multinational corporations already have the right to sue governments who introduce policies that companies weren’t expecting when they invested / built infrastructure in their country. But those cases are brought in public in the national courts. ISDS just isn’t required, unless you think secret tribunals about entirely speculative ‘future losses’, overseen by corporate lawyers is a move in the right direction.

    Furthermore, the claims are almost always because governments have done something good! If cases were being brought against governments because they’d passed laws to subsidise pesticides or cigarettes or fracking or removal of forests, then maybe not so many people would oppose them. But it’s always because governments are trying to protect the environment or public health, or promote equality – all the kinds of things that the corporate sector hates, as they restrict their ability to make profit.

    And here’s an interesting development – if a corporation in any country opposes a policy in a country with which there is no treaty with a provision to sue, no problem – they just launch a subsidiary in a country that does. Voila!

    We live in a world where corporations can do pretty much whatever they like in pursuit of profit. If you’d like to challenge that, then one of the most important things you can do is to add your voice to the growing opposition to TTIP.

    Here are some organisations that will help you do that:

    Finally, I have some questions that I’d like to throw open to anyone who knows more about trade deals and international law than I do. If a government introduces plain packaging for cigarettes, or bans smoking indoors, or increases duty on cigarettes, I have absolutely no sympathy for cigarette manufacturers. Quite apart from the fact that they are peddling cancer, they have to expect changes in legislation – just go and sell cigarettes somewhere else. But in the case of power companies suing because governments change laws after they have built infrastructure, those changes may mean massive losses. But why do taxpayers have to foot the bill for all this? More specifically:

    • Why is there no provision in TTIP for governments to sue corporations for lost revenue – for example for tax avoidance, or if they close plants in countries, resulting in massive job losses and losses in tax revenue?
    • What’s wrong with corporations insuring against changes in legislation in countries in which they are thinking of building expensive infrastructure? That way costs are borne by corporations not taxpayers (I may have just answered my own question.)
    • What’s wrong with corporations entering into contracts with governments outlining compensations packages for future actions that will mean loss of money already invested?
    • Why can’t these breach of contract cases then be heard in the already-existing court system?
    • As for ‘future profits’ – when did ‘investment’ stop meaning ‘risk’. Surely that is what capitalism is all about?

    Answers on a postcard please – or maybe just in the box below.

    The views expressed in our blog are those of the author and not necessarily lowimpact.org's


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