Twenty-one governments voted "no" on a proposed investor-state dispute settlement convention — something very similar to controversial clauses in the major trade agreements currently being championed by the Obama administration. Among them were governments from 19 Latin American countries, joined by the Philippines and Iraq.*
It happened 50 years ago last fall, at the 1964 World Bank annual meeting in Tokyo, when 21 developing-country governments voted "no" on the convention to set up a new venue where foreign corporations could sue governments and bypass domestic courts. The venue became the World Bank Group's International Centre for Settlement of Investment Disputes (ICSID). The historic vote was dubbed "El No de Tokyo," or the "Tokyo No."
I write because the Tokyo No vote should be remembered as the United States and dozens of other countries (including some who voted "no" 50 years ago) stand poised to include similar language in trade and investment agreements with Asia and Latin America, and with Europe.
What were the 21 voting against? Here is then-representative of Chile, Félix Ruiz, speaking on behalf of the Latin American countries:
The new system ... would give the foreign investor, by virtue of the fact that he is a foreigner, the right to sue a sovereign state outside its national territory, dispensing with the courts of law. This provision is contrary to the accepted legal principles of our countries and, de facto, would confer a privilege on the foreign investor, placing the nationals of the country concerned in a position of inferiority.
The ICSID treaty went forward, despite the "no" votes. ICSID has moved center-stage as bilateral and multilateral trade-investment agreements have enshrined investor rights clauses. As the number of cases being brought by corporations before ICSID has ballooned, so too have the criticisms — mainly by sovereign states, but increasingly by trade lawyers and other insiders. The arguments are that ICSID rulings are: 1) increasingly biased in favor of corporate investors over governments, as presaged by the Tokyo No's concerns; and 2) too narrow in their focus on "commercial" rights (that is, the private foreign investor) over broader social and environmental issues.
Why should the investor—as a non-state actor—get to sue the government, while other presumably key non-state actors such as the affected communities are not even allowed to listen to ICSID's often secret hearings, never mind participate equally?
Indeed, as ICSID's caseload has expanded, the verbal criticism has been matched with action. Bolivia, Ecuador and Venezuela — all part of the original Tokyo No — have left ICSID. South Africa is establishing a new investment law that allows foreign corporations to bring such claims only to domestic courts. India is conducting a review of its treaties in the face of several corporate lawsuits, and Indonesia appears to be making good on its intention not to renew its bilateral investment treaties.
But wait: Won't the global economy fall apart without such investor rights and its key venue, ICSID? Won't foreign investment dry up? Well, actually, no. Consider Brazil, a leading host to foreign investment but, again, a country that has never accepted investor-state dispute settlement. To make a more general point: Foreign investors, if they believe they are making a risky investment, should simply rely on foreign risk insurance. And, like domestic investors, they have recourse to the relevant domestic courts in a given country.
There is increasing urgency to say "no" to such investor rights mechanisms. If the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP) are approved, as President Obama hopes, ICSID's caseload will mushroom further, thanks to the investor-state dispute settlement clauses currently in both drafts.
Fortunately, there is increasing opposition to these agreements. Recently leaked documents suggest that several governments are attempting to at least scale back investor rights in the Trans-Pacific trade deal. So, too, are countries in the European Union — notably France and Germany — voicing concerns about investor-state provisions. And more economists and leaders — from Paul Krugman to U.S. Senator Elizabeth Warren (D-Mass.) — are speaking out.
News flash: It is not too late to learn from the Tokyo No — and reject these agreements.
* The 19 Latin American countries that voted "no" are: Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Dominican Republic, Ecuador, El Salvador, Guatemala, Haiti, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, Uruguay and Venezuela.
Broad is a professor at the School of International Service at American University. Prior to that, she worked as an international economist at the U.S. Treasury Department, in the office of then-Rep. Chuck SchumerCharles SchumerSchumer touts policy victories over Obama administration Puerto Rico debt relief faces serious challenges in Senate Overnight Healthcare: House, Senate on collision course over Zika funding MORE (D-N.Y.) and the Carnegie Endowment for International Peace.