EU liberals seem ready to sacrifice our democracy

Marietje Schaake, the European Parliament’s liberal group’s (ALDE) spokesperson on the trade agreement with the US (TTIP) published a blog on investor-state arbitration (ISDS).

I will discuss her arguments below; to avoid cherry picking, I will quote her whole blog (for the links and images see her blog).

I conclude that a majority of the European Parliament liberal group seems ready to sacrifice the separation of powers, and democracy, for no good reason. As things stand now, the liberals won’t fight for our democracy.

Schaake:

“ISDS – what’s going on?
19.11.2014
Posted in: Timeline, Top Stories

One of the most hotly debated topics around the negotiations of a trans-Atlantic Trade and Investment Partnership (TTIP) is the so-called Investor-State Dispute Settlement (ISDS) mechanism. However, many of you may ask, ‘what exactly is ISDS?’

In 1959, Germany became the first country to conclude a bilateral investment agreement when it closed an agreement with Pakistan. It is unclear when exactly the first ISDS clause was introduced, though the agreement between the Netherlands and Kenya of 1970 contains an early reference (article 11). By the ’80s ISDS clauses were common features in bilateral investment agreements. This clause allows a company, from either of the two countries investing in the other, to bring the government of that country before an international arbitration court if it believes it has been unfairly treated. This would be for example if property is expropriated or if a contract is broken. In most bilateral agreements, investors are granted access to the domestic legal system, while sometimes requiring investors to exhaust all local remedies before proceeding to international arbitration.

ISDS clauses have been especially popular for Western governments and companies when closing an agreement with a country where the rule of law was not a given. (This study, commissioned by the Dutch government, provides a good oversight of the history and development of ISDS) Companies often seek legal certainty before they make large-scale investments. The idea of creating rules to facilitate investment makes sense from that angle. We should not forget that investment is a very important foundation of economic growth. The current European stagnation is partly caused by a lack of access to capital, for example for SMEs.”

Schaake wants more inbound investments. She wants to give foreign investors legal certainty. Europe has received massive investments; lack of legal protection has never been an issue. Lack of legal protection did not cause our crisis, and more legal protection will not solve our crisis. There is no convincing evidence that ISDS leads to more inbound investments. Brazil never ratified ISDS agreements; it continues to receive lots of foreign investment. There is no link between lack of ISDS and our current stagnation. Schaake suggests a way out of our crisis that is a fata morgana.

Democratic process

“Although TTIP has brought ISDS to the current public debate, it is not new. There are over 3000 agreements containing ISDS clauses in the world, and many of the 1400 bilateral agreements EU member states have also contain ISDS. It has become a complex patchwork, and European member states even have ISDS in agreements with each other. The most infamous European ISDS case, concerning Vattenfall challenging the loss of investment as a result of the banning of nuclear energy, has been filed under the agreement between Germany and Sweden. There has been no ruling yet.

Opponents of ISDS claim it would derail the democratic process and allow companies to sue governments left, right and centre. But has this been the case so far? In the 55 years since the conclusion of that first ISDS clause by Germany, 568 cases have been initiated, of which 274 have been concluded (i.e. 294 cases are still pending). Of these, 43 per cent were concluded in favour of the states, 31 per cent in favour of the investor and 26 per cent has been settled.”

These numbers are incomplete; they only count the known cases and they do not count the threats. The settled cases have incurred unknown costs on states. Threats, cases and legal costs all have a chilling effect.

“Moreover, more than half (54 per cent) of the cases were brought by companies from European member states. The majority of cases were brought against African and South American states. (click here for a comprehensive overview of current and past ISDS cases)”

Does Schaake want to claim that cases by companies from EU member states can not derail the democratic process? Swedish investors won an ISDS case against Romania. What did Romania do wrong? Romania brought its policies in line with EU legislation. EU countries have been respondents in 117 known cases.

Covered investments

“Another critical claim is that we have seen a dramatic increase in the number of new ISDS cases, from around ten cases a year in 2000 to more than fifty in 2013. While this sounds alarming, we must see it in the context of a significant increase in global investment flows. The growing number of cases between 2000 and 2014 is directly caused by an increase of global investment stocks in the same period from 7 trillion USD to 25 USD.”

Schaake refers to the wrong numbers. Most of these investment stocks are not covered by ISDS. More adequate numbers would have been: investment stocks covered by ISDS. In addition, contrary to what Schaake writes (“directly caused”), there is no causality, as an alternative explanation is possible: the increase in the number of new ISDS cases is caused by expansive interpretation of investment protection clauses by for-profit arbitrators.

Moreover, the argument backfires. TTIP would expand covered investment stocks by far more than all existing treaties combined. (page 29)

Presently 1% of US foreign direct investment stock in the EU is covered by ISDS; this led to nine ISDS cases. Coverage of 100% of US foreign direct investment stock in the EU may lead to hundreds of cases against the EU and EU countries. Multinationals will also be able to use the agreements with Canada, Singapore or other countries, if concluded.

Contrary to what Schaake writes, the numbers are alarming.

“Many of these investments went to developing countries where there are often more concerns about the rule of law.

[image]
World stocks investment inward 1980 – 2014

There are still other problems surrounding ISDS procedures. The language used in the ISDS clauses is unclear, so that companies can bring governments before courts for a broad range of issues. Furthermore, the arbitrators are not always independent as they often work on other cases and work for both companies and governments. The procedures take place behind closed doors and documents are rarely accessible. These are valid concerns that we have been addressing in the European Parliament, and that are shared by the European Commission.

To make the needed improvements, the Commission has proposed innovations to ISDS, which would increase transparency, limit the issues which companies can sue for, protect the right and space of governments to regulate and looks to guarantee the independence of arbitrators. (click here for a link to the Commission’s proposals)”

Last summer over 110 scientists published a Statement of Concern about Planned Provisions on Investment Protection and Investor-State Dispute Settlement (ISDS) in the Transatlantic Trade and Investment Partnership (TTIP). The statement shows the commission failed to solve a long list of issues.

Alternatives

“Are there any supporters of ISDS? Maybe… To make sure all voices are heard, the Commission froze the negotiations on ISDS in TTIP to hear from people. And 160.000 responded. We want to know as soon as possible what these consultations say about what stakeholders think about this new ISDS. In any case it shows people know and care about EU politics.

After all the discussion on ISDS, one may wonder, ‘are there no alternatives to ISDS?’. As a matter of fact, two alternatives have been suggested, but both are not without problems.

The first is state-to-state dispute settlement. States would then take the case of a company upon themselves, and address it before a tribunal. This creates a problem for small and medium size enterprises, which may not have the resources to convince their government that their case is worthy of attention. A second problem is that the cases might well be influenced by inter-state relations and other global events.

The second alternative is a permanent ISDS tribunal, much in the way the WTO also has a permanent tribunal for dispute settlement. This is definitely a good option, but it will probably not be put in place very soon. Therefore, while the idea is good, it will not solve the current debate.”

Local courts and insurance are two more alternatives. Both exist.

Why ISDS?

“That leaves the question, ‘why do we need this system between the EU and the US?’ Surely, the EU and the US have highly predictable and well-functioning legal systems that do not need separate rules to protect companies? Yet, businesses in both the EU and the US do not always agree. European companies question whether they would get the same treatment in Texas as a Texan company would, or the same trial in New York as their American competitor. American companies on the other hand wonder whether they would get the same treatment as local companies would in for example Italy or Romania. These are not easy questions, but we should not shy away from them.”

Adjudicative systems are not perfect. People are not perfect. But Schaake does not provide proof of systemic failures. If there would be proof of systemic failures, we would have to repair our systems. Schaake does not argue that our legal systems are beyond repair.

Let’s go one step further. There is no reason to add ISDS to an agreement with China. Companies can take a political risk insurance.

China’s investments in the EU are growing. Above I mentioned that last summer over 110 scientists published a Statement of Concern which shows that the commission failed to solve a long list of issues. We should not expose ourselves to ISDS cases. Especially not as flaws in trade agreement are hardly reversible.

“Complex facts may not always be as sexy as fast claims, but I’m afraid trade negotiations are often very technical and complex to understand. They are not the material for one-liners.

Hypes are easily born. This article from Euractiv for example, purported that the French government stated that it would not sign TTIP in 2015 and was against including ISDS in TTIP. However, this claim is incorrect if we look at the transcript from the hearing the article is based on. It is even a completely incorrect translation of a French version of the article posted on the same website.

We need to make sure that the current problems with the system are remedied in the agreements that already exist, and we must make sure that European (and other) governments retain their right to regulate. But to have that debate, we need the facts and not the fiction.”

What can I say? Schaake used incomplete numbers, referred to wrong numbers; her focus on numbers backfired. I did not see one good argument. And she overlooked the Statement of Concern, published by over 110 scientists, mentioned above.

Agreements without ISDS are not a problem. The Cato Institute is a staunch proponent of investment and free trade. It advises to purge trade agreements of ISDS. Dan Ikenson may have produced the best quote: “ISDS is ripe for exploitation by creative lawyers.

“The consultation from the European Commission will come out soon, and that will provide us with a more solid ground to weigh the pros and cons of ISDS once more, this time based on a major crowd sourced consultation, hearing the voices of people from all over Europe.”

The commission will present the results of the consultation. Will they admit they failed to solve a long list of issues? Will they admit ISDS is rigged to the advantage of the United States? The commission does not want to renegotiate the draft agreement with Canada, so they can not admit they messed up. We can not expect the truth from the commission. The commission will not fight for our democracy.

“Correction: This article was updated on 19 November to rectify an earlier version which stated that the first ISDS clause was introduced into the 1959 BIT between Germany and Pakistan, whereas in fact this agreement contains a state-to-state dispute resolution mechanism.”

Crown jewels: Separation of powers

The separation of powers is a core aspect of liberalism, of our democracy. I have noted various times, also in letters to the European Parliament International Trade committee, of which Schaake is a member, that ISDS does not observe the separation of powers and is rigged to the advantage of the United States. (letter 1, letter 2)

Schaake is the ALDE (liberal) group’s spokesperson on the trade agreement with the US. We can see her blog post as an indication of the group position.

The liberal group seems ready to sacrifice the separation of powers, and democracy, for no good reason. As things stand now, the liberals won’t fight for our democracy.

Like with ACTA, citizens will have to step in.

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FFII submission to Ombudsman consultation on openness in TTIP negotiations

Foundation for a Free information Infrastructure (FFII) submission to the European Ombudsman public consultation in relation to the transparency of the Transatlantic Trade and Investment Partnership (TTIP) negotiations.

The submission has a focus on the EU’s human rights obligations. The international human rights obligations (ICCPR and ICESCR) may be relevant for other countries as well, such as TPP countries.

FFII submission: pdf, html

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Who leaked about Juncker and Malmström fighting over ISDS?

Last week the Dutch newspaper NRC revealed a fight between Juncker and Malmström over ISDS. The article (paywall) sketched the context: uninformed activists gaining influence. The article suggested Juncker without good reason giving in.

As Juncker does not gain anything with this leak about the fight, I assume proponents of ISDS leaked, and had the ear of the reporter, so they could sketch the context. The newspaper did not give civil society a rebuttal: very bad journalism, endangering our democracy.

Vrijschrift reaction, in Dutch, the NRC did not want to publish.

See also the Statement of Concern about Planned Provisions on Investment Protection and Investor-State Dispute Settlement (ISDS) in the Transatlantic Trade and Investment Partnership (TTIP) published by over 110 scientists.

And CETA: ISDS does not observe the separation of powers

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EU Parliament promises to better register its decisions

In 2011 the FFII discovered that some European Parliament decisions regarding the ratification of the Anti-Counterfeiting Trade Agreement (ACTA) were not recorded in any known document. A hidden class of documents (“coordinators’ minutes”) seemed to exist, but the Parliament denied the existence. The FFII filed a complaint with the European Ombudsman.

The ombudsman found a systemic failure regarding the listing of documents in the Parliament’s registry of documents. In response, the Parliament took measures to better comply with EU law. However, the Parliament’s measures are limited. It did not take measures to ascertain all its documents are properly registered. Questions remain, as we will see below.

The complaint

The European Parliament has committees, which usually meet in public and produce committee minutes. Committees have coordinators to prepare the meetings. The coordinators meet behind closed doors and can take certain decisions. The FFII requested minutes of coordinators’ meetings. The Parliament denied the existence of these minutes. But if that was correct, then certain decisions were not recorded. The FFII insisted. In cases the FFII could provide proof of the existence of these minutes the Parliament released them, but it maintained that other coordinators’ minutes did not exist.

On 1 February 2012 I filed a complaint with the European Ombudsman against the European Parliament for systematically lying about the existence of documents.

The Ombudsman reformulated my complaint to: “Parliament fails to register all existing Parliament documents in its electronic Register of documents.” The ombudsman formulated as claim: “Parliament should register all existing Parliament documents in its electronic Register of documents, in particular the minutes of the meetings of Parliament Committee Coordinators.”

During the process another hidden document surfaced.

Draft decision

In its draft decision the ombudsman found a “systemic failure by Parliament to mention, in the public register of documents, the existence of a whole series of documents that relate to the work of MEPs”, found the failure to amount to an instance of maladministration, and recommended: “When minutes of meetings of Committee Coordinators are drawn up, Parliament should include the minutes in its public register of documents and make them, in principle, directly accessible, in accordance with Article 12 of Regulation 1049/2001″ (Ombudsman, paragraphs 16-18).

Note the draft decision was more limited than the original claim. As we saw above the claim stated “Parliament should register all existing Parliament documents”, the draft decision only refers to coordinators’ minutes.

Parliament answer

The Parliament stated that the recommendations or decisions adopted by the coordinators will be included in the public committee minutes.

The decision

Decision of the European Ombudsman closing the inquiry into complaint 262/2012/OV against the European Parliament:

“Parliament has taken appropriate measures to implement the Ombudsman’s draft recommendation.”

Further remark

The ombudsman added a further remark:

“In the light of Parliament’s positive reply to the draft recommendation, the Ombudsman trusts that, for the sake of consistency with its new policy adopted after the draft recommendation, Parliament will include in its public register existing minutes of meetings of Committee Coordinators adopted during the 2009-2014 parliamentary term.”

Open questions

The Parliament declared that “in principle the committee secretariats will not prepare any separate minutes of coordinators’ meetings”. What will happen if they act contrary to the principle, if they do prepare separate minutes? Will the document(s) be recorded in the register of documents?

The Legal Affairs committee made a coordinators’ workspace, accessible only to the coordinators, political advisors working with the committee on Legal Affairs and the staff of the secretariat. Are the documents in this workspace recorded in the register of documents? Are coordinators’ notes recorded in the register, or is this a hidden class of documents?

How many committees have a coordinators’ workspace? And are there any further “walled gardens” out of sight of the registry?

Update: the 2011 Legal Affairs committee coordinators’ minutes are now available at the FFII website.

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11 October action day against TTIP, CETA and TISA

This Saturday 11 October 2014, in hundreds of European cities, civil society organisations, unions and farmers will organise manifestations against EU trade agreements under negotiation.

The manifestations regard the Trade and Investment Partnership (TTIP) with the US, the Comprehensive Economic and Trade Agreement (CETA) with Canada, and the Trade in Services Agreement (TISA) with many countries.

The secret negotiations create serious risks for privacy, reform of copyright and patent law, labor rights and the environment, and may give companies excessive power in conflicts with states.

See also the Statement of Concern on investor-to-state arbitration by over 110 scholars.

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ISDS out?

OpenDemocracy reports about the back and forth confusion during Commissioner hearings recently:

At 16:01 they [Tagesspiegel] publish an article on their website: Juncker will drop ISDS from TTIP, this is the policy of the incoming Commission.

It becomes more an more likely that the controversial enforcement of TTIP and CETA with ISDS instruments would be resolved.

This would enable the public to focus more on the substance of the envisaged agreements.

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Steinbrück: Nobody knows what has been negotiated

Peer Steinbrück, Member of the Bundestag, Chair of the German-U.S. Parliamentary Friendship Group, and former German Federal Minister of Finance

Moderator: Bruce Stokes, Director of Global Economic Attitudes, Global Attitudes Project, Pew Research Center, Non-Resident Fellow, German Marshall Fund of the United States

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US PEC on Cross-Border Data Flows in TTIP and other FTA

The US President Export Council discusses its proposed data flow provisions (June 19, 2014) as a means to counter the rush to privacy protection and denounces privacy measures of foreign governments as a trade barrier and digital protectionism. No further arguments are provided to back up these claims and allegations.

CHAIRMAN McNERNEY:
.. Ginni, you warmed up earlier today over breakfast, on cross-border data flows, but why don’t you give us a summary of the second letter on cross – data border flows?

MS. ROMETTY [IBM]: Okay. Well, first, I should say that the Administration has taken a number of actions already in this area. It is both cross-data flows, cross-border data flows, as well as data localization. In fact, these are a threat not only to operation globally, but also to business globally, and, frankly, it is a threat to how governments can even operate and the benefits they get. So the past two years, both Secretary Pritzker and Ambassador Froman have been very helpful in their attempts, in their efforts here, because we have seen some successful rollback of troubling policies. I think many people are well aware of the India Preferential Market Access policy that got pulled back.

And, quite clearly, since the Snowden revelations, what has happened is you see an increase now in governments who are advocating and promoting local and digital protectionism.  Just to list some of the countries, Brazil, Turkey, Russia, Indonesia, Vietnam, Nigeria, India.

They are in the forms of cross-border or the data protection or keeping data local. Honestly, they are many times often a condition to do business there.

So while privacy and security, those are often the reasons stated for this, outright stated, this is really a form of protectionism and it is really often driven by local competition, local commercial competition.

I don’t think anyone would argue that you need data. It is the lifeblood of an economy, it is for our governments, it is for our businesses, for small and medium enterprises, as well, to succeed around the world.

While privacy and security are essential, it is just really important that we believe that any local requirements for this, it will actually just create trade barriers and do nothing for privacy and security at the end of the day.
So we would advocate that we really work together to defeat any of this digital protectionism and in the short term, please continue, the Administration,to  do what  we’ve  been doing. As  these creep up, we go work on the bilaterally, but as we spoke about earlier today with Ambassador Froman, the most important thing is to intensify the focus on all the trade agreements to be sure that they actually — that there are rules there that prohibit that and protect, that we are able to move data and not have to store data locally.
I’d  just  end  on  the  point  that this  isn’t  about a technology industry issue. This is every company’s  issue.    It  is  every company,  every  industry and, frankly, all governments, as well, and their ability to both create economic prosperity and move jobs.

CHAIRMAN McNERNEY: Yes. Taken to an extreme, it would impair our ability to conduct business globally. So threading this needle between being sensitive to local sensitivities on privacy on one hand, but not allowing agreements to wrap — local in terests to wrap themselves in that cloak to, in essence, produce a protectionist environment is what I think is the point.

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A license to spy – cross-border data flows in TTIP

Here is a quote from Harry van Dorenmalen of IBM Europe:

Data flows and the Transatlantic Trade and Investment Partnership (TTIP) will be high on the agenda at the Summit. TTIP offers a unique opportunity to set the example as a 21st Century trade agreement that supports cross border data flow provisions…

The position is not new and mirrors earlier attempts of IBM Europe leadership to mock the idea of a European cloud. The “demands for a safe environment for big data” are channelled via various lobby hats, including EU branded ones. Here for instance the European Services Forum (22 May):

The ESF and CSI call upon negotiators to ensure that TTIP will allow cross border data flows and dataprocessing to occur free from discriminatory terms and trade distorting conditions such as requirements to use local network infrastructure or local servers. These commitments should be applied across all services sectors, including financial services.

Part of the common “data flow” narrative is also fearmongering about fragmentation of the internet.

Why is it critical to have a close watch and what is so outrageous about this agenda?

  1. “data flows… including financial services”. Please learn more about the SWIFT scandal to get an idea why this is unacceptable.
  2. Why would European governments consider “requirements to use local network infrastructure or local servers”? Why wouldn’t Estonia like its egovernment services to be hosted in Russia?

The data flow debate relates to the recent surveillance scandals, and the post-snowden world. Having your data on European servers won’t help against criminal actions of partner countries. What it does achieve is data governance by your jurisdiction and preventing undesirable lawful access of a foreign government – as in the SWIFT scandal. There the US government dared to spy on the most toxic European data you could imagine, financial and stock market transaction data collected by the SWIFT processing agency, data mirrored on US servers. The US President B. Obama openly discussed the data flow topic with the Export Council and we hear from IBM that thankfully “Froman got it tied down in the trade agreement.”, that is TTIP.

It is hard to imagine how provisions on unrestricted cross-border data flow would benefit Europeans but it is essential to understand the harm to our data sovereignty. We got assurance from the European Commission that privacy protection would not be discussed within TTIP and some feel relieved by that. It seems ironic that the opponents of European privacy standards and collaborators of government surveillance table provisions on “free data flow” for TTIP that undermine reasonable European data sovereignty defenses. You may wonder if the European Commission negotiators are out of their mind to accept these demands in a “digital chapter” and limit (insufficient) options to defend European digital security interests.

In fact, data flow provisions are suicidal in the current situation where European leaders get no post-Snowden concessions from the US whatsoever, not even a fig leaf no-spy agreement, and the European Parliament calls to terminate the safe harbour data agreement with the US. Even for the US Export Council members it seems astonishing that Europeans negotiators are easily willing to accept these demands and to buy into the overbearing distortion to denounce these data location requirements as a trade barrier. If you understand the scope, impact and substance of the US demands you are likely to call the persons responsible names and would volunteer to eat chlorinated chicken for the rest of your life if only these provisions get taken out of that TTIP agreement.

The free data flow provisions in TTIP received broad lobby support by the US ICT industry and associations. The positions are pretty well developed, dispersed over multiple fora and hats.  What you may find outrageous upon closer look is worded low tune and reasonable, opposing views are not taken and decision makers in the Brussels bubble get vaccinated by riddiculing these views. Among the eloquent supporters of this agenda is a disgraced former German defense minister whom Commissioner Neelie Kroes once appointed to an net freedom advisory role. With fearmongering about “data separatism”, “fragmentation” of the internet, building on the old “free flow” ideals of the internet technologist community and European mainstream narratives of free cross-border exchange of goods and services the transatlantic free data flow agenda pursues a devilish assault on the privacy and freedoms of European citizens and nation states in the digital world.

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121 scholars speak out against planned ISDS provisions in TTIP

A 100.000 citizens answered the EU consultation on ISDS, among them 121 academics. Some quotes from their submission:

“The Commission’s consultation document is an extraordinary text. On the one hand, the document contains fierce (and, in our opinion, fully justified) criticism of the international investment treaty arbitration regime as it has developed over the last two decades or so in a rapidly expanding number of awards under some 2800 Bilateral Investment Treaties, NAFTA, and the Energy Charter. Both explicitly and implicitly, the document disapproves of widespread expansive interpretations of nearly every provision found in investment treaties: from Most Favored Nation to umbrella clauses, from National Treatment to Fair and Equitable Treatment, from indirect expropriation to threshold issues of corporate nationality. The document also implicitly condemns the investment arbitration community for its failure to police itself adequately in matters of ethics, independence, competence, impartiality, and conflicts of interest. By implication, the document acknowledges that the institutional design of investment arbitration has given rise to reasonable perceptions that the decision-making process is biased against some states and investors as well as various interests of the general public.

And yet, on the other hand, the Commission seems content to entrust to these same actors the vital constitutional task of weighing and balancing the right to regulate of sovereign states and the property rights of foreign investors. This task is one of the most profound roles that can be assigned to any national or international judicial body. The proposed text requires arbitrators to determine whether discriminatory measures are ‘necessary’ in light of the relative importance of the values and interests the measures seek to further; whether the impact of non-discriminatory ‘indirect expropriations’ have a ‘manifestly excessive impact’ on investors in light of the regulatory purpose of these measures; whether other non discriminatory measures amount to arbitrariness or fall short of standards of due process and transparency, and whether prudential regulations are ‘more burdensome than necessary to achieve their aim’. To entrust these decisions to the very actors who have an apparent financial interest in the current situation and moreover remain unaccountable to society at large is a contentious situation. In light of the criticism inherent in the consultation document, not to mention the fundamental concerns of many observers of the system, there seems to be consensus that the regime falls short of the standards required of an institutionally independent and accountable dispute settlement system.”

On the right to regulate:
The approach “[f]ails to protect the ‘right to regulate’ as a general right of states alongside the many elaborate rights and protections of foreign investors, let alone as a component of the FET and Expropriation standards”. ” By its omissions, the consultation text actually confirms boldly that the right to regulate has not been affirmed and preserved, by a clear and unequivocal statement of the right, alongside the rights and protections of foreign investors.”

On protecting public funds in a sovereign debt crisis:
“In light of the social misery and hardship the sovereign debt crisis has brought, it requires little discussion to conclude that the mere thought of speculative investors in government bonds seeking damages before investment arbitration Tribunals is utterly unacceptable.”

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