European Commission Desperately Tries To Justify Inclusion Of Corporate Sovereignty In TAFTA/TTIP; Fails Dismally

from the is-that-really-the-best-you've-got? dept

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.

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.
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.

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.

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.
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.

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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Reader Comments (rss)

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  1. This comment has been flagged by the community. Click here to show it
     
    identicon
    out_of_the_blue, Dec 6th, 2013 @ 7:13pm

    It's as though CORPORATISM is the New World Order.

    Listen, people, ALL The Rich are allied against The People. They may squabble between themselves, but regard us as the enemy besides slaves. These so-called agreements are so vast in scope as will overturn all the gains of the last five hundred years, and then some.

    But as some even here continue to support mega-corporations, the future is bleak, a high-tech prison system beyond all prior fascism. This never ends well in any movie: why can't people believe it's actually HERE?

    Civilization isn't just to have a few highly "efficient" corporations concentrating wealth: it's to provide FAIRNESS FOR ALL.

     

    reply to this | link to this | view in thread ]

  2.  
    identicon
    Anonymous Coward, Dec 6th, 2013 @ 9:48pm

    syllogism

    if their argument is a form of syllogism, then you counter argument is also a syllogism.

    Your also arguing relatives and not absolutes, you argue that "relative" to investment in other places that investment in the EU is high. That is a relative argument, and says nothing about the actual level of investment except that it is more than possibly other places, a relative assessment.

    whereas investment in all those regions may be increased with better agreements for the protection of those investments, that's an absolute argument.

     

    reply to this | link to this | view in thread ]

  3.  
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    techflaws (profile), Dec 6th, 2013 @ 10:08pm

    So in all those years without ISDS there have been no investments by foreign companies?

     

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  4.  
    identicon
    Anonymous Coward, Dec 7th, 2013 @ 1:49am

    Example that I use

    Using only metadata and imagination =

    Pharmacompanys painkiller is found to cause braincancer, therefore goverment does something intelligent and bans it.
    Result is special tribunal which decides how many hundred million that pharmacompany demands because potential losses.

     

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  5.  
    identicon
    Anonymous Coward, Dec 7th, 2013 @ 2:09am

    Re:

    that's like saying you have police but crimes still occur so why bother having police.

    that's as pointless an argument as saying 'well there already is trade' so why bother trying to make agreements that will increase trade. and the issue is not investment with foreign companies, it investment in foreign countries..

    There is both, but not as much to some as other (as pointed out here), that does not mean there are not barriers to more, or that they could not be made more effective, safer (financially and legally) and more popular or more frequent and more fare.

     

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  6.  
    identicon
    Anonymous Coward, Dec 7th, 2013 @ 2:17am

    Re: Example that I use

    what does that have to do with trade agreements ?

    very poor example, you can do better I am sure, even TD has posted better examples, like that mine and the $10 mill invested, for them to change the rules, but keeping the money.

     

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  7.  
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    Richard (profile), Dec 7th, 2013 @ 3:17am

    Re: Re:

    Except of course that the evidence is that the US and the UK WILL NOT COMPLY with any of these requirements anyway - if domestic politics or the self importance of the local judiciary dictate it.
    Look at the trade dispute between the US and Antigua or this statement from Lord Judge (wonder why he wanted to go into the law) are anything to go by.

    "My personal belief is that sovereignty on these issues should not be exported, and we should beware of the danger of even an indirect importation of the slightest obligation on parliament to comply with the orders and directions of any court, let alone a foreign court."

    (He was talking about a different issue but the princeiple is the same.)

     

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  8.  
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    techflaws (profile), Dec 7th, 2013 @ 5:04am

    Re: Re:

    I just don't see compelling evidence that ISDS is needed to _increase_ trade. I have however seen evidence, how bad ISDS can become for a country.

     

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  9.  
    identicon
    Anonymous Coward, Dec 7th, 2013 @ 5:07am

    they are as full of shit as the USTR, but they still get their way, even if it is only because of the threats they put out!

     

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  10.  
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    Richard (profile), Dec 7th, 2013 @ 5:12am

    Re: syllogism

    whereas investment in all those regions may be increased with better agreements for the protection of those investments, that's an absolute argument.

    An absolutely wrong argument.

    It may be increased - but then it may be reduced you don't know because no experiment has been done that is capable of proving your case.

    On the other hand the evidence is that there is more inward investment in these countries than elsewhere even without such agreements. Your argument requires a faith based belief that these agreements will always do what they say they do. However you ignore the possibility that :

    i) The agreements are unnecessary because the governments of these countries don't have a history of undermining investments with new laws.

    ii) The agreements are counterproductive because they raise in the investor's mind the thought that there could be a problem where previously he had ignored the possibility.

    iii) The agreements are pointless because everyone knows that the country in question will find a way to ignore them if push comes to shove (cf the treatment of UK and Antiguan internet gambling companies in the US)

    To summarize your counterpoint to an argument that has relatively little evidence is an argument that has absolutely none.

     

    reply to this | link to this | view in thread ]

  11.  
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    PopeRatzo (profile), Dec 7th, 2013 @ 8:09am

    Re: Re: syllogism

    i) The agreements are unnecessary because the governments of these countries don't have a history of undermining investments with new laws.

    ii) The agreements are counterproductive because they raise in the investor's mind the thought that there could be a problem where previously he had ignored the possibility.

    iii) The agreements are pointless because everyone knows that the country in question will find a way to ignore them if push comes to shove (cf the treatment of UK and Antiguan internet gambling companies in the US)


    This is important. It's not as if there has been no investment in the countries trying to ratify this obnoxious treaty. Amazing, the entitled mentality of the corporate elite.

     

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  12.  
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    Anonymouse Coward (profile), Dec 7th, 2013 @ 11:49am

    What did I miss ...

    "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."


    Oh, maybe it was something about human rights?

     

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  13.  
    identicon
    Anonymous Coward, Dec 7th, 2013 @ 12:13pm

    Hmmm

    Regardless of treaties or trade agreements the right to resolve disputes via the courts and sovereign immunity are clearly and explicitly part of the Constitution. Trade agreements and/or Treaties CAN NOT override the constitution

     

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  14.  
    identicon
    anonymous, Dec 7th, 2013 @ 2:46pm

    Simple...

    I most certainly would be ready to restrict corporations from extracting funds from subsidiaries in our country. Local governments give generous tax breaks to corporations in order to give them incentives to invest in local communities.

    We build the infrastructure for them to make wealth which they impulsively take home with them like the kid with the ball who doesn't like the way the game is being played? Not likely!

    It's contemptible that our governments do not have the integrity to be on our side in these matters.

     

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  15.  
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    Anza Blazer, Dec 8th, 2013 @ 9:07am

    sovereignty

    Globalist Dictators don't want countries to have any sovereignty.

     

    reply to this | link to this | view in thread ]

  16.  
    identicon
    Anonymous Coward, Dec 8th, 2013 @ 6:57pm

    Re: Re: Example that I use

    darryl has no idea what he's talking about.

     

    reply to this | link to this | view in thread ]

  17.  
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    That One Guy (profile), Dec 9th, 2013 @ 4:01am

    Well, except when they don't...

    ...and Canada to regulate to pursue legitimate public policy objectives such as the protection of health, safety, or the environment."

    Funny they should bring up Canada as an example of how ISDS's are supposed to be good for countries, given Canada has been sued over refusing to let a drug hit the market when it failed to meet the standards in place, and has either been sued, or threatened to be sued(can't remember offhand) for refusing to let fracking companies go ahead with their actions without sufficient environmental/safety studies done beforehand.

    Given both of these examples were enabled by the presence of ISDS clauses in treaties they'd signed in the past, maybe using Canada as an example of how such clauses are supposedly a benefit to a country wasn't the best move.

     

    reply to this | link to this | view in thread ]

  18.  
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    John Fenderson (profile), Dec 9th, 2013 @ 10:00am

    Re: Re:

    but not as much to some as other (as pointed out here), that does not mean there are not barriers to more


    So what? Investment comes at a cost, and "more investment" is not a good thing when that cost gets too high.

     

    reply to this | link to this | view in thread ]

  19.  
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    John Fenderson (profile), Dec 9th, 2013 @ 10:03am

    Re: Re: Re: Example that I use

    His point is valid, just stated badly. He's saying that these clauses can prevent nations from engaging in actions that protect their citizens because doing so would harm foreign investments.

    I think that's one of the largest problems with the mechanism.

     

    reply to this | link to this | view in thread ]


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