On Tuesday, the International Trade Committee (INTA) of the European Parliament convened to discuss the potential legal problems generated by the inclusion of an investor-state dispute (ISD) clause in the final version of the Transatlantic Trade and Investment Partnership (T-TIP). In a move designed to appease relentless criticism of the clause, the top European trade minister proposed dropping it entirely.
Karel De Gucht, European Union (E.U.) Trade Commissioner, expressed his willingness to ditch the ISD clause under certain conditions. “It is not a point of my religion,” he said. “If the United States agreed to simply drop it and have all the existing agreements so be it, but they don’t. I already submitted it to them and they don’t.”
Nevertheless, the official position of the E.U. is to support the ISD, and it has pushed for similar provisions in its trade talks with China, Myanmar and other nations. De Gucht endorsed an ISD clause that is “new, that has been rewritten, that is transparent, where you have an appellate body, where you can refuse arbitrators, and where you cannot litigate from place where you only have a post box.”
The director of De Gucht’s cabinet, Rupert Schlegelmilch, promised that new “innovations” inserted into the language of the clause should satisfy critics of all stripes. “We will make clear that an environmental law or health law which is non-discriminatory and is in the public interest, cannot be deemed to be an expropriation, unless it is excessive.”
The IDS has been a major source of controversy during T-TIP negotiations. It permits E.U. and U.S.-based corporations to forward legal challenges directly against sovereign governments to various international tribunals. This would allow those corporations to litigate national restrictions regarding public health, environmental protection and social compliance that potentially places undue constraints on their ability to conduct business.
The debate over the IDS became so heated that the E.U. temporarily tabled its discussion in order to ensure that European corporations have adequate recourse to pursue grievances while also protecting the prerogative of governments to establish their own laws independent of external interference. “I know some people in Europe have genuine concerns about this part of the EU-US deal. Governments must always be free to regulate so they can protect people and the environment. But they must also find the right balance and treat investors fairly, so they can attract investment,” De Gucht said.
Karel De Gucht also acknowledged that investor-state clauses have led to difficulties in past free trade arrangements. “International investment agreements like TTIP should ensure they do both. But some existing arrangements have caused problems in practice, allowing companies to exploit loopholes where the legal text has been vague,” he said.
Adding fuel to the fire, Daniel Ikenson, director of the Cato Institute, authored a paper arguing that T-TIP discussions should simply abandon the investor-state dispute clause. “ISDS is not even essential to the task of freeing trade. So why burden the effort by carrying needless baggage? Meanwhile, what now appears to be an angry mob protesting trade generally will be thinned out, exposing the unsubstantiated arguments of the professional protectionists who benefit by impeding Americans’ freedom to trade.”
Ikenson claimed that the investor-state dispute clause has not traditionally been a common feature of free trade arrangements, surfacing fewer than 100 times between 1959 and 2002. He also claimed that the clause is, more often than not, merely a strategic device used by businesses to circumvent local regulation and law. However, he did acknowledge that it has become more standard, rearing its head more than 400 times between 2003 and 2012.
The historical rationale for investor-dispute resolution was to protect corporations from arbitrary governmental fiat, especially in developing nations where major industries are often state run and courts lack independence. Some say this makes investor-dispute resolution irrelevant in both the E.U. and the U.S., where neither of these conditions maintain.
Investor-state resolution has been a common feature of U.S. negotiated free trade agreements since its inclusion in the North American Free Trade Agreement (NAFTA) in 1994. However, in that case, investor-dispute litigation can only begin with the imprimatur of the government sued. In other words, under the WTO rules that currently govern both the U.S. and the E.U., a corporation must first solicit permission from a sovereign nation it believed committed an injustice prior to filing suit, allowing the nation in question to ultimately decide if it will allow the dispute to be arbitrated by WTO officials.
De Gucht linked the difficulty in effectively advocating for the ISD to reluctance on the part of the U.S. to engage in T-TIP talks more transparently. He said, “The US is against transparency in a way we look at it. In the US, there is a reading room arrangement where members of the US Congress (no staff permitted) have to leave empty-handed. This is not our practice. I have even more problems with the Council on this than with the Parliament.”