TTIP Update XIV

In my previous update, I reported on the major news that the highly-contentious investor-state dispute settlement (ISDS) chapter of TAFTA will be put on hold – nominally, at least.  This is supposedly to give everyone a chance to express their views on the subject.  Of course, whether any of the public's views will be heeded is quite another matter.  In fact, I'm willing to predict that the European Commission will only make a few tiny cosmetic changes to its plans – which it will nonetheless trumpet loudly.  It will also claim that this three-month consultation is "proof" of its transparency, whcn in fact all it does it make the lack of it for everything else even more painfully obvious.

We can probably guess what the promised "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" will contain.  That's because various people from the European Commission's TTIP team have emphasised that the "new and improved " version of ISDS that the Commission wants for TAFTA/TTIP will be based on the similarly "new and improved" version found in the EU-Canada free trade agreement, generally known as CETA.

CETA is now stuck in a strange kind of limbo: although the EU and Canada claimed they had a "technical agreement" back in November (whatever that means), they are still refusing to release any draft version of the text.  Even more extraordinary is the fact that the EU's ambassador to Canada has recently said the following:

“We think that it might be in about six months that we have a text, which will be not the final text, I think that for the final text we have to wait two years — it will be 2015,” she said.

It's true that the European Commission has released a kind of teaser for the ISDS chapter in CETA, called "Investment Provisions in the EU - Canada free trade agreement (CETA)" [.pdf].  But much better than that, some kind soul has leaked two key ISDS texts to the Trade Justice Network; these are the Draft CETA Dispute Settlement (dated November 15) and the Draft CETA Investment Text (dated November 21), both available as PDFs from the Trade Justice Network leaked documents page.

The availability of those very recent leaks, which are presumably very close to the latest versions, has allowed the Seattle to Brussels Network to compare them with the claims made in the European  Commission document about ISDS, and to come up with some very interesting discrepancies.  They give us a very good idea of the kind of things the Commission will doubtless be saying in its attempt to convince people that it has addressed the huge problems with investor-state dispute settlement – and why in fact it hasn't really done that.

Here's what  the Seattle to Brussels Network (SBN) has to say [.pdf]:

The first part of the [European Commission's CETA] note deals with the provisions of the investment protection chapter. In the introductory paragraph, the Commission claims that “the EU and Canada agreed to bring very significant clarifications to the key substantive provisions” and that “the arbitrators will now have strict and detailed guidance when these provisions are invoked by an investor”. However this is not the case, especially not with the Fair and Equitable Treatment (FET) standard as shown below.

Here's what the Commission says about FET in its note:

For the first time ever , the CETA agreement provides for a precise definition of “Fair and Equitable treatment”. This will avoid too wide interpretations and provide clear guidelines to tribunals.

That makes clear the central nature of FET definitions in terms of limiting the scope of ISDS.  Here's SBN's response:

Under point 1 of the first part [of its note], the Commission claims that CETA reaffirms the right to regulate. This is not the case. There is not a general paragraph reaffirming this right in the [leaked]  21 November CETA text that would apply to the whole text. There is only such a paragraph in the annex on expropriation. And expropriation is less used to attack general policies than the FET standard.

In other words, the Commission is stretching the truth here.  The same is true in point 2 of the note, as SBN explains:

In its note the Commission only presents the closed list [of situations when a Fair and Equitable Treatment situation arises] which sums up manifest breaches that everyone can agree with (like discrimination on racial grounds) and only one of the other articles. However that other article is misrepresented. The Commission says that it means that “a breach of legitimate expectations is limited to situations where the investments took place ONLY (my emphasis) because of a promise made by the state that was subsequently not honoured”. This is not what the article in the 21 November CETA text says. It in fact says “when applying the above FET obligation a tribunal may take into account whether a Party made a specific representation to an investor to induce a covered investment, that created a legitimate expectation”. It does not say that the investment only took place because of this representation. So the actual scope of the article is broader than the Commission wants us to believe.

In other words, the Commission is not being totally frank here.  The same happens elsewhere:

Under point 5 the Commission says that the agreement makes clear that the obligation to provide  “full protection and security” does not cover protection against changes of laws and regulations. The 21 November CETA text does not say that with so many words. It only says that this obligation refers to physical security of investors and covered investments.

Again, the Commission seems to be claiming more than it should.  In the section dealing with a binding code of conduct for ISDS arbitrators – supposed to address some of the worst flaws in the present system - things are even worse:

In the second part on ISDS the Commission claims under point 4 that CETA has introduced a binding code of conduct for arbitrators. However that code is not there yet. It will be adopted by a joint committee within two years after the entry into force or provisional application (this is undecided in the 15 November CETA ISDS text).

Here's what the actual text from the leaked document says:

The Committee shall, on agreement of the Parties, and after completion of the respective legal requirements and procedures of the Parties, decide to:

a) establish and maintain the list of arbitrators pursuant to Article x- 10(4)(Constitution of the
Tribunal);

b) adopt a code of conduct for arbitrators to be applied in disputes arising out of this chapter, which may replace or supplement the rules in application, and that may address topics including:

i. disclosure obligations;
ii. the independence and impartiality of arbitrators; and
iii. confidentiality.

Notice that it says that such a code of conduct for ISDS arbitrators may includes those topics – but on the other hand, it may not.  SBN goes to point out:

worse, the text says that the arbitrators have to follow this code OR the International Bar Association Guidelines on Conflict of Interest in International Arbitration (which is a general code not geared to ISDS) which means that the code is NOT binding.

That's because arbitrators can simply carry on using the existing guidelines from the International Bar Association, and simply ignore anything more rigorous that CETA might purport to bring in.  Once again, the European Commission's claims don't stand up to scrutiny.

There's more bad news on the transparency front, where the Commission boasts about providing:

Full transparency - all documents will be public, all hearings open, interested parties (NGO’s) can make submissions. This is the first agreement applying in substance the new United Nations rules on transparency in ISDS (UNCITRAL).

Sounds fab, no?  Alas, this is yet more baloney from the Commission.  As SBN points out, there are some massive loopholes that render this grand-sounding promise worthless.  Here's the leaked text:

1. Subject to paragraphs 2 and 3, hearings shall be public.

2. Where there is a need to protect information or the integrity of the arbitral process pursuant to Article 5, the arbitral tribunal shall make arrangements to hold in private that part of the hearing requiring such protection.

3. The arbitral tribunal may make logistical arrangements to facilitate the public’s right of access to hearings (including where appropriate by organising attendance through video links or such other means as it deems appropriate).

The SBN notes that another of the European Commission's strongest claims is also useless in practice:

Under point 10 the Commission states that there is “absolute clarity” that a state cannot be forced to repeal a measure. The 15 November CETA text does indeed allow the Arbitration tribunal to only impose monetary damages or restitution of property (which may also be replaced by monetary damages). However it is clear that the threat of such damages or the threat to use the ISDS may be enough for governments to repeal measures as has happened so often in out of court settlements between the investor and the targeted governments.

Yes, it may be true that the EU or Canada cannot be "forced" to repeal legislation, but the threat of hundreds of millions of euros in fines may well encourage them to do that of their own "free" will.

Finally, SBN has spotted something really important that for some reason the European Commission didn't want to bang the drum about:

The chapter foresees wide competences for a joint “Committee on Services and Investment” so that it can – after completion of the respective legal requirements and procedures of the Parties - adopt and propose amendments, rules, interpretations, etc. This will add to make CETA a “live” agreement that can be adapted to circumstances. Question is however how the parliaments, civil society and the general public will be able to scrutinise the continuous expansion of the agreement.

What that means is that the ISDS measures in CETA aren't fixed, but can always be altered afterwards.  The whole edifice turns out to be built on sand, since the European Commission's claims about  how it has improved ISDS – claims that, as we've seen, are dubious at best – become provisional and possibly temporary. 

Worryingly, this is exactly the approach that the EU and US seems to be taking with the regulatory chapter for TAFTA/TTIP.  As I noted in TTIP Update VIII, the plan is to turn TAFTA/TTIP into a "living agreement" through a "Regulatory Council", essentially made up of corporates that will have the ability to block EU and US legislation that they don't like, and help push through things that they do.  It's an extremely clever approach that allows criticisms to be de-fanged by starting off with a relatively modest base agreement, and then gradually subverting over the years.  The CETA leaks show the same to be true for ISDS.

What the Seattle to Brussels Network's analysis demonstrates is the clear gap between rhetoric - what the European Commission is saying - and reality - what it is doing behind the scenes.  We are only able to expose that attempt to mislead the public thanks to leaks of the negotiation documents that give us the full picture.  It's yet another reasons why we need full transparency – all tabled TTIP document made public immediately - not the token kind currently being offered by the Commission with its 3-month ISDS  consultation.

It's also why we should be extremely sceptical about the European Commission's claims that it will address ISDS's serious deficiencies, and that including it in TAFTA won't threaten European sovereignty and democracy.  If CETA is anything to go by, that's simply not true.  In any case, if something you don't need is broken, you don't try to fix it, you throw out.  We must do the same for ISDS in TTIP.  The three-month pause must become a permanent moratorium.

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TTIP Update XIII

As regular readers will have noticed, so far the dominant theme of these TAFTA/TTIP updates has been investor-state dispute settlement (ISDS).  That's largely because it represents such a clear threat to national sovereignty, that it's the most pressing issue, even this early in the negotiations.  Naturally, I'm not the only person to think that, and many others, including leading civil society organisations, have expressed their grave misgivings about the inclusion of what amounts to a chapter placing foreign corporations above nations.  It seems that crescendo of concern has had an effect.

In a rather surprising turn of events, the European Commission has just published the following:

EU Trade Commissioner Karel De Gucht today announced his decision to consult the public on the investment provisions of a future EU-US trade deal, known as the Transatlantic Trade and Investment Partnership (TTIP). The decision follows unprecedented public interest in the talks. It also reflects the Commissioner's determination to secure the right balance between protecting European investment interests and upholding governments’ right to regulate in the public interest. 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.

Against a background of a dogged refusal to release any texts, or to ask the public in any way about its opinion, that's a startling U-turn.  It's clearly taken place because the European Commission has finally realised that trying to re-gain control of the narrative by releasing a few "fact sheets" – like the one I discussed in a previous update -  just isn't working.  Unfortunately for the Commission, it doesn't seem to have come up with any new, compelling arguments why ISDS must be part of TTIP:

EU Trade Commissioner Karel De Gucht said: "Governments must always be free to regulate so they can protect people and the environment. But they must also find the right balance and treat investors fairly, so they can attract investment. International investment agreements like TTIP should ensure they do both. But some existing arrangements have caused problems in practice, allowing companies to exploit loopholes where the legal text has been vague. I know some people in Europe have genuine concerns about this part of the EU-US deal. Now I want them to have their say. I have been tasked by the EU Member States to fix the problems that exist in current investment arrangements and I'm determined to make the investment protection system more transparent and impartial, and to close these legal loopholes once and for all. TTIP will firmly uphold EU member states' right to regulate in the public interest."

As you can see, that is still assuming that the question is how to make ISDS better, rather than asking whether we need it.  Making it better will be hard, because it will requires the US to agree to any new measures.  Luckily, we don't need to hold those discussions, since any form of ISDS is completely unnecessary.  We know that because the Europe Commission's own figures prove it:

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 sidesof the Atlantic. It is estimated that a third of the trade across the Atlantic actually consists of intra-company transfers.

Transatlantic investment is not just flourishing, it is flourishing like nowhere else on earth.  So there is basically no problem to solve, and ISDS will add nothing but costs, both economic and political.  But you don't have to take my word for that.  I recently came across a fascinating document on the UK government's main gov.uk site entitled "Costs and benefits to the UK of an EU-US investment protection treaty" that explores precisely this issue of whether it is worth adding ISDS to TTIP.

Its genesis looks slightly complicated.  It is branded "LSE Enterprise", and its three authors come from the London School of Economics (LSE), University of Oxford and University of Wisconsin.  So it seems to be an independent report commissioned by the Department for Business, Innovation & Skills.  That means it can't be regarded as official UK government policy, but the fact that it appears on gov.uk means that it is still an official document.  It was published on 22 November, but I've only come across it.  I imagine that's partly because the UK government didn't want to publicise it too much, given its findings.

It runs to some 44 pages, but the final section sums things up neatly.  Its main conclusion is as follows:

There is little reason to think that an EU-US investment chapter will provide the UK with significant economic benefits. No two countries in the world exchange more investment than the UK and the US, and there is no evidence that US or UK investors view either country as suffering from the kinds of political risks against which investment treaties are supposed to protect. Moreover, existing evidence suggests that the presence of an EU-US investment chapter is highly unlikely to encourage investment above and beyond what would otherwise take place. US investors have generally not taken much notice of investment treaties in the past when deciding where, and how much, to invest abroad – even when dealing with far more questionable jurisdictions than the UK.

It also points out that:

There is little reason to think that an EU-US investment chapter will provide the UK with significant political benefits. The political relationship between Washington and Whitehall is exceptionally strong, and we are aware of no evidence that it is vulnerable to a meaningful risk of investor-state disputes that would become undesirably “politicized” in the absence of an investment treaty. Secondly, we find it unlikely that an EU-US agreement would make significant negotiating partners – like India and China – more or less willing to agree to an investment treaty with the EU. Finally, it is unclear whether the US is particularly keen on an investment protection chapter with the EU, which means the Commission may not be able to use such a chapter as an effective ‘bargaining chip’ in other trade and/or investment negotiations with Washington.

That point about China and India is crucially important: one of the reasons that the European Commission likes to claim we "must" have ISDS in TAFTA/TTIP is that it will set a precedent for future agreements with China and elsewhere.  The LSE team believes that this would be unlikely to make them more willing to accept a chapter on corporate sovereignty.

The LSE report then goes on to say:

There is some reason to expect an EU-US investment chapter will impose meaningful economic costs on the UK.

And also:

There is some reason to expect an EU-US investment chapter to impose meaningful political costs on the UK.

It summarises the entire situation as follows:

In sum, an EU-US investment chapter is likely to provide the UK with few or no benefits.

This is the key point that we need to get across when Mr De Gucht's consultation on ISDS opens: that his attempts to get rid of the "bad" bits of investor-state dispute settlement miss the point.  The fact is, ISDS simply has few if any benefits for any of the EU's member states, but many huge potential costs and problems for European citizens.  It should be dropped completely from TAFTA/TTIP.

Full list of previous TTIP Updates.

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TTIP Update XII

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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