TPP's Corporate Sovereignty Chapter A 'Threat To Democracy And Regulation'

from the wrong-direction dept

When the negotiations for the Comprehensive Economic and Trade Agreement (CETA) between the EU and Canada were concluded in September 2014, the text was finally released after years of secrecy. At the time, the Canadian Centre for Policy Alternatives put together what remains the best overall analysis of the main text's 1598 pages, in a series of studies collectively called "Making Sense of CETA." The same organization has now published a set of analyses looking at key aspects of TPP, entitled "What’s the big deal? Understanding the Trans-Pacific Partnership".

They are all worth looking at, but Techdirt readers will probably be particularly interested in one called "Foreign investor protections in the Trans-Pacific Partnership." It's by Gus Van Harten, a professor at Osgoode Hall Law School of York University in Toronto, Canada, and a well-known commentator on trade law and policy. The first part of his analysis provides a good summary of the world of corporate sovereignty, or investor-state dispute settlement (ISDS) as it is more formally known. The later section looks at some new research that provides additional insight into just how bad corporate sovereignty is for those of us who are not insanely rich.

For example, Van Harten quotes some recent work showing that 90% of ISDS fines against countries went to corporations with over $1 billion in annual revenue or to individuals with over $100 million in net wealth. Similarly, the success rate among the largest multinationals -- those with turnovers of at least $10 billion -- was 71% in the 48 cases they initiated, compared with a success rate for everyone else of 42%. So any claim that ISDS is equally useful to all companies, including small and medium-sized businesses, is not borne out by the facts.

Van Harten also mentions some interesting figures for the financial winners and losers across all known corporate sovereignty cases. The largest corporations ended up with gains of around $6 billion; the thriving ISDS legal industry took home $2 billion; very wealthy individuals received around $1 billion; and large companies picked up another $500 million. As for the countries that were sued by these groups, their losses totaled some $10 billion. That's an important reminder that nations cannot win ISDS cases: the best they can ever hope for is not to lose. And they often do lose, as the high cumulative fines indicate.

Another fascinating insight comes from looking at the percentage of foreign-owned assets (that is, inward foreign direct investment) in the US economy that are covered by ISDS in trade and investment agreements. Currently, it is only around 10%, which is probably why corporate sovereignty is not a big deal for the US public today. If TPP is ratified, another 10% of foreign investments will be covered. But if the TAFTA/TTIP deal with the EU goes through, it would add another 60% to the total -- a huge jump. That would mean that TPP and TTIP together would make nearly all foreign investments in the US subject to corporate sovereignty.

Van Harten highlights another key aspect of TPP that has not received much attention. He points out that TPP goes beyond the older North American Free Trade Agreement (NAFTA), which is between the US, Canada and Mexico, but does not solve its serious problems, despite claims to the contrary:

anything that is apparently better in the TPP compared to NAFTA will very likely be lost in practice because a U.S. investor can bring a claim under NAFTA instead of the TPP. Also, anything worse in the TPP would not be displaced by NAFTA because a foreign investor could choose to bring a claim under the TPP. If a foreign investor was unsure which agreement offered the best chance to win compensation, it could bring a claim under the TPP and NAFTA, making a different argument under each and getting compensation if it won under either.

In other words, TPP has been written in such a way that the public always gets the worst of both worlds. Van Harten's chilling summary of the corporate sovereignty provisions in TPP is worth quoting in full:

The TPP would take us in the wrong direction and be very difficult to reverse. It would expand the transfer of power to ISDS arbitrators from legislatures, governments, and courts. The arbitrators would not be accountable like a legislature. They would not be capable of regulating like a government. They would not be independent or fair like a court.

At the core of the TPP's threat to democracy and regulation is the uncertain and potentially huge price tag that its ISDS process would put on any law or regulation that is opposed by a large multinational company or a billionaire investor. The problem is not that foreign investors would be too big to fail; it is that the TPP would make the biggest and richest ones too risky to regulate.

The TPP was an opportunity for countries to step back from and reform the flawed system of foreign investor rights and ISDS. Instead, the TPP would expand the system massively. That decision is reason enough to reject the TPP in order to protect the established institutions of democracy, sovereignty, and the rule of law in TPP countries.

Anyone who has any lingering illusions that it might be worth signing up to TPP should read this new analysis, which will dispel them rapidly.

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Filed Under: ceta, corporate sovereignty, democracy, gus van harten, isds, predictions, tpp

Six Key Flaws In The EU's Proposed 'New' Corporate Sovereignty Court

from the only-six? dept

A few months back, Techdirt wrote about the European Commission's proposal to replace the traditional corporate sovereignty system -- generally known as "investor-state dispute settlement " (ISDS) -- with what it called the "Investment Court System" (ICS). That seemed to us little more than a re-branding exercise; now an international investment law scholar has weighed in on the issue with his own, rather more expert opinion. Gus Van Harten is Associate Professor at York University in Canada. According to his biography, he's written a book proposing:

the establishment of an international investment court to ensure independence and accountability in the international adjudication of regulatory disputes between states and investors.

Despite that -- or maybe because of that -- Van Harten is none too impressed with the European Commission's plans, as the title of his new paper makes clear: "Key flaws in the European Commission’s proposals for foreign investor protection in TTIP". He singles out six in particular.

1. ISDS is alive in the EC's proposals

As Techdirt noted back in September, ICS isn't really very different from ISDS. Van Harten points out one aspect of corporate sovereignty tribunals that really has no place in any "new and improved" approach:

ICS "judges" would continue to have a financial interest in future claims because they are still paid a (lucrative) daily fee in a context where only one side -- foreign investors -- can bring claims, they would continue to operate under the usual ISDS arbitration rules, they would not have to meet the requirements for judicial appointment in any country, and they would not even be barred from working on the side as ISDS arbitrators. I am prompted to say that, if ISDS is "dead", as some officials have claimed, then the EC’s ICS proposal reminds me of a zombie movie.

The second flaw:

2. The case still has not been made for foreign investor protection in the TTIP

Van Harten writes:

Any proposal to give special privileges or public subsidies to any economic actor -- here, the largest and wealthiest in the world -- calls for a strong justification based on clear evidence of the public benefit. The absence of such a justification and evidence has been a serious omission in the EC's proposals for foreign investor protection from the very start.

The third serious flaw is similarly without any justification on the part of the European Commission:

3. The EC's proposals are fundamentally imbalanced

That's because it gives investors huge privileges without any corresponding responsibilities. Van Harten has a practical suggestion for remedying that:

The EC should establish actionable responsibilities for foreign investors by allowing a host country or affected third party, such as a trade union or a local community, to bring a claim (or, more modestly, a counter-claim) against a foreign investor in the very same process that is used to enforce foreign investor protections. That is a basic test for evaluating balance in the EC's proposals.

The fourth flaw concerns one of the main claimed improvements of ICS over ISDS:

4. The EC's proposals put poison pills into the "right to regulate"

The European Commission has made much of the fact that its new ICS will enshrine the "right to regulate." In his paper, Van Santen explores in detail exactly why that claim is mere window-dressing. He even goes so far as to say:

These textual details greatly undermine the EC's proposal on the right to regulate and the right to change the legal and regulatory framework. Indeed, they suggest that the EC is pretending to protect the right to regulate, while leaving catches in the text that return us to the usual concerns about ISDS.

The fifth flaw concerns a point that many have made about ISDS in the context of TTIP:

5. The EC's proposal remains disrespectful of domestic institutions, including domestic and European courts

Here's why:

The EC's proposal is still premised on an assumption that EU and US courts are so flawed that foreign investors should be able to bring an ISDS claim without having to demonstrate that it would be unreasonable for the foreign investor to seek relief first in the courts

As well as being an insult to these rather well-developed legal systems, and the people who work in them, it also has some serious negative consequences:

Foreign investors can choose to avoid the [domestic] courts, they can turn back from the courts at any point to pursue ISDS instead, and they can use ISDS to seek compensation for a court's decisions at any level.

In other words, ICS gives investors the best of all possible worlds, while the rest of us:

must deal with the usual risks of democracy and regulation in the usual ways: by taking part in the democratic process, by buying insurance, by bargaining for strong dispute settlement clauses in their contracts with government, or by relying -- like everyone else -- on the [domestic] courts.

Finally, Van Harten points out that if the European Commission wants to fix a system it admits is broken, it seems to be going about things in the wrong way:

6. If the EC is serious about an international investment court, why is it proposing to expand ISDS in the TTIP?

He means a real international investment court, not the ICS, which is far from being that.

while the EC has signalled that it will work toward an fullblown international court to replace ISDS, if this is the goal then the EC’s sequencing appears backwards. Logically, the EC should be pushing to transform existing treaties so that ISDS is replaced with an international court before the EC goes to the U.S. with its proposals. In past, the U.S. government has not welcomed the idea of new international courts. The fact that the EC has done the opposite -- by floating a version of ISDS with the U.S. before pursuing a proper court with other countries -- seems to undermine the EC's credibility on the issue of an international investment court.

Van Harten's paper is particularly valuable at a time when the European Commission is trying hard to propagate the idea that the problem of corporate sovereignty in TAFTA/TTIP is now "solved" by its ICS proposal. Van Harten's analysis shows that is very far from the case, and that corporate sovereignty remains one of the most problematic aspects of a deal that is itself highly problematic.

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Filed Under: corporate sovereignty, europe, european commission, gus van harten, ics, isds, tafta, tpp, ttip