For decades, U.S. trade policy across Latin America has prioritized the profit of U.S. mega-corporations over the well-being of communities, workers, democracy, and human rights. Now, as trade ministers from the U.S. and eleven countries in our hemisphere convene at the Americas Partnership for Economic Prosperity (APEP) Ministerial in Quito this week, they have an opportunity to address one of the worst manifestations of this shameful legacy.
Embedded within trade and investment agreements between the U.S. and many countries in Latin America is a relic of colonialism that empowers multinational corporations to challenge any public interest law and policy that may interfere with their profits in extrajudicial, closed-door arbitration tribunals. This insidious system is called Investor-State Dispute Settlement (ISDS), and it effectively erodes democracy while fleecing governments of taxpayer dollars and diverting public funds. Yet the secretive nature of the ISDS system ensures the public remains largely unaware.
As a former ISDS defense attorney, I represented Latin American governments against corporations and witnessed firsthand the devastating impacts of ISDS on local communities, economies, and environments.
Time and again, I saw how ISDS granted corporations unprecedented power beyond domestic laws to sue foreign governments for any action they argue violates their broad investor rights, even if governments attempt to protect human rights, workers, or the environment.
Only corporations can launch suits, meaning governments cannot hold corporations accountable. Therefore, if a corporation engages in harmful practices and a government tries to mitigate them, the company can launch an ISDS claim. This system has awarded corporations over $100 billion in taxpayer dollars in known cases, with fossil fuel companies being the primary beneficiaries. The actual sum is likely much higher since awards are often kept secret.
The impact of ISDS on Latin America and the Caribbean has been particularly severe. The region faces a disproportionate number of ISDS disputes (nearly a third of all cases) despite having less than 10% of the world’s population. Latin American governments have been forced to pay corporations $33.8 billion in known awards and settlements, diverting critical resources from social needs.
Following colonization, newly independent nations were pressured to adopt trade and investment deals with ISDS provisions supposedly to attract investment. Despite proponents’ claims, studies show no meaningful increase in foreign investment due to ISDS provisions. Brazil does not have any treaties with ISDS and yet receives the most foreign investment in the region. Instead, ISDS has entrenched an imbalanced system where multinational corporations wield disproportionate power and pillage resources unchecked, often at the expense of the environment and local communities, echoing the colonial paradigm.
I have also witnessed many times how ISDS undermines the will of the people and places Indigenous communities in danger, particularly when corporations want to extract resources from their lands.
The right to Free, Prior, and Informed Consent is a cornerstone of Indigenous rights, allowing them to agree to or reject proposals impacting their lands. However, governments may sideline these rights to avoid costly ISDS litigation, undermining Indigenous sovereignty and self-determination. While Indigenous rights are enshrined in international law, they are often inadequately enforced, whereas ISDS obligations are both binding and highly enforceable. Furthermore, ISDS tribunals frequently restrict the participation of local communities before issuing their awards, effectively silencing the voices of the most impacted and vulnerable.
Notably, the APEP ministerial is taking place in Ecuador, a country that has endured egregious ISDS cases highlighting the erosion of sovereignty and environmental injustice perpetuated by the system. For example, after being found guilty of severe pollution and environmental damage to the Amazon and ordered to clean up by Ecuadorian courts, U.S. oil giant Chevron launched an ISDS suit against Ecuador for $9.5 billion instead of complying. Another case involved Occidental Petroleum, which was awarded $1.4 billion after Ecuador terminated a contract due to the company’s violation of domestic laws.
In 2009, after undertaking an extensive audit of its investment treaties, Ecuador denounced ISDS, withdrew its membership from the World Bank’s venue where most ISDS cases are heard, and terminated 16 bilateral investment treaties. Subsequent Ecuadorian governments have unsuccessfully tried to reinstate ISDS. In response to a referendum this past April, Ecuadorian voters rejected ISDS in a landslide. This is a powerful, democratic statement against a system that prioritizes corporations.
Ecuador’s struggle with ISDS is emblematic of the broader issues countries face, and the global opposition to ISDS is growing. The European Union recently exited the Energy Charter Treaty, which granted ISDS powers to fossil fuel companies, citing concerns that it undermined the fight against climate change. Bolivia, Honduras, India, Indonesia, Pakistan, South Africa, and Venezuela have also taken steps to eliminate their ISDS liability. United Nations experts have called for the abolition of ISDS, citing its undermining of state sovereignty, democracy, and the rule of law.
Domestically, there is increasing bipartisan pressure to end ISDS. Both the previous and current administrations have taken steps away from ISDS. President Biden pledged to abstain from including ISDS provisions in new trade deals. Last year, over 200 U.S. labor unions, faith groups, and environmental organizations urged President Biden to eliminate ISDS from existing treaties, highlighting its detrimental impact on public health, climate protections, Indigenous land rights, and democratic sovereignty. Members of Congress have echoed these calls, emphasizing the need to address ISDS to tackle the root causes of migration, protect the environment, and uphold democratic values.
Achieving APEP’s stated goals of fostering inclusivity and sustainable economic development hinges on reconciling past policy mistakes. Members of Congress recently urged USTR to establish a working group within APEP to explore options for eliminating ISDS provisions in existing trade deals. Not only is this possible, but it is also essential to align trade policy with the values of democracy, human rights, and environmental protection.
APEP ministers should seize this opportunity and eliminate ISDS once and for all to give a sustainable future for people and the environment a fighting chance. The stakes are too high to do otherwise.
