TTIP Update XXIII

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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TTIP Update XXII

The fact that corporations are regularly placed on the same level as entire nations, and can sue them for alleged loss of future profits, probably came as something of a shock to most people, as it did to me when I first encountered the idea.  It sounded like the deranged fantasy of some corporate lobbyist, but surely not something that any country would actually accept.  And yet, as we know, not only do many - small, and relatively weak - countries consent to investor-state dispute settlement (ISDS) as the price of obtaining much-needed inward investment, but the European Commission seems hell-bent on exposing European to the same kind of corporate attack.

I say "Europeans", and not European nations, because ultimately it is the taxpayers that must fund the increasingly exorbitant awards that ISDS tribunals are making.  To put it another way, it's a classic case of "privatising the profit, and socialising the costs": EU companies get to make profits in the US, but it's mostly the EU citizens who would have to foot the bill if awards were made under ISDS in favour of American corporations operating here in Europe.

Even though ISDS burst upon the scene relatively recently for most of us, we actually have a fair amount of information about its previous history, largely thanks to bodies like the United Nations Conference on Trade And Development (UNCTAD), which has been producing handy summaries of what's been happening in this strange world for a while now.  It's just published its latest report [.pdf], and it contains some important developments. The number of new cases is only one less than the previous year's record - 57 against 58.  More significant is the following:

The greatest number of 2013 cases were brought against countries in Europe (26 cases, of which two are against countries not members of the European Union (EU) – Albania and Serbia)

Specifically:

Twenty four arbitrations (42 per cent of all cases) were brought against EU Member States. The range of countries involved is broad and includes “new” and “old” Member States, namely the Czech Republic (7 cases), Spain (6), Croatia (2), Hungary (2), Slovakia (2), Bulgaria (1), Cyprus (1), France (1), Greece (1), and Slovenia (1). In all of these arbitrations except for one, the claimants are also EU nationals; they started the proceedings on the basis of either intra-EU bilateral investment treaties (BITs) or the Energy Charter Treaty (ECT), sometimes relying on both at the same time.

That's an important shift, since it shows that ISDS is no longer simply a way for Western countries to bully developing ones, but that the weapon has now been turned against many EU countries, mostly by other EU countries.  This suggests that companies are becoming aware of and more comfortable with ISDS as a way of extracting money from EU governments.  Couple that with the fact that overall the US is the leading nation when it comes to using ISDS - 127 cases out of 568 (22%) -  and that there are  more than 14,400 US-based corporations that own more than 50,800 subsidiaries in the EU, and you have a recipe for an ISDS-based legal Armageddon.

The report contains some other significant straws in the wind:

Several arbitrations launched in 2013 have an environmental dimension. In two disputes against Canada, investors are challenging measures introduced on environmental grounds. The first, a claim by Lone Pine Resources, arose out of Quebec’s moratorium on hydraulic fracturing (fracking) that led to the revocation of the company’s gas exploration permits. The second dispute relates to Ontario’s moratorium on offshore wind farms (pending research on their health and environmental effects); the claimant contends that the temporary ban breaches its contract for the electricity supply which it had concluded with the Ontario Power Authority for a 20-year period.

This is precisely the kind of things that many fear will happen if ISDS is included in TTIP: companies will seek to overturn policies that are brought in for environmental reasons, arguing that corporate profits outweigh the rights of the public.  The following case is also highly relevant to the EU situation:

Achmea, a Dutch insurance company, is seeking to preclude the host State from expropriating Achmea’s stake in a Slovak health insurer (the relevant draft law is under consideration by the Slovak Parliament). The right of States to expropriate property is well-established under international investment law as long as certain conditions are met. Achmea is claiming that some of these conditions would be breached (requirement of public interest, non- discrimination and due process) if the expropriation goes ahead.

A similar situation could arise in the UK if a future government decided to reverse the current privatisation of NHS services, and sought to re-nationalise them.  If a US company were involved, it might claim that the UK could not expropriate property in this way because conditions to do so were not met.

The UNCTAD report is really well-worth reading in order to gain an understanding of how ISDS is developing - and how quickly.  For example, there are cases where companies try to claim "moral damages" along with everything else, and another case where a company that had made a $5 million investment was awarded $900 million in "lost profits" - even though it seems to have no track record as a profitable organisation.

Trade lawyers around the world have clearly realised that ISDS is one of the most efficient ways for their clients to extract money from governments, and they are applying their not-inconsiderable - if largely amoral - ingenuity to come up with new ways of using the mechanism.  That's another important reason why the "innovative elements" the European Commission plans to introduce to "improve" the system won't work - they are trying to fix yesterday's problems - and why ISDS must be removed completely from TTIP.

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TTIP Update XXI

In Update XX, I noted that despite the European Commission's claims to the contrary, there was simply no evidence of any meaningful transparency in TTIP.  However, that changed today, when the Commission announced its consultation on investor-state dispute settlement.  That's because as well as the questions and useful background explanations, the consultation document [.pdf] includes not only provisions found in typical bilateral investment treaties but - and this is particularly welcome - the relevant text developed in the Canada-EU trade agreement (CETA).  That is what transparency looks like, and needs to be extended to all the other chapters.

However, I don't intend to go through the consultation document here: I'll save that for another update (we have three months to reply to the consultation, so there's no huge rush.)  Instead, I want to address an issue that comes up again and again, and which represents such a serious misrepresentation of the facts, that I really want to try to deal with it once and for all.

It concerns the famous 119 billion euros figure for the "extra" GDP growth that TTIP will produce, which I've mentioned several times before.  Here's its latest appearance, on a page from the powerful EPP political group in the European Parliament, which is entitled "Mythbusting the EU-US free trade agreement".  The relevant section reads as follows:

What's in it for the EU?

The impact assessment launched by the European Union before the start of negotiations in March 2013 suggested that the EU's economy could benefit by 119 billion euros a year and the US economy could gain an extra 95 billion a year - with gains of 545 euros for each EU family. These gains would be the result of removing tariffs and doing away with unnecessary rules and bureaucratic hurdles that make it difficult to buy and sell across the Atlantic.

Notice there's that "119 billion euros" figure, but notice that the claim is Europe would gain this *each year*.  The @EPPGroup account confirmed to me that the EPP had obtained that number from the main European Commission research on the economic impact on TTIP, "Reducing Transatlantic Barriers to Trade and Investment ; An Economic Assessment" [.pdf].  And sure enough, on page vii of that document, in the Key Findings section, we read:

An ambitious and comprehensive transatlantic trade and iinvestment agreement could bring significant economic gains as a whole for the EU (€119 billion a year) and US (€95 billion a year). 

This translates to an extra €545 in disposable income each year for a family of 4 in the EU, on average, and €655 per family in the US.

This is very curious, because that's not what the actual report says at all. 

The correct interpretation is found on page 3 of the report, where we find that 119 billion euros figure again, which is explained as the change in GDP.  But it is not the change in GDP *each year*, which is what the Key Findings section claims; in rather small print on that page, underneath the table labelled "Summary of Macroeconomic Effect", we read the words:

Note:  estimates to be interpreted as changes relative to a projected 2027 global economy

The fact that the Key Findings is wrong is confirmed on page 33 of the report, which explains things at more length:

The results are reported with respect to an economic benchmark projected out to the year 2027 which implies that that they capture the impact of the agreement a full ten years after the implementation of the agreement, providing the longer-term impact of policy changes.

As that makes clear, the results give the difference between two situations: the EU's economy in 2027 if TTIP had been in place for ten years, and the EU's economy in 2027 without TTIP.  The different is expressed as the extra GDP that would result - 119 billion euros in the most optimistic case.

So what the report is saying is that the extra growth that TTIP could bring in 2027 relative to the economy in 2027 without TTIP in 119 billion euros. 
Which means that the 119 billion euros is the *cumulative* benefit for those ten years of TTIP, compared to the ten years without TTIP.  On average, then, the claim is that TTIP could produce 11.9 billion euros extra for the European economy each year, for ten years, giving an *overall* boost to the EU GDP of 119 billion.Which means that the 119 billion euros is the *eventual* level of GDP boost, after 10 years.

It can be a little hard juggling abstractions like extra growth in GDP over a decade; so let's look at the other figure that the Key Findings mentions: "an extra €545 in disposable income each year for a family of 4 in the EU," which works out as around 136 euros per person. Assuming there are 500 million people in the EU, if that figure were *each year*, as claimed, this would give a total increase in EU disposable income of 500 million times 136 euros, which equals 68 billion euros, each year, thanks to TTIP.

But as we've seen, the increase in GDP each year is only around 12 billion euros on average.  So that 68 billion euros figure clearly refers to the *cumulative* increase in disposable income in 2027, after 10 years of TTIP, compared to what what people would have had in 2027 without TTIP, just as the figure of 119 billion euros refers to the cumulative gain for the economy.

Put another way, that 545 euros is the *total* increase in disposable income across 10 years, not the extra disposable income available each year, as the Key Findings erroneously claims.  That equates to an average of 60 euros extra, per year, for a family of 4.

In other words, even under the most optimistic assumptions, and using the European Commission's own forecasts, the real-life effect of TTIP would be that each week, everyone in a typical European family of 4 would be able to buy an extra cup of coffee, but only after TTIP had been in place for 10 years.  Before that people will have to share their coffee.

As this shows, even under the most favourable assumptions - assumptions that are unlikely to be realised - TTIP's benefit to European citizens would be negligible.  The threats, on the other hand, are considerable, not least from investor-state dispute settlement, which is likely to cast a chill over legislative initiatives in the European Union, just as it did in Canada under NAFTA.

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