Australian Minister for Trade and Investment Andrew Robb, center, congratulate World Trade Organization (WTO) Director-General Roberto Azevedo, right, during the closing ceremony of the ninth Ministerial Conference of the WTO in Bali, Indonesia, Sunday, Dec. 7, 2013. (AP Photo/Firdia Lisnawati)
Australian Minister for Trade and Investment Andrew Robb, center, congratulate World Trade Organization (WTO) Director-General Roberto Azevedo, right, during the closing ceremony of the ninth Ministerial Conference of the WTO in Bali, Indonesia, Sunday, Dec. 7, 2013. (AP Photo/Firdia Lisnawati)

Trojan horse deals are test for WTO boss

By Time of article published Dec 18, 2013

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Roberto Azevedo, the new World Trade Organisation (WTO) director-general, has earned praise for avoiding the implosion that has characterised many past WTO meetings.

The Bali deal indicates that, while attempts to expand the scope of the WTO do not enjoy support from most members, Azevêdo may find more support in heeding calls to alter existing WTO rules.

His home country has proven successful in challenging old globalisation agendas and crafting its own trade policy. Brazil was one of the few countries that refused to subject its financial services sector to the WTO’s broad deregulation rules. Unlike those countries that did, Brazil weathered the 2007/8 global financial crisis with limited impact.

Another example of Brazil’s savvy is its refusal to accept an obscure-sounding provision that is usually buried in the trade and investment agreements and pushed onto other countries by the US and the EU.

Known as “investor-state” dispute resolution (ISDR), this mechanism empowers foreign corporations to bypass the domestic legal systems of the countries in which they operate. Instead, it allows them to drag sovereign governments before extrajudicial tribunals with a stunning demand – compensate corporations for health or environmental policies (or other government actions) that investors find inconvenient.

These tribunals consist of three private sector attorneys, unaccountable to any electorate. And yet, they are empowered to decide whether an important public interest policy should be deemed a violation of expansive, but vague, foreign investor privileges.

For example, a Peruvian anti-toxics policy is being attacked by a US corporation, as is Canada’s medicine patent policy. And US tobacco giant Philip Morris has launched cases against progressive anti-smoking laws in Uruguay and Australia, after failing to sink the laws in domestic courts.

To outsiders, this may sound like a conspiracy theory. If only. In the name of investment promotion, US trade negotiators over the past two decades have quietly inserted these far-reaching provisions into a panoply of “free trade” agreements (FTAs) signed with 17 mainly developing countries, from Mexico to Morocco. European countries have inked nearly 1 000 bilateral investment treaties (BITs) containing the same mechanism with developing countries in Latin America, Africa and Asia.

As a result, US and EU oil, pharmaceutical and other corporations are now launching an unprecedented wave of these investor-state cases. The UN reports that the cumulative number of investor-state cases has jumped tenfold since 2000.

Corporations are using this tool to go up against consumer safeguards, environmental laws, financial regulations and other polices that they claim inhibit their “expected future profits”. These tribunals have already ordered governments to pay billions to foreign corporations, while billions more in claims remain pending.

So why would any country want to sign on to such a one-sided system? Most likely, it is deceptive advertising. Sweeping investor privileges, it was reasoned, were required to lure a steady flow of investment into developing countries. Investor-state clauses were originally presented as promoting investments. In reality, they have turned into a Trojan horse.

If the agreements had worked as advertised, Brazil – which has steadfastly refused to accede to these tribunals – should be hurting for investment after rebuffing BITs and US FTAs that enshrine the ISDR system. And Peru, having ratified nearly two-dozen investment treaties and signed onto an ISDR-embodying FTA with the US, should be a darling of foreign investors.

The reality is the opposite. The UN reports that in 2012 Brazil was the fourth most popular destination for foreign investment, only outdone by the US, Hong Kong and China.

In contrast, Peru ranked as one of Latin America’s lowest foreign investment recipients. Indeed, study after study has found zero correlation between a country’s submission of its public policies to the whims of investor-state tribunals and its ability to attract investment.

No wonder then that South Africa is in the process of terminating its BITs with investor-state enforcement, as is Ecuador. Countries such as Bolivia and Venezuela have withdrawn from the World Bank forum where most investor-state cases are tried

The opposition to these dubious tribunals has also reached the Global North. After a multi-year review under the past conservative government, Australia concluded that the investor-state regime was not in its national interest. It refuses to be subjected to the US-proposed expansion of the investor-state system through the Trans-Pacific Partnership, a sweeping FTA that is currently under negotiation.

Given Brazil’s proven success in refusing such costly schemes and engaging in the global economy on more pragmatic terms, will Azevêdo take a cue from his home country, learn from the recent backpedalling in the Bali deal and bring a new perspective to the WTO?

The odds may be long, but the world can only hope so.

Editor’s note: Lori Wallach is director and Ben Beachy is research director of Public Citizen’s Global Trade Watch. This article is part of Ford Foundation’s “Reforming Global Finance Governance” project. It is published with permission from theGlobalist.com, an online newspaper covering developments shaping the global economy, politics and culture. Follow theGlobalist on

Twitter: @theGlobalist

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