Austin News

Washington, D.C. – U.S. Representative Lloyd Doggett (D-Texas) and U.S. Senator Elizabeth Warren (D-Mass.) led 31 colleagues in urging U.S. Trade Representative Katherine Tai and Secretary of State Antony Blinken to work toward eliminating the Investor-State Dispute Settlement (ISDS) system from existing trade and investment agreements. The letter also requests that the Administration intervene in an ISDS case brought against Honduras by U.S. company Honduras Próspera.

“We urge you to uphold your commitment and refrain from negotiating new trade agreements with ISDS, and also to address the existing ISDS mechanisms that corporations continue to exploit,” wrote the lawmakers,adding that the Próspera case 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.”

ISDS was incorporated into trade agreements as a dispute settlement system that allows a corporation to directly sue the government of a foreign trading partner if it feels that the government’s domestic legislative or executive action violates the corporation’s rights under the trade agreement. Instead of going through domestic courts, these complaints, handled by private arbitration tribunals made up of corporate lawyers, give corporations a disproportionate advantage. Arbitrators can require governments to shell out millions or billions of dollars in damages, diverting critical funds needed for domestic programs, with no option to appeal the ruling. Workers and consumers have no such special avenue to pursue complaints and enforce labor and environmental trade commitments.

“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,” wrote the lawmakers. “Furthermore, ISDS is not needed to promote positive investment and in fact continues to harm human rights and hinder efforts to address climate change.”

Próspera was established under Honduras’ Zonas de Empleo y Desarrollo Económico law (ZEDE, or “Economic Development and Employment Zones”) by the U.S. company Honduras Próspera. ZEDEs are quasi-sovereign private governance zones where companies can operate almost independently from the Honduran government, establishing their own tax codes, court systems, and labor laws. Last year, following the Honduran government’s repeal of the ZEDE law, Honduras Próspera launched an ISDS claim under the Dominican Republic–Central America Free Trade Agreement (CAFTA-DR) seeking almost $11 billion, which amounts to nearly two-thirds of the country’s entire 2022 budget.

In the letter, the lawmakers urge Ambassador Tai and Secretary Blinken to investigate and pursue an effective path to removing consent to ISDS arbitration by the U.S. and our treaty partners in existing bilateral investment treaties and free trade agreements.

The letter is also signed by Senators Brian Schatz (D-Hawaii), Sherrod Brown (D-Ohio), Bernie Sanders (I-Vt.), and Sheldon Whitehouse (D-R.I.) and Representatives Susan Wild (D-Pa.), Rosa DeLauro (D-Conn.), Jamie Raskin (D-Md.), Raúl Grijalva (D-Ariz.), Greg Casar (D-Texas), Jesús “Chuy” Garcia (D-Ill.), Jamaal Bowman (D-N.Y.), Paul Tonko (D-N.Y.), Jan Schakowsky (D-Ill.), Pramila Jayapal (D-Wash.), Mark Pocan (D-Wis.), Brad Sherman (D-Calif.), Veronica Escobar (D-Texas), Nydia Velazquez (D-N.Y.), Eleanor Holmes Norton (D-D.C.), James McGovern (D-Mass.), Rashida Tlaib (D-Mich.), Cori Bush (D-Mo.), Jared Huffman (D-Calif.), Summer Lee (D-Pa.), Donald Norcross (D-N.J.), Ilhan Omar (D-Minn.), Barbara Lee (D-Calif.), Jill Tokuda (D-Hawaii), Ro Khanna (D-Calif.), Hank Johnson (D-Ga.), and Marcy Kaptur (D-Ohio).

Read the full letter text here or below:

Dear Ambassador Tai and Secretary Blinken:

We are writing regarding our concerns about the Investor-State Dispute Settlement (ISDS) system that has been a fixture of the United States’ trade and investment agreements with foreign nations. 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. We were pleased to see President Biden’s commitment not to include ISDS in any future trade deals, and Ambassador Tai, you have indicated that you will pursue a trade agenda in line with that commitment. We therefore ask that your agencies investigate any and all options at your disposal to eliminate ISDS liability from existing trade and investment agreements.

Large multinational corporations have successfully lobbied to include ISDS in past trade deals to give themselves special rights and privileges that ordinary citizens do not receive. 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.” 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.

Furthermore, ISDS is not needed to promote positive investment and in fact continues to harm human rights and hinder efforts to address climate change. A pending ISDS case recently launched against Honduras illustrates the need for your administration to take action to remove this problematic corporate handout from existing agreements. Late last year, 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.

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 percent of members are appointed by the private company and 22 percent are elected by landowners in a system where their number of votes is proportional to the size of their property.

This antidemocratic 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 Centre 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.

This case 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. 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.

We urge you to uphold your commitment and refrain from negotiating new trade agreements with ISDS, and also to address the existing ISDS mechanisms that corporations continue to exploit. Your administration has begun to negotiate a new agreement in the region, the Americas Partnership for Economic Prosperity, and has announced its intention to update existing agreements. Eight of the 11 recently announced APEP partner countries already have agreements with the United States that include ISDS provisions.

The U.S. government and Congress have already acknowledged, to some extent, the problems with the ISDS system. We worked on a bipartisan basis to significantly reduce ISDS liability in the renegotiated U.S.-Mexico-Canada Agreement (USMCA), though it left an unacceptable loophole for U.S. fossil fuel companies in Mexico. We request that you 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.

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. We urge you to investigate and pursue an effective path to removing consent to ISDS arbitration by the U.S. and our treaty partners in existing bilateral investment treaties and free trade agreements. And we look forward to working with you to remove these outdated provisions from trade and investment agreements, foreclosing the possibility of future attacks against the U.S. and signaling to trading partners that they will not be penalized for prioritizing the public interest.

Thank you for your attention to this matter.

Original source can be found here.