THE BLOG

Is There Ever A Case For ICS?

07/06/2017 13:15

2017-06-06-1496752867-761211-No2CETA.jpg

If you have been following EU trade negotiations, such as those with the US known as TTIP or the CETA agreement with Canada, you are probably already be familiar with the acronym "ISDS". It stands for "Investor-State Dispute Settlement" and is arguably one of the most controversial aspects of modern trade negotiations. In the coming months, the fight to rid our trade and investment negotiations of legal privileges for multinationals to sue governments will open on multiple fronts.

Creating a separate judicial system for investors, based not on our own domestic courts but rather opaque arbitration-based tribunals, ISDS has faced overwhelming opposition from the public and civil society, as multinationals have used this tool to challenge public policy decisions and sue governments for often excessive 'future profits'.

This opposition led to the Commission pulling the plug on ISDS last year. But it was only really a tactical retreat as ISDS was reborn in a new form, and rebranded as ICS, or "Investment Court System". ICS offers more transparent proceedings than ISDS, but it remains essentially private justice for multinationals.

ICS was included in the CETA deal, and this is why I opposed it together with the majority of my Labour colleagues. But this story will not end with CETA: the Commission intends to use ICS as a model for all future EU trade and investment agreements.

Provided that our partners agree to it, ISDS/ICS will become a prominent feature of all of the EU's bilateral relationships - including with the UK once we leave the European Union. Such an agenda is a feature of the Commission's response to concerns about globalisation, published last month. Rather than fundamentally address concerns that the cards are stacked in favour of multinationals, bizarrely the Commission proposes to formalise their privilege through a new multilateral investment court.

This strategy is at best misguided and at worst will provide further anti-EU ammunition for populists on the political extremes. So why pursue it?

For countries that have mature legal systems, there is simply no need for an additional court in trade and investment deals. Despite many requests, the Commission has failed to provide concrete examples of cases that would have benefitted from a separate chamber in the cases of the TTIP or CETA talks. Therefore, while the argument to oppose ICS is pretty straight forward when it comes to agreements with developed countries, such as the USA, Canada, Japan or Singapore, it is worth considering the case of negotiations with developing countries.

As in some countries where the judiciary does not function well, and may be prone to corruption or undue political influence, there could be concerns that EU investors may not have adequate means to seek redress if they are treated unfairly. Some people argue that while ISDS/ICS is not needed in all trade deals, it may indeed be needed in some.

We will come soon to a test of this argument as EU negotiations are concluding with a number of developing countries, such as Vietnam, Myanmar and China. All these deals would contain investment protection including an ISDS/ICS clauses.

So would having ISDS/ICS in these trade deals actually be a good thing to protect EU companies doing business because the judiciary in these countries cannot be trusted?

In the hope to kick-start this debate, allow me to make three comments:

First, how do we know that a countries' judiciary does not already guarantee the rights of foreign investors? At the very least I would expect the Commission to put forward concrete evidence that EU businesses has been treated unfairly in these countries - something that it refused to do for Canada and the US, despite MEPs requesting it.

But even if we can demonstrate that there have been problems in the past, the applicable laws and practices concerned can evolve to create a more "investor-friendly" environment, and ISDS/ICS may not be the only solution to fix the problems in Chinese or Vietnamese domestic courts.

Closely linked to this, my second point is that an obvious shortfall of introducing ISDS/ICS is that it would remove an incentive for reforming the judicial system in countries where reform is much needed. If multinationals have their own separate justice, authoritarian regimes can secure foreign direct investment without having to reform justice for everyone. This could have very perverse consequences, and even contradict our commitment to sustainable development and human rights across the globe.

Finally, having ICS is one thing but using it is another. In countries such as China where investors must be co-opted by the regime and are under massive pressure to comply or face retribution, would any business actually go all the way and seek redress against the government at the risk of damaging their relationship? All the evidence suggests not, most EU member states have bilateral investment treaties with China, many including classic ISDS, these clauses are never used for fear of political retribution. Once again, evidence demonstrates that not only is ISDS/ICS is redundant in a changing global economy but new thinking is needed.

A few years ago, such an issue would have gone largely unnoticed but things are changing. We are still a long way from full transparency on trade negotiations, but trade policy has come out of the shadows and is increasingly in public debate. As a result, the public are scrutinising our trade deals. They have shown their resounding opposition to ISDS/ICS at every opportunity, in yet the trade establishment is only willing to tinker at the edges of its old recipe. More imagination is needed if the EU and its trade policy is to regain public credibility.

Comments

CONVERSATIONS