US Defends Investor-State Provisions; EU Promotes TTIP Consultation

Investor-state provisions in trade and investment agreements, which allow private companies to sue governments for policies taken that undermine the companies’ investment expectations, have come under recent scrutiny for their potential to undermine the public interest. Today, the United States Trade Representative published a blog post defending these provisions, while the European Union opened a public consultation on the provisions in the Transatlantic Trade and Investment Partnership (TTIP) with the US.

US

“There are a lot of myths out there suggesting that ISDS [investor-state dispute settlement] somehow limits our ability – or our partners’ ability – to regulate in the interest of financial stability, environmental protection, or public health. Some have even suggested that a company could sue a government just on the grounds that the company isn’t earning as much profit as it wants,” USTR said in its blog post. “These assertions are false.”

“The United States promotes provisions in our trade agreements that protect our right to regulate in the public interest while promoting higher standards in many partner countries in areas ranging from labor and environment to transparency to anti-corruption,” it said.

Over the last 50 years, nearly 3,200 trade and investment agreements among 180 countries have included investment provisions, and the vast majority of these agreements have included some form of ISDS, USTR said, adding that the US is party to 50 agreements with ISDS.

The blog post lists points in support of ISDS, including that they: give legal protection for US investors abroad; protect the right of governments to “regulate in the public interest”; do not interfere with the ability of federal, state or local governments to take actions; do not allow companies to sue based on lost profits; include safeguards against frivolous suits; ensure “fair, unbiased and transparent” legal processes; and ensure independent and impartial arbitration.

EU

The European Commission, meanwhile, has announced a public consultation on ISDS, giving the opportunity to comment on these provisions in the TTIP. It said that only nine EU members currently have bilateral investment agreements with the US, though investment is critical to the EU economy. EU members in general have struck over 1,400 bilateral investment treaties, and EU investors are the largest users of ISDS in the world.

A key element of the provisions is the prevention of expropriation by other governments, the Commission noted.

The Commission is proposing a new approach on investment protection and ISDS for the TTIP, it said, and it addresses concerns that have been raised through two actions.

First, it clarifies investment protection so the “right to regulate” is not undermined, allowing government actions in the public interest, and not protecting “shell companies” in the parties’ territories.

Second, it improves the system by allowing for early dismissal of unfounded claims and preventing investors from bringing multiple claims in various jurisdictions, plus instituting a loser pays system. It also builds in transparency, such as making ISDS claims publicly available, contains a code of conduct for abitrators to eliminate conflicts of interest or bias, uses an appellate body to review awards, allow the governments to agree on how they interpret certain provisions so arbitral panels must follow it, and ensuring that ISDS only applies to investment and not the rest of the TTIP.

The consultation document includes examples of provisions in EU bilateral investment treaties and the EU-Canada bilateral treaty.