DE | EN | FR | ES | HU

  NO 2 ISDS!

Their questions, our answers

A. Substantive provisions on the protection of investments

Investment protection provisions have been misleadingly promoted by some governments as an instrument to stimulate investment flows from industrialised countries. Their effectiveness has been highly questioned. 
The strong economic interdependence between the EU and US economies clearly show that there has been no need for an investment promotion policy like TTIP. EU and US laws are already fair and adequate. Therefore, we also have no need for a dispute settlement mechanism, especially as the private arbitration system is currently out of control.

Question 1: Scope of the substantive investment protection provisions

I fundamentally oppose the investment protection provisions in the TTIP because:

  • The national legislation of EU Member States and the US already ensure investment protection for their citizens and companies, and thus also for foreign companies. The EU and US have well-developed rules of law and legal cultures, right of ownership, equal treatment, and fair and adequate national laws are core concepts within their legal systems. Investment protection provisions would also mean that foreign investors are in a better position than domestic investors.

I am opposed to the proposed scope of the investment protection provisions in the TTIP:

  • Sustainable foreign direct investments, or the investors themselves, are not clearly differentiated from other forms of investment like speculative investments, by a clear and narrow definition. It would still be possible to make abusive and unwarranted claims.
  • There is no attempt to balance the rights and the obligations of investors
  • The revised language on investment provisions leaves it up to three unaccountable for-profit arbitrators to determine how these definitions apply, without the possibility to appeal their verdict.

Including investment protection provisions in the TTIP equals to introducing a discriminatory treatment in favour of foreign investors, where it is left up to three unaccountable for-profit arbitrators to interpret what constitutes discrimination. This is absolutely not necessary because the national legal systems of the parties to the TTIP agreement are based on equal treatment and non-discrimination. Furthermore the positive discrimination of foreign investors would destroy the equal competition that currently exists for domestic and foreign investors and there would be no legal certainty for regulatory exceptions, for example in areas such as aid or public procurement.

Question 2: Non-discriminatory treatment for investors

I oppose the Commission's proposal in relation to the most-favoured nation and oppose its inclusion in the treaty because:

The current formulation proposed by the Commission does not preclude the "importation of standards" from other procedural and substantive provisions of other existing bilateral investment protection agreements.

Therefore the text does not prevent investors from using ISDS to cherry-pick provisions from other investment treaties that are more favourable to their case, and it fails to achieve the objective of providing greater legal certainty, all the contrary.

Therefore all efforts of reform by the European Commission in terms of achieving greater legal certainty by clarifying definitions and more precise standards are rendered worthless. 

The fair and equitable treatment (FET) provision is one of the most dangerous features in investment protection provisions- and one of the reasons for the demand to drop Investor - state dispute settlement as a whole. FET has been the most relied on clause in investor - state dispute settlement cases, and it has been dangerously abused as a gateway for dubious claims against regulations and procedures that were established democratically in the public interest - as recognised by the European Commission itself.

Question 3: Fair and equitable treatment

I oppose the inclusion of the "fair and equitable treatment" clause in the TTIP because:

  • Foreign investors and their fundamental rights are adequately protected from arbitrary, unjust, offensive or otherwise unacceptable treatment in the current European and US legal systems - in the same way as domestic investors are. With the “fair and equitable treatment” (FET) clause, the states effectively take on a so-called "stabilisation commitment" with regard to investors, namely not to take any measures to their economic disadvantage if they do not want to be sued.
  • The Commission statement that the proposed text on FET is closed is highly questionable because the proposed text combines a closed list with open ended and vague formulations. This leaves it up to arbitrators to interpret what constitutes FET – or what indicates a breach – and opens the way for investor rights to limit the governments’ right to regulate in the public interest.
  • Finally, the text foresees that the “Parties shall regularly, or upon request of a Party, review the content of the obligation to provide fair and equitable treatment”; which means that the definition might be expanded in the future. Therefore this creates uncertainty, while leaving it unclear what the process for such an expansion would be.

Privileged expropriation provisions allow arbitrators to interpret and decide on which measures taken by a sovereign state constitute a breach of a contract obligation according to the agreement. This is unacceptable and it makes it possible for investors to challenge a wide range of regulatory measures in the public interest (including and not limited to: provisions for workers, health, and the environment, which could all be regarded as indirect expropriation). Furthermore, an obligation to pay compensation for "indirect expropriation" significantly limits the freedom and rights of citizens and parliaments, resulting in disproportionately large sums of tax-payers' money having to be paid out in compensation.

Question 4: Expropriation

I oppose special rights for foreign investors in relation to expropriation and indirect expropriation in TTIP because:

  • The European and the American legal systems provide for compensation payments in the event of direct and, under certain circumstances, indirect expropriation, whereby domestic and foreign investors or citizens have been affected by unequal treatment.

Leaving public policy choices to the test of private arbitrators is imprudent. According to the reference text provided by the European Commission, states will be put under pressure to comply with a necessity test undertaken by the arbitrators. Arbitrators are left with excessive leverage to interpret the provisions of the agreement to decide on:

  • Which measure is or is not for “public purpose”, dangerously taking over the role of a state to apply its right to regulate;
  • What is “manifestly excessive” or whether a measure serves the protection of legitimate public welfare objectives such as health, safety and the environment.

Investor – state dispute settlement allows private investors who are not parties to the agreement to test the legitimacy of public regulations by democratically elected governments through private arbitration. The sheer mention of the right to regulate in the investor – state dispute settlement chapter of TTIP is not enough to safeguard it, and even less to deter companies from launching expensive lawsuits against states. Interpretation of what is in line with the state’s right to regulate will be relying on for-profit arbitrators, which is unacceptable.

Question 5: Ensuring the right to regulate and investment protection

I fundamentally oppose the fact that investment protection is placed above the sovereign right to regulate because:

  • Rules emerging from a democratic voting process (democratic and parliamentary decision-making process), which reflect the public interest and the will of millions of people, must always be weighted more heavily than private sector vested interests.
  • Fundamental social rights and human rights must not be limited by economic freedoms.

In particular, I reject the draft proposals because:

  • The text only mentions the right to regulate in the preamble, and is not binding. The basic constitutional order and the freedom of the legislator are limited, which significantly limits the intervention potential of governments to respond appropriately to future socio-political challenges.
  • The formulation of the exceptions lacks clarity to ascertain that states will be exempt of paying monetary compensation, even in the case where the existence of exceptions would avoid that they have to repeal a measure. The public interest objectives are not excluded from the scope of the investment protection provisions ("carve out") and no specific clause governing this issue is included. 
  • The public welfare objectives quoted by the Commission are too narrowly defined and do not, for example, include workers' rights, social rights, human rights, education, care, financial market regulation, regional and industrial policy or tax policy. This is also endangering the right to regulate.

B. Investor-to-state dispute settlement (ISDS)

Investor-State Dispute Settlement (ISDS) is a discriminatory mechanism, which favours foreign investors above domestic investors, and grants them special privileges that other parts of society do not have, without giving them any matching responsibilities. It allows companies to bypass existing court systems to sue states through private courts run by for-profit arbitrators when they are unhappy with the impacts that regulatory changes have on their investment potential (including their expected profits). It undermines states’ right to regulate and it is characterised by fundamental conflicts of interest of arbitrators.

Improving transparency of investor – state dispute settlements will not solve the fundamental flaws of the mechanism or make it acceptable. Apart from that, the proposed improvements will not allow full and sufficient transparency as it remains up to the arbitrators to “determine that there is a need to protect confidential or protected information”. In any case, transparency and openness would be much better served if disputes would be dealt with in existing court systems.

Question 6: Transparency in ISDS

I fundamentally oppose the mechanism for investor – state dispute settlements, because:

  • No privileged rights should ever be granted to foreign investors.
  • Courts and not private ad hoc arbitrations are, and have to be responsible for resolving disputes. The process has to be public and not carried out behind closed doors.
  • Investor – state dispute settlements allows foreign corporate investors to socialise their investment risks, thereby making taxpayers liable for corporate risk.

Efforts to prevent multiple parallel claims do not solve the fundamental problems of investor – state dispute settlements, in particular the fact that investors are granted special privileges to circumvent existing judicial remedies, without any matching responsibility.

Question 7: Multiple claims and relationship to domestic courts

I fundamentally oppose the privatisation of the legal system (ISDS Investor – state dispute settlements) for a privileged group of foreign investors because:

  • Foreign investors receive equal treatment in developed democracies and constitutional states.
  • A private ad hoc arbitration process will abolish the existing "level playing field" between domestic and foreign investors.
  • The proposed reforms do not encourage companies to use the domestic courts first instead of going straight to private arbitration. Investor – state dispute settlements would give foreign investors privileged rights to file a claim, which they will of course then use.
  • The private arbitration system is currently out of control and cannot be regulated by means of recommendations.

When it comes to the proposals made in relation to mediation, this does not discourage the use of Investor – state dispute settlements as there is no obligation for investors to use mediation before going to arbitration.

Filing claims against regulatory government measures has developed into a very lucrative industry for law firms and individual arbitrators, which cannot be regulated by means of recommendations. Furthermore, the proposed reforms to arbitrators’ conduct that are proposed by the European Commission are inadequate to solve the problem. In addition, the proposed Code of Conduct for arbitrators is currently not available for comment. But experience shows, working with European Commission Codes of Conduct has been unsatisfactory and has led to severe complaints from Civil Society.

Question 8: Arbitrator ethics, conduct and qualifications

I fundamentally oppose granting ISDS to a privileged group of investors from developed constitutional states because:

  • The text proposed by the Commission only mentions plans for the introduction of a Code of Conduct. As long as such code is not finalised, I cannot comment.
  • Also the reforms to the ethics, conduct and qualifications of arbitrators proposed by the EU are only recommendations, with no obligation on plaintiffs or arbitrators to adhere to them.
  • The existing system cannot be reformed due to its inherent flaws: its basic orientation to protect only investor rights, and the fact that it is run by for-profit arbitrators paid by the hour who might have conflicts of interest. 

Under the current Commission proposals, cases such as Philip Morris challenging Australia’s attempts to introduce anti-tobacco legislation or Lone Pine Resources challenging Québec’s precautionary moratorium on fracking would still be possible. Claims that can easily be dismissed are only the ones without any legal merit according to the text. The Commission’s proposal foresees that it will be up to arbitrators to decide what is frivolous or not.

Question 9: Reducing the risk of frivolous and unfounded cases

The mere fact that the EU has to ward off malicious and unfounded claims demonstrates the inadequacy of the existing system, and reaffirms our determination to oppose the inclusion of investor – state dispute settlements in the TTIP.

  • The state has nothing to gain from claims, and yet has to defend its democratically legitimate actions in the public interest before individual arbitrators.
  • The costs of the arbitration proceedings are disproportionately high - on average USD 6-8 million - turning the filing of claims into a booming business for law firms, with taxpayers having to pay the bill for these horrendous costs.

The Commission proposal of a specific filter mechanism of investor – state dispute settlement claims for rules relating to the financial stability itself is an acknowledgement that this mechanism is dangerous and cannot be regulated.

Question 10: Allowing claims to proceed (filter)

I believe that investor – state dispute settlements should not be included in the TTIP, and also that the filtering mechanisms are inadequate because:

  • Adequate regulation of the financial markets cannot be ensured by these proposals.
  • Current claims, especially against Cyprus and Greece, confirm how investment protection provisions are abused by financial speculators to the detriment of the general public, thereby ultimately jeopardising the stability of the financial and economic system of the EU.

The fundamental structure of the investor – state dispute settlement mechanism is bound to introduce unpredictability in the interpretation of trade agreements, by allowing companies to raise claims that a panel of three private arbitrators will have to interpret without any duty of public accountability towards the parties ortheir respective citizens.

Question 11: Guidance by the Parties (the EU and the US) on the interpretation of the agreement

Investor – state dispute settlements need to be dropped as a whole, because:

I am of the conviction that the negative effects of investment provisions cannot be mitigated with interpretive notes and agreement interpretations because the practical experience of the arbitration process shows, these are not absolutely binding for the private ad hoc courts of arbitration, and that is why investor – state dispute settlements need to be dropped as a whole.

The notice accompanying the Commission’s consultation mentions that “the EU aims to establish an appellate mechanism in TTIP, so as to allow for review of investor – state dispute settlement rulings”. This does not give any certainty whether this will actually materialise.

Question 12: Appellate mechanism and consistency of rulings

As I fundamentally oppose any privatisation of the jurisdiction, I do not see any need to discuss appellate mechanisms.

C. OVERALL ASSESSMENT

What is your overall assessment of the proposed approach on substantive standards of protection and ISDS as a basis for investment negotiations between the EU and US?

Investor – state dispute settlement is an essentially biased and undemocratic system, which grants foreign investors privileges that no other part of society has, without any matching responsibility. It allows investors to circumvent existing court systems. Furthermore, investor – state dispute settlements undermine the right to regulate because it has a strong chilling effect on governments, with the mere threat of massive compensation payments weakening them, causing delay or even putting a stop to new public interest regulations. The reforms proposed by the Commission as part of this consultation do not alleviate my concerns at all. In the context of the EU-US deal, investor – state dispute settlement is particularly not needed, or indeed in any other trade deal.

Do you see other ways for the EU to improve the investment system?

I categorically reject the privatisation of jurisdiction and I believe investor – state dispute settlements should be excluded from the TTIP. Investors can and should rely on the national court systems. For further consistency and predictability, investor – state dispute settlements should also be excluded from the EU-Canada agreement, as well as any other free-trade agreements the EU is negotiating.

Are there any other issues related to the topics covered by the questionnaire that you would like to address?

First of all I would like to express my deep concerns with this highly complicated and technical questionnaire. If a consultation asks for the contribution of civil society/the public, then an honest attempt should be made whereby non experts should be able enabled to contribute. This is definitely not the case with this consultation, especially because, up until this question, there has been no possibility to state that I do not want any investor – state dispute settlements at all - in TTIP, or in any other trade agreement. Furthermore, technical obstacles that prevent me from only filling in one part of the form, or to respond through email or fax fundamentally alter the “public” character of this consultation.

I am also very critical of the fact that not all of the agreement provisions on investment protection or the full negotiation documents were published prior to this consultation. In addition to investment protection, there are also other sensitive areas, such as the rights and protection of workers, environmental, health and consumer protection, regulations concerning public services, issues of sustainability, etc. Therefore a serious assessment of the investment protection provisions is impossible, even for experts. This makes a public debate on what is really being put on the table impossible.

Concerning the TTIP negotiations as a whole I would like to express severe concerns in relation to the lack of transparency. It is not acceptable that the public will only learn of the exact provisions of a trade and investment agreement that will affect every aspect of citizens’ lives, after the end of the negotiations. Therefore, I demand transparent negotiations with a strong involvement of trade unions, NGOs and civil society during the process.

Finally, I call for the analysis of the responses received to state how many of the participants fundamentally oppose the inclusion of investor – state dispute settlements or investment protection provisions in the TTIP.


More information