Allowing foreign firms to sue governments for lost profits is legal terrorism - it must end
Joseph Stiglitz
Investor–state dispute settlements don’t just mean growing debt burdens for countries: they are also a barrier to action on the climate crisis
Fri 7 Mar 2025
Donald Trump has thrown a hand grenade into the global economic architecture, destroying some things that are working well. But amid the devastation, some things seem to be surviving that really should be taken down. Among the most notable of these is an arcane set of international agreements by which private investors can sue governments, known as ISDS: investor-state dispute settlement. These disputes are litigated not in public courts with impartial judges but in private arbitration – behind closed doors, and rife with conflicts of interest.
Early on, when they were snuck into many trade agreements, no one paid much attention. For instance, these provisions in Nafta, the so-called free trade agreement between the US, Mexico, and Canada, never got a discussion within the cabinet while I served in the Council of Economic Advisers under President Clinton when Nafta got adopted.
The provisions were sold as protecting property rights from expropriation – but that was nonsense: few expropriations occur today, and the World Bank and governments around the world provide insurance against expropriation. They were sold, too, as encouraging investment – but in the decades since they began to be a feature of international agreements, there is little evidence that they make much or any difference, which is why today some countries that have signed such agreements have given notice that they are terminating them.
What the agreements do is provide companies with opportunity to sue for compensation when there is a change in regulation which they claim might impair their future profits. That compensation is not based only on what they lost – say their investment, that is no longer so profitable – but on what they might have received in profits: an entirely nebulous amount. In my view it has become a form of legal terrorism, that rich companies use to discourage countries from addressing the needs of their citizens and protecting the global environment.
https://www.theguardian.com/global-development/2025/mar/07/private-investors-ability-to-sue-governments-is-a-form-of-legal-terrorism-ending-this-system-is-imperative-aoe