EU Re-Think Following Discovery Of Major Flaw In CETA Shows The Benefits Of Transparency

from the enough-eyeballs dept

The Canada-European Union trade agreement (CETA) finds itself in a strange situation. Although Canada and the EU announced that "a political agreement" on the key elements had been reached, there has still been no formal release of the text. Fortunately, we have had several leaks of CETA documents, handily gathered on a new site devoted to them (and to those of the TAFTA/TTIP talks). One of the most recent leaks is of the chapter dealing with corporate sovereignty. It's dated February 14, and shows a large number of alternative versions, which indicates that despite the "political agreement", CETA is far from done.

The availability of this very recent text has enabled experts in the field to examine the proposals in detail for the first time. For example, Nathalie Bernasconi-Osterwalder and Howard Mann from the International Institute for Sustainable Development have put together a fascinating analysis of the investor-state dispute settlement (ISDS) chapter, and of an earlier investment chapter leak from November 2013 (pdf). They've compared them with a document released by the European Commission in December last year, which gave some explanation of the claimed improvements to corporate sovereignty provisions (pdf). The availability of the draft texts allowed Bernasconi-Osterwalder and Mann to check the claims against the reality. Here's their summary:

In the end, and whatever the reason for the disconnect, we conclude that the actual draft legal texts in the public domain show that the European Commission's assertions are in most respects incorrect when compared to the draft legal text. The technical legal analysis is set out on each specific point below. In effect, the analysis indicates that the standards by which the European Commission itself seeks to demonstrate the success of the drafting actually show that the drafting has failed to meet its stated objectives, in fact, sometimes with the exact opposite result.

It's a really thorough analysis, and well-worth reading. But here I want to pull out just one aspect of ISDS, hitherto rather neglected. It concerns what is known as "Most Favored Nation" status:

The European Commission statement simply does not refer to what is known as the most-favoured nation (MFN) treatment clause. Yet, this clause alone is sufficient to undermine all of the objectives the European Commission states it seeks in the drafting. The reason why is explained here.

Article X.8 of the November 2013 draft [of CETA's investment chapter] contains the MFN provision. In essence, it requires, for present analytical purposes, a European state to treat a foreign investor from Canada no less favourably than it treats an investor from any third state. The problem arises from the legal reality that such treatment has been defined in investment arbitrations as including the rights of other investors under investment treaties with the host state. So, if an EU member state that has a Canadian investor also has a treaty with an African, Latin American or any other state, the investor from Canada can import the provisions of that treaty if they are more favourable than the provisions of the CETA.

The impact of this is straightforward. The European Commission statement [published in December] notes the need to "bring very significant clarifications" in order to give arbitrators "strict and detailed guidance when these provisions are invoked by an investor." Now, we have already seen from the preceding analysis that this objective has not been met in the November 2013 draft text. But let us suppose, for the sake of understanding the current issue, that it had been met. The MFN provision would in any event undo this.

That's because Canadian investors could simply invoke the MFN provision, and demand to be allowed to use earlier rights that ignore the claimed improvements to ISDS. And yet the European Commission was completely unaware of this fact until recently, as reported by the Council of Candians in a blog post:

According to Rupert Schlegelmilch, director of services, investment and procurement at DG Trade [in the European Commission], speaking on behalf of the Commission at a public debate yesterday on investor-state dispute settlement (ISDS) and the TTIP, the EU is rethinking a "Most Favoured Nation" (MFN) article in the CETA investment chapter that new analysis suggests undermines much of the more careful language in the treaty relating to a government's ability to regulate. As written, the MFN article would let Canadian and EU investors ignore the definitions of "fair and equitable treatment” or "indirect expropriation" in CETA and take other more investor-friendly language from past agreements signed by either party.

It's not clear whether the European Commission woke up to this huge loophole as a result of the International Institute for Sustainable Development analysis, although this seems likely given the timing. But the key point is that the incident raises the larger question:

"What other mistakes have the Commission and Canadian government made in CETA that compromise the ability of governments to make environmental, public health and consumer protection policies without worrying they will be sued in private arbitration, behind closed doors?" asks Stuart Trew, trade campaigner with the Council of Canadians

We don't know, because we don't have a full copy of the latest CETA draft. If we did, then independent experts could go through it and warn of other flawed passages, thus avoiding serious problems in years to come when it is too late to change anything.

This, then, is another key reason why negotiating texts must be made available as they are drafted, not after they have been signed: Linus' Law, that "given enough eyeballs, all bugs are shallow," applies to international agreements as well as to software code. But the big difference is that for programming, it's a question of how well code runs; with things like CETA, TTIP and TPP, what's at stake is the potentially huge economic and social damage that can be caused by loopholes and carelessly-worded clauses in these far-reaching international agreements.

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Filed Under: canada, ceta, corporate sovereignty, eu, isds, tafta, trade agreements, transparency, ttip

Free Trade Supporter Cato Institute Says Drop Corporate Sovereignty Provisions In Trade Agreements

from the so-that's-everyone,-then dept

Even though the formal negotiations for TAFTA/TTIP have begun only recently -- earlier meetings were largely exploratory -- it is already clear what the most contentious chapter will be: that dealing with corporate sovereignty, or "investor-state dispute settlement" (ISDS) as it's more formally known. Indeed, even back in January, ISDS was generating so much negativity that the European Commissioner responsible for TTIP, Karel De Gucht, decided to pull the corporate sovereignty chapter from the negotiations for a three-month EU consultation in an attempt to draw the sting from the criticisms.

It hasn't worked. As the Financial Times noted this week (subscription or registration required):

Faced with an increasingly vocal opposition to a landmark EU-US trade agreement, a growing number of backers of the deal are starting to ask a simple question: might the future of transatlantic trade be better served if one of its most controversial provisions was simply dropped?

Almost nine months after negotiations opened with great hope and fanfare, opponents of the mooted Transatlantic Trade and Investment Partnership, or TTIP, are rallying against a plan that would allow private investors to use the pact to sue governments if they felt local laws threatened their investment.

One fan of free trade agreements is Daniel Ikenson, director of the Herbert A. Stiefel Center for Trade Policy Studies at the Cato Institute. He's written a great post on the Cato Institute Web site with the title: "A Compromise to Advance the Trade Agenda: Purge Negotiations of Investor-State Dispute Settlement." As he points out with reference to the faltering TPP negotiations (but it applies equally to TAFTA/TTIP):

Characterizations of the TPP as a scheme to boost the fortunes of tobacco, oil and gas, banking, and pharmaceutical companies at the expense of worker protections, the environment, public health, and food and product safety have gone viral. And without so much as a single public repudiation of these claims by the president those perceptions are sticking.

As is true of most populist causes, buried beneath the enabling mythology and hyperbole are some kernels of truth. One such truth, which this paper seeks to distill from the vacuous, anti-capitalist hyperventilation surrounding the trade agenda, is that the so-called Investor-State Dispute Settlement (ISDS) mechanism, which enables foreign investors to sue host governments in third-party arbitration tribunals for treatment that allegedly fails to meet certain standards and that results in a loss of asset values, is an unnecessary, unreasonable, and unwise provision to include in trade agreements. Although detractors may not know it by name, ISDS is a significant reason why trade agreements engender so much antipathy. Yet, ISDS is not even essential to the task of freeing trade. So why burden the effort by carrying needless baggage?

Purging both the TPP and the TTIP of ISDS makes sense economically and politically, would assuage legitimate concerns about those negotiations, splinter the opposition to liberalization, and pave the way for freer trade..

After filling in the historical background to corporate sovereignty provisions in free trade agreements, Ikenson then goes to offer what he calls "Eight Good Reasons to Drop ISDS from TPP and TTIP":

First, ISDS is overkill. Governments are competing to attract productive investment to keep their citizens employed and their economies growing. Accordingly, it is imperative to maintain smart, transparent, predictable policies that are administered fairly and nondiscriminatorily. Asset expropriation or other forms of shabby treatment of foreign companies is not likely to be rewarded by new investment.

We don't need corporate sovereignty provisions to protect investors in foreign markets because those same companies will soon shun any country where investments are seized or investors discriminated against. It's true that such investments can be risky, but Ikenson points out that multinational companies (MNCs) are actually rather good at managing that risk. And if they're really worried, they can always take out private insurance.

Second, ISDS socializes the risk of foreign direct investment. When other governments oppose, but ultimately concede to, U.S. demands for ISDS provisions, they may be less willing to agree to other reforms, such as greater market access, that would benefit other U.S. interests. That is an externality or a cost borne by those who don't benefit from that cost being incurred. In this regard, ISDS is a subsidy for MNCs and a tax on everyone else.

It is not just other companies that are subsidizing MNCs, but also the public, which must bear most of the burden of corporate sovereignty's costs. That's because awards to foreign investors that sue and win against national governments are paid out of taxes. But the benefits of ISDS only accrue to those companies actually investing abroad.

Third, ISDS encourages "discretionary" outsourcing.

This is an interesting point. Corporate sovereignty is designed to make investing overseas less risky and more attractive. But the ironic effect of this is to make the US less attractive as an investment. As Ikenson says:

Access to ISDS could be the decisive factor in a company's decision to invest in a research center in Brazil, instead of the United States. Why should U.S. policy reflect greater concern for the operations of U.S. companies abroad than for the operations of U.S. and foreign companies in the United States? Why should ISDS effectively subsidize outsourcing, and not insourcing?

His next point has been made by a number of commentators:

Fourth, ISDS exceeds "national treatment" obligations, extending special privileges to foreign corporations.

Corporate sovereignty has the effect of giving foreign corporations more privileges than domestic ones -- hardly a policy aim for either the US or EU here.

Fifth, U.S. laws and regulations will be exposed to ISDS challenges with increasing frequency.

This is hugely important, because it exposes the fact that the current push for corporate sovereignty is based on a naïve extrapolation from current corporate sovereignty experiences. Hitherto, ISDS has been a weapon for Western countries to deploy against developing nations -- something that has few downsides. But if corporate sovereignty is included in TTIP, say, we will see US companies routinely challenging EU laws and regulations -- and EU companies challenging US laws and regulations. Suddenly, Western nations will be the victims, as well as the bullies.

Sixth, ISDS is ripe for exploitation by creative lawyers.

This will come as no surprise to Techdirt readers, who have seen post after post about the abuse of the patent system by trolls and their lawyers. Introducing a supranational legal system with ill-defined rules will produce a new class of more aggressive and better-funded trolls attracted by the even higher stakes involved when the defendant is not just a company, but an entire country.

Seventh, ISDS reinforces the myth that trade primarily benefits large corporations.

Some might argue that's no myth, but Ikenson is right: the revolt against corporate sovereignty and the power that it might give transnational companies is now such that the entire TAFTA/TTIP agreement is in doubt -- recently, the influential German news magazine Der Spiegel wrote: "The battle for TTIP seems as good as lost" (German original.)

Eighth, dropping ISDS would improve U.S. trade negotiating objectives, as well as prospects for attaining them.

The idea here is to divide the opposition to TAFTA/TTIP by sacrificing ISDS. The hope is that enough organizations and people will then support the agreement, isolating those that still do not. Yes, it's cynical, but it's also a sensible approach for those in favor of such trade agreements. Ikenson concludes:

For practical, economic, legal, and political reasons, ISDS subverts prospects for U.S. trade liberalization. Yet it is tangential, at best, to the task of freeing trade. Any benefits to availing MNCs to third-party adjudication are all but totally overwhelmed by the additional costs. In the proverbial airplane that is down one engine and losing altitude, throwing ISDS out of the cargo hold to reduce unnecessary weight is the best solution.

It's a great piece, cogently argued, that is particularly important given the affiliations of the author. Quite apart from the specific reasons it lays out as to why corporate sovereignty should go, its mere existence is proof that ISDS now lacks support across the entire political spectrum. Time to drop it.

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Filed Under: corporate sovereignty, daniel ikenson, free trade, investor state dispute resolution, isds, tafta, tpp, trade agreements, ttip

Even The German Government Wants Corporate Sovereignty Out Of TAFTA/TTIP

from the well,-at-the-moment dept

As we've noted, if there's one aspect of TAFTA/TTIP that practically everyone agrees is a bad idea, it's corporate sovereignty. Even against that background, it's still slightly surprising to read in the well-regarded German newspaper Die Zeit that the German government too wants it out of TTIP (via @FSchweitzer, original in German):

The German federal government rejects special rights for corporations in the free trade agreement between the EU and the USA. "The federal government is doing all it can to ensure that it doesn't come to this," said the Secretary of State in the Federal Ministry of Economics, Brigitte Zypries, on Wednesday during question time in parliament. "We are currently in the consultation process and are committed to ensuring that the arbitration tribunals are not included in the agreement," said Ms Zypries.

The Secretary of State then went on to make a point many others have emphasized:

"The German federal government's view is that the U.S. offers investors from the EU sufficient legal protection in its national courts," said the SPD politician Zypries. Equally, U.S. investors in Germany have sufficient legal protection through German courts. "From the beginning, the federal government has examined critically whether such a provision should be included in the negotiations for a free trade agreement," Zypries said.

Corporate sovereignty measures were added to earlier bilateral agreements when the legal systems of the country receiving foreign investment raised issues about their independence or where there was a fear that local governments might expropriate property with impunity. Neither can seriously be considered a risk in the case of the EU and US, and so investor-state dispute settlement (ISDS) is redundant, as the German government recognizes here.

If this really is Germany's view, it will have major consequences for the negotiations, since the European Commission won't be able to get TAFTA/TTIP accepted by the EU without Germany's full support. There remains some room for doubt, though, as the German Secretary of State also said:

arbitration tribunals of this kind should only be brought in as a last resort after exhausting all legal remedies brought in national courts.

If ISDS is excluded from TTIP, then that comment makes no sense, since there won't be the option to turn to supra-national tribunals after exhausting the legal process in national courts. So maybe Germany expects to be "persuaded" by concessions from the European Commission to change its mind at some point. But even if the German government is not totally abandoning the idea of corporate sovereignty, the fact that a senior politician is prepared to go on the record with the comments quoted above is significant. Germany's leaders obviously feel the need to distance themselves from ISDS, which is fast turning into a serious political liability.

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Filed Under: corporate sovereignty, germany, isds, tafta, ttip

In Response To Growing Protests, EU Pulls Corporate Sovereignty Chapter From TAFTA/TTIP To Allow For Public Consultation

from the more-of-this,-please dept

Here on Techdirt, we've been writing about the dangers of corporate sovereignty for a while. In recent months, more and more people and organizations have pointed out that the plan to include an investor-state dispute settlement (ISDS) in the TAFTA/TTIP agreement currently being negotiated is fraught with dangers -- and also completely unnecessary given the fair and efficient legal systems that exist on both sides of the Atlantic. It seems that this chorus of disapproval has finally been noticed, in Brussels at least:

EU Trade Commissioner Karel De Gucht today announced his decision to consult the public on the investment provisions of a future EU-US trade deal, known as the Transatlantic Trade and Investment Partnership (TTIP). The decision follows unprecedented public interest in the talks. It also reflects the Commissioner's determination to secure the right balance between protecting European investment interests and upholding governments' right to regulate in the public interest. In early March, he will publish a proposed EU text for the investment part of the talks which will include sections on investment protection and on investor-to-state dispute settlement, or ISDS. This draft text will be accompanied by clear explanations for the non-expert. People across the EU will then have three months to comment.

That's a hugely significant admission that the European Commission's attempt simply to push ISDS through without explanation or consultation was a major tactical error. By failing to address the manifest problems with investor-state disputes, the European Commission allowed the overall sentiment towards TAFTA/TTIP to become increasingly negative. Clearly, what De Gucht hopes to achieve with this three-month pause is to convince people that ISDS is not a threat to national sovereignty, and thus to salvage the agreement as a whole.

He may have problems trying to do that. The European Commission press release quoted above includes a section with background information about corporate sovereignty. It's heavily based on an earlier Commission "fact sheet" entitled, "Investment Protection and Investor-to-State Dispute Settlement in EU agreements" (pdf). Elsewhere, I have explained why the arguments offered are almost entirely wrong or misleading. So it's not at all clear how the European Commission will manage to win people over to an idea that is entirely for the benefit of corporates, and offers nothing but disadvantages for the general public.

Still, De Gucht's move to open up at least this area of TAFTA/TTIP for public discussion is to be welcomed, even if it was made rather unwillingly. Now that the European Commission has finally admitted that it is indeed possible to release its negotiating text in order to allow a public debate, we must have similar transparency for the rest of the agreement.

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Filed Under: corporate sovereignty, european commission, isds, karel de gucht, tafta, ttip

Why Exactly Do We Need To 'Protect' US And EU Foreign Investments Through TAFTA/TTIP Anyway?

from the risky-business dept

Techdirt has already examined the issue of corporate sovereignty many times over the past year, as it has emerged as one of the most problematic areas of both TPP and TAFTA/TTIP. A fine article by Simon Lester of the Cato Institute examines a hidden assumption in these negotiations: that an investor-state dispute settlement (ISDS) mechanism is needed at all.

Most of his post is devoted to the background of corporate sovereignty, and it provides a useful primer if you're still wondering what exactly ISDS is supposed to do, and why. Having established the framework, Lester concludes by making two key points:

First, if a U.S. (or EU) company chooses to make an investment abroad, why should the U.S. (or EU) government go to bat for it at all? In the past, we used "gunboat diplomacy" to protect our companies. Now we use international lawyers. But why should we do anything? These companies have chosen another jurisdiction for their investment, which is fine. Companies should invest in whatever location makes the most economic sense. But in that situation, it is not clear why the investment is "ours" to worry about anymore. When multinationals invest all over the world, are they really "ours," or are they now just global entities?

Business is inherently about taking risks -- if there were no risk, there would be no need for entrepreneurs. So why should a nation be expected to offer a kind of free insurance policy against those risks when they are incurred abroad -- not least because commercial policies doing that are readily available? Since fans of the free market think that the government should just get out of the way, surely they should extend this to foreign investment too?

Lester's other point is one that many people have made -- that ISDS is in any case unnecessary in an agreement between the US and EU:

when the place of the investment is the EU or US, which have plenty of their own protections in domestic law, international law seems largely duplicative. International investment rules are an opportunity for lawyers to bring additional claims, but are not necessary for "protection" of foreign investment. Without some evidence that more is necessary, perhaps US-EU investment rules should be limited to a basic promise to treat each other's investors equally, let governments settle disputes between themselves, and leave the international constitutional protections out of it.

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Filed Under: corporate sovereignty, europe, investor state dispute settlements, isds, tafta, tpp, ttip, us

Does The Fast Track Authority Bill Guarantee That Corporate Sovereignty Will Be One-Sided And Unfair?

from the important-questions dept

Yesterday, Mike reported on the introduction of the "fast track authority" bill in the Senate, and pointed out some of its most troubling aspects. But it's a long document -- over 100 pages -- and hidden away within it are some other areas that raise important questions. Take, for example, Section 8, which concerns sovereignty:

No provision of any trade agreement entered into under section 3(b), nor the application of any such provision to any person or circumstance, that is inconsistent with any law of the United States, any State of the United States, or any locality of the United States shall have effect.

Writing on the International Economic Law and Policy Blog, Simon Lester, a trade-policy analyst at the Cato Institute, asks:

Is this an assertion that no provision will be included in a trade agreement if such provision conflicts with U.S. law? Or does it mean that if there is a provision in a trade agreement that conflicts with U.S. law, that provision has no effect? Or something else entirely?

In the same section of the bill, there's another passage whose meaning is by no means clear:

Reports, including findings and recommendations, issued by dispute settlement panels convened pursuant to any trade agreement entered into under section 3(b) shall have no binding effect on the law of the United States, the Government of the United States, or the law or government of any State or locality of the United States.

Again, does that mean the rulings of corporate sovereignty (ISDS) tribunals won't be enforceable in the US, or simply that they don't create legal precedents? It's a crucially-important point, because the terms of this fast track authority will apply not only to TPP, but also to TAFTA/TTIP. And there, the European Commission has been making the following argument about the necessity of including ISDS in the transatlantic agreement (as reported by Australia's Inside Story):

The problem with scrapping ISDSs, according to the Commission, is that the US legal system is not set up to deal with international investment agreements. "Quite simply, TTIP cannot be enforced in US domestic courts," [European Commission spokesperson] Clancy says. "So, this is about ensuring [that] investors have the right to a certain amount of protection."

If the fast track authority clause quoted above does, indeed, undercut the entire ISDS mechanism, then foreign investors would be unable to enforce TTIP's investment measures according to the European Commission's analysis. However, assuming that's not the meaning of the bill, there's another problem. Among the "principal trade objectives" listed at the start of in the fast track authority bill, is "foreign investment", where we read:

Recognizing that United States law on the whole provides a high level of protection for investment, consistent with or greater than the level required by international law, the principal negotiating objectives of the United States regarding foreign investment are to reduce or eliminate artificial or trade distorting barriers to foreign investment, while ensuring that foreign investors in the United States are not accorded greater substantive rights with respect to investment protections than United States investors in the United States, and to secure for investors important rights comparable to those that would be available under United States legal principles and practice

It's interesting to note that the bill explicitly recognizes that US law provides "a high level of protection for investment", which naturally calls into question the supposed "need" for any extra corporate sovereignty in the form of ISDS. But more importantly, the fast track authority bill states that trade agreements must ensure that:

foreign investors in the United States are not accorded greater substantive rights with respect to investment

And yet that is precisely what ISDS in TAFTA/TTIP or TPP would do: in addition to the use of domestic courts in the US, foreign investors would have the option to take the US to independent corporate sovereignty tribunals. However, that would not possible for US investors in the US, since ISDS only applies to foreign investment.

So we are left with two possibilities. Either the fast track authority aims to nullify the ISDS chapter in TPP and TAFTA/TTIP by rendering tribunal rulings impossible to enforce, or it will allow foreign investors to use ISDS tribunals to obtain enforceable decisions, in which case they will have greater substantive rights than US investors. Either way, one side of the negotiations is going to get a really bad deal from the inclusion of corporate sovereignty provisions. That's yet another powerful reason to drop them entirely from both TPP and TAFTA/TTIP.

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Filed Under: corporate sovereignty, fast track authority, investor state dispute settlement, isds, tafta, tpp, trade promotion authority, ttip

French Telco Orange Plans To Sue The NSA For Tapping Its Undersea Cables

from the blowback dept

It's not entirely clear what form this will take, but the French telco Orange is claiming that it is planning to file a lawsuit over the news that the NSA has been tapping its undersea fiber optic cables.

France-based telecom firm Orange has revealed plans to take legal action against the US National Security Agency (NSA) for using its submarine cable for surveillance.....

An Orange spokeswoman was quoted by Reuters as saying: "We will take legal action in the next few days because we want to know more about the eventuality that Orange data may have been intercepted."

Again, I'm not sure under what jurisdiction or exactly what kind of lawsuit Orange is intending to bring, but it's yet another bit of blowback against the NSA's overreach in its efforts to spy on absolutely everyone. If Orange is able to succeed, I imagine that a variety of other companies might also look at lawsuits. We're generally highly critical of trade agreements that create corporate sovereignty programs, called "investor state dispute settlement" panels that allow foreign companies to sue governments over interfering with their business, but I wonder if the US's infatuation with these kinds of programs might come back to bite it really hard if it turns out that these mechanisms are used by foreign companies to argue that the NSA has interfered in their business efforts...

Filed Under: corporate sovereignty, isds, lawsuits, nsa, surveillance, undersea cables
Companies: orange

European Commissioner Claims 'Nothing Secret' About TAFTA/TTIP, Tries To Defend Corporate Sovereignty

from the getting-desperate dept

After lurking in the shadows for a few months, the mega transatlantic trade deal TAFTA/TTIP is starting to hit the mainstream media. Here, for example, is an excellent article by George Monbiot in the Guardian, which rightly singles out corporate sovereignty as a key threat:

Panic spreads through the European commission like ferrets in a rabbit warren. Its plans to create a single market incorporating Europe and the United States, progressing so nicely when hardly anyone knew, have been blown wide open. All over Europe people are asking why this is happening; why we were not consulted; for whom it is being done.

They have good reason to ask. The commission insists that its Transatlantic Trade and Investment Partnership should include a toxic mechanism called investor-state dispute settlement. Where this has been forced into other trade agreements, it has allowed big corporations to sue governments before secretive arbitration panels composed of corporate lawyers, which bypass domestic courts and override the will of parliaments.

In a clear sign that the European Commission is starting to worry that people are waking up to the dangers present in TAFTA/TTIP, Karel De Gucht, the commissioner for trade, has written a response to Monbiot's article. Techdirt readers will recall that it was largely because of De Gucht's handling of ACTA that it suffered an ignominious defeat in the European Parliament last year. Sadly, it looks like he has learned nothing from the experience:

George Monbiot, in his article on the negotiations for a Transatlantic Trade and Investment Partnership, claims the European commission has tried to "keep this process quiet" (Chickens in chlorine? It's what free trade's about, 3 December). This is laughable. Every step of these negotiations has been publicly announced and widely reported in the press. The commission has regularly consulted a broad range of civil society organisations in writing and in person, and our most recent meeting had 350 participants from trade unions, NGOs and business.

It's true, every step of the negotiations has indeed been announced, but only in terms of what was happening when -- hardly very informative. What people want to know is what is being said during those negotiations, and very little of that has been released. They would also like the opportunity to provide their views on the subject, and to be listened to. It's not clear who those "350 participants" mentioned above might include, or what the exact breakdown of numbers is. What we do know is that of 130 "meetings with stakeholders" that took place earlier this year, 119 of them were with large corporates and their lobbyists.

Here's an interesting point raised by De Gucht:

no agreement will become law before it is thoroughly examined and signed off by the European parliament and 29 democratically elected national governments -- the US government and 28 in the EU's council.

I've not seen this misdirection before, but I'm sure we will in future. It seeks to convey the idea that nothing is final, and that the European Parliament will be able to examine and approve the agreement before it is ratified. Strictly speaking, that's true -- with two important caveats. First, that the European Parliament cannot change a single comma of the agreement that is presented to it, whatever horrors it finds there. And secondly, the "signing off" is all or nothing: either it accepts everything, or rejects it. Given the exaggerated claims about the agreement's benefits, the European Parliament will be under huge pressure not to reject it, even if it contains a truly awful chapter on corporate sovereignty, for example.

On the subject of supposed benefits, De Gucht of course trots out the big numbers:

we do not take Monbiot's extreme view that investment protection agreements (IPAs) are "toxic" attempts to put monster corporations in charge of our destinies. His exaggerated fears are no reason to abandon a deal with the US that could create £100bn in new growth for Europe.

No justification for refusing to recognize that ISDS places corporations above nations is offered, just a dogmatic statement. But it's worth remembering that the £100 billion -- which comes from the €119 billion figure in the European Commission's report -- is for 2027, is the best-case figure, and is anyway unlikely to be achieved. That's because it assumes massive deregulation of health and safety standards that will to be too much even for a European Parliament under pressure to accept the deal.

There then follows this comment from De Gucht:

(Contrary to Monbiot's claims, the economic impact of free trade agreements has been positive. For example, Europe's agreement with South Korea has seen our exports rise by 24% in its first two years.)

Monbiot was quoting figures Techdirt used earlier this year in the context of NAFTA and KORUS. I find it interesting that De Gucht underlines the success of the agreement with South Korea. That also applies to investments: according to the European Commission's own site on the agreement with South Korea, "European companies are the largest investors in South Korea." And yet it turns out that there are no corporate sovereignty provisions in the agreement: it would seem that even without them, European companies are perfectly happy to make significant investments in South Korea, so why does the European Commission insist ISDS must be a part of TAFTA/TTIP?

Here's De Gucht's only attempt at a justification:

In reality, these IPAs [investment protection agreements] protect job- creating investment from discrimination and unfair treatment. The UK has benefited, with 15 British companies launching cases under investment agreements in the last five years.

Well, let's look at the most recent of those cases, as listed in the annual report on ISDS published by the United Nations Conference on Trade and Development. In 2012, UK companies concluded corporate sovereignty cases against the following nations: Argentina, Tanzania and Hungary. New ones were begun against Hungary, Indonesia, Pakistan and Uganda. That's pretty much as you'd expect: most cases were brought against governments in emerging economies where UK companies might be concerned about the judicial systems (whether or not that concern was justified is another matter.)

But those cases have no bearing on TAFTA/TTIP, which is purely between the US and EU, and therefore involves only the judicial systems of those two areas. Nobody could seriously claim that investors will fail to receive fair hearings in either, so De Gucht's invocation of other corporate sovereignty cases elsewhere is simply irrelevant.

He concludes by making some striking assertions:

EU investment agreements will explicitly state that legitimate government public policy decisions -- on issues such as the balance between public and private provision of healthcare or "the European ban on chicken carcasses washed with chlorine" -- cannot be over-ridden. We will crack down on companies using legal technicalities to build frivolous cases against governments. We will open up investment tribunals to public scrutiny -- documents will be public and interested parties, including NGOs, will be able to make submissions. Finally, we will eliminate any conflicts of interest -- the arbitrators who decide on EU cases must be above suspicion.

Of course, what he omits to mention here is that the EU is in no position unilaterally to insist: these things will only happen if the US agrees to them, and that seems highly unlikely, especially on transparency matters, where the US has shown itself completely unwilling to open up. Indeed, implicitly claiming that he will force the US to accept these conditions as part of the deal will make it more unlikely that it agrees to them.

De Gucht ends his assault on Monbiot with this stern admonition:

We should focus on the facts.

We should indeed, because they show quite clearly that the economic benefits of TAFTA/TTIP are likely to be extremely modest. They're certainly not worth the price to be paid in terms of loss of national sovereignty as a result of ISDS, or the enhanced corporate control of regulation on both sides of the Atlantic, recently revealed in the latest leak about the negotiations, which remain as secret and undemocratic as ever, despite claims by De Gucht to the contrary.

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Filed Under: corporate sovereignty, eu, investor state dispute settlement, isds, karel de gucht, tafta, ttip

Why Tribunals Imposing Corporate Sovereignty Are Even More Dangerous Than We Thought

from the above-the-law dept

Back in October, we introduced the term "corporate sovereignty" as an alternative to the standard but misleading phrase "investor-state dispute settlement" (ISDS) that is generally used. We noted that perhaps the worst manifestation of corporate sovereignty so far can be seen in Ecuador, where one of the secret tribunals used in these cases had ordered the Ecuadorean government to place Chevron above the country's constitution.

A detailed and important post from Public Citizen's Eyes on Trade blog not only sketches the background to that extraordinary demand, but also explains how things have since become even worse:

Now Chevron is asking the same extrajudicial tribunal to order Ecuador's taxpayers to hand over to the corporation any of the billions in damages it might be required to pay to clean up the still-devastated Amazon, plus all the legal fees incurred by the corporation in its efforts to evade justice.

Yes, you read that correctly: the oil giant's latest outrageous plan is to force the Ecuadorean government -- and hence the people of Ecuador -- to pay for the massive clean-up of the damage Chevron's predecessor company, Texaco, caused to the country, its environment and local communities. As the Eyes on Trade post points out, this means:

[the ISDS tribunal] is acting as if the sovereign court ruling and two decades of trial never happened. In its recent decision, the tribunal barely made mention of the domestic ruling in Ecuador, or of the preceding 18 years of litigation spanning two nations. Many of the arguments that Chevron is bringing before the tribunal are the very same ones the corporation used before Ecuadorian courts -- arguments that were rejected. Rather than even examine the domestic courts' logic, the tribunal has invited Chevron to make the same arguments again as if for the first time.

The case of Ecuador shows how a company can use the corporate sovereignty chapter in international agreements to ignore years of adverse decisions by a country's highest courts, and to appeal to three arbitration lawyers who take no account of local legislation, practice or traditions, and are literally a law unto themselves.

But maybe Ecuador is just an exception: perhaps ISDS tribunals in other cases have been more respectful of national laws and existing decisions. New research from Gus Van Harten, associate professor at Osgoode Hall Law School of York University in Toronto, suggests otherwise. Studying 162 corporate sovereignty cases, Van Harten reports that 37% of them involved reviewing a government action, while 44% were about disputed legislation or judicial decisions. In other words, in these cases, ISDS tribunals were clearly placing themselves above a country's politicians and judges. Worryingly, Van Harten found:

there was little evidence that arbitrators demonstrated restraint in ways commonly adopted by domestic and international courts.

Moreover:

the field has apparently offered arbitrators a fertile environment for creative lawyering alongside expansive approaches to their authority.

Unlike traditional judges, whose scope for action is tightly circumscribed by national laws, tribunals that ruled on cases brought under corporate sovereignty clauses had far more leeway for interpretation or -- even worse -- "creative lawyering." Van Harten concludes:

In policy terms, the observations indicate a need for closer scrutiny by a range of actors -- such as national associations of legislators or judges -- of how arbitrators exercise their power and about whether their performance accords with considerations of public accountability, judicial restraint and basic even-handedness.

He also has some advice:

states facing a reasonable prospect of investor claims, or seeking protection for non-Western investors, should systematically assess their anticipated exposure or protection and consider their options to avoid downside risks.

Of course, one obvious way to avoid those risks is for nations to refuse to agree to corporate sovereignty chapters in the first place.

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Filed Under: corporate sovereignty, ecuador, investor state dispute settlement, isds, tribunals
Companies: chevron

A Look At Just How Much The US Is Isolated In Its TPP Demands

from the keep-it-that-way dept

Please share widely and repost with attribution. This content is licensed CC BY-SA 3.0. Comments, suggestions, and criticism are welcome. Originally posted at To Promote the Progress?

Early Monday morning, Wikileaks released a second set of documents pertaining to the ongoing Trans-Pacific Partnership negotiations. Unlike the previous leak, this one does not contain a draft text, and instead consists of a series of comments and analysis by an unidentified negotiating party (clearly not the U.S.), as well as a table reporting each negotiating party’s position on specific issues in each chapter. The documents come from the Salt Lake City round of negotiations, which took place from November 19 to November 24, 2013.

The comments are brief, but well worth reading, as they indicate a degree of frustration with the lack of progress during the Salt Lake City round, and explicitly charge the United States with intransigence (e.g., on the topic of agricultural export subsidies, the author writes “All TPP countries except the U.S. commit to eliminate them”; likewise, with respect to financial services, he/she writes “United States shows zero flexibility.”)

An additional round of negotiations was held from December 7 to December 10 in Singapore. We learned yesterday that contrary to previous expectations, the TPP will not be concluded by year’s end, and instead at least one additional meeting will be held in January 2014.

Following up on my previous post, which analyzed the leaked intellectual property chapter by using network graphs, in this post I analyze overall negotiating positions across the entire agreement, as well as in each individual chapter. This analysis is based on the leaked table reporting negotiating positions.

Visualizing Negotiating Positions

The following graphs take the approach of plotting negotiating “distances” between countries. That is, the more dissimilarity there is between two countries’ negotiating positions, the further apart the countries will appear on a graph. Distances are derived directly from the leaked position table. The centroid is given by the origin point (0,0). In most cases, both axes used the same scale, but in a few cases (which I note) they are different. Scales are not comparable between graphs. All the graphs use “jitter,” which helps avoid overlapping labels, but makes distances slightly inexact. For technical details, see the “Nuts and Bolts” section towards the end.

This first graph represents the overall negotiating position distances between countries across all available chapters. There is a striking separation between the United States and all other TPP negotiating parties. Australia comes closest to the U.S. position, although it is not any further from the centroid than Peru. Overall, this graph serves to provide a simple visual confirmation of the leaked comments and other news reporting on TPP negotiations: the U.S. position is quite distant from the consensus point of all other countries.

Since my area of interest is intellectual property, I look at the IP chapter next. The results suggest my previous analysis was relatively accurate. The U.S. position in the intellectual property chapter is again farthest from the centroid. Australia is also quite far from the centroid, but also far from the U.S. All the other parties are clustered relatively close together, although we can still see differences within this cluster: e.g., Vietnam and Brunei are quite near one another, as are Canada and Malaysia (I had noted both these connections in the previous analysis).

In the remainder of this section, I consider each leaked chapter in alphabetical order.

The competition/state-owned enterprises graph tells a very different story than the previous two graphs. Here we immediately see two clusters on either side of the centroid: a United States/Canada/Australia/New Zealand/Mexico cluster, and a Japan/New Zealand/Singapore/Brunei/Chile cluster. Peru, Vietnam, and Malaysia fall in the middle. Note that the relative level of disagreement when compared to other chapters is low, since the data source reports positions only on a single proposal (sub-national coverage).

In the customs chapter, we see agreement amongst all parties except Japan (who has a “reserved position”) and the United States (who is the only party accepting the proposal). Again, the relative level of disagreement when compared to other chapters is low, since the data source reports positions only on a single proposal (a de minimis exception of $200).

The e-commerce chapter also provides a very different picture. There is a clear United States/Japan/Mexico cluster, which Peru also joins. Canada is nearby, but Australia is not. Brunei and Vietnam, normally close pairs, are quite far apart in this chapter.

The environment chapter also shows a distant United States position. Canada, Australia, Japan, Mexico, and Brunei cluster together quite close to the centroid, while Peru, Chile, Vietnam and Malaysia (all lower-income and middle-income countries) appear on the other periphery.

In government procurement, Mexico and Malaysia are the outliers. Both have rejected the proposal for sub-national coverage of this chapter. Relative distances are still small, given that there are only two proposals shown in the source table.

In the investment chapter, the United States appears again as the country furthest from the centroid. Japan is also relatively distant. Australia/Canada/Mexico cluster together, as do Brunei/New Zealand/Peru/Malaysia/Chile. One of the biggest debates in this chapter surrounds so-called investor-state dispute settlement, which would permit foreign firms to sue governments over alleged trade agreement violations. This type of provision is what has permitted tobacco company Philip Morris to sue the Australian government over its plain packaging legislation.

On labor issues, Australia and the United States cluster together far from the centroid. Mexico is also quite distant. Malaysia and Canada form a pair, but closer to the centroid. Mexico’s peripheral position is due to its rejection of the proposal on forced labor. The other two proposals concern sub-national coverage and dispute settlement.

The legal chapter includes a variety of topics such as the medicines “transparency” annex (i.e., the U.S. taking aim at foreign drug price controls), provisions exempting tobacco regulations from challenge, the “cultural exception” (bonjour Quebec!), and issues concerning when the agreement will enter into force, inter alia. Interestingly, we have almost a circle of positions around the centroid, with the exception of the United States, which is again farthest from the centroid.

The market access chapter is what most people typically think of when discussing trade agreements. Here, we see a wide variety of positions, representing significant disagreement. However, yet again, the United States appears farthest from the centroid. As noted above, the U.S. is the lone holdout on the proposal to eliminate agricultural subsidies. A recent Washington Post article on the U.S. sugar industry suggests that such subsidies aren’t going anywhere. I suppose that’s why the TPP is called a “partnership agreement”, rather than a “free trade agreement.”

Rules of origin are rules defining where a product is deemed to come from. Given that anything other than the simplest products will incorporate materials or parts from multiple countries, such rules are critically important in determining what products benefit from tariff reductions. We can see significant disagreement between most parties, with the United States position yet again farthest from the centroid.

With respect to trade in services, the United States and Canadian positions are identical, but farthest from the centroid. Peru and Chile are also peripheral, while all other parties cluster together near the centroid. The U.S. and Canadian positions are defined by their rejection of the “necessity test” proposal. Necessity tests require domestic regulation of services to be limited to only what is “necessary” to achieve a party’s policy objectives. Peru’s position is defined by its rejection of the open skies (air travel regulation) proposal.

SPS refers to sanitary and phytosanitary measures, which deal with food safety and plant and animal health regulations. If you’re wondering what this has to do with free trade, think of Japan or the European Union banning imports of U.S. beef: such bans may be motivated by legitimate health and safety concerns, but they may also simply provide a convenient cover for protectionism. The graph shows a significant amount of disagreement amongst most parties. In this chapter, the U.S. remains on the periphery, as does Japan, although there is no major consensus cluster amongst the other parties.

TBT stands for technical barriers to trade. Such provisions in trade agreements are designed to ensure that regulations, standards, and testing or certification requirements do not unduly burden free trade. Australia and the United States are clustered near one another, but this time it is a Peru/Chile cluster that is farthest from the centroid. All the Asian members plus New Zealand also form a cluster.

These graphs use ISO standard 2 letter country codes, but for reference, here is a legend:

US	United States
CA	Canada
JP	Japan
AU	Australia
NZ	New Zealand
MX	Mexico
PE	Peru
CL	Chile
SG	Singapore
MY	Malaysia
BN	Brunei
VN	Vietnam

Without access to the text, it’s sometimes difficult to know exactly what the various proposals mean. However, what we do know is that in the majority of chapters for which we have data, the United States appears quite far from the centroid position, and often by itself. This isn’t really news, but I think it’s interesting to systematically consider the distances between negotiating positions, and to note that the distances and clusters vary significantly by chapter and issue.

As for what it means, I think it’s fair to conclude that the TPP – unlike something like ACTA – is by no means an agreement amongst “like-minded countries.” Now, contention and disagreement isn’t always bad; on the contrary, it’s part and parcel of any negotiation. But one has to wonder about which countries are going to end up shifting positions, and in what direction, in order to make consensus and a final text possible. I suspect it won’t be the United States offering the compromises.

There are important issues at stake in the TPP negotiations, affecting access to medicines, national health policies, and national sovereignty inter alia. Yet the negotiating parties are being pushed to come to an agreement within the next two months. I won’t delve into any more detail here about the substantive issues, other than to recommend this Guardian guide to the most contentious issues in the TPP negotiations.

Nuts and Bolts

The approach I use here is called multidimensional scaling (MDS) which visualizes similarity and differences between cases as distances in N-dimensional space. I have to give a hat tip to Zhou Fang, who suggested this approach to me.

The leaked table of negotiating positions lends itself perfectly to MDS. In fact, the hardest part was probably retyping the scanned Wikileaks document. I coded an “accepted” position as 1, a rejected” position as a 0, and a “reserved position” as 0.5. Note that coding is somewhat arbitrary; e.g., I could have chosen 1, -1, and 0 instead. Different coding will affect the nominal distances, but not the relative distances (unless the coding employed unequal intervals).

The dist function creates a distance matrix. The MASS library provides the isoMDS function. isoMDS chokes when cases are identical (zero distance), so I had to add a nominal amount of distance between otherwise identical negotiating positions. Plotting is done with ggplot2, which makes adding jitter very easy. I adjust jitter on a case-by-case basis in order to avoid misleading distortions in the graphs. Most of the graphs use identical X and Y axes, but in a few cases the Y axis would have been highly compressed, so I expand it to make visual differentiation possible. Note carefully the scale changes between graphs.

Data and code available upon request. I’m currently in South Africa, so between the time difference and sporadic access to the Internet, I might not get back to you quickly, but I will do so eventually.

Filed Under: corporate sovereignty, investor state dispute settlement, isds, isolated, tpp, ustr