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26 March 2014
Investor-state lawsuits threaten democracy
Investor-State Dispute Settlements (ISDS) – were, until recently, a topic for experts. We Greens in the European Parliament have long been against the use of such mechanisms. But only in the context of the Transatlantic Trade and Investment Partnership (TTIP) has the issue been flushed out before the public and become a crystallisation point for protests against the trade agreement with the United States. The "noise" about ISDS - largely driven by Germany - was so loud that the Commission has decided to begin a three-month consultation period.
Why is the action mechanism dangerous?
Using this mechanism, foreign investors can circumvent national courts and sue a state before an international arbitration court if they believe their rights have been violated. There are already over 3000 worldwide bilateral investment treaties and many contain ISDS. The rights laid down for investors in such agreements are usually so vague that they can ultimately sue against almost all democratic decisions taken – as has been seen in cases that have taken place under existing investment agreements.
Vattenfall currently has a case against Germany and is looking for compensation payments of more than 3 billion Euros because of the decision to phase out nuclear power, which was supported by a broad social and parliamentary majority. The cigarette company Philip Morris sued Uruguay because of health warnings on cigarette packs. The Czech Republic had to pay 354 million U.S. dollars to an investor for a change of cooperation agreements in the operation of a TV channel by the Czech Media Council. In 2012, the highest ever compensation was awarded to an investor: 1.77 billion U.S. dollars. It was awarded to the oil company Occidental against Ecuador, who is paying-up for terminating an oil production contract. The list goes on.
Democratic decision-making is forcefully going under the knife through international arbitration. The accused states have only two options: either they can be like others and take back the decisions they have made, or they can pay huge sums in compensation to the investor.
The more details you look at, the worse it gets. States are often held back from adopting regulations solely by the threat of lawsuits - this is called the "chilling effect". If an action is pending, host countries often act in line with previous cases, which includes withdrawing regulations out of fear of having to pay out high levels of compensation later on.
These international courts wield huge power. Once a judgement has been made, a state does not have a chance to appeal. Neither parliaments nor civil society receive information on process , content or outcome of the arbitration. The output from the process is unpredictable because there is no uniform way that the court operates.
To illustrate with a sensitive issue at the moment: fracking in Europe is currently highly controversial. It is quite possible that in the future, an American company operating in the EU can sue an EU member state if it introduces a moratorium on fracking or adopt high environmental standards . This has already happened in the case of the government of Quebec, which was sued under the North American Free Trade Area by an American investor, for that very reason.
Why do we need these exclusive rights for corporations at all?
ISDS was initially launched in order to create incentives for investment in developing countries. It was assumed that the legal systems were "less developed" and so you needed special protections for investors.
All the more surprising then that the Commission still insists on including such a mechanism with a country like the U.S, where inferior legal standards are not an issue. The Commission's justification for ISDS is easily disproved. They claim that European investors are exposed to discrimination in the United States. We have looked closely at the alleged cases and came to the conclusion that ISDS would not have increased the number of investors in these situations.
Also: should we upend all the democratic decision-making processes in Europe and cause such a legal shake-up just for provisions like ISDS and the few European companies who had problems with U.S. American courts?
Furthermore, the Commission argues that there is already thousands of bilateral agreements which include ISDS. Therefore we must continue with this practice. I vigorously disagree with this argument. So far, only nine EU Member States have concluded bilateral investment treaties with the United States. TTIP would be a huge extension in the use of ISDS, and have an untold impact. I am of the opinion that the entire system of international arbitration is worth re-evaluating. States such as South Africa have already shown that you can renegotiate investment treaties to exclude ISDS.
The resistance against ISDS in TTIP continues to grow. Recently, even the German federal government has spoken out against it. We Greens will do everything to ensure that ISDS is excluded from TTIP.
The English translation of this text does not constitute the original. The text is based on a comment in German that appeared first in the Frankfurter Rundschau.