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Warren Leads Call to End Dispute System 'Weaponized' by Corporations Amid Honduras Case
"The broken ISDS system has time and time again worked in favor of big business interests while infringing on the rights and sovereignty of our trading partners and their people."
May 03, 2023
U.S. Sen. Elizabeth Warren and Rep. Lloyd Doggett on Wednesday led nearly three dozen progressive members of Congress in demanding an end to the Investor-State Dispute Settlement system, a key feature of corporate-managed trade agreements signed, and often initiated, by the United States.
"Large corporations have weaponized, and continue to weaponize, this faulty and undemocratic dispute settlement regime to benefit their own interests at the expense of workers, consumers, and small businesses globally," says Warren (D-Mass.) and Doggett's (D-Texas) letter to U.S. Trade Representative Katherine Tai and Secretary of State Antony Blinken.
After praising President Joe Biden's 2020 campaign pledge to exclude ISDS from future trade deals—such as the Americas Partnership for Economic Prosperity and the Indo-Pacific Economic Framework the White House has been negotiating—along with Tai's indication that she "will pursue a trade agenda in line with that commitment," the letter asks Tai's office and Blinken's department to "investigate any and all options at your disposal to eliminate ISDS liability from existing trade and investment agreements."
ISDS mechanisms enable multinational corporations to sue the governments of foreign trading partners for profits they claim have been forfeited as a result of domestic policies designed to protect workers, consumers, and ecosystems. Such lawsuits challenge meaningful labor, product safety, and environmental standards, and the mere threat of them can even preempt the enactment of robust regulations, placing ISDS at the heart of what critics have called neoliberal globalization's "race to the bottom."
The ISDS measures that corporations "successfully lobbied" to include in past trade deals grant them "special rights and privileges that ordinary citizens do not receive," the letter points out. "Under ISDS, disputes are handled not through the judicial system but by industry-friendly arbitration tribunals that can require taxpayers to shell out massive sums to big corporations, with no opportunity to appeal."
"Unlike the courts, 'tribunals have no set procedures or precedents. Standards of evidence are nonexistent, and mistruths or exaggerations go unpunished,'" the letter continues, citing journalist Sarah Lazare. "These provisions tilt the playing field even further in favor of large corporations, incentivizing offshoring and undermining the sovereignty of the United States and other governments."
A pending ISDS case launched recently by a Delaware-based company upset because Honduras' democratically elected government overturned a law that allowed corporations to establish self-regulated private cities inside the impoverished Central American nation exemplifies why the Biden administration needs "to take action to remove this problematic corporate handout from existing agreements," the letter says.
"Late last year," the members of Congress explained, "U.S. company Honduras Próspera launched an ISDS claim under the Dominican Republic-Central America Free Trade Agreement (CAFTA-DR) against the newly elected government of Honduras, seeking nearly $11 billion, equal to roughly two-thirds of the country's entire national budget this year."
They continued:
The jaw-dropping sum sought by Próspera is not the only reason that this case raises serious concerns. Honduran President Xiomara Castro secured a major victory for democracy last year when the National Congress of Honduras repealed the country's Zonas de Empleo y Desarrollo Económico law (ZEDE, or "Economic Development and Employment Zones"). The legal name misleadingly implies that ZEDEs constitute standard special economic zones, areas within a country's borders that, while politically and fiscally part of the host nation, are governed by separate economic regulations as "a mechanism for attracting foreign direct investment, accelerating industrialization, and creating jobs." However, the legislation enabled the creation of far more radical private governance zones, which have "functional and administrative autonomy" from the national government.
The zones allowed investors to create their own governance systems and regulations and establish separate courts. And investors have used the law to create jurisdictions where companies can propose their own regulations and where most Hondurans cannot enter without authorization. In the case of Próspera, a ZEDE located largely on the Honduran island of Roatán, investors have created a governing council where 44% of members are appointed by the private company and 22% are elected by landowners in a system where their number of votes is proportional to the size of their property.
This anti-democratic policy, approved under the leadership of previous officials, including former president Juan Orlando Hernández, who have since been indicted on drug trafficking and firearms charges, was highly controversial. Honduran labor unions, small farmers, Indigenous organizations, and even the nation's largest business groups expressed vehement opposition. According to the U.S. State Department, the zones "were broadly unpopular, and viewed as a vector for corruption." The Honduran Congress unanimously approved President Castro's proposal abolishing this policy.
Próspera has repeatedly threatened to initiate ISDS arbitration under CAFTA-DR to bully the Honduran government into allowing them to continue operating under the abolished ZEDE framework. In December 2022, the company announced that it filed a CAFTA-DR claim with the International Center for Settlement of Investment Disputes (ICSID), which will force the government of Honduras to potentially spend millions of dollars defending itself for responding to the will of its people and asserting its sovereignty over these special governance jurisdictions operating in its territory.
The lawmakers asked Tai and Blinken to "intervene—through a statement of support, amicus brief, and any other means at your disposal—in support of Honduras' defense in the Próspera ISDS case and to ensure that such egregious cases can no longer disrupt democratic policymaking by working to eliminate ISDS liability in preexisting agreements in our hemisphere."
Notably, the suit against Honduras "is just the most recent example of the worrying trend of increased ISDS use in the Americas, both in the number of cases and the sky-high value of the claims," the letter observes. "Governments throughout Latin America have paid billions of dollars in compensation to foreign companies at their taxpayers' expense, simply for putting in place sound public policy to protect the environment and the health and economic well-being of their communities. Governments—and therefore taxpayers—throughout the region have been ordered by ISDS tribunals to pay close to $28 billion to corporations, with far more in pending ISDS claims."
Decrying how "the broken ISDS system has time and time again worked in favor of big business interests while infringing on the rights and sovereignty of our trading partners and their people," the lawmakers urged the Biden administration to "refrain from negotiating new trade agreements with ISDS, and also to address the existing ISDS mechanisms that corporations continue to exploit."
Melinda St. Louis, director of Public Citizen's Global Trade Watch, said in a statement that her group has been keeping a close eye on the "truly shocking" case against Honduras, "as well as the explosion of ISDS cases in the region."
Public Citizen "is coordinating with civil society groups across the hemisphere working to remove these increasingly unpopular ISDS provisions from trade agreements and investment treaties," said St. Louis. "President Biden's commitment to exclude ISDS in new agreements must be matched by immediate action to dismantle ISDS in existing agreements—or else shameful cases like the $11 billion one against Honduras will continue."
Warren and Doggett's letter was signed by Independent Sen. Bernie Sanders (Vermont) and 30 Democratic lawmakers, including Sens. Sherrod Brown (Ohio) and Sheldon Whitehouse (R.I.), as well as Reps. Jamaal Bowman (N.Y.), Cori Bush (Mo.), Greg Casar (Texas), Jesús G. "Chuy" García (Ill.), Pramila Jayapal (Wash.), Ro Khanna (Calif.), Barbara Lee (Calif.), Summer Lee (Pa.), Donald Norcross (N.J.), Ilhan Omar (Minn.), Mark Pocan (Wis.), and Rashida Tlaib (Mich.).
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All or Nothing: A Green New Deal for Central America
The Trump administration is already campaigning for the upcoming elections and its main target is an easy fragile one – migration and how to put the brakes on it. Turning Guatemala into a temporary prison has been its latest achievement.
Aug 12, 2019
The issue of migration allows Trump to show off his imperial power in front of the cameras, and to cover up with much fuss a series of failures. His latest "achievement" has been to force Guatemala - a country on the verge of collapse and mired in a humanitarian and institutional crisis - into becoming a temporary prison for those seeking asylum in the US.
Guatemala will receive hundreds of deported migrants. The country has been designated as the hell where the concentration camps for migrants will be located, conveniently out of the reach of US courts of justice. Guatemala is thus to become a Tropical Turkey, the country where asylum requests will be brought together, so that the brutality can be carried out offshore.
This is the country with the longest, uninterrupted track record of control and repression of internally displaced persons in Central America. The country which in the past has carried out experiments such as the razed-land policies, or the State terror laboratories called "model villages" which as part of the dispossessing and genocidal policies that forty years ago killed more than 250,000 people. Today this is being repeated.
Central America as a region offers powerful evidence of the complete failure of the economic policies that have benefited a few powerful countries in the world and sacrificed the most vulnerable ones.
The silence of the international community speaks volumes. The accomplices to the Central American calamity are on both sides of the Atlantic Ocean. The Mediterranean and the Arizona desert tragedies both have similar causes, and the response to both is the same. Multilateral institutions have failed the world's poor and vulnerable, and the current international trade model only favours the perpetrators of the forthcoming global environmental catastrophe and their accomplices.
The US, Canada, China and Europe are the world powers which have contributed to the fast deterioration of the quality of life of Central Americans through exploitation schemes and political pressure. From the destruction of local economies as a result of the signing of the Dominican Republic-Central America Free Trade Agreement (DR-CAFTA), to the reinforcement of commercial policies which avoid compliance with human rights, and to the Association Agreement between the European Union and Central America, which protects and consolidates the domination and control by large corporations of the energy matrix of Central American countries.
Could the region this time be the space for testing a set of policies precisely in the opposite direction? Could progressive forces on both sides of the Atlantic dare to push for a Green New Deal for Central America as a response to the current crisis?
Would it be possible for the developed world to imagine a moratorium for the countries which are the most unequal, violent and vulnerable to climate change, allowing their people enough flexibility to exceptionally apply another economic model? Clean energy? Decent jobs? Native seeds?
Central America accounts for 7% of the world's biodiversity despite its small size. It leads the ranking of the most unequal countries in the world and of the poorest countries in the Americas, and it is home to four of the fifty most violent cities in the world. If economic slowdown is added to extreme vulnerability to climate change, lack of active public inclusion policies for women and marked racism to indigenous and Afro-descendant populations, it is obvious that the number of people willing to migrate to the North, even risking everything, will only increase.
A Green New Deal for Central America would allow for the possibility of conducting pilot testing, giving concrete shape to and defending a different future - no longer as an idea, but as a proven reality. Replacing fragile and failed institutions with architecture that results from economic and ecological transformation, empowering indigenous and peasant communities, regaining control of the natural commons, reversing the fast disappearance of unique species, preserving the remaining oxygen reserves in the region, compensating Central American countries for the impact that 10% of the world inflicts on them, putting them on the map of the countries most at risk from the global climate crisis. These changes do not depend on the congresses of these countries. They depend on Washington, Brussels and the international financial institutions.
If radical change is not the option, humanitarian aid patches will end up in the pockets of contractors who are linked to the security industry.
This humanitarian crisis summarizes the failures of the system that the world inflicts on the poor, pushing them to cross seas and deserts, and to risk everything while seeking a better life. At the same time, it is also an opportunity for a radical change, for transcending discourses which promise palliative "sustainable futures" that nobody is willing to finance. It is an opportunity for raising international solidarity on the basis of a concrete plan - beyond words and paper.
If the Green New Deal does not work here and now, if it cannot surpass humanitarian camp reactions and massive exoduses and produce a positive agenda, tomorrow will be too late. If we seal a new social contract, we must include everyone, we must make sure that no one is left behind - starting with those to whom we owe the most.
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The Old Democratic Trade Paradigm Is Collapsing. Good Riddance.
"Critically, Warren would also include the welfare of other countries as part of the considerations" as she negotiates a trade deal
Aug 04, 2019
For the two decades after the collapse of the Soviet Union, elite pundits worshiped free trade with a reverence bordering on the comical. As New York Times columnist Thomas Friedman declared in 2006, "I wrote a column supporting the CAFTA, the Caribbean Free Trade initiative [sic]. I didn't even know what was in it. I just knew two words: free trade." That was about the intellectual level of neoliberalism at its moment of peak political hegemony.
But things have changed a lot. The shine has come off so-called "free trade," and Democratic presidential candidate Elizabeth Warren is now proposing a bold overhaul of how the U.S. conducts its trade negotiations. It's only a matter of time before the old trade paradigm dies an ignoble and well-deserved death.
Dan Drezner, an international politics professor at Tufts and a Brookings Institute fellow, provides a good view of the crumbling neoliberal consensus in a recent Washington Post column. He savages Warren's plan, calling it a "terrible, horrible, no good, very bad trade program" that "would actually be more protectionist in its effects than Trump's, something that I did not think was possible."
But Drezner is talking through his hat. For starters, it is ridiculous to characterize Warren's plan as protectionist. Its major focus is on changing the way trade deals are made, especially who is involved. As my colleague Jeff Spross details, she would replace the current wildly business-slanted negotiation process with one that is carried out in the open, and prioritizes "labor rights, human rights, environmental protection, combating climate change, heading off international tax avoidance." (As an aside, Paul Krugman is flagrantly incorrect to assert that the current "fast track" trade negotiation process, which largely cuts Congress out of the process in favor of corporate elites and the executive branch, was created by FDR. It's a product of President Nixon and the 1974 Trade Act.)
Critically, Warren would also include the welfare of other countries as part of the considerations. As she writes, "millions of people in our trading-partner countries don't gain the benefits of higher standards -- and companies can easily pad their profits by shifting American jobs to countries where they can pay workers next to nothing and pollute the air and water freely." Half the point here is to raise the living standards of U.S. trading partners -- unlike NAFTA, for example, which harmed both American workers through deindustrialization and Mexican ones by trapping them in a low-wage, non-union export paradigm. We can call Trump protectionist because he is trying to win a trade war by harming the rest of the world (though his efforts have been so haphazard and uncoordinated that it seems to be harming everyone, America included), but Warren is far more internationalist.
Drezner further argues that Warren's approach would "sabotage any set of negotiations" because conducting negotiations in public would "scare off partners who prefer to negotiate quietly before introducing a final draft." Involving Congress would just "stymie the ratification of any deal even further." The contempt for democracy here is palpable. By Drezner's lights, neither the voting rabble nor their elected representatives have any place in trade deals. Yet somehow the world economy survived -- indeed, performed considerably better -- in the years before fast track and secret deals larded up with corporate goodies were the trade policy norm.
Indeed, a great many of the stipulations in recent trade agreements have nothing whatsoever to do with trade as such, or even undermine it. Investor-state dispute settlement (ISDS) courts, which have been built into thousands of trade agreements over the years, are at bottom a rigged private legal system for international corporations where they can do things like sue nations for cutting into their profits with environmental regulation. Meanwhile, protections for patents and copyright are a bald infringement of trade -- a requirement foreign countries enforce America's government-granted monopolies on movies, drugs, and so on. Perhaps that is defensible sometimes, but not when it means stymieing Nelson Mandela's plan to import cheap HIV/AIDS drugs in order to protect the profits of American drug companies.
Conversely, it's easily possible that under a more egalitarian framework, trade might actually increase in some sectors. Requirements for better labor conditions would increase the income of the working class in foreign countries, and one thing those people would likely buy with that money is more U.S. imports. Incidentally, the U.S. does tons of trade with countries -- like those in the E.U., which constitutes our largest trading partner -- without a formal trade agreement.
But by far the largest holes in Drezner's analysis have to do with taxes and climate change. Both are gigantic problems -- as economist Gabriel Zucman has calculated, rich people around the world have squirrelled about $7.6 trillion away in offshore accounts to avoid taxation, while climate change threatens human society. Both require international coordination to fix, because both are inherently international problems. Warren would refuse trade deals with countries that won't coordinate their tax regimes (to prevent beggar-thy-neighbor tax havens), and levy a border carbon tax (to prevent companies from profiting by moving production to countries where greenhouse gas emissions aren't regulated). As Zucman writes, this is "long overdue."
Drezner doesn't mention tax avoidance once, and the sum total of his climate change comments reads as follows: "don't get me started on her border adjustment tax for carbon." Yes, it sure would be inconvenient if he had to get started explaining why Warren's eminently sensible approach to the biggest problem facing America and the world is no good!
At any rate, this isn't the first time we've had this same debate. Indeed, as John Maynard Keynes wrote in a 1933 essay, for most of the 19th century free trade was also an object of gormless fetish worship, with similarly poor results. And as Spross points out, Warren has some distance to go to fully flesh out what to do regarding the dollar's status as reserve currency, which lets America run a continual trade deficit but also saps domestic production. But it's a strong start -- if we just shake off the last remnants of neoliberal brain poisoning, we can figure out the rest of it.
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