Finding a Better Starting Point for the ISDS Debate
Investor-State Dispute Settlement (ISDS) is a highly debated aspect of TTIP, both in our theme week and in a broader context. Observation of the discussion reveals that it could be made more productive if both sides would frame their arguments in terms of the full situation, rather than painting an incomplete picture that supports their cause. It can also be seen that there is wide agreement that ISDS is problematic, the disagreement is about whether it can be or is worth fixing.
During our first TTIP theme week, the topic that the most experts wanted to talk about was the Investor-State Dispute Settlement (ISDS) mechanism. These articles brought up a number of good points about issues that need to be addressed and gave evidence about why they should or shouldn't be taken seriously. The editorial team has reviewed the articles and comments, and has drawn two main conclusions on the subject. Namely, that acknowledging all of the facts would vastly improve the productiveness of the debate, and, since both sides agree there are problems, TTIP negotiators would do well to acknowledge these problems and be transparent about how they are handling them.
Word cloud resulting from the text of the ISDS articles
A More Productive Discussion than the Current one Can Be Had
The discussion about ISDS would greatly benefit if proponents and critics would engage in a way that acknowledges the full reality of the situation. Critics often cite cases that are undecided and involve extraordinarily large damage claims. Two of the most commonly cited cases are Philip Morris' suit against Australia, in which they claim that labelling laws expropriate their intellectual property by rendering their well-known brand less effective, and Vattenfall v. Germany, in which Vattenfall claims that recent German legislation concerning nuclear power amounts to an indirect expropriation of the nuclear plants that the company currently owns in Germany. Despite the attraction these cases might present in winning skeptical minds, they give critics a way to sweep aside criticism by responding to the individual cases, rather than the underlying concerns, since neither case is decided, and both fall on the extreme high end of claims (both claims are higher than the highest ISDS award on record, $1.77 billion).
Oliver Wieck, with the International Chamber of Commerce Germany, pointed out that the majority of actual awards amount to less than $10 million. Furthermore, the relationship between damages claimed and damages awarded can be elaborated by looking, for example, at one of the cases that came up in the comments. In Cargill v. Poland, Cargill claimed damages in excess of $150 million, but they were awarded only $16.3 million. Two cases involving Canada under NAFTA resulted in awards of $5 and $1 million on claims of $20 and $500 million in damages respectively. Yet, this is not to say the final compensation is the only important number. Proponents need to acknowledge that governments have reason to fear regulation leading to suits that carry even a small risk of losing such large amounts of money. This point was made by Matthew Myers of the Campaign for Tobacco-Free Kids with reference to the aggressive tobacco industry's effects on countries like Canada, which delayed legislation for a decade, and New Zealand, which is currently awaiting a ruling on the suit against Australia. Finally, both sides need to acknowledge the cost of responding to, or bringing an ISDS case. As Hendrike Kuehl with the Trans-Atlantic Business Council pointed out, ISDS cases are also expensive for companies who decide to use the mechanism. In fact, the OECD has reported (p. 18) the average cost of arbitration at $8 million. These costs mean that companies have to think hard about making a claim, and they also place a financial burden on governments that need to defend themselves.
Critics and Proponents Agree that Past Implementations of the Mechanism have been Problematic
The disagreement between critics and proponents was not whether or not there are flaws, but whether or not they can be and are worth remedying. Two problems that were discussed were the lack of transparency and the fact that suits can be detrimental towards governments' ability to preserve the public good.
As was mentioned by Oliver Wieck, outcomes of ISDS arbitration are only released if both parties agree to do so, which makes the mechanism less transparent than corresponding domestic ones. He also points out, however, that unpublished outcomes are as much the result of states not wanting to look bad for investment as it is the result of companies desire for it to remain secret. Additionally, Hendrike Kuehl argued that, while greater transparency is certainly desirable, there is a certain amount of confidentiality that is necessary.
Alternatively, it has been noted by both sides that there is not only a lack of transparency about particular details, which are presumably what proponents defend keeping secret, but also about procedural details. Critics and proponents should agree that inclusion of ISDS would be made more positive by making the procedures involved in ISDS more transparent. This was noted by Bill Krist of the Wilson Center, and Hendrike Kuehl, both of whom argued in defense of ISDS.
Critics are also concerned that ISDS limits governments' abilities to react to new challenges in order to protect the public good. As was mentioned above, Matthew Myers very convincingly chronicled the tobacco industry's history of aggressively using ISDS to thwart or delay the regulatory efforts of governments. Markus Henn with Weltwirtschaft Ökologie und Entwicklung also made the case that ISDS puts governments at a disadvantage when trying to avoid financial crisis, insofar as governments in several countries have already been sued as a result of using some common crisis mitigation tools.
Proponents acknowledge that there have been abuses, but reject both the idea that this is the norm and the idea that this is an unavoidable consequence of ISDS. Although these situations cannot always be foreseen, popular discomfort around the inclusion of ISDS might be reduced if negotiators would make clear that they are taking specific note of and adapting to industries that are particularly aggressive or have an especially high potential to harm the public good. As was noted by Bill Krist, there are currently trade agreements that can serve as examples in order to make TTIP's implementation of ISDS friendlier to regulation that protects public welfare. For instance, Australian-Korean free trade agreement, which contains an annex explicitly shielding governmental actions that protect health, safety and the environment from being challenged as expropriation.
This article is part of the first of three theme weeks for our project "TTIP: Myths vs Reality". You can read our other conclusions for the first theme week here, and find introductions with links for the other weeks on the TTIP Forum.
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