June 7, 2015

S&D ISDS amendments are seriously broken

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Wednesday the European Parliament will vote on a resolution on TTIP, the agreement with the US under negotiation. The EU commission wants to add investor-to-state dispute settlement, or ISDS, to this agreement. This would give foreign investors the right to bypass local courts. In the resolution the Parliament will express its view on TTIP and ISDS.

Here is the text of the draft resolution (the report of the trade committee) and the amendments; on ISDS the social democrats (S&D) tabled amendments 114-116. The page also contains the indicative voting list (which is subject to change, for instance, at the time of writing this, they forgot to add a vote on amendment 114).

The draft resolution is in favour of ISDS and contains broad rights for investors. The S&D amendments fail completely in rejecting ISDS and broad rights for investors.

The attachment, see below, contains how this part of the resolution would look like if the S&D amendments are adopted.

ISDS

The resolution would contain: ” – without the use of investor-state dispute settlement (ISDS) private arbitration –”.

This at first sight may look good. However, it does not exclude ISDS, but only ISDS private arbitration. The commission could argue that their proposal is ISDS public arbitration, as they improved openness. The S&D group leaves open a loophole. Other “safeguards” leave loopholes open as well.

For instance, “while benefiting from no greater rights than domestic investors” is important if taken seriously. However ISDS itself gives foreign investors greater rights: greater procedural rights, an extra forum to use, the right to leave the local court system. As ISDS has expansionist tendencies, equal substantive rights as a starting point would lead to greater substantive rights in the future.

For instance, “to trust the courts of the EU and of the Member States and of the United States” does not exclude ISDS.

For instance, “subject to democratic principles and scrutiny” is meaningless in the interpretation of the EU commission; they find the possibility to change treaties enough. But changing treaties takes the consent of all other parties involved. The EU would be at the mercy of other parties. Two essential instruments to correct expansionist interpretations are missing in ISDS: (1) ISDS does not provide for a general supreme court on top to integrate various law systems; (2) ISDS does not have a legislative feedback loop, the possibility to change laws that do not work out well. In other words, ISDS does not have a democratic context to correct expansionist interpretations.

For instance, “publicly appointed, independent professional judges” is meaningless if these “judges” are not surrounded by institutional safeguards for independence. The “judges” can still be for profit arbitrators in this context.

For instance, an “appellate mechanism” may be just as broken as ISDS itself. At the moment the ICSID review gives unfair procedural advantages to the United States.

As formulated by the S&D, TTIP could contain ISDS, with perverse incentives and rigged to the advantage of the US – just as now.

Regarding the substantive rights, highly problematic rights such as most-favoured nation, fair and equitable treatment and protection against indirect expropriation are asked for!

Note that “drawn up in a precise legal manner protecting the right to regulate in the public interest, clarifying the meaning of indirect expropriation” would not work in a system that has expansionist tendencies and no workable instruments to correct expansionist tendencies.

Investment court

Note that an international investment court (the proposal for the medium term) would have various inherent issues: (1) specialised courts have a natural tendency to become expansionist; (2) 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; (3) allowing private investors to supranational adjudication promotes expansionist interpretation of treaties as private investors do not have the same restraint as states, and gives foreign investors procedural rights local investors do not have.

CETA

And very important, the S&D amendments allow a very broken ISDS system in the trade agreements with Singapore and Canada.

In sum, the social democratic amendments are seriously broken, a threat to the rule of law, the rechtsstaat, and democracy.

There is a way out. A cross party group of 134 Members of Parliament tabled amendment 27. It clearly opposes ISDS. Amendment 27 is the strongest rejection of ISDS, it should be voted before the other amendments on ISDS, including before amendment 106. (In addition, amendment 40 would limit the substantive rights.)

Interestingly, if the Parliament opposes ISDS, conservatives and liberals may reject the whole resolution.

Wednesday we will know whether the Parliament cares for democracy.

Attachment

If the S&D amendments are adopted the resolution text would look like:

“(xiii) to ensure that TTIP contains a comprehensive chapter on investment including provisions on both market access and investment protection, recognising that access to capital can stimulate jobs and growth ; the investment chapter should aim at ensuring non-discriminatory treatment for the establishment of European and US companies in each other’s territory, while taking account of the sensitive nature of some specific sectors; these should look to enhance Europe as a destination for investment, increase confidence for EU investment in the US and also address investors’ obligations and responsibilities by referring, inter alia, to the OECD principles for multinational enterprises and to the UN principles on Business and human rights as benchmarks;

(xiv) to ensure that investment protection provisions are limited to post- establishment provisions and focus on national treatment, most-favoured nation, fair and equitable treatment and protection against direct and indirect expropriation, including the right to prompt, adequate and effective compensation; standards of protection and definitions of investor and investment should be drawn up in a precise legal manner protecting the right to regulate in the public interest, clarifying the meaning of indirect expropriation and preventing unfounded or frivolous claims; free transfer of capital should be in line with the EU treaty provisions and should include a prudential carve-out not limited in time in the case of financial crises;

(xv)
to ensure the applicability of international agreements, to bring an end to the unequal treatment of European investors in the US on account of existing agreements of Member States; to ensure that foreign investors are treated in a non-discriminatory fashion and have a fair opportunity to seek and achieve redress of grievances while benefiting from no greater rights than domestic investors:
– taking into account the EU’s and the US’ developed legal systems, to trust the courts of the EU and of the Member States and of the United States to provide effective legal protection based on the principle of democratic legitimacy, efficiently and in a cost-effective manner,
– to propose a permanent solution for resolving disputes between investors and states – without the use of investor-state dispute settlement (ISDS) private arbitration – which is subject to democratic principles and scrutiny, where potential cases are treated in a transparent manner by publicly appointed, independent professional judges in public hearings and which includes an appellate mechanism, where consistency of judicial decisions is ensured and the jurisdiction of courts of the EU and of the Member States is respected,
– in the medium term, a public International Investment Court is the most appropriate means to address investment disputes ;”