Analysis Shows European Commission's 'Improved' Corporate Sovereignty Model Would Actually Make Things Much Worse
from the institutionalized-regulatory-chill dept
Last year, the controversy around corporate sovereignty was such that the European Commission felt obliged to slam the brakes on this particular part of the TAFTA/TTIP negotiations in order to try to defuse the situation. The ostensible reason for that unexpected pause was to hold a public consultation on the “investor-state dispute settlement” (ISDS) mechanism. It turned out to be of a very limited kind. Rather than asking whether people wanted corporate tribunals passing judgment on their laws and regulations, the European Commission instead presented the ISDS chapter of another agreement, that with Canada, and posed some rather technical questions about the subtle changes it incorporated.
The Comprehensive Economic and Trade Agreement (CETA) is nominally finished, and is currently undergoing what is known as “legal scrubbing“, during which it is checked and polished for final ratification by Canada and the EU, although that’s looking much more problematic now than it did a year ago. In the consultation, CETA’s ISDS chapter was offered as a kind of template for TAFTA/TTIP. The Commission’s argument was that it incorporated many improvements over traditional corporate sovereignty chapters — which even the EU admitted were flawed — and could be tweaked further to produce an even better solution for the US-EU negotiations.
Techdirt has already written about one detailed analysis of the claimed improvements in CETA’s ISDS that found them seriously wanting. Confirming that view is a new paper from Gus Van Harten, who is Associate Professor of Law at York University in Toronto, Canada. He has taken advantage of the fact that we now have two recent EU free trade agreements with corporate sovereignty chapters: the one with Canada, plus a less well-known deal with Singapore. Van Harten’s paper looks at both of them in order to explore to what extent the European Commission’s new model for ISDS represents an advance over previous versions, and is therefore something that might usefully form the basis for a possible corporate sovereignty chapter in TTIP. Here’s his concluding summary:
The CETA and [EU-Singapore] FTA demonstrate the Commission’s willingness to accept ISDS — based on the model long pushed by Western European countries for developing and transition countries — that is flawed due to its lack of independence, fairness, and balance. The Commission’s approach to ISDS, as represented by the CETA and FTA, does not ensure basic safeguards of judicial independence and procedural fairness. It does not affirm clearly the state’s right to regulate. It does not introduce actionable responsibilities for foreign investors or even require foreign investors to resort to domestic courts unless they have been shown not to offer justice. The only notable improvement in the CETA and FTA approach to ISDS, compared to the historical Western European model, is its greater provision for openness.
By including ISDS in the CETA and FTA, as forerunners of a TTIP, the Commission would make the problems of ISDS much worse. The Commission aims to expand and lock in a deeply flawed system of dispute resolution — premised on the special privileging and subsidizing of large companies and very wealthy individuals, with lucrative returns also for ISDS lawyers and arbitrators — so that it covers most of the world economy.
Although that is pretty unequivocal, it’s worth reading the whole paper to understand why Van Harten is so dismissive. It contains many insights along the way, including the following astonishing fact:
The CETA’s provision on the arbitrators’ power to award damages to foreign investors includes a clause that I have not seen in any investment treaty. The clause says that, in calculating monetary damages, the arbitrators shall reduce the damages to account for “any… repeal or modification of the measure”. Thus, the CETA appears to establish an incentive for states to change their decisions in order to appease a foreign investor (who has brought an ISDS claim) as a means to limit the state’s exposure to potentially massive liability at the hands of the arbitrators. Put differently, this clause in the CETA appears to institutionalize the ISDS dynamic of “regulatory chill”.
So much for the idea that corporate sovereignty “does not and cannot require countries to change any law or regulation“: not only does the CETA text admit it can happen, it even provides a strong incentive to do so.