Thirty-three Democratic members of Congress, led by Senator Elizabeth Warren and Congressman Lloyd Doggett, recently sent a letter to U.S. Trade Rep. Katherine Tai and Secretary of State Antony Blinken about ISDS. One point they made in the letter is that ISDS should be removed from existing investment treaties and trade agreements:
... We urge you to investigate and pursue an effective path to removing consent to ISDS arbitration by the U.S. and our treaty partners in existing bilateral investment treaties and free trade agreements. And we look forward to working with you to remove these outdated provisions from trade and investment agreements, foreclosing the possibility of future attacks against the U.S. and signaling to trading partners that they will not be penalized for prioritizing the public interest.
There are two specific suggestions here: 1) Remove the consent to arbitrate; and 2) remove ISDS provisions from existing trade agreements and investment treaties.
I've heard of the first suggestion but I'm not too sure about the details and practicalities of it. A paper by Lise Johnson, Lisa Sachs, Brooke Güven, and Jesse Coleman notes the following caveat with this approach:
There is a possibility that investors would continue to bring cases, challenging the legality of a state’s decision to withdraw consent to arbitrate, and arbitrators could potentially find in their favour. Thus, the effectiveness of this option is not certain.
As to the second suggestion, these are international agreements ratified by Congress, so you might think Congressional approval would be needed to amend them. However, as far as I know, that amendment process is not spelled out clearly in these agreements in terms of what is required domestically, and the congressional-executive balance of power for such amendments is a bit uncertain. Is it possible that the power to negotiate amendments has, at least where no change to a U.S. statute is required and the executive branch has the authority to do the necessary implementation, effectively been delegated by Congress to the executive branch? The KORUS FTA was amended during the Trump administration and Congress never signed off on that, so perhaps the situation with removing ISDS would be similar?
Shifting to the politics of all this, scaling back ISDS in NAFTA as part of the renegotiation of that agreement into the USMCA was an example of the second approach (and Congress did ratify the broad set of changes made there). These members of Congress are now asking the Biden administration to continue with the ISDS retrenchment by updating other trade and investment agreements. Would the administration consider taking this up?
Like every administration, the Biden folks have to balance out the demands of various interest groups. So far, they seem to have settled on a trade policy balance in which there is: very little tariff liberalization (just some ad hoc moves not tied to FTAs); the maintaining of most Trump administration tariffs; an emphasis on labor enforcement; and trade talks such as the IPEF that focus on supply chains and various trade rules in ways that are hard to decipher from the outside, but which appear to be mainly aspirational and without a formal enforcement mechanism. In doing all this, I think it's fair to say they have listened closely to what certain progressive NGOs, unions, and politicians wanted. Eliminating ISDS from existing agreements would give these same groups something else they want.
It would also irritate some business groups, who are already irritated by many of the trade policy actions the Biden administration has taken (or not taken). How much more irritated would they be with ISDS removal, and what impact would that have? There may be a few pro-business Republican members of Congress who would care a bit and could make life difficult for the administration in various ways.
(With regard to how this would play out with the public, it's hard to imagine many voters would notice or care. It's a bit abstract and doesn't have much of an impact on actual investment or trade.)
Summing up on all this, are these ISDS demands likely to happen? I can imagine the administration taking this on as a way to give a key group of supporters something they want. However, I can also imagine them thinking it is not worth the effort, as they have already given this group a lot.
