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Kanaga Raja

EU-US deal could unleash a "corporate litigation boom"

by Kanaga Raja

16 June 2013

Investor-state dispute settlement under the proposed Transatlantic Trade and Investment Partnership (TTIP) between the European Union and the Untied States would empower EU and US-based corporations "to engage in litigious wars of attrition to limit the power of governments on both sides of the Atlantic," Corporate Europe Observatory (CEO) and the Transnational Institute (TNI) have warned.

In a new briefing paper titled "A Transatlantic Corporate Bill of Rights" released recently, CEO and TNI said that the tremendous volume of transatlantic investment, with both partners accounting for more than half of foreign direct investment in each others’ economies, hints at the sheer scale of the risk of such litigation wars.

[The issue has figured at the US Senate confirmation hearing for USTR nominee Mike Froman, according to a post by Simon Lester at the IELP blog. According to the post, Sen. Sherrod Brown (a trade critic) asked at the hearing something along these lines: "Given that EU property rights protection is pretty good, do we need investor-state in the TTIP?" Mr. Froman’s answer was basically, "we’re still consulting on this and haven’t made a decision." In follow-up questions, with Brown trying to prod Froman a bit on why investor-state was needed in this context, Froman responded with something like, "we need to be aware of what excluding investor-state in this agreement would mean for the system as a whole." - SUNS]

According to CEO and TNI, leaked draft versions of the EU negotiating mandate for the far-reaching free trade agreement with the US reveal the European Commission’s plans to enshrine more powers for corporations in the deal.

The Commission’s proposal for investor-state dispute settlement under the TTIP would enable US companies investing in Europe to skirt European courts and directly challenge EU governments at international tribunals, whenever they find that laws in the area of public health, environmental or social protection interfere with their profits. EU companies investing abroad would have the same privilege in the US, said the briefing paper.

In a press release accompanying the briefing paper, Cecilia Olivet from TNI said: "It is only a matter of time before European and US taxpayers start paying the costs. Not only will our money go to pay for expensive lawsuits that compensate big business, but we will also pay as critical environmental and social regulations and policies are dismantled to clear the way for corporate profiteering."

Pia Eberhardt of CEO, the report’s author, said: "Politicians might think they are acting in the interests of ‘their’ investors overseas, but they are in fact exposing themselves to predatory legal action from corporations. It is high time that Parliaments on both sides of the Atlantic grasp the political and financial risks of investor-state dispute settlement and axe plans for this looming transatlantic corporate bill of rights."

The CEO-TNI report notes that as the main users of existing international investment treaties, US and European companies have driven the investor-state litigation boom of the past two decades.

By far the largest number of the 514 known disputes initiated by the end of 2012 were launched by US investors. They have filed 24% (123) of all cases. Next in line are investors from the Netherlands (50 cases), the UK (30) and Germany (27). Together, investors from EU member states have filed 40% of all known cases.

The US has faced over 20 investment claims under NAFTA’s (North American Free Trade Agreement) investment chapter, while 15 EU member states are known to have faced one or more investor-state challenges. The Czech Republic is the fifth most sued country in the world, the report says.

"EU and US companies have used these lawsuits to challenge green energy and medicine policies, anti-smoking legislation, bans on harmful chemicals, environmental restrictions on mining, health insurance policies, measures to improve the economic situation of minorities and many more. Now they are enthused about the prospect of an investment chapter in the EU-US free trade deal (TTIP), the biggest investment deal ever negotiated."

The report highlights some "emblematic" investor-state disputes such as that of Vattenfall v. Germany, whereby in 2012, Swedish energy giant Vattenfall launched an investor-state lawsuit against Germany, seeking 3.7 billion euros in compensation for lost profits related to two of its nuclear power plants. The case followed the German government’s decision to phase-out nuclear energy after the Fukushima nuclear disaster.

Also cited was Philip Morris v. Uruguay and Australia: Through bilateral investment treaties, US tobacco giant Philip Morris is suing Uruguay and Australia over their anti-smoking laws. The company argues that warning labels on cigarette packs and plain packaging prevent it from effectively displaying its trademark, causing a substantial loss of market share.

When Argentina froze utility rates (energy, water, etc.) and devalued its currency in response to its 2001-2002 financial crisis, it was hit by over 40 lawsuits from companies like CMS Energy (US) and Suez and Vivendi (France). By the end of 2008, awards against the country had totalled US$1.15 billion.

According to the report, in May 2013, Slovak and Cypriot investors sued Greece for the 2012 debt swap which Athens had to negotiate with its creditors to get bailout money from the EU and the International Monetary Fund (IMF).

On the basis of the NAFTA between the US, Canada and Mexico, US company Lone Pine Resources Inc. is demanding US$250 million in compensation from Canada.

According to CEO and TNI, the ‘crime’: The Canadian province of Quebec had put a moratorium on ‘fracking’, addressing concerns about the environmental risks of this new technology to extract oil and gas from rocks.

The report notes that corporate lobby groups in both the EU and the US have pressured for the inclusion of investor-state arbitration in TTIP. The European employers’ federation, BusinessEurope, the US Chamber of Commerce, AmCham EU, the Transatlantic Business Council and other corporate lobby heavyweights all advocate such privileges for foreign investors.

"This is also part of a hope that an EU-US deal would set a global ‘gold standard’, a model for investment protection for other agreements around the world."

The report asserts that if big business has its way, TTIP’s investment protection provisions will be even more slanted in favour of corporations than current EU and US practice.

US energy giant Chevron, too, is lobbying for an investment chapter which goes beyond the current US model treaty. Having been sued several times by Canadian companies under NAFTA, the US has twice revised its template for international investment treaties to better protect its policy-space.

Chevron wants a revival of some of these excessive investor rights such as the ‘umbrella clause’ in TTIP, which would considerably expand a state’s obligations.

The report notes that Chevron is currently engaged in a controversial legal battle with Ecuador. The company initiated arbitration to avoid paying US$18 billion to clean up oil-drilling-related contamination in the Amazonian rainforest, as ordered by Ecuadorian courts.

"The case has been lambasted as ‘egregious misuse’ of investment arbitration to evade justice. No wonder Chevron dedicated its complete contribution to the US government’s TTIP consultation to investment protection, ‘one of our most important issues globally’ as they put it."

In Europe, says the report, Chevron wants the "the strongest possible protection" from government measures to "mitigate the risks associated with large-scale, capital intensive, and long term projects [...] such as developing shale gas". Because of its health and environmental impacts, several EU governments have decided to put a break on shale gas development (‘fracking’).

"TTIP’s proposed investment protection chapter would empower energy companies like Chevron to challenge such precautionary measures because it would oblige governments ‘to refrain from undermining legitimate investment-backed expectations’, as Chevron demands," the report further states, adding that the mere threat of a million-Euro investor-state lawsuit could be enough to scare governments into submission and weaken or prevent fracking bans and strict regulation.

Eberhardt from CEO said, "Chevron’s agenda shows what investor-state dispute settlement is all about. It’s a power grab from corporations - to rein in democracy and policies to protect people and the planet."

The CEO-TNI report also found that whenever policy-makers in the EU and the US have set out to change international investment treaties in recent years, law firms and investment arbitrators together with industry associations have mounted fierce lobbying campaigns to counter reforms to better balance public and private interests.

"This is not surprising - investment arbitration is big business for them. The tabs racked up by elite law firms can be US$1,000 per hour, per lawyer in investment treaty cases, with whole teams handling them. The private lawyers who decide these disputes, the arbitrators, also line their pockets, earning daily fees of US$3,000 and more."

EU and US lawyers dominate the field, seeking out every opportunity to sue countries. Nineteen of the top-20 law firms representing claimants and/or defendants in such disputes are headquartered in Europe or the US, the large majority of them (14) US firms. Out of the 15 arbitrators who have decided 55% of the total investor-state disputes known today, ten are from the EU or the US, the report said.

One of the usual arguments for investor-state arbitration - the need to grant legal security to attract foreign investors to countries with weak court systems - "turns to dust" in the context of TTIP, say CEO and TNI, arguing that if US and EU investors already make up for more than half of foreign direct investment in each others’ economies, then it is clear that investors seem to be happy enough with the rule of law on both sides of the Atlantic.

This is confirmed by an internal European Commission report from 2011 stating that "it is arguable that an investment protection agreement with the US would be needed with regard to the rule of law."

The report notes that citizens and organised civil society, on the other hand, oppose investor-state dispute settlement, citing, for example, a statement by the Transatlantic Consumer Dialogue, supported by consumer groups from the EU and the US, as saying that the TTIP "should not include investor-state dispute resolution. Investors should not be empowered to sue governments to enforce the agreement in secretive private tribunals, and to skirt the well-functioning domestic court systems and robust property rights protections in the United States and European Union."

According to the report, some EU member states also seem to question the need for investment protection clauses between two legal systems which are as sophisticated as in the EU and the US. Some fear a flood of claims from the US with its more aggressive legal culture. There are concerns that the US financial sector could attack policies to tackle Europe’s economic crisis such as bail-outs and debt restructuring.

On the other hand, member states such as Germany and the Netherlands, which support far-reaching investor rights, rather want to avoid pro-public interest legal language which is more common in the US and which, in their view, would ‘dilute’ investment protections.

"But the US government and the European Commission seem to be determined to use TTIP to empower foreign investors to bypass local courts and sue states directly at international tribunals when democratic decisions impede their expected profits."

The report finds that in leaked versions of its proposed negotiation mandate, the Commission made detailed suggestions for a "state-of-the-art investor-to-state dispute settlement mechanism" and investor rights which mirror the proposals from business lobby groups.

"The proposal will put many policies at risk and most likely create a chilling effect on governments looking to pass new rules to protect the environment and society," say CEO and TNI.

CEO and TNI stress that it is "high time that governments and parliaments on both sides of the Atlantic grasp the political and financial risks of investor-state dispute settlement and axe the plans for this looming transatlantic corporate bill of rights. The European Parliament in particular should put a leash on the Commission which is obviously disregarding MEPs’ call for ‘major changes’ in the international investment regime."

"Why on earth should legislators grant business such a powerful tool to rein in democracy and curb sound policies made in the interest of the public," they ask.

Published by: Third World Network

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