kom (2013) 0136 - Bilag 6: Henvendelse fra Greenpeace Norden m.fl. vedr. Transatlantic Trade and Investment Partnership, investor-stat tvistbilæggelse (ISDS)

Erhvervs-, Vækst- og Eksportudvalget 2013-14
KOM (2013) 0136 Bilag 6
Offentligt

Corporate Europe Observatory, Still not loving ISDS: 10 reasons to oppose investors’ super-

rights in EU trade deals, 16 April 2014

http://corporateeurope.org/international-trade/2014/04/still-not-loving-isds-10-reasons-

oppose-investors-super-rights-eu-trade

Annex 2: Reality check of the Commission’s plans for ‘reform’ of “investor-state

dispute settlement”

When European Trade Commissioner Karel de Gucht launched the public consultation on the

investor rights in the proposed EU-US trade deal (TTIP), he

said:

“I fully agree with the many

critics who claim that investor-to-state-dispute settlement (ISDS) up until now has resulted in some

very worrying examples of litigation against the state.” The problem, according to de Gucht, lies in

some problematic features of existing investment agreements – which the Commission claims to

“re-do” to build a “legally water-tight system”.

This Annex looks into the Commission plans to “re-do” the investor-state dispute settlement process

(ISDS) through which EU and US companies could directly sue governments for alleged violations

of TTIP’s “substantive” investor rights (analysed in Annex 1). The Commission promises to

“improve” the mechanism “to ensure a transparent, accountable and well-functioning ISDS system

that reflects the public interest and policy objectives,” (section B in the Commission's

consultation

document).

PR-speak:

what the Commission claims in its

consultation document

The EU will introduce a “binding

code

of conduct”

for arbitrators in investor-

state dispute tribunals to ensure that

they are independent and act ethically.

If an arbitrator violates this code

“he/she will be removed from the

tribunal,” (from question 8 in the

consultation document).

Reality check:

what the Commission really does

–

and what it means in practice

This responds to concerns about conflicts of interest among the 3-

lawyer panels which decide investor-state claims. Unlike judges,

they have no flat salary but earn more the more claims they rule on

– a strong incentive to side with the only one side which can bring

claims (the investors). Existing rules and codes have sometimes led

to the disqualification of arbitrators (see

here

for a recent case & an

overview of existing rules). But they have not prevented

a small

club of arbitrators

from ruling on the majority of disputes, allowing

for more business in the future with investor-friendly

interpretations of the law. It is unlikely that the EU’s code of

conduct will ban this global elite club of ‘entrepreneurial

arbitrators’ (as Singapore’s attorney general

called

them). A 20

February leaked version of the Commission’s proposal from the

EU-Singapore talks does not even define what a “conflict of

interest” is.

A similar roster already exists at the tribunal most often used for

investor-state claims, the International Centre for Settlement of

Investment Disputes (ICSID). According to

this

analysis by the

International Institute for Sustainable Development (IISD, p.22), it

“has not helped mitigate concerns of impartiality and independence

of arbitrators”. Like the ICSID roster, the one proposed by the EU

will only be a “backup” for the third arbitrator – not an “exclusive

roster for all the arbitrators fulfilling strict conditions of

experience, independence and impartiality”. So, concerns about

arbitrator bias will not really be addressed by the roster.

In most investor-state disputes, little or no information is released

to the public. But opacity has become the achilles heel of the

The EU wants to set up a list (roster)

of qualified arbitrators, from which the

chairperson of an ISDS tribunal will be

picked if the parties cannot otherwise

agree on one. This would “ensure” the

“abilities and independence” of these

arbitrators whom the EU and the US

vetted and agreed to, (from question

8).

The EU’s aim is “to ensure

transparency

and

openness”

kom (2013) 0136 - Bilag 6: Henvendelse fra Greenpeace Norden m.fl. vedr. Transatlantic Trade and Investment Partnership, investor-stat tvistbilæggelse (ISDS)

PR-speak:

what the Commission claims in its

consultation document

investor-state disputes. It will

guarantee that hearings are open and

that “all documents” are available to

the public – “subject only to the

protection of confidential information

and business secrets,” (from question

6).

Reality check:

what the Commission really does

–

and what it means in practice

system’s legitimacy, which is why the veil of secrecy in ISDS

proceedings is gradually being lifted around the world. The US and

Canada in fact started this process over a decade ago. So, the EU is

swimming with the tide. Still, exceptions for the “protection of

confidential information and business secrets” could severely

hamper access to information. Under the

UNCITRAL transparency

rules

referred to by the EU, tribunals can also limit public access to

hearings for “logistical reasons” and withhold information that

“would jeopardize the integrity of the arbitral process”, giving

them wide discretion for non-transparency.

The egregious investor challenges of sound policies by

corporations such as Philip Morris, Lone Pine, and Vattenfall, for

example, would

not

be dismissed under such a mechanism. They

are alleged

real

violations of the sweeping investor rights granted

in investment treaties (see annex 1). Claims are only considered

frivolous when there is a complete lack of legal merit. Under

existing rules, states can already ask tribunals to swiftly dismiss

frivolous claims, but

not a single such case is known.

This can result in a serious raid on public budgets. The highest

known compensation to date, US$2.3 billion, was awarded against

Ecuador. In 2003, the Czech Republic had to compensate a media

corporation with US$ 354 million – the

equivalent of the country’s

entire health budget.

The mere threat of a multi-million-dollar

lawsuit may also be enough for governments to repeal the disputed

measure ‘voluntarily’ (see reason 2).

Unlike in proper court systems, decisions by investor-state

arbitration panels are non-reviewable (except for annulment

proceedings which address a narrow range of procedural errors and

are heard by another arbitration tribunal). An appeal mechanism

could contribute to more coherent decisions and rein in arbitrator

adventurism, but as things currently stand, this is a long way from

becoming reality: in the draft EU-Canada deal, for example, there

are only vague suggestions that a future joint committee may

consult on “whether, and if so, under what conditions, an appellate

mechanism could be created”. In TTIP, the EU states it wants to

directly create such a mechanism, but according to reports from

EU-US negotiation rounds on file with CEO, the US is “reluctant”.

The US has referred to the possibility of an appeal mechanism in

its treaties for many years – but this has led to nothing.

The Commission does not

discourage

investors from mediation and

claims in local courts. But it does not give an incentive either. The

recourse to mediation is entirely voluntary (“the disputing parties

may at any time agree to have recourse to arbitration”). There is

neither a requirement for mediation nor a duty of foreign investors

to exhaust local remedies before bringing an ISDS claim. This is

what one would expect if the EU really “favoured” domestic courts

and amicable solutions. By not demanding the exhaustion of local

remedies, the EU grants foreign investors greater rights than

anyone else – and risks undermining the validity of its own legal

system.

The EU will introduce “an early and

effective filtering mechanism” to

“quickly

dismiss frivolous claims”

well as unfounded ones. This avoids

lengthy and costly legal proceedings

and reduces the risk of abuse of the

system, (from questions 5 & 9).

A tribunal deciding an investor-state

dispute “will not be able to order the

repeal of a measure”,

but only

compensation

for the investor, (from

question 5).

The EU “aims to establish an

appellate mechanism

in TTIP so as to

allow for review of ISDS rulings”.

This would help ensure consistency of

interpretation and serve as a “check”

on the work of arbitrators, (from

question 12).

The EU’s approach “favours domestic

courts”. The Commission aims to

“provide incentives for investors to

pursue claims in

domestic courts

or to

seek

amicable solutions

– such as

mediation”. “Different instruments”

will be suggested “so as to not

discourage an investor from pursing

these avenues,” (from question 7).

kom (2013) 0136 - Bilag 6: Henvendelse fra Greenpeace Norden m.fl. vedr. Transatlantic Trade and Investment Partnership, investor-stat tvistbilæggelse (ISDS)

All in all, the Commission does little to “re-do” the investor-state dispute settlement process.

Contrary to what it claims in its consultation notice, its approach is not “very different” from the

process foreseen in existing investment agreements. Nearly

all of its proposals are already out there

in the world of international investment law and have not made any real difference (the trend

towards transparency, codes of conduct for arbitrators, the ICSID roster of arbitrators, protection

from frivolous claims, mediation...). Others might never materialise (as with the appellate

mechanism).

As was pointed out by a previous

analysis

of the Seattle to Brussels Network, the investor-state

arbitration system that the Commission wants to establish “is far inferior to the domestic legal

system of the EU and North America” from a public interest and a rule of law viewpoint. It will

“forever surrender […] the judgement over what policies are right or wrong” to a small club of for-

profit lawyers, who are unconstrained by fear of appeal and have a strong incentive to rule in favour

of the one side which can bring claims: the investors.

This bias is a systemic flaw that the Commission does not deal with – and that arguably cannot be

tackled without abandoning the privatised system of investor-state arbitration.