Alarm and criticism has been published about the Trans-Pacific Partnership (TPP) and Trans-Atlantic Trade and Investment Partnership (T-TIP). Among other well-founded concerns about the process of negotiating the trade treaties, what they may include, and their impacts, is the fact that they are likely to include some form of Investor-State Dispute Settlement (ISDS) mechanism.

These kinds of mechanisms allow foreign investors and companies to seek, through a supra-national arbitration, compensation from governments for actions that interfere with the profitability of business ventures, including, for example, instances where legislatures or agencies enact laws or rules to protect human health and the environment.

It’s interesting to look back on the early days of ISDS. One of my first articles – NAFTA’s Indirect Expropriation Protections: Will Compensation Be Required When Ecological Protections Are Applied? Mealey’s International Arbitration Report, Vol.15, No.2 (2000) – explained the original motivation for such provisions: to provide a means of redress in cases of nationalization of assets, especially when foreign investors are restricted in how they may seek compensation in the host nation’s courts.

The recent trend toward increased use of ISDS procedures by foreign businesses to (1) effectively veto (or discourage a government from even trying to pass) rules to protect citizens or the environment and (2) seek compensation for losses arising from the passage of laws and rules should therefore be seen as beyond what was originally intended when ISDS was initially imagined.

As U.S. Senator Elizabeth Warren succinctly summarized, the recent increase in use of ISDS and its likely inclusion in the TPP should disturb conservatives because of the undermining of state sovereignty, libertarians because it forces taxpayers to pay for non-market risks, and progressives because of resulting discouragement of policies that protect human health and ecology. The article linked above on the roots of ISDS in NAFTA’s indirect expropriation provisions should further give pause and help us realize that ISDS procedures are being exploited in a way that less than two decades ago was deemed surprising, novel, and unintended. This should further contribute to a consensus that, if there are to be free trade pacts, and must be ISDS procedures included, that common sense safeguards against their abuse should be included.

As the author of the article linked above, I need to thank Professor David A. Wirth of Boston College, for whom I worked as a research assistant, for having me research issues of trade and the environment in law school (his publications are linked here).