The True Cost Of Corporate Sovereignty For The EU: €3.5bn Already Paid, €30bn Demanded - Even Before TAFTA/TTIP

from the and-guess-who-foots-the-bill? dept

While the debate about the inclusion of a corporate sovereignty chapter in TAFTA/TTIP continues to rage in the EU, the European Commission insists there's nothing to worry about here. In a recent article published in the Frankfurter Allgemeine Zeitung (original in German), the new European Commissioner for Trade, Cecilia Malmström, wrote that EU member states have signed 1400 agreements with other nations that included corporate sovereignty provisions -- implying that such investor-state dispute settlement (ISDS) elements are perfectly normal, don't cause problems, and won't cause problems.

But there are two flaws with this logic. First, only nine of those 1400 agreements are with the US, and on the other side were Bulgaria, Croatia, Czech Republic, Estonia, Latvia, Lithuania, Poland, Romania and Slovak Republic. In other words, all countries keen to escape from Russia's influence after the break up of the Soviet Union, and therefore willing to sign up to more or less anything -- even treaties with ISDS -- that might help them do that. Most of those 1400 agreements are with small, developing nations with few investments in the EU. That naturally means there are few opportunities to bring cases under ISDS.

The other flaw with the European Commission's implied logic that ISDS hasn't been a problem in the past, and thus won't be in the future, is that even that isn't true, as an important new piece of research by Friends of Earth Europe, entitled "The Hidden Cost of EU Trade Deals" demonstrates. For the first time, it gathers together all the corporate sovereignty cases that have been brought so far against EU countries, and comes up with the following statistics:

127 known ISDS cases have been brought against 20 EU member states since 1994.

The total amount awarded to foreign investors -- inclusive of known interest, arbitration fees, and other expenses and fees, as well as the only known settlement payment made by an EU member state -- was publicly available for 14 out of the 127 cases (11%) and amounts to €3.5 billion.

That figure is almost certainly an underestimate: thanks to the shocking lack of transparency in ISDS cases, details about the often very large payments are not always made public, which means that we don't have access to information about all awards made against EU nations. Moreover:

Details of the compensation sought by foreign investors was publicly available for only 62 out of the 127 cases (48%). The compensation sought for in these 62 cases amounts to almost €30 billion.

Again, that figure of €30 billion is almost certainly an underestimate of the true value of total claims against EU governments -- and hence against the EU public, which ultimately foots the bill in the event of tribunals making awards to companies. What makes that €30 billion figure so disturbing is that it represents a lower bound for ISDS cases in a situation where few US companies were able to bring claims, because of their limited investment in Eastern European countries.

If there is a corporate sovereignty chapter in TAFTA/TTIP, more than 14,000 American firms that own more than 50,000 subsidiaries in EU countries will have the ability to sue the EU (pdf) -- 95% of them for the first time. Moreover, they will be able to do that for all their existing investments in Europe, not just new ones, as the following section in the EU negotiating mandate makes clear (pdf):

the investment protection chapter of the Agreement should cover a broad range of investors and their investments, intellectual property rights included, whether the investment is made before or after the entry into force of the Agreement.

That clearly exposes EU member states -- and their citizens -- to the threat of an even greater level of claims than the €30 billion currently in play. Indeed, it is not fanciful to expect that figure at least to quadruple if ISDS is included in TTIP. That would mean claims -- not necessarily successful, of course -- of around €120 billion.

That's exactly the maximum expected boost to the EU's economy that the European Commission claims would be provided by TTIP by 2027 (pdf). In other words, even if the most optimistic forecasts for TAFTA/TTIP in EU were realized, a big chunk of that benefit could be wiped out by a wave of ISDS cases brought by US companies. Exactly the same is true with the roles reversed: much of TAFTA's claimed benefits for the US economy are likely to be cancelled out by claims from 3,000 European firms owning more than 24,000 subsidiaries in the US that would suddenly be able to bring corporate sovereignty cases against the US government. On the basis of what is already happening, including ISDS in TAFTA/TTIP looks almost certain to nullify most of the claimed benefits of signing any treaty, and on both sides.

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Filed Under: corporate sovereignty, eu, investor state dispute settlement, isds, tafta, tpp, ttip

Corporate Sovereignty's Chilling Effects

from the brrrr dept

As we've noted before, corporate sovereignty -- known more formally as investor-state dispute settlement (ISDS) -- has emerged as the most contentious element of the transatlantic trade deal TAFTA/TTIP, currently being negotiated. Not only has the ISDS chapter been put on hold pending the analysis of 150,000 submissions to a consultation held on the subject, but top EU politicians continue to flip-flop nervously on the subject.

Many of the worries have been about foreign investors being able to sue governments for bringing in policies that are claimed to be an indirect "expropriation". The sums awarded under corporate sovereignty provisions can be considerable, but monetary losses are not the only threat that ISDS chapters pose. Arguably even more serious is the chilling effect they can have on a country's ability to frame and bring in future legislation. This is not a new phenomenon. The North American Free Trade Agreement, NAFTA, is 20 years old, and its Chapter 11 provides guarantees of corporate sovereignty for investors. Here's what happened in Canada as a result, according to a 2001 article in The Nation:

Carla Hills, the US Trade Representative who oversaw the NAFTA negotiations for Bush I and now heads her own trade-consulting firm, was among the very first to play this game of bump-and-run intimidation. Her corporate clients include big tobacco -- R.J. Reynolds and Philip Morris. Sixteen months after leaving office, Hills dispatched Julius Katz, her former chief deputy at USTR, to warn Ottawa to back off its proposed law to require plain packaging for cigarettes. If it didn't, Katz said, Canada would have to compensate his clients under NAFTA and the new legal doctrine [of corporate sovereignty] he and Hills had helped create. "No US multinational tobacco manufacturer or its lobbyists are going to dictate health policy in this country," the Canadian health minister vowed. Canada backed off, nevertheless.

A former government official in Ottawa told me: "I've seen the letters from the New York and DC law firms coming up to the Canadian government on virtually every new environmental regulation and proposition in the last five years. They involved dry-cleaning chemicals, pharmaceuticals, pesticides, patent law.Virtually all of the new initiatives were targeted and most of them never saw the light of day."

Canada continued to find its room for democratic action constrained by threats of ISDS action over the next decade. In 2013, Elizabeth May, a member of the Canadian Parliament, and leader of the Green Party of Canada, wrote:

I am aware of a letter warning Alan Rock when he was Health Minister that removing the registration of pesticides for use in lawns for cosmetic purposes could give rise to Chapter 11 suits, so the move was not made. We have no way of assessing the "chilling effect" of the Chapter 11 cases that Canada has lost. In my opinion, there is a compelling case that the Ethyl and S.D. Myers case [relating to attempts by Canada to introduce tougher environmental laws] have resulted in failures of the Canadian government to regulate and/or ban toxic substances that they would have in the pre-Chapter 11 era.

Here's a more recent example of ISDS's chilling effects on democratic law-making. It concerns Indonesia, which has recently decided to terminate all 67 of its bilateral investment treaties. A long and fascinating post on the Transnational Institute Web site explains what happened:

In July 2014, Newmont Mining Corporation brought a case against Indonesia using the Indonesia-Netherlands [Bilateral Investment Treaty] at the International Centre for the Settlement of Investment Disputes (ICSID). In making the legal claim, the mining giant argued that the Indonesian Government's plans to implement a ban on unprocessed mineral exports would violate the investment agreement between Indonesia and the Netherlands. The case at ICSID was presented four months after Indonesia announced it would not renew its Bilateral Investment Treaty (BIT) with the Netherlands when it expires in July 2015. After one month, Newmont withdrew its case against Indonesia but only after it had reached an agreement with the Indonesian government, giving the mining company special exemptions from the new mining law.

Although the Newmont Mining Corporation may not have liked Indonesia's decision to require mineral processing to take place domestically, rather than abroad, that policy seems a legitimate one for a government to adopt in order to stimulate its local economy and provide employment for its population. As the Transnational Institute's post notes, what's troubling here is that the mere threat of of a corporate sovereignty case was enough to extract special treatment from the Indonesian government, and the lack of transparency of how that was agreed:

It has long been argued that the impact of Bilateral Investment Treaties is not just shown in the cases brought to tribunals that rule against states' rights to regulate and protect citizens, but also in the many cases that do not make it to ICSID because states backtrack on regulation for fear of lawsuits. This is called the 'chilling' effect or regulatory chill of investment arbitration. However it is very difficult to show how the chilling effect works, because governments that backtrack in face of threats often do so without public knowledge and because agreements with corporations are made between closed doors. The case of Newmont against Indonesia however, shows the consequences that arise from a mere threat of a billion dollar claim in response to a (proposed) new policy.

The fear has to be that the more such threats are successful in "chilling" governmental plans, the more they will be made. As with threats from patent and copyright trolls, governments may well decide that it is simpler to acquiesce to demands, rather than go to the expense and trouble of fighting them in ISDS tribunals, which are a law unto themselves, with the result that their outcomes are far from predictable and potentially very costly.

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Filed Under: chilling effects, corporate sovereignty, isds, nafta, tafta, ttip

Swedish Company Uses Corporate Sovereignty Clause To Demand 4.7 Billion Euros From German Public

from the are-you-sure-that's-enough? dept

A couple of months ago we mentioned the long-running legal battle involving the Swedish energy company, Vattenfall, which is suing Germany using corporate sovereignty provisions in the Energy Charter Treaty after the German state decided to phase out nuclear power stations. The rumored figure we mentioned then was the already-generous €3.7 billion; but it has just been revealed that Vattenfall is actually demanding even more -- €4.7 billion, to be precise. We know this is the real figure, because it was mentioned by Germany's Minister of the Economy, Sigmar Gabriel (original in German.)

This fact may help to explain persistent reports that Germany will not agree to the inclusion of an investor-state dispute settlement (ISDS) chapter in either TAFTA/TTIP or CETA (the Canada-EU trade agreement). Germany is already experiencing first-hand the dangers of such corporate sovereignty provisions, and clearly wants to avoid suffering any more on this front.

The latest information, reported by the German news magazine Der Spiegel, points out that two other energy companies, RWE and E.on, are unable to sue in the same way as Vattenfall, because they are German companies, and the ISDS option is only available to foreign investors. This underlines the fact that, far from creating a level playing-field, corporate sovereignty is biased against local companies. For this reason, RWE and E.on are also trying to sue in Germany's national courts in order to obtain compensation, as Vattenfall is doing with the ISDS tribunals; whether they can depends on a ruling from Germany's constitutional court, due early next year. Interestingly, Vattenfall is also suing the German government through these courts -- which shows how ISDS gives foreign investors extra ways of claiming compensation.

Finally, the Der Spiegel article points out that the original estimate of the potential costs to the German government (and thus to the German taxpayer, who has to pick up the bill) from the action in the national courts, which were put at between €15 billion to €20 billion, are probably too high. That's because the price offered for supplying electricity has now dropped, bringing down potential profits too. That demonstrates the danger of granting corporate sovereignty tribunals unchecked power to make awards in favor of companies based purely on the latter's probably exaggerated claims about uncertain "losses" far into the future.

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Filed Under: corporate sovereignty, germany, investments, isds, lawsuits, tafta, ttip
Companies: vattenfall

USTR Hoping To Keep Corporate Sovereignty Provisions If It Excludes Big Tobacco From The Deal

from the horse-trading dept

We've been quite critical of so-called corporate sovereignty provisions in various trade agreements. These provisions -- which trade negotiators prefer to call "investor state dispute settlement" (ISDS) rules (in part because they're so boring when called that, no one pays attention to how pernicious they are) -- basically allow companies to take governments to special tribunals, if new laws and regulations somehow interfere with their attempts to profit. A key example of how this is used under existing (via NAFTA) corporate sovereignty provisions is Eli Lilly demanding $500 million from Canada for daring to reject two of its patents because the drug in question didn't actually prove to be useful. Eli Lilly claims that this undermined the company's "expected future profits" and thus filed this suit, undermining the sovereignty of the country of Canada to determine what is, and what is not, patentable.

Another popular use of corporate sovereignty claims is the tobacco industry, going after countries that pass "plain packaging" laws (which say that all cigarette packaging needs to be without logos and trademarks and such). Whether or not you agree with such laws, the idea that big tobacco companies can take entire countries to these tribunals, demanding many millions of dollars based on laws those countries decided to pass, seems troubling. It's especially been concerning to health officials who have long favored plain packaging regulations.

Apparently, the latest move to salvage corporate sovereignty provisions in the Trans Pacific Partnership (TPP) agreement has the USTR attempting to throw Big Tobacco under the bus by removing tobacco from the ISDS provisions. This is an incredibly cynical and political move, designed to try to quiet some of the health activists' talking points about the plain packaging fights -- while leaving the overall basis of these corporate sovereignty provisions wholly in place.

While I don't always (or often) agree with the AFL-CIO, its response to this cynical attempt to carve Big Tobacco out of the deal is dead on:

The proposed carve-out will not stop multinationals like Veolia from suing the government of Egypt for raising the minimum wage. It won’t stop the pharmaceutical giant Eli Lilly from suing Canada over patent requirements or stop extractive company Pacific Rim Mining (a Canadian company that has since been bought by the Australian multinational OceanaGold) from demanding compensation when El Salvador refuses to let it pollute the local water supply by operating a gold mine.

Any industry-specific carve-out will not address the serious structural problems inherent in the system itself. Issues of broad public interest should not be viewed through the narrow lens of trade and investment at all, let alone decided by unaccountable private panels. Systems of justice should be transparent and accessible on an equal basis. ISDS is anything but: Only foreign investors can use it and there are no requirements that affected communities be allowed to participate or even have their view considered. In many cases, there often are not even requirements that hearings or decisions be made available to the public at all! Even in the case of clear legal error, it is almost impossible to reverse a decision.

In fact, the cheap attempt by the USTR to toss Big Tobacco under the bus to get a deal done really does more to underline the problems of corporate sovereignty positions, rather than to help smooth things over. If ISDS isn't appropriate for Big Tobacco, why is it appropriate for Big Pharma? Or big mining companies?

The USTR has continued to push out-of-date regulatory concepts into modern trade agreements. These are clearly designed not with the public interest in mind, but with a focus on what's best for the representatives of a few giant companies who are close to the USTR. Helping a few giant multinationals undermine regulations around the globe may be good for future job prospects in the industry, but it's hardly the incentives we should want for public servants.

Filed Under: corporate sovereignty, isds, plain packaging, plain packs, tobacco, tpp, ustr

EU-Canada Trade Agreement 'Celebrated', Text Officially Released; Even Worse Than Feared

from the handy-little-blueprint-for-TAFTA/TTIP dept

Techdirt has been covering the "Comprehensive Economic and Trade Agreement" (CETA) between the EU and Canada for a while now. Or rather, trying to, given the obsessive secrecy that has surrounded the negotiations, just as it does for TAFTA/TTIP and TPP. However, the agreement's text has now been officially released (pdf) -- on the day that those negotiating it declared it finished. This means that at precisely the moment when the people most impacted get to see what has been agreed to in their name, there is no point in expressing their views, since nothing can be changed. This is the shabby trick that governments routinely pull for these kinds of deals: the public is promised that it will have its say once the final text is available, but when that moment comes, people are informed that obviously no changes can be made since it has already been finalized.

However, in CETA's case, it's not quite so simple. During the ceremony marking the end of the negotiations, the leaders of Canada and the EU declared:

Today marks a truly historic moment in the evolution of the Canada-EU relationship as we celebrate the end of negotiations of the Canada-EU Trade Agreement.

Not "sign", but "celebrate". That's because Germany is threatening to withhold its support for CETA, as reported here by The Star:

New doubts about the fate of Canada’s long-sought free-trade deal with the European Union have cast a shadow over a meeting Friday where Prime Minister Stephen Harper and senior EU officials were to celebrate the completion of five years of negotiations.

A day before the Canada-EU summit in Ottawa, Germany signalled it won’t approve the landmark trade pact in its current form because of objections to the investor-protection measures included in the Comprehensive Economic and Trade Agreement (CETA).

It turns out that CETA contains many other deeply worrying aspects. That's doubtless why the negotiators were so keen to keep the text secret, but now that we have it, detailed analyses are coming through. The first in-depth look at what's lurking among CETA's 1500 pages comes from the Canadian Centre for Policy Alternatives (CCPA), which has produced a document called "Making Sense of the CETA: An analysis of the final text of the Canada–European Union Comprehensive Economic and Trade Agreement". Even that runs to over a hundred pages; what follows are some of the key points that it highlights.

Significantly, CCPA's analysis begins with the most contentious aspect of CETA, the investor-state dispute settlement (ISDS) chapter. It's crucially important not just because Germany is refusing to accept it, but also because it is likely to form the basis of a similar chapter in TAFTA/TTIP -- the European Commission included a draft version of the chapter as part of its public consultation on corporate sovereignty, offering it as a blueprint. One of the European Commission's repeated claims is that it will "fix" ISDS by making it clear that governments always retain the right to regulate, and that corporate sovereignty does not overrule that right. But CCPA's analysis shows why that is not true in CETA, despite similar claims there:

The 'right to regulate' is mentioned three times in the agreement. In the preamble, the parties simply 'recognize' that the CETA protects the right to regulate ("RECOGNIZING that the provisions of this Agreement preserve the right to regulate..."), yet the text fails to clearly and unequivocally confirm this right, especially in the investment chapter. The other mentions are to be found in the labour and environment chapters, so that, in effect, the CETA shields the right to regulate from any international obligations to protect labour or the environment but not from all the detailed obligations in the investment chapter. Also in the environment chapter, the right to regulate is limited by formulations which require environmental policies to be implemented “in a manner consistent with the multilateral environmental agreements to which they are a party and with this Agreement,” meaning that environmental policies have to be consistent with the CETA -- not the other way round.

CETA also includes a definition of "investor" that will make it easy for US companies to sue the EU using CETA and "treaty shopping", just as Philip Morris is suing Australia via its Hong Kong subsidiary:

For the purposes of this definition an 'enterprise of a Party' is: (a) an enterprise that is constituted or organised under the laws of that Party and has substantial business activities in the territory of that Party”). The reference to 'substantial business activities' is not enough to prevent 'treaty shopping.' For example, U.S. investors in Canada would be able to use the CETA investment provisions and ISDS to challenge European state measures.

One major surprise is found in the chapter covering regulation. Like ISDS, this is already a hot issue for TAFTA/TTIP, where many fear that national sovereignty will be sacrificed to the corporate kind. CETA shows another way in which this can happen -- and which is likely to be adopted in TAFTA/TTIP as well:

Parties to the agreement have to ensure that the licensing and qualification requirements and procedures are based on particular criteria to preclude regulators from acting in “an arbitrary manner” (Article 2.1). Specifically, covered regulations will have to be: “a) clear and transparent; b) objective; c) established in advance and made publicly accessible” (Article 2.2).

Parties have to ensure “that licensing and qualification procedures are as simple as possible and do not unduly complicate or delay the supply of a service or the pursuit of any other economic activity” (emphasis added) (Article 2.7). Making licensing procedures "as simple as possible" sets an absolute value on the ease with which corporations can get their projects approved to the detriment of all other considerations.

The CCPA report explains how this new requirement could have a major impact on regulation:

If a dispute panel interpreted "objective" to mean "not subjective," regulations could be overturned if they are based on the regulator's necessarily subjective balancing of different factors such as public input, the scenic impacts of a development and environmental considerations.

For example:

Dispute panels could determine that public input, environmental assessments and archaeological studies do not constitute a process that is "as simple as possible."

CETA also provides some hints about the shadowy Regulatory Council that TAFTA/TTIP is likely to set up in order to ensure the convergence of future US and EU regulations. The danger here is that such a council will effectively vet or change new regulations before they are made public, and allow corporations with privileged access to government sources to prepare their lobbying well in advance. Indeed, that's exactly how CETA's "Regulatory Co-operation Forum" will work:

Parties will endeavor to share "proposed technical or sanitary and phytosanitary regulations that may have an impact on trade with the other Party at as early a stage as possible so that comments and proposals for amendments may be taken into account." This means that information on future legislation could be shared with the other Party even before it has been shared with their Parliaments. If that were the case, the other Party could make amendments and comments before the country's own parliament got their hands on the draft legislation.

These are just a few of the awful things that are starting to crawl out of the CETA text now that it has been exposed to some sunlight. CCPA's excellent analysis is grim but required reading, not just in order to understand what is in CETA, but also as a taster for some of the bad stuff that is likely to turn up in TAFTA/TTIP too.

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Filed Under: canada, ceta, corporate sovereignty, europe, isds, trade agreement

Is The UK Government Trying To Sneak Through Its Own Corporate Sovereignty Rules?

from the downward-regulatory-ratchet dept

As their name suggests, corporate sovereignty chapters in trade deals are problematic in part because they place corporations on the same level as nations, allowing the former to sue the latter in special tribunals outside national courts. What's particularly troubling is that companies are now claiming that basic democratic functions, like passing laws promoting health, should be considered a form of "expropriation", because future corporate profits are reduced. That effectively turns investor-state dispute settlement (ISDS) into a downward regulatory ratchet that makes it very difficult -- or at least very expensive -- to bring in any new regulations that reduce profits for some business sector.

Despite this -- or possibly even because of this -- the UK government is currently trying to bring in its own, domestic version of this ratchet. It's found in a new Bill, simply but significantly called "Deregulation Bill". It's a rag-bag of legislative odds and ends, covering things like religious exemption from wearing safety helmets, selling yarn, erection of public statues, repealing the power to block Web sites (brought in by the Digital Economy Act), late night refreshments and -- tucked in near the end -- the following:

83 Exercise of regulatory functions: economic growth

(1) A person exercising a regulatory function to which this section applies must, in the exercise of the function, have regard to the desirability of promoting economic growth.

(2) In performing the duty under subsection (1), the person must, in particular, consider the importance for the promotion of economic growth of exercising the regulatory function in a way which ensures that--

(a) regulatory action is taken only when it is needed, and

(b) any action taken is proportionate.

The Bill goes on to clarify what a "regulatory function" might be:

(a) a function under or by virtue of an Act or subordinate legislation of imposing requirements, restrictions or conditions, or setting standards or giving guidance, in relation to an activity, or

(b) a function which relates to the securing of compliance with, or the enforcement of, requirements, restrictions, conditions, standards or guidance which, under or by virtue of an Act or subordinate legislation, relate to an activity.

As that makes clear, the proposed law would apply to pretty much any kind of regulation and its enforcement, and would require the effects on the UK's economic growth to be considered above everything else. Indeed, there's no obligation to consider anything else. Its effects would reach far beyond the obvious areas. For example, this post by the journalist David Hencke explains what the Bill's implications for human rights in the UK would be (pointed out to us by @AnitaBellows12):

The Deregulation Bill -- promoted as liberating business from silly bureaucratic rules -- includes what sounds like a rather arcane provision saying that all regulators for the first time must consider the impact on economic growth before they launch criminal or civil proceedings (see clauses 83/84) against a company.

In other words if the [UK's Equality and Human Rights Commission -- ECHR] doesn’t do this -- big companies with loads of cash can take them to judicial review and get cases where they break the law on discrimination annulled. It would also make the EHRC -- not the most radical of bodies -- even more careful before it takes up your case.

But it's not just limited to the field of human rights: it would also apply to the enforcement of environmental laws, or controls on financial services, say. It's true that the Bill doesn't make it impossible to carry out those functions, but it does open up an important new way for corporates to challenge any government enforcement actions against them: all they have to do is to complain that the implications for the UK's economic growth weren't properly considered. As with ISDS, it doesn't matter whether they win every such case: the mere threat of being able to bring these cases will inevitably have a chilling effect on people working in UK government departments, and result in them being much more cautious in their enforcement of UK laws against companies. If enacted, then, the new Bill would have a large-scale, deregulatory effect that will go far beyond the other, rather minor measures it contains.

As Hencke's post points out, this Bill is still in the early stages of its passage through the UK Parliament, so these particular clauses could be modified or even deleted -- although it is likely the UK government will just put them back if they are. Still, their appearance here, hidden away among mostly trivial matters, should act as a wake-up call that corporate sovereignty is not just a matter for international trade agreements, but may start cropping up in national legislation too.

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Filed Under: corporate sovereignty, deregulation bill, economic growth, isds, profits, tribunals, uk

Canada's New Investment Agreement With China Will Take Precedence Over Canadian Constitution for 31 Years

from the above-the-law dept

Here on Techdirt we've been covering the secrecy surrounding CETA, the trade agreement between the EU and Canada, and its problematic inclusion of a corporate sovereignty chapter. But while attention has been focused here, the Canadian government is sneaking through a bilateral investment treaty with China that is arguably worse in every respect -- at least for Canadians. Here's how the Council of Canadians described the move:

In the world of official government announcements, a two-paragraph media release sent out in the late afternoon on the Friday before Parliament resumes sitting is the best way for a government to admit, "We know this is really, really unpopular, but we're doing it anyway."

That's the way the Harper government, by way of a release quoting Trade Minister Ed Fast, announced that it had decided to ignore widespread public opposition, parliamentary opposition from the NDP, Greens and even lukewarm Liberal criticism, an ongoing First Nations legal challenge, and even division at its own cabinet table and grassroots membership and proceed with the ratification of the Canada-China Foreign Investment Promotion and Protection Agreement (FIPA).

The key problem, as is increasingly the case with international agreements, is the inclusion of far-reaching investor-state dispute settlement (ISDS) measures that would allow China to sue the Canadian people. Here's what the treaty law expert Gus Van Harten told the Vancouver Observer:

"It is true that Chinese investors can sue Canada for any actions by the federal government or the [British Colombia] government (or legislature or courts) relating to Chinese assets connected to the [Enbridge] Northern Gateway pipeline," Van Harten said.

China's investment in Canada is huge: Chinese companies have invested over $30 billion in Canada's energy industry alone. That means there is plenty of scope for new regulations or laws to affect those investments, and to give rise to claims -- or for those regulations and laws to be dropped because of such a threat. The deep secrecy surrounding FIPA even extends to ISDS actions:

"there is no requirement in the treaty for the federal government to make public the fact of a Chinese investor's lawsuit against Canada until an award has been issued by a tribunal. This means that the federal government could settle the lawsuit, including by varying its conduct in a way that many Canadians would oppose, or by paying out public money before an award is issued, and we would never know."

As the Council of Canadians post mentioned, the Canadian government has ratified this agreement even though a major legal challenge against it is still pending -- effectively making the decision irrelevant. That's because of another astonishing aspect of the deal, explained by Van Harten as follows:

"Even if found unconstitutional by a court down the road...once the treaty has been ratified, none of the obligations assumed by Canada can be modified unless China agrees," he said.

In other words, the agreement, which runs until 2045, has given itself priority over Canada's constitution for the next 31 years. That abrogation of government power and the erosion of democracy it entails both emphasize how completely corporate sovereignty now trumps the old-fashioned, national kind.

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Filed Under: canada, ceta, china, corporate sovereignty, fipa, isds, sovereignty

Corporate Sovereignty Debate Heats Up In Australia

from the empty-exercises-in-pretend-democracy dept

As Techdirt has reported, so far corporate sovereignty has emerged as the most contentious issue in the TTIP/TAFTA negotiations. In response to the growing public concern in Europe, the European Commission held a consultation on Investor-State Dispute Settlement (ISDS), although that proved largely a sham, with the desired outcome clearly signalled by the choice of questions and how they were framed. Indeed, Karel De Gucht, the EU Commissioner with overall responsibility for TTIP, even went so far as to call the unprecedented 150,000 public responses an "outright attack" -- which is an interesting way to characterize democracy in action.

By contrast, corporate sovereignty has not figured so prominently in the Trans-Pacific Partnership agreement discussions, even though it is likely to be as problematic there as for the transatlantic nations. The one exception is in Australia, where there has been an interesting debate on the topic thanks to Philip Morris using ISDS to sue that country over plain packaging for cigarettes, and more recently because of a Bill proposed by Peter Whish-Wilson, a senator from the Australian Greens party. It's called the "Trade and Foreign Investment (Protecting the Public Interest) Bill 2014" (pdf), and consists of the following succinct paragraph:

The [Australian] Commonwealth must not, on or after the commencement of this Act, enter into an agreement (however described) with one or more foreign countries that includes an investor-state dispute settlement provision.

Earlier this year, the Australian Senate referred the Bill to the Foreign Affairs, Defence and Trade Legislation committee for an inquiry and report, which provided a rare opportunity for the public to comment on the inclusion of ISDS in TPP and other agreements. As with the European Commission's consultation, the response was huge. The recently-published report (pdf) explains:

The committee also received over 11,000 emails from individuals using an online tool by which people could express their opposition to ISDS clauses in trade agreements to the committee. Due to the large number of emails received, it was not possible for the committee to accept them as submissions and publish them on the committee’s website. The committee, however, agreed to accept the emails as correspondence, and acknowledge them on the committee's website.

Although they didn't call it an "outright attack" like De Gucht, the committee was still unable to recognize that using an "online tool" is a perfectly natural and legitimate way for people to express their views these days. The committee also made a recommendation that the Bill should not be passed. But as a press release from the Australian Fair Trade & Investment Network (AFTINET) points out (pdf), the Australian government has a majority on the committee, so it was hardly likely to support a Bill that went against its own policy of accepting ISDS chapters on a case-by-case basis.

However, the report is reasonably fair in its distillation of the objections to the inclusion of corporate sovereignty clauses as outlined in submissions, and it's worth reading the short document for a good summary of those, and of the arguments in favor of ISDS, which are echoed by the report as follows:

The committee is of the view that many of the alleged risks to Australian sovereignty and law making arising from the ISDS system are overstated and are not supported by the history of Australia's involvement in negotiating trade agreements. While the committee acknowledges that past experience may not be an accurate guide to the future in terms of potential ISDS claims against Australia, it stresses that the investment treaty arbitration field is evolving in positive ways to enable countries, including Australia, to put exclusions in place, limit the application of ISDS to the investment sections of agreements, and generally tighten up the wording of agreements. The committee is of the view that it is far more important for Australia to manage any risks associated with ISDS provisions than to reverse its longstanding treaty practice and opt out of the ISDS system altogether.

That is, corporate sovereignty hasn't been too much of a problem in the past (if you ignore the threat from Philip Morris), and we're sure we can fix any problems that arise in the future. The first point is an incredibly naïve viewpoint given the changing ISDS landscape, with dozens of new cases each year, and multi-billion dollar awards being made. The second commands no confidence given the refusal to allow people to see drafts of these secret agreements involving ISDS; that means, for example, that serious blunders by the negotiators may not be caught until it is too late to do anything about them, with costly consequences for taxpayers. And even if there are no obvious mistakes in the texts, corporations will still use the threat of ISDS actions to bluff and to bully.

The Bill is unlikely to pass in the Australian Senate, and almost certain not to in the House of Representatives, where the Australian government retains a majority, but it has at least provided an opportunity for ordinary people to express their views on a matter that will have a big impact on their daily lives. Although that is welcome, it's disgraceful that they were only able to do so thanks to the efforts of the Australian Greens party, which proposed this Bill largely with that end in view. Such consultations should be a matter of course for these kind of agreements, and the opinions expressed should have a real influence on the negotiations -- and not simply be filed away as empty exercises in pretend democracy.

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Filed Under: australia, corporate sovereignty, greens, isds, tpp

Corporate Sovereignty Tribunal Makes $50 Billion Award Against Russia

from the arbitrary-arbitrals dept

Techdirt has been writing about the dangers faced by nations that sign up to treaties containing corporate sovereignty clauses for some time now. These chapters are typically included in so-called trade agreements like TAFTA/TTIP and TPP -- although they actually go far beyond regulating trade -- but are also found elsewhere. For example the Energy Charter Treaty (ECT) includes one, as Germany found to its cost when the Swedish company Vattenfall used the investor-state dispute settlement (ISDS) mechanism to claim €3.7 billion after the Germany state decided to phase out nuclear power stations -- thus reducing Vattenfall's future profits. Now the ECT's corporate sovereignty chapter has struck again on an even more staggering scale:

In an historic arbitral award rendered on July 18, 2014, an Arbitral Tribunal sitting in The Hague under the auspices of the Permanent Court of Arbitration (PCA) held unanimously that the Russian Federation breached its international obligations under the Energy Charter Treaty (ECT) by destroying Yukos Oil Company and appropriating its assets. The Tribunal ordered the Russian Federation to pay damages in excess of USD 50 billion to our clients who were the majority shareholders of Yukos Oil Company.

That comes from a press release issued by the lawyers acting for the Yukos shareholders, who are also doing quite nicely:

The Tribunal also ordered the Russian Federation to reimburse to our clients USD 60 million in legal fees, which represents 75% of the fees incurred in these proceedings, and EUR 4.2 million in arbitration costs.

Even for an oil- and gas-rich country like Russia, this is obviously a massive amount of money. A detailed and insightful post by Kavaljit Singh puts it in context:

In relative terms, the compensation award is equivalent to around 11 per cent of Russia's foreign exchange reserves, 10 per cent of annual national budget and 2.5 per cent of country’s GDP. Given the magnitude of compensation, the Award could be more damaging to the Russian economy than all the economic sanctions imposed by the West against Russia for its actions in Ukraine.

He goes on to point out one of the most worrying aspects of these awards by tribunals:

What is most astonishing is that the arbitral tribunal has not provided any standard or credible rationale behind awarding $50 bn in compensation to claimants. The calculations of total damages put forward by claimants are based on assumptions and hard evidence is lacking. The tribunal found that the claimants contributed to 25 per cent "to the pejudice they suffered at the hands of the Russian Federation." Hence, the amount of damages to be paid by Russia is reduced by 25 per cent to $50 bn from $67 bn. In its lengthy 615-page verdict, no explanation has been given by the tribunal on how did it arrive at 25 per cent of claimants' contributory fault? Why not 30 or 40 or 50 per cent?

The arbitrary nature of these awards, and the fact there seems to be literally no limit to the amount that might be awarded, are just some of the many problems afflicting investor-state dispute settlements. Singh notes another disturbing aspect of the current verdict:

It needs to be emphasized here that Russia only accepted the provisional application of the ECT (pending ratification) in 1994 meaning that the country will only apply the Treaty "to the extent that such provisional application is not inconsistent with its constitution, law or regulations." Same was the approach adopted by Belarus, Iceland, Norway and Australia.

Russia never ratified the ECT and announced its decision to not become a Contracting Party to it on August 20, 2009. As per the procedures laid down in the Treaty, Russia officially withdrew from the ECT with effect from October 19, 2009.

Nevertheless, Russia is bound by its commitments under the ECT till October 19, 2029 because of Article 45 (3) (b) states that "In the event that a signatory terminates provisional application…any Investments made in its Area during such provisional application by Investors of other signatories shall nevertheless remain in effect with respect to those Investments for twenty years following the effective date of termination."

That is, although Russia signed the treaty, it never ratified it. And yet under its terms, it can still be sued, as here -- another good reason never to sign up to these kind of agreements. Whether it will pay up is quite a different matter, of course. As Singh points out:

Shareholders will soon find it extremely difficult to enforce the Award as Russia has already decided to challenge it. The shareholders could seek to seize commercial assets of Russia (owned by country's state-owned corporations and sovereign wealth funds) in 149 countries which are signatory to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Award (popularly known the New York Convention).

In any case, it is going to be a time-consuming and uphill process to enforce the tribunal Award in 149 contracting parties of New York Convention.

As he writes, the enormous award against the Russian government should stand as the starkest warning yet about the dangers of entering into these kinds of agreements:

Even though this Award is related to ECT, it provides important policy lessons to other countries which have already signed or currently negotiating bilateral investment treaties (that allow investor-to-state arbitration -- ISA) without any consideration of consequences and potential costs.

Here's why:

The existing investment protection agreements have failed to address the balance of rights and responsibilities of foreign investors as it offers numerous legal rights for investors without requiring corresponding responsibilities for them.

That's a hugely important point that all those countries taking part in the negotiations for TAFTA/TTIP, TPP and CETA would do well to consider carefully -- or they may find themselves on the wrong end of $50 billion award, as Russia now does.

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Filed Under: corporate sovereignty, energy charter treaty, isds, russia
Companies: yukos oil company

Germany Says It Won't Agree To CETA With Current Corporate Sovereignty Chapter

from the so-where-does-that-leave-TTIP? dept

This is potentially huge: according to the leading German newspaper S&uumlddeutsche Zeitung, Germany will not accept CETA, the Canadian-EU trade agreement, if it contains a corporate sovereignty chapter in its present form (original in German, pointed out to us by @TeraEuro):

German EU diplomats confirmed in Brussels on Friday that the [German] federal government could not sign the agreement with Canada "as it is now negotiated." Although Germany was, in principle, ready to initial the agreement in September, the chapter on the legal protection of investors is however 'problematic' and currently not acceptable.

This confirms rumors that CETA is finally completed, and that the plan is for the EU member states to "initial" it -- accept it in principle -- in September. However, if Germany really does refuse to sign up with investor-state dispute settlement (ISDS) included in its current form, the pressure will be on the European Commission to take it out -- because of the nature of CETA, all 28 EU member states must approve it before it is fully ratified. However, here's what the Commission told S&uumlddeutsche Zeitung regarding that idea:

Without these clauses, the European Commission's trade department says, a Canadian company will hardly invest in Europe. How could an investment in Bulgaria, a country which the European Commission has, so to speak, officially certified for high-level corruption, be justified without legal protection? Or in Italy, where cases before the national courts can last eight to ten years?

But according to the European Commission's own figures, bilateral investment between the EU and Canada is flourishing (pdf): in 2012, the total investment by EU companies in Canada was €258 billion, while Canadian investment in the EU was €115 billion -- 45% of the EU's, even though Canada's population is only 7% that of the EU. In other words, contrary to the European Commission's scaremongering, Canadian companies are clearly perfectly happy to invest in Europe on a massive scale even without ISDS, which is therefore unnecessary, and can be dropped from CETA.

It's therefore not clear how the European Commission will react to this development, and whether it will try to push through the current version of ISDS, attempt to modify it by re-opening negotiations with Canada, or accept that ISDS must go if it wants to save CETA. But what is not in doubt is that this has major ramifications for TAFTA/TTIP. Germany's justified concerns about corporate sovereignty in CETA apply even more strongly to the far-bigger agreement. If it wants ISDS out of one, it will certainly want it out of the other. A refusal by the US to accept that -- quite likely, given its firm support for corporate sovereignty -- would mean that TAFTA/TTIP is dead.

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Filed Under: ceta, corporate sovereignty, germany, investor state dispute settlement, isds, tafta, ttip