[Foundation for a Free Information Infrastructure, Link (CC-BY)] The European Commission has published its investor-to-state dispute settlement (ISDS) reform proposal for the EU-US trade agreement under negotiation (TTIP).
Introduction: The commission’s proposal institutionalises discrimination. It gives foreign investors – and only foreign investors – the right to exit domestic legal systems and use supranational adjudication to challenge government decisions. Supranational adjudication places the development of law outside democratic oversight.
On the positive side, the proposal removes a relic: unfair procedural advantages for the United States. However, the proposal contains a loophole and fails to protect policy space.
The proposal would create perverse incentives. The adjudicators would be paid per day worked, without prohibition on outside remuneration. This creates perverse incentives to give foreign investors value for money as only foreign investors can start cases. The proposal doesn’t provide certainty that this will ever change.
Societies have to be able to change course, for instance to reform copyright or to effectively protect privacy. The proposal would place (for-profit) supranational investment adjudicators above democracies. The adjudicators would assess whether democratic decisions are arbitrary from a foreign investment protection point of view. This creates major risks for democracies and civil rights.
Furthermore, the commission undermines any possible positive element in its reform proposal as it intends to add old ISDS to the trade agreements with Canada and Singapore, giving foreign investors the possibility to route their investments into the EU through these countries.
The right approach is to improve weak aspects of domestic legal systems. This provides equal access to the law and doesn’t remove democratic oversight of the development of law. Investors can take out political risk insurance for additional certainty….
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Subsection: Intellectual Property
Copyright and patent law need reform. International agreements, like the TRIPS agreement, limit policy space. Expansive interpretation of international treaties would further limit our policy space.
The commission proposal contains a broad definition of investment which includes intellectual property rights (patents, copyright, etc; page 1 and 2 (x2, g)). Page 5, article 5 includes indirect expropriation.
Article 5(6) reads:
“This Article does not apply to the issuance of compulsory licenses granted in relation to intellectual property rights, to the extent that such issuance is consistent with the Agreement on Trade-Related Aspects of Intellectual Property Rights in Annex 1C to the WTO Agreements (‘TRIPS Agreement’).”
This would give supranational (for-profit) investment adjudicators discretion to interpret and decide on compliance with the TRIPS agreement (while the WTO has its own (state-state) dispute settlement mechanism). This changes the dynamic, as private parties have less constraint than states in starting cases. And there is a difference between seeing intellectual property rights as innovation stimulants and seeing them as assets.
Article 5(7) reads:
“For greater certainty, the revocation, limitation or creation of intellectual property rights to the extent that these measures are consistent with TRIPS and Chapter X (Intellectual Property) of this Agreement, do not constitute expropriation. Moreover, a determination that these actions are inconsistent with the TRIPS Agreement or Chapter X (Intellectual Property) of this Agreement does not establish that there has been an expropriation.”
This would give supranational investment adjudicators discretion to interpret and decide on compliance with TRIPS and Chapter X (Intellectual Property). Inconsistency would, in itself, not establish expropriation, but could establish expropriation if conditions in ANNEX I: Expropriation (page 9) are not met, for instance “legitimate public welfare objectives”, or if measures are deemed “manifestly excessive” (point 3).
Moreover the exceptions only relate to expropriation, not to the fair and equitable (FET), national, and most favoured nation treatment standards.
See also Sean Flynn, “How the Leaked TPP ISDS Chapter Threatens Intellectual Property Limitations and Exceptions” and “TTIP Stakeholder Statement: Protect IP from ISDS“.
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