ISDS Is Not a Corporate Trojan Horse

07/01/2015 15:45 | Updated 09 March 2015

We need foreign investment in the UK and across the EU more than ever before. Much of our nations' infrastructures are ageing and need to be replaced or modernised. We need to upgrade our energy networks to ensure that the lights stay on and reduce reliance on energy from unpleasant regimes in the Middle East or Russia. We need to improve and extend our transport networks to cope with increased demand. We need to continue to build hospitals, schools and other vital infrastructure to continue to deliver high quality public services.

Given the high level of European governments' debts as well as the need to bring down deficits, it is clear that inward foreign direct investment (FDI) will be of huge importance in the coming decades. Much of that investment will come from investors based outside the EU and it is hoped that the Transatlantic Trade and Investment Partnership (TTIP) currently being negotiated by the US and EU will lead to a boost in inward investment from across the Atlantic. However, to attract that potential investment we need to address the myths being pushed by anti-trade NGOs and trade unions.

The UK has a long history of being among the most dynamic and open economies. Foreign direct investment has been critical in revitalising Britain's motor industry. The UK's food, chemicals, pharmaceuticals and aerospace sectors have also attracted significant investment. FDI has played its role in the UK out performing other OECD economies in the last two years.

A significant part of attracting inward investment has been the high standards of protection foreign and local investors enjoy when operating in the UK, which is in large due to the Investor State Dispute Settlement (ISDS) mechanism. Critics of ISDS ask why companies can't simply use national courts. They see no reason to have any foreign investor protection measures at all. The problem is that national courts don't always treat foreign companies in the same way they treat their own nationals. This is precisely what happened in Argentina recently, where the Argentinian government nationalised the operations and facilities of the Spanish energy firm Repsol without giving any compensation to the company. ISDS allows investors to receive a fair hearing from a genuinely neutral panel of legal experts, free from the risk of national bias.

ISDS does not prevent a democratically elected sovereign government changing its mind or breaking a previous government's contractual obligations. It simply ensures that the investors are fairly compensated.

ISDS is not a new concept either. The UK currently has 94 ISDS clauses in its investment treaties with other countries, which have been in force for a combined total of more than 2000 years. How many cases has the UK lost? Zero. Indeed, ISDS plays a key role in guaranteeing UK investment in other jurisdictions, and provides a useful back up option should the first one (standard court proceedings) fail or be unavailable.

Unfortunately, there are many deliberately false allegations from anti-business activists claiming that ISDS will subvert national sovereignty or to give corporations the ability to dictate to governments how a country's public services are run. The truth, however, is that the way the NHS and all other other British state provided services are run will remain entirely in the power of the elected UK government. The government's 'right to regulate' is quite clearly protected, illustrated by the inclusion of the following wording in the mandate signed up to by all EU Member States be they with governing parties from the left or the right.

"[The TTIP agreement] should be without prejudice to the right of the EU and the Member States to adopt and enforce, in accordance with their respective competences, measures necessary to pursue legitimate public policy objectives such as social, environmental, security, stability of the financial system, public health and safety in a non-discriminatory manner. The Agreement should respect the policies of the EU and its Member States for the promotion and protection of cultural diversity."

While the many myths are simply that, there are valid concerns around the arbitration process itself. The system, which has existed in different forms for many decades, is being improved as part of the EU's trade agreements with Canada and Singapore , so that the panels will be made up of three experts taken from a list of unconflicted, vetted individuals who are obliged to make full public disclosures of all possible conflicts of interest. Hearings will be public and documentation made available on the internet (no "secret courts" here). Appeals will be made possible in future and the decisions made binding, so that similar cases cannot be brought again. Interested parties, such as NGOs and trade unions will be able to make submissions and firms must prove a substantial business presence in the jurisdiction concerned, preventing any possible "treaty shopping", something that would prevent cases such as that brought by Phillip Morris in Australia.

In a globalised world where government finances are severely constrained, it is vital that we encourage investment flows across national borders. ISDS is an important component to ensuring this happens, so that investors know that investments are safe. This is not about sacrificing national sovereignty on the bonfire of economic growth. It is about giving investors the protection they need to ensure a stable and predictable business environment. British trade unions and anti-business NGOs campaigning against TTIP should have the courage of their convictions to admit that they are opposed to open trade and investment, rather than peddling myths about ISDS and TTIP.