Post-Brexit trade deals could expose poorer countries to corporate legal action, warns charity

Traidcraft Exchange warns that controversial mechanism can restrict governments’ ability to introduce social and environmental protections

As Britain prepares to negotiate a slew of trade agreements around the world after Brexit, development campaigners are urging trade secretary Liz Truss to rule out the use of a mechanism which has seen poor countries sued for billions by multilateral corporations.

More than 900 cases have been brought over the past two decades under “investor-state dispute settlement” (ISDS) clauses in trade deals, which are sold to developing countries as a means to attract overseas investment but which campaigners claim restrict local governments’ ability to protect their own populations’ human rights, public health and environment.

Under the ISDS system, governments have been successfully sued in “red carpet courts” over efforts to hold down water prices for consumers, safeguard the rights of indigenous people and crack down on tax avoidance, said Traidcraft Exchange.

The mechanism allows companies to take legal action if a government introduces measures which could harm their profits, said the charity.

“By including ISDS in trade deals, the government will give big business free licence to sue poor countries for millions for simply acting in the public interest, for example, by regulating to protect the environment or safeguarding the rights of indigenous people,” said Traidcraft Exchange campaigns officer Emilie Schultze.

“It’s a deeply unfair system sold to poorer countries under the premise of attracting foreign investment.

“But rather than doing this, it has given multinational companies a powerful tool to challenge policies aimed at protecting human rights, public health and the environment.

“This completely contradicts the UK’s commitments towards the Sustainable Development Goals and to tackle the climate crisis.”

She cited a legal battle between Vodafone and the government of India over the telecoms giant’s tax bill, and a case in which Argentina was ordered to pay £251m to water companies including Anglian Water after freezing prices for consumers.

The charity said that poorer developing countries are particularly vulnerable to lawsuits under ISDS if they try to introduce social, public health and environmental protections which could potentially make business investments in their countries less profitable.

In its “Stop Rolling Out the Red Carpet” campaign, Traidcraft Exchange is calling on the UK government to remove ISDS from all trade and investment agreements.

A Stop ISDS petition, backed by 40 civil society organisations, trade unions and faith groups, has gathered more than 30,000 signatures.

“In country after country, people are calling for an end to the ISDS system,” said Ms Schultze.

“Governments are speaking up and countries including South Africa, Ecuador and New Zealand have now cancelled deals that include it. There are better alternatives to ISDS and the new trade secretary now has the chance to remove this unfair system from UK trade and investment.”

UK officials insisted that investment protection agreements like ISDS do not hinder a government’s ability to regulate in the public interest and the tribunals enforcing them cannot overturn or force changes to laws.

A Department for International Trade spokesperson said: “The government is clear that investors should able to access legal redress where they have been treated unfairly or had their assets seized without due process.

“We are considering a wide range of options for future trade and investment agreements.”