How EU nations are being sued for billions by foreign companies in secret tribunals | Ars Technica UK
Publié : 01/12/2015 - 11:57
How EU nations are being sued for billions by foreign companies in secret tribunals
Already a huge problem in Eastern Europe, Western Europe is being hit by ISDS as well.
by Glyn Moody - Dec 1, 2015 8:35 am UTC
http://arstechnica.co.uk/author/glyn_moody/
LEEROY.ca
https://www.pexels.com/photo/door-green ... lock-4291/
The most controversial aspect of the the Transatlantic Trade and Investment Partnership (TTIP) http://arstechnica.co.uk/tech-policy/20 ... democracy/ agreement, which is currently being negotiated behind closed doors between the US and EU, is the plan to allow foreign companies to sue entire nations in special tribunals for the alleged expropriation of future profits through changes in laws or regulations. This is not an entirely new approach—these secret tribunals have been included in hundreds of other smaller-scale trade agreements over the years—but its inclusion here would have profound impacts on both the EU and US.
Opponents of the idea see these secret tribunals as undermining a government's sovereign ability to implement democratic decisions through new legislation. Those in favour of this investor-state dispute settlement (ISDS) http://arstechnica.co.uk/tech-policy/20 ... racy/4/#h1 mechanism insist that it's just a normal part of trade agreements, and nothing to worry about.
The UK government's public stance on ISDS is typical: "Since 1975 the UK has negotiated 94 Bilateral Investment Treaties (BITs) almost all of which include ISDS provisions," one of its information leaflets https://www.gov.uk/government/uploads/s ... t-faqs.pdf
says. And yet the government also claims: "No ISDS challenge has ever succeeded against the UK. Despite the large number of treaties in force with ISDS clauses, there have been only two ISDS challenges brought against us."
Unfortunately for the UK government—and for the argument that ISDS won't have any negative consequences for EU citizens—the first half of that statement is no longer true.
Further Reading
TTIP explained: The secretive US-EU treaty that undermines democracy
http://arstechnica.co.uk/tech-policy/20 ... democracy/
A boost for national economies, or a Trojan Horse for corporations?
It turns out that one of those two ISDS challenges has resulted in an award being made. War on Want gives some details http://www.waronwant.org/media/uk-and-f ... -isds-case : "the company Eurotunnel has revealed that the UK and French governments were required by a private arbitration tribunal to pay out nearly €24 million [£17 million] for failing to provide adequate security around the entrance to the Channel Tunnel between 1999 and 2002."
The second ISDS challenge against the UK "has been shrouded in even greater secrecy," so it's not possible to say with certainty what is happening—perhaps the UK government will be forced to pay up there, too.
In any case, the UK's change of luck under ISDS is not a one-off. In the last few years there have been an increasing number of claims and awards made against EU countries, many of which have hitherto been able to regard ISDS as something that their local companies can use against other countries without worrying about it being used by foreign companies against them.
The hidden cost
A report from the Friends of the Earth Europe entitled "The Hidden Cost of EU Trade Deals" https://www.foeeurope.org/sites/default ... eals_0.pdf revealed that even before the UK and France were hit with penalties, other EU countries had been forced to pay out hundreds of millions of euros, and were facing claims for many billions more. A total of 127 cases have been brought against 20 EU member states since 1994. Details were only available for 62 of them—many ISDS cases take place in secret, with no information ever being released—and the total compensation claimed in those cases was €30 billion (£21 billion). ISDS tribunals certainly won't grant that full amount, but we do know that €3.5 billion (£2.3 billion) in fines have already been imposed on EU governments—monies that ultimately must be paid by EU taxpayers.
Another striking statistic is that 97 of the 127 cases were taken against new member states that acceded to the EU between 2004 and 2007. These were all countries that had been in the orbit of the Soviet Union, and were generally less-developed economically than existing EU states. For example, there have been no less than 26 ISDS claims against the Czech Republic. This probably explains the view in some quarters that ISDS was not a problem for the EU: in fact it was, but only among "smaller" nations that Western European media rather condescendingly tend to ignore as being unimportant places where nothing much happens.
Enlarge http://cdn.arstechnica.net/wp-content/u ... 6baa_b.jpg / Until now, most examples of ISDS have been in former Soviet bloc countries; with TTIP, that will expand into Western Europe in a big way. Pictured here is the city of Prague and the Vltava river.
Sebastian Anthony
https://www.flickr.com/photos/mrseb/4193670292
Despite that patronising view, the cases from Eastern Europe are extremely important for the light they shed on the problems and potential impact of ISDS. For example, when Poland decided to reverse the privatisation of some insurance services, a Dutch company was able to use a bilateral investment treaty between the Netherlands and Poland to sue the latter for future losses it would allegedly suffer as a result. The ISDS tribunal sided with the company and made an award of over €2 billion (£1.4 billion). The same Dutch company sued the Slovak Republic when its government decided to reverse the privatisation of health insurance services, and won yet more "compensation" for indirect expropriation.
In another curious case involving the Czech Republic, two foreign investors in a private TV broadcaster sought damages on the grounds that alleged interference from a government media body had harmed their investments. Even though the facts in both cases were the same, one tribunal awarded $270 million (£180 million) worth of damages, while the other tribunal dismissed the case. This emphasises how arbitrary the decisions of ISDS tribunals can be, because they are not guided by case law in the same way that English or US courts are. This leads to great capriciousness in the awards that are made.
Further Reading
EU arts policies could lead to ISDS lawsuits, admits German government
http://arstechnica.co.uk/tech-policy/20 ... overnment/
"Trade" agreements could have a big impact on European culture, too.
Another huge problem with ISDS is evident in a major case against Romania involving manufacturing businesses in the north-west of the country. Initially, foreign investors were offered incentives to put their money into the companies, but then they were withdrawn for an interesting reason: the Romanian government was obliged to do so as part of its accession to the European Union in 2007. Despite that fact, an ISDS tribunal found Romania in breach of an investment treaty between that country and Sweden, which is where the investors were based, and obliged Romania to pay more than $250 million (£166 million) in damages.
That was bad enough... but it gets worse. In March 2015, the European Commission came to the conclusion that paying fines imposed by a ISDS tribunal breached EU rules on state aid to companies. It therefore ordered Romania http://europa.eu/rapid/press-release_IP-15-4725_en.htm to "recover incompatible state aid granted in compensation for abolished investment aid scheme." There was little hope of it being able to do that, and even if it did, it would then run the risk of being punished by the ISDS tribunal—for example, by having its assets seized abroad. The case is a perfect demonstration of how ISDS tribunals regard themselves above not just national law, but EU rules too.
How to bully an entire nation
One Western European country that has experienced first-hand the pain of ISDS is Germany, which has been involved in two highly significant cases, both brought by the Swedish energy company Vattenfall.
A provisional contract for the construction of a coal-fired power station in Germany was granted to Vattenfall by the City of Hamburg in 2007, which included some environmental limitations in order to protect the River Elbe. Additional environmental requirements were added in order to meet the EU's water framework directive, and final approval was given in 2008. Vattenfall then argued that the tighter environmental protections would make the project "unviable," and claimed damages of €1.4 billion (£1 billion)—plus costs and interest—under an agreement signed by both Germany and Sweden called the Energy Charter Treaty http://www.energycharter.org/ . This included an ISDS mechanism that Vattenfall invoked.
The case was finally settled in 2011, when the city of Hamburg capitulated, and agreed to accept lower environmental standards than it had demanded in the final approval. This case is an important demonstration of how ISDS can be used to bully governments into backing down from attempts to protect the public, through demands for prohibitively high damages.
The European Commission claims in an ISDS factsheet http://trade.ec.europa.eu/doclib/docs/2 ... 151791.pdf
that a government "cannot be compelled to repeal a measure: it always has the option of paying compensation instead"—which, as we can see from the case in Hamburg, is clearly a lie. Governments may have the option in theory, but when such huge sums are involved, national and local governments often feel obliged to revoke their original decisions, as happened in Hamburg.
Enlarge http://cdn.arstechnica.net/wp-content/u ... _pano1.jpg / The city of Hamburg was forced to lower its environmental standards because of ISDS.
Daniel Schwen
https://en.wikipedia.org/wiki/File:HH_Rathaus_pano1.jpg
Emboldened perhaps by this success, Vattenfall has filed a second case against Germany using the Energy Charter Treaty. This time, the Swedish energy company is complaining because Germany has decided to phase out nuclear energy in the wake of public concern after the accident in Fukushima. Vattenfall is claiming the sum of €4.7 billion (£3.1 billion) over the closure of two of its power plants. The case has not yet been decided, but shows the enormous sums that can be involved with ISDS cases. In fact, the biggest award ever made—also using the Energy Charter Treaty—was $50 billion (£33 billion) against Russia. Of course, collecting that from Mr Putin will be an interesting experience.
While Germany has been grappling with the issue of massive ISDS awards for half a decade, other Western European countries have been spared. But that's now beginning to change. Spain finds itself embroiled in multiple ISDS claims as a result of changes it made in 2011 to its subsidies for solar energy. This has led to no less than 19 cases being brought before arbitration tribunals claiming compensation for lost future profits. One group alone is asking for around €600 million (£420 million), and according to an article that appeared in the Spanish newspaper El País, some experts believe that the total claims could reach billions of euros http://elpais.com/elpais/2015/06/24/ine ... 24145.html
.
Last year, Italy was hit with its first ISDS case https://icsid.worldbank.org/apps/ICSIDW ... /3&tab=PRO , which was brought for similar reasons to those in Spain, and involved investors from Belgium, France, and Germany. Other investors from Denmark and Luxembourg brought a second ISDS case http://www.recommon.org/ttip-non-ce-due-senza-tre/ against Italy in July of this year, again because of subsidies being withdrawn.
Enlarge http://cdn.arstechnica.net/wp-content/u ... rtower.jpg / With ISDS, merely changing a country's solar subsidies law is enough to get it sued for billions of euros.
NASA
http://climatekids.nasa.gov/concentrating-solar/
A few weeks later, a third case was filed, also claiming compensation because of changes to solar energy policy. But this time there was an interesting twist: the claimant was a US company. The United States is not a signatory to the Energy Charter Treaty invoked by the claimants in all three cases against Italy. The company managed to get around that inconvenient detail, however, by setting up a subsidiary in the Netherlands, which is a signatory, and then made the claim against Italy from there. This shows how easy it is for companies to engage in what is known as "treaty shopping" to sue governments, even when strictly speaking there are no legal grounds for them to use ISDS in this way.
This sudden onslaught of cases seems to have been a wake-up call for Italy, which realised that ISDS was a two-edged sword. In an evident attempt to avoid ISDS suits, it announced that it was withdrawing http://globalarbitrationnews.com/italy- ... -20150507/
from the Energy Charter Treaty completely at the end of 2015. The official reason for doing so was to save money, but since the annual fee was only €370,000—a tiny fraction of Italy's national budget—nobody takes that justification seriously. It is quite clearly an attempt to limit the country's future exposure to ISDS claims.
However, exiting from the treaty won't protect Italy from further suits from companies with existing investments in Italy, which will still be able to bring them under the terms of the treaty for another 20 years. That's typical for ISDS provisions, which can linger on for years after a country withdraws from a treaty, leaving the threat of massive claims hanging over public finances, and making the long-term costs of signing up to investor protection unknown.
Finally, Austria too has recently joined the club of ISDS victims, with a case that sees Meinl Bank demanding "at least" €200 million (£140 million) damages in recompense. As well as being the first ISDS case brought against Austria, the Meinl Bank action is notable because the harm is allegedly the result of investigations by the county's justice department. According to an article in Wiener Zeitung http://www.wienerzeitung.at/nachrichten ... richt.html , the Austrian government pointed out that it could not interfere in or be held responsible for the actions of the investigators, to which the claimant's lawyer replied that this well-established separation of powers was not recognised by ISDS tribunals, and was therefore irrelevant. That's another demonstration of how the lawyers that make up such tribunals believe they can simply ignore national laws.
Further Reading
EU dropped plans for safer pesticides because of TTIP and pressure from US
http://arstechnica.co.uk/tech-policy/20 ... e-from-us/
Despite repeated promises that the US trade agreement would not lower EU standards.
And all of this was before TTIP
It's important to note that all these recent cases against EU nations have been brought before the new round of trade agreements have been completed and enacted. That's significant, because both TTIP and the less well-known negotiations with Canada, the Comprehensive Economic and Trade Agreement (CETA) http://ec.europa.eu/trade/policy/in-focus/ceta/ , will greatly increase the number of companies able to sue the EU and its member states. Currently, US companies are only able to make direct claims against nine EU nations that were formerly within the Soviet sphere. Even then, the number of claims is limited, because there are relatively few US investments in those countries.
If TTIP is completed and comes into force with an ISDS chapter, something like 20,000 US companies http://arstechnica.co.uk/tech-policy/20 ... racy/4/#h1 with over 50,000 EU subsidiaries will, at a stroke, gain new powers to sue for EU actions that they claim will result in "indirect expropriation"; that's because TTIP's ISDS will apply retroactively to all existing investments, not just future ones. The situation is nearly as bad with CETA, which contains a clause that would allow foreign companies with "substantial business activities" https://www.policyalternatives.ca/sites ... MENT_0.pdf in Canada to use the ISDS provisions in CETA to sue EU countries. Again, that is likely to give thousands of US companies the power to demand "compensation" for decisions and changes in EU laws and regulations that they don't like, even before TTIP is brought in.
Public Citizen has carried out an interesting calculation that estimates how many ISDS cases http://www.citizen.org/documents/EU-ISDS-liability.pdf the EU could face if TTIP does, indeed, include it:
We can also use past experience as a guide for the total value of the claims this might give rise to. As mentioned above, we know that 62 of the cases that have been brought against 20 EU member states since 1994 involve claims of €30 billion (£21 billion) in total. Crudely speaking then, we might expect those 100 future ISDS cases to see claims totalling around €50 billion (£33 billion). Of course, this is not the actual amount that is likely to be awarded by the tribunals, but it gives a very rough idea of the magnitude of the costs that ISDS is likely to impose on the EU: tens of billions of euros in just the first few years of TTIP.
Those figures refer to past ISDS actions, but it's likely that TTIP's ISDS chapter will be different in at least one important respect: it will almost certainly allow companies to sue governments if they make changes to copyright and patent laws. We surmise that will happen because the mandate given by the European Commission http://data.consilium.europa.eu/doc/doc ... L-1/en/pdf
to the EU's TTIP negotiators says that ISDS should cover those areas. As far as the US is concerned, we know that it too is keen to allow ISDS claims to be made in the field of copyright and patents because that is what it has agreed https://medium.com/the-trans-pacific-pa ... 6dbd892f3a in the recently-completed Trans-Pacific Partnership https://medium.com/the-trans-pacific-partnership (TPP) agreement, which does for the Pacific region what TTIP does for the Atlantic.
The Electronic Frontier Foundation (EFF), as you can imagine, has a lot to say about the extension of ISDS to include copyright https://www.eff.org/deeplinks/2015/11/r ... ers-rights :
In the example given by the EFF, publishers could claim that the reduction in penalities for copyright infringement of orphan works would be an "indirect expropriation," and that they should therefore be compensated by the government that brings in such a law. Similarly, if the European Union definitively excluded programs from patentability—the issue is still unclear—US software companies would doubtless waste no time in suing the EU for billions of euros as "compensation" for their supposed losses.
Further Reading
EU puts fresh coat of paint on ISDS, now re-branded as “Investment Court System”
http://arstechnica.co.uk/tech-policy/20 ... rt-system/
Foreign companies still have access to special courts for suing governments.
In the face of growing criticisms of the ISDS system from many quarters, the European Commission has proposed replacing it with an Investment Court System (ICS), discussed in detail in an earlier Ars post http://arstechnica.co.uk/tech-policy/20 ... rt-system/ . But even if the US accepts the idea—and first indications are that it might not—it fails to address the biggest problem with ISDS http://papers.ssrn.com/sol3/papers.cfm? ... id=2692122 : that it gives foreign investors privileged access to special courts outside national legal systems.
Those courts will still be completely one-sided, allowing companies to bring cases against EU countries, but not vice versa. There is nothing to stop huge fines being imposed by ICS courts, just as ISDS tribunals do today. And finally, the European Commission has said that ICS will not be used for CETA, which will therefore allow US investors to sue the EU and its member states using ISDS by the backdoor, as well as through ICS and national courts. In other words, US corporations might end up with not two, but three different ways of bullying European countries into dropping legislation investors don't like. That's hardly progress.
It is worth emphasising that ISDS and ICS are not abstract, distant mechanisms with no real relevance to everyday life. Their effects will be felt by every EU citizen, and in the most direct way possible. Whether ISDS and ICS result in damages of €10 billion or €100 billion, any such damages will come out of national taxes—they'll be paid by your hard work. This is something the European Commission never mentions: that over time, increasing numbers of ISDS lawsuits brought by foreign investors are likely to wipe out completely any economic gains that accrue from TTIP, which in any case are likely to be very small.
http://arstechnica.co.uk/tech-policy/20 ... racy/2/#h1
Source : http://arstechnica.co.uk/tech-policy/20 ... tribunals/
Already a huge problem in Eastern Europe, Western Europe is being hit by ISDS as well.
by Glyn Moody - Dec 1, 2015 8:35 am UTC
http://arstechnica.co.uk/author/glyn_moody/
LEEROY.ca
https://www.pexels.com/photo/door-green ... lock-4291/
The most controversial aspect of the the Transatlantic Trade and Investment Partnership (TTIP) http://arstechnica.co.uk/tech-policy/20 ... democracy/ agreement, which is currently being negotiated behind closed doors between the US and EU, is the plan to allow foreign companies to sue entire nations in special tribunals for the alleged expropriation of future profits through changes in laws or regulations. This is not an entirely new approach—these secret tribunals have been included in hundreds of other smaller-scale trade agreements over the years—but its inclusion here would have profound impacts on both the EU and US.
Opponents of the idea see these secret tribunals as undermining a government's sovereign ability to implement democratic decisions through new legislation. Those in favour of this investor-state dispute settlement (ISDS) http://arstechnica.co.uk/tech-policy/20 ... racy/4/#h1 mechanism insist that it's just a normal part of trade agreements, and nothing to worry about.
The UK government's public stance on ISDS is typical: "Since 1975 the UK has negotiated 94 Bilateral Investment Treaties (BITs) almost all of which include ISDS provisions," one of its information leaflets https://www.gov.uk/government/uploads/s ... t-faqs.pdf
says. And yet the government also claims: "No ISDS challenge has ever succeeded against the UK. Despite the large number of treaties in force with ISDS clauses, there have been only two ISDS challenges brought against us."
Unfortunately for the UK government—and for the argument that ISDS won't have any negative consequences for EU citizens—the first half of that statement is no longer true.
Further Reading
TTIP explained: The secretive US-EU treaty that undermines democracy
http://arstechnica.co.uk/tech-policy/20 ... democracy/
A boost for national economies, or a Trojan Horse for corporations?
It turns out that one of those two ISDS challenges has resulted in an award being made. War on Want gives some details http://www.waronwant.org/media/uk-and-f ... -isds-case : "the company Eurotunnel has revealed that the UK and French governments were required by a private arbitration tribunal to pay out nearly €24 million [£17 million] for failing to provide adequate security around the entrance to the Channel Tunnel between 1999 and 2002."
The second ISDS challenge against the UK "has been shrouded in even greater secrecy," so it's not possible to say with certainty what is happening—perhaps the UK government will be forced to pay up there, too.
In any case, the UK's change of luck under ISDS is not a one-off. In the last few years there have been an increasing number of claims and awards made against EU countries, many of which have hitherto been able to regard ISDS as something that their local companies can use against other countries without worrying about it being used by foreign companies against them.
The hidden cost
A report from the Friends of the Earth Europe entitled "The Hidden Cost of EU Trade Deals" https://www.foeeurope.org/sites/default ... eals_0.pdf revealed that even before the UK and France were hit with penalties, other EU countries had been forced to pay out hundreds of millions of euros, and were facing claims for many billions more. A total of 127 cases have been brought against 20 EU member states since 1994. Details were only available for 62 of them—many ISDS cases take place in secret, with no information ever being released—and the total compensation claimed in those cases was €30 billion (£21 billion). ISDS tribunals certainly won't grant that full amount, but we do know that €3.5 billion (£2.3 billion) in fines have already been imposed on EU governments—monies that ultimately must be paid by EU taxpayers.
Another striking statistic is that 97 of the 127 cases were taken against new member states that acceded to the EU between 2004 and 2007. These were all countries that had been in the orbit of the Soviet Union, and were generally less-developed economically than existing EU states. For example, there have been no less than 26 ISDS claims against the Czech Republic. This probably explains the view in some quarters that ISDS was not a problem for the EU: in fact it was, but only among "smaller" nations that Western European media rather condescendingly tend to ignore as being unimportant places where nothing much happens.
Enlarge http://cdn.arstechnica.net/wp-content/u ... 6baa_b.jpg / Until now, most examples of ISDS have been in former Soviet bloc countries; with TTIP, that will expand into Western Europe in a big way. Pictured here is the city of Prague and the Vltava river.
Sebastian Anthony
https://www.flickr.com/photos/mrseb/4193670292
Despite that patronising view, the cases from Eastern Europe are extremely important for the light they shed on the problems and potential impact of ISDS. For example, when Poland decided to reverse the privatisation of some insurance services, a Dutch company was able to use a bilateral investment treaty between the Netherlands and Poland to sue the latter for future losses it would allegedly suffer as a result. The ISDS tribunal sided with the company and made an award of over €2 billion (£1.4 billion). The same Dutch company sued the Slovak Republic when its government decided to reverse the privatisation of health insurance services, and won yet more "compensation" for indirect expropriation.
In another curious case involving the Czech Republic, two foreign investors in a private TV broadcaster sought damages on the grounds that alleged interference from a government media body had harmed their investments. Even though the facts in both cases were the same, one tribunal awarded $270 million (£180 million) worth of damages, while the other tribunal dismissed the case. This emphasises how arbitrary the decisions of ISDS tribunals can be, because they are not guided by case law in the same way that English or US courts are. This leads to great capriciousness in the awards that are made.
Further Reading
EU arts policies could lead to ISDS lawsuits, admits German government
http://arstechnica.co.uk/tech-policy/20 ... overnment/
"Trade" agreements could have a big impact on European culture, too.
Another huge problem with ISDS is evident in a major case against Romania involving manufacturing businesses in the north-west of the country. Initially, foreign investors were offered incentives to put their money into the companies, but then they were withdrawn for an interesting reason: the Romanian government was obliged to do so as part of its accession to the European Union in 2007. Despite that fact, an ISDS tribunal found Romania in breach of an investment treaty between that country and Sweden, which is where the investors were based, and obliged Romania to pay more than $250 million (£166 million) in damages.
That was bad enough... but it gets worse. In March 2015, the European Commission came to the conclusion that paying fines imposed by a ISDS tribunal breached EU rules on state aid to companies. It therefore ordered Romania http://europa.eu/rapid/press-release_IP-15-4725_en.htm to "recover incompatible state aid granted in compensation for abolished investment aid scheme." There was little hope of it being able to do that, and even if it did, it would then run the risk of being punished by the ISDS tribunal—for example, by having its assets seized abroad. The case is a perfect demonstration of how ISDS tribunals regard themselves above not just national law, but EU rules too.
How to bully an entire nation
One Western European country that has experienced first-hand the pain of ISDS is Germany, which has been involved in two highly significant cases, both brought by the Swedish energy company Vattenfall.
A provisional contract for the construction of a coal-fired power station in Germany was granted to Vattenfall by the City of Hamburg in 2007, which included some environmental limitations in order to protect the River Elbe. Additional environmental requirements were added in order to meet the EU's water framework directive, and final approval was given in 2008. Vattenfall then argued that the tighter environmental protections would make the project "unviable," and claimed damages of €1.4 billion (£1 billion)—plus costs and interest—under an agreement signed by both Germany and Sweden called the Energy Charter Treaty http://www.energycharter.org/ . This included an ISDS mechanism that Vattenfall invoked.
The case was finally settled in 2011, when the city of Hamburg capitulated, and agreed to accept lower environmental standards than it had demanded in the final approval. This case is an important demonstration of how ISDS can be used to bully governments into backing down from attempts to protect the public, through demands for prohibitively high damages.
The European Commission claims in an ISDS factsheet http://trade.ec.europa.eu/doclib/docs/2 ... 151791.pdf
that a government "cannot be compelled to repeal a measure: it always has the option of paying compensation instead"—which, as we can see from the case in Hamburg, is clearly a lie. Governments may have the option in theory, but when such huge sums are involved, national and local governments often feel obliged to revoke their original decisions, as happened in Hamburg.
Enlarge http://cdn.arstechnica.net/wp-content/u ... _pano1.jpg / The city of Hamburg was forced to lower its environmental standards because of ISDS.
Daniel Schwen
https://en.wikipedia.org/wiki/File:HH_Rathaus_pano1.jpg
Emboldened perhaps by this success, Vattenfall has filed a second case against Germany using the Energy Charter Treaty. This time, the Swedish energy company is complaining because Germany has decided to phase out nuclear energy in the wake of public concern after the accident in Fukushima. Vattenfall is claiming the sum of €4.7 billion (£3.1 billion) over the closure of two of its power plants. The case has not yet been decided, but shows the enormous sums that can be involved with ISDS cases. In fact, the biggest award ever made—also using the Energy Charter Treaty—was $50 billion (£33 billion) against Russia. Of course, collecting that from Mr Putin will be an interesting experience.
While Germany has been grappling with the issue of massive ISDS awards for half a decade, other Western European countries have been spared. But that's now beginning to change. Spain finds itself embroiled in multiple ISDS claims as a result of changes it made in 2011 to its subsidies for solar energy. This has led to no less than 19 cases being brought before arbitration tribunals claiming compensation for lost future profits. One group alone is asking for around €600 million (£420 million), and according to an article that appeared in the Spanish newspaper El País, some experts believe that the total claims could reach billions of euros http://elpais.com/elpais/2015/06/24/ine ... 24145.html
.
Last year, Italy was hit with its first ISDS case https://icsid.worldbank.org/apps/ICSIDW ... /3&tab=PRO , which was brought for similar reasons to those in Spain, and involved investors from Belgium, France, and Germany. Other investors from Denmark and Luxembourg brought a second ISDS case http://www.recommon.org/ttip-non-ce-due-senza-tre/ against Italy in July of this year, again because of subsidies being withdrawn.
Enlarge http://cdn.arstechnica.net/wp-content/u ... rtower.jpg / With ISDS, merely changing a country's solar subsidies law is enough to get it sued for billions of euros.
NASA
http://climatekids.nasa.gov/concentrating-solar/
A few weeks later, a third case was filed, also claiming compensation because of changes to solar energy policy. But this time there was an interesting twist: the claimant was a US company. The United States is not a signatory to the Energy Charter Treaty invoked by the claimants in all three cases against Italy. The company managed to get around that inconvenient detail, however, by setting up a subsidiary in the Netherlands, which is a signatory, and then made the claim against Italy from there. This shows how easy it is for companies to engage in what is known as "treaty shopping" to sue governments, even when strictly speaking there are no legal grounds for them to use ISDS in this way.
This sudden onslaught of cases seems to have been a wake-up call for Italy, which realised that ISDS was a two-edged sword. In an evident attempt to avoid ISDS suits, it announced that it was withdrawing http://globalarbitrationnews.com/italy- ... -20150507/
from the Energy Charter Treaty completely at the end of 2015. The official reason for doing so was to save money, but since the annual fee was only €370,000—a tiny fraction of Italy's national budget—nobody takes that justification seriously. It is quite clearly an attempt to limit the country's future exposure to ISDS claims.
However, exiting from the treaty won't protect Italy from further suits from companies with existing investments in Italy, which will still be able to bring them under the terms of the treaty for another 20 years. That's typical for ISDS provisions, which can linger on for years after a country withdraws from a treaty, leaving the threat of massive claims hanging over public finances, and making the long-term costs of signing up to investor protection unknown.
Finally, Austria too has recently joined the club of ISDS victims, with a case that sees Meinl Bank demanding "at least" €200 million (£140 million) damages in recompense. As well as being the first ISDS case brought against Austria, the Meinl Bank action is notable because the harm is allegedly the result of investigations by the county's justice department. According to an article in Wiener Zeitung http://www.wienerzeitung.at/nachrichten ... richt.html , the Austrian government pointed out that it could not interfere in or be held responsible for the actions of the investigators, to which the claimant's lawyer replied that this well-established separation of powers was not recognised by ISDS tribunals, and was therefore irrelevant. That's another demonstration of how the lawyers that make up such tribunals believe they can simply ignore national laws.
Further Reading
EU dropped plans for safer pesticides because of TTIP and pressure from US
http://arstechnica.co.uk/tech-policy/20 ... e-from-us/
Despite repeated promises that the US trade agreement would not lower EU standards.
And all of this was before TTIP
It's important to note that all these recent cases against EU nations have been brought before the new round of trade agreements have been completed and enacted. That's significant, because both TTIP and the less well-known negotiations with Canada, the Comprehensive Economic and Trade Agreement (CETA) http://ec.europa.eu/trade/policy/in-focus/ceta/ , will greatly increase the number of companies able to sue the EU and its member states. Currently, US companies are only able to make direct claims against nine EU nations that were formerly within the Soviet sphere. Even then, the number of claims is limited, because there are relatively few US investments in those countries.
If TTIP is completed and comes into force with an ISDS chapter, something like 20,000 US companies http://arstechnica.co.uk/tech-policy/20 ... racy/4/#h1 with over 50,000 EU subsidiaries will, at a stroke, gain new powers to sue for EU actions that they claim will result in "indirect expropriation"; that's because TTIP's ISDS will apply retroactively to all existing investments, not just future ones. The situation is nearly as bad with CETA, which contains a clause that would allow foreign companies with "substantial business activities" https://www.policyalternatives.ca/sites ... MENT_0.pdf in Canada to use the ISDS provisions in CETA to sue EU countries. Again, that is likely to give thousands of US companies the power to demand "compensation" for decisions and changes in EU laws and regulations that they don't like, even before TTIP is brought in.
Public Citizen has carried out an interesting calculation that estimates how many ISDS cases http://www.citizen.org/documents/EU-ISDS-liability.pdf the EU could face if TTIP does, indeed, include it:
if the number of ISDS cases is taken as proportional to the number of foreign-owned firms, the ISDS case record under the nine existing U.S.-European BITs [Bilateral Investment Treaties] suggests that newly exposing the other 19 EU countries to U.S. ISDS claims would invite the launch of more than 100 U.S. ISDS cases against those countries in the early years of TTIP implementation. This figure does not take into account the significant growth of ISDS cases in recent years, which would suggest a higher number of expected ISDS cases under TTIP.
We can also use past experience as a guide for the total value of the claims this might give rise to. As mentioned above, we know that 62 of the cases that have been brought against 20 EU member states since 1994 involve claims of €30 billion (£21 billion) in total. Crudely speaking then, we might expect those 100 future ISDS cases to see claims totalling around €50 billion (£33 billion). Of course, this is not the actual amount that is likely to be awarded by the tribunals, but it gives a very rough idea of the magnitude of the costs that ISDS is likely to impose on the EU: tens of billions of euros in just the first few years of TTIP.
Those figures refer to past ISDS actions, but it's likely that TTIP's ISDS chapter will be different in at least one important respect: it will almost certainly allow companies to sue governments if they make changes to copyright and patent laws. We surmise that will happen because the mandate given by the European Commission http://data.consilium.europa.eu/doc/doc ... L-1/en/pdf
to the EU's TTIP negotiators says that ISDS should cover those areas. As far as the US is concerned, we know that it too is keen to allow ISDS claims to be made in the field of copyright and patents because that is what it has agreed https://medium.com/the-trans-pacific-pa ... 6dbd892f3a in the recently-completed Trans-Pacific Partnership https://medium.com/the-trans-pacific-partnership (TPP) agreement, which does for the Pacific region what TTIP does for the Atlantic.
The Electronic Frontier Foundation (EFF), as you can imagine, has a lot to say about the extension of ISDS to include copyright https://www.eff.org/deeplinks/2015/11/r ... ers-rights :
What this means is that companies could sue any of the TPP nations for introducing rules that they allege harm their right to exploit their copyright interests—such as new rights to use copyrighted works for some public interest purpose. A good example of this might be a country wishing to limit civil penalties for copyright infringement of orphan works, which are works whose authors are deceased or are nowhere to be found.
In the example given by the EFF, publishers could claim that the reduction in penalities for copyright infringement of orphan works would be an "indirect expropriation," and that they should therefore be compensated by the government that brings in such a law. Similarly, if the European Union definitively excluded programs from patentability—the issue is still unclear—US software companies would doubtless waste no time in suing the EU for billions of euros as "compensation" for their supposed losses.
Further Reading
EU puts fresh coat of paint on ISDS, now re-branded as “Investment Court System”
http://arstechnica.co.uk/tech-policy/20 ... rt-system/
Foreign companies still have access to special courts for suing governments.
In the face of growing criticisms of the ISDS system from many quarters, the European Commission has proposed replacing it with an Investment Court System (ICS), discussed in detail in an earlier Ars post http://arstechnica.co.uk/tech-policy/20 ... rt-system/ . But even if the US accepts the idea—and first indications are that it might not—it fails to address the biggest problem with ISDS http://papers.ssrn.com/sol3/papers.cfm? ... id=2692122 : that it gives foreign investors privileged access to special courts outside national legal systems.
Those courts will still be completely one-sided, allowing companies to bring cases against EU countries, but not vice versa. There is nothing to stop huge fines being imposed by ICS courts, just as ISDS tribunals do today. And finally, the European Commission has said that ICS will not be used for CETA, which will therefore allow US investors to sue the EU and its member states using ISDS by the backdoor, as well as through ICS and national courts. In other words, US corporations might end up with not two, but three different ways of bullying European countries into dropping legislation investors don't like. That's hardly progress.
It is worth emphasising that ISDS and ICS are not abstract, distant mechanisms with no real relevance to everyday life. Their effects will be felt by every EU citizen, and in the most direct way possible. Whether ISDS and ICS result in damages of €10 billion or €100 billion, any such damages will come out of national taxes—they'll be paid by your hard work. This is something the European Commission never mentions: that over time, increasing numbers of ISDS lawsuits brought by foreign investors are likely to wipe out completely any economic gains that accrue from TTIP, which in any case are likely to be very small.
http://arstechnica.co.uk/tech-policy/20 ... racy/2/#h1
Source : http://arstechnica.co.uk/tech-policy/20 ... tribunals/