EU and US must work together to create global, modern investment protection

Marietje
We frequently hear about the bad practices of companies that sue states for large sums of money. They make improper use of investment protection provisions in trade agreements: ISDS. The link with TTIP is often made. But the dangers and these bad practices that are often cited are actually already a reality without TTIP, under the 1,300 agreements that we already have. The negotiations on the trade and investment agreement between the EU and the US have not yet been completed. The European Parliament has pushed the European Commission to listen to concerns regarding the lack of transparency of procedures, the risk of bias of the judges and the room that companies have to start cases. The Commission has now proposed plans for reform, which include an appeals mechanism. The next step must be to get the US to back these proposals. A joint effort by the two biggest trading and political blocs in the world offers the opportunity to bring the existing agreements under an international court. That is the eventual goal that is broadly shared in Europe: an 'Investment Court System'. When the EU and the US together choose for a more modern and fair system to solve disputes between investors and states, the chance is bigger that it has a global effect. ISDS agreements on investor-state dispute settlement stem from the fifties. They were often used by European states in agreements with states where the rule of law did not function properly. Since the first ISDS clauses were introduced, European member states together have signed almost 1,300 investment agreements with an ISDS clause in them, including some with each other. Worldwide, European companies are the most frequent users of ISDS provisions, which is also due to the fact that European companies are big investors. ISDS gives investors the right to start a case against a government for example when its property is expropriated. ISDS clauses are increasingly being criticised because the process is not transparent, the judges are not independent and the scope of the clauses - i.e. the criteria for starting a case - are is too wide. The past years, a number of high profile cases have further fuelled these concerns, such as the case of Philip Morris against Australia over anti-smoking legislation, even though Philip Morris has actually lost this case. In the World Trade Organisation, the US is the country with the most cases against it. Judges in the US are often elected or politically appointed. That is why Europeans are worried about fair treatment in the US, without clear agreements. The other way around, it is not surprising that Americans have some concerns when it comes to the rule of law in some European member states. European companies also use ISDS within the EU. On top of this, for both the US and the EU, it would be very hard to insist on investment protection provisions in an agreement with China if we do not have such provisions between us. In China, proper investment protection is much more important. The reform proposal from the European Commission, which was finished on the 12th of November, is based on input from the European Parliament, the member states, the national parliaments and stakeholders. After the text was checked and discussed by the European Parliament and the member states, it was formally put to the US. At the twelfth TTIP negotiation round, starting on the 22nd of February, the European proposal will be discussed. The goal of the European Commission is a permanent investment court. Judges must be appointed and available as a permanent pool. The procedures would be completely transparent and public. The Commission also clarifies the definitions and terminology, which narrows the scope making sure that cases would be much harder to start and there would be a clear exception for public goals and international public goods such as health and the environment. On top of that, the losing party would have to pay for the costs of a case, which is meant to make sure that companies do no start frivolous cases, to see what they can get. The new system ensures that the right of governments to regulate is not endangered. The goal must be that European or American companies can only start a case if they have been obviously unfairly treated, for example when a contract has been broken or when expropriation takes place without compensation. The EU is not only negotiating on trade and investment with the US. There are also negotiations ongoing with China, Japan, Australia and New Zealand and there are more initiatives in the pipeline, such as with MERCOSUR and India. Because of all of these parallel negotiations, the EU can take the initiative to set up a new form of investment protection globally. In the recently concluded negotiations with Vietnam, the EU's proposal has already been taken up. But if the EU and the US jointly support reform it will be much easier to push other countries to do the same. In the longer term, the aim should be to develop a global investment court, which would solve disputes according to the same rules as the WTO dispute settlement mechanism. Only then can we make sure that the problems with the current ISDS system are truly solved, because those old fashioned, out-dated clauses can then be folded into a new, more legitimate and modern system. See also: 22-02 MEP: American commitments crucial in TTIP negotiations 06-11 Blog: Values-based trade 28-10 MEP: Transparency negotiations on trade agreements must be a priority 14-10 MEP: New European trade strategy should be implemented quickly 05-10 Reaction MEP Schaake to conclusion TPP 16-09 MEP: Commission must increase pressure on American negotiators 12-08 Blog: The real reward in TTIP trade-internet-flow-global