S2B refutes European Commission’s defense of controversial investor-to-state dispute settlement

20 January 2014
Article

The European Commission recently issued two papers to address growing concerns among civil society and the wider general public over inclusion of the increasingly controversial investor-state dispute settlement mechanism (ISDS) in the EU-US Transatlantic Trade and Investment Protection agreement (TTIP). The Seattle to Brussels Network responds to the arguments and the Commission’s proposals to amend the flaws in the ISDS system.

The Commission justifies ISDS by referring to the legal barriers foreign investors face, but gives no concrete examples. Critiques that ISDS subverts democracy by allowing foreign investors to bypass national courts and challenge regulations introduced by sovereign states before ad hoc international tribunals are met with the circular argument that “healthy, vibrant democracies sign into ISDS”. The EC repeats the argument that ISDS can only order states to pay out compensations, but cannot force public authorities to repeal a specific policy. The Commission chooses to disregard how even the threat of claims from large transnational corporations running into tens if not hundreds of millions of dollars can weigh on public budgets and force policy-makers to reconsider proposed legislation.

However, the Commission could not completely ignore the problems associated with ISDS. It was forced to acknowledge the conflicts of interests in the current system, with arbitrators having a financial incentive to favour foreign investors as the only party that can bring an ISDS claim. It was also forced to recognize how the broad legal phrasing of investment protections gives foreign investors scope to abuse ISDS. Similarly, the Commission has had to admit that there is lack of consistency in the awards, that ISDS is costly and biased in the sense that the system is only open to claims from transnational corporations, that it is non-transparent and that claims may also impact on EU budget.

The Commission states that they are “solving” these problems. The Seattle to Brussels Network refutes the Commission’s claims. While in recent trade negotiations, the EC has been tightening up some of the expansive legal phrasing commonly used in investment chapters, it has yet to develop its announced proposals for rules on mediation and a code of conduct for arbitrators.

The basic flaws of the system remain unchanged: ISDS arbitrators remain private lawyers, presiding over cases that only investors can initial; taking broad interpretations of the scope and meaning of the investment agreements; issuing awards against which no appeal is possible.

The recently concluded trade and investment agreement with Canada (CETA) introduces a sole arbitrator tribunal which, if anything, serves to make ISDS cheaper and more accessible. The investor bias in the system, the discrimination against domestic investors, the absence of investor obligations (for example in relation to the observance of human rights) and the challenge to democracy remain unaddressed.