When it comes to free trade, the discussion is almost entirely limited to how trade agreements affect the United States — our jobs at home and the power of the dollar abroad. But we rarely hear how these trade deals affect the governments of developing countries.
Political scientists have long argued that the free market exerts too much pressure on poor governments to keep their industries unregulated and their workforces unprotected — in other words, that the globalized free market diminishes sovereignty.
At the heart of this debate is the role of multinational corporations in the global economy. These companies have an increasingly wide array of options for where to do their business. They can shop around to find the most ideal locations to source materials and build their production plants, and everyone wants the economic growth this could bring. This finds developing countries competing to have the most business-friendly labor laws or environmental regulations. Some have dubbed this the “race to the bottom.”
But their influence has moved past simply economic pressure. Over the past couple of decades, multinationals have gained more power to challenge the laws of developing countries thanks to a recent surge in what’s called “investor-state dispute settlement,” or ISDS. It’s a fairly innocuous term, but it means that companies have the right to sue countries through independent arbitration courts (as opposed to through the court systems of the countries themselves).
ISDS was originally designed to protect companies from government takeovers or unfair regulations in countries where courts might be biased or underdeveloped, and existed for a long time without attracting much attention. But as free trade has proliferated and arbitration agreements expanded globally, it has become a deeply unpopular factor in trade deals. That’s because these lawsuits are expensive, and developing countries often lose or must pay huge sums of money as part of a settlement.
Critics say that ISDS gives corporations unchecked influence over regulations in developing countries. Some have dubbed arbitration tribunals “super courts,” suggesting that companies have been able to use these arbitration lawsuits to shirk environmental regulations or public health initiatives.
As a result, ISDS has become one of the biggest hurdles facing the embattled Trans-Pacific Partnership (better known as TPP) between the United States and Pacific Rim nations, as the trade deal includes provisions that would make the United States subject to ISDS rulings. Sen. Elizabeth Warren (D-Mass.) has become one of the most vocal critics against the arbitration agreement provision in TPP, arguing that it could “undermine U.S. sovereignty.” The White House quickly came to the the trade deal’s defense, assuring that the United States has won every one of the 13 cases ever brought against it.
But what about other countries that don’t have the same resources to stand up against big corporations? As free trade remains a top issue this election season, it would be fair to expand the conversation to include more than just how it affects the United States.
Have private multinational companies been undermining the sovereignty of the world’s poorest countries, or is ISDS a reasonable mechanism for independently regulating complex, multi-party agreements? What should the international community do to protect the independence of developing nations? Do we need to rework the arbitration deals governing our global economy?
Over the next few days, we’ll hear from: