This is a welcome bit of good news. Countries are finally standing up for the rule of law over rule by multinational corporation.
The most troubling feature of the stalled but far from trade deals, the TransPacific Partnership and the Transatlantic Trade and Investment Partnership, is that they would increase the power of investor panels to overrule national laws. Here are some overview sections on these tribunals from a November post that contains a good deal more information:
Let’s give more detail on how heinous this deal and its ugly sister, the Transatlantic Trade and Investment Partnership, aka the Trans Atlantic Free Trade Agreement, are. They would extend the authority of secret arbitration panels to hear cases against governments and issue awards. Mind you, the premise of these panels is that some of the signatory nations have banana republic legal systems that might authorize the expropriation of assets, like factories, so foreign investors need recourse to safe venues to obtain compensation. This is a ludicrous proposition to most of the signatories, not only to signatories of the Atlantic agreement (all advanced economies with mature legal systems) as well as potential signatories like Singapore, Japan, Canada, and Australia (and while America’s judicial system leaves a lot to be desired, it can hardly be accused of being unfriendly to commercial interests)….
Now consider what this means. These companies are not suing for actual expenses or loss of assets; they are suing for loss of potential future profits. They are basically acting as if their profit in a particular market was guaranteed absent government action. And no one else enjoys these rights. Consider highly paid workers in nuclear plants. Will they get payments commensurate with the premium they’ve lost over the balance of their working lives from the phaseout of nuclear power? Will cigarette vendors in Australia get compensated for the decline in their sales? Commerce involves risk, which means exposure to loss, yet foreign investors want, and seem able to get, “heads I win, tails you lose” deals via these trade agreements.
And this system is deeply corrupt:
And it’s even worse than you imagine once you understand how these panels work. Recall how Public Citizen mentioned the role of the panelists who go between working for the companies and serving on the panels? A small and tight-knit group has disproportionate influence (click to enlarge):
Consider the implications of the fact that the 15, and the larger community of panel “regulars,” work both sides of the street. They draw cases that go before the trade panel, as well as hear them. Thus it’s in their interest to issue aggressive rulings in order to facilitate more cases being filed.
The Wikileaks release of two highly contested chapters of the TransPacific Partnership appears to have solidified opposition to its worst provisions, the investor panels. And in an very encouraging development, Germany also wants these panels removed from the deals.
And this rebellion looks to be turning into a rout. Martin Khor tells us not only are countries opposed to these provisions in new trade agreements, but they are unwinding them in existing deals.
By Martin Khor, Executive Director of the South Centre, Geneva. Cross posted from Triple Crisis
The tide is turning against investment treaties that allow foreign investors to take up cases against host governments and claim compensation of up to billions of dollars.
Indonesia has given notice it will terminate its bilateral investment treaty (BIT) with the Netherlands, according to a statement issued by the Dutch embassy in Jakarta last week.
“The Indonesian Government has also mentioned it intends to terminate all of its 67 bilateral investment treaties,” according to the statement.
It has not been confirmed by Indonesia. But if this is correct, Indonesia joins South Africa, which last year announced it is ending all its BITS.
Several other countries are also reviewing their investment treaties.
This is prompted by increasing numbers of cases being brought against governments by foreign companies who claim that changes in government policies or contracts affect their future profits.
Many countries have been asked to pay large compensations to companies under the treaties.
The biggest claim was against Ecuador, which has to compensate an American oil company US$2.3bil (RM7.6bil) for cancelling a contract.
The system empowering investors to sue governments in an international tribunal, thus bypassing national laws and courts, is a subject of controversy in Malaysia because it is part of the Trans-Pacific Partnership Agreement (TPPA) which the country is negotiating with 11 other countries.
The investor-state dispute settlement (ISDS) system is contained in free trade agreements (especially those involving the United States) and also in BITS which countries sign among themselves to protect foreign investors’ rights.
When these treaties containing ISDS were signed, many countries did not know they were opening themselves to legal cases that foreign investors can take up under loosely worded provisions that allow them to win cases where they claim they have not been treated fairly or that their expected revenues have been expropriated.
Indonesia and South Africa are among many countries that faced such cases.
The Indonesian government has been taken to the International Centre for Settlement of Investment Disputes (ICSID) tribunal based in Washington by a British company, Churchill Mining, which claimed the government violated the United Kingdom-Indonesia BIT when its contract with a local government in East Kalimantan was cancelled.
Reports indicate the company is claiming compensation of US$1bil to US$2bil (RM3.3bil to RM6.6bil) in losses.
This and other cases taken against Indonesia prompted the government to review whether it should retain its many BITS.
South Africa had also been sued by a British mining company which claimed losses after the government introduced policies to boost the economic capacity of the blacks to redress apartheid policies.
India is also reviewing its BITS, after many companies filed cases after the Supreme Court cancelled their 2G mobile communications licences in the wake of a high-profile corruption scandal linked to the granting of the licences.
But it is not only developing countries that are getting disillusioned by the ISDS. Europe is getting cold feet over the investor-state dispute mechanism in the Trans-Atlantic trade agreement (TTIP) it is negotiating with the United States, similar to the mechanism in the TPPA.
Two weeks ago, Germany told the European Commission that the TTIP must not have the investor-state dispute mechanism.
Brigitte Zypries, a junior economy minister, told the German parliament that Berlin was determined to exclude arbitration rights from the Transatlantic Trade and Investment Partnership (TTIP) deal, according to the Financial Times.
“From the perspective of the [German] federal government, US investors in the European Union have sufficient legal protection in the national courts,” she said.
The French trade minister had earlier voiced opposition to ISDS, while a report commissioned by the UK government also pointed out problems with the mechanism.
The European disillusionment has two causes.
ISDS cases are also affecting the countries. Germany has been taken to ICSID by a Swedish company Vattenfall which claimed it suffered over a billion euros in losses resulting from the government’s decision to phase out nuclear power after the Fukushima disaster.
And the European public is getting upset over the investment system. Two European organisations last year published a report showing how the international investment arbitration system is monopolised by a few big law firms, how the tribunals are riddled with conflicts of interest and the arbitrary nature of tribunal decisions.
That report caused shock waves not only in the civil society but also among European policy makers.
In January, the European Commission suspended negotiations with the United States on the ISDS provisions in the TTIP, and announced it would hold 90 days of consultations with the public over the issue.
In Australia, the previous government decided it would not have an ISDS clause in its future FTAs and BITS, following a case taken against it by Philip Morris International which claimed loss of profits because of laws requiring only plain packaging on cigarette boxes.
In Malaysia, the ISDS is one of the major controversial issues relating to the TPPA. Many business, professional and public-interest groups want the government to exclude the ISDS as a “red line” in the TPPA negotiations.
Prime Minister Datuk Seri Najib Tun Razak had also mentioned investment policy and ISDS as one of the issues (the others being government procurement and state-owned enterprises) in the TTPA that may impinge on national sovereignty, when he was at the Asia-Pacific Economic Cooperation Summit and TPPA Summit in Indonesia last year.
So far, the United States has stuck to its position that ISDS has to be part of the TPPA and TTIP. However, if the emerging European opposition affects the TTIP negotiations, it could affect the TPPA as this would strengthen the position of those opposed to ISDS.
Meanwhile, we can also expect more countries to review their BITS. Developing countries seeking to end their bilateral agreements with European countries can point to the fact that more and more European countries are themselves having second thoughts about the ISDS.
Originally published in The Star (Malaysia).