EU holds public consultations on TTIP investment chapter

By Samantha Lewis, Communications Intern
By Samantha Lewis, Communications Intern

Following public outcry over EU-US trade negotiations, the EU is holding three month public consultations on one of several controversial issues, Investor-to-State Dispute Settlement, or ISDS. Human rights, including the right to a healthy environment, are threatened by the possible inclusion of ISDS in the new free trade agreement being negotiated between the US and the EU (officially called the Trans-Atlantic Trade and Investment Partnership or TTIP, and formerly “TAFTA”). ISDS is one of a panopoly of concerns raised by TTIP and the environment, including unraveling and stalling necessary progress on toxic chemicals in the US and EU.

Corporations have used ISDS to sue governments for lost profits from new laws that aim to protect public health and the environment, ensure accountability, and protect other important public interests. The merits of the claims are decided by an international tribunal composed of attorneys that often represent companies in other suits, raising questions about conflicts of interest. The tribunals are also notoriously opaque, making public participation nearly impossible.

Fracking in Wyoming, USA. Photo via The Equation.
Fracking in Wyoming, USA. Photo via The Equation.

How bad can these provisions be for environmental and social protections? Well, for example, Lone Pine Resources, a US oil and gas company, took advantage of ISDS provisions in NAFTA by suing Canada for $250 million after Quebec placed a moratorium on fracking to protect water. These ISDS provisions threaten countries (including states and provinces) from enacting stronger, more ambitious environmental protections with the threat of multi-million dollar litigation.

It is wholly inappropriate to create ISDS between the US and EU. Neither the United States nor European Union are high-risk jurisdictions for the government to take the property (including rights) of foreign investors; both have well-developed legal systems and governance structures with independent courts. European investors are allowed access to US courts. The inclusion of investor-state dispute settlements would primarily serve to allow corporations to ensure their profits at the expense of human health and the environment protections from the negative effects of their profit-making activities.

While the US refuses any engagement with its citizens over ISDS and other controversial aspects of TTIP, the EU’s public consultation on the inclusion of ISDS provisions in TTIP is an important opportunity Europeans to participate in the debate, although other issues remain closed to any degree of meaningful public participation.

Unfortunately, the EU’s questions are extremely technical, creating a significant barrier to public participation in this consultation. However, there is an opportunity to formally register your views by June 7, 2014.  If you prefer democracy, and that governments do NOT use taxpayer funds to compensate corporations for laws and policies that protect public health, the environment, labor and more, take this opportunity to voice your concerns. Follow the link to submit a comment to that effect. You might consider making the following points (see more detail below*):

  • ISDS forces governments to use taxpayer funds to compensate corporations for public health, environmental, labor and other public interest policies and government actions
  • ISDS undermines democratic decision-making
  • European and US legal systems are capable of handling investment disputes, an opaque, unelected tribunal is an inferior option


*More detail excerpted below from Statement of Carroll Muffett, President and CEO, Center for International Environmental Law (CIEL), in response to additional questions for the record, “The US – EU Free Trade Agreement: Tipping over the Regulatory Barriers”, as delivered to the US House Energy and Commerce Committee Subcommitee on Commerce, Manufacturing, and Trade, May 2014.

The inclusion of ISDS provisions under TTIP would dramatically increase risk of ISDS suits against the EU.  According to the United Nations Conference on Trade and Development (UNCTAD), U.S. and European companies account for 75% of all investor-state disputes known globally.  This fact is not surprising when one considers that, in addition to being the world’s largest economies, the U.S. and E.U. member countries have negotiated approximately 3000 multilateral, regional and bilateral investment treaties containing investor protection provisions.

The number of investor-state cases worldwide has increased exponentially in recent years.   ISDS provisions have enabled businesses to claim more than $430 million in compensation, with $38 billion sought under fifteen pending claims for public interest and environmental laws and policies.   Cases against the U.S. include laws to protect people from the emission of a neurotoxin additive in gasoline (Methanex), and to  require the restoration of mines (Glamis Gold). Other examples of ISDS claims for public health and environmental laws and policies include suits against: (1) Germany for U.S.$ 3.7 billion following a democratic decision to phase out nuclear energy;  and (2) Canada for CAN$ 250 million for lost profits by a Canadian company  due to a moratorium on hydraulic fracturing (fracking) for shale gas.  Numerous legal and policy experts have voiced concerns over investment tribunals hearing such disputes, as they are unlikely to adequately take into account human rights, labor rights, and environmental or other public interest concerns.

While USTR asserts that the United States has never technically “lost” an ISDS case,  this conveniently overlooks settlements with investors and the growing trend of companies restructuring (and in some cases relocating) their operations to sue as protected investors under particular regimes.  Indeed, global legal and consulting firms have developed a robust cottage industry in advising multinationals on how to structure their operations to make strategic use of these protections.  With 75,000 companies already cross-registered in both the United States and the EU, the financial exposure from future investor claims and litigation response costs could increase dramatically if ISDS are included under TTIP.

That recourse to these mechanisms would appeal to companies is equally unsurprising because ISDS affords “foreign” investors greater rights than domestic businesses.  ISDS provides foreign investors the right to bypass domestic courts and challenge the EU and its Member States before an international arbitration tribunal, if they feel that a domestic policy or government decision contravenes their expectations or threatens their expected future profits, a right that even domestic investors do not share.  Proponents of ISDS also routinely ignore the regulatory chilling effect of real or threatened investor suites.  The threat of ISDS suits can result in the dilution of many proposed laws on public health and environmental protection.  ISDS weakens the power of governments to regulate, despite the fact that they retain the “right” to do so.  Governments must have the flexibility to put in place public interest policies without fear of costly trade litigation brought by well-resourced corporations.

ISDS provisions undermine democracy and values of justice deeply embedded in both the U.S. and European systems.  While the public interest laws at issue are the product of democratic processes, ISDS panels are not democratically selected, are not bound to consider basic principles of U.S. law such as sovereign immunity, and are not required to balance the public interest against alleged violations of an investor’s rights.  Arbitrators often represent clients in different ISDS cases, and are above any meaningful degree of accountability, due in part to a dark veil of secrecy. Decisions of the tribunal—including legally incorrect decisions—are final and binding on countries, with limited exceptions. As arbitrators themselves are recruited from the international trade community to apply international trade rules to international trade agreement, the system is implicitly biased to elevate trade concerns above other societal values and policy priorities.

ISDS suits place the public in a lose-lose situation.  Each ISDS case costs taxpayers in the US an average of $8 million, oftentimes to defend against meritless claims.  In the instance of a loss by the government, taxpayers must compensate corporations for less-than-expected profits.  In the case where the law is weakened or abandoned to avoid the potential liability of an ISDS suit, the public may continue to bear the externalized costs of corporate activities, for example pollution.
While the inclusion of ISDS provisions is problematic in any trade agreement, traditional arguments for the inclusion of ISDS in trade and investment agreements are clearly without foundation in the context of TTIP.  The United States and the EU have very strong domestic court systems and property rights protections, with the U.S. affording the same rights to foreign investors as domestic investors. European officials have stated publicly that ISDS is not necessary under TTIP for robust trans-Atlantic foreign investment, as the level of foreign investment is already very high.

ISDS is sought under TTIP by companies and industries because it offers corporations around the world a favorable venue to attack and undermine domestic laws and policies created through democratic processes, in order to maximize profits. ISDS grants foreign corporations the right to directly challenge government policies and actions in private tribunals, bypassing domestic courts and creating a new legal system that is exclusively available to foreign investors and multinational corporations. Typically a three-person panel composed of private attorneys oversees the case, with the power to award an unlimited amount of taxpayer dollars to corporations. For example, a crushing US$2.3 billion, the highest compensation to date, has been awarded to U.S. oil company Occidental Petroleum against Ecuador, for the termination of an oil production site in the Amazon.   As the process elevates private firms and investors to the same status as sovereign governments, it amounts to a privatization of the justice system.

For example, in one of the most notorious cases, U.S. tobacco giant Philip Morris launched investor-state cases challenging anti-smoking laws in Uruguay and Australia after failing to undermine the health laws in domestic courts.   In a recent case, a Canadian firm seeking to operating a gold mine in El Salvador, through a subsidiary registered in the Cayman Islands, abruptly closed that subsidiary and re-registered in Reno, Nevada in an effort to sue the government of El Salvador as a U.S. investor under the U.S.-Central American Free Trade Agreement.   Troublingly, the panel considering the case concluded that the firm’s actions were permissible under CAFTA, despite the lack of any meaningful connection between its Salvadoran mining operation and the United States.  The company was denied investor protections under CAFTA only after El Salvador successfully invoked another provision of the agreement to deny those protections.

In response to the egregious corporate abuse of the investor-state system in sidestepping domestic court decisions, several countries have started to turn away from investor-state dispute settlement. South Africa, Bolivia, Ecuador, Venezuela, and Indonesia have begun phasing out existing bilateral investment treaties.  Additionally, Ecuador, Bolivia and Indonesia have withdrawn from the International Centre for the Settlement of Investment Disputes (ICSID).  In the U.S., the National Conference of State Legislators, representing all 50 U.S. state parliamentary bodies, has declared that it “will not support any [trade agreement] that provides for investor-state dispute resolution” because it interferes with their “capacity and responsibility as state legislators to enact and enforce fair, nondiscriminatory rules that protect public health, safety and welfare, assure worker health and safety, and protect the environment.”

On an international level, UNCTAD has prioritized its attention on reforming the system to provide for more transparency, preserve appropriate regulatory space for host countries, and balancing the rights and obligations of States and investors, as well as assessing the options available for countries to terminate existing treaties.

In 2013, the United Nations Commission on International Trade Law (UNCITRAL) adopted new rules designed to bring greater transparency to international investment disputes.   While these rules represent an improvement in the status quo with respect to the transparency of such disputes for agreements completed after April 2014, the rules will not apply retroactively to existing agreements unless State parties to those agreements consent thereto.   Nor do they remedy the many and fundamental challenges of ISDS.

Originally posted on May 12, 2014.