Good morning from New Economy Brief.
Campaigners are warning that the UK’s latest trade deal (the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, or CPTPP) could mean the government can be sued for billions of pounds by corporations whose profits might be threatened by policies including actions to improve public health or move faster on mitigating climate change.
Read on for an explanation of how the Investor-State Dispute Settlements system could threaten UK sovereignty.
Investor-State Dispute Settlement and the UK’s trade deals.
Global Justice Now has brought together over 30 organisations and 50 experts from the UK and Canada to call for excluding Investor State Dispute Settlement (ISDS) provisions from the UK’s latest trade deal, the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP, sometimes referred to as the ‘Pacific Trade Deal’). They warned both the Canadian and UK governments that failing to do this could cost billions in taxpayer money through legal cases from private corporations.
What is the CPTPP? The UK agreed to accede to the CPTPP - a ‘free trade alliance’ encompassing 11 countries such as Japan, Canada, Australia, Malaysia and Singapore - in July 2023. Liz Truss (then Trade Secretary) hailed the UK’s original application to join the free trade bloc as a growth measure that will boost exports to member countries, and as a ‘pivot away’ from trade with the EU. But the government’s own analysis found that it may only add 0.08% to UK GDP “in the long run”, and the Trade Justice Movement warns that the agreement brings “significant risks” to the UK government’s domestic priorities.
What is ISDS? Joining the CPTPP involves accepting a system of international arbitration allowing companies from signatory countries that are investing in another to argue that new laws or regulations could damage their expected profits or investment potential, and seek compensation in a binding (and often secret) arbitration tribunal. (Watch Common Wealth’s video explainer on ISDS). But accepting ISDS is not a mandatory part of joining the CPTPP - New Zealand opted out of the system through bilateral agreements with trading partners. The signatories to the letter to Prime Ministers Rishi Sunak and Justin Trudeau last week are calling for similar ‘side-letter’ agreements between the governments of UK and Canada, due to “particularly aggressive users of ISDS” from “notoriously litigious Canadian firms”.
Why is this important?
Campaigners argue that ISDS effectively elevates the rights of corporations above a country's democratic right to decide its own laws. In particular, they argue that ISDS will make it more difficult for a country to enact policies in the public interest, such as public health and climate policies. Acquiescing to such a system, some could argue, would betray the Leave campaign’s promise to ‘take back control’ of UK trade policy after Brexit.
How ISDS threatens sovereignty. Corporations have used ISDS over a thousands times in recent years to sue governments around the world for billions of pounds. One example is a tobacco company based in Switzerland suing the Uruguayan government for implementing anti-smoking legislation. More recently, a group of cryptocurrency billionaires who bought an island in Honduras to found a ‘libertarian paradise’ in a ZEDE - zones where companies have autonomy from the countries regulations such as workers rights and tax law - are suing the Honduran government for nearly $11bn (2/3rds of their national budget for 2023) for a democratic decision to abolish ZEDEs, due to fears by some that they would become a ‘vector for corruption’.
The Energy Charter Treaty. Perhaps most importantly, ISDS often stops countries taking greater action on climate change - particularly governments wanting to wean their economies off fossil fuels. The most (in)famous case is the Energy Charter Treaty (ECT), which allows energy companies to sue governments for changes in energy policy that might cost them money, including policies that support renewables. A Canadian firm brought the largest ever fossil fuel litigation under the ECT against the US government, after President Biden cancelled the Keystone XL oil pipeline. Eleven countries are now leaving the ECT, including Germany, France, Poland and the Netherlands, and President Joe Biden has said he will not include ISDS in any future trade deals. According to Global Justice Now, the UK could be exposed to up to £9.4bn in legal claims from fossil fuel companies over its climate policy and is currently “reviewing its membership” of the ECT.
Relevance for UK politics.
The IPCC has warned that ISDS can cause ‘regulatory chill’ which deters necessary legislation for fear of being sued. When all parties are committed to decarbonising the UK’s energy system in one form or another, failing to exclude ISDS from the UK’s trade deals could make the long road to net zero even harder, not to mention more expensive for the taxpayer. Global Justice Now’s Cleodie Rickard suggests that Labour’s refusal to commit to revoking the current government’s new oil and gas licences is because Keir Starmer fears that legal obligations under the ECT could mean the taxpayer ends up footing the bill. Or if Labour wanted to abolish ‘freeports’, could the government end up getting sued like Honduras did?
The evolving global trade regime. The purported benefits of new trade deals featured heavily in the debate around Brexit, but the irony for the UK is that it is pursuing these deals at a time when major trading blocs of the world seem to be moving away from the ‘Washington Consensus’ that has governed globalisation. The UK’s approach looks out of step with more forward-thinking nations that increasingly prefer trade rules that respect national sovereignty and protect domestic industries. Under President Biden, the US has begun to flout WTO rules by prioritising efforts to reshore domestic industries and secure more resilient supply chains for green technology. Likewise in the EU, state-aid laws that stopped governments intervening in the economy are being watered down. In short, the paradigm that put shareholder returns above all else in international trade is beginning to shift, and the rules are being rewritten to give governments the flexibility they need to meet other democratically-decided priorities.
A progressive vision for UK trade. Many organisations have proposed ways to improve the UK’s trade policy. The IPPR has urged the UK to work with allies to reform the World Trade Organisation so as to safeguard and improve labour and environmental standards. They have also argued that these reforms should allow for divergent domestic approaches needed to deliver faster climate action across the world after the Inflation Reduction Act signalled a move away from a liberal trade regime. War on Want explores the UK’s trade policies with countries in the global South, calling for agreements that will allow low-income countries to support their own industries and economies. The TaPP network proposed six steps to improve parliamentary scrutiny of free trade agreements in the UK.
The end of the graduate wage premium? Having a degree brings “smaller rewards in the job market than it used to”, except in London where graduates enjoy the same “wage premium” as they did in 1997, explains the Financial Times’ John Burn-Murdoch. He argues that this phenomenon is a symptom of “low investment and low or zero productivity growth” and says that instead of sending fewer people to university, we should focus on creating more “graduate-quality jobs”.
“Unchartered territory”. A new report signed by 15,000 researchers from 163 countries warns that we are “entering an unfamiliar domain regarding our climate crisis” which could lead to “worldwide societal breakdown”. It highlights worrying statistics about the extent of the climate crisis, including the fact that an estimated 3 to 6 billion individuals (approximately one-third to one-half of the global population) might find themselves confined to uninhabitable regions by the end of this century.
Grid decarbonisation. A new Public First report, commissioned by RenewableUK, analyses the “detail and political rationale” behind the Labour Party’s plans to decarbonise the electricity grid by 2030, which many have warned are not achievable. Yet the report argues that the target is “not impossible - merely very difficult” and requires reducing overall demand for electricity (via improved energy efficiency) and reducing peak demand for electricity (by investing in storage technology and greater demand-side flexibility).
Falling wealth. Surging interest rates have triggered a “sharp reversal in wealth levels” across all parts of the UK, but particularly in Scotland, Wales and the North of England, according to new research by the Resolution Foundation. It argues that exposing households to “high asset price volatility” causes an arbitrary redistribution of wealth and calls for reforms to the tax system to “shift the tax burden towards wealthier parts of Britain”.
How will women vote? New research by the Women’s Budget Group finds that women voters are more likely to identify the NHS, the cost of living, and climate change as key priorities than men. For example, nearly two thirds of women (64%) named the NHS as a top priority while just under half of men (48%) did the same.
Bankers’ bonuses. This week, the cap on bankers’ bonuses will be lifted - a measure first announced in Kwasi Kwarteng’s controversial mini-budget and one which the financial regulator argues will make the UK more competitive. But many have argued that this is the wrong course in the middle of a cost of living crisis, with Luke Hildyard of the High Pay Centre, for example, arguing that “we can’t rely on the outsized incomes of a handful of super-rich bankers trickling down to lift slumping living standards for the wider population”.