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Corporate power in global trade: Will corporations sue states for measures taken to combat COVID-19?

July 8, 2020

5-minute read

Over the past four months, Canadian governments have taken unprecedented measures to minimize the spread of COVID-19 as governments worldwide have enforced lockdowns, closed borders, changed public policy and provided various stimulus packages. As the pandemic has spread, we have witnessed politicians across the spectrum articulate a struggle to strike a balance between public health and the “health of the economy.” By and large, we have seen the scales tip in favour of  “business as usual” and corporate profits

Since the beginning of the pandemic there has been a disturbing disregard for the health and wellbeing of Canadian workers and the most marginalized communities that has exacerbated pre-existing inequities. Long-term care homes have seen thousands of deaths, highlighting however briefly their chronic underfunding and the industry's reliance on a predominantly female workforce that is overworked and underpaid. Migrant farm workers, meanwhile, who already experience terrible conditions in Canada, have faced heightened exploitation and abuse with the pandemic. Grocery store workers, whose continued work through the shutdown led to massive profits for their parent companies, have already lost their “pandemic pay” bump. At the community level, the Canadian Civil Liberties Association has found that pandemic policing and COVID-19 fines have been disproportionately levied against Black, Indigenous and other marginalized communities.

Meanwhile, many corporations have seen sky-rocketing profits. While some finance and energy companies have experienced temporary losses, the biggest pharmaceutical companies, tech companies and retailers have seen a large jump in profitsThe richest have gotten richer, and Jeff Bezos is now on track to become the worlds’ first trillionaire. Still, Canada has continued to bailout corporations, even when they don’t pay taxes. Corporations benefiting from this global pandemic as the most marginalized communities and workers suffer is not going to end anytime soon—and nowhere is this more clear than in the unprecedented risk of corporations suing governments for any measures taken to mitigate the harm of COVID-19. 

Often when we think of international trade agreements, we conceptualize of them as the contract between two or more countries and the exchange of goods and services. But over the past thirty years, these trade agreements have more and more been created around the prioritization and protection of corporate rights and profits. Written into almost every recent trade agreement is the Investor State Dispute Settlement (ISDS) mechanism, a legal system that transcends national borders and allows foreign corporate investors to sue governments for any “interference” with their investments or “violation” of their rights under the agreement. Built around not restricting capital flow and corporate investment, these agreements provide corporations with vaguely written guarantees of “full protection and security” and “fair and equitable treatment”. Corporations are able to make claims against governments that are heard before a tribunal and can be awarded millions, sometimes billions of dollars for lost profits (future or past). Beyond the imbalance inherent in this mechanism, where only corporations are able to sue governments but not vice versa, each tribunal consists of different officials. In general, this results in inconsistent interpretations of treaties and international law and arbitrary determination of compensation.

Public watchdogs, activists and researchers have begun to sound the alarm on the possibility that corporations may use this crisis moment as justification to launch ISDS cases against state measures to combat the pandemic, and reap immense monetary damages. In the past, ISDS claims have been made for wide-ranging reasons including governments’ environmental regulations, labour regulations or human rights protections that have restricted corporate profits. ISDS and the wider neoliberal free trade regime have impelled governments to desecrate social and environmental protection measures in the name of corporate profit. COVID-19 has seen states across the world, including Canada, invest heavily in health and social well-being (though not felt equally across different communities). Now, there is a real chance that public money will need to be spent defending these necessary measures before international arbitration panels.

International law firms, who have a deep interest in ISDS cases because they rake in millions from their corporate clients, have begun to prepare and advocate for possible future ISDS claims. Transnational Institute, Corporate Europe Observatory and International Institute for Sustainable Development have been tracking law firms’ communications to their clients and the range of reasons that may be brought under legal scrutiny is vast. States, these law firms claim, may be sued for movement restrictions including border closures or lockdowns, measures taken to guarantee access to water, electricity or other essential resources, efforts to acquire drugs and medical equipment, export bans on staples, drugs, and PPE to ensure adequate domestic supply, tax restructuring and stimulus packages. International law firm, Jones Days has warned that “the proper degree of deference requires a minimum level of rationality and proportionality between the State's measure and a legitimate governmental objective. States may run afoul of their IIA (international investment agreement) obligations in [myriad] ways.” Interpretation of whether states “ran afoul” in their efforts to protect people’s lives will be up to the tribunals. 

Currently, there are 343 ISDS claims pending across the world and at the end of 2018, decided cases had left governments with a combined US$88 billion bill owing to foreign investors. Spain ranks 2nd in the number of times they have been sued through ISDS. Facing the horrors of the pandemic before most other countries, they currently have the 6th highest number of cases of COVID-19 globally. Argentina has experienced more claims against them than any other country and currently has the 26th highest number of cases of COVID-19 globally. Unfortunately, Argentina is no stranger to being sued by foreign investors during a crisis. COVID-19 has cost a lot for states globally. The costs of ISDS claims have contributed to the debt burden of the Global South and the pandemic has only exacerbated that debt further. Any country will suffer greatly at the hands of corporate legal battles, and in the case of countries such as Spain and Argentina, one can see how more legal bills and potential settlements could be catastrophic.

In Canada, the pandemic is impacting racialized communities, migrants and lower-income people more severely because of the systemic inequalities built into public policy and institutions. We must call for people and their health to be prioritized over profit. We must call for more equitable policies and stronger protections for those most impacted by this pandemic. We must also ensure that governments can respond to this demand for justice without being threatened by investor-state lawsuits. The Columbia Centre for Sustainable Investment has made a call for a complete moratorium on ISDS cases during the pandemic. In June, the National Union of Public and General Employees wrote an open letter to Prime Minister Trudeau, criticizing the threat of ISDS cases and highlighting six calls to action, including restricting ISDS cases and prohibiting ISDS in any future agreements. These calls are important, as is the continued need to educate the public and our politicians about the risks of ISDS. Corporations getting richer during a pandemic and law firms across the world readying their corporate clients for a potential legal battle really highlights just how much power corporations hold around the globe. 

Though it is unclear right now how real the threat is for a wave of arbitration, it is crystal clear that this supranational legal system designed for and by corporations, systemically provides extreme privileges to foreign investors at the expense of people and the planet. We need a moratorium on COVID-19 claims now, and need to dismantle this unjust system as soon as possible.

Jesse Whattam is the co-ordinator of the Trade Justice Network.

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