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Glyn Moody

Glyn Moody's look at all levels of the enterprise open source stack. The blog will look at the organisations that are embracing open source, old and new alike (start-ups welcome), and the communities of users and developers that have formed around them (or not, as the case may be).

TTIP Update VII

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In my last TTIP update, I wrote about a fascinating document that revealed the European Commission’s PR strategy for handling TAFTA/TTIP. It was already possible to detect there a growing sense of panic among the Commission – a fear that they were losing control of the “narrative”, and that remedial action was needed.

Since then, two documents have been released officially by the Commission, and they provide some extremely important information on the negotiations. That’s because they are concerned with what I have already flagged up as perhaps the most dangerous aspect of TAFTA/TTIP: corporate sovereignty, known officially as investor-state dispute resolution (ISDS). The problem here is that this places companies at the same level as nations – indeed at the same level as the EU as a whole – and gives them extraordinary capabilities for dictating the contours of laws and regulations.

There are actually three documents – two official, and the letter accompanying them, which has been leaked. The letter comes from Jean-Luc Demarty, who is Director-General of Trade, and was sent to Vital Moreira, chairman of INTA, the European Parliament’s Committee on International Trade. Moreira was a supporter of ACTA, and is probably best known for threatening to throw people out of a public meeting on that subject if they applauded.

Here’s how the letter explains itself:

I take this opportunity to share with you a document explaining in more details our approach to investment protection and investor-State dispute settlement in general, and a factsheet explaining what we have achieved in this respect with Canada. We will distribute this document widely in the Parliament.

These are the two documents that have been made public.

We welcome the technical meeting scheduled to take place on 26 November on this matter. At the same time we believe we should find more such opportunities. In particular, we would welcome a dedicated debate.

ISDS was until recently an obscure and neglected aspect of TAFTA/TTIP, but as more people wake up to its dangers, and begin voicing their fears, so MEPs are naturally becoming aware too, and they are probably starting to wonder if it will be as politically toxic in the present agreement as the Internet provisions were in ACTA. The European Commission is therefore desperate to try to convince members of INTA, which is the lead committee for TAFTA/TTIP, that ISDS is perfectly harmless, and that they really shouldn’t pay any attention to the people raising serious questions about its relevance for this kind of deal.

The main document is called "Investment Protection and Investor-to-State Dispute Settlement in EU agreements" (pdf), and claims to be a “fact sheet”: that is, it is trying to assert that everything it contains is a fact, and not just matters of opinion that can be argued over. The introduction summarises nicely the structure of the document:

This outline explains why investment protection provisions are necessary and looks at lessons learned from how investment protection has worked in the past. It presents the concrete improvements made by the Commission to investment provisions in EU trade agreements and which will be included in future agreements.

The first section provides us with some information about investments around the world:

Investment is a critical factor for growth and jobs. This is particularly the case in the EU, where our economy is very much based on being open to trade and investment. Investment is key in creating and maintaining businesses and jobs. Through investment, companies build the global value chains that play an increasing role in the modern international economy. They not only create new opportunities for trade but also value-added, jobs and income. That is the reason why trade
agreements should promote investment and create new opportunities for companies to invest around the world.

Of course, exactly the same arguments were used for TAFTA/TTIP’s predecessors – NAFTA and KORUS. And yet, as I noted in my previous TTIP update, NAFTA and KORUS actually destroyed around 680,000 and 40,000 US jobs respectively. But let’s just ignore that inconvenient detail for the moment, and continue exploring why the European Commission asserts that TAFTA/TTIP must include corporate sovereignty provisions:

Companies investing abroad do encounter problems which – for a variety of reasons – cannot always be solved through the domestic legal system. These problems range from the rare, but dramatic, occurrences of expropriations by the host country by force, discrimination, expropriation without proper compensation, revocation of business licences and abuses by the host state such as lack of due process to not being able to make international transfers of capital.

Well, yes companies have indeed encountered all those problems, in certain countries, specifically those with poorly-developed legal systems. But as I have asked before, is the European Commission seriously suggesting the the US might engage in “expropriations by the host country by force, discrimination, expropriation without proper compensation, revocation of business licences and abuses by the host state such as lack of due process to not being able to make international transfers of capital”? I have to say, for all the US’s many faults, none of those seems very likely. But again, let us continue to listen to the European Commission’s logic here:

Precisely because of these risks, provisions to protect investments have been part and parcel of all the 1400 bilateral agreements entered into by EU Member States since the late 1960s. The EU itself is party to the Energy Charter Treaty, which also contains provisions to protect investments and investor to state dispute settlement. Worldwide, there are over 3400 such bilateral or multiparty agreements in force containing provisions to protect investments. They provide guarantees to companies that their investments will be treated fairly and on an equal footing to national companies. By creating legal certainty and predictability for companies, investment protection is also a tool for states around the world to attract and maintain FDI [foreign direct invesment] to underpin their economy.

Notice how this moves from those 1400 bilateral agreements negotiated since the late 1960s – many with countries that do not have developed legal systems, and therefore might present some of the dangers described above – to the claim that “investment protection is also a tool for states around the world to attract and maintain FDI to underpin their economy.” So what the “fact sheet” is asserting here is that without ISDS provisions in TAFTA/TTIP, poor old Europe just won’t attract and maintain foreign direct invesment.

Sounds pretty compelling you might think – after all, surely it’s better to have that investment, and if Europe will only get it with ISDS, well so be it. But there are some more of those inconvenient facts the the European Commission somehow omits to mention. That’s rather strange, because they’re to be found on the European Commission’s own Web site pages dealing with EU-US trade:

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.

So it sounds like foreign direct investment from the US to the EU (and from the EU to the US) is not only present, but actually vastly more important than investment anywhere else in the world. But how can this be? After all, currently, there are no ISDS mechanisms between the EU and US (which is why the European Commission is insisting we create them in TAFTA/TTIP.) According to the “fact sheet”, this ought to mean that Europe is unable to attract and keep US investment. And yet, by its own figures, the US invests three times more in the EU than in all of Asia.

In other words, the Commission’s own figures demonstrate that ISDS has been completely unnecessary in the past: the US has been more than happy to invest many billions in the EU. They also demonstrate that there is no reason whatsoever to bring it in now, since US companies are clearly not going to rip out all their investment in the EU just because they don’t have access to ISDS mechanisms. That’s for the very simple reason that they don’t need them: they have the extremely well-developed EU court systems to which they can – and do – turn.

So there would be no benefit in bringing in corporate sovereignty rights in TAFTA/TTIP, but there would be huge risks. How do we know this? Because the European Commission’s very own “fact sheet” says so:

While the number of cases brought to arbitration is small compared to the hundreds of thousands of investment decisionsmade daily benefiting both the host countries and companies investing in them, some of the most recent cases brought by investors against states have given rise to strong public concerns. The main concern is that the current investment protection rules may be abused to prevent countries from making legitimate policy choices.

Amongst the cases that have caught the public attention are the on-going cases Vattenfall vs. Germany and Philip Morris vs. Australia. The Swedish energy company Vattenfall has brought a claim against the German government (under the Energy Charter Treaty) after its decision in 2011 to significantly speed up the phase out of nuclear power generation. The US owned company Philip Morris has challenged the government of Australia for the latter’s decision to ban brand names on cigarette packs (the ‘plain packaging’ measure) for reasons of public health.

...

The public concerns raised surrounding these cases are legitimate and need to be addressed.

So the Commission itself recognises that the concerns are legitimate and need to be addressed. And this is how it proposes to address them:

The Commission’s aim i[s] to bring improvements on two fronts (1) to clarify and improve investment protection rules and (2) to improve how the dispute settlement system operates. Such improvements will address the concerns raised thatinvestment protection rules may negatively impact states’ right to regulate. They should, amongst other things, ensure that companies cannot successfully bring claims against states’ regulatory policies when these are taken for public policyreasons.

Let me emphasise here, as I did before, that these things are simply what the European Commission wants to do – not what the US will agree to. The other document released with the “fact sheet” is an attempt to bolster the Commission’s case: it’s called "EU- Canada CETA : main achievements" (pdf). It reveals – for the first time – what the still-secret CETA contains in terms of ISDS. But of course what happened with Canada has little bearing on what will happen with the US.

Where the EU was able to bully the small and relatively weak Canada into accepting pretty much everything the European Commission wanted, that is clearly not the case with the US. Indeed, the Commission is so conscious that it is the weaker party in the TAFTA/TTIP negotiations, it was forced to address this in the PR document I referred to at the beginning of this post. Here’s what it says:

Many of the fears about what TTIP may represent are linked to a perception that the EU is not in a sufficiently strong position to engage with the United States. Some of this also stems from the fact that the EU is currently in a weaker economic position than the US and that therefore we need TTIP more than they do. We need to make clear that this is not the case, that despite the crisis the EU remains the world’s largest market and is as such an indispensable partner for any trading economy (i.e. both sides have major economic interests in these negotiations). We must also make clear that we have as strong a track record as the US in trade and other negotiations, including with the US itself.

Methinks the lady doth protest too much...

But this delusion about being an economic equal of the US, and thus able to force its ideas of how to revise ISDS on a recalcitrant negotiating partner that is used to getting its own way, is actually irrelevant. The key point is that ISDS simply has no place whatsoever in TAFTA/TTIP. To see why, we need to go back to the opening of the corporate sovereignty “fact sheet”, which states:

Investment protection provisions, including investor-state dispute settlement are important for investment flows. They have generally worked well. However, the system needs improvements. These relate to finding a better balance between the right of states to regulate and the need to protect investors, as well as to making sure the arbitration system itself is above reproach e.g. transparency, arbitrator appointments and costs of the proceedings.

As we’ve seen, investment protection provisions are simply unnecessary when it comes to EU-US trade. But what’s really disturbing in that statement is the idea that TAFTA/TTIP should be about

finding a better balance between the right of states to regulate and the need to protect investors

That is, the European Commission believes that these have something to do with each other, as if the former – the right to regulate the workings of a society – has to be abrogated in order to protect the latter – investors and their money. That is not just wrong, it is downright insidious: it places the rights of investors at the same level as the rights of citizens; it asserts that the public must necessarily give up some of its own hard-won health, environmental and social protections in order to “protect” the ability of companies to make profits.

This pernicious notion is why ISDS is not fixable in any way, despite what the European Commission would have us to believe. Its very presence in a trade agreement is an affront to the citizens in whose name it is supposedly being negotiated, and an affront to democracy itself. ISDS must go.

Full list of previous TTIP Updates.

Follow me @glynmoody on Twitter or identi.ca, and glynmoody on Google

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