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...


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, when 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. That’s also the case for 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 on 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 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 worthless 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, so 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 it over the years. The CETA leaks show the same is likely to be true for ISDS if it remains in TTIP.

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.

Full list of previous TTIP Updates.

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