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Anti-Democratic Straitjackets

by Pia Eberhardt Monday, Aug. 18, 2014 at 11:23 AM

The TTIP Transatlantic Trade and Investment Partnership (also called TAFTA) is an undemocratic corporate investment agreement that allows corporations to sue sovereign states for lost profits. This agreement negotiated in secret since 2013 does not allow states to sue.


Global Governance – Reforms Long Time Coming

International investment agreements cement worldwide poverty- and rule relations

By Pia Eberhardt

[This article published in September 2013 is translated from the German on the Internet, Pia Eberhardt is an author and researcher with CEO, Corporate Europe Observatory.]

Corporations often use the international right of investment in the struggle against regulations, redistribution and counter-hegemonic forces. Unique rights to sue are a very effective instrument for implementing transnational capital interests. As an antithesis to global governance oriented in common interests, they undermine democracy and hinder developmental processes in the global South benefiting the majority of the population. As a remedy, the “Dracula strategy” is offered with which the Multilateral Agreement on Investments (MAI) was stopped at the end of the 1990s.

The multilateral investment agreement MAI negotiated in the OECD broke down 15 years ago. France’s anxieties over its cultural policy and a worldwide anti-MAI campaign against the globalization of corporate rule brought it to fall. The failure of the MAI was not the end of the international investment regime.

On the contrary, there are over 3000 so-called international investment agreements today. They enable foreign investors to sue states and any policy that threatens their property titles and planned profits from their investments, whether on account of health- and environmental protection conditions or a social- and economic policy that restricts their entrepreneurial freedoms.

For example, the energy-conglomerate Vattenfall is now suing the Federal Republic of Germany because the nuclear exit threatened its profits. In Australia and Uruguay, Philip Morris is taking legal action against warnings of health consequences of smoking. The Canadian oil- and gas corporation Lone Pine is suing its own government through a US branch office because the province of Quebec issued a moratorium against the deep drilling technique known as fracking on account of environmental risks in gas production. The oil multinational Chevron is attacking an Ecuadorian verdict throu9ghy an investor-state lawsuit that ordered the company to pay billion compensation for massive environmental destruction in the Ecuadorian Amazon basin.


Since the turn of the millennium, the number of investor-state lawsuits has exploded. There was an increase around 250 percent compared with the procedures introduced between the 1970s and the end of the 1990s. The tendency is rising. Up to the end of 2012, the UN registered 504 lawsuits worldwide. The number of unreported cases may be higher on account of the lack of transparency of the system. The global South is most often in the dock. 66 percent of the cases filed in 2013 were directed against developing- and threshold countries. 70 percent of the cases decided in 2013 were in favor of the investors.

The procedures occurred before international courts of arbitration that as a rule consisted of three private persons named by the litigating parties. They usually take place behind closed doors in some hotel room in London, Paris or Washington. The arbitral awards are binding; an appeal or revision of the decisions is impossible.

The dangers for public budgets and democratic policy are obvious. Investor-state lawsuits could entail compensation payments in the billions. Profit losses of individual businesses caused by political freedoms are socialized in this way – even if the regulations are necessary to protect the public interest.

Costs for the states rise higher and higher. In 2013 a World Bank court of arbitration condemned Ecuador to a historically unique compensation of .76 billion. The US corporation Occidental had filed suit – and the court agreed – because the country unilaterally cancelled the oil production contract with the firm.

Even the threat of a lawsuit is often enough to strangle or dilute planned laws. This is called regulatory chill in the technical jargon. Five years after the introducti9on of the free trade agreement between Mexico, Canada and the US, a Canadian government official described its effects in 1999 as follows: “With nearly every new environmental measure, there were letters to the Canadian government from law offices in New York and Washington. Chemical cleansers, medicines, pesticides and patent law were involved. Almost every new initiative was certified and most never saw the light of the world.” Businesses actually use international investment law as a weapon in political conflicts to prevent stricter regulations.


Democracy is ultimately put in its place with investor protection. Two co-workers of Milbank, one of the leading law offices in international investment law, recently made that clear in an article for a technical journal. “There are not only undesirable measures of governments in the scope of autocratic rule. Populism which democracies can bring is often a catalysor of such actions.” No wonder that countries like Argentina, Venezuela and Ecuador that have rescinded privatizations after vehement social struggles and nationalized businesses are among the countries most frequently dragged before investment courts of arbitration.

Therefore global justice academics rightly see international investment agreements as an instrument for enforcing transnational capital interests – as part of the so-called new constitutionalism, political-legal structures that protect neoliberalism and existing property relations by limiting state intervention- and democratic control possibilities quasi constitutionally.

Investor-state lawsuits against policies in the public interest and in harmony with national law generally have a prospect for success because of the vaguely formulated but far-reaching rights guaranteed investors in international investment law. Some courts of arbitration interpret the standard of “always fair and just treatment” so states always had to act completely transparently and without contradictions and not disappoint the “legitimate expectations” of an investor relating to the regulatory field of his investment. While protection from “indirect expropriation” cannot be found in most national constitutions, this right anchored in investment agreements guarantees compensation to foreign investors when their property loses value through regulations. So the prohibition of a toxic chemical can be attacked like the nuclear exit.


In the global South particularly, massive resistance rages against this neoliberal super-constitution standing above national law. Bolivia, Ecuador and Venezuela have cancelled several agreements and the convention establishing investment courts of arbitration of the World Bank. In Ecuador, a commission examined whether the investment agreements of the country are compatible with Ecuadorian law. Testing existing agreements and establishing a regional institution to solve conflicts with foreign investors were resolved at a meeting of the countries of the ALBA alliance (Bolivarian Alliance for America) in April 2013. South Africa announced it will not extend foreign investment agreements. India will review its agreements and Argentina refuses to pay compensations.

A paradigm shift is occurring even in international organizations like the UN Conference for Trade and Development (UNCTAD). While the organization forced developing countries in the 1990s to sign investment agreements, it sketched options for reforming prese4nt investment policies – from clearly limited rights for investors to investor duties. Alongside UNCTAD, the International Monetary Fund warns that investment agreements could greatly limit states in fighting economic and financial crises.

On the other hand German and European investment policy is expanding the business of fighting policy through courts of arbitration. On Germany’s insistence, the European Commission and Council passed a series of corporate-friendly guidelines and mandates for future EU investment agreements – with countries like Canada, the US, India, the states of the Arab Spring and with China. Unfortunately the European parliament largely supports this course.

For a long time, most of these agreements were still in their beginnings. Therefore there are still chances for a new success of the “Dracula strategy” applied by the anti-MAI campaign at the end of the 1990s. At that time the anti-MAI campaign dragged the largely unknown MAI agreement into the light of the public where like a vampire it did not survive long.

Thus future free trade agreements with investment protection chapters should be unmasked for what they are: anti-democratic neoliberal straitjackets. If we don’t overcome these jackets, development to a just world will be hard.

[Pia Eberhardt works for the critical organization Corporate Europe Observatory (CEO). She is co-author of the 2012 study on the role of law offices, courts of arbitration and trial financiers in investor-state proceedings (“Profiting from Injustice,” download at]


"Alternative Trade Mandate," December 2013, 20 pages, by 50 NGOs

Free Trade Agreements: Special Rights for Corporations

Pia Eberhardt, "Investment Protection at a Crossroads," 16 lawsuits summarized

John Hilary, "TTIP: Deregulation, Attack on Jobs and End to Democracy," 42 pages

The Transatlantic Trade and Investment Partnership (TTIP) is a comprehensive free trade and investment treaty currently being negotiated - in secret - between the European Union and the USA. As officials from both sides acknowledge, the main goal of TTIP is to remove regulatory 'barriers' which restrict the potential profits to be made by transnational corporations on both sides of the Atlantic. Yet these 'barriers' are in reality some of our most prized social standards and environmental regulations, such as labor rights, food safety rules (including restrictions on GMOs), regulations on the use of toxic chemicals, digital privacy laws and even new banking safeguards introduced to prevent a repeat of the 2008 financial crisis. The stakes, in other words, could not be higher.

Lea Susemichel, “TTIP Undermines the Constitutional State,” 7/2/2014

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