Six Key Flaws In The EU's Proposed 'New' Corporate Sovereignty Court

from the only-six? dept

A few months back, Techdirt wrote about the European Commission’s proposal to replace the traditional corporate sovereignty system — generally known as “investor-state dispute settlement ” (ISDS) — with what it called the “Investment Court System” (ICS). That seemed to us little more than a re-branding exercise; now an international investment law scholar has weighed in on the issue with his own, rather more expert opinion. Gus Van Harten is Associate Professor at York University in Canada. According to his biography, he’s written a book proposing:

the establishment of an international investment court to ensure independence and accountability in the international adjudication of regulatory disputes between states and investors.

Despite that — or maybe because of that — Van Harten is none too impressed with the European Commission’s plans, as the title of his new paper makes clear: “Key flaws in the European Commission?s proposals for foreign investor protection in TTIP“. He singles out six in particular.

1. ISDS is alive in the EC’s proposals

As Techdirt noted back in September, ICS isn’t really very different from ISDS. Van Harten points out one aspect of corporate sovereignty tribunals that really has no place in any “new and improved” approach:

ICS “judges” would continue to have a financial interest in future claims because they are still paid a (lucrative) daily fee in a context where only one side — foreign investors — can bring claims, they would continue to operate under the usual ISDS arbitration rules, they would not have to meet the requirements for judicial appointment in any country, and they would not even be barred from working on the side as ISDS arbitrators. I am prompted to say that, if ISDS is “dead”, as some officials have claimed, then the EC?s ICS proposal reminds me of a zombie movie.

The second flaw:

2. The case still has not been made for foreign investor protection in the TTIP

Van Harten writes:

Any proposal to give special privileges or public subsidies to any economic actor — here, the largest and wealthiest in the world — calls for a strong justification based on clear evidence of the public benefit. The absence of such a justification and evidence has been a serious omission in the EC’s proposals for foreign investor protection from the very start.

The third serious flaw is similarly without any justification on the part of the European Commission:

3. The EC’s proposals are fundamentally imbalanced

That’s because it gives investors huge privileges without any corresponding responsibilities. Van Harten has a practical suggestion for remedying that:

The EC should establish actionable responsibilities for foreign investors by allowing a host country or affected third party, such as a trade union or a local community, to bring a claim (or, more modestly, a counter-claim) against a foreign investor in the very same process that is used to enforce foreign investor protections. That is a basic test for evaluating balance in the EC’s proposals.

The fourth flaw concerns one of the main claimed improvements of ICS over ISDS:

4. The EC’s proposals put poison pills into the “right to regulate”

The European Commission has made much of the fact that its new ICS will enshrine the “right to regulate.” In his paper, Van Santen explores in detail exactly why that claim is mere window-dressing. He even goes so far as to say:

These textual details greatly undermine the EC’s proposal on the right to regulate and the right to change the legal and regulatory framework. Indeed, they suggest that the EC is pretending to protect the right to regulate, while leaving catches in the text that return us to the usual concerns about ISDS.

The fifth flaw concerns a point that many have made about ISDS in the context of TTIP:

5. The EC’s proposal remains disrespectful of domestic institutions, including domestic and European courts

Here’s why:

The EC’s proposal is still premised on an assumption that EU and US courts are so flawed that foreign investors should be able to bring an ISDS claim without having to demonstrate that it would be unreasonable for the foreign investor to seek relief first in the courts

As well as being an insult to these rather well-developed legal systems, and the people who work in them, it also has some serious negative consequences:

Foreign investors can choose to avoid the [domestic] courts, they can turn back from the courts at any point to pursue ISDS instead, and they can use ISDS to seek compensation for a court’s decisions at any level.

In other words, ICS gives investors the best of all possible worlds, while the rest of us:

must deal with the usual risks of democracy and regulation in the usual ways: by taking part in the democratic process, by buying insurance, by bargaining for strong dispute settlement clauses in their contracts with government, or by relying — like everyone else — on the [domestic] courts.

Finally, Van Harten points out that if the European Commission wants to fix a system it admits is broken, it seems to be going about things in the wrong way:

6. If the EC is serious about an international investment court, why is it proposing to expand ISDS in the TTIP?

He means a real international investment court, not the ICS, which is far from being that.

while the EC has signalled that it will work toward an fullblown international court to replace ISDS, if this is the goal then the EC?s sequencing appears backwards. Logically, the EC should be pushing to transform existing treaties so that ISDS is replaced with an international court before the EC goes to the U.S. with its proposals. In past, the U.S. government has not welcomed the idea of new international courts. The fact that the EC has done the opposite — by floating a version of ISDS with the U.S. before pursuing a proper court with other countries — seems to undermine the EC’s credibility on the issue of an international investment court.

Van Harten’s paper is particularly valuable at a time when the European Commission is trying hard to propagate the idea that the problem of corporate sovereignty in TAFTA/TTIP is now “solved” by its ICS proposal. Van Harten’s analysis shows that is very far from the case, and that corporate sovereignty remains one of the most problematic aspects of a deal that is itself highly problematic.

Follow me @glynmoody on Twitter or identi.ca, and +glynmoody on Google+

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Comments on “Six Key Flaws In The EU's Proposed 'New' Corporate Sovereignty Court”

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12 Comments
Anonymous Coward says:

this is setting companies up to be ‘above the law’! it is, in my opinion, something that various industries and corporations have been aiming for for ever, a planet that is run as a business, where no one has any rights and profit is the only aim. it has been heading in this direction and is closer now than it has ever been to achieving it! the whole ‘financial meltdown’ was instigated to get this one thing eventually in place. more Conservative or Conservative leaning governments are in power now than ever before and are they making the most of it!!!

tqk (profile) says:

Re: Re:

more Conservative or Conservative leaning governments are in power now than ever before and are they making the most of it!

I think that’s irrelevant. Politicians all are selling out to the moochers. Politicians sell their access to governmental power (legislative authority) for campaign “donations.” No-one in a position of power sees anything wrong with this. It was done this way in Rome, it’ll be done until we force it to stop. That last bit is the tricky bit. How’s that going to happen?

beltorak (profile) says:

about that "same process" bit

> > The EC should establish actionable responsibilities for foreign investors by allowing a host country or affected third party, such as a trade union or a local community, to bring a claim (or, more modestly, a counter-claim) against a foreign investor in the very same process that is used to enforce foreign investor protections.

I don’t think we should settle for half measures here. The state should be allowed to bring a claim, not just a counter-claim. If the state can only bring a counter claim, then the corporation can just drag that process out and bleed the state’s coffers dry, which would be happening during or after the corporation *already* sucking up resources in the original claim.

Furthermore, if it shouldn’t be the exact same process; it should be a process similar in arrangement. That means when the state brings a claim against a corporation, the state gets to put its own judge, lawyer, or lawmaker in the position of arbiter.

Oh, what’s that, dear corporations? You admit that the ISDS process is unfair to begin with?

tqk (profile) says:

Re: about that "same process" bit

The state should be allowed to bring a claim, not just a counter-claim.

Why get so technical over such a simple thing? A country’s gov’t defines the law of the land. If a company doesn’t like how the country’s laws say things will happen, they can fight and/or leave. If Pakistan wants to deprive its citizens of Blackberry’s services, that’s between Pakistan’s gov’t and its citizens. Blackberry can take the financial hit and leave, or compromise/fold, and Pakistan can try to explain to its citizens why Blackberry’s leaving or why Pakistan’s right.

nasch (profile) says:

Re: Re: about that "same process" bit

Blackberry can take the financial hit and leave, or compromise/fold

I don’t have a problem with them suing the Pakistani government, but let them do it in Pakistan’s courts, according to Pakistan’s laws. There shouldn’t be some separate court system that only corporations get to use, and that follow some other set of rules. And if Blackberry can’t handle doing business in that climate according to those rules, they shouldn’t do business in Pakistan.

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