Author: Gianna Merki
The presence of the classic ISDS in the TTIP agreement is a threat to core EU values such as democracy, rule of law, transparency, justice and social responsibility.
ISDS is a mechanism previewed in several international investment agreements and its inclusion in TTIP is currently under discussion. It provides investors (ex: transnational companies) the right to file a lawsuit against a state in which they are investing, if their investment/profit was undermined by any regulation, legislation, court ruling or other decision/action of this state. This may occur regardless of the situation and reason for which the measures were taken, irrespective if to protect the environment or to respond to health or social concerns.
In addition, these legal actions do not take place in national courts but in separate and parallel judicial systems – private arbitration courts – also known as “corporate courts”, in which hearings are not public, case documents mostly confidential, decisions not appealable and the reliability and the independence of lawyers and judges questionable.
Examples of cases decided under the ISDS include but are not limited to: the legal action against Germany by the company Vattenfall for phasing out nuclear energy following Fukoshima; the suing of the Canadian State by the Company Lone Pine for a ban on fracking given its environmental impacts; the lawsuits by Phillip Morris against several countries for placing health warnings on cigarette packages and also the French company Veolia which sued Egypt for increasing the minimum wage.
Democratic decisions of states for the good of its citizens are put in question if investors are able to, regardless of the circumstances and reasons for policy change, take legal action against them in ad-hoc closed-door tribunals. ISDS clauses threaten free policy making given that states might, due to fear of lawsuits, avoid introducing certain legislation or other changes, even if protecting and benefiting citizens, consumers and environment or social standards.
With this mechanism, investment protection assumes a supreme position – profit and investments placed over individuals and state concerns for public good. This system has been heavily criticized for becoming “dangerously out of control”.
An additional flaw of this mechanism, besides its circumvolving of democracy and lack of transparency, is the fact that these private tribunals are only available to foreign investors and not to individuals or domestic entities. There is also no equivalent system for corporations to be held accountable by governments for breaching national environmental or other regulations, therefore granting investors with unprecedented privileges.
Brazil is an example of a state which has, to date, refused to sign any treaty with ISDS clauses and other countries, as South Africa and India, are considering similar options.
The feedback received from a variety of stakeholders in a EU public consultation, showed an overwhelming opposition to ISDS ( 97% of the answers received), which lead the EU Commission to reconsider its stance and propose, on September 2015, an alternative to this system meant to be included in EU investment negotiations, namely TTIP.
According to this reform proposal a first instance tribunal and an appeal tribunal would be created; 15 qualified judges would be appointed (5 designated by the EU, 5 from the US and 5 from third states); UNCITRAL rules of transparency shall apply and the possibility of the investors taking cases to court would be precisely defined and limited to certain cases.
The official proposal containing the above mentioned was finalized and made public in November 2015 after also being debated in the EU Council and EU Parliament.
Despite being an upgraded system in comparison to ISDS, this project is not yet final and the document states that “the final text will depend on negotiation with the US” and “the EU reserves the right to make subsequent modifications to this text and to complement its proposals at a later stage, by modifying, supplementing or withdrawing all, or any part, at any time”. The declaration indicates the possibility of changes and even of non-adoption of the proposal which could be against the interests of the EU and its citizens since this would mean that ISDS could still be applied if the EU fails to negotiate the new model as its substitution.
The system proposed by the EU is considered “ambitious” by the North-American Counterparts and there are no signs that the latter parts are looking forward to supporting the initiative, stating their preference for the usual dispute resolution model. Also Business Europe – the largest business lobby in Europe is advocating against the proposal.
The matter is still far from being settled, given that it is largely depending on the negotiation with the US. The withdrawal of any of the items of the EU reform proposal should not be acceptable nor should there be enclosure of the ISDS clauses in EU trade and investment agreements, since these collide with EU essential values of transparency, democracy and rule of law.