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

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

Top Arbitration Lawyer Says Corporate Sovereignty System Needs 'Complete Overhaul'

from the weapons-of-legal-destruction dept

A few months back we wrote about the free trade supporter Cato Institute arguing that corporate sovereignty provisions should be dropped from trade agreements, for a variety of cogent reasons. You wouldn't expect one of the top arbitration lawyers that actually uses the system to go quite so far, but this is pretty close:

A prominent international lawyer has launched a scathing critique of the international arbitration system that deals with investor-State disputes, calling for its "complete overhaul".

...

Delivering the keynote address to the Eighth Annual Juris Investment Treaty Arbitration Conference held in Washington, D.C. in late March, George Kahale III -- who has been lead counsel in several of the world’s largest international arbitration cases, including a pending claim against Venezuela -- also listed the top ten of what he viewed were the most troubling aspects of investor-State arbitration.

His ten points are all good, and well-worth reading, but the first is particularly important. It helps to explain why corporate sovereignty has become such a big issue recently -- and why some nations are starting to withdraw from such schemes:

many governments are jumping on to the bandwagon of investment treaties -- which Kahale described as "weapons of legal destruction" -- often without scrutinising the serious implications and significance of the obligations contained therein.

Governments also often overlook the changing nature of investment treaties -- which are expanding in breadth and ambiguity -- in favour of investors with the corresponding effect that more and more types of State acts, gestures or Statements are becoming liable to challenge and compensation by foreign investors, said Kahale.

It's the fact that investor-state dispute settlement (ISDS) chapters are like a ticking trade time-bomb, just waiting to explode at some unknown future date, that makes them so dangerous. A country can't predict which apparently innocuous change to its laws or regulations will trigger a multi-million -- or even multi-billion -- dollar ISDS claim against it. Since awards must be met from the public purse, that means there could be a huge unexpected shortfall in the national budget. That lack of certainty -- and lack of financial control -- is no way to run a country, and is yet another reason why all nations, even the largest, would be wise to refuse to include corporate sovereignty provisions in their trade agreements.

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Filed Under: arbitration, corporate sovereignty, george kahale, investor state dispute settlement, isds, trade agreements

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

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

Latest TPP Leaks Reveal That US Is Isolated In Its Desire To Push Through Corporate Exceptionalism

from the good-to-see dept

With the latest round of TPP negotiations ongoing, the folks over at Huffington Post got a hold of two leaked documents including a very useful spreadsheet highlighting all of the positions and areas of disagreement concerning every chapter of the TPP. What's quite revealing (and very good to see, though we'll see how it holds up) is that on many of the worst proposals, it appears that the US is very isolated, with either no one agreeing or maybe just one or two other countries agreeing. Of course, the US is obviously the most powerful force in these negotiations, so never underestimate the ability of the USTR to pressure countries to agree to these harmful policies -- but so far, it appears that other governments have been willing to push back on the US's extreme view of corporate sovereignty ("investor dispute resolution settlements") which would allow companies to ignore the laws of countries and sue those countries for "lost profits" when they disagree with the legal regime (say, for example, if a patent they wanted isn't granted). These programs have been a disaster in current agreements, and hopefully it appears that other countries now recognize this.

It also appears that the US is somewhat isolated in its intellectual property proposals. Only Australia and Peru agree with the US's "patentability criteria." And no one at all agrees with the US's plans for extra protection for patents or to extend protections to new uses (such as plants, animals and surgical procedures). The US is also the only one supporting programs favorable to pharmaceutical companies around data protection. On the copyright side, it appears that everyone disagrees with the US's view of parallel importation (which, if still the same as it was from the last leaked version, disagrees with the US Supreme Court's own ruling on parallel importation). Only the US wants "establishment of criminal offenses for unintentional infringements of copyright, related rights and trademarks."

This is good to see -- but, again, the US is the most powerful voice in the room, and you won't believe the tricks that the USTR will pull to try to bend other countries to agree to these proposals. Hopefully, though, the other countries stand firm. Hell, the fact that so many other countries agree on so many other proposals suggests that perhaps they should just kick the US out and make their own agreement.

Oh, and the US isn't only isolated in pushing for bad proposals. It's also isolated in rejecting some proposals as well. For example, there's a proposal in the e-commerce chapter on "privacy obligations" which everyone has agreed to... except the US. Gee, the US not interested in privacy protections? I wonder why...

Filed Under: copyright, investor state dispute settlement, isds, isolated, patents, tpp, ustr

European Commission Desperately Tries To Justify Inclusion Of Corporate Sovereignty In TAFTA/TTIP; Fails Dismally

from the is-that-really-the-best-you've-got? dept

Techdirt has been writing about corporate sovereignty (also known as investor-state dispute settlement -- ISDS) for a year now. Back in April, we noted that it was likely to be part of the TAFTA/TTIP negotiations, which were just about to start. Since then, more and more people have woken up to its dangers, and called for corporate sovereignty to be dropped from the negotiations.

The European Commission is evidently feeling the heat, because it has put together a couple of documents with the evident aim of justifying the inclusion of ISDS in TAFTA/TTIP, and sent them to the committee that will be writing the final report on whether or not the European Parliament should accept the TAFTA/TTIP agreement once finalised. The first document is entitled "EU--Canada CETA: main achievements" (pdf and embedded below). It provides us with a rare official glimpse of what is in the still-secret trade agreement between Canada and the EU.

Many of the "clarifications" to corporate sovereignty concepts listed there are welcome: for example, in defining what loose concepts like "fair and equitable treatment", and "indirect expropriation" really mean. But the credibility of the document is undermined by the very first point:

The CETA reaffirms the right of the EU and Canada to regulate to pursue legitimate public policy objectives such as the protection of health, safety, or the environment.

The fact that the European Commission even feels a need to affirm this means that it recognizes that corporate sovereignty does, indeed, threaten the fundamental rights of nations to legislate freely, and without fear of being hauled up before ISDS tribunals. And however much the European Commission may try to "clarify" the corporate sovereignty provisions, clever lawyers will always find ways for their clients to sue countries for daring to bring in laws protecting health, safety or the environment that cause profits to dip.

This means that there is only one sure way to preserve the sovereignty of nations, and prevent them becoming the object of multi-billion dollar lawsuits, as is happening currently under other trade agreements like NAFTA, and that is to remove ISDS completely. Evidently worried by this argument, the European Commission has put together another document, a "factsheet" called "Investment Protection and Investor-to-State Dispute Settlement in EU agreements" (pdf and embedded below) that tries to head it off.

The opening paragraph once again makes a false equivalence between the right of states to regulate and the need to protect investors:

Investment protection provisions, including investor-state dispute settlement are important for investment flows. They have generally worked well. However, the system needs improvements. These relate to finding a better balance between the right of states to regulate and the need to protect investors, as well as to making sure the arbitration system itself is above reproach e.g. transparency, arbitrator appointments and costs of the proceedings.

The basic argument of the fact sheet can be found in the following paragraphs (bolded phrases in original):

Investment is a critical factor for growth and jobs. This is particularly the case in the EU, where our economy is very much based on being open to trade and investment. Investment is key in creating and maintaining businesses and jobs. Through investment, companies build the global value chains that play an increasing role in the modern international economy. They not only create new opportunities for trade but also value-added, jobs and income. That is the reason why trade agreements should promote investment and create new opportunities for companies to invest around the world.

Companies investing abroad do encounter problems which -- for a variety of reasons -- cannot always be solved through the domestic legal system. These problems range from the rare, but dramatic, occurrences of expropriations by the host country by force, discrimination, expropriation without proper compensation, revocation of business licences and abuses by the host state such as lack of due process to not being able to make international transfers of capital.

Precisely because of these risks, provisions to protect investments have been part and parcel of all the 1400 bilateral agreements entered into by EU Member States since the late 1960s. The EU itself is party to the Energy Charter Treaty, which also contains provisions to protect investments and investor to state dispute settlement. Worldwide, there are over 3400 such bilateral or multiparty agreements in force containing provisions to protect investments. They provide guarantees to companies that their investments will be treated fairly and on an equal footing to national companies. By creating legal certainty and predictability for companies, investment protection is also a tool for states around the world to attract and maintain FDI [foreign direct investment] to underpin their economy.

In essence, it's a kind of syllogism: investment is critically important for the EU economy; investors needs corporate sovereignty guarantees to protect their investment; so TAFTA/TTIP must contain ISDS to "attract and maintain" foreign investment -- in this case, from the US. The clear implication is that without corporate sovereignty, US investors will be reluctant to put their money in Europe, and vice versa.

The European Commission has another page on its Web site that provides some context. Here's what it says about the current levels of investment between the two trade blocs:

Total US investment in the EU is three times higher than in all of Asia.

EU investment in the US is around eight times the amount of EU investment in India and China together.

EU and US investments are the real driver of the transatlantic relationship, contributing to growth and jobs on both sidesof the Atlantic. It is estimated that a third of the trade across the Atlantic actually consists of intra-company transfers.

In other words, even though corporate sovereignty is not enshrined in any treaties between the US and EU, the scale of investment (in both directions) is unmatched anywhere else on the planet. It would seem that the European Commission's argument for the necessity of ISDS falls down at some point. It's not hard to see where.

The second paragraph quoted above from the fact sheet lists some of the "rare" problems that arise when investing in foreign countries: "expropriations by the host country by force, discrimination, expropriation without proper compensation, revocation of business licences and abuses by the host state such as lack of due process to not being able to make international transfers of capital." Does the European Commission seriously think either the EU or US is going to engage in any of those activities, or that, if they ever did, investors in those areas would be unable to use local courts to seek redress?

The European Commission's argument in favor of corporate sovereignty is invalid because it mixes two quite distinct situations. It tries to use the problems of investment in just a few emerging economies -- that is, ones without stable governments or honest judiciaries -- which gave rise to ISDS chapters in the first place, and then pretend that similar problems are an issue in the US and EU, and so require the same solution: corporate sovereignty.

But that's simply not true. TAFTA/TTIP is a completely different kind of agreement, quite unlike any of the "1400 bilateral agreements entered into by EU Member States since the late 1960s." Placing arbitration tribunals above the well-developed legal systems of both the EU and US in order to encourage investment that is already taking place on a massive scale, is simply nonsensical. It underlines the European Commission's obvious inability to come up with any real justification for the inclusion of a corporate sovereignty chapter in TAFTA/TTIP.

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

Resistance Grows To Inclusion Of Corporate Sovereignty In Canada-EU Trade Agreement (CETA)

from the just-get-rid-of-it dept

Remember CETA, the Canada-EU trade agreement, officially known as "Comprehensive Economic and Trade Agreement"? You could be forgiven for losing track of where things were with the negotiations, which have been dragging on since 2009, but a kind of milestone was passed recently:

Commission President José Manuel Barroso and Canadian Prime Minister Stephen Harper have today reached a political agreement on the key elements of a Comprehensive Economic and Trade Agreement (CETA) after months of intense negotiations between EU Trade Commissioner De Gucht and Canadian trade Minister Ed Fast. It will be the first free trade agreement between the European Union and a G8 country.

Despite that "political agreement", there still remains plenty to be done, as this CBC article explains:

Some areas of the agreement still need drafting, while others need fine-tuning, reporters learned through a briefing. But the most contentious points have been settled. The agreement text then has to be drafted, run past lawyers and translated into 24 languages for the 28 EU countries to examine. The document Harper and Barroso signed Friday is an agreement in principle and full ratification is likely two years away.

Although the CBC post claims "the most contentious points have been settled", that's not true for one of the most controversial areas: corporate sovereignty, officially known as investor-state dispute settlement -- and resistance is building. For example, the European Trade Union Confederation, which claims to represent more than 60 million workers in Europe, "strongly opposes the inclusion of ISDS in CETA." And as negotiations on the ISDS chapter begin, over 80 organizations have put together a "transatlantic statement" calling for the corporate sovereignty chapter to be withdrawn from CETA completely:

As European and Canadian trade officials meet again in Brussels today to continue negotiating an investment protection chapter in the Comprehensive Economic and Trade Agreement (CETA), transatlantic civil society groups are demanding that this chapter be removed entirely as an affront to democracy, an attack on the independent judiciary, and a threat to climate change and our shared environment.

The CETA "will include a controversial and unnecessary investment protection chapter and investor-to-state dispute settlement process (ISDS) that a growing number of countries are rejecting for good reasons," says the transatlantic statement, which is endorsed by more than 80 organizations in the European Union, Canada and Quebec. "These excessive corporate protections, built into thousands of investment treaties and free trade agreements, serve no social or economic purpose other than to undermine our democratic rights to decide public policy and public interest regulation."

The accompanying statement (pdf) provides a useful summary of why the inclusion of corporate sovereignty in so-called trade agreements is so worrying. Here are some of the main points:

CETA will permanently freeze existing rules governing investment and then strictly limit government regulation of services, investment, natural resources, environmental protection and public safety measures in the interests of corporations. All existing government policies in all these areas that have not been excluded from the agreement up front will be covered, making it difficult for countries to introduce new services or regulations in the future that affect however modestly the investment opportunities of foreign companies and investors.

In fact, changes to regulations are still possible, but the ISDS chapter means in practice that they will always be in favor of corporations, not the public. That's because the intentional asymmetry of corporate sovereignty allows companies to sue a government for unlimited sums when they don't like changes in regulations, but the public has no equivalent rights. This naturally encourages governments to listen to corporations and ignore its citizens.

There is no comfort in claims by the Commission or Canadian government that "frivolous" claims, or challenges to environmental policy, will be filtered out. Despite efforts in the North American Free Trade Agreement (NAFTA) to limit what kinds of government decisions might violate an investor's minimum standards of treatment or other investment chapter protections, Canada continues to face investor-state disputes attacking environmental measures that affect national and foreign investors in exactly the same way (e.g. a partial moratorium on shale gas extraction in Quebec).

The declaration has a good explanation why this happens:

Likewise, we are not satisfied by efforts to limit the meaning of "indirect expropriation" so that legitimate public welfare objectives should be immune from investor challenges. The final determination is always made by the private investment tribunals themselves, and these unaccountable tribunals have a built-in bias toward the interests of multinational corporations.

Techdirt readers may recall that it was precisely this concept of indirect "expropriation" that Eli Lilly invoked when suing Canada under NAFTA's ISDS section. As the declaration rightly notes, the lawyers who make up ISDS tribunals are inherently biased in favor of corporations because they can represent the same companies in other corporate sovereignty cases -- an extraordinary conflict of interest. Finally, the declaration points out why it is really important to remove the ISDS chapter from CETA before the final ratification:

Whatever the EU gets away with in CETA, including on investment protection, will just create a new ground floor on which multinational corporations will build even more.

The way all these agreements work is that they seek to take the results of previous treaties as a baseline, and then go beyond them -- but always in favor of big business, never to the benefit of the public. That means one of the best ways of fighting corporate sovereignty in TAFTA/TTIP is to make sure it's taken out of CETA.

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Filed Under: canada, ceta, corporate sovereignty, eu, investor state dispute settlement, isds, trade agreements