Prominent corporate law firms representing major businesses in the United States, Italy, Spain, and other nations are openly discussing the possibility of companies using a secretive and notorious legal process to sue countries over future profits lost due to government efforts to combat the coronavirus pandemic.
On Monday, the non-profit research group Corporate Europe Observatory (CEO) documented numerous examples of high-powered corporate law firms—including Ropes & Gray, Alston & Bird, and Quinn Emanuel Urquhart & Sullivan—publicly licking their chops over the lucrative opportunity presented by the Covid-19 crisis and government attempts to fight it.
Ropes & Gray wrote in an alert on its website on April 28 that "for companies with foreign investments," the investor-state dispute settlement (ISDS) system enshrined by thousands of trade agreements across the world "could be a powerful tool to recover or prevent loss resulting from Covid-19 related government actions."
"As states struggle with the pandemic and with rebuilding their economies, ISDS cases could mean huge extra financial burden."
—Corporate Europe Observatory
"Governments have responded to Covid-19 with a panoply of measures, including travel restrictions, limitations on business operations, and tax benefits," the alert reads. "Notwithstanding their legitimacy, these measures can negatively impact businesses by reducing profitability, delaying operations, or being excluded from government benefits."
Lawyers from Sidley, a firm headquartered in Chicago, wrote on May 8 that "where a company prevails in its investment treaty claims, it may be able to recover all the losses that flowed from the government measures that damaged the company."
CEO noted that the ISDS system hands "sweeping powers to foreign investors, including the peculiar privilege to sue states in an arbitration court system." The ISDS chapter of the Trans Pacific Partnership was one of the most widely denounced components of the 12-nation trade deal that was ultimately never ratified by the U.S. Congress.
"In ISDS tribunals companies can claim dizzying sums in compensation for government actions that have allegedly damaged their investments, either directly through expropriation or indirectly through regulations of virtually any kind," CEO wrote. The number of ISDS suits has skyrocketed in the last decade, and so has the amount of money involved."
The research group highlighted several scenarios in which corporations could challenge countries over coronavirus-related government actions, including lowering drug prices, reducing rent and utility bills, temporarily nationalizing private hospitals, and providing access to clean water.
An Alston & Bird lawyer said during a recent webinar that "governments... forcing producers to sell drugs at significantly discounted prices and/ or taking the intellectual property for themselves and/or disseminating that intellectual property to third parties without permission" constitute "takings" that could be challenged under existing investment treaties.
"The lawyers' enthusiasm is not based in fantasy," CEO wrote. "In the past 25 years over 1,000 known investor-state lawsuits have been filed. Investors have won a significant amount of ISDS claims as arbitral tribunals ruled that it was illegal to interfere with prices of essential goods, restrict or tax the export of vital products, roll back incentives to investments—and the list goes on."
"As states struggle with the pandemic and with rebuilding their economies," the group warned, "ISDS cases could mean huge extra financial burden."
In the midst of the #COVID19 crisis, corporations are preparing to sue states over pandemic measures.
— CEO (@corporateeurope) May 19, 2020
David Dayen, executive editor of The American Prospect, wrote Wednesday that progressives have long viewed ISDS as a disastrous system that allows powerful corporations to "lock in a low level of regulation or extract cash if any country dares to try to protect their citizens."
"It's so unbelievably shocking to see corporate lawyers actively discussing having foreign investors use ISDS to challenge countries over their coronavirus lockdown measures, and try to extract 'expected future profits' from them," Dayen wrote.
"There is no example yet of a foreign investor filing such a claim," Dayen added. "This bears watching, or maybe a pre-emptive strike to defuse this ticking time bomb. Incidentally, the Columbia Center on Sustainable Investment has proposed an ISDS moratorium during the pandemic."
If this is at all true it means that corporations will sue in extrajudicial super-courts for the expected profits they had to forego when countries put lockdown measures in place.
Oh. My. God.https://t.co/ZBF3qS7XZk
— David Dayen (@ddayen) May 20, 2020
The Transnational Institute (TNI), a think tank based in Amsterdam, is calling on governments to "take urgent action to make sure that transnational corporations and investment lawyers do not become beneficiaries of this pandemic, at the expense of people's well-being and health."
In an April 20 report, TNI urged nations to:
- Suspend all trade and investment treaty negotiations;
- Take all necessary steps to terminate (unilaterally or multilaterally) existing treaties;
- Institute a comprehensive review (cost-benefit analysis) of their current and planned investment agreements;
- Withdraw consent to ISDS, to limit immediate exposure to investor lawsuits;
- Default on the payment of outstanding debts as a result of ISDS awards. Or, at least, discuss ISDS debt relief and/or debt restructuring with creditors.
"Just as the pandemic is revealing profound health inequities and the dangers of agro-industrial food systems, it is also showing the dangers of trade and investment systems that put corporate profits above health and life," TNI researchers wrote. "There is no place for trade and investment agreements that allow investors to profit from suing countries in crisis or seeking to cash-in from scarce public resources."