by Mike Masnick
Thu, Aug 27th 2015 8:22am
by Glyn Moody
Tue, Aug 11th 2015 11:08pm
from the what's-plan-b,-again? dept
Back in May, we wrote about the European Commission's attempt to put lipstick on the corporate sovereignty pig. Its attempt to "reform" the investor-state dispute settlement (ISDS) system was largely driven by the massive rejection of the whole approach by respondents to the Commission's consultation on the subject last year. Of the 150,000 people who took the trouble to respond, 145,000 said they did not want corporate sovereignty provisions of any kind. Even the European Commission could not spin that as a mandate for business as usual, and so it came up with what it called a "path for reform" (pdf). By promising to solve the all-too evident "problems" of corporate sovereignty by coming up with something it claimed was better, its evident plan was to include this re-branded ISDS as part of the TAFTA/TTIP negotiations with the US.
The "path for reform" starts from some tinkering with a few elements of the basic ISDS approach that leaves the basic idea untouched, and moves towards something slightly more radical -- a permanent court for settling investor-state disputes:
The EU should pursue the creation of one permanent court. This court would apply to multiple agreements and between different trading partners, also on the basis of an opt-in system. The objective would be to multilateralise the court either as a self-standing international body or by embedding it into an existing multilateral organization. Work has already begun on how to start this process, in particular on aspects such as architecture, organisation, costs and participation of other partners.
The European Commission probably thought this was a pretty clever move: head off objections to ISDS and its ad-hoc tribunals by recasting it as a permanent court of a more traditional kind. There's just one slight problem with this idea: according to the respected German newspaper Die Welt, the US rejects it completely (original in German):
There's no question of such a [judicial] authority. The US will not tolerate interference in its national sovereignty.
That's a rather ironic viewpoint, given that ISDS already interferes with national sovereignty. Assuming that Die Welt's source is trustworthy, the US attitude may well arise from the fact that it has never lost an ISDS case, and perhaps believes, somewhat naively, that it never will. That seems unlikely: if TAFTA/TTIP includes corporate sovereignty, more than 3,400 parent corporations in EU nations, owning more than 24,200 subsidiaries in the US, will suddenly gain the right to sue the US government using the mechanism, in connection with any of their past, present or future investments there.
Whatever its reasoning, a refusal by the US to countenance the creation of a new permanent court dealing with investment disputes leaves the European Commission's TTIP strategy on this point in tatters. It will be interesting to see whether it now begins to row back from the idea of creating a completely new court, and starts extolling the virtues of a slightly "reformed" ISDS instead.
by Glyn Moody
Wed, Aug 5th 2015 3:04am
from the heads-you-win,-tails-I-lose dept
Back in 2012, we wrote about Philip Morris using corporate sovereignty provisions in trade agreements to sue Australia and Uruguay over their attempts to reduce the number of deaths from smoking through plain packaging and other health measures. Since then, the case has become a textbook example of all that is wrong with investor-state dispute settlement (ISDS).
For example, even though Philip Morris lost its battle in the Australian High Court to stop the introduction of plain packaging, it did not simply accept the ruling, but sought to use ISDS to nullify the court's decision. The natural instrument would be the trade agreement between the US and Australia, but the Australian government had wisely refused to accept a corporate sovereignty chapter there. So Philip Morris used an obscure 1993 trade agreement between Australia and Hong Kong, which did have ISDS, claiming that its business activities in the latter territory gave it the right to invoke the treaty -- a classic example of "treaty shopping".
Since those events from a few years back, we've heard nothing about how the Philip Morris ISDS case is proceeding -- until now, since The West Australian newspaper has discovered the following fact:
More than [AU]$50 million [about US$35 million] of taxpayer money is expected to go up in smoke defending cigarette plain packaging in a secretive international tribunal in Singapore.
That's because the hearing will move on to the main issues, summarized here on the official Australian government Web page for the case:
But costs will pile much higher if Australia loses on its first defence that Philip Morris indulged in cynical "venue shopping" by shifting its headquarters to Hong Kong to sue Australia.
Philip Morris Asia is arguing that Australia's tobacco plain packaging measure constitutes an expropriation of its Australian investments in breach of Article 6 of the Hong Kong Agreement. Philip Morris Asia further argues that Australia's tobacco plain packaging measure is in breach of its commitment under Article 2(2) of the Hong Kong Agreement to accord fair and equitable treatment to Philip Morris Asia's investments. Philip Morris Asia further asserts that tobacco plain packaging constitutes an unreasonable and discriminatory measure and that Philip Morris Asia's investments have been deprived of full protection and security in breach of Article 2(2) of the Hong Kong Agreement.
The information obtained by The West Australian is significant, because it reveals the scale of the costs that a government must contemplate when defending itself against a corporate sovereignty claim. Given that background, it's easy to see why governments in these cases may choose to settle quickly, and to give the companies what they want, rather than risk mounting costs and a huge fine.
It's that fact that gives the lie to the claim that ISDS cannot force a government to change its laws. While that's true in theory, in practice governments are very likely to choose capitulation as the cheaper and easier option, recognizing that the whole process is biased against them. After all, unlike companies, a government can never win an ISDS case: the best it can hope for is not to lose.
by Glyn Moody
Mon, Jul 20th 2015 3:45am
from the who's-afraid-of-a-little-rebranding? dept
Back in May, we wrote about the European Commission's sharing "concerns" about corporate sovereignty chapters in trade agreements. The Commissioner responsible for trade, Cecilia Malmström, even went so far as to say that the present investor-state dispute settlement (ISDS) system was "not fit for purpose in the 21st century." But rather than removing something that is unnecessary between two economic blocs with highly-developed and fair legal systems, she instead proposed to "reform" it, and to start working towards an international investment court.
That idea was dismissed almost immediately by the US Undersecretary for International Trade at the Commerce Department, Stefan Selig. Despite that, the EU seems set on replacing today's corporate sovereignty with some kind of court. In a non-binding but important set of recommendations to the European Commission regarding TTIP, the European Parliament called for the following:
to ensure that foreign investors are treated in a non-discriminatory fashion, while benefiting from no greater rights than domestic investors, and to replace the ISDS system with a new system for resolving disputes between investors and states which is subject to democratic principles and scrutiny, where potential cases are treated in a transparent manner by publicly appointed, independent professional judges in public hearings and which includes an appellate mechanism, where consistency of judicial decisions is ensured, the jurisdiction of courts of the EU and of the Member States is respected, and where private interests cannot undermine public policy objectives;
The wording is extremely vague, and leaves plenty of room for a kind of ISDS-Lite to be agreed between the EU and US in TAFA/TTIP. Many in Europe regard the proposal as little more than a face-saving compromise that allows the opponents of ISDS to claim that "this is the end of ISDS in trade deals," while allowing supporters to maintain that it has merely been re-branded, rather than removed.
We don't know what the US government thinks of the idea, but we do have a fascinating post on the proposal from The Heritage Foundation, which describes its mission as "to formulate and promote conservative public policies based on the principles of free enterprise, limited government, individual freedom, traditional American values, and a strong national defense." Its views on the EU's corporate sovereignty reforms are quite clear:
The EU's proposal, backed by a vote of the European Parliament on July 8 -- that the TTIP should establish a permanent investment court, not an ISDS mechanism -- is a bad solution in search of a non-existent problem. ISDS mechanisms work well to secure basic legal protections for a signatory state's nationals abroad. The U.S. should firmly reject the EU's proposal and insist that TTIP establish an ISDS.
The rest of the post provides rare insights into the thinking of the pro-ISDS, pro-big business camp in the US. Bizarrely, it describes corporate sovereignty tribunals as:
designed to safeguard fair, unbiased, and transparent legal processes by providing independent and impartial arbitration.
That's an odd description of processes that take place in secret, with no case law to guide decisions, no limits to damages, no right to appeal, and where the tribunal members are corporate lawyers who can also act for the same companies that appear before them in other cases, because there are no rules governing conflicts of interest. But more interesting than this topsy-turvy view of reality is the following revealing comment:
because any case inside the EU can ultimately reach the European Court of Justice (ECJ), and the ECJ is mandated to make decisions that promote deeper European integration, it is not clear how the U.S. can rely on the ECJ to rule fairly when the EU seeks to promote integration in ways that discriminate against the U.S.
Essentially, then, The Heritage Foundation objects to Europe's highest court doing its job of strengthening the European Union, and wants supranational corporate sovereignty tribunals as an option to overrule its judgements -- confirming critics' worst fears about ISDS undermining democracy. The post then goes on to list a number of problems that the Foundation sees with the EU's proposed international investment court, many of which again display a curious inversion of reality. For example:
[an investment court] would have limited accountability and few checks and balances.
That is precisely the situation with corporate sovereignty tribunals, which have no checks or balances, and no limits to their power, as clearly shown by the $50 billion award made against the Russian government last year.
The post concludes:
The EU is advancing this proposal in a futile and wrong-headed effort to win over critics who are fundamentally skeptical about freer trade. These critics had not previously raised any objections to the many ISDS mechanisms to which EU nations are already party: They began to complain only when the U.S. became involved.
That's true, because previous trade agreements incorporated ISDS as a mechanism for rich Western countries -- including those in the EU -- to use to sue poor, developing countries. Since the latter had few, if any, investments in the Western countries, there was little or no risk that they would use corporate sovereignty against the richer nations. TAFTA/TTIP changes that situation dramatically. Both the US and EU have huge investments in each other: the European Commission estimates them as more than $1.75 trillion dollars in both directions -- a clear demonstration ISDS is not needed in order to encourage investors. If there is a corporate sovereignty chapter in TTIP, tens of thousands of companies on both sides of the Atlantic will gain the power to sue governments over policies they claim could impact their future profits adversely.
That is why critics have raised the issue now, and partly why the EU has proposed moving away from such a manifestly flawed approach. Given that it believes in "a strong national defense," it's curious that The Heritage Foundation is desperate to preserve a system that gives foreign investors such a powerful weapon to use against America.
by Glyn Moody
Wed, Jul 1st 2015 1:07am
from the and-let's-not-mention-TTIP dept
It's been a while since we last wrote about CETA, the trade deal between Canada and the European Union. Back in March, we noted that the French Secretary of State for External Commerce, Matthias Fekl, said that France would not ratify CETA unless the corporate sovereignty, or investor-state dispute settlement (ISDS), provisions were removed or replaced by something completely different. Of course, it's hard not to be sceptical about these statements, since politicians like to grandstand, and are happy to change their positions every few months. But not, it seems, Matthias Fekl. According to a report on the French site Le Devoir (original in French), he's still of the same opinion:
For the Secretary of State for Foreign Trade, Matthias Fekl, who expresses the official position of France, it is not only a question of principle but a fact of life today. If negotiators do not rewrite Article 33 of the [CETA] Treaty which deals with dispute resolution, there will be no ratification.
And it's not just France that has a problem here. According to the article, Fekl said:
Look, this [refusal to accept the corporate sovereignty provisions in CETA] will also be the case in other countries. This isn't meant as a threat. But as far as this chapter is concerned, things must definitely move.
The EU Commissioner for trade, Cecilia Malmström, is well aware of the issues here -- not least because 145,000 people told her in the ISDS consultation last year -- and has presented a concept paper entitled "Investment in TTIP and beyond – the path for reform" (pdf). These are quite similar to proposals made by Fekl for the creation of a new European court to settle trade disputes. But there are two big problems with following that path.
First, the European Commission (and Fekl) have only just begun to sketch out how that reform might look. It is likely to take some time to come up with alternatives like entirely new courts. There is no way that something will be agreed for CETA, which may be ready for ratification quite soon. There's also the problem of TAFTA/TTIP. Given that Malmström has admitted that the current ISDS is unsatisfactory, and that she is trying to come up with something better, it will be hard for her to include it in TAFTA/TTIP in its current form. But the US side has made it clear that it is not happy with dropping corporate sovereignty completely, which leads once more to the problem of time-scales, since a serious replacement for ISDS may not be available even for TTIP. It will be interesting to see how Malmström deals with this key issue for both CETA and TAFTA/TTIP.
by Mike Masnick
Tue, Jun 23rd 2015 3:55pm
from the well-that-sucks dept
And, effectively, that means this is a done deal. As bizarre as it sounds, Republicans in Congress (with the help of a small group of Democrats) have given up their own Constitutional powers to regulate international commerce, and handed it to the President of an opposing party, while the majority of Democrats fought to keep their own President (and the next President...) from having such powers.
In the end, this means that the Trans Pacific Partnership (TPP) agreement is pretty much a done deal. Negotiators have more or less said that it's ready to go, but thanks to having fast track, our own Congress will not be able to call out any of the problems in the agreement -- or ask for any changes. It can only vote thumbs up or thumbs down on the agreement. And that means that the very dangerous corporate giveaways on intellectual property laws -- locking us into extended copyrights, weakening the ability to make and sell cheap drugs -- and corporate sovereignty provisions -- allowing companies to sue for taxpayer funds over "lost profits" due to regulatory changes, is about to expand massively.
At this point, about the only way I can see that the TPP doesn't make it across the finish line is if there's a huge public outcry, making it totally toxic to Congress, but that seems like a very big long shot. So, thanks, Congress, for selling out the American public to a few big corporations today. It's going to do real harm, and you'll pretend you didn't realize that down the road. What a sham.
by Glyn Moody
Tue, Jun 23rd 2015 1:06am
from the even-if-they-don't,-they-hardly-promote-peace dept
Last August, we wrote about the most egregious corporate sovereignty award (so far): $50 billion against Russia, under a treaty that it never even ratified, in favor of the major shareholders of the Yukos oil company. Of course, as everyone pointed out, being awarded $50 billion was one thing, collecting it, quite another. Most people probably assumed that it would be practically impossible to squeeze that money out of a recalcitrant Russia, but we now learn that some serious steps towards that goal have recently been taken, as reported by Der Spiegel (original in German). In Belgium, the bank accounts of the Russian embassy were frozen, as were those of Russia's EU and NATO missions, while in France, something similar happened, with Russian accounts blocked at 40 banks.
Understandably, this did not go down well with the Russian government. The country's deputy foreign minister warned, "whoever dares to do that must understand that it will lead to reprisals," something his boss, Sergei Lavrov echoed. Meanwhile, Lavrov's own boss, Vladimir Putin, was also well aware of the situation, and was quoted as saying: "we will defend our interests using legal means."
A story on France 24 reports that Russia has already threatened to retaliate against state-linked foreign firms operating in the country, so that's one way that things could escalate. But more seriously, the relations between Russia and EU nations are extremely strained over the conflict in eastern Ukraine; the last thing the situation needs is additional tension caused by arguments over a massive fine. Even if corporate sovereignty doesn't actually cause a war -- well, let's hope not -- the Yukos award may turn into a hindrance to resolving an existing conflict. That's yet another reason to get rid of the whole deeply-flawed system before it causes more serious damage.
Fri, Jun 12th 2015 3:28am
House Votes To Change Law Due To Trade Agreement, While Insisting That Trade Agreements Don't Change Laws
from the do-they-even-understand dept
The bill's prompting and passage came after the World Trade Organisation ruled in favor of Canadian farmers, who sued claiming it was "discriminatory" and thus in violation of Free Trade Agreements. The problem? Cattle bought from abroad would have to be segregated from domestic cattle, increasing costs and making imports less desirable.
With Fast Track coming up for a vote -- perhaps even today -- it's curious to see this snippet in the Associated Press report on the vote by the Speaker of the House:
House Speaker John Boehner, R-Ohio, said after the vote that the last thing American farmers need "is for Congress to sit idly by as international bureaucrats seek to punish them through retaliatory trade policies that could devastate agriculture as well as other industries."That is, of course, the same John Boehner that has been encouraging the President to get more support for Fast Track, in order to pass more of these "Free Trade" deals that impose more international bureaucrats and will almost certainly lead to more disputes that "require" Congress to "not sit idly by."
Meanwhile, remember what President Obama said at the Nike Plant just a few weeks ago:
[TPP] critics warn that parts of this deal would undermine American regulation -- food safety, worker safety, even financial regulations. They're making this stuff up. (Applause.) This is just not true. No trade agreement is going to force us to change our laws.Less than one month on, and we have exactly what he claimed 'is not true' happening. A trade agreement forcing a law change, and having what some would claim is an impact on food safety. And it's happening a day or so before the House is voting to create even more such situations while claiming that it won't do this. Do they not even recognize what it is they're voting on?
by Glyn Moody
Wed, Jun 10th 2015 11:10pm
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.
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:
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.
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.
by Glyn Moody
Wed, May 27th 2015 1:15am
from the how-is-that-even-possible? dept
Techdirt has been at the forefront of pointing out the dangers of including investor-state dispute settlement (ISDS) in so-called trade agreements. Indeed, we even helped come up with a new term -- corporate sovereignty -- to make clear that ISDS is really about placing corporations on the same level as entire nations, and giving them a unique power to sue a country for alleged harms before special tribunals. But there's an additional aspect to this, which is explored in an insightful article by Sam Fowles on The Conversation.
He points out that although we don't know in detail what the US-EU TAFTA/TTIP agreement will contain, we do have the text for the one between Canada and the EU, the Comprehensive Economic and Trade Agreement (pdf), known as CETA. The European Commission has said many times that it aims to build on the corporate sovereignty chapter in CETA when it comes to negotiating TTIP. One feature of ISDS in CETA is the following:
In the event that the present Agreement is terminated, the provisions of [Chapter X Investment] shall continue to be effective for a further period of 20 years from that date in respect of investments made before the date of termination of the present Agreement.
That is, even if a party pulls out of CETA, it will still be bound by the corporate sovereignty provisions for another 20 years, whether it likes it or not. Since we know that the US model investment treaty (pdf) also requires parties to continue allowing ISDS claims for ten years, it seems likely that TAFTA/TTIP, if it includes corporate sovereignty, will also have such a clause, for at least ten years, maybe more. Fowles explains why that is a problem -- he talks about the UK Parliament, but it applies equally to the US:
Parliament represents the will of the people. Therefore it can make or unmake any law it wants. But there’s a caveat: parliament can’t make a law that would bind future parliaments. To do so would be undemocratic. The laws of one generation are often inappropriate for the next. Parliament must embody the will of the people at the time. When two ordinary laws conflict, the courts will always apply the one passed most recently.
But the 10/20-year extension of ISDS interferes with that. It says that whatever the views of government in power, it must still respect the ISDS chapter signed by one of its predecessors. One implication is that for a decade or two, any major policy changes could be subject to billion-dollar cases before corporate sovereignty tribunals -- a strong disincentive to bring them in, whatever the public might want. The implication is clear. As Fowles writes:
If democracy is to remain the fundamental tenet of our constitution then TTIP must not be ratified. At the very least we must derogate from the 20-year clause. Living under a government you don’t like is the risk you take in a democracy, but being forced to live by rules agreed 20 years ago is fundamentally undemocratic.
As Techdirt explained last year, Canada has already signed a trade agreement with China that will take precedence over Canada's constitution for 31 years. Let's hope the US and EU aren't foolish enough to follow suit by allowing corporate sovereignty to reign over them even after TAFTA/TTIP is terminated.