Following the Fukushima nuclear power plant disaster in Japan in March 2011, Germany announced it was to definitively phase out its civil nuclear power programme by 2022, when all its nuclear plants would be closed. In May 2012, Swedish energy group Vattenfall, which operates two nuclear power plants at
Krümmel and Brunsbüttel in north Germany, lodged a damages claim against the German government with the Washington-based International Centre for Settlement of Investment Disputes.
Vattenfall's claim for 3.7 billion euros centres on its estimated future losses against its investment. The group bases its case on the European Energy Charter Treaty which came into force in 1998 and which was signed by, among other EU member states, Sweden and Germany. The text of the treaty guarantees foreign investors “stable conditions” for their investments. In short, this allows a company to sue a state for taking a decision, albeit in the public interest, which will adversely affect the value of its investment. The outcome of the action by Vattenfall is uncertain, but the legal battle is underway.
Similar cases of damage claims against democratically-elected governments lodged by private corporations have increased over recent years. Largely unknown to the wider public, these are called Investor-State Dispute Settlements, or ISDS.
ISDS clauses first emerged 60 years ago, and most free-trade agreements concluded during the 2000s contain an ISDS clause, with the objective of offering a maximum number of legal guarantees to private businesses with the aim of encouraging them to invest in foreign countries. In all, more than 3,000 international treaties currently incorporate an ISDS clause.
The United Nations reported that in 2013, 274 ISDS claims were concluded, of which 43% were arbitration rulings in favour of the states targeted, while 31% of such rulings found in favour of foreign investors. The remaining 26% ended in amicable settlements.
When a state loses its case, the payment to investors is of course from the public purse, and each year billions of euros are at stake. This complex procedure may well become a major issue in the European parliamentary elections to be held across the continent between May 22nd and 25th, for it is one of the most controversial elements of the Transatlantic Trade and Investment Partnership (TTIP), a landmark free-trade treaty currently under negotiation between the European Union and the US.
The TTIP discussions, led by chief negotiators Ignacio Garcia Bercero, for the EU, and Daniel Mullaney for the US, began in July 2013, but are still far from reaching a conclusion, which could potentially take years. Importantly, it is the Members of the European Parliament (MEPs) who will be elected this month who will have the final say on this future trade agreement, with the power to reject or adopt it once the negotiations are completed and approved by the EU member states.
During a televised debate in Maastricht on April 28th between four of the five candidates to replace José Manuel Barroso as president of the European Commission (EC), the Green candidate, Ska Keller, slammed her conservative, centre-right and socialist rivals pointing out that all of their groups supported the ISDS clause in the treaty. Keller was referring to the May 14th 2013 resolution adopted by the European Parliament which allowed the transatlantic talks to begin. But opposition to the TTIP, and notably the ISDS clause it contains, has been building up across Europe over recent months, notably in Germany.
On paper, foreign companies can demand financial compensation for what they believe is a loss in their investment caused by a decision taken by the local public authorities. This could be in a direct, frontal manner such as expropriation, as when the Argentinean government in 2012 seized Spanish oil company Repsol’s stake in the national oil company YPF, a dispute finally settled last month. But for most of the cases, ISDS claims involve indirect events, such as the adoption of new laws on public health issues, or those that increase environmental protection constraints. The latter was the case when, in 2013, American oil and gas exploration firm Lone Pine Resources used the provisions of the North American Free Trade Agreement to sue the Canadian government after the Quebec authorities called a moratorium on hydraulic fracturing (fracking).
“ISDS allows corporations to question the sovereign right to regulate (whether or not it is in the public interest) based on their own commercial interests; it also leaves states powerless to stop claims and forced to pay the costs,” wrote environmental organization Friends of the Earth Europe in an October 2013 report setting out its argument against the inclusion of ISDS in the current negotiations for the transatlantic trade treaty. “When it comes to environmental, energy, and public health matters, powerful transnational companies associated with environmental crimes and human rights abuses – such as Chevron or Occidental - have been using this mechanism to maximise operating profits at the same time as undermining the regulatory frameworks they have to deal with abroad. In developing and developed countries alike, ISDS has been very useful for companies seeking to reverse regulations that protect the environment and people at the expense of corporate profits,” wrote the NGO.
Johannes Kleis, spokesman for the European consumer organization BEUC , which represents a large number of national associations, said he saw no need for special courts of arbitration. “There are national courts that can be used by companies which believe they have been cheated and it’s largely sufficient,” he said.
Concerns prompt a three-month public 'consultation'
Cecilia Olivet is a Uruguayan political scientist and a member of a Uruguayan government commission for the review of the country’s bilateral investment treaties and arbitration cases. She co-authored of a study on the subject of ISDS entitled ‘How law firms, arbitrators and financiers are fuelling an investment arbitration boom’, published in 2012 by NGO Transnational Institute, of which she is a member. “The supposed neutrality and independence of this international arbitration justice process are an illusion,” said Olivet, whose study notably focussed on the profile of the various judges involved in settling disputes around the world. “The law and the disputes that arise are in large part shaped by legal firms, the arbiters themselves, and more recently by a handful of speculators who make a lot of money from these disputes.”
Olivet’s study found that there are just 15 arbitration judges – from the US, Canada and Europe – who oversee more than half of all ISDS cases lodged worldwide, and some judges are even former lawyers who worked for corporations involved in legal action against states.
The growing opposition to the inclusion of ISDS in the TTIP transatlantic trade treaty, the last major project of outgoing EC president José Manuel Barroso, now appears a possible threat to the successful conclusion of a deal. Aware of this, the EC changed tactics this spring.
In March, the EC published a statement announcing the launch of public “consultations” over a period of three months. “As part of its ongoing efforts to make its negotiations with the US the most open and transparent trade talks to date, the European Commission today launches a public consultation on investor protection and investor-to-state dispute settlement (ISDS) in the Transatlantic Trade and Investment Partnership (TTIP),” read the statement. “In addition, the European Commission felt it was necessary to launch this particular public consultation as a response to the growing public debate and increased concerns over ISDS within TTIP.”
A spokesman for EU trade commissioner Karel De Gucht cautioned: “It is not a referendum for or against ISDS, it is an open public consultation where everyone can give their opinion to improve the text.”
Ordinary citizens, think tanks, lawyers’ firms, industrial lobbies and et al are able to contribute their views between now and the beginning of July (see the online procedure here). For some, the legal jargon and highly technical nature of the reference text (see Scribd box below) may prove tough reading. “The questions are orientated, and the text is written in a very legal manner which makes it difficult to understand for the wider public,” commented Cecilia Olivet.
“By accepting to publish the text, the commission has shown signs of weakness,” said Amélie Canonne, head of the AITEC, an international association dedicated to widening citizens’ input in governmental and inter-governmental decision-making. “But the question now is to know if we have margin for manoeuvre for what’s to come.” No-one knows for sure what will become of the views expressed during the consultation, however precise these responses may be. The debate has already begun among those opposed to ISDS as to whether to participate and to give legitimacy to an operation that they fear may be nothing but a smokescreen, or whether to send detailed, point-by-point replies to a text that some believe should be purely and simply rejected.
TTIP's future may hang on Canada treaty vote
Enlargement : Illustration 3
EU Trade commissioner Karel De Gucht has said ISDS was “not a point of my religion,” adding: “If the United States agreed to simply drop it and have all the existing agreements so be it, but they don’t. I already submitted it to them and they don’t.” But he also insists that ISDS was included in the EU’s guideline mandate for the negotiations with the US, implying that it is therefore for the EU’s 28 member countries to assume their responsibility in making that choice.
In an interview with Mediapart in March, before the recent French government reshuffle, the then French foreign trade minister Nicole Bricq said she had tried to exclude the issue of ISDS from the mandate for the TTIP negotiations, but did not receive enough support from other governments for her move to succeed. “The European Commission has integrated the democratic process and launched a consultation for three months, so that everyone can take part in this debate,” added Bricq. “Things are advancing. One can be isolated at the start, but you find alliances.” Bricq’s successor, Fleur Pellerin has not yet taken a public stand on the issue.
Germany, however, has taken the issue of ISDS more seriously. In March, junior economy minister Brigitte Zypries told the German parliament, the Bundestag, that Berlin wanted to remove the dispute settlement provision from any TTIP agreement. Germany is also one of the keenest among EU member states to see a rapid conclusion of the trade deal, along with Britain, the Netherlands and Finland.
Cecilia Olivet said the announcement by Zypries was “a true surprise” but cautioned that “Germany is opposed to including ISDS in the transatlantic agreement, but not [opposed] to ISDS as such”. Germany, the eurozone’s leading economy, is particularly concerned that it might have to contribute important sums, via the EU budget, to help pay significant damages awarded against EU member countries – notably those in eastern Europe – whose laws on key matters like protection of the environment is likely to evolve over the coming years.
Other European countries are favourable to the inclusion of the dispute settlement provision, and in particular those of southern Europe, including Spain, Italy and Greece. The choice appears surprising, especially concerning Greece which fell victim to a number of foreign corporate investors who sued Athens under the terms of investment treaties while speculating in Greek debt. These and other examples are detailed in a study, co-authored by Cecilia Olivet, published in March by NGOs Transnational Institute and Corporate Europe Observatory
As for MEPs, attitudes appear to be changing, partly because of the European Parliament election campaign. The Socialist and Democrat group, to which France’s ruling Socialist Party adheres, earlier this year came out clearly against the inclusion of ISDS in the TTIP deal, which it otherwise supports. However, Martin Schulz, the Socialist and Democrat alliance candidate for the presidency of the EC, has so far remained silent on the issue, although he has promised to publish the EU mandate for the negotiations (already partially leaked) if he is elected.
The document published by the EC for public consultation and reaction recurrently refers to the text of a trade agreement previously negotiated between the EU and Canada. That deal, called the CETA, was concluded in November 2013 after four years of discussions, but the detail of the agreement has still not been made public, apparently because it is still being translated, and is not expected to be submitted for a vote by the European Parliament before next year.
It strongly appears as if the EC has used the CETA agreement as a blueprint for the TTIP negotiations, and there is every chance that the ISDS clause in the TTIP will be a copy and paste of that included in the deal with Canada. Importantly, the CETA trade agreement is one of the first in which the EU is recognised as being competent to judge in arbitration settlements (a result of the Lisbon Treaty that came into force in 2009). “We are now discovering that the reference for international trade and arbitration proceedings will not necessarily be established under the agreement with the United States, but under that with Canada,” commented Amélie Canonne, head of the AITEC.
All of which raises the question as to whether opponents of the ISDS might do better turn their attention as a priority to the deal with Canada. That agreement, and naturally its ISDS clause, is due to be put before the EU’s 28 trade ministers for approval later this month. If approved, it will then be put before the European Parliament. That will be a moment of truth which will have obvious consequences for the future of the current negotiations between Washington and Brussels.
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- Click on the top-of-page 'Extend/Prolonger' tab for more information and debate on the TTIP and ISDS clause.
- The French version of this article can be found here.
English version by Graham Tearse