What do you think?
Rate this book
Columbia Global Reports
Shadow Courts: The Tribunals that Rule Global Trade
A detailed look at one little-known but powerful provision in most modern trade agreements.
International trade deals have become vastly complex documents, seeking to govern everything from labor rights to environmental protections. This evolution has drawn alarm from American voters, but their suspicions are often vague.
In this book, investigative journalist Haley Sweetland Edwards focuses on one crucial aspect of these massive a powerful provision called Investor-State Dispute Settlement, which allows foreign corporations to sue sovereign nations before little-known supranational arbitration tribunals.
Edwards makes a devastating case that these tribunals (the "shadow courts" of the book's title), which were designed 50 years ago to protect foreign investors' property rights abroad, are now being exploited by multinational corporations at the expense of sovereign nations and their citizens. From the 1960s to 2000, corporations brought fewer than 40 cases through these tribunals. In the last 15 years, they’ve brought nearly 650.
In the course of her reporting, Edwards interviewed dozens of policymakers, activists, and government officials in Argentina, Canada, Bolivia, Ecuador, the European Union, and the United States. The result is a major story, untold before now, about a significant shift in the global balance of power.
International trade deals have become vastly complex documents, seeking to govern everything from labor rights to environmental protections. This evolution has drawn alarm from American voters, but their suspicions are often vague.
In this book, investigative journalist Haley Sweetland Edwards focuses on one crucial aspect of these massive a powerful provision called Investor-State Dispute Settlement, which allows foreign corporations to sue sovereign nations before little-known supranational arbitration tribunals.
Edwards makes a devastating case that these tribunals (the "shadow courts" of the book's title), which were designed 50 years ago to protect foreign investors' property rights abroad, are now being exploited by multinational corporations at the expense of sovereign nations and their citizens. From the 1960s to 2000, corporations brought fewer than 40 cases through these tribunals. In the last 15 years, they’ve brought nearly 650.
In the course of her reporting, Edwards interviewed dozens of policymakers, activists, and government officials in Argentina, Canada, Bolivia, Ecuador, the European Union, and the United States. The result is a major story, untold before now, about a significant shift in the global balance of power.
142 pages, Paperback
First published September 6, 2016
4 people are currently reading
242 people want to read
Ratings & Reviews
Friends & Following
Create a free account to discover what your friends think of this book!
Community Reviews
Displaying 1 - 5 of 5 reviews
May 13, 2019
“The poor have sometimes objected to being governed badly; the rich have always objected to being governed at all.” –G.K. Chesterton.
You’ll never find more resounding evidence of that reality than this brisk, expert volume on investor-state dispute settlement (ISDS) courts.
First, applause for Haley Sweetland Edwards and the editors of Columbia Global Reports for packaging wonky information in a really great format. Shadow Courts is an erudite, readable pamphlet that mixes a precise dosage of fact-based reporting, literary devices (characterization, the occasional rhetorical flourish, anecdotery), and political editorialization. The result is a balanced work that’s clear and easy to read. Politically, the book’s progressive disposition is clearly disclosed but comprehensively supported. You’d be hard-pressed to oppose it on ideological grounds.
Then again, the conclusions of this report aren’t really controversial to anyone who sees the role of government as serving its population.
This book is about the unjust, unanticipated, and dangerous power held by the third-party arbitration tribunals enshrined in supranational free trade agreements. In the space of a generation, these tribunals went from rarely-tested small print technicalities within bilateral investment treaties (BITs) to relentlessly pro-corporate kangaroo courts that seemed to be in the business of extracting money from governments to give to large corporations.
For centuries, the rights of foreign investors have posed a legal dilemma for governments. Since the days of Lex Mercatoria in the early medieval period (and probably long before that) governments have wrestled with the twin priorities of sovereignty (controlling all property in their jurisdiction) and mutually beneficial trade agreements with foreign lands. By definition, subjecting domestic law to a higher order cedes some degree of self-governance. Balance between these two priorities has been hard to achieve. “Where is the line between a government’s right to regulate in the public interest and a foreign corporation’s claim to its own property?” (15) In our world, predictably, it’s skewed horrendously corporate.
For the first half of the twentieth century, developed nations had no use for BITs. Emerging out of the colonial period (while retaining its mindset) and lacking any mechanisms for enforcement, trade agreements were “written in the lilting language of friendship” and “enforced the old-fashioned way: with cannons, coercion, and blood.” (36) There’s a great line on 44 where she mentions that even into the 1960s and 70s, the US had little use for these agreements because “US foreign policy took a more hands-on approach.” (Fucking love that framing.) “If a foreign leader was unfriendly to American businesses, it was generally preferred that he be removed from the equation and replaced with someone friendlier.”
So the origin of the stipulations in these treaties was unambiguously post-colonial. “Developing countries, in need of foreign capital, were willing to submit to wealthy countries’ demands if it meant they would receive preferential trade terms over their neighbors.” (43) And when legal protections were inserted into the agreements, it was viewed by American policymakers and businesses to be a way to keep their property out of the hands of developing nations’ court systems. Basically, the terms of the Washington Consensus required the real power to be retained by rich Western investors.
It wasn’t a well-understood area of the law. The US signed the first treaty that included an ISDS tribunal in 1969, and there wasn’t even a complaint brought through that system for three years. In the first 15 years of its existence, there were seven cases total. Lawyers didn’t understand ISDS tribunals, and weren’t sure they were even legal under international law.
Things started to change amid the libertarian rise of Thatcher and Reagan. In the 80s and 90s, the nations of the globe went into a frenzy of bilateral treaty-making. By the time NAFTA came along in the late 80s (signed in 1994) ISDS had still been rarely used. But it signaled a watershed moment. Not only did NAFTA create the planet’s largest free-trade zone, but it combined ISDS into the terms of a BIT. “The move not only allowed American and Canadian investors to challenge Mexico outside of its shaky judicial system” — which is what the framers envisioned — “it also allowed investors from all three signatory countries to challenge [the governmental actions of] the US and Canada outside of their robust and reliable courts.” (45)
Eventually, there was a breakthrough. In October 1996, the first-ever ISDS claim under NAFTA was filed by Metalclad, a prototypically evil heavy machinery corporation from California, against Mexico. The company had recently bought a hazardous waste disposal company that had angered local residents in a poor town near Mexico City, who claimed they were getting sick from the poorly constructed site. The population organized effectively enough that the mayor of the town, firmly backed by public opinion, decided to not let Metalclad's planned landfill open. The company's CEO—who griped, regarding the town’s refusal to grant him a permit, “Every advisor that I had in Mexico told me that if the governor supports the project, you don’t have to worry about that local community,” fucking asshole—sued the Mexican government over the loss of future profits. To the surprise of everyone, the tribunal ruled in favor of Metalclad, and the Mexican government had to pay compensation for the sin of exercising its peoples' wish to not be exposed to toxic waste.
Aside from its horrifying politics, that ruling raised a massive legal question. The treaty verbiage that established the ISDS system was not specific about what property, or its loss, was. The rules were written envisioning expropriated or nationalized equipment and land. As it played out, the small tribunals (themselves being comprised of corporate agents, 84) were so sympathetic to the corporations that any government action that deprived or curtailed future profits came to be regarded as the seizure of property. “It wouldn’t matter if the substance was liquid plutonium designed for a child’s breakfast cereal," said Barry Appleton, a pioneering ISDS lawyer who will certainly languish in hell. "If the government bans a product and a US-based company loses profits, the company can claim damages.”
This might have generated less outrage in elite circles if ISDS claims continued to be wealthy companies siphoning money from poorer countries. But the presumption of 'US investor safeguarding property in a Brown People nation' evaporated when, after the fall of the Soviet Union and the rise of the globalized, WTO world, capital started to flow into US companies. Suddenly, the US government found itself on the business end of ISDS claims. Nobody in Washington liked that very much.
Moreover, the vagueness of the legal concepts gave rise to an “arbitral casino,” (80) where companies would file ISDS claims just for the hell of it, to see what the tribunals (certainly no less compromised than any developing-world court system) would let them get away with. It was good fun, low risk, and it transferred a ton of money from poor countries to wealthy multinationals when they hit the jackpot.
Essentially, this whole tragic story is about the incompatibility of a corporate agenda with good governance. It is a portrait of corporate governance as political theory, and it's horrifying. It’s frustrating to think of the smug colonists in Washington agreeing to the concept of an ISDS, thinking they were in league with the titans of industry against primitive foreigners, realizing only when ambushed that the corporations were never in league with lawmakers or even their own fucking country. Corporatists are never on anyone’s side but their own, and their side is almost always inimical to everyone else's.
This shitty system emblematizes what people hate, and are now rebelling against, about “globalists.” The world’s top capitalists are just too greedy to avoid extracting wealth wherever possible, and they’re not coordinated enough to calibrate a level of greed or extraction that populations will tolerate. The result is an obviously heinous system that no one, not even free-trade advocates, think is wise or sustainable.
One solution is to stop embedding legal mechanisms in generalized trade agreements, and just let each contract between a government and a corporation stipulate its own terms. That way, you're not conflating treaty disputes with contractual disputes. The 1993 UN Human Development report called traditional nation-states “too small for the big things and too big for the small things.” (112) I love the quote, but I think it was premature. Nation-states are probably the perfect size for negotiating agreements that establish the legal space where more specific contracts can be quickly negotiated between specific locations and specific companies.
And if having to negotiate separate contracts throws a roadblock in the way of attracting investment, so what? You really have to wonder why a “good investment climate” is desirable at all. What’s the point of inviting global capital if all it yields is fucking Caterpillar stealing from you and making you regret ever associating with them?
Honestly, the concept underlying corporate-oriented laws don’t make sense anyway. As Sweetland Edwards writes on 118, “Why should a law designed to promote racial integration be less valuable than a law that promotes investment? Why should the suffering of 30,000 rainforest residents who have been forced to live in polluted squalor be measured against losses to Chevron’s profit margin?”
Personally, I think the operative premise here is that a government should never factor any investor’s interests into policy analysis. I mentally puked when she described lawmaker efforts in 2001 to clarify the scope of the ISDS rules as trying “to carve out ‘policy space,’ where governments could pass legislation and regulations in the public interest without being accused of infringing upon foreign investors’ property rights.” (75) That used to be called governance. Disgusting.
Investing is hard for a reason. But there are ways to deal with it. Buy insurance, forecast the risks of expropriation, keep operations where the conditions are more stable, whatever. But keep private money out of governance. Failing to abide by this simple, necessary guideline incites the vicious populist backlash against “globalism” we see today—to which, after this book, I am much more sympathetic.
You’ll never find more resounding evidence of that reality than this brisk, expert volume on investor-state dispute settlement (ISDS) courts.
First, applause for Haley Sweetland Edwards and the editors of Columbia Global Reports for packaging wonky information in a really great format. Shadow Courts is an erudite, readable pamphlet that mixes a precise dosage of fact-based reporting, literary devices (characterization, the occasional rhetorical flourish, anecdotery), and political editorialization. The result is a balanced work that’s clear and easy to read. Politically, the book’s progressive disposition is clearly disclosed but comprehensively supported. You’d be hard-pressed to oppose it on ideological grounds.
Then again, the conclusions of this report aren’t really controversial to anyone who sees the role of government as serving its population.
This book is about the unjust, unanticipated, and dangerous power held by the third-party arbitration tribunals enshrined in supranational free trade agreements. In the space of a generation, these tribunals went from rarely-tested small print technicalities within bilateral investment treaties (BITs) to relentlessly pro-corporate kangaroo courts that seemed to be in the business of extracting money from governments to give to large corporations.
For centuries, the rights of foreign investors have posed a legal dilemma for governments. Since the days of Lex Mercatoria in the early medieval period (and probably long before that) governments have wrestled with the twin priorities of sovereignty (controlling all property in their jurisdiction) and mutually beneficial trade agreements with foreign lands. By definition, subjecting domestic law to a higher order cedes some degree of self-governance. Balance between these two priorities has been hard to achieve. “Where is the line between a government’s right to regulate in the public interest and a foreign corporation’s claim to its own property?” (15) In our world, predictably, it’s skewed horrendously corporate.
For the first half of the twentieth century, developed nations had no use for BITs. Emerging out of the colonial period (while retaining its mindset) and lacking any mechanisms for enforcement, trade agreements were “written in the lilting language of friendship” and “enforced the old-fashioned way: with cannons, coercion, and blood.” (36) There’s a great line on 44 where she mentions that even into the 1960s and 70s, the US had little use for these agreements because “US foreign policy took a more hands-on approach.” (Fucking love that framing.) “If a foreign leader was unfriendly to American businesses, it was generally preferred that he be removed from the equation and replaced with someone friendlier.”
So the origin of the stipulations in these treaties was unambiguously post-colonial. “Developing countries, in need of foreign capital, were willing to submit to wealthy countries’ demands if it meant they would receive preferential trade terms over their neighbors.” (43) And when legal protections were inserted into the agreements, it was viewed by American policymakers and businesses to be a way to keep their property out of the hands of developing nations’ court systems. Basically, the terms of the Washington Consensus required the real power to be retained by rich Western investors.
It wasn’t a well-understood area of the law. The US signed the first treaty that included an ISDS tribunal in 1969, and there wasn’t even a complaint brought through that system for three years. In the first 15 years of its existence, there were seven cases total. Lawyers didn’t understand ISDS tribunals, and weren’t sure they were even legal under international law.
Things started to change amid the libertarian rise of Thatcher and Reagan. In the 80s and 90s, the nations of the globe went into a frenzy of bilateral treaty-making. By the time NAFTA came along in the late 80s (signed in 1994) ISDS had still been rarely used. But it signaled a watershed moment. Not only did NAFTA create the planet’s largest free-trade zone, but it combined ISDS into the terms of a BIT. “The move not only allowed American and Canadian investors to challenge Mexico outside of its shaky judicial system” — which is what the framers envisioned — “it also allowed investors from all three signatory countries to challenge [the governmental actions of] the US and Canada outside of their robust and reliable courts.” (45)
Eventually, there was a breakthrough. In October 1996, the first-ever ISDS claim under NAFTA was filed by Metalclad, a prototypically evil heavy machinery corporation from California, against Mexico. The company had recently bought a hazardous waste disposal company that had angered local residents in a poor town near Mexico City, who claimed they were getting sick from the poorly constructed site. The population organized effectively enough that the mayor of the town, firmly backed by public opinion, decided to not let Metalclad's planned landfill open. The company's CEO—who griped, regarding the town’s refusal to grant him a permit, “Every advisor that I had in Mexico told me that if the governor supports the project, you don’t have to worry about that local community,” fucking asshole—sued the Mexican government over the loss of future profits. To the surprise of everyone, the tribunal ruled in favor of Metalclad, and the Mexican government had to pay compensation for the sin of exercising its peoples' wish to not be exposed to toxic waste.
Aside from its horrifying politics, that ruling raised a massive legal question. The treaty verbiage that established the ISDS system was not specific about what property, or its loss, was. The rules were written envisioning expropriated or nationalized equipment and land. As it played out, the small tribunals (themselves being comprised of corporate agents, 84) were so sympathetic to the corporations that any government action that deprived or curtailed future profits came to be regarded as the seizure of property. “It wouldn’t matter if the substance was liquid plutonium designed for a child’s breakfast cereal," said Barry Appleton, a pioneering ISDS lawyer who will certainly languish in hell. "If the government bans a product and a US-based company loses profits, the company can claim damages.”
This might have generated less outrage in elite circles if ISDS claims continued to be wealthy companies siphoning money from poorer countries. But the presumption of 'US investor safeguarding property in a Brown People nation' evaporated when, after the fall of the Soviet Union and the rise of the globalized, WTO world, capital started to flow into US companies. Suddenly, the US government found itself on the business end of ISDS claims. Nobody in Washington liked that very much.
Moreover, the vagueness of the legal concepts gave rise to an “arbitral casino,” (80) where companies would file ISDS claims just for the hell of it, to see what the tribunals (certainly no less compromised than any developing-world court system) would let them get away with. It was good fun, low risk, and it transferred a ton of money from poor countries to wealthy multinationals when they hit the jackpot.
Essentially, this whole tragic story is about the incompatibility of a corporate agenda with good governance. It is a portrait of corporate governance as political theory, and it's horrifying. It’s frustrating to think of the smug colonists in Washington agreeing to the concept of an ISDS, thinking they were in league with the titans of industry against primitive foreigners, realizing only when ambushed that the corporations were never in league with lawmakers or even their own fucking country. Corporatists are never on anyone’s side but their own, and their side is almost always inimical to everyone else's.
This shitty system emblematizes what people hate, and are now rebelling against, about “globalists.” The world’s top capitalists are just too greedy to avoid extracting wealth wherever possible, and they’re not coordinated enough to calibrate a level of greed or extraction that populations will tolerate. The result is an obviously heinous system that no one, not even free-trade advocates, think is wise or sustainable.
One solution is to stop embedding legal mechanisms in generalized trade agreements, and just let each contract between a government and a corporation stipulate its own terms. That way, you're not conflating treaty disputes with contractual disputes. The 1993 UN Human Development report called traditional nation-states “too small for the big things and too big for the small things.” (112) I love the quote, but I think it was premature. Nation-states are probably the perfect size for negotiating agreements that establish the legal space where more specific contracts can be quickly negotiated between specific locations and specific companies.
And if having to negotiate separate contracts throws a roadblock in the way of attracting investment, so what? You really have to wonder why a “good investment climate” is desirable at all. What’s the point of inviting global capital if all it yields is fucking Caterpillar stealing from you and making you regret ever associating with them?
Honestly, the concept underlying corporate-oriented laws don’t make sense anyway. As Sweetland Edwards writes on 118, “Why should a law designed to promote racial integration be less valuable than a law that promotes investment? Why should the suffering of 30,000 rainforest residents who have been forced to live in polluted squalor be measured against losses to Chevron’s profit margin?”
Personally, I think the operative premise here is that a government should never factor any investor’s interests into policy analysis. I mentally puked when she described lawmaker efforts in 2001 to clarify the scope of the ISDS rules as trying “to carve out ‘policy space,’ where governments could pass legislation and regulations in the public interest without being accused of infringing upon foreign investors’ property rights.” (75) That used to be called governance. Disgusting.
Investing is hard for a reason. But there are ways to deal with it. Buy insurance, forecast the risks of expropriation, keep operations where the conditions are more stable, whatever. But keep private money out of governance. Failing to abide by this simple, necessary guideline incites the vicious populist backlash against “globalism” we see today—to which, after this book, I am much more sympathetic.
July 5, 2024
Earlier this year, I read Astra Taylor's Democracy May Not Exist but We'll Miss It When It's Gone. A short section of that book is dedicated to Investor State Dispute Settlements (ISDS), which was my first introduction to the concept and I was... shocked. ISDS refers to a set of rules through which states (sovereign nations) can be sued by foreign investors for certain state actions affecting the foreign direct investments (FDI) of that investor. So Keystone XL can (and did!) sue the US for $15B in damages because of their pipeline being blocked.
I wanted to learn more, and I found this brief primer. Sweetland Edwards covers a lot of ground efficiently. The book is mostly approachable, though there are a lot of abbreviations, and the reader is often expected to remember what an abbreviation refers to even though it was only mentioned in passing and hadn't been used in at least a dozen or more pages.
It's an overwhelming read.
I wanted to learn more, and I found this brief primer. Sweetland Edwards covers a lot of ground efficiently. The book is mostly approachable, though there are a lot of abbreviations, and the reader is often expected to remember what an abbreviation refers to even though it was only mentioned in passing and hadn't been used in at least a dozen or more pages.
It's an overwhelming read.
October 11, 2016
To the uninitiated the contents of this book may come as a bit of a shock, namely that global trade is being ruled upon by tribunals that get relatively little oversight. As global trade agreements become ever-increasingly complex they tend to have a safeguard added, seemingly to protect the financial interests of global corporations against the governments of sovereign states – something called an Investor-State Dispute Settlement (ISDS).
The author lifts the lid on this form of resolution and highlights how companies use it to challenge a country’s policies and regulations on the grounds that it is “unfair” or could impact on future profits. Things may get even worse should TTIP be implemented in the European Union. Increasingly companies are using ISDS to try and get their own way. One country – Argentina – has already had 54 ISDS actions brought against it. The author concludes that there is an attempt to shift the global balance of power through ISDS and things may only get worse.
Three people, yes three people who sit on the ISDS tribunal can decide, for example, that a U.S. Supreme Court decision violates an agreement and rule that U.S. taxpayers pay compensation. A country may decide to ban a certain product on safety or policy grounds, yet a foreign company can decide it wants to sell its products regardless and thus take action and either get the law changed or be compensated by the country who could be stopping it.
There is just something quite insidious about ISDS; as the author notes you can be totally in favour of free trade and yet against ISDS as the Libertarians are on the grounds that ISDS is not liberalising but instead it gives some an advantage over everyone else (note that only foreign investors can use the mechanism; domestic investors can't).
This is not a book just for lawyers and those involved in companies. It deserves wider appeal and since it is accessible and competitively priced there is no excuse to remain ignorant. Prepare to be shocked when you learn what is going on “in the shadows.”
Autamme.com
The author lifts the lid on this form of resolution and highlights how companies use it to challenge a country’s policies and regulations on the grounds that it is “unfair” or could impact on future profits. Things may get even worse should TTIP be implemented in the European Union. Increasingly companies are using ISDS to try and get their own way. One country – Argentina – has already had 54 ISDS actions brought against it. The author concludes that there is an attempt to shift the global balance of power through ISDS and things may only get worse.
Three people, yes three people who sit on the ISDS tribunal can decide, for example, that a U.S. Supreme Court decision violates an agreement and rule that U.S. taxpayers pay compensation. A country may decide to ban a certain product on safety or policy grounds, yet a foreign company can decide it wants to sell its products regardless and thus take action and either get the law changed or be compensated by the country who could be stopping it.
There is just something quite insidious about ISDS; as the author notes you can be totally in favour of free trade and yet against ISDS as the Libertarians are on the grounds that ISDS is not liberalising but instead it gives some an advantage over everyone else (note that only foreign investors can use the mechanism; domestic investors can't).
This is not a book just for lawyers and those involved in companies. It deserves wider appeal and since it is accessible and competitively priced there is no excuse to remain ignorant. Prepare to be shocked when you learn what is going on “in the shadows.”
Autamme.com
December 5, 2016
In the name of increasing international trade, and specifically “free trade,” courts to litigate between multi-national corporations and their host country governments have been established. However, these “ISDS” (Investor-State Dispute Settlements) continually favor the corporations and free-market capitalism over and beyond a nation’s sovereignty. In the face of national recessions in South America, US companies have gone to court and “won” billions of dollars, without setting any legal precedents or opportunities for appeal. In one case, “a Houston-headquartered oil company with an annual revenue twice the country’s GDP had convened a supra-national tribunal that could force the Ecuadoran people, 45% who lived below the poverty line, to fork over tens of millions in damages.” This book made me increasingly angry as the ISDS rulings continually placed corporate law over national sovereignty and gave higher status and protection to property rights over social, cultural and political priorities. The United States continually demands its own sovereignty, but then turns to negate another nations’ sovereignty at the slightest provocation, to defend its own enterprises. “In an attempt to ensure that a foreign investor had access to justice, [the ISDS] had abrogated an entire community’s access to the same.” A government should have the freedom to protect its citizens and preserve democracy, rather than cater to the greedy intentions of foreign direct investment.
April 24, 2020
A small book with very big information.
Recommended.
Recommended.
Displaying 1 - 5 of 5 reviews