TTIP Update XLVIII

As I've noted many times before, the investor-state dispute settlement (ISDS) mechanism has long been the most contentious aspect of TTIP, and that was reflected in the unexpected decision to hold a consultation on the area last year.  The hope seems to have been that this would keep critics quiet, and allow the European Commission to come up with a few minor tweaks to its proposals while claiming that the public had been allowed to air their views.

It didn't quite work out like that.  An unprecedented 150,000 replies were received - and this was on a hitherto obscure aspect of a traditionally boring trade agreement.   That number alone bespeaks a  new relationship between the public and the politicians who are supposed to serve them.  And so the results of that consultation have been eagerly awaited: how exactly would the European Commission manage to turn the ultimate lemon into lemonade?

Now we know: they didn't.  The 140-page analysis [.pdf] is almost entirely statistical, providing useful but rather dry summaries of how many people said what kind of thing. Here's the Commission's potted version:

The vast majority of replies, around 145,000 (or 97%), were submitted through various on-line platforms of interest groups, containing pre-defined, negative answers. In addition, the Commission received individual replies from more than 3,000 individuals and some 450 organisations representing a wide spectrum of EU civil society, including NGOs, business organisations, trade unions, consumer groups, law firms and academics. These replies generally go into more detail on the proposed approach. (See MEMO)

Broadly speaking, the replies can be divided into three categories:

    replies which indicate opposition to or concerns around TTIP in general;
    replies opposing or expressing general concerns about investment protection/ISDS in TTIP;
    replies which provide detailed comments on the EU’s suggested approach in TTIP, representing broad and divergent views;

The many replies in the first two categories are a clear indication of the concerns that many citizens across Europe have concerning TTIP generally and about the principle itself of investment protection and ISDS.

More important than that analysis is the European Commission's attitude to the results, and what it intends to do now.  Here's what the Commissioner for Trade, Cecilia Malmström is quoted as saying:

“The consultation clearly shows that there is a huge scepticism against the ISDS instrument”, said Cecilia Malmström, Commissioner for Trade, in a comment.

“We need to have an open and frank discussion about investment protection and ISDS in TTIP with EU governments, with the European Parliament and civil society before launching any policy recommendations in this area. This will be the first immediate step following the publication of this report. I also note that there were constructive proposals in the consultation on areas that can be reformed.

Specifically:

In the first quarter of 2015, the Commission will organise a number of consultation meetings with EU governments, the European Parliament, and different stakeholders, including NGOs, business, trade unions, consumer and environment organisations, to discuss investment protection and ISDS in TTIP on the basis of this report. As a first step, the consultation results will be presented to the INTA Committee of the European Parliament on 22 January. Following these consultations during the first quarter, the Commission will develop specific proposals for the TTIP negotiations.

Yes, the response to the consultation’s overwhelmingly negative outcome is...to hold yet more consultations.  That is of a piece with the consultation itself, which was clearly designed for professional lobbyists who are paid (handsomely) to spend much of their time responding to such consultations.  Running a few more just means they get paid longer.  But for the public, the opposite is true: repeated consultations are likely to wear down people's ability to respond, not least because the public has to earn a living, and therefore filling in forms - never mind attending meetings - represents a real cost to them.

The same contempt for ordinary people struggling to understand and respond to highly complex concepts in order to make their hitherto ignored views heard is present throughout the analysis:

About 70.000 replies consist of seven different batches, submitted through eight different NGOs. Each batch contains identical or very similar answers to all 13 questions;

Some 50.000 replies submitted via one NGO contai n a different pattern. Questions 1 to 12 were answered with a general statement, as follows: "no comment – I don’t think that ISDS should be part of TTIP", while various individual answers were given to the last question (N° 13-general assessment).

Finally, there are around 25.000 replies which present similar features, i.e. no answer to questions 1 to 12 but only to question 13. The answers to question 13 are different but most of them express similar views. It was not possible to identify the source of these replies. Howe ver, given the similarities  with the other collective submissions they were considered, for th e purposes of this report, as collective submissions as well.

It's clear these "collective submissions" are regarded as inferior in some way to the doubtless highly polished replies from corporations and their lobbyists.  The views of a senior US official, quoted in an article from European Voice, are even more contemptuous:

Europeans should be careful about giving the same weight to “a thoughtful response or a one-liner saying ‘I hate TTIP’”, he said, going on to question the commitment of some anti-TTIP NGOs to transparency. “In the US, NGOs publish their finances, but in Europe, we don’t really know,” he said. “We need to understand better; everybody should understand who is behind the NGOs.”

Lovely: not only are the simple expressions from the public less valid than those "thoughtful responses" from big companies and others, but the unnamed senior US official even goes so far as to indulge in a little ad hominem attack: "everybody should understand who is behind the NGOs".  Got that? Those 145,000 negative responses are actually an underhand and carefully-orchestrated conspiracy by dark forces - probably communists - who just hate America for its freedom...

Returning to the less paranoid world of the European Commission, we read:

“we need to reflect upon how to address the fact that EU countries already have 1400 bilateral agreements of this kind, of which some date back to the 50s”, added Malmström.

"The vast majority of these agreements do not include the kind of guarantees that the EU would like to see. This will also have to be an important element of our reflection when considering how to best deal with the question of investment protection in EU agreements, as failure to replace them by more advanced provisions will mean they remain in force – with all the legitimate concerns they have been raising over the last months", the Commissioner highlighted.

This is a very weak argument.  The vast majority of those 1400 bilateral agreements include ISDS as a weapon for European nations to use against developing nations: there is practically zero danger of ISDS being used against the EU by these countries, which have few investments in Europe.  So forcing Europeans to accept the many and major risks of ISDS as a kind of "dry run" for updates that aren't even needed is just ridiculous.

For TTIP, the central question is just: do we need ISDS? The simple answer is: we do not.  The EU and US have extremely well-functioning legal systems that make ISDS unnecessary.  That's not just my opinion, it's the opinion of thousands of investors that have put their money into both the US and EU.  The sums involved are vast: in 2012, the EU had invested € 1.655 *trillion* in the US, and the US had invested € 1.536 trillion in the EU.  By now, that figure will be much higher.  That's clear proof that ISDS is not needed in order to encourage investment on a scale unmatched anywhere else in the world.  And finally, for any company that still thinks it needs some kind of protection when it invests abroad, there is an insurance scheme run by the World Bank designed specifically for this purpose, making ISDS unnecessary.  These three simple facts make all the details about the European Commission's proposed "improvements" to ISDS irrelevant: you don't waste time and effort fixing what you don't need.

However, the very real dangers of ISDS - admitted even by the European Commission - mean that ISDS should not only be dropped from TTIP, but that it must go from the agreement with Canada (CETA), and the one with Singapore, neither of which is finalised yet.  Both of these include ISDS, which would give companies from other countries - the US in particular - the ability to sue the EU indirectly.  That, in its turn, will bring with it a regulatory chill as EU nations think twice about bringing in laws and regulations that might lead to claims under ISDS.

No matter how many times the European Commission repeats that it won't let ISDS force a government to change its law - something that has already happened - the mere threat of costly legal action and huge awards will still interfere with democratic decision-making.  That alone is reason enough to drop ISDS.  Combine that fact with the unequivocal rejection by 145,000 people who went to the trouble of participating in the ISDS consultation, and this shouldn't even be a question any more.

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TTIP Update XLVII

As long-suffering readers of this column wil have noticed, the dominant theme of the discussions around TTIP so far has been the investor-state dispute settlement provisions (ISDS).  We are still waiting for the European Commission's analysis of the massive response to its consultation on the subject - it will be fascinating to see how it tries to put a positive spin on the overwhelming public refusal of ISDS in TTIP. 

The issue that crops up most often after ISDS is probably transparency - or rather the complete lack of it.  Yes, it's true that there have been some token releases of documents: initial position papers in 2013, and some more in 2014; but these don't really tell us much that we didn't already know, or could guess.  The main obstacle to greater openness was Karel De Gucht, the European Commissioner for Trade when TTIP was launched.  As he showed time and again during the ACTA fiasco, he had little but contempt for the European public and its unconscionable desire to know what the politicians whose salaries it pays are up to in Brussels.  That made his retirement at the end of last year an important moment and opportunity.

His successor, Cecilia Malmström, is cut from a very different cloth, as was apparent from this announcement right at the start of her tenure of De Gucht's post:

'TTIP is an immensely important agreement,' said Commissioner Malmström, 'with huge potential to create jobs and growth and to set standards. Yet, even though the TTIP talks are the most transparent and open the Commission has ever conducted, there are still a lot of doubts around what is being negotiated.'

'That's why we want to consult even more extensively on TTIP, and go even further in terms of transparency. Increased transparency will enable us to show, more clearly, what the negotiations are about and to de-mystify them. We will use this as a basis to engage further with a broad range of stakeholders and the public,' said Malmström.

The Commissioner outlined two main proposals for boosting transparency.

First, to extend access to TTIP texts to all Members of the European Parliament, beyond the currently limited group of Members of the European Parliament’s International Trade Committee.

Second, to publish texts setting out the EU's specific negotiating proposals on TTIP.

As I've discussed many times, TTIP does not have "huge potential to create jobs and growth", even under the most optimistic assumptions, but it's certainly important, so Malmström's promise of consulting "even more extensively" is extremely welcome.  Indeed, I was pleasantly surprised last month to experience first-hand just how extensively she means to consult:

Whether that meeting actually happens, remains to be seen.  But Malmström's two main proposals for "boosting transparency" have now been implemented.  The first of them - providing access to MEPs - happened immediately.  The second, publishing actual negotiating texts - happened earlier this week:

The European Commission today published a raft of texts setting out EU proposals for legal text in the Transatlantic Trade and Investment Partnership (TTIP) it is negotiating with the US. This is the first time the Commission has made public such proposals in bilateral trade talks and reflects its commitment to greater transparency in the negotiations.

Specifically, here's what is being made available:

The so-called 'textual proposals' published today set out the EU’s specific proposals for legal text that has been tabled in the proposed TTIP. They set out actual language and binding commitments which the EU would like to see in the parts of the agreement covering regulatory and rules issues. The eight EU textual proposals cover competition, food safety and animal and plant health, customs issues, technical barriers to trade, small and medium-sized enterprises (SMEs), and government-to-government dispute settlement (GGDS, not to be confused with ISDS). Today, the Commission has also published TTIP position papers explaining the EU's approach on engineering, vehicles, and sustainable development, bringing the total number of position papers it has made public up to 15.

To make the online documents more accessible to the non-expert, the Commission is also publishing a 'Reader's Guide', explaining what each text means. It is also issuing a glossary of terms and acronyms, and a series of factsheets setting out in plain language what is at stake in each chapter of TTIP and what the EU's aims are in each area.

That's certainly a big step forward for transparency, as is to be welcomed.  However, not everything is available yet.  For example, in two areas that are likely to be of particular interesting to readers of this column - "Information and communication technology" and "Intellectual property rights" - we only have some rather thin factsheets.  The first of these [.pdf] is particularly slight - just one page.  Perhaps the only element of interest is the following:

In ICT, we want to:

set common principles for certifying ICT products, especially for encoding and decoding information ('cryptography' in the jargon).

But the European Commission is quick to assure us that:

The EU won’t accept lower security levels. We want common principles for assessing how products comply with regulations.

Presumably that means the EU and US will agree to use the same set of backdoors in crypto tools...

On the copyright and patent front [.pdf], it's striking that the Commission is still assuring us that TTIP is not ACTA 2.0 - evidence once more of how deep the fears run of another defeat at the hands of the European Parliament - for example:

The EU and US have detailed enforcement provisions already, whereas some other countries that planned to join ACTA didn't. So we won’t negotiate rules on things like:

penal enforcement

internet service provider liability.

The idea that criminal penalties and ISP liability were only in ACTA because "some countries" did have strong enforcement is ridiculous: they were there because powerful copyright lobbyies in the EU and US wanted them there.  But it is nonetheless welcome to have set down here that neither will be present in TTIP.

The most recent release of TTIP documents shows two things.  First, that we have started the journey towards real transparency, but by no means arrived there yet.  And secondly - and perhaps most importantly - that public advocacy does work.  Although it is true that the present move owes a lot to  Malmström - and kudos to her for taking this step - it is also true that it would never have happened had not thousands of people demanded more openness.  It demonstrates what can be done simply by asking in a polite but persistent manner, and encourages us to keep doing so.

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TTIP Update XLVI

Not much has been happening on the TTIP front during the holiday break, but there's one extremely important report that came out a little earlier that I'd like to explore in this update.  It's called "The hidden cost of EU trade deals: Investor-state dispute settlement cases taken against EU member states", and has been put together by Friends of the Earth Europe.  As that title makes clear, it's about an aspect of the ISDS mechanism that has so far been overlooked: the fact that the EU has *already* suffered as a result of the inclusion of ISDS in other agreements.  As such, they give a foretaste of what's likely to happen if ISDS is included in TTIP (and CETA):

One of the European Commission’s arguments supporting the inclusion of the mechanism in those trade deals is that EU member states have already signed thousands of trade and investment agreements, which include such investor-state dispute arbitration. Investor-state arbitration has become a consistent feature bilateral investment treaties (BITs), with EU member states being party to some 1,400 BITs including ISDS since the late 1960s. So the European Commission says it should be part of the agreements now under negotiation.

What the European Commission rarely mentions is how often this mechanism has been used against EU member states, and how much this mechanism has cost EU taxpayers. The ongoing negotiations of trade and investment agreements – including the Transatlantic Trade and Investment Partnership, the Transpacific Partnership, and negotiations between the EU and the US respectively with China – are unprecedented in size and scope, and would drastically expand the extent of foreign direct investments covered by investor-state arbitration. Such an expansion would risk seriously undermining governments’ ability to regulate for the protection of people and the environment.

Here are the report's key findings:

127 known ISDS cases have been brought against 20 EU member states since 1994. Details of the compensation sought by foreign investors was publicly available for only 62 out of the 127 cases (48%). The compensation sought for in these 62 cases amounts to almost €30 billion.

The total amount awarded to foreign investors – inclusive of known interest, arbitration fees, and other expenses and fees, as well as the only known settlement payment made by an EU member state – was publicly available for 14 out of the 127 cases (11%) and amounts to €3.5 billion.

The largest known amount to be awarded by a tribunal against an EU member state was €553 million in the Ceskoslovenska Obchodni Banka vs. Slovak Republic case (1997).

The report is valuable not just for bringing all these figures together for the first time, but for providing details of several of the most significant cases.  They're all well-worth reading, since they flesh out the otherwise rather dry ISDS concept.  I'd like to focus on one, which raises some particularly important issues.  Here's the report's summary of the case:

The Micula brothers invested in the North West region of Romania – setting up multiple food processing, milling and manufacturing businesses. In 2005, the claimants initiated a dispute against Romania seeking compensation to the tune of €450 million. The case emerged following a series of decisions taken by Romania, which altered or withdrew a number of investment incentives (ie: exemptions from custom duties and certain taxes) that had previously been offered to the Micula brothers in support of their investment in a disadvantaged region of Romania. Romania argued that the regulatory changes they made were warranted, as they were implemented as part of the lead up to accession to the EU in 2007. In December 2013 the tribunal found Romania in breach of the Sweden-Romania BIT and obliged to pay more than $250 million (€183,311,335) in damages.

Clearly, $250 million is a lot of money for a government like Romania to find, money that will have to be taken from other areas of the country's budget - perhaps things like health provision and education.  That's bad enough, but what's really problematic here is that Romania withdrew the investment incentives involved in the case because the European Commission required it as a condition of Romania's accession to the European Union:

The Micula vs. Romania case has incited a great deal of interest, particularly in relation to the sovereignty of EU law. The European Commission (EC) intervened and attempted to convince the tribunal that the actions implemented by Romania were taken in an effort to comply with EU law obligations to eliminate state aid (ie: subsidies and incentives). The Commission argued that if the tribunal ordered Romania to pay compensation it would be considered state aid under a different pretense. The arbitrators were not swayed by the EC’s interventions and, in relation to the enforceability of the final award, drew "attention to Romania’s obligations under the ICSID Convention to comply with the final ICSID awards."

Put simply, what that means is that the tribunal ruled that when it came to protecting investments, EU law should be ignored - a real slap in the face for the European Commission, which had made a direct intervention to avoid just such an outcome. 

This is the key problem with ISDS: it places the rights of corporations above the rights of nations - indeed, in this case, above the rights of the EU to determine law within its borders.  ISDS cannot be "fixed", as the European Commission would have us believe, because it was designed with exactly this purpose in mind: it was introduced as a way of protecting investments in countries where the local rule of law could not be depended upon.  Since that is manifestly not the case in the EU or US, it serves no purpose other than to undermine the strong legal systems there.  The only solution is therefore to drop ISDS from TTIP, CETA and all future agreements.

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