Yesterday ISOC.nl held its New Year's Event. I gave a short talk on Investor-to-State Dispute Settlement (ISDS):
Welcome everyone,
I’m Ante Wessels. I’m involved with Vrijschrift and the Foundation for a Free Information Infrastructure. I will give a short talk about investor-to-state dispute settlement, or ISDS. Why is ISDS important?
Investor-to-state dispute settlement gives multinationals the right to sue states before special tribunals if changes in law may lead to lower profits than expected. Multinationals can challenge reform of copyright and patent law, challenge environmental and health policies.
How does the ISDS system work?
International trade and investment agreements give foreign investors greater rights than local companies, even expected future profits are protected.
On top of that, foreign investors do not have to use the local court system. Arbitration tribunals consisting of three investment lawyers decide the cases. These tribunals can overturn decisions of our supreme courts.
Let me give three examples of cases actually going on at this moment.
After the nuclear disaster in Japan, the German government decided to close down two nuclear reactors. The Swedish company Vattenfall now claims 3.7 billion euro using investor-to-state dispute settlement.
My second example: Australia introduced health warnings on tobacco packaging. Tobacco company Philip Morris claimed that their trade marks lost value, and sued Australia in local courts. Philip Morris lost the court case and then started an ISDS arbitration case.
My third example: Canada made some minor adjustments to its patent system to ascertain better access to medicine. United States pharmaceutical company Eli Lilly now claims 500 million dollar in ISDS arbitration.
Specialists tend to over-value the instrument they are working on. Put a bunch of patent specialists together and you will end up with software patents, even if they harm innovation.
Likewise, investment specialists tend to find investments more important than policy space and human rights. Therefore, it is important to have general supreme courts above specialised courts. ISDS turns this around. ISDS has specialised tribunals above supreme courts. This is an inherent design flaw.
ISDS is best understood as a transfer of sovereignty. It gives investors equal standing to states. And it gives arbitrators the power to decide in conflicts between investors and states.
Arbitrators have enormous powers. They also have a perverse incentive.
Unlike judges, they are paid by the hour or by the day, very well paid. They have an incentive to let cases drag on. And they have an incentive to make the system more important by taking multinational friendly decisions, as only multinationals can start ISDS cases.
The perverse incentive has negative consequences. The legal costs are skyrocketing, in some cases the legal costs are more than 30 million dollar. The number of cases is rising sharply. The damages are rising. The decisions are arbitrary.
Arbitrators wear many hats. They may also act as government official negotiating investment treaties, corporate lobbyist advocating investor-to-state dispute settlement, council defending the interest of corporations, media commentator and professor. The editorial boards of key journals consist of 50 to 100 percent arbitrators.
Arbitrators share beliefs and interests. The small community of arbitrators is a captive in-crowd.
In a democracy, strong institutions are essential. But, giving a captive in-crowd enormous powers undermines democracy, the rule of law and the public interest.
There is no justification for ISDS. Joseph Stiglitz, Nobel laureate in economic sciences, points out that investors can take an insurance if they do not trust a foreign legal system.
He also explains what is really behind ISDS:
"The real goal is to restrict governments’ ability to regulate and tax corporations (...)"
And regarding the process Stiglitz notes: "Corporations are attempting to achieve by stealth – through secretly negotiated trade agreements – what they could not attain in an open political process."
ISDS threatens our ability to reform copyright and patent law, to protect our privacy, to protect our health and environment. Vital interests are at stake.
Fortunately, we have a window of opportunity.
European countries signed many investment treaties. The Lisbon Treaty changes the situation. The European Union now has sole competence to conclude investment treaties. The Commission negotiates, the European Parliament has a veto.
The EU considers including ISDS in its trade agreements. With its huge market and complex structure, the EU will be an attractive victim for ISDS challenges. The Commission says it will solve problems by adding safeguards. But the Commission's safeguards do not convince. And is it possible to tame a captive in-crowd? A captive in-crowd can always find ways around safeguards. Moreover, ISDS has an inherent system flaw, investment tribunals above supreme courts. Investment specialists tend to find investments more important than policy space and human rights. The only solution is no ISDS in EU trade agreements.
What can we do?
Consumer and environmental groups already did a lot of work. The European Parliament is critical about ISDS. The digital community can help to tip the scale.
Like earlier with ACTA, the Anti-Counterfeiting Trade Agreement, the digital community can make a meaningful intervention.
I wish you all a meaningful 2014.
Thank you.
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References
Joseph Stiglitz, 2013, South Africa Breaks Out, http://www.project-syndicate.org/commentary/on-the-dangers-of-bilateral-investment-agreements-by-joseph-e--stiglitz
CEO and TNI, 2012, Profiting from injustice – How law firms, arbitrators and financiers are fuelling an investment arbitration boom, http://corporateeurope.org/publications/profiting-from-injustice
Further reading
Carlos M. Correa, 2013, Investment agreements: A new threat to health and TRIPS flexibilities? http://www.bilaterals.org/spip.php?article23414
FFII, 2013, Negotiators determined to transfer sovereignty to companies, http://acta.ffii.org/?p=1963
FFII, 2013, EU faces double whammy with investor-to-state dispute settlement, http://acta.ffii.org/?p=1995
CEO, 2013a, A transatlantic corporate bill of rights, http://corporateeurope.org/sites/default/files/publications/corporate-bill-of-rights.pdf
CEO, 2013b, Unravelling the spin: a guide to corporate rights in the EU-US trade deal, http://corporateeurope.org/trade/2013/07/unravelling-spin-guide-corporate-rights-eu-us-trade-deal
Glyn Moody, 2013, TTIP Update II (on ISDS and software patents), http://blogs.computerworlduk.com/open-enterprise/2013/08/ttip-update-ii/index.htm
Henning Grosse Ruse - Khan, 2013, Investor–State Arbitration to Challenge Host State Compliance with International IP Treaties? http://worldtradelaw.typepad.com/ielpblog/2012/12/investor-state-arbitration-to-challenge-host-state-compliance-with-international-ip-treaties.html
NGOs, 2013, More than 100 organizations sign transatlantic statement opposing dangerous investor "rights" chapter in CETA, http://www.canadians.org/media/eu-canada-trade-agreement-more-100-organizations-sign-transatlantic-statement-opposing
UNCTAD, 2013, World Investment Report 2013 Global value chains: investment and trade for development, http://unctad.org/en/PublicationsLibrary/wir2013_en.pdf page 110 Investor–State arbitration: options for reform
EDRi: http://www.lobbycharter.eu/
Public Citizen: http://www.citizen.org/investorcases
EFF: https://www.eff.org/deeplinks/2013/10/another-reason-hate-tpp-it-gives-big-content-new-tools-undermine-sane-digital
BoF: https://www.bof.nl/2013/10/10/tafta-miljardenclaims-voor-de-nederlandse-staat/
Vrijschrift: https://www.vrijschrift.org/serendipity/index.php?/archives/150-Vrijschrift-wijst-mandaat-voor-onderhandelingen-met-Verenigde-Staten-over-handelsverdrag-af.html
