Quite a lot has happened in the 6 months since my post here on the Transatlantic Trade and Investment Partnership (TTIP). TTIP is a proposed trade agreement between the US and the EU, with negotiations on the substantive issues between the EU and the US underway in Brussels at the moment.
The proposed treaty may have significant effects on EU regulation, but let’s concentrate on whether TTIP should contain specific provisions enabling investors to sue governments.
The ground for action would be governmental “expropriation” of investments – and that may mean anything from telling a cigarette manufacturer that he must have to change what his packets look like, (with consequential loss of profits), to imposing new environmental standards on a power generating plant.
This mechanism is known as Investor-State Dispute Settlement or ISDS. Our government seems astonishingly sanguine about this, on the basis that it has not yet been sued successfully under existing bilateral treaties with similar provisions. This does not seem to be a very profoundly thought-through position to adopt, if the proposed system has its problems – which it plainly does, when one compares it with traditional claims in the courts. Put simply, why wave it on?
Here is a summary of recent events:
(i) in March 2015 the Business Department’s (BIS) House of Commons Committee reporting on TTIP (here) decided that the case had not been made out for including ISDS in TTIP. It was not impressed that the then government was not even bothering to respond to the European Commission consultation.
(ii) in May 2015 the European Commission came up with a “concept paper” – here. It proposed full mandatory transparency of the arbitration process, deeply unlike the Vattenfall litigation, as we shall see, with the right to interested third parties to make submissions. Arbitrators should be chosen from a pre-established roster, rather than the potential distortions which might arise through ad hoc appointments. There should be a bilateral appellate mechanism. The EU should “pursue” the creation of one permanent court, though this “pursuit” does not seem to be required before the EU subscribes to the current plan.
(iii) a full-blown academic critique of these EU proposals from a Canadian academic, Gus Van Harten is to be found here – fudginess all round, he concludes, and nothing to improve the underlying defects of the ISDS system.
(iv) On 8 July 2015, the European Parliament resolved to approve TTIP (here, and go to 2.(d)(xv))), but only after a suggested amendment to the ISDS proposals. The amendment proposes that the current system is replaced with a new system “subject to democratic principles and scrutiny” (whatever that means), where “potential cases are treated in a transparent manner by publicly appointed independent judges in public hearing“, with an appellate system, and in which the jurisdiction of EU and member state courts is respected, and “where private interests cannot undermine public policy objectives.” See here for the full text (go to 2.(d)(xv)). The EP’s text looks to be no more than ISDS-lite, with many of the intrinsic defects of the original, and some meaningless qualifiers which will be negotiated away once those nice US negotiators promise sweeties. As for the closing underlined words, it is not entirely clear how one can have ISDS at all, without risking that public policy objectives are affected by private interests. That, the investor would say, is the point. Look at objective impacts upon the investment, and then decide whether or not it is expropriation.
(v) the current view of Westminster seems to be that such a Treaty would be a mixed competence measure under the EU Lisbon Treaty, thus requiring all member states to subscribe to it as well as the EU.
(vi) EU and US negotiators negotiate as I write this.
As I noted previously, claims to date against states have ranged widely: see here, a database of 561 claims. The cigarette manufacturer cases are perhaps typical. They say that their intellectual property interests are affected by states telling them what they can or cannot do on cigarette packets. If such claims are in principle well-founded, they can proceed in the courts. Indeed, they are proceeding in the UK courts at the moment (see here), so one wonders why one needs a separate system of investor protection running parallel to it.
Whether the various improvements proposed by the EU Commission or Parliament will find favour with the US trade negotiators must be open to doubt. So it is worth looking at how such claims would proceed if current ISDS rules applied.
Take the most recent Vattenfall ISDS claim against Germany, which I touched on previously. There is a very helpful briefing paper by the International Institute for Sustainable Development here, which tells us all there is to know (not a lot) about this secretive piece of litigation.
In 2012, Vattenfall sued Germany, because, post-Fukushima, Germany decided to amend the Atomic Energy Act to speed up the phase-out of nuclear energy by 2022. The amendment led to the immediate shut-down of some of Germany’s oldest reactors. Vattenfall, owned by the Swedish state, objected. It has brought proceedings before ICSID (the process of the ISDS system) and also before the Federal Constitutional Court in Germany. I speculated previously that the claim is likely to concern Article 13 of the Energy Charter Treaty, under which investments may not be nationalised or expropriated or subjected to “an action equivalent to nationalisation or expropriation” without compensation.
Even the size of the claim is unclear, with media reports varying from €1.5bn to €4bn. The German government has already spent €3.2m on fees defending the claim.
In December 2012, the arbitral tribunal was constituted, with appointees from each of the parties, and an agreed third party as President. Germany tried to strike the claim out as being without legal merit. The tribunal ruled on this application, but we do not know from the ICSID website what it said, other than, by inference, Germany did not succeed. The tribunal has made four rulings about confidentiality – at whose request, we don’t know, and we do not know what the parties said.
Copies of case papers are kept in a high-security building of the German Parliament and may not be made available to the public under any circumstances. German Parliamentarians have been given a one-page summary of the case.
Reflect on the public interest of this case. The process of banning nuclear had become one of the major political debates of Germany over the last 10 or 15 years. But then the legal case deciding whether Germany had overstepped the boundaries of permissive state action goes, quite counter-intuitively, into the deepest secrecy.
Compare and contrast big tobacco’s claims in court against the UK in respect of cigarette packet branding. These will be argued in open court, documents will be referred to, and third parties may apply to intervene on issues of interest to them. Investors could potentially bring a claim under Article 1 Protocol 1 of ECHR, for deprivation of property, if there really was expropriation without compensation, though at least A1P1 explicitly raises justification by the state of its actions as a defence, with some relatively settled case law as to what can or cannot be justified under these provisions.
The BIS House of Commons Committee have put their finger on the ISDS issue. Why is it needed? There is no reason to believe that the courts of member states are in some way defective. The Treaty, if passed, will be part of EU law, and could ultimately be adjudicated upon by the CJEU, if there was doubt about the meaning of its obligations.
The Department of Health said, rather feistily, in response to the fag packet claims, that it “refused to be held to ransom by the tobacco industry“. Perhaps it better speak to those in charge of the TTIP negotiations to suggest that they should not encourage the institution of a parallel set of investor-led claims, heard by corporate lawyers, with somewhat ill-defined rules as to what does or does not justify legitimate state action.
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