Financial Times | 21 Jan 2014
Brussels seeks to curb investor litigation under trade deals
By Shawn Donnan in London
The European Commission is pushing to include strict constraints on investors’ ability to take legal action against governments as part of a new trans-Atlantic trade deal, according to leaked documents.
So-called investor-state dispute settlement provisions are among the most controversial elements of trade deals now being negotiated globally. Critics argue they give companies carte blanche to use trade deals and secretive arbitration panels to challenge national laws and regulations they do not like. Brussels hopes that setting limits on their use under a translatlantic deal would help to set a high bar for other cases around the world
In a move to address vocal criticism of the inclusion of such a mechanism in the sweeping EU-US trade pact now being negotiated, Karel de Gucht, the European trade commissioner, on Tuesday announced he would be holding public consultations on the issue in the weeks to come. He also pledged to release a proposed negotiating text of the investment chapter of any deal in March.
Investor-state dispute settlement mechanisms are not a new element of trade agreements. According to the EU, they are a feature in many of the 1,400 investment agreements member states have signed with third parties.
But the rules governing them are often vague and in recent years critics argue that companies and lawyers – including many from Europe – have become more creative in how they use them. The most often-cited case is one now underway in which tobacco giant Philip Morris is using a Hong Kong investment agreement to challenge Australia’s plain-packaging laws for cigarettes.
According to documents seen by the FT the tough conditions proposed by the EU for any investor-state legal cases include a requirement that the losers of any challenge cover legal costs for all parties. They would also allow arbitration panels to quickly throw out any “frivolous cases” and make any rulings eligible for appeal, something that often cannot be done now.
The proposed rules would bar companies from launching legal attacks on multiple fronts by bringing cases in local courts in addition to before arbitration panels. They would also make all documents and hearings public in such cases and impose strict standards on the makeup of arbitration panels.
“We shall define exactly what level of treatment investors can and cannot expect from host governments,” Mr de Gucht wrote in a letter last month to the chairman of the European Parliament’s international trade committee, Portuguese MEP Vital Moreina.
In a separate policy briefing, Commission officials argued that the inclusion of a robust investor-state dispute mechanism in an EU-US deal was crucial in order to set a precedent for other pacts and reform a system now open to abuse.
An EU-US deal, they wrote, “will be an agreement between the largest exporters and recipients of investment in the world . . . [and] could thus serve as the launching pad for a new era of investment agreements and serve as a model for the rest of the world.”
Not including an investor-state mechanism would “set a dangerous precedent for the EU’s future negotiations with other countries (e.g. China, Myanmar)”. Both the EU and US are now negotiating investment treaties with China.
Mr de Gucht’s move to open public consultations was welcomed by critics, which in the past have included France’s trade minister, Nicole Bricq.
But it is unlikely to do much to quash opposition altogether.
Marietje Schaake, a Dutch member of the European Parliament who sits on the
international trade committee, said it was unclear why, with two functioning legal systems, either the EU or the US needed an additional arbitration mechanism for investor-state disputes.
She also said the vocal opposition seen in recent months over the investor-state issue was a sign of how the EU-US negotiations were likely to get increasingly complex as details emerged of compromises on sensitive areas.
“I’m 100 per cent certain it will get more complicated,” she said.