Understanding Investor-State Dispute Settlements: Impacts on Sovereignty and Democracy

1. Legitimacy, Sovereignty and Dispute Settlements Lora Verheecke Campaigner and Researcher Corporate Europe Observatory

2. Structure • What is investor-state dispute settlement (ISDS)? • What does it mean for democracy?

3. Short history of investment arbitration • 1950/60s: postcolonial period during which North wanted to protect businesses in its former colonies • 1959: 1st Bilateral Investment Treaty (BIT) (Germany-Pakistan) • 1969: 1st BIT with Investor State Dispute Settlement (Netherlands-Indonesia) • 1990s: BIT race, North American Free Trade Agreement (NAFTA)

4. Investment in the EU Investment is now a competence of the European Union (EU) = The European Commission signs bilateral investment treaties and the European Parliament ratifies them • CETA (EU-Canada) negotiations have been concluded (September 2014) • TTIP is negotiated since July 2013 Investor State Dispute Settlement (ISDS) is in both TTIP and CETA

5. What is ISDS? Claim State Investor International investment treaties

6. What is ISDS? • Today, 667 cases are known... and they are growing • Foreign investors attacked ban on chemicals, environmental regulations, patent laws, anti-smoking laws, anti-discrimination laws, price fixes on water and energy, reversed privatisations, court decisions...

8. 4.7 bn € 25 mio US$ 109 mio US$ 500 mio US$

9. Who gets the money? • 94.5% of the money from known awards went to companies with over US$ 1 billion in annual revenue and individuals with over US$ 100 million in net wealth

10. Does ISDS bring more foreign investment? • United States invested 1,5 billion Euros in the European Union in 2012 (figures from the European Commission) • Brazil never signed to ISDS and received $755.5 billion in foreign investment in 2014

11. What does ISDS mean for democracy? • Costs for public budgets & taxpayers • Risks for public interest regulations & democracy

12. Costs for public budgets & taxpayers • Compensation can run into billions • US$ 1,1 bn for Ecuador (1% of GDP) • US$ 935 mio for Libya (Only US$ 35 mio where invested) High legal costs • On average US$ 8 million per case • Philippines spent US$ 58 mio for defense against Fraport

13. What does ISDS mean for democracy? • Substantive rights • Imbalance: no obligations for foreign investors, but very broad, unbalanced rights • “Greater rights” for foreign investors • Enforcement of those rights - ISDS • Privileges foreign investors over everyone else • Give choice between national courts and international tribunals • Secrecy of the proceedings

14. Are ISDS tribunals independent? • Arbitrators ≠ independent • Party/ ICSID appointment • Earn 3.000 US$ a day • Incentive to decide in favour of the claimant

15. “When I wake up at night and think about arbitration, it never ceases to amaze me that sovereign states have agreed to investment arbitration at all […] Three private individuals are entrusted with the power to review, without any restriction or appeal procedure, all actions of the government, all decisions of the courts, and all laws and regulations emanating from parliament.” Juan Fernández-Armesto, arbitrator

16. Powerful lobby tool for corporations "Chevron argues that the mere existence of ISDS is important as it acts as a deterrent" Report of meeting between DG Trade and DG Energy with Chevron Vice-President, April 2014

18. Where are we today? • Public opposition.. • Commission consultation - 97% of respondents against (including trade unions, companies and Lander) • European parliament resolution – July 2015 “to replace the ISDS system with a new system for resolving disputes (…) subject to democratic principles and scrutiny, where potential cases are treated in a transparent manner by publicly appointed, independent professional judges in public hearings and which includes an appellate mechanism (...)

19. Where are we today? … led to cosmetics changes • Changes in TTIP and CETA but mostly a change of name. Now = Investment Court System

20. The new EU investment proposal • ... empowers corporations to sue states • ... paves the way for billions in taxpayer compensation paid to big business • ... gives corporations a powerful lobby tool to fight measures they dislike

21. Are the problems addressed? “This doesn’t change anything because the standards on the basis of which judgements are rendered remain the same.” Freshfields lawyer Nigel Blackaby on the EU’s proposal for an investment court in TTIP, Austrian daily “Der Standard”, 2 November 2015

22. Are the problems addressed? Germany’s largest association of judges and public prosecutors, February 2016: “Neither the proposed procedure for the appointment of judges of the ICS nor their position meet the international requirements for the independence of courts. ” Similar statement by French and Spanish judges

23. Case Study: Keystone pipeline

24. Alternatives? • Meanwhile, EU member states and the Commission are undermining proposals in the United Nations to establish mechanisms that could give citizens access to international courts when their rights are violated by investors => Who will define future international trade rules? => What are the rights and responsibilities of global corporations? Who defines them?

25. Thank you! • lora@corporateeurope.org