How not to reach a compromise on corporate courts


18 September 2015

CecIlia Malmström, Europe’s trade commissioner, gave a powerful demonstration of how not to reach a compromise this week.

After a relentless campaign from millions of Europeans against TTIP, CETA and their provision for investor protection, Ms Malmström and her assistants drew up what she hoped would be the end to the complaints. It achieved nothing of the sort.

ISDS, the notorious Investor State Dispute Settlement mechanism, exists in previous trade deals and is the means by which Veolia, the French waste disposal corporation, is suing the Egyptian government for raising the minimum wage, and by which Phillip Morris, the US tobacco giant, is suing the Australian government for introducing plain packaging on cigarettes in order to dissuade its citizens from smoking.

Last year, the European Commission launched a run-of-the-mill innocuous consultation over ISDS, aimed squarely at the business community. Unfortunately for the Brussels bureaucrats, some campaigners and NGOs pointed out the consultation to their supporters. The results were spectacular with almost 150,000 responses, 97% of which said no to ISDS and TTIP more generally.

This week Malmström published the ‘alternative’ to ISDS, only it was a piecemeal reform that entirely failed to address the fundamental problems with the issue.

The Sierra Club is a prominent civil society organisation in the US, Ben Beachy is a senior policy advisor there. He drew up a quick analysis of the reformed version, I draw heavily on his work for this comparison:

The proposed reform insists that ISDS is included in TTIP. Despite the US and EU having the most advanced legal systems anywhere on the planet at any time in history, there is also no domestic exhaustion requirement as there is with, say, the European Court of Human Rights. This means corporations can side-step domestic law and take their case to the more favourable terrain of the ISDS court. Similarly there is nothing to say if a corporation has lost a case domestically, that they can't revive the issue by bringing it to the international court for a second chance of winning.

The new proposal suggests that paid judges, assigned randomly to cases as they occur, should be used to settle cases. This is a partial improvement from 'old ISDS'. But the pay of the judges would come from costs of the parties in dispute, meaning it would be in their interest to encourage more cases by ruling in flavour of corporations (because only an investor can instigate a case). Higher awards and a more favourable system for investors would again incentivise more cases and higher pay for judges.

Malmström and co. suggest that pay for judges and tribunalists would be based on a daily rate providing further incentive to draw out proceedings and increase pay packets.

The definition of 'investment' remains extremely broad as it does in previous ISDS agreements. This allows challenges to a wide range of public interest policies such as environmental protection and health measures. The definition of 'investor' remains loose enough to allow firms outside the treaty's signatory countries to use subsidiaries to launch cases against signatory states.

A real sticking point is the 'right to regulate'. In the new proposal it says that the broad substantive rights granted to foreign investors "shall not affect the right of Parties [meaning in this case nation states] to regulate". An ISDS case in the new or previous format does not impinge on a state's right to regulate, it simple puts a potential price tag on that right, which is protected, but is more costly.

So, the movements and organisations opposed to TTIP, CETA and ISDS are understandably dismissive of the proposal being presented as any kind of alternative.

Where the trouble is compounded for Malmström is in the response of the US business world. In a statement issued on Wednesday, Chris Hoyler, the director of media relations of the US Chamber of Commerce, said:

“While we recognize the EU has a political problem relating to future investment treaties, the U.S. business community cannot in any way endorse today’s EU proposal as a model for the Transatlantic Trade and Investment Partnership (TTIP).  The recent European debate around investment treaties – the obligations governments accept in them and the methods they provide for dispute settlement – is not grounded in the facts, and the distortions in this debate cannot be allowed to trump sound policy.

"If the EU still regards the TTIP as a serious objective, today’s proposal is deeply flawed.  Tough negotiations lie ahead, and the reforms the United States has undertaken in recent years in its own investment agreements represent a far superior starting point for these important deliberations.”

We welcome the prospect of more argument and disharmony in the negotiating room. That corporate interests are dissatisfied is a great encouragement.

You can't please anyone all the time, can you, Cecilia?

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