Transnational corporations must not undermine the rule of law

Call for ISDS moratorium during COVID-19 crisis

cc. On 6 May 2020, the Columbia Center on Sustainable Investment (CCSI) issued a public letter calling for an immediate moratorium and a permanent restriction on all Investor-State Dispute Settlement (ISDS) cases during the 2019 novel coronavirus disease (COVID-19) outbreak. The letter calls for a restriction on claims against governments for measures related to health, economic, and social dimensions of the pandemic and its effects.

Extraordinary times call for extraordinary measures. The COVID-19 pandemic is the greatest threat to humanity since World War II. The fate of billions of people, and potentially millions of deaths, hang in the balance, particularly in the developing world. The United Nations Secretary General has recognized that COVID-19 is “the fight of a generation.” For this reason, the global community has taken and continues to take extraordinary and necessary actions. More than half of the world economy is locked down and related economic fallout generates major stress in fragile economies. Economic hardship is on the rise. Much of the world economy is in lockdown and 191 countries have closed schools, affect. ing 91% of all learners globally. The ILO is predicting an enormous number of job losses, while people in many countries are falling into poverty, reversing a decade or more of progress in poverty reduction. The G20 countries are implementing a standstill on sovereign debt servicing in 2020 for the world’s poorest countries, and further extraordinary relief will surely come after that.
In this regard, we call on the world community for an immediate moratorium on all arbitration claims by private corporations against governments using international investment treaties, and a permanent restriction on all arbitration claims related to government measures targeting health, economic, and social dimensions of the pandemic and its effects. These investor-state cases (often referred to as “ISDS” cases) empower foreign private companies to challenge government actions that affect narrow corporate interests, and often result in large payouts, sometimes of billions of dollars, to these companies for alleged lost profits. These suits pose an immediate danger to the ability of developing nations, and the global community as a whole, to confront the COVID-19 challenge.
There are three reasons for an immediate moratorium.
First, the necessary business closures and other emergency responses will create unprecedented changes in the business environment that will likely trigger a massive number of unjustified claims. Foreign investors will claim that they have lost their expected profits. And this will be true, but for the vital reason that every business in society will face an unprecedented situation. Governments have the duty to protect their citizens and to stop the pandemic without fear of lawsuits by foreign-owned businesses or foreign shareholders; typically these are claims that cannot even be brought against governments by their own domestic companies.
Second, governments must direct their attention to the urgent control of the COVID-19 crisis, and not be distracted by foreign companies and shareholders who might take advantage of the crisis using vague investment treaty standards to press their claims.
Third, awards against governments, frequently in the millions or billions of dollars, which can represent sizable percentages of governments’ budgets, would weigh heavily against the dire budget crises facing developing countries in the context of the COVID-19 pandemic. As the International Monetary Fund has warned, the economic downturn in 2020 will be the most severe since the Great Depression. Governments must ensure that ISDS does not deepen the inevitable fiscal crisis.
We therefore call for a complete moratorium on all ISDS claims until the pandemic has passed and governments have agreed on principles to ensure that future arbitration cases will not hinder countries‘ good faith recovery efforts. These principles should recognize the full and clear scope that governments have, and are required, to take all appropriate actions to save lives and fight global emergencies, even when the result is a loss of profits or business opportunities, including by foreign investors. Furthermore, they should ensure that any damages awarded in ISDS cases should respect the dire financial situation facing governments following the COVID-19 emergency. Short of these clear principles, there will be no basis for restarting ISDS processes. In addition, we call for an ongoing restriction on ISDS claims related to measures taken during the pandemic, including those targeting health, economic, or social dimensions of the pandemic and its effects.
We call on individual countries to advance this effort, and the United Nations and specialized agencies, the World Bank Group, the Organisation for Economic Co-operation and Development, and other multilateral organizations to implement it. We similarly call on all people of conscience – including lawyers who initiate and arbitrators who decide these arbitration cases – to put the lives of people ahead of corporate interests at this dire moment facing humanity.

Phil Bloomer
Executive Director, Business & Human Rights Resource Centre

Juan Pablo Bohoslavsky
Former UN Independent Expert on Foreign Debt and Human Rights (2014–2020)
Executive Director, South Centre

Olivier De Schutter
UN Special Rapporteur on Extreme Poverty and Human Rights

Kerry Kennedy
President, Robert F. Kennedy Human Rights

Jeffrey D. Sachs
University Professor, Columbia University
Director, United Nations Sustainable Development Solutions Network

H.E. María Fernanda Espinosa Garcés
President of the 73rd Session, UN General Assembly (2018-2019);
Ecuadorean Minister of Foreign Affairs (2017-2018)

What is meant by ISDS?

cc. The Investor-State Dispute Settlement (ISDS, Dispute between the Investor and Country) is a legal instrument of international law which investors can use in court against a country in which they have invested if they have perceived that their contractually guaranteed rights have been damaged. That means that they can make a claim against the specified country and can claim damages if their profit expectation has been impaired through a change in legislation or politics of the guest country. Many bilateral investment-protection agreements however, valid or planned free trade agreements such as CETA (Europe/Canada) or TTIP (Europe/USA) provide for ISDS as well.
According to these agreements, there is generally, no public court of law responsible for the dispute, rather a private arbitration tribunal. In this way, the settlement procedure commonly takes place at an International Centre for Investment Disputes (World Bank), at the International Chamber of Commerce (ICC), the United Nations Commission on International Trade Law (UNCITRAL) or the International Court of Justice.
Critical voices point out that ISDS, for example, according to TTIP, levers out national sovereignty, since foreign investors, since foreign investors, through threats of frivolous claims, can exert influence on the legislation and policies of a country.

«Moreover, ISDS entails the undermining of the rule of law, since ISDS allows transnational enterprises to circumvent the public court system, which is transparent, accountable and appealabe. ISDS arbitrations are secret and systematically ignore national legislation and even the judgments of the host country’s highest tribunals.» (Alfred de Zayas)


ISDS must be abolished as contra bonos mores

by Professor Dr iur. Dr phil. Alfred de Zayas

As former UN Independent Expert on the Promotion of a Democratic and Equitable International Order (2012–18) I strongly endorse the call for an immediate moratorium on the ISDS arbitration. Furthermore, ISDS awards must no longer be executed worldwide. In my reports to the UN Human Rights Council and General Assembly in the years 2015 and 2016 I documented outrageous cases in which transnational corporations were suing governments for implementing democratically voted social measures, protecting the environment from pollution or raising the minimum wage. I explained that the ontology of a State is to legislate for the public good as the ontology of business – the very essence of capitalism –, is to take risks in the expectation of making a profit. Transnational enterprises must accept that sometimes they make a profit, sometimes they do not. But the risk cannot be placed on governments, which are democratically legitimized to tax and regulate businesses operating within their frontiers. Moreover, ISDS entails the undermining of the rule of law, since ISDS allows transnational enterprises to circumvent the public court system, which is transparent, accountable and appealabe. ISDS arbitrations are secret and systematically ignore national legislation and even the judgments of the host country’s highest tribunals. This parallel system of dispute settlement subverts established principles of the rule of law, particularly concerning the independence of the arbitrators.
Indeed, ISDS cannot be reformed –it must be abolished as contra bonos mores.



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