Euractiv | 16 September 2015
Positive effects of TTIP tribunals for investment unclear
The planned free trade agreement between the United States and the European Union (TTIP) is proving to be controversial once again.
Whether the investment protection of trade agreements like TTIP and CETA will contribute more foreign investment is not clear, according to a European Commission assessment.
Most studies showed no "direct and exclusive causal relationship" between international investment agreements and foreign direct investment (FDI), replied Cecilia Malmström to a question posed by Fabio De Masi MEP (Die Linke).
The fact that direct effects are not identifiable is due to the complexity of economic relations, argues the Commission. There are numerous factors that affect investment. However, studies presented a "long term and transnational link" between investment protection agreements and investment, Malmström added.
The investment protection proposed in the planned TTIP agreement and the CETA deal is controversial. Critics fear that arbitration tribunals could be used to protect foreign investors, undermining regular court proceedings. The Commission has promised to eliminate weaknesses in conventional arbitration proceedings.
Malmström went on to add that investment protection would be an exclusive competence of the EU. This could have an impact on the adoption of both TTIP and CETA. Exclusive competence for the EU in investment protection and other contractual issues would facilitate adoption of the agreement.
But if it is a shared competency between the EU and the member states, then it would fall under the bracket of a so-called mixed agreement. In this scenario, the German government, as well as the other member states, would have to agree, too.
De Masi evaluated Malmström’s answer as an attempt to delay the CETA deal, for which a draft contract has already been drawn up. "The Commission has let the cat out of the bag, it fears democracy." He added that Malmström contradicted the German government and that CETA will need the approval of the Bundestag in order to be ratified.
Arbitration is carried out by a number of specialised bodies, proceedings are usually conducted in private, and often result in a settlement between the parties, rather than leading to formal tribunal decisions. However such decisions are made where the parties cannot come to an agreement.
Although investor-state arbitration clauses have been included in investment deals since the late 1950s, arbitration has emerged strongly in the last two decades.
Since the 1950s, EU member states have concluded over 1,400 bilateral investment treaties (BITs) with a large number of third countries, representing roughly half the total number of BITs world-wide.
In Germany, the debate over ISDS has been raging since a similar arbitration was launched against the country in 2012. The case was brought by the Swedish company, Vattenfall, for €4.7bn worth of compensation. It followed Germany’s decision to phase out nuclear power plants, which led to the closure of two of Vattenfall’s atomic power stations in the country.
Opponents of ISDS argue that the mechanism allows a foreign investor to bypass domestic courts, and to challenge what may otherwise be a legitimate policy objective.
Critics also cite another investment treaty arbitration, brought by tobacco company Philip Morris, against both Uruguay and Australia, for introducing plain packaging laws on cigarette packets. The company argued that the laws were a form of expropriation. Although these cases are still pending, some argue that ISDS provisions tilt the balance of power away from governments and towards global corporations.