02 January 2016


In my last update, I noted that the problems with investor-state dispuate settlement (ISDS) are multiplying, as lawyers latch on to the fact that it is an extremely efficient way of extracting large sums of money for very little cost (for example, I mentioned one case where an investment of $5 million led to an award of $900 million for "lost profits".)  In fact, things are so bad even the European Commission has noticed.

That's partly because of the enormous pushback from people once they twigged what ISDS entails.  Until a few months ago, this was an extremely obscure aspect of an inherently dry and dull area, so it's no wonder that few people knew or cared about it.  But once they realised that it would have immense impact on their lives - both directly in terms of the huge pay-outs that *they* would have to fund through taxes, and indirectly in terms of the chilling effect on future legislation and regulation people started to make their concerns known.

The most dramatic manifestation of that upswell of outrage is that the European Commission unexpectedly announced that it would be holding a "consultation" on ISDS.  That was doubly significant.  It showed that the Commission was sensitive to public outcry, and it also created a precedent: if a consultation could be held on ISDS, why not on all the other aspects of TTIP?

However, a big question mark hung over the consultation - for example, some have seen it as a cynical ploy to remove ISDS from public discourse until *after* the imminent elections for the European Parliament, so that they are not an important theme there.  There is now a home page for the consultation and its associated documents, and it's well-worth examining them in order to gain insights into the Commission's thinking on this score.

The "Consultation notice" [.pdf] contains some interesting background:

Given the strong public interest in this issue the European Commission is consulting the public in the EU on a possible approach to investment protection and ISDS that contains a series of innovative elements outlined below and that the EU intends to use as the basis for t he TTIP negotiations. The key issue on which we are consulting is whether the EU’s proposed approach for TTIP achieves the right balance between protectin g investors and safeguarding the EU 's right and ability to regulate in the public interest .

That attempt to create a false "balance" between "protecting investors" and "safeguarding the EU 's right and ability to regulate in the public interest" is perhaps the clearest indication of why we do not need ISDS.  There should be no question of trading away the right to regulate in return for investor protection: they belong to entirely different policy universes.  Their complete independence is demonstrated clearly by some statistics on the European Commission's own site.  I make no apology for wheeling them out yet again because they drive a stake through the heart of the Commission's argument for ISDS:

Total US investment in the EU is three times higher than in all of Asia.

EU investment in the US is around eight times the amount of EU investment in India and China together.

EU and US investments are the real driver of the transatlantic relationship, contributing to growth and jobs on both sides of the Atlantic. It is estimated that a third of the trade across the Atlantic actually consists of intra-company transfers.

There is no need to trade off sovereignty for "investor protection", because people are already investing both ways across the Atlantic on a scale that is unmatched in the rest of the world. There is simply no problem that needs solving, and so ISDS is just unnecessary.

The rest of the Consultation notice tries to ignore this key fact by quoting a bunch of irrelevant statistics:

So far, the EU 's Member States have concluded about 1400 Bilateral Investment Treaties on the protection of investment. Virtually all such agreements include ISDS. While nine EU Member States currently have bilateral investment treaties with the US, other s do not. This situation means
that some EU investors in the US are treated differently co mpared to other EU investors, and that US investors have more rights in some EU Member States than in others .

As I've noted before, those 1400 bilateral treaties were essentially the EU imposing onerous conditions on developing countries; ISDS was there to be used as an offensive weapon.  Including it in TTIP will simply hand 50,800 US subsidiaries the most powerful legal weapon they could possibly wish for.

And as for the nine EU Member States that already have bilateral treaties with the US, what this fails to mention is who exactly those are: Bulgaria, Croatia, Czech Republic, Estonia, Latvia, Lithuania, Poland, Romania and the Slovak Republic.  In other words, these were all countries that had been forced into the Soviet sphere, and which were therefore desperate to strengthen links with the US when the Soviet Union collapsed.  Dwarfed by the latter's economy, there were in no position to haggle, and naturally accepted ISDS as part of the deal.

Unless the European Commission wants to suggest that the other 19 members of the EU should be equally supine in agreeing to whatever the US demands, those earlier bilateral treaties born of real fears over economic and military security, are completely irrelevant to TTIP, and offer no precedent for including ISDS.

The other important element of the Consultation notice is the claim that whatever problems ISDS might have had in the past, the Commission is *on* it:

The Commission is propos ing a n innovative approach on investment protection and ISDS for the TT I P. It draws on lessons learnt and from experience with existing inve s t ment treaties and with how the ex isting ISDS arbitration system works . It addresses the concerns and shortcomings that have featured prominently in public discussion s a bout investment protection and ISDS .

Sounds great, but there's a problem: Karel De Gucht has not kept his promise as regards letting us see exactly how the Commission proposes to address ISDS's admitted "concerns and shortcomings".  Here's what he said when he announced it:

In early March, he will publish a proposed EU text for the investment part of the talks which will include sections on investment protection and on investor-to-state dispute settlement, or ISDS. This draft text will be accompanied by clear explanations for the non-expert. People across the EU will then have three months to comment.

The problem is that there is still no draft text of the ISDS chapter for us to examine.  Instead, this is what we've got in the main consultation document [.pdf]:

Each issue is illustrated using reference texts as examples , taken from other investment agreements and from the approach developed in the EU - Canada (CET A) negotiations, which is the most recent text negotiated by the EU.

That is, instead of that promised "draft text", we have "examples", and a recent text of the provisions in the Canada-EU Trade Agreement (CETA) that has been discussed several times in these updates, of which Update XIV is probably the most relevant here.  That's because it reports on some great analysis carried out by the Seattle to Brussels Network (SBN), working from a late, leaked copy of CETA's ISDS provisions.  This shows that essentially all of the claimed "improvements" that the Commission has made to ISDS in CETA are actually pretty worthless: they are full of loopholes and loose wording that skilled lawyers will have a field day with.

That means there are only two possible situations.  Either the Commission proposes to use a text close to that employed in CETA - in which case, the ISDS provisions are just as dangerous as they have always been, and the cosmetic changes made by the Commission will do little to change that.  Or else the Commission plans to use a radically different text from the one in CETA that does address the serious problems - in which case the current consultation is pointless, since we can't actually see that text, despite what De Gucht said.

Either way, the ISDS consultation is a sham, and should not be regarded as a serious attempt to engage with "the public", despite fervid claims to the contrary.  In a future Update I'll be making specific recommendations about how to reply to it before the closing date of 6 July 2014.  As you can probably guess, the tenor of my response will be simple: we don't need ISDS in TTIP, so don't even bother trying to salvage it - just get rid of it completely.

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