Free trade and protectionist forces are battling it out in the Oval Office, leaving a hazy picture of the future of US trade deals. But these tensions stretch far beyond the US.
The European Union (EU) also stands between two strong and conflicting forces: one that is led by powerful corporations pushing for further deregulation, and another that uses the negative impacts of the corporate trade agenda to justify dissatisfaction with all international institutions and worldview. Meanwhile, defenders of labor rights, the environment, and human health who raise concerns about sweeping trade deals that undermine democracy are accused of promoting isolationism. And, as tensions rise, progressive ideas such as using trade to support sustainable development rather than unlimited growth fall by the wayside.
Two new international trade agreements, TTIP (between the EU and the US) and CETA (between the EU and Canada) aim to reduce the effect that domestic regulations (or “non tariff barriers”) have on trade. One way these agreements achieve this is by granting broad rights to foreign investors and establishing an arbitration process akin to the investor state dispute settlement (ISDS) provisions that now exist in thousands of Bilateral Investment Treaties (BITs) and in the North American Free Trade Agreement (NAFTA). These arbitration panels are problematic because they have an expansive view of investors’ rights and compensation for “indirect expropriation” at the expense of human rights, labor, and environmental laws.
Consequently, panels often grant corporations large awards for financial damage they theoretically suffer as a result of laws to protect the public interest. Because the panels are chosen on a case-by-case basis however, the decisions result in widely divergent interpretations of similar treaty provisions, creating an inconsistent body of law. Additionally, the fact that these forums are available only to international investors creates a strong bias in favor of corporations.
In an attempt to bring more legitimacy and consistency to ISDS provisions in both agreements, parties to TTIP and CETA agreed to establish an “Investor Court System” (ICS), which would create a quasi-judicial institution with a tribunal and appellate body. The parties to the agreement would appoint members of the ICS, from which three would be randomly chosen to hear each dispute.
The EU and Canada further built on the ICS to propose the controversial Multilateral Investment Court (MIC), which would similarly change the institutional aspects of investor-state arbitration at the global level. In December 2016, the European Commission launched a public consultation about this proposal. The Center for International Environmental Law (CIEL) participated in the public consultation with a position paper.
While we welcome the EU’s decision to take a multilateral approach to reform ISDS, the proposal’s narrow focus on institutional aspects of dispute resolution does not address the fundamental problems with ISDS. The MIC would not alter the deeply problematic requirements of investor treaties, or make compliance with investor obligations, such as the UN Guiding Principles on Business and Human Rights, a pre-condition for access to the court. The proposed MIC would instead provide a prominent forum to elevate investors’ rights over public interest.
As proposed, MIC decisions would be based on international arbitration law, rather than a wide range of other potentially applicable international and domestic laws, such as human rights, labor law, or environmental law.
The MIC would also perpetuate inequality by only allowing investor claims against states. Governments, domestic investors, civil society, individual citizens, communities, and trade unions that may have an important interest in an investment dispute would be entirely excluded from the process. Because the EU proposal is focused solely on a narrow range of institutional aspects, it does not even make the modest suggestion of allowing amicus briefs.
By proposing an MIC that would improve upon only a narrow set of problems while exacerbating fundamental others, the EU continues its pattern of supporting deregulation, prioritizing corporate interests over social progress, and denying the possibility of an alternative way forward.
But there are better options. We must not stop fighting for sustainable trade and investment while the hurricane of corporate and isolationist forces swirls around us.
Multilateral efforts should begin with the fundamental question of whether ISDS is beneficial to the public good. Through multilateral collaboration, countries could consider a much wider range of reform options that would address concerns, including the unforeseen legal and financial risks faced by host states, the special rights granted to investors, the risk of regulatory chill, and guarantees of due process as detailed by the UN Conference on Trade and Development’s 2015 report.
Even within the confines of the MIC as currently envisioned, some meaningful gains could still be made. For example, the MIC should:
- Refuse jurisdiction over investors who have violated domestic or international laws relevant to the investment;
- Accept claims based only on uncompensated direct expropriation of real property to enable governments to have the policy space to develop new regulations that protect people and the environment;
- Deny claims against measures intended to contribute to public interest objectives; and
- Require the exhaustion of domestic remedies.
But even these changes will not be successful if countries fail to grasp that trade and investment agreements need to be negotiated in the best interest of the public. Only trade and investment agreements based on the values of sustainability, equality, democracy, fair labor, fiscal responsibility, and the protection of human and environmental health can gain the support and respect of the people and be used as a defense against isolationism.
By Layla Hughes, Senior Attorney
Originally posted July 28, 2017