02 January 2016


One section of TAFTA/TTIP has already emerged as particularly problematic: that concerning the investor-state dispute resolution mechanism (ISDS).  As I've noted in previous updates, the European Commission is so worried on this front that it has produced not just  one  but several documents that seek to stem this rising tide of concern.

It's one measure of the lack of success of TTIP supporters in convincing people that ISDS is really quite harmless that a new reason for embracing it has been added.  It's expressed well in this article from the Australian site Inside Story:

The problem with scrapping ISDSs, according to the Commission, is that the US legal system is not set up to deal with international investment agreements. “Quite simply, TTIP cannot be enforced in US domestic courts,” Clancy says. “So, this is about ensuring [that] investors have the right to a certain amount of protection.”

“We need to ensure that the environment is right, the legal stability is there,” he says. “That is actually one of the keys to attracting investment – particularly for SMEs [small to medium enterprises]. They need to feel comfortable about putting their money in the trans-Atlantic marketplace.”

As I pointed out before, the last argument is absurd.  We don't need to "attract" trans-Atlantic investment in either direction, because it is already enormous, as the European Commission's own figures prove:

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.

Since we clearly don't need to "attract"  trans-Atlantic investment, we also clearly don't need to bring in the extremely dangerous ISDS.  But I'm confident that the European Commission won't let a little thing like facts get in the way of its FUD, so here I'd like to examine the first part of Clancy's comment, quoted above.

He says "TTIP cannot be enforced in US domestic courts". I've not managed to obtain expert advice on whether that's true, but one person who believes it may be is Ante Wessels, writing on the Foundation for a Free Information Infrastructure's ACTA blog about an interview with Vital Moreira (remember him?):

Moreira notes that in the US the only recourse for a foreign investor is to argue that a government violated US or state law.

That is correct. The same is of course true for local (US) investors, they too can only invoke US or state law. The US is generally regarded as having strong protection of investments and a good court system, so I do not see the problem. Moreira’s words imply that TTIP will have stronger investment protections than US and EU law.

That is legislation by the back door.

In the US, the additional protections will not be available for local investors. They will only be available for EU investors, through ISDS.

That’s discrimination.

Somebody in the US has obviously noticed that huge problem.  Last week an important Bill was presented there that would give President Obama what is known as "fast track authority" [.pdf].  This essentially enables him to negotiate trade deals without needing to check with the US Congress until right at the end, when the agreement has been finished.  At that point, US politicians get just one vote – "yes" or "no" – and can't change anything. 

It's a hugely important tool for the US, because without it, Congress is likely to demand changes to the trade agreement, which would then have to be put to the other negotiating partners, who might then start asking for their own changes, and the whole thing would start unravelling.  With fast track authority, Obama and his team are able to obtain an agreement that can't be changed, and is unlikely to be rejected.  Not coincidentally, this is exactly how it works in the EU, where the European Parliament has only one opportunity to vote for or against, and no ability to change things.

Given that the fast track authority bill essentially hands over all of the elected politicians' power to the US President and his team, it tries to define some of the outcomes that it wants from trade agreements.  There are many of these, but hidden away towards to the end, in a section entitled "Sovereignty", is the following:

Recognizing that United States law on the whole provides a high level of protection for investment, consistent with or greater than the level required by international law, the principal negotiating objectives of the United States regarding foreign investment are to reduce or eliminate artificial or trade distorting barriers to foreign investment, while ensuring that foreign investors in the United States are not accorded greater substantive rights with respect to investment protections than United States investors in the United States, and to secure for investors important rights comparable to those that would be available under United States legal principles and practice

Notice the key phrase: "ensuring that foreign investors in the United States are not accorded greater substantive rights with respect to investment protections than United States investors in the United States".  But as Wessels points out in his post, that is exactly what ISDS does: in the case of TTIP, it would give EU investors in the US the option to use both TTIP and ISDS to sue the US government – something not available to US investors in the US.  So it would seem that Clancy's "protection" is likely to be worthless, since a pre-condition for granting fast track authority is that the Obama administration agrees not to grant more protection to foreign investors than to US investors.  The US government is unlikely to want to grant home investors the option of suing it using ISDS courts, since that is likely to open the litigation floodgates.

Now let's look at the EU side of things.  Again, Wessels has a great analysis of the situation:

In the EU, the extra investment protections will become the “law of the land”, according to Mr Moreira.

Investment treaties give foreign investors extra rights. So, US investors will have more rights before EU courts than EU companies?

On top of that US investors can also use ISDS arbitration, not available to EU companies.

That is, unlike in the US, investors in the EU get extra rights, plus the ability to bring cases before ISDS tribunals – not available to EU companies investing in Europe.  But as Wessel points out, there's an even deeper problem to do with European law:

Direct effect of investment treaty protection (“law of the land”) is a serious issue. Would EU courts follow the interpretations of ISDS tribunals?

That would put a captive in-crowd on top of the EU legal system.

If EU courts do not follow the interpretations of ISDS tribunals, investors can use ISDS tribunals to overturn the EU courts’ decisions.

That would put a captive in-crowd on top of the EU legal system.

That is, not only does ISDS put corporations on the same level as nations, but it places ISDS tribunals above even the highest EU courts.  That's because either EU courts would be forced to make ISDS tribunal decisions part of EU law, or else the EU and its member states would find themselves sued by US investors even though the EU courts say they ares in the right.

As a result, EU companies are guaranteed to get a bad deal: disadvantaged in the EU, but without corresponding advantages in the US, because the fast track authority bill explicitly forbids this happening.  That means that ISDS makes TTIP a one-sided, unfair deal for Europe, and is yet another reason why it should be removed from the negotiations completely.

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