How ISDS undermines the global march to democracy
I’m halfway through an event about the Trans-Atlantic Trade and Investment Partnership (TTIP) at Wilton Park, the FCO’s conference centre, and it’s the usual stimulating mix of stakeholders (a handful of business and union representatives), senior civil servants from various countries, think tanks and academics, ranging widely over many aspects of the subject.
Investor-State Dispute Settlement (ISDS) was not a huge part of the discussion, partly because it’s so controversial and there is not much new to say (although out in the real world, the EU and Canada announced yesterday that their trade deal, CETA, was being amended to include a revised ISDS – which I’ll write about later today.) The traditional defence of investor protection is that foreign investors play a key role in growth, and need protection against arbitrary acts by governments. And the traditional attack – which I agree with – is that it undermines developed democracies by privileging foreign investors over the views of electorates, especially by constraining the actions of democratically elected governments, for example to draw the boundaries between the public and private sector. This is particularly so in countries with developed and investor-friendly legal systems.
But there is a bigger democratic flaw in investor protection. The traditional argument for ISDS is that it protects investors putting money into countries where democracy and the rule of law are either weak or non-existent. There are other ways, though, to achieve the same objective, such as encouraging those countries to become more stable democracies that recognise not just the rights of foreign investors, but human rights generally.
The past few decades have seen a major shift towards democracy around the world (when I was growing up, nearly half of European countries were dictatorships.) But that forward march of democracy has stalled and in some regions gone into reverse: the Arab Spring has only really succeeded in Tunisia. At this point, therefore, the democratic world should be pushing more strongly for democratisation and respect for human rights. ISDS, by providing major multinationals with an alternative way to protect their interests, undermines what used to be a shared agenda between right and left (or capital and labour.)
Employers can co-exist with dictatorships if those governments are restrained from expropriating their assets by investor protection treaties or investment chapters in general trade agreements. But they shouldn’t, and democrats of right or left should refrain from offering them that escape clause.