Techdirt has been writing about corporate sovereignty (also known as investor-state dispute settlement -- ISDS) for a year now. Back in April, we noted that it was likely to be part of the TAFTA/TTIP negotiations, which were just about to start. Since then, more and more people have woken up to its dangers, and called for corporate sovereignty to be dropped from the negotiations.
The European Commission is evidently feeling the heat, because it has put together a couple of documents with the evident aim of justifying the inclusion of ISDS in TAFTA/TTIP, and sent them to the committee that will be writing the final report on whether or not the European Parliament should accept the TAFTA/TTIP agreement once finalised. The first document is entitled "EU--Canada CETA: main achievements" (pdf and embedded below). It provides us with a rare official glimpse of what is in the still-secret trade agreement between Canada and the EU.
Many of the "clarifications" to corporate sovereignty concepts listed there are welcome: for example, in defining what loose concepts like "fair and equitable treatment", and "indirect expropriation" really mean. But the credibility of the document is undermined by the very first point:
The CETA reaffirms the right of the EU and Canada to regulate to pursue legitimate public policy objectives such as the protection of health, safety, or the environment.
The fact that the European Commission even feels a need to affirm this means that it recognizes that corporate sovereignty does, indeed, threaten the fundamental rights of nations to legislate freely, and without fear of being hauled up before ISDS tribunals. And however much the European Commission may try to "clarify" the corporate sovereignty provisions, clever lawyers will always find ways for their clients to sue countries for daring to bring in laws protecting health, safety or the environment that cause profits to dip.
This means that there is only one sure way to preserve the sovereignty of nations, and prevent them becoming the object of multi-billion dollar lawsuits, as is happening currently under other trade agreements like NAFTA, and that is to remove ISDS completely. Evidently worried by this argument, the European Commission has put together another document, a "factsheet" called "Investment Protection and Investor-to-State Dispute Settlement in EU agreements" (pdf and embedded below) that tries to head it off.
The opening paragraph once again makes a false equivalence between the right of states to regulate and the need to protect investors:
Investment protection provisions, including investor-state dispute settlement are important for investment flows. They have generally worked well. However, the system needs improvements. These relate to finding a better balance between the right of states to regulate and the need to protect investors, as well as to making sure the arbitration system itself is above reproach e.g. transparency, arbitrator appointments and costs of the proceedings.
The basic argument of the fact sheet can be found in the following paragraphs (bolded phrases in original):
Investment is a critical factor for growth and jobs. This is particularly the case in the EU, where our economy is very much based on being open to trade and investment. Investment is key in creating and maintaining businesses and jobs. Through investment, companies build the global value chains that play an increasing role in the modern international economy. They not only create new opportunities for trade but also value-added, jobs and income. That is the reason why trade agreements should promote investment and create new opportunities for companies to invest around the world.
In essence, it's a kind of syllogism: investment is critically important for the EU economy; investors needs corporate sovereignty guarantees to protect their investment; so TAFTA/TTIP must contain ISDS to "attract and maintain" foreign investment -- in this case, from the US. The clear implication is that without corporate sovereignty, US investors will be reluctant to put their money in Europe, and vice versa.
Companies investing abroad do encounter problems which -- for a variety of reasons -- cannot always be solved through the domestic legal system. These problems range from the rare, but dramatic, occurrences of expropriations by the host country by force, discrimination, expropriation without proper compensation, revocation of business licences and abuses by the host state such as lack of due process to not being able to make international transfers of capital.
Precisely because of these risks, provisions to protect investments have been part and parcel of all the 1400 bilateral agreements entered into by EU Member States since the late 1960s. The EU itself is party to the Energy Charter Treaty, which also contains provisions to protect investments and investor to state dispute settlement. Worldwide, there are over 3400 such bilateral or multiparty agreements in force containing provisions to protect investments. They provide guarantees to companies that their investments will be treated fairly and on an equal footing to national companies. By creating legal certainty and predictability for companies, investment protection is also a tool for states around the world to attract and maintain FDI [foreign direct investment] to underpin their economy.
The European Commission has another page on its Web site that provides some context. Here's what it says about the current levels of investment between the two trade blocs:
Total US investment in the EU is three times higher than in all of Asia.
In other words, even though corporate sovereignty is not enshrined in any treaties between the US and EU, the scale of investment (in both directions) is unmatched anywhere else on the planet. It would seem that the European Commission's argument for the necessity of ISDS falls down at some point. It's not hard to see where.
EU investment in the US is around eight times the amount of EU investment in India and China together.
EU and US investments are the real driver of the transatlantic relationship, contributing to growth and jobs on both sidesof the Atlantic. It is estimated that a third of the trade across the Atlantic actually consists of intra-company transfers.
The second paragraph quoted above from the fact sheet lists some of the "rare" problems that arise when investing in foreign countries: "expropriations by the host country by force, discrimination, expropriation without proper compensation, revocation of business licences and abuses by the host state such as lack of due process to not being able to make international transfers of capital." Does the European Commission seriously think either the EU or US is going to engage in any of those activities, or that, if they ever did, investors in those areas would be unable to use local courts to seek redress?
The European Commission's argument in favor of corporate sovereignty is invalid because it mixes two quite distinct situations. It tries to use the problems of investment in just a few emerging economies -- that is, ones without stable governments or honest judiciaries -- which gave rise to ISDS chapters in the first place, and then pretend that similar problems are an issue in the US and EU, and so require the same solution: corporate sovereignty.
But that's simply not true. TAFTA/TTIP is a completely different kind of agreement, quite unlike any of the "1400 bilateral agreements entered into by EU Member States since the late 1960s." Placing arbitration tribunals above the well-developed legal systems of both the EU and US in order to encourage investment that is already taking place on a massive scale, is simply nonsensical. It underlines the European Commission's obvious inability to come up with any real justification for the inclusion of a corporate sovereignty chapter in TAFTA/TTIP.
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