Flawed Dutch government study on ISDS

Today the Dutch government published “The Impact of Investor-State Dispute Settlement (ISDS) in the TTIP“. The Parliament had asked for this study. The study is flawed.

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Update: See also the Vrijschrift noteShortcomings in dutch government study on investor – state arbitration“, which is more elaborate and more recent.

Vrijschrift letter to Dutch Parlament (Dutch)

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A first reading reveals:

It does not mention that it is near impossible to withdraw from trade agreements. Any mistake in the ISDS procedure in a trade agreement will be as good as impossible to solve.

It does not mention ISDS lacks conventional institutional safeguards for independence: tenure, prohibitions on outside remuneration by the arbitrator and neutral appointment of arbitrators.

It does not mention that the for-profit system creates perverse incentives: accepting frivolous cases, letting cases drag on, letting the only party that can initiate cases win to stimulate more cases, pleasing the officials who can appoint arbitrators.

It does not mention that the system does not observe the separation of powers. The US appoints the president of the World Bank. This president (1) is ex officio chairman of the International Centre for Settlement of Investment Disputes (ICSID) Administrative Council, (2) proposes the ICSID secretary-general, (3) appoints all three the arbitrators in appeal cases under ICSID rules. The secretary-general of ICSID (1) appoints the third arbitrator if the parties can not agree on the third one, (2) will decide on conflicts of interest. (ICSID, articles 5, 10, 38, 52 and Commission, 2014b, Table 8, article x-25.10) In sum, the system is rigged to the advantage of the US.

It does discuss the ICSID appeal procedure, referring to various articles, but does not mention the president of the World Bank’s role noted above.

It mentions the Loewen case in which the US court took a terrible decision, mentions that the US won the ISDS case on a technicality, but does not mention that the US pressured an arbitrator – while that had been discussed in a meeting at the ministry.

The system is rigged to the advantage of the US, and the US is not shy to pressure arbitrators. The US never lost an ISDS case. We can not expect Dutch companies to win major ISDS cases against the US. The study does not mention this.

It does not mention a study that finds that claimants from the US were 91% more likely to benefit from an expansive resolution than claimants from all other states combined.

It does not mention that for-profit arbitrators will be able to review decisions of the European Court of Human Rights.

It does not mention the MFN loophole.

It does not mention that the filter mechanism creates a perverse incentive.

It does not mention investor rights trump human rights.

It does not mention that the legitimate expectations clause could function as a non obvious umbrella clause.

It does not mention that the commission’s ISDS proposals are fundamentally incompatible with Europe’s human rights system.

It does not mention that a system rigged to the advantage of the US is a serious threat to the EU’s privacy protection.

It does not observe that “binding interpretations” are not binding.

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FFII submission: ISDS: A rigged system, avoid lock-in

Update: deadline extended to 13 July, see below.

FFII submission to European Commission consultation on investor-to-state dispute settlement (ISDS):

This submission concludes that investor-to-state dispute settlement lacks conventional institutional safeguards for independence and has characteristics of a rigged system. The appointment of arbitrators is not neutral and gives the US an unfair advantage. The US never lost an ISDS case, we can not expect European companies to win major ISDS cases against the US, all the more as the US is not shy to exert pressure on arbitrators. We can expect that US companies will win ISDS cases against the EU and member states. This leads to four considerations.

First, ISDS arbitrators will be able to review all decisions of governments, legislators and courts, including the European Court of Human Rights, and they can award unlimited damages. The European Commission aims to add ISDS to trade agreements from which it is near impossible to withdraw. Given that ISDS lacks conventional institutional safeguards for independence, does not observe the separation of powers, has characteristics of a rigged system and gives the US an unfair advantage, the transfer vast powers to arbitrators without possibility of withdrawal would be imprudent. At the very least, to protect its future, the EU has to avoid a lock-in, should not deviate from standing European practice of stand-alone investment agreements. The EU should not add ISDS to trade agreements.

Second, the EU aims to create a global standard. Presently a minority of foreign investments is covered by ISDS, after ISDS agreements between the major capital exporting countries a large majority of global foreign investments would be covered by ISDS. Wide coverage of global foreign investments and impossibility to withdraw would create a near global lock-in. Given that the commission’s reforms fail on many counts, a near global lock-in would give arbitrators unprecedented and unchecked powers. This would burden democracies, local companies, tax payers, human rights and the rule of law.

Third, quintessentially, states need a margin of appreciation. States which are constantly battered by threats and legal challenges can not function properly, can not take decisive action. The US protect themselves through a system rigged to their advantage. It is an existential threat to the EU not to be able to take decisive action, especially since the US can. Raison d’état necessitates to avoid this situation.

Fourth, foundationally, an essential aspect of liberalism is constitutional liberalism – the separation of powers, the creation of strong institutions. Sovereign decisional power accompanied by strong institutions can provide fairness. ISDS undermines the institutions. ISDS undermines the EU’s vital interests and values, it has to be rejected. In doing so, the EU would give direction to the debate and create room to strengthen alternatives.

This conclusion is based on our note “ISDS: A rigged system, avoid lock-in”, which we add as an attachment, also available at http://acta.ffii.org/?p=2118

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The attachment “ISDS: A rigged system, avoid lock-in”: html, pdf

Background:

ISDS gives foreign investors, usually multinationals, the right to circumvent domestic courts and challenge decisions of states for international investment tribunals if decisions may lead to lower profits than expected. Multinationals can challenge reform of copyright and patent law, challenge privacy measures, challenge environmental and health policies. The cases are decided by for-profit arbitrators, they can overturn decisions of our supreme courts and our human rights court. For an introduction see Nobel laureate Joseph Stiglitz or Vrijschrift.

The European Digital Rights initiative (EDRi) has published a tool and an answering guide for the European Commission’s consultation on ISDS. See here for more answering guides.

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Investor-to-state dispute settlement is a rigged system

Investor-to-state dispute settlement (ISDS), the most controversial element of the proposed trade agreement with the US, has characteristics of a rigged system. ISDS gives the US an unfair advantage, we can not expect EU companies to win ISDS cases against the US.

Trade agreements including ISDS would lock-in the EU, as it is practically impossible to withdraw from trade agreements.

ISDS is controversial. Investment agreements with ISDS give foreign investors, usually multinationals, the right to circumvent domestic courts and challenge decisions of states for international investment tribunals if decisions may lead to lower profits than expected. These ISDS tribunals can review all decisions of the state, all decisions of governments, legislators and courts, including supreme courts and human rights courts. For-profit arbitrators decide the ISDS cases and can award unlimited damages.

Multinationals can challenge reform of copyright and patent law, challenge privacy measures, challenge environmental and health policies. For an introduction see Stiglitz (2013) or Vrijschrift (2014). For intellectual property rights and human rights see FFII (2014).

Perverse incentives

The ISDS system lacks conventional institutional safeguards for independence: tenure, prohibitions on outside remuneration by the arbitrator and neutral appointment of arbitrators. The for-profit arbitrators are paid at least 3000 dollar a day. This creates perverse incentives: accepting frivolous cases, let cases drag on, let the only party that can initiate cases win to stimulate more cases, pleasing the official that can appoint arbitrators.

No neutral appointment of for-profit arbitrators

The appointment of arbitrators is not neutral. One arbitrator is appointed by each of the disputing parties. In which supreme court can parties bring their own judge? The third arbitrator, the presiding arbitrator, is appointed by agreement of the disputing parties.

The US appoints the president of the World Bank. This president
- is ex officio chairman of the International Centre for Settlement of Investment Disputes (ICSID) Administrative Council,
- proposes the ICSID secretary-general,
- appoints all three the arbitrators in appeal cases under ICSID rules.

The secretary-general of ICSID
- appoints the third arbitrator if the parties can not agree on the third one,
- will decide over conflicts of interest. (ICSID, articles 5, 10, 38, 52 and Commission, 2014b, Table 8, article x-25.10)

The ISDS system gives the US an unfair advantage. Adjudicative processes have to be free of reasonably perceived bias. This is not the case with ISDS.

Statistically significant evidence

There may be more than a reasonably perceived bias, a study suggests there may be actual bias. The study “examines trends in legal interpretation instead of case outcomes and finds statistically significant evidence that arbitrators favour: (1) the position of claimants over respondent states and (2) the position of claimants from major Western capital-exporting states over claimants from other states.”

The study finds that claimants from the US were 91% more likely to benefit from an expansive resolution than claimants from all other states combined. Claimants from Western European former colonial powers were 75% more likely to benefit from an expansive resolution than claimants from all other states combined, other than the US.

The study concludes: “These tendencies, especially in combination, give tentative cause for concern and provide a basis for further study and reflection on the system’s design, not least because the use of investment treaty arbitration appears to be a relatively recent phenomenon.” (Van Harten, 2012)

These are sensitive issues. Expansive interpretations put pressure on the public interest. Furthermore, if ISDS amounts to a neo-colonialist instrument, that would not be compatible with the EU treaties.

The US never lost an ISDS case

The US never lost a known ISDS case. The US could have lost the Loewen ISDS case, as the domestic court took a terrible decision. The US won the Loewen ISDS case on a technicality.

After the Loewen ISDS case one of the tribunal members publicly conceded having met with officials of the US Department of Justice (DoJ) prior to accepting his appointment. The DoJ put pressure on him. (Kleinheisterkamp, 2014)

The ISDS system gives the US an unfair advantage. The US is not shy to exert pressure on arbitrators.

We can now draw six conclusions:
- ISDS gives the US an unfair advantage,
- we can not expect EU companies to win ISDS cases against the US,
- ISDS is not free of reasonably perceived bias,
- ISDS has characteristics of a rigged system,
- expansive interpretations put pressure on the public interest,
- ISDS may not be compatible with the EU treaties.

Locking in failed reforms

The EU commission’s reform proposals, presented in its consultation (Commission, 2014a), do not solve the problems noted above: lack of conventional institutional safeguards for independence: no tenure, no prohibitions on outside remuneration by the arbitrator and no neutral appointment of arbitrators; for-profit arbitrators; perverse incentives; the ISDS system gives the US an unfair advantage; reasonably perceived bias.

ISDS agreements concluded by EU member states are stand-alone investment agreements from which it is possible to withdraw. The EU considers adding ISDS to its trade agreements. This would create a lock-in, as it is almost impossible to withdraw from trade agreements.

The EU aims to create a global standard. Presently a minority of foreign investment is covered by ISDS, after ISDS agreements between the major capital exporting countries a large majority of global foreign investment would be covered by ISDS.

Failed reforms, impossibility to withdraw and wide coverage of global foreign investment would create a global lock-in, an uncontrollable situation with unprecedented and unchecked power for for-profit arbitrators, which will burden democracies, local investors, tax payers, human rights and the rule of law.

We can now draw three more conclusions:
- to avoid lock-in, the EU should not deviate from standing European practice of stand-alone investment agreements, the EU should not add ISDS to trade agreements,
- the EU commission’s reform failed,
- the EU’s ambition to create a global standard is unrealistic and dangerous.

Stay tuned! Digital groups are preparing an answering guide for the commission’s ISDS consultation.

References

Commission, 2014a, Consultation website, http://trade.ec.europa.eu/consultations/index.cfm?consul_id=179

Commission, 2014b, Public consultation on modalities for investment protection and ISDS in TTIP, http://trade.ec.europa.eu/doclib/html/152280.htm

FFII, 2104, ISDS threatens privacy and reform of copyright and patent law, http://acta.ffii.org/?p=2109

ICSID, Convention on the settlement of investment disputes between states and nationals of other states, https://icsid.worldbank.org/ICSID/StaticFiles/basicdoc/partA.htm

Kleinheisterkamp, J., 2014, Is there a Need for Investor-State Arbitration in the Transatlantic Trade and Investment Partnership (TTIP)?, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2410188

Stiglitz, J. E., 2013, South Africa Breaks Out,
http://www.project-syndicate.org/commentary/on-the-dangers-of-bilateral-investment-agreements-by-joseph-e–stiglitz

Van Harten, Gus, 2012, “Arbitrator Behaviour in Asymmetrical Adjudication: An Empirical Study of Investment Treaty Arbitration.” Osgoode Hall Law Journal 50.1 (2012) : 211-268.
http://digitalcommons.osgoode.yorku.ca/ohlj/vol50/iss1/6

Vrijschrift, 2014, Investment tribunals above supreme courts, https://www.vrijschrift.org/serendipity/index.php?/archives/154-Investment-tribunals-above-supreme-courts.html

See also

CEO, 2014, Still not loving ISDS: 10 reasons to oppose investors’ super-rights in EU trade deals, http://corporateeurope.org/international-trade/2014/04/still-not-loving-isds-10-reasons-oppose-investors-super-rights-eu-trade

Secret deals
http://eu-secretdeals.info/news/

CEO and TNI, 2012, Profiting from injustice – How law firms, arbitrators and financiers are fuelling an investment arbitration boom,
http://corporateeurope.org/publications/profiting-from-injustice

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ISDS threatens privacy and reform of copyright and patent law

On 3 December 2013, the Dutch Parliament requested the government to investigate the potential social and environmental risks and the consequences of investor-to-state dispute settlement (ISDS) and the consequences of ISDS for the Netherlands and the financial risks for the Dutch government.

On 17 April 2014 companies and civil society organisations met at the Ministry of Foreign Affairs to discuss the ongoing “ISDS – TTIP study”. The ministry invited participants to send in further comments. The Foundation for a Free Information Infrastructure (FFII) submitted the note “ISDS threatens privacy and reform of copyright and patent law”.

Download this note:
http://people.ffii.org/~ante/ISDS/FFII_NL_ISDS-threatens-privacy.pdf

Below the summary of this note.

Summary

This note concludes that the EU commission’s timid reform proposals would create an ISDS system that is wide open for abuse and fundamentally incompatible with Europe’s human rights system. Given ISDS’s inherent design flaws which threaten democracy and human rights and can only be solved by abolishing the system, there are imperative reasons for the EU to exclude ISDS from its trade and investment agreements. In doing so, the EU would give direction to the debate and create room to strengthen alternatives. As a next step states should withdraw from ISDS agreements, mutual withdrawal is preferable. As the birthplace of democracy Europe has to take its responsibility.

ISDS gives multinationals the right to sue states before special tribunals if changes in law may lead to lower profits than expected. Multinationals can challenge reform of copyright and patent law, challenge environmental and health policies. For an introduction see Stiglitz (2013) or Vrijschrift (2014).

This note is divided into three sections. The first section analyses the system’s design flaws. It argues that ISDS has four inherent design flaws which can only be solved by abolishing the system: ISDS gives companies equal standing to states, unequal standing creates pressure on human rights, ISDS places specialised investment panels above general supreme courts, and the system lacks a legislative feedback loop.

Further, the section notes that the inherent design flaws are aggravated by non-inherent design flaws: the tribunals are not courts, the arbitrators are not judges, there is no tenure, there is a lack of openness and there is a strong perverse incentive. It concludes that the 2013 UNCTAD investment report shows that these flaws can be solved but that this would require a complete overhaul of the current regime through the coordinated action of a large number of states, an overhaul which is not foreseeable. The section also notes that ISDS is vulnerable to outside pressure. An argument for inclusion of ISDS in TTIP is that if ISDS is not in TTIP, China may object to having ISDS in its trade agreement with the EU. But the vulnerability to outside pressure defeats the sense of including it in trade agreements. The section raises the question whether China will be able to pressure arbitrators.

The second section discusses the EU commission’s reform proposals, which it presents in its consultation. The commission reforms both substantive investment protection provisions and procedural (ISDS) rules. Regarding substantive investment protection provisions, it concludes that the commission’s proposal contains a very broad definition of investment. Contrary to commission statements, the known Most Favoured Nation loophole still exists. Companies will not only be able to use the substantive investment protection provisions in TTIP, but they can cherry-pick from any other investment agreement the EU or EU member state signed. The text creates supreme investors rights which trump human rights. There is no general exception that safeguards the right to regulate. Specific limitations to safeguard the right to regulate are limited and do not solve the kind of uncertainty the EU is trying to avoid.

ISDS tribunals would apply these substantive investment protection provisions. The section concludes that the commission fails to identify the ISDS system’s inherent design flaws, noted in the first section. Non-inherent design flaws could be solved but this would require a complete overhaul of the current regime through the coordinated action of a large number of states. The commission limits itself to some minor adjustments: better transparency, limitation to post establishment and avoidance of multiple parallel proceedings. The commission can not solve the inherent design flaws and additionally does not solve these issues: ISDS tribunals are not courts, the arbitrators are not judges, there is no tenure, the strong perverse incentive, frivolous claims, the growing number of ISDS claims, lack of independence and impartiality of arbitrators, arbitrary decisions and the vulnerability of the system to outside pressure. The section concludes that the commission’s timid reform proposals would create a system that is wide open for abuse.

The third section argues that the commission’s ISDS proposals are fundamentally incompatible with Europe’s human rights system. It concludes that ISDS threatens our privacy and reform of copyright and patent law. It further argues that ISDS creates a higher chance on compromising the stability and integrity of the financial system. The filter mechanism proposed by the commission has a very limited scope, is dependent on other parties, doesn’t help against the chilling effect of threats and even creates a perverse incentive. This section also argues there is a lack of necessity for ISDS.

More:
http://people.ffii.org/~ante/ISDS/FFII_NL_ISDS-threatens-privacy.pdf

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Irresponsible EU parliament vote on ISDS tomorrow

Tomorrow the EU parliament will vote on investor-to-state dispute settlement (ISDS). The parliament will vote on a regulation regarding “International agreements: framework for managing financial responsibility linked to investor-state dispute settlement tribunals”. See the procedure file.

The regulation is a deal between council and parliament, it establishes rules for managing the financial consequences of investor-to-state dispute settlement (ISDS). Who will have to pay, the EU or the member state, if the EU loses an ISDS case? The regulation is a preparatory step to the inclusion of ISDS in EU trade agreements.

Today the international trade committee voted in favour of the regulation, tomorrow plenary will vote. We can expect the regulation to be adopted.

In my opinion, the vote is irresponsible.

When is the member state responsible? When the Member State acts in a manner inconsistent with that required by Union law, for example when it fails to transpose a directive adopted by the Union, that Member State should consequently bear financial responsibility.

Sounds clear and reasonable. But then, say a country is in a financial crisis. Member state, commission, council and IMF come together. A plan to save the financial system is made. Who then takes the decision? The threat of ISDS claims will loom over the decision.

ISDS adds extra complexity to solving a financial crisis. This heightens the chance on a financial system collapse.

The commission added a carve-out for financial crises? Yes, in true commission style: a dysfunctional one, dependent on the other party.

Now take a look at the procedure file again. Four committees decided not to give an opinion: Development, Legal Affairs, Budgets, Economic and Monetary Affairs.

Even Economic and Monetary Affairs wasn’t interested. They just left it to international trade committee.

ISDS threatens democracy, human rights and the stability of the financial system.

In my opinion the parliament should refer the regulation back to the committees and await the consultation.

On the positive side: if the parliament votes tomorrow, we will know on whom not to vote in the elections.

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German Parliament questions on TTIP

Thanks to the tool Offenesparlament.de you can find what questions are asked by Members of the German Bundestag (MdB) concerning the Transatlantic Trade and Investment Partnership to the German government.

For instance the Government stipulates that sectoral exclusions are impossible because of WTO principles (Dr. Maria Flachsbarth, Parl. Staatssekretärin beim Bundesminister für Ernährung und Landwirtschaft):

Dennoch ist es aus der Sicht meines Hauses aufgrund von WTO-Bestimmungen ausgeschlossen, einen gesamten Bereich wie zum Beispiel den Agrarsektor aus diesem Verfahren bzw. aus den Verhandlungen zum TTIP auszunehmen.

It needs further analysis why and how bilateral negotiations are governed by WTO trade principles.

Bundesregierung setzt sich für ein umfassendes Abkommen unter Einschluss des Agrarsektors ein. Dies ergibt sich schon aus WTO-rechtlichen Vorgaben und ist darüber hinaus auch im Interesse der deutschen Agrar- und Ernährungswirtschaft, für die freier Handel neue Exportchancen sowie Zugang zu benötigten Rohstoffen eröffnet. Die Wahrung der europäischen Lebensmittelstandards steht dazu nicht im Widerspruch. Auch die USA haben in gleicher Weise ein Interesse an freiem Handel bei Wahrung ihrer eigenen Lebensmittelstandards.

The government says it is unaware about TTIP impact on national patent laws (Brigitte Zypries,
Parl. Staatssekretärin beim Bundesminister für Wirtschaft und Energie):

Über die Auswirkungen von TTIP auf Patentrecht oder gar auf Änderungen des Patentrechts liegen der Bundesregierung keinerlei Informationen vor

The German government also expects no lowering effects on work and social standards:

Die Bundesregierung sieht kein Risiko einer Absenkung von Arbeits- und Sozialstandards durch die TTIP-
Verhandlungen.

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European Commission prepares to surrender our privacy

In my previous post I wrote that in the US – EU trade negotiations (TTIP / TAFTA) the US tabled a proposal that will undermine our privacy. I asked the EU chief negotiator a question about this. He did not acknowledge the issue, so he keeps open the option to surrender our privacy.

Negotiations

Last week the 4th round of US – EU trade negotiations (TTIP) took place. On Wednesday chief negotiators Dan Mullaney (US) and Ignacio Garcia Bercero (EU) gave a briefing to stakeholders.

A few hours earlier the European Parliament adopted its version of the EU privacy law reform and adopted a resolution calling for suspension of flows of personal data to the US.

These two votes show the problem with privacy. The EU has stronger privacy protection than the US, but once our personal data leaves the EU, the protection falls away. To protect our privacy, it is essential to have the power to suspend cross border flows of personal data, as it can force US companies to respect our privacy. As explained earlier, in the TTIP negotiations the US tabled a proposal that will undermine our power to suspend cross border flows of personal data.

Suspension of flows of personal data

At the stakeholders briefing, I asked the negotiators a question regarding suspension of data flows.

“I have a question on privacy, on personal data. This afternoon the European Parliament adopted a resolution which calls for the suspension of flows of personal data to the United States. This is a very strong instrument because it is the only way to make US companies comply with good privacy rules. The US tabled a proposal which would outlaw such suspension of data flows. There is a direct conflict with the European Parliament position, what is the comment of the negotiators on this?”

Reassuring words

Garcia Bercero said that the commission has taken a very clear position throughout this discussion which is that they are not going to be negotiating in this context issues relating to data privacy. The commission is ready to talk about issues relating to data flows but it is very clear that any substance relating to data flows has to be in accordance with European legislation on data privacy, present or future.

Mullaney talked about the importance of data flows, said that the ability to transfer data is in a way the backbone of the US – EU relationship and that the US thinks that the agreement can and should address data flows, it should facilitate this backbone, and they are confident that as they move forward that they are able to put in place provisions that facilitate flows of data in a way that respect the privacy on both sides.

Reassuring words?

Reassuring words. What are they worth?

First, the US track record on privacy is terrible. In the TTIP negotiations US companies and members of Congress want to ensure that all types of businesses can transfer data without problems. The US tabled a proposal that will undermine our privacy.

Second, the EU track record on cross border flows of personal data is weak. The commission is fine with the flows to the US, which the parliament calls to suspend. The EU – South Korea agreement contains insufficient safeguards. TTIP should not change our privacy standards, as privacy is not in the commission’s negotiating mandate. But the whole point is that the US proposal will make our privacy laws unenforceable. The US tabled a proposal that will undermine our power to suspend cross border flows of personal data.

Garcia Bercero did not acknowledge the issue, he keeps open the possibility to surrender our privacy.

Secrecy

Secrecy, general reassurances and inability to acknowledge real issues: these people learned nothing from ACTA.

To stop TTIP, the protests will have to be 20 times as big as the protests against ACTA were. If the commission goes on like this, it will get them.

If you care for your privacy, for digital rights, do take a look at the wepromise website.

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US wants to undermine privacy in TTIP negotiations

(Updated) In the EU – US trade negotiations (TTIP / TAFTA) the US tabled a proposal that would prohibit to require local data storage. If the EU accepts this proposal, the EU would give away an instrument essential to protect privacy.

On 5 March 2014 the Greens/EFA group in the European Parliament organised a meeting on the complex relationship between data protection, the Transatlantic Trade and Investment Partnership (TTIP), and the general context of EU-US relations after the Snowden revelations. (Stream available)

I spoke about why trade negotiations are not a good forum to protect privacy, see below.

During the meeting EU commission trade negotiator Jan-Willem Verheijden said that privacy is not in the EU negotiating mandate. The EU did not table text. The US did table a proposal in the eCommerce chapter, with two elements:
- general proposal on data flows similar to the US – South Korea trade agreement,
- prohibition on parties to require local data storage.

See video, first mention at 42.35, question MEP Martin Köhler and reply at 59.15.

So the problem is that privacy is not on the table in the TTIP negotiations, but data flows are, which brings privacy to the table, while trade negotiations are not a good forum, privacy is not in the mandate and the EU is just reforming its privacy law. How to solve this?

The EU has to keep data flows out of TTIP, and take separate measures. The LIBE report on “US NSA surveillance programme, surveillance bodies in various Member States and impact on EU citizens’ fundamental rights and on transatlantic cooperation in Justice and Home Affairs”, scheduled for a plenary vote next week,

“40. Calls on Member States’ competent authorities, in particular the data protection authorities, to make use of their existing powers and immediately suspend data flows to any organisation that has self-certified its adherence to the US Safe Harbour Principles, and to require that such data flows are only carried out under other instruments and provided they contain the necessary safeguards and guarantees with respect to the protection of the privacy and fundamental rights and freedoms of individuals;”

Suspension of flows of personal data has to be possible. The EU has to be able to say: as long as conditions are not met, personal data can not travel across the border.

When this measure is executed, data will have to temporarily stay on a local server. This amounts to a temporary local data storage obligation, which would be in conflict with a prohibition on parties to require local data storage, unless this falls under a general exception or the right to regulate.

The general rule will become free flow of personal data and the EU may have an exception to protect privacy. Or may not.

And who is going to decide on that? Arbitrators who are trade specialists, not human rights specialists and may find free flows of data more important than privacy. Or worse, investor-to-state dispute settlement tribunals.

The EU would give away an instrument essential to protect privacy. The US wants to undermine our privacy in the TTIP negotiations.

In my introduction I spoke about systemic issues with trade agreements and arbitration which result in the EU losing leverage needed to protect privacy:

Privacy, a trade irritant?

I will say a few things about procedural issues with TTIP. I will show that there are systemic issues with trade negotiations, with the ratification of agreements, and with the interpretation of agreements. There is a serious risk that TTIP will contain badly drafted rules and definitions. The EU will lose leverage needed to protect privacy.

Trade agreements

Trade negotiations are not a good forum to protect privacy.

First, negotiators and companies work together to remove obstacles to trade. Companies want free flows of data across borders. For companies, anything that hinders free flows of data, is a trade irritant that should be removed.

Second, trade negotiations take place behind closed doors. Citizens do not have access to draft texts. Companies have more access.

Third, the commission created an expert group of 14 people, half business, half civil society, with greater access to information. This is a step in the right direction. But 7 people can not represent civil society.

The devil is in the details. When texts are secret, it is impossible to give precise feedback. There is serious risk on badly drafted rules and definitions.

After the negotiations are over, the commission will publish a final text. This brings us to the ratification phase.

The ratification phase

The European Parliament only has a yes or no vote. If a human rights impact assessment concludes there are human rights issues, there is no possibility to change the text, there is only a yes or no vote.

Trade agreements are a package, no amendments are possible. The political capital invested in TTIP is enormous. Even if the end result of TTIP is disappointing, the Commission will have to sell it as a success.

And will citizens have all the information after the negotiations? In the case of ACTA, the Anti-Counterfeiting Trade Agreement, the European Parliament International Trade committee kept the legal service’s opinion on ACTA secret.

I requested the opinion. Mr Wieland, vice-president of the parliament, refused to disclose the opinion and explained: “the Union is now under certain obligations concerning due and successful ratification of ACTA.”

I find this incomprehensible. Will Mr Wieland say the same about TTIP?

In the ratification phase there will only be a yes or no vote and the pressure to say yes to TTIP will be enormous. There is a serious risk that badly drafted rules and definitions will slip through.

This brings us to trade agreements that entered into force. I will give an example, the EU – South Korea trade agreement.

EU – South Korea trade agreement

Article 7.50 (e) (ii) of this agreement is similar to GATS article 14 (General Agreement on Trade in Services). It allows to limit trade to protect privacy, as long as there is no arbitrary or unjustifiable discrimination between countries.

Article 7.43 has two obligations. Each party shall permit free flows of data. And each party shall adopt adequate safeguards to the protection of privacy, in particular with regard to the transfer of personal data.

“Adequate” is a weak standard. The trade agreement opens free flows of data, without real safeguards.

There has been an incident with South Korea about free flows of data. The Financial Times reports that banks had to obtain customer consent to transfer data outside Korea. EU commissioner De Gucht criticised this. South Korea then removed the obligation to first obtain customer consent. In other words, Korea removed the trade irritant.

In sum, the EU acts strongly to protect free flows of data, but the trade agreement does not provide strong privacy protection.

This brings us to the last section, the interpretation of international agreements.

Interpretation of trade agreements

In Europe, citizens can test in court laws that harm their privacy. This includes testing the implementation of international agreements. But citizens can not test international agreements themselves. The interpretation of trade agreements happens at a level above the EU, outside the reach of citizens.

If the parties to an agreement disagree over the interpretation, they can use state-to-state dispute settlement. This is an arbitration procedure. The arbitrators are trade specialists, not human rights specialists. They may find free flows of data more important than privacy.

The European Commission wants to add a second arbitration procedure to TTIP, investor-to-state dispute settlement, or ISDS. Like citizens, companies are not parties to international agreements. But investor-to-state dispute settlement gives companies equal standing to states. ISDS gives multinationals the right to sue states before special tribunals if decisions may lead to lower profits than expected. ISDS gives multinationals rights citizens do not have.

Arbitration tribunals consisting of three investment lawyers can overturn decisions of supreme courts. The arbitrators have a perverse incentive, they are paid by the day. The ISDS system is corrupted. If the EU would like to take measures to protect privacy, companies can threaten with huge ISDS claims, which will have a strong chilling effect.

Conclusion

In conclusion, there are systemic issues with trade negotiations, with the ratification of agreements, and with the interpretation of agreements. There is a serious risk that TTIP will contain badly drafted rules and definitions.

Inclusion of free flows of data in TTIP will make privacy an issue to be decided by TTIP dispute settlement tribunals. The EU will lose leverage needed to protect privacy. In addition, investor-to-state dispute settlement may further undermine privacy.

See also:

Investment tribunals above supreme courts

GATS

EU-South Korea Free Trade Agreement

Financial Times

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Tentative remarks on leaked CETA IP chapter

Today the German Pirate party published a leaked version of the intellectual property (IP) rights chapter of the EU – Canada trade agreement (CETA), version as of 17 December 2013.

See Carta blog: Piraten leaken CETA-Dokument zu IPR (German).

At first sight, the chapter does not go beyond EU law. That is not good news, in the sense that there are serious problems with EU IP law, exportation of EU law is not a good idea. EU IP law creates problems regarding access to knowledge and participation in culture, for remix artists, sequential innovation, and for software developers.

The FFII called upon the EU commission to solve such problems and make EU law compatible with the UN International Covenant on Economic, Social and Cultural Rights (ICESCR). The commission takes the wrong turn by exporting EU IP law. If we suffer from this, the Canadians should suffer as well? We need policy space for reform, not further lock-in, nor should we export harm. Software patent trolls will be happy.

Compared with ACTA

The damages in CETA do not contain the much criticized retail price damages, which were part of ACTA, the Anti-Counterfeiting Trade Agreement, and are part of the EU – Singapore trade agreement proposal.

The injunctions do not contain “inaudita altera parte”, the much dreaded possibility to decide on injunctions without the infringer present.

So far so good. But, I do not see what was footnote 2 in ACTA, and is footnote 33 in the EU – Singapore agreement, the right to exclude patents from the scope of the civil enforcement section.

All the strong enforcement measures (damages, injunctions, provisional measures) will be available for software patent trolls.

The strong enforcement measures further create problems for access to knowledge and taking part in culture, for remix artists, and for inventors involved in sequential invention – like software developers.

Applying strong enforcement measures where they should not be applied harms citizen’s economic, social, cultural, civil and political rights.

Objectives of CETA

Article 1 states the objectives.

“The objectives of this chapter are to:
(a) facilitate the production and commercialization of innovative and creative products, and the provision of services, between the Parties; and
(b) achieve an adequate and effective level of protection and enforcement of intellectual property rights.”

Not a word about access to knowledge and participation in culture. This world needs solutions, like patent delinkage for better access to medicine, but the commission only wants better commercialization. And harming sequential innovation does not help innovation.

Article 5.1 mentions a whole series of rights treaties, such as the Berne Convention, WIPO Copyright Treaty, WIPO Performances and Phonograms Treat, Rome Convention for the Protection of Performers, Producers of Phonograms and Broadcasting Organizations.

Not a word about the UN International Covenant on Economic, Social and Cultural Rights (ICESCR), which provides a much better balance than IP rights.

ISDS

Furthermore, the table of contents reveals that there will be 71 pages on investor-to-state dispute settlement (ISDS), which puts investment tribunals above our supreme courts. Investor-to-state dispute settlement gives multinationals the right to sue states before special tribunals if changes in law may lead to lower profits than expected. Multinationals can challenge reform of copyright and patent law, challenge environmental and health policies.

ISDS alone is a reason to vehemently oppose CETA.

Access to medicine

There are many provisions on pharmaceutical products. I leave these to experts in this field to comment on.

TPM

There are many provisions on technical protection measures. I do not have sufficient knowledge here, I assume they go further than WIPO treaties, otherwise there is no reason for them in this text. This then further limits EU policy space.

See also: Bits of Freedom: Hey CETA, Je Lekt Iets (Dutch)
iRights.info: Was das CETA-Abkommen fürs Urheberrecht bedeuten könnte (German)

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A word on chlorinated chicken in TTIP

These days the European Commissioner for Trade Karel De Gucht claims chlorinated chicken was not a valid concern of the TTIP negotiations.

EU investment agreements will explicitly state that legitimate government public policy decisions – on issues such as the balance between public and private provision of healthcare or “the European ban on chicken carcasses washed with chlorine” – cannot be over-ridden.

In the US it is common to use chlorine for desinfection of slaughtered poultry. The EU denies these US imports on food safety grounds under 191 TFEU (precautionary principle). The chlorinated chicken became a poster child of consumer campaign groups against the TTIP and raised suspicion of the European public against the TTIP. Clorinated poultry is a top priority of the United States trade administration and former Commissioner Verheugen already had indicated concessions in the TEC talk rounds which he could not politically enact. MEP Marietje Schaake explains the bottlenecks of TTIP:

The EU has invoked the precautionary principle to ban the import of US hormone-treated beef. Other areas of concern are chlorine-washed chicken, cherries, molluscan shellfish, tallow, raw milk and genetically modified/engineered crops (GMO/GE). High levels of consumer protection and current practices will make it difficult for both sides to compromise or adapt standards on these highly sensitive issues.

The recent EU Commission hints that chlorinated chicken was off the agenda for TTIP strike those odd who follow the transatlantic talks for a while. Here is what the United States negotiators told about the third round of negotations:

“So during the third round this week, the negotiating groups have been meeting on, again, virtually all of the areas that we would anticipate would be covered in the TTIP. And just to recall, these areas include market access for industrial and agricultural products, and of course, the rules of origin for those products; we had the regulatory and standards group which focused on technical regulations; the sanitary and phytosanitary regulations primarily in the area of food safety, regulatory coherence, and particular sectors.”

  • “Rules of origin” means geographical indications (GI), the EU agenda point.
  • “sanitary and phytosanitary regulations primarily in the area of food safety” means chlorinated poultry and similar issues on the US trade agenda.

Bloomberg reported in 2012:

Both sides will seek to lower regulatory barriers that hinder transatlantic trade, such as long-running disputes over chemicals, genetically modified foods and chlorinated chicken.

The implications of the EU Commission attempts to dismiss that the US trade demands would be considered in the package weaken the US negotiating position and test their willingness to participate in the TTIP agreement. Even more they endanger an adoption of the TTIP in the European Parliament if the demands would be considered.

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