Trade Deals Losing Momentum over Investor State Dispute Settlements

In a potentially fatal blow to Investor State Dispute Settlement 3 cases have recently become prominent. The first is a Chevron suit against Ecuador–

The company is currently pursuing a $9.5bn suit against Ecuador’s government at an ISDS court in the Hague, for allowing indigenous people to sue the firm – for the same amount of money – over allegedly illegal practices dating back more than 20 years.
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The US multinational, which takes in $19bn a year, says that a deal was reached with the Ecuadorean government in 1998 relieving it of any environmental liabilities.

But indigenous communities in Ecuador protest that they are still living with the consequences of an environmental disaster caused by the dumping of billions of gallons of toxic sludge into Amazonian streams, lakes and hundreds of unlined pits.

“This document [the minutes] shows that the power to use investment arbitration as a shackle on environmental regulations is a key reason why multinationals like Chevron defend them,” said Cecilia Olivet, a researcher at the Transnational Institute and member of the presidential commission auditing Ecuador’s bilateral investment treaties.

“Pressure on public budgets means the mere threat of a multi-million dollar international arbitration lawsuit can make governments reluctant to implement social or environmental protection measures that could affect the interests of foreign investors.”

The second is the notorious $15 Billion suit by TransCanada under NAFTA over the cancellation of Keystone XL-

The company is taking the unusual step of suing through the North American Free Trade Agreement, calling the decision “arbitrary and unjustified.” The Canadian business also filed a lawsuit in Houston asking that the decision be overturned.

“TransCanada has been unjustly deprived of the value of its multibillion-dollar investment by the U.S. administration’s action,” the company said in a statement. “Rather, the denial was a symbolic gesture based on speculation about the (false) perceptions of the international community regarding the administration’s leadership on climate change.”

The $8 billion Keystone XL pipeline would have connected Canada’s oil sands to American refineries on the Gulf Coast, offering the promise of improving prices. Canadian energy companies viewed the pipeline as the key to sustaining growth, since the United States buys the vast majority of petroleum produced by the oil sands.
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The Nafta challenge process does not allow Canadian or Mexican companies that believe they are being discriminated against by the United States government to overturn decisions. But the measure, which grew out of earlier trade provisions to compensate corporations after a foreign government expropriated their assets, does allow them to seek a range of damages, including unrealized profits.

The case filed by TransCanada at the Houston division of the United States District Court for the Southern District of Texas does not seek compensation. Instead, the company is seeking to have Mr. Obama’s decision reversed on the grounds that he exceeded his constitutional powers.

The Southern District Court should easily find for the United States, this is clearly within the power granted by Congress for the Executive branch to regulate commercial projects that cross international borders, first at the level of the State Department and then again at the Presidential level. Still, Houston.

The ISDS verdict is much more difficult to predict and whether the U.S. Government will deign to pay any judgement or suffer any consequences for refusal is open to speculation. However it puts the lie to any argument that the U.S. is unlikely to be on the receiving end of such suits because we’re just so… exceptional.

And the enforceability of any verdict by an ISDS arbitration panel is called into question by the third case where Yukos investors sued Russia–

In 2014, Russia was found liable for an unprecedented $50 billion in awards to the shareholders of Yukos, the oil giant that Russian President Vladimir Putin dismembered in 2003. The former CEO of Yukos, Mikhail Khodorkovsky — a funder of opposition parties and possible challenger to Putin — spent 10 years in a Siberian jail for fraud and tax evasion.

But Yukos traced its ownership to the Isle of Man (a British Crown dependency) and Cyprus — both of which are, basically, tax havens. So former Yukos shareholders applied to use ISDS, because the U.K. and Cyprus are signatories to the Energy Charter Treaty that enables ISDS. Russia signed but never ratified the Energy Charter Treaty, so a three-person international tribunal had to decide whether Yukos shareholders could sue Russia anyway.

The tribunal said yes, and the $50 billion in awards came down. The tribunal reasoned that signatories are obligated to abide by the treaty provisionally, pending ratification. Putin immediately said Russia wouldn’t pay – and took a lot of flak from international business.

Since then, Yukos shareholders have been using their rights under international law to seize Russian state assets outside of Russia. Attempts are ongoing in Belgium, France, the United States, Germany and the U.K. Assets owned by the Russian government but not subject to sovereign immunity protections are up for grabs. For example, earnings by Russian state-owned enterprises that are held abroad are vulnerable, but Central Bank holdings abroad are not. A particularly interesting situation arose last year when former Yukos shareholders tried to claim the contents of a cosmonaut exhibit at the London Science Museum. Russia “sold” the artifacts to the museum and is “buying” them back to avoid seizure.

The Dutch court’s ruling last week adds another twist. Effectively, the Dutch court said, no, Russia never ratified the Energy Charter Treaty (which conflicted with Russian law in any case), so the original tribunal had no jurisdiction and the $50 billion is off the table.

But don’t be tricked by news reports. It is far from clear that the Dutch ruling (and any possible Dutch appeal) is binding on courts in other countries. Lawyers for the Yukos shareholders point out that there is no ISDS appeals process, so there is no mechanism to overturn the original $50 billion award. International investment law is so decentralized that it isn’t clear what one domestic court’s interpretation of the law means for domestic courts in other countries.

As a result, former Yukos shareholders can keep trying to get the original $50 billion award enforced in countries other than the Netherlands. Will they be successful? It would certainly be difficult and costly, but it isn’t impossible. In all likelihood, Russia will have to keep fighting — or pay up.

So, could the U.S. be pressured to settle up with TransCanada? Well… sure, but those kinds of actions tend to end badly in things like Cod Wars. We could seize Canadian assets right back and there would be no limit really to who we took them from.

All of this is making the TTIP very unpopular in Europe which has seen the results of both trade wars and ISDS agreements.

Greenpeace Leak Exposes Big EU-US Rifts, US Thuggishness, in TTIP “Trade” Negotiations
by Yves Smith, Naked Capitalism
May 2, 2016

A Greenpeace leak, to be made public in full Monday but previewed to the Guardian and Süddeutsche Zeitung, show that the rifts are much deeper than pitchmen on either side of the pond would have you believe. These leaks are particularly significant because they are fresh, meaning of current negotiating documents. This means that unlike the previous TTP leaks via Wikileaks, which were of selected chapters and then at least a negotiating round behind the state of play, means that someone with a seat at the table is not happy and intended to throw another spanner into the works. And while Americans may not pay much attention to these leaks, the evidence of US bullying, as well as threats to European consumer safety on multiple fronts, is almost certain to further inflame grass roots resistance to the pact.

The Greenpeace leak not only catches out the Administration as greatly overstating how likely a deal is to be reached this year (a trick we’ve called out repeatedly in the context of the TPP), but it also exposes the EU side as prepared to fib to the EU parliament (which makes me wonder if that was the trigger for the leak, that it was a dissenter upset about the planned misrepresentation).
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According to the documents, Washington is threatening to prevent the easing of exports for the European car industry in order to force Europe to buy more U.S. agricultural products. The U.S. government concurrently has criticized the fundamental prevention principal of the EU Consumer Centre which protects 500 million Europeans from consuming genetically modified food and hormone-treated meat. The documents further reveal the fact that the U.S. has blocked the urgent European call to replace the controversial private arbitration tribunals, responsible for corporative lawsuits, with a public State model; instead, Washington has made a suggestion on the matter that had hitherto not been disclosed to the public.

The publication of these TTIP documents provides citizens with an unfiltered insight into the negotiations between the U.S. and Europe. Ever since the start of negotiations three years ago, the public could only try to guess what both sides were discussing, which has prompted millions of people to take to the streets in protest of TTIP. While the EU is making its suggestions publicly available, the U.S. insists on keeping their stances on issues secret. Washington utilizes this tactic to ensure a larger scope for negotiations. The disclosure of these 16 TTIP negotiation papers finally offers a fuller transparency for the 800 million people spread over two continents whose lives will be affected by the biggest bilateral trade agreement in history.

Leaked TTIP documents cast doubt on EU-US trade deal
by Arthur Neslen, The Guardian
Sunday 1 May 2016 13.00 EDT

Jorgo Riss, the director of Greenpeace EU, said: “These leaked documents give us an unparalleled look at the scope of US demands to lower or circumvent EU protections for environment and public health as part of TTIP. The EU position is very bad, and the US position is terrible. The prospect of a TTIP compromising within that range is an awful one. The way is being cleared for a race to the bottom in environmental, consumer protection and public health standards.”

US proposals include an obligation on the EU to inform its industries of any planned regulations in advance, and to allow them the same input into EU regulatory processes as European firms.

American firms could influence the content of EU laws at several points along the regulatory line, including through a plethora of proposed technical working groups and committees.

“Before the EU could even pass a regulation, it would have to go through a gruelling impact assessment process in which the bloc would have to show interested US parties that no voluntary measures, or less exacting regulatory ones, were possible,” Riss said.
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GM foods could also find a widening window into Europe, with the US pushing for a working group to adopt a “low level presence initiative”. This would allow the import of cargo containing traces of unauthorised GM strains. The EU currently blocks these because of food safety and cross-pollination concerns.
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The EU negotiators internal note says “the US expressed that it would have to consult with its chemical industry on how to position itself” on issues of market access for non-agricultural goods.

Where industry lobbying in regulatory processes is concerned, the US also “insisted” that the EU be “required” to involve US experts in its development of electrotechnical standards.

TTIP leaked documents could spell the end of controversial trade deal, say campaigners
by Andrew Griffin, The Independent
5/2/16

The huge leak – which gives the first full insight into the negotiations – shows that the relationship between Europe and the US are weaker than had been thought and that major divisions remain on some of the agreement’s most central provisions.

The talks have been held almost entirely in secret, and most information that is known in public has come out from unofficial leaks. But the new pages, leaked by Greenpeace, represent the first major look at how the highly confidential talks are progressing.

The leaks could be enough to destabilise the deal completely, according to campaigners who have claimed that the agreement couldn’t survive the leaks.

“Now that we can see the actual texts, the EU negotiators have nowhere left to hide,” John Hilary, the executive director of War on Want, told The Independent. “The gloves are off, and they know they are in for a proper fight.”

They indicate that the US is looking strongly to change regulation in Europe to lessen the protections on the environment, consumer rights and other positions that the EU affords to its citizens. Representatives for each side appear to have found that they have run into “irreconcilable” differences that could undermine the signing of the landmark and highly controversial trade deal, campaigners say.

For instance, the papers show that the US is looking to weaken the EU’s “precautionary principle” that governs how potentially harmful products are sold, Greenpeace says. The US has much weaker regulation that aims to minimise rather than avoid risks, and that same less strict regime could come to the UK and Europe under the deal.

If the EU made further changes to similar regulations, it would have to inform the US and corporations based there, according to the documents. American companies would then be able to have the same input into EU regulation as European ones do.
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Poverty, environmental and other campaigners have claimed that the new leak could be enough to undermine those already controversial talks.

“The TTIP negotiations will never survive this leak,” said John Hilary. “The only way that the European Commission has managed to keep the negotiations going so far is through complete secrecy as to the actual details of the deal under negotiation. Now we can see the details for ourselves, and they are truly shocking. This is surely the beginning of the end for this much hated deal.”
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“TTIP is being cooked up behind closed doors because when ordinary people find out about the threat it poses to democracy and consumer protections, they are of course opposed to it,” said Guy Taylor, trade campaigner at Global Justice Now. “It’s no secret that the negotiations have been on increasingly shaky ground. Millions of people across Europe have signed petitions against TTIP, and hundreds of thousands have taken to the streets to call for an end to the negotiations.
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“EU leaders will now have to assess the political fallout from the leak and decide whether they can still afford to be associated with this toxic deal,” said Mr Hilary. “The French and German governments, both of which are preparing for general elections next year, have already signalled that they might pull the plug on TTIP. Today’s revelations bring that possibility a great deal closer.”