Legal Issues

by Glyn Moody


Filed Under:
eu, japan, jefta, secrecy, trade agreements



JEFTA: The Latest Massive 'Trade' Deal You've Never Heard Of, Negotiated Behind Closed Doors, With Zero Public Scrutiny

from the when-will-they-ever-learn? dept

As Techdirt has reported, the election of Donald Trump has turned the world of US trade deals upside-down. The US officially pulled out of TPP, although some still hope it might come back in some form. TAFTA/TTIP seems to be on ice, but Trump's choice for US trade representative has just said he is open to resuming negotiations, so it's not clear what might happen there (or with TISA). Against that confusing backdrop, the European Union has been quick to emphasize that it is in favor of trade deals, and is keen to sign as many as possible, presumably hoping to fill the economic and political vacuum left by the US.

One of the negotiations that has been going on in the background is for a major trade agreement between the EU and Japan. It began back in March 2013, but has garnered little attention, as people focused on the more imminent threats of TPP, TTIP, CETA and TISA. That's just changed, thanks in part to a joint statement signed by dozens of civil societies in both the EU and Japan, who write:

the European Union and the Japanese government have been negotiating a deep and comprehensive trade agreement which would cover a third of the world's GDP. The 18th round of negotiations took place in Tokyo in December 2016, and whilst the negotiations might come to a close soon, on the EU side, the mandate given to the negotiators is still not public, and on the Japanese side, secrecy is total.

Neither most parliamentarians in EU member states and in Japan, nor European and Japanese civil society organisations and trade unions know the content of the discussions. Nor have they seen draft chapters or been consulted. We condemn this opacity.

The other factor that has suddenly put the spotlight on JEFTA -- the Japan-EU Free Trade Agreement -- is the first leak of some of the negotiating documents, to the Austrian site Attac. Unfortunately, we don't have the actual pages yet, only a summary (original in German). That broadly confirms the information contained in one of the few detailed documents on the EU's official JEFTA site, the 314-page Trade Sustainability Impact Assessment (pdf) prepared for the European Commission in 2016, and largely overlooked.

Although that document is a study, and therefore speculative, it does contain some important information. For example, like most other EU agreements, JEFTA will include a corporate sovereignty chapter, also known as investor-state dispute settlement (ISDS). As Techdirt has described, the EU is trying to establish a new, possibly global court that would hear all such cases, called the Investment Court System. It still only exists on paper, but that didn't stop it being part of the CETA deal. The JEFTA Trade Sustainability Impact Assessment has this to say on the matter:

Whether or not the final outcome is based on the Commission's new Investment Court System (ICS), Japanese business tend to comply with the regulations of the host countries rather engage in investor-state disputes. There is only one known case of Japanese (indirect) involvement in an ISDS case, via a Dutch subsidiary operating in Czech Republic.

That is, Japanese companies prefer to use the national court systems of the countries they have invested in when there is some kind of legal dispute. This is precisely how things should work. And yet the EU is pushing for the inclusion of a completely parallel legal system, only available to investors, that would allow domestic courts to be by-passed and overruled. Here's why it's so keen on the idea:

exclusion of ISDS from the EU-Japan negotiations would be contrary to the emerging norm in comprehensive trade and investment agreements. Japan does not see the inclusion of ISDS as a difficulty.

The inclusion of ISDS is not part of an "emerging norm", but purely a matter of EU policy -- dogma, even: the European Commission wants to make it a part of all trade deals, and so aims to include it in JEFTA, even though Japanese companies are perfectly happy to use national courts. The Sustainability report admits that including an investment chapter will have little effect:

Investment flows (in both directions) are likely to be driven by an improved business environment and better profit margins -- which the investment chapter alone has only a moderate impact on. The economics effects are symmetrical, but moderate.

Even though Japanese companies might not use ISDS, there's a big downside to including it. Following CETA, it is likely that JEFTA will allow investors from other countries -- for example, multinational corporations with significant subsidiaries in Japan -- to use the chapter to make claims against the EU. Including corporate sovereignty unnecessarily, just to set a precedent, could come back to haunt the European Commission in the future if major awards are made as a result. The Sustainability report also touches on the issue of copyright, pointing out:

Another central issue in the EU-Japan FTA negotiations is the lack of protection for the use of sound recordings for public performance in Japan.

The EU will doubtless try to force Japan to rectify that omission. Similarly, the basic term of copyright protection varies between the EU and Japan: 70 years for the former, 50 years for the latter. Again, the European Commission will want to turn the copyright ratchet to extend Japan's term to match the EU's. Finally, it's worth noting that the EU's official study contains an estimate of the benefits that could flow from JEFTA:

The long-term GDP increase for the EU is estimated to +0.76% and +0.29% for Japan under a symmetrical scenario.

It's important to emphasize that this is "long-term": what this means is that the GDP could be higher by the percentages quoted after ten or more years. The average extra GDP growth per year is therefore an even smaller 0.08% and 0.03% for the EU and Japan respectively. That is, like TTIP and TPP, the predicted benefits that will accrue from JEFTA are likely to be very small, while the risks and possible losses in terms of ISDS fines, say, have been ignored completely.

But the worst aspect of JEFTA is not that it's probably not worth the effort, but that the EU and Japan have done everything they can to prevent both the public and even politicians from finding out what a bad deal is being negotiated in their name. After the humiliating defeat of the Anti-Counterfeiting Trade Agreement (ACTA), and the more recent failures of TPP and TTIP, you would have thought that the governments involved would have realized that this kind of secret dealmaking just isn't acceptable any more, but apparently, they haven't. Fortunately, JEFTA is finally out in the open, which means it can begin to be subjected to long-overdue scrutiny and democratic input. What we need now is for the EU to release negotiating texts as it did for TTIP.

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  • identicon
    Daydream, 22 Mar 2017 @ 4:36am

    So, remind me again, how exactly does ISDS work?

    To be precise, how does it function, why is it bad, and why can't we give these people enough rope to hang themselves?

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

    • icon
      Glyn Moody (profile), 22 Mar 2017 @ 4:55am

      Re: So, remind me again, how exactly does ISDS work?

      This is about ISDS cases in EU, but gives a good idea of the mechanism and problems:

      https://www.foeeurope.org/sites/default/files/publications/hidden_cost_of_eu_trade_deals_0. pdf

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

    • identicon
      Anonymous Coward, 22 Mar 2017 @ 5:33am

      Re: So, remind me again, how exactly does ISDS work?

      It basically functions as an international tribunal where a company or group of countries can bring a dispute over something a country has done that they think unfairly impacts them and targets them unequitably. They then can sue under ISDS provisions for lost profits due to that. An example of a theoretical ISDS case that could be brought is lets say the US for instance passes a law that says any computer not made in the US is not allowed to be sold in the US. All the other manufacturers could band together and bring a case to the ISDS courts for relief from this obviously unfair provision. The idea is the ISDS tribunals are a way to help insure states are holding to the Trade Agreements they sign.

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

      • identicon
        Anonymous Coward, 22 Mar 2017 @ 7:30am

        Re: Re: So, remind me again, how exactly does ISDS work?

        The idea is the ISDS tribunals are a way to help insure states are holding to the Trade Agreements they sign.

        But that's not how they are used in practice. In practice, they're used any time a company feels butthurt about any law or regulation that is to their disadvantage. Not trade-agreement disadvantage, not "this company specific disadvantage, ANY disadvantage.

        See here for a few examples.

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

        • identicon
          Anonymous Coward, 22 Mar 2017 @ 10:17am

          Re: Re: Re: So, remind me again, how exactly does ISDS work?

          The link you provided the commentator sounded like an angry teen, and not very professional at all. As for the cases I will respond to each individually.

          1. Yes bringing a case against the US is legal for that reason just like its legal to sue for any reason. It doesn't mean you will win and the government has more money than you. Loewen lost this case system working as intended

          2. This case the company was a company that specialized in safely ridding the world of the toxic chemical in question at its facilities in the US. The US granted them a special permit to import the chemical from Canada. The company then spent money to set up shop in Canada to arrange the export and then Canada banned the export to protect their own Canadian companies that performed a similar function in clear violation of NAFTA rules. System working as intended Canada loses and pays 6 million.

          3. This case is ongoing, but from what I see Canadas arguements are more convincing, so I think they will likely win this one

          4. This one has more to do with the terms of NAFTA than ISDS. What Canada was doing was prohibited under NAFTA. I agree Canada should have been able to do it, but that is the agreement that Canada signed which probably should be renegotiated. Sign better deals next time this isn't a fault of ISDS it is a fault of the trade agreement itself

          5. This one was ruled in favor of elsalvador that the comapny didn't do things according to the law so were denied. The company was also forced to pay El Salvadors court costs. System working as intended.

          6. I can't find a lot of good info on this one so I don't know

          7. They have the legislation ready to pass if the Australia case goes well. Australia won this one and that wins spurred others to pass similar laws

          8. Peru succeeded and had it arbitration costs paid and Renco is bankrupt. Peru wins the system is working as it should.

          9. Metalclad had authorization from the Federal government of mexico to build their landfill, but the local government arbitrarily stopped them and shut them down through a rezoning of the land after the facility was complete. Metalclad was treated unfairly and because of that won and the municipality was punished for breaking NAFTA rules. System working as intended

          10. This one is bad I don't know how this one happened. If you want to throw rocks do so at this one

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

          • icon
            Craig Welch (profile), 29 Mar 2017 @ 2:36am

            Re: Re: Re: Re: So, remind me again, how exactly does ISDS work?

            "Loewen lost this case system working as intended".

            I'd hardly call that 'working as intended'. Lowen was certainly in the right, and had been treated disgracefully in national courts.

            Further, one of the arbitrators was illegally and immorally 'leaned on' by the US Government.

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

      • icon
        Craig Welch (profile), 29 Mar 2017 @ 2:30am

        Re: Re: So, remind me again, how exactly does ISDS work?

        "All the other manufacturers could band together and bring a case to the ISDS courts for relief "

        No they couldn't. There is no ISDS provision anywhere that allows a group to 'band together' to raise an investment dispute.

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

    • icon
      That One Guy (profile), 22 Mar 2017 @ 7:27am

      TL:DR version: As a heavily flawed and harmful 'solution' to a self-fixing problem

      How does it function?

      Essentially companies are granted access to 'courts' that exist outside of of the government of individual countries, and can sue government over things that they claim negatively impact them, with the corporate sovereignty tribunal not tied to the laws of the country, even to the point of issuing fines in direct conflict with legal rulings and laws a country might be bound by.

      Why is it bad?

      Beyond the whole 'court system separate and unbound by governments', there's also the fact that companies can sue over things like refusing to grant patents on drugs that the government feels don't meet the requirements for a new patent, use the system to dodge prosecution, sue a government in an attempt to overturn health regulation, can even be seen as so profitable that you've got people investing in corporate sovereignty cases, and can and are used as threats to cow governments into actions that are demonstrably bad for their citizens.

      (Before someone jumps in and point out, 'Hey, two of those examples had the country winning!', yes, they won, after significant and costly cases, and much like SLAPP suits you don't have to win the case to win the battle, as you can be sure that seeing two countries sued had and continues to have a significant chilling effect on any actions that those and other governments might consider that might impact company profits. As has been pointed out before, governments don't really win corporate sovereignty cases, the best they can hope for in most cases is simply to not lose.)

      Why can't we give these people enough rope to hang themselves?

      Because corporate sovereignty clauses cause significant harm to the public, and the corporations pushing for them want those clauses in as many agreements as they can manage in order to use them against governments who might dare threaten their profits or even expected profits. They cause very clear and demonstrable harm, and as such the quicker they are treated as the poison pill that they are and gutted from all current and future agreements the better off the public will be.

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

      • icon
        Bergman (profile), 22 Mar 2017 @ 9:55am

        Re: TL:DR version: As a heavily flawed and harmful 'solution' to a self-fixing problem

        It occurs to me though, that if ISDS does become widespread, you could game the system by creating a multi-national non-profit corporation, and people becoming (unpaid) members of it.

        Run it internally like gofundme or similar operations, where you crowdsource funds for the corporation to sue countries on behalf of members under ISDS.

        And suddenly, ISDS becomes a useful tool for promoting human rights of individuals in a global environment.

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

        • identicon
          MItch, 22 Mar 2017 @ 4:55pm

          Re: Re: TL:DR version: As a heavily flawed and harmful 'solution' to a self-fixing problem

          The US s signed onto 50 trade agreements with ISDS in them. There are about 3000 trade agreements that include ISDS or similar requirements for binding arbitration.

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

  • identicon
    Anonymous Coward, 22 Mar 2017 @ 7:28am

    The gist of ISDS is that a company can sue a country because a regulation they don't like might hurt their expected profits.

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

  • identicon
    Jordan Chandler, 22 Mar 2017 @ 8:44am

    Secrecy

    How can anyone believe in both democracy and secret negotiations?

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

    • identicon
      Michael, 22 Mar 2017 @ 10:25am

      Re: Secrecy

      A small group of people making decisions for everyone FEELS democratic when you are one of those people.

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

    • identicon
      Anonymous Coward, 22 Mar 2017 @ 10:42am

      Re: Secrecy

      Because the people that are engaged in the secret negotiations are the appointed officials from an elected executive. See. Logic. (in case it's not clear, that's sarcasm)

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

  • identicon
    Anonymous Coward, 22 Mar 2017 @ 1:22pm

    "...legal system, only available to..."

    Yea, that pretty much sums up how fucking screwy it is.

    Special rules for special people.

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

  • identicon
    Whoever, 22 Mar 2017 @ 1:23pm

    ISDS

    Why not limit ISDS to resolving cases that solely concern different treatment of local versus foreign entities?

    That would allow arbitration that would take national courts out of issues where a government is sued by a foreign entity, while preserving the primacy of courts where the laws are neutral regarding foreign entities.

    Of course, the reason why this doesn't happen is that the intent of ISDS clauses is to allow large companies to dominate local government.

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

  • identicon
    Châu, 22 Mar 2017 @ 4:22pm

    ---exit

    Another reason for countries citizens vote for leave EU.

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

  • icon
    Eldakka (profile), 22 Mar 2017 @ 5:36pm

    The long-term GDP increase for the EU is estimated to +0.76% and +0.29% for Japan under a symmetrical scenario.

    It's important to emphasize that this is "long-term": what this means is that the GDP could be higher by the percentages quoted after ten or more years. The average extra GDP growth per year is therefore an even smaller 0.08% and 0.03% for the EU and Japan respectively. That is, like TTIP and TPP, the predicted benefits that will accrue from JEFTA are likely to be very small, while the risks and possible losses in terms of ISDS fines, say, have been ignored completely.

    With respect to the benefits, they might be small on a total % basis, but in absolute terms a tiny % of a really big number is still a big number.

    Based on Wikipedia's EU nominal GDP numbers for 2016, $16.518trillion, a 0.76% increase is still ~$125billion.

    And for Japan, it's 0.29% of a more modest $4.41trillion, ~$12billion.

    Therefore if, for example, the EU manages to enter into 5 such treaties a decade, each only doing similar sub-1% increases, that could still be heading towards a cumulative trillion dollar extra per year.

    Not small absolute numbers by any means.

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

  • identicon
    Anonymous Coward, 22 Mar 2017 @ 7:35pm

    Isn't closed door deals and burdensome regulations part of the reason many countries want out of the EU?

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


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