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by Pia Eberhardt and Peter Fuchs
Tuesday, Mar. 11, 2014 at 4:48 AM
TTIP, the Transatlantic Trade and Investment Partnership, endangers the economy, health and food policies of countries outside the EU and the US. The Investor-State Settlement mechanism gives corporations the same status as nation states. A flood of lawsuits can be expected.
TTIP: A TRANSATLANTIC CONSTITUTION OF CORPORATIONS?
By Pia Eberhardt and Peter Fuchs
[This article published in Luxemburg (2/24/2014) is translated from the German on the Internet, http://www.linksnet.de/de/artikel/30522.]
The letter “I” in the abbreviation TTIP stands for investment rules in the planned agreement between the EU and the US. The history around these investment rules can develop into a political-economic thriller even if – or because – “everything runs very legally.” Very dangerous weapons to combat democratic policy are involved through organized perpetrator groups with the best connections to politics and the economy.
THE WEAPONS: INVESTMENT PROTECTION STANDARDS AND SPECIAL COMPENSATORY RIGHTS FOR CORPORATIONS
International investment agreements or investment chapters in trade agreements like the TTIP do not regulate the business practices of international investors (mostly transnational corporations). Rather they establish how states must deal with these investments and businesses. At least three things are regulated which are central for the dangerousness of such agreements:
1) The authority of investment protection: What is considered as an “investment”? Industrial countries like Germany and the EU and the US urge defining the term “investment” as broadly as possible in the investment agreement. Property assets of every kind spent directly or indirectly by investors of one contractual state in the sovereign area of another contractual state should be protected. This includes ownership in mobile and immobile things, partnership rights in firms and portfolio investments, the so-called “rights of intellectual property,” public-legal concessions for example in mining and other claims to money or benefits that have an economic value.
2) The protective material standards for investments: How much states deal with investments? In investment agreements, signatory states commit themselves to treat investments and investors of the other respective contractual states corresponding to certain protective standards. Thus investors are granted a claim to compensation in the case of direct or “indirect expropriation.” The contractual states obligate themselves to “fair and equitable treatment” of investors, granting non-discrimination (compared to domestic or other foreign investors), free capital traffic and full protection and security of investments. These are all vague legal terms – what is an “indirect expropriation”? What is “fair and equitable treatment”? – that can be used as sharp weapons against public interest-oriented policy.
3) Arbitral clauses on enforcing protective standards: special compensatory rights for corporations. Investors received a right to sue directly before international arbitration courts – passing by the national or European courts of host states – when then see their rights violated by investment agreements. Investors usually have the choice. They can appeal to arbitral procedures of the International Center for Settlement of Investment Disputes (ICSID) belonging to the World Bank group, to an arbitral system of the UN Committee on International Trade Law (UNCITRAL) or other arbitration boards (in London, Stockholm or in the International Trade Board in Paris). States and parliaments that agree to such arbitral causes in investment agreements submit to the authority of courts of arbitration in the moment of accepting the agreement. Their judgments must then be recognized without appeal possibilities. Over 3000 international investment agreements today guarantee far-reaching corporate rights to sue in this system of arbitral jurisdiction. Most of the agreements are so-called Bilateral Investment Treaties BITs) between industrial- and developing countries. They enable foreign investors to sue against all possible policies and administrative practices of the host state when they see their ownership title and planned profits from their investments damaged. Health- or environmental protection conditions can limit bailout measures in financial crises or other forms of social- and economic policy that restrict business freedoms. Such investment agreements between the US and most European countries with special corporate rights to sue do not exist. They could be reintroduced with the TTIP. More lawsuits threaten as we already know from other investment agreements.
In Germany, the energy corporation Vattenfall is suing Germany before an international court of arbitration. Vattenfall demands more than 3.7 billion euro compensation on account of the closure of the Krummel and Brunsbuttel nuclear power plants after the nuclear exodus. Vattenfall appeals to its rights from the energy charter treaty (ECU), an international trade- and investment agreement in the energy area. The corporations sues that it was expropriated and not given “fair and equitable treatment.” The Federal German government refused to give more detailed information to the Bundestag and the general public in this case. In Australia and Uruguay, the tobacco corporation Philip Morris took action against warnings of health consequences of smoking on cigarette packages. The Canadian oil- and gas corporation Lone Pine sued its own government through a US branch because the Quebec province issued a moratorium in gas production on account of the environmental risks for the deep drilling technology known as fracking. On the basis of an investment agreement, the oil multinational Chevron attacks a judgment in Ecuador that condemned the company for billion in compensatory damage on account of massive environmental destruction in the Amazon basin area.
At the end of 2012 there were at least 514 such investor-state lawsuits. The number of unreported cases is much higher. The courts of arbitration in investor-state procedures should not be confused with regular courts. As a rule, they consist of three private persons called litigating parties and mostly take place behind closed doors. The arbitrations are binding and cannot be revised even though there are doubts about the independence of the arbitrators because of many conflicts of interest. The dangers for public budgets and democratic policy are manifest. Investor-state lawsuits could involve compensations in the billions. Often the threat of a lawsuit alone is enough to strangle or dilute planned laws. Businesses increasingly use investment agreements today as weapons in political conflicts to prevent stricter regulations. The vaguely formulated far-reaching protective standards of the agreements are often the basis for their prospect of success. For example, the standard of “fair and equitable treatment” was interpreted by courts of arbitration so that states had to act completely transparently and without contradictions and not disappoint the “legitimate expectations” of an investor as to the regulatory environs of an investment. In the current lawsuit against Germany, Vattenfall presumably argues the German government violated this standard when it resolved the nuclear exodus a few months after the running-time extension of German nuclear power plants. Democracy (together with regular jurisdiction) in its realization possibilities is ultimately shown its limits. Thus international investment agreements are instruments for enforcing transnational capital interests against regulation, redistribution and counter-hegemonic forces. They can be understood as part of the “new constitutionalism,” as political-legal structures that ensure quasi constitutionally neoliberalism and present property relations by limiting possibilities of state intervention and democratic control.
THE PERPETRATORS – CORPORATIONS, GOVERNMENTS, LAW FIRMS, ARBITRATORS AND THEIR HELOPERS IN ACADEMIA
If the threatening investment chapter in the TTIP is a sharp weapon to fight the possibilities of democratic policy, who are the perpetrators who circulate or use these weapons? The perpetrator groups are found a) among corporations and their lobby associations, b) among governments, in the EU Commission and in parliaments, c) among law firms and investment arbitrators and d) among “organic intellectuals” (Gramsci) and helpers in academia.
Corporations and their Lobbyists: No wonder business associations like the European employer alliance Business Europe and the American Chamber of Commerce mobilizes for far-reaching investment protection in the planned transatlantic free trade agreement. Individual corporations like the US energy conglomerate Chevron also do that. In the US consultation on the TTIP, the theme investment protection was “one of the most important global themes for us” . Chevron wants “the greatest possible protection” from regulatory incursions “to reduce the risks of large-scale, capital intensive and long-term energy projects,” for example in the production of shale gas through fracking. Many EU governments have issued moratoriums or strict regulations for this controversial technology because of the dangers for humans and the environment and the growing resistance of citizens. However Chevron & Co. could attack these moratoriums and regulations through far-reaching investment protection clauses in a future EU-US free trade agreement.
Governments, the EU Commission and Parliaments: There would not be a single investment protection agreement as a binding treaty in international law or any investor-state compensatory right without the governments and parliaments that negotiate and ratify such treaties. In the European context, the competence for negotiating such agreements was transferred to the European Commission with the 2009 Lisbon treaty. The general direction is now trade leading investment agreements. In the past EU member states with Germany leading the way created a large number of one-sided investment agreements directed against developing countries since the first 1959 Bilateral Investment treaty (Germany-Pakistan). In the case of TTIP, these EU member states gave the EU Commission the negotiating mandate to hammer out a trade- and investment agreement with the US. However the EU Commission did not touch the hard core of investment protection. Quite the contrary. The German government always plays a hardliner role in this question. In the internal EU conflict, it fights against specifications and limitations of investment protection standards, against more transparency and against all duties (instead of only rights) for investor.
Law firms, Arbitrators and Process Financiers: The legal branch does lobby work for far-reaching investor rights in the TTIP. This is not surprising. With hourly wages up to 00 and legal costs of an average eight million dollars per procedure, investor-state lawsuits are a lucrative business for law offices. Worldwide these offices motivate investors to sue states, for example against the rescheduling policy in Greece. An investment protection chapter in the TTIP would expand their business field enormously. A first critical analysis of this often neglected arbitration industry was presented in the 2012 study “Profiting from injustice” (CEO/TNI 2012).
Law offices, arbitrators and process financiers are revealed who earn huge amounts in investor-suits against states. They are on a constant search for possibilities of suing states and have successfully fought against reforms of the international investment regime. The boom of investment jurisdiction has become a goldmine for expert attorneys of investment law. Lawyer- and arbitration costs in some cases are over million. Arbitrators also receive juicy royalties. In one case an arbitrator earned nearly million. The branch is dominated by a small linked group of lawyers and arbitrators from the global North. Three law offices – Freshfields (GB), White & Case (US) and King & Spalding (US) – handled 130 investment disputes in 2011. 15 arbitrators, almost all from Europe, the US or Canada, have decided 55 percent of all known investment-protection suits. This little group of lawyers called the “inner Mafia” by some, sits in courts of arbitration, does not only function as arbitrators but also as lawyers representing the litigating parties and call on each other as experts in proceedings. The arbitrators are mainly inclined to defend the rights of investors as the public interest. An inherent, one-sided alignment of investment-courts of arbitration is carried out in favor of the petitioning party. Several prominent arbitrators sat on the boards of directors of mammoth multinational corporations including some that sued the states. Belief in the unconditional protection of private profit- and property united nearly all of them.
Academic Help in the Business of Fighting Politics: In academia, international investment protection has become an attractive new theme. International investment protection is the fastest growing area of international law. A legitimation crisis of the legal area and a certain reform need should be acknowledged. However investment jurists mostly start from a completely uncritical basic understanding of the beneficial effect of international investments on the economy and society. They ignore essential questions of power and rule of far-reaching property protection and in the political space recommend the undisturbed preservation and further development of the dominant investment regime – or try to save the acceptance and legitimacy of their legal area from cautious reform proposals.
THE RESCUERS – RESISTANCE AGAINST THE INTERNATIONAL INVESTMENT REGIME BECOMES STRONGER
Nevertheless resistance against excessive investor rights grows. Right after the beginning of TTIP negotiations, environmental organizations, online activists, unions, culture creatives, consumer-protection organizations and globalization critics on both sides of the Atlantic spoke out against investor-state-lawsuits. Europe delegates of the SPD, Greens and the Left (Die Linke) are also against this. With the SPD and the Greens, this is a late insight that is often expressed softly after approving investment protection agreements for years in national parliaments. In the US a critical debate has already raged for years. When the US congressperson Alan Grayson turned against the corporate right to sue in the TTIP in a public 2013 appeal, tens of thousands of furious US citizens joined his protest within 24 hours. The turning away from the old investment regime is also fully underway elsewhere. For a long time Brazil was considered an attractive investment location but does not have a single investment agreement with the corporate right to sue. In the spring of 2011 Australia’s social democratic government announced that it would not negotiate any free trade agreement any more where corporations could directly sue before international courts of arbitration. Bolivia, Ecuador and Venezuela cancelled several BITs and withdrew from the ICSID- court of arbitration of the World Bank. Argentina refuses to pay compensations. South Africa decided not to extend its old BITs any more. In the fall of 2013 the country cancelled many old investment agreements including the agreements with Germany, Austria, Spain and the Netherlands. More steps of this kind should occur. A paradigm shift is carried out in international organizations like the UN Conference for Trade and Development (UNCTAD). While the organization in the 1990s still forced developing countries to sign investment agreements, it has offered options on reforming present investment policies since its 2012 World Investment Report – toward clearly limited rights and obligations. Beside UNCTAD, even the IMF warns that investment agreements could strongly limit states in combating economic and financial crises. On this background – and given the internal EU and the EU-US differences of opinions on the investment-protection theme – the chances are not bad that the planned TTIP agreement and the chapter on investment protection will be unmasked for what they are: an anti-democratic neoliberal straitjacket. 15 years ago this “Dracula strategy” led to a success. At the end of the 1990s, the globalization-critical movement brought the largely unknown MAI agreement into the public spotlight. This was an investment agreement negotiated in the framework of the OECD. Like a vampire, it did not long survive as soon as the light of a critical public debate shone. In October 1998 France let the negotiations collapse. We should do everything so this part of history is repeated in the conflict around the TTIP
 Chevron Corporation: Comments on Proposed Transatlantic Trade and Investment Partnership, 5/7/2013, http://www.regulations.gov/#!documentDetail;D=USTR-2013-0019-0054 [23-05-2013]
“Profiting from Injustice,” 76pp, November 2012. How law firms, arbitrators and financiers are fuelling an investment arbitration boom. Corporate Observatory
Public Citizen. Global Trade Watch.
Trade: Time for a New Vision. The Alternative Trade Mandate, 20pp, January 2014
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