During a stakeholders meeting on the TTIP / TAFTA trade agreement, EU and US negotiators showed determination to transfer sovereignty to companies.
On Friday 15 November, the last day of the second TTIP negotiating round, the EU commission organised a stakeholders meeting. Chief negotiators Dan Mullaney (US) and Ignacio Garcia Bercero (EU) gave a short talk and answered questions.
In the stakeholders meeting many topics were discussed, from investor – state dispute settlement, the right to water, the precautionary principle, to consumer safeguards. Here is a (low quality) audio recording, it starts half a minute into the meeting.
There were many questions about investor – state dispute settlement (ISDS). Under ISDS companies can sue states if new laws threaten to make expected profits lower. The cases are handled outside national court systems, by tribunals consisting of three investment lawyers. Civil society groups see ISDS as a threat to democracy.
ISDS transfers sovereignty in two ways. It gives companies equal standing to states. And it gives investment lawyers the power to decide in conflicts between companies and states.
Why on earth would one want to transfer sovereignty to companies and investment lawyers?
According to Mr. Garcia Bercero a well designed ISDS system can preserve the right to regulate:
“I first want to say, very clear, very firmly, that we certainly do not believe that a well designed investor to state dispute settlement system could compromise the right to regulate.
One of the fundamental issues we want to look at very carefully if we decide on any potential investment protection rules in a treaty, as we indeed did in the agreement with Canada, is to make sure that parties have the right to make policies in the public interest.” (at 48.20)
Mr. Garcia Bercero turns the question around. He takes transferring sovereignty for granted, and then wants to safeguard space for states to regulate. States become the begging parties. That is the world upside down.
Furthermore, the commission’s reassurances do not convince. Mr. Garcia Bercero states the commission got it right in the ISDS chapter in the agreement with Canada. However, already months ago Nathalie Bernasconi-Osterwalder showed serious flaws in the (leaked) draft. Moreover, arguments in favour of ISDS on the commission’s Q&A webpage were scrutinized by Corporate Europe Observatory, after which the commission withdrew the statements. A second commission attempt was strongly criticised by Glyn Moody. The commission’s beliefs are firm, but it comes empty handed.
Mr. Mullaney talked about a fair, quick and transparent ISDS system that safeguards regulatory space. Nothing would prevent non-discriminatory legitimate policy objectives.
He too takes transferring sovereignty for granted, and then wants to safeguard limited space for states to regulate. The policy objectives have to be non-discriminatory and legitimate. What is non-discriminatory and legitimate? The investment lawyers will decide on that.
Then someone asked the essential question: why is ISDS needed at all? Both negotiators mentioned protection against discrimination.
“I think it is fair to say that measures in the United States that specifically discriminate against EU [parts?] or EU companies and measures in Europe that discriminate against US property or companies, that would in fact be something you want to avoid in the agreement.” (at 1.41.26)
The answer doesn’t clarify why ISDS would be needed, as both the EU and US have good courts, and state – state dispute settlement can solve remaining issues.
In related news, last week Nobel laureate in economics Joseph Stiglitz wrote an opinion on ISDS. He makes it clear that the instrument is unnecessary:
“There is no reason that foreign-owned property should be better protected than property owned by a country’s own citizens. Moreover, if constitutional guarantees are not enough to convince investors (…) foreigners can always avail themselves of expropriation insurance provided by the Multilateral Investment Guarantee Agency (a division of the World Bank) or numerous national organizations providing such insurance.”
He also explains what is really behind ISDS:
“But those supporting the investment agreements are not really concerned about protecting property rights, anyway. The real goal is to restrict governments’ ability to regulate and tax corporations – that is, to restrict their ability to impose responsibilities, not just uphold rights. Corporations are attempting to achieve by stealth – through secretly negotiated trade agreements – what they could not attain in an open political process.”
A union without clothes
In my opinion, the EU is in dire straights. The EU gave us a euro with design flaws, it may soon transfer sovereignty to companies and investment lawyers. The political elite fails. It is time for a wake up call.
This week the EU and US hold a second round of trade negotiations.
The military and economic power of states depend on their key industries. Both the EU and US want to strengthen their industries, they carefully listen to them.
But a corporate agenda is not the same as a strategic interests agenda. For instance, trading away our policy space, access to medicines, our ability to fight climate change, or transferring sovereignty to corporations does not serve the EU’s strategic interests.
The EU Commission makes a mistake. It negotiates in secret. This may make negotiations more simple, but as multinationals are much better informed and listened to than civil society and citizens, there is a serious risk the end result will be unbalanced and will harm the EU’s strategic interests.
Openness and citizens’ participation would serve the EU’s strategic interests and human values. Secrecy weakens the EU.
A few weeks ago I filed a complaint with the Ombudsman against the European Parliament over the secrecy of legal advice regarding ACTA. The Ombudsman replied that she didn’t want to investigate the complaint as I already got access to the documents (unofficially released versions). In a letter I ask her to reconsider the decision, as the decision seems not in line with an earlier Ombudsman decision, and, more importantly, an investigation could be of major importance.
“The secrecy surrounding international negotiations is very problematic. For instance, the secrecy surrounding ACTA (Anti-Counterfeiting Trade Agreement) led to various European Parliament resolutions, two Ombudsman complaints and a Court case.
All these cases failed, as the “protection of the public interest as regards international relations” exception to openness has an “absolute” character. Once successfully invoked, the Institution does not have to balance it with the public interest in disclosure.
The Parliament even raised this international relations exception, that has such a devastating effect on openness, for legal advice it produced itself after the negotiations. This extends the brute force of the international relations exception beyond reasonable scope. The Parliament uses the international relations exception to negate landmark EU Court of Justice Turco case law on legal advice. In my complaint I challenge this over-extension by arguing that the Parliament erred in law. Challenging this over-extension and defending the landmark Turco case law on legal advice is of major importance.
Furthermore, I challenge the “absolute” character of the international relations exception by pointing out it is not compatible with human rights. If this reasoning finds acceptance, it may break the absolute character of the exception. It could lead to more open negotiations of international agreements. This would be of major importance too.”
The letter (pdf)
The EU and Singapore initialed and published the text of the EU-Singapore Free Trade Agreement (EUSFTA). The text contains the much criticized retail price damages, known from the Anti-Counterfeiting Trade Agreement (ACTA), the treaty the European Parliament rejected last year. On top of the retail price damages the judicial authorities have the authority to order the infringer to pay the right holder the infringer’s profits. This heightens the already very high damages.
Retail price damages in EUSFTA
Article 11.44.2 EUSFTA: “In determining the amount of damages for infringement of intellectual property rights, a Party’s judicial authorities shall have the authority to consider, inter alia, any legitimate measure of value the right holder submits, which may include lost profits, the value of the infringed goods or services measured by the market price, or the suggested retail price.” [fn 35] (pdf)
Infringer’s profits in EUSFTA
The article continues: “At least in cases of copyright or related rights infringement and trademark counterfeiting, each Party shall provide that its judicial authorities have the authority to order the infringer to pay the right holder the infringer’s profits that are attributable to the infringement, whether as an alternative to or in addition to or as part of the damages.” (emphasis added)
One of the options here is: in addition to the damages. That is above the ACTA damages.
Very high damages
Retail price damages can turn out very high. To give an example, a two terabyte hard disk can contain 540.000 songs. Imagine someone copies a hard disk full of songs. The rights holder can claim 540.000 euro, based on a retail price of 1 euro per song.
A judge may not award such damages, but the claim has a terrifying chilling effect. Who wouldn’t settle for one percent, 5400 euro? Otherwise, an infringer runs the risk of having to sell his or her house for copying a hard disk.
The threat of excessive damages payments will also have a chilling effect on Internet service providers, and so on the right to freedom of expression.
Their enabler to the right to participate in cultural life may sell 100 illegal copies of a CD for 2 euro, the enabler then has a gross revenue of 200 euro. With damages based on retail price, the enabler may have to pay 2000 euro damages (100 x 20), ten times his gross revenue. And to add insult to injury, he may have to turn in his meager profits and may have his computer destroyed.
The secret negotiations led to ACTA-plus damages which will have a terrifying chilling effect and which will harm the right to freedom of expression, the right to participate in culture and the right to access to knowledge.
fn 35 reads: “In the case of the Union, this would also include, in appropriate cases, elements other than economic factors such as the moral prejudice caused to the right holder by the infringement.”
fn 33 reads: “A Party may exclude patents from the scope of Section C (Civil Enforcement of Intellectual Property Rights).”
Update: Marietje Schaake’s Parliamentary question to Commissioner de Gucht on ACTA provisions in EU-Singapore FTA text
The European Parliament decided to keep the opinions of its legal service on the Anti-Counterfeiting Trade Agreement (ACTA) secret. I just filed a complaint with the ombudsman against the parliament over this. I argue that the decisions to keep the documents secret were acts of maladministration and a violation of the human right to participate, enshrined in the International Covenant on Economic, Social and Cultural Rights (ICESCR) and the International Covenant on Civil and Political rights (ICCPR).
ACTA is dead in Europe, this complaint is about access to documents – essential for civil society work.
In 2011 two parliamentary committees asked the parliament’s legal service an opinion on the Anti-Counterfeiting Trade Agreement. The legal affairs committee decided to release the opinions to the public. The parliament’s vice-president responsible for access to documents overturned this decision. The FFII filed an access to documents request but received almost completely blacked out documents. (Blog post with image)
EU regulation 1049/2001 on access to documents
The EU’s regulation on access to documents has a set of exceptions to openness that have to be balanced with the public interest in disclosure. Examples are the protection of legal advice and the protection of the ongoing decision-making process. The parliament raised both exceptions. In my complaint I provide counter-arguments and an overriding public interest in disclosure.
But the regulation on access to documents also has a set of exceptions to openness – with a broad discretion for the institutions – that do not have to be balanced with the public interest in disclosure. An example is the protection of the public interest as regards international relations.
If publication of documents may undermine this interest, the institutions do not have to balance this interest with the public interest in disclosure. Just a minimal undermining of the public interest as regards international relations, and secrecy is allowed, however big the public interest in disclosure may be.
This is the reason that all requests for the ACTA negotiation documents failed (FFII, In ‘t Veld, EDRi). Also in this case the parliament raised this exception that has such a devastating effect on openness. To counter this, I use two approaches: brute force and human rights.
Vienna Convention on the Law of Treaties
The parliament argued, based on Article 18 of the Vienna Convention on the Law of Treaties (VCLT), that the EU was under certain obligations concerning due and successful ratification of ACTA and that disclosure of the legal service’s opinions could undermine successful ratification in third countries, and thus harm the protection of the public interest as regards international relations.
In the complaint I argue that the parliament’s interpretation of the VCLT is not conform the VCLT text, the history of the VCLT or earlier interpretations of the VCLT. The Parliament erred in law. I conclude that disclosure of the legal service’s opinions is not in conflict with the Vienna Convention on the Law of Treaties or ACTA’s final provisions.
There were of course no certain obligations concerning due and successful ratification – the parliament itself rejected ACTA later on. This is the complaint’s core argument.
In addition I argue that EU regulation 1049/2001 on access to documents has to be interpreted in a way that is compatible with the EU’s human rights obligations. I argue that the right to participate is a human right, enshrined in the International Covenant on Economic, Social and Cultural Rights and the International Covenant on Civil and Political rights. Limitations on the human right to participate are possible, but they have to be necessary in a democratic society and proportionate. Regulation 1049/2001 may give the institutions a broad discretion, the ICCPR and ICESCR have a stricter test. The parliament’s decisions fail this stricter test.
At the Dutch international camping festival for hackers and makers OHM 2013 I gave a lightning talk about Investor-to-state dispute settlement. Below the text.
Investor-to-state dispute settlement: a threat to democracy
I’m Ante Wessels. I’m involved with Vrijschrift and the Foundation for a Free Information Infrastructure. I will give a short talk about investor-to-state dispute settlement, or ISDS. Why is investor-to-state dispute settlement important?
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 attack environmental policies, health policies and reform of copyright and patent law. This undermines democracy, the rule of law and the public interest.
I will explain:
– how the system works
– why it ran out of hand
– what we can do about it
What is investor-to-state dispute settlement, how does it work?
International trade and investment treaties contain protections for foreign investors against expropriation, above local protections. For instance, protection against expropriation of a factory. Over the years, the protection got broader and broader. It now also includes expected future profits. If changes in law threaten to make profits lower, that is seen as expropriation.
In addition, multinationals do not have to use the local court system. The cases are decided by tribunals consisting of three investment lawyers. The tribunals are placed outside and above the local court system. Above the supreme courts of countries.
Let me give some examples.
After the nuclear disaster in Japan, the German government decided to close down two nuclear reactors. The Swedish company Vattenfall now claims 3.7 billion euro using investor-to-state dispute settlement.
Second example: Australia introduced health warnings on tobacco packaging. Tobacco company Philip Morris claimed that their trade marks lost value, and sued Australia in local courts. Philip Morris lost the court case and then started an ISDS arbitration case. As a result, Australia decided not to sign treaties with ISDS clauses any more.
Third example: Canada made some minor adjustments to its patent system to ascertain better access to medicine. United States pharmaceutical company Eli Lilly now claims 500 million dollar in ISDS arbitration.
Arbitrators have enormous powers. They also have a negative incentive.
Unlike judges, they are paid by the hour or by the day, very well paid. They have an incentive to let cases drag on. And they have an incentive to make the system more important by taking multinational friendly decisions.
The negative incentive has negative consequences. The legal costs are skyrocketing, in some cases the legal costs are more than 30 million dollar. The number of cases is rising sharply. The damages are rising.
Arbitrators wear many hats. They may also act as government official negotiating investment treaties, corporate lobbyist advocating investor-to-state dispute settlement, council defending the interest of corporations, media commentator and professor. The editorial boards of key journals consist of 50 to 100 percent arbitrators.
The small community of arbitrators is a captive incrowd. A very powerful captive incrowd.
In a democracy, strong institutions are essential. But, giving a captive incrowd enormous powers undermines democracy, the rule of law and the public interest.
What can we do?
Consumer and environmental groups already did a lot of work. The European Parliament is critical about ISDS. The digital community can help to tip the scale.
Note that adding safeguards to the system is not enough. A powerful captive incrowd can always find a way around safeguards. The only solution is exclusion, no investor-to-state dispute settlement in EU trade agreements.
Videos of the OHM 2013 talks at the Nikhef server. No video of my talk yet. When available, the filename will start with d2-t2 (day 2, track 2).
Corporate Europe Observatory, 2012, Profiting from injustice – How law firms, arbitrators and financiers are fuelling an investment arbitration boom,
Investment agreements: A new threat to health and TRIPS flexibilities? By Carlos M. Correa
Glyn Moody: TTIP Update II