ISOC-PL response in consultation on investment arbitration (ISDS) in transatlantic trade treaty (TTIP)

Questionnaire and other reference material of the consultation

Internet Society Poland statement

The European Commission should exclude the ISDS from every trade agreement, in this case from the TTIP, as it is not necessary and detrimental for democracy, human rights and the rule of law.

Internet Society Poland supports Commission’s criticism of the international investment treaty arbitration regime as it has developed over the last two decades or so in a rapidly expanding number of awards under some 2800 Bilateral Investment Treaties, NAFTA, and the Energy Charter. The consultation document disapproves many provisions found in investment treaties. The document also implicitly condemns the investment arbitration community for its failure to police itself adequately in matters of ethics, independence, competence, impartiality, and conflicts of interest. By implication, the document acknowledges that the institutional design of investment arbitration has given rise to reasonable perceptions that the decision-making process is biased against some states and investors as well as various interests of the general public.

In light of the criticism inherent in the consultation document, not to mention the fundamental concerns of many observers of the system, there seems to be consensus that the regime falls short of the standards required of an institutionally independent and accountable dispute settlement system.

We regret that the Commission doesn’t draw the logical implication from own analysis. Why consider including investor-state arbitration in the TTIP at all?

The rationale for bilateral investment treaties was traditionally linked to views about the potential impact on foreign investment of uncertainty caused by weak legal and judicial systems in host countries. It suffices to point out, in the context of the relationship between the US and the EU, that it is difficult to argue realistically that investors have cause to worry about domestic legal systems on either side of the Atlantic.

Investor-state arbitration delivers undue structural advantages to foreign investors and risks distorting the marketplace at the expense of domestically-owned companies. These mechanisms rely on rulings outside the national courts and thereby undermine our national and EU legal systems, our democratic structures for formulating laws and policies in the public interest. At root, the system involves a shift in sovereign priorities toward the interests of foreign owners of major assets and away from those of other actors whose direct representation and participation is limited to democratic processes and judicial institutions.

As the Consultation Notice mentions, EU Member States have some 1400 BITs in place. Many of them are concluded in decade of 1990s with the former communist countries of Eastern Europe, like Poland. Only Poland signed 62 BITs this period, the Czech Republic even 79. There is little evidence that after enlargement of the EU to ten Eastern Europe countries the BITs are contributing to good governance. It may also be true that, for these ten Member States, the new arrangement might be a better alternative than ‘doing nothing.’ But the option the Commission should consider is to negotiate termination of BITs ten Member States have with the US. Reversing wrong direction in the EU policy on international investment agreements is not only desirable. As shown by the Australian investment treaty experience such policy switch is also possible.

Before 2004, Australian FTAs commonly provided for ISDS. Although the 2004 US-Australia FTA still protects foreign investment, it does not include an ISDS mechanism. The Australian government based this choice on the grounds that “both countries have robust, developed legal systems for resolving disputes between foreign investors and government”.

Internet Society Poland advice the European Commission to follow Australian experience and exclude the ISDS from the TTIP.

In 2011, the Australian government released a Trade Policy Statement opposing ISDS in future FTAs to be concluded by Australia. According to the statement:

“The Gillard Government supports the principle of national treatment – that foreign and domestic businesses are treated equally under the law. However, the Government does not support provisions that would confer greater legal rights on foreign businesses than those available to domestic businesses. Nor will the Government support provisions that would constrain the ability of Australian governments to make laws on social, environmental and economic matters in circumstances where those laws do not discriminate between domestic and foreign businesses. The Government has not and will not accept provisions that limit its capacity to put health warnings or plain packaging requirements on tobacco products or its ability to continue the Pharmaceutical Benefits Scheme.

In the past, Australian Governments have sought the inclusion of investor-state dispute resolution procedures in trade agreements with developing countries at the behest of Australian businesses. The Gillard Government will discontinue this practice. If Australian businesses are concerned about sovereign risk in Australian trading partner countries, they will need to make their own assessments about whether they want to commit to investing in those countries.”

In result Australia is opposed to signing up to international agreements that would restrict her capacity to govern in the public interest — including in areas such as public health, the environment or any other area of the economy. Australia still continues this policy although it was eroded, at first stage after spring 2013successful challenging prime minster by her internal opponents and in second stage since lost of election to the center right coalition in autumn 2013.

We do agree with Australian government study. In our view, the Investment Treaties concluded with former communist countries of Eastern Europe are in clear tension with the values that the Union is to promote in its relations with the wider world. Instead of seeking to extend the system of investment arbitration to relations with the United States, the Commission should be working towards redefining its policy on Investment Treaties, both new and existing, in ways that make it compatible with the founding values of the European Union. This requires a clearer balancing between investor rights and responsibilities and the preservation of national policy space to ensure that the interests of other stakeholders such as workers, consumers and the wider community as a whole are upheld by government.

It is not difficult to enumerate areas where not excluding ISDS can have chilling effect on reform of the EU policy with public interest in focus. It is clear more and more as was shown by ACTA protests, recent EU copyright consultations, German parliament resolution on software patents, Europe badly needs deep reforms of her intellectual property regimes; copyright and patent law, especially because its influence on public health policy.

ISOC-PL understands a need to establish binding international economic regulations between the EU and the US. We do not contest the position that a binding instrument is needed; that is, a treaty. Of course, a treaty can only be agreed by representatives of states, the Commission and US government. But Internet Society as the most important representative of Internet technical community observes that are the other models of governance as one based on secrecy of negotiations and privilege position of business corporations.

Since 2004 is practiced Multi-stakeholder Internet Governance model to bring together governments, civil society, private sector, academia, and technical experts. Good guidelines how to enhance this model was the April 2014 NETmundial meeting, where all those communities were on almost equal footing. The results of NETmundial shows that a multi-stakeholder approach widens the perspective and can bring more and reasonable arguments to the negotiation table.

Even within Internet Governance there is still a long way to go. But let´s move in the right direction. Multi-stakeholder model of Internet Governance can become for the Commission an inspiration how to practice democracy, rule of law and respect to human rights.

Internet Society Poland statement as a General Assessment doesn’t fit well to small boxes offered by Commissions questionnaire. Summary of the Assessment we have put as answer to the most general questions 13 with link to this page. Text of the summary is enclosed in the appendix.