There are two stated aims to TTIP: firstly to create a transatlantic market place and seek a common approach to law-making that would do away with so-called ‘trade irritants’, caused by differing standards, as much as possible. Secondly, it would extend the use of Investor State Dispute Settlement (ISDS) mechanisms from the 9 EU Member States (or 7% of EU GDP) that currently have deals with the US to cover the remaining 93%. ISDS awards foreign firms the right to sue governments for what they perceive as unfair policy measures that can harm future profits. Such cases are decided by closed panels consisting of three trade lawyers, bypassing regular court systems. When a case is won or settled by the investor, the government in question is required to pay a fine and there is no limit to the amount to be paid under such a fine. Both stated aims have far-reaching implications for the way Europe will be allowed to govern itself and the concern manifesting itself amongst civil society is both justified and not surprising.
Although it still remains to be seen how far negotiations will develop in relation to so-called ‘regulatory cooperation’, the mechanism by which EU and US law-making should become more compatible, both the EU and the US have made it very clear that they wish to see an ISDS mechanism in TTIP.
In response to the heavy criticism that ISDS has received, the European Commission is in the process of conducting a public consultation and has paused the negotiations on ISDS. This looks like it is the time of reckoning for ISDS. In the consultation papers the Commission presents a set of proposals that they intend to put forward during the negotiations and which they believe would address the criticism being levelled at the mechanism. There is no doubt that ISDS can be improved, however the adage remains: 'you can't make a silk purse from a sow's ear'.
The fundamental question of why EU investors in the US and vice versa need an ISDS mechanism remains. So far no credible answers have been given by EU or US negotiators. The most common response has been ‘this instrument has been used in the past’. It is the lessons learnt from the past use of ISDS which are, however, raising the alarm.
Firstly, ISDS undermines countries’ legal systems and provides privileged treatment for foreign investors over domestic ones, at the taxpayers’ expense. Companies have used ISDS around 600 times to seek compensation from governments, in many cases for measures that protect public health, consumers or the environment, such as protection from harmful chemicals, high-risk energy explorations, and smoking. Although technically a government’s right to regulate is not prevented, there are a number of concerns that governments are deferring or abandoning regulation in case of disputes. In 60% of the cases so far, the companies won or the case was settled - implying a significant cost to the taxpayer of the country in question. Finally, it socialises private risk – one of the key drivers behind the financial crisis – creating an indirect subsidy for shaky investment and a tax on citizens.
In the coming days, 751 people will be elected to the European Parliament and will have the power to decide whether they support TTIP or not. Countries around the world such as Australia, Brazil, India, South Africa and Indonesia, are increasingly reluctant to sign up to treaties that include ISDS because it puts the rights of corporations ahead of citizens and states. As people cast their vote, they must be confident that the candidates for election are going to defend them against the use of ISDS in the European Union.
Authors write in their personal capacity and the above does not constitute the view of the TTIP AG.