Challenging the Corporate Influence over Trade and Investment Dispute Settlement Mechanisms

Corporate influence over the global trade and investment regime has resulted in trade and investment policy, agreements, and enforcement structures that favor corporate interests at the expense of human rights and environmental protections. Recently, new political challenges to global trade and investment have emerged, and States have started re-thinking alternatives to the existing framework. Civil society groups and labor unions are seeing this moment as a prime opportunity to push for a more rights-respecting trade and investment regime that benefits all, instead of the few. Much of the attention and resources have been devoted to improving the content of specific trade deals, such as North America Free Trade Agreement and Transatlantic Trade and Investment Partnership.

However, the conversation on trade reform cannot be complete without taking a critical look at the international trade and investment dispute settlement mechanisms, namely the World Trade Organization (WTO) dispute settlement mechanism and the investor-state dispute settlement (ISDS) system established through International Investment Agreements (IIAs). When we look at these mechanisms we must ask ourselves, whose interests do they serve?

International Trade and Investment Dispute Settlement Mechanisms

Operating as quasi-judicial bodies, these mechanisms have enormous power in not only shaping rules and practices of trade and investment, but also impacting States’ ability to legislate and regulate in the public interest. For example, WTO and ISDS tribunals have very rarely ruled in favor of States’ right to regulate in the public interest, which is allowed under the general exception clauses embedded in WTO law and most international investment agreements. Professor David R. Boyd at Simon Fraser University noted that ISDS tribunals have “ignored or narrowly interpreted these provisions, making them practically useless.” Public Citizen, a U.S. civil society organization, also found that only one out of 40 States’ attempts have been successful in evoking such general exceptions to defend domestic legislation under WTO law.

This evidence demonstrates the chilling effect the WTO and ISDS has on government action to legislate or enforce existing laws in the public interest, including in relation to human rights and the environmental. For instance, for fear of a WTO challenge, the Obama administration preemptively placed a “stay” to indefinitely delay the implementation of a reporting and monitoring initiative that would increase the transparency and sustainability of shrimp supply chains, which are fraught with forced labor and human trafficking allegations.

 Nevertheless, despite their potential detrimental impacts on public interest legislation, the WTO and ISDS tribunals are largely unchecked by democratic processes. In fact, the processes by which these dispute settlement mechanisms have been developed, the rules they have created, and decisions made are opaque and often dominated by powerful corporate interests to the detriment of working people, the environment, democratic governance, and human rights.

The Need for Greater Scrutiny

The enormity of the ISDS system has received increased public scrutiny, especially as the number of ISDS claims skyrocketed by over 400 percent since the early 1990s with increasingly high amounts of damages, including for loss of future profits, claimed and granted. However, little attention has been given to understanding the inner workings of the WTO dispute settlement mechanism, a forum that has significant bearing on ISDS tribunals, and how the two systems interact to mutually reinforce each other’s rulings.

As the dominant institution for trade dispute settlement for more than 20 years, the WTO dispute settlement mechanism has helped shape and solidify the investment protection system, which explains why the laws and interpretations developed under WTO and ISDS closely track each other. The WTO mechanism is also held as the golden standard for trade and investment dispute settlement. For example, in response to the growing criticism of the ISDS system, the European Commission has launched a public consultation for the creation of a Multilateral Investment Court (MIC) as an alternative investor dispute resolution forum, and many are proposing to use WTO dispute settlement mechanism as a prototype for the new court.

While seen as the gold standard, the WTO mechanism is similarly captured by corporate interest. Powerful corporations and trade associations exert great influence directly over the WTO Secretariat that facilitates the trade dispute settlement process, as well as through a few dominant governments. Corporations are also heavily involved in determining which cases States bring to the WTO and lobby extensively to obtain a favorable outcome. Mirroring the proposed MIC to the WTO dispute settlement mechanism might just provide another avenue for corporations to capture democratic governments, and to further embed and re-legitimize investor to state arbitration.

Rejecting and Preventing Corporate Capture  

This is why the International Corporate Accountability Roundtable (ICAR) and Centre for Research on Multinational Corporations (SOMO) have partnered on a project to raise awareness among civil society organizations, the media, and policy makers regarding the extent and impacts of corporate capture of the WTO dispute settlement mechanism and the ISDS system. The project will examine the corporate networks and strategies involved in capturing the decision-making processes and operations of the WTO dispute settlement mechanism and the ISDS system. We will also analyze how these two mechanisms interact with each for the protection of corporate interest, and the implications on labor rights, human rights, the environment, and socially sustainable development. Finally, based on the research and consultation findings, we will identify measures and actions that may be adopted by State policy makers, civil society organizations, and administrators of these mechanisms, respectively, to address and prevent corporate capture.

To propel reform and ensure that trade and investment policy is a catalyst to drive equitable and sustainable development, it is not enough to change the legal elements of a rule or tweak specific trade agreements. The behind-the-scene corporate influence of trade and investment dispute settlement bodies which set the rules of the whole system must be systematically investigated, brought out into the open, and ultimately rejected. We hope that through the project, we will contribute to the establishment of an international trade and investment regime that is transparent, inclusive, equitable, and rights-based.