01 October 2014

EU citizens don’t want their democracy undermined by ISDS. And they are not alone.

Guest blog: The campaign against TTIP and CETA has rightly identified investor-state dispute settlement (ISDS) as a serious problem for democracy and development, but it should be remembered that western Europe is not its primary victim.

Ciaran Cross Independent legal researcher

Photo: by CIEL via Flickr. Protest outside the International Centre for Settlement of Investment Disputes (ICSID) against OceanaGold/Pacific Rim Mining Corporation who is suing the government of El Salvador for over $300 million because El Salvador is refusing to let it mine gold. Campaigners say the mining project threatens to poison the country’s drinking supply. Sept 15 2014

As action against TTIP and CETA continues to gain momentum across Europe, the coming months will be a telling and critical time, not only for the future of these agreements, but also for the future of their most controversial feature: investor-state dispute settlement (ISDS).

The results of the EU Commission’s sham consultation on ISDS in TTIP - framed in such a way as to only further entrench ISDS in CETA no matter what the public’s opinion on the matter - are due to be published before November.  On 11 October, citizens across the EU will take to the streets, many furious at the prospect that many thousands of the objections to ISDS raised through the consultation process may be counted as “one”, simply because they were coordinated by campaign groups and therefore contained identical text. As anyone who analyzed the consultation document in full can testify, the complexities of ISDS and the legalese of the questions did not exactly invite the participation of laypeople. And the Commission’s shifting of the goalposts is hardly the sign of a healthy democratic process.

But the consultation nonetheless provoked nearly 150,000 responses - clear evidence of the strong feelings the topic has aroused. The rejection of a European Citizen’s Initiative against TTIP and CETA, effectively killed off in its infancy two weeks ago, only further highlights the failure of meaningful public participation in the TTIP and CETA negotiations, and the importance of creating democracy from below on the 11 October.

Several years ago, this public focus on ISDS - a complex and relatively obscure legal mechanism - would have been unthinkable. Up to now however, public outrage has been largely confined to the potential harm ISDS might wreak in Europe. As one campaign has articulated it: “NO TO ISDS: NOT NOW, NOT HERE AND NOT FOR US!”

But would we wish ISDS on anyone? One uncomfortable fact is (conspicuously) absent from the public debate on ISDS currently raging in Europe: namely, that Europeans are not its primary victims. On the contrary, European investors are among the main beneficiaries of the ISDS system.

The vast majority of ISDS cases are brought against developing states and transition states. According to UNCTAD, these account for about three-quarters of all known ISDS cases. The top five most sued states are Argentina, Venezuela, Czech Republic, Egypt and Ecuador.

As of 2013, European investors had initiated 299 ISDS claims, 53% of all known ISDS cases.

To take one example, the United Kingdom has signed 103 investment agreements. Every one of these includes an ISDS clause. The vast majority of these agreements are with developing and transition states, and new agreements continue to be signed. The UK has been a respondent in only one reported ISDS case, which it won. In contrast, UK investors have initiated 43 ISDS claims, among them the controversial (albeit unsuccessful) suit against Tanzania by water company Biwater. 

And the UK is no exception. Germany has been in the spotlight as the victim of two ISDS suits from energy giant Vattenfall, but German investors have themselves initiated 39 cases. Among these is an ongoing case brought by a German-Swiss timber company, which continues to threaten the livelihoods of affected indigenous communities in southern Africa.

The populations of the UK and Germany were among the most vocal in their response to the EU Commission consultation on ISDS: the UK topped the list with over 52,000 submissions, Germany close behind with 32,000. Clearly, the demand that ISDS has no place in the CETA and TTIP agreements is being widely and loudly articulated, and rightly so. 

But it would be a mistake to only reject the inclusion of ISDS in treaties between states with “highly developed and well understood legal systems” or “mature democracies with the rule of law”. This logic is not new: it has often been argued that ISDS is unnecessary in treaties between OECD member states.

This is simply not enough. If ISDS as a system displays structural deficiencies, threatens the democratic process, and privileges corporate interests over legitimate public interests, what is the logic of including it in any such treaties, even in treaties with states whose judiciaries are perceived as substandard? ISDS does little or nothing to raise this standard. The core principles of legal process – for instance, access to justice or independence of the judiciary - may vary widely in practice across the globe, but ISDS can hardly be justified as a panacea for the deficiencies of domestic courts. ISDS is a secretive and commercially-oriented legal practice, aggressively marketed to aggrieved investors, which fails to meet the very same judicial standards, the absence of which it is apparently designed to remedy.

Moreover, ISDS tribunals have consistently proven neither competent nor willing to consider the public interest aspects of the cases before them. Developing and transition states are not only the most common targets of ISDS litigation; they are also more vulnerable to the crippling sums that can be awarded by tribunals. And, because of obvious imbalances in the bargaining power between EU states and developing and transition states hoping to attract European investment, there are clear barriers to states in the Global South initiating the successful renegotiation or termination of such agreements.

So, the mobilization against ISDS in TTIP and CETA is a very welcome development for those who have been observing this phenomenon for some years. Without wanting to jinx the campaign with premature optimism, such persistent and determined engagement in the debate may just be the democratic spanner in the works that brings TTIP and CETA to a slow, grinding halt. And that would be a victory.

But it would be a lesser victory, if that were the end of the story.

Now that we all know what is wrong with ISDS - and there is a lot wrong with it – where is the challenge to its inclusion in the 1,200 existing investment agreements already signed by EU states, the majority of which are still being used by European investors to sue developing and transition states? Having identified the many failings and inherent biases of the ISDS regime, to exclude it only from trade and investment agreements where Europeans feel they themselves might get stung would reek of pure self-serving hypocrisy.

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We have a similar situation in NZ with TPPA, and our Govt appears to be the first off the rank to sign the ISDS clause. Apparently the Australia have no and have a FTA with the US without the ISDS in it. It is a tool to give advantage to Rich over Poor. As if being Rich is not advantage enough.

Mila Counihan

We, European citizens do not want any of these ...

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