May 5, 2015

ISDS: diplomatic blunder Malmström threatens democracy and privacy

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The EU commission published a concept paper on investor-to-state dispute settlement (ISDS). In my opinion the plans are a diplomatic blunder which threatens our democracy and privacy.

ISDS would give foreign investors – and only foreign investors – the right to bypass local courts and challenge governments before supranational investment tribunals. ISDS “solves” incidental discrimination against foreign investors through structural discrimination against local investors, governments and citizens.

The commission wants to go ahead with the trade agreements with Canada and Singapore. ISDS in these agreements is seriously broken. The texts of these agreements are almost the same as the ISDS consultation reference text. In their submission to the consultation over 110 scholars showed the commission failed to solve a long list of crucial issues. Malmström has no intention to solve the issues in these agreements.

ISDS not only has an investor bias, various submissions to the consultation noted that ISDS gives the US unfair procedural advantages. [1] The commission is aware but keeps silent about this. We risk sleepwalking into a situation that gives actors (companies, US government) that want to undermine our privacy unfair procedural advantages.

If the EU ratifies the trade agreements with Canada and Singapore that give the US unfair procedural advantages, the US has an incentive to refuse further reforms. The commission undermines its negotiation position.

The possible endpoint the commission proposes is a permanent investment court. Note that even this best case scenario has inherent systemic issues.

First, specialised courts have a natural tendency to become expansionist.

Second, allowing foreign investors to supranational adjudication promotes expansionist interpretation of treaties as private parties do not have the same restraint as states, and gives foreign investors procedural rights local investors do not have.

Third, supranational adjudication takes place above democracies and falls outside democratic control; as it lacks a legislative feedback loop there is no effective remedy if the interpretation becomes expansionist. [2]

Recommended reading: In a letter to Congress senior US legal experts and a Nobel laureate in economic sciences write that ISDS is antithetical to the rule of law.

See also: Social democrats propose dangerously flawed ISDS reforms

EU liberals seem ready to sacrifice our democracy

[1] Van Harten, page 41, FFII, EDRi, page 14.

[2] Reform is dependent upon the other party / other parties, which may have other interests, for instance on privacy.