When Canada and the European Union signed the Canada-European Union Comprehensive Economic and Trade Agreement (CETA) in late 2016, a new type of tribunal was adopted to resolve investor-state disputes: The Investment Court System (ICS)-the same court system previously adopted for the Transatlantic Trade and Investment Partnership, or TTIP.
But while the TTIP-the proposed pact between the U.S. and the EU-hit some shoals and has not been implemented, CETA is up and running, although the critical point, at this juncture, is that it appears the ICS soon will be a universal model for all trade treaties.
Consequently, it's important to explore the nature and background of ICS. Is it a real reform that will solve problems for the good of all? Or is it just another snow-job against the public by the piranhas of high finance, in league with their government cohorts?
"CETA's rules on investor-state dispute settlement contain numerous innovations that distinguish the agreement from existing investment treaties. The new tribunal and rules could be a model for future international agreements and will impact Canadian businesses investing in the EU," a Dec. 15, 2016 article by Canadian attorneys Roy Millen and Mark Klaver explained, on the legal website Blake Business Class.
As further explained by those attorneys in Blakes Bulletin: A Dispute about Disputes: The Gathering Storm over ISDS the European Commission announced its adoption of the ICS back in 2015, with a Sept. 20 press release corroborating that the ICS is the wave of the future: "The Investment Court System would replace the existing investor-to-state dispute settlement (ISDS) mechanism in all ongoing and future EU investment negotiations, including the EU-US talks on [TTIP]."
Extolling the perceived benefits of the ICS, the same EC press release adds: "The proposal for an Investment Court System builds on the substantial input received from the European Parliament, Member States, national parliaments and stakeholders through the public consultation held on ISDS. It is intended to ensure that all actors can have full trust in the system. Built around the same key elements as domestic and international courts, it enshrines governments' right to regulate and ensures transparency and accountability."
That last part is important. As this writer found when researching various trade matters in recent years, the ISDS-the prominent pre-ICS tribunal for resolving disputes-sparked intense concern among observers and politicians, especially U.S. Sen. Elizabeth Warren (D-Mass.), over investors being able to obtain rulings allowing them to flout national laws such as bans or limitations on the importation of GMO foods, or requiring specific warning labels on imported tobacco products, to name just two examples. National sovereignty itself, it seemed, was negotiable.
"Investor-state dispute settlement regimes in investment treaties enable investors from signatory states to bring claims such as discrimination, nationalization or abusive treatment in neutral arbitration against governments of other treaty countries," the two Blake attorneys explained in their more-or-less neutral overview. "Over 3,000 treaties covering 180 countries contain such provisions."
As those attorneys also noted, nations often agree to investor-state dispute settlements "to gain the benefits of foreign investment," yet critics contend that such settlements rely on biased panelists who favor corporate interests.
And the settlements, critics say, can impede a government's ability to regulate in the public interest, lack transparency and could therefore erode the democratic process itself-with democracy in this context defined as the ability of nation states to make laws and regulations on the people's behalf that govern what can be imported and under what terms. In a word: Consent.
Is ICS just 're-branding'?
A 36-page report by five progressive organisations, named "Investment Court System Put to the Test," was released in 2016 and explored five major case studies of corporations in trade disputes with nation states.
The report noted: "We wanted to test whether these cases would no longer be possible under the Investment Court System (ICS) in order to understand whether it represents a substantial change from the current iniquities of ISDS arbitration. Or whether, as many legal experts and civil society advocates have argued, the European Commission is merely carrying out a rebranding exercise."
The report was produced by Friends of the Earth, the Transnational Institute, the Canadian Centre for Policy Alternatives, the Corporate Europe Observatory, and the German NGO Forum for Environment and Development.
It noted that when the European Commission announced its plan to enshrine far-reaching investor rights in TTIP, apparently setting the table for investor attacks on essential consumer, labour, and environmental protections, "there was a major public outcry." The European Commission, the report added, "was forced to put the negotiations on that chapter on hold and organise a public consultation. An unprecedented 150,000 people took part, of which 97% clearly rejected the inclusion of the mechanism in any form in TTIP."
The five areas covered in the report are:
- Philip Morris vs Uruguay. Uruguay required graphic warnings on cigarette packages and other tobacco control measures in order to promote public health;
- TransCanada vs the U.S. regarding President Barack Obama's decision to reject the Keystone XL pipeline that transports thick tar-sands oil from Canada across the middle U.S. for processing at Texas refineries . . .
- Lone Pine vs Canada for Quebec having enacted a precautionary fracking moratorium;
- Vattenfall vs Germany for Hamburg city's imposition of environmental standards for water use at a coal-fired power plant; and
- Bilcon vs Canada for Canada having required an environmental impact assessment that prevented the construction of a large quarry and marine terminal in a coastal area considered ecologically sensitive.
It was September of 2015 when EU Trade Commissioner Cecilia Malmström acknowledged: "ISDS is now the most toxic acronym in Europe." Meanwhile, the UN's independent expert on the promotion of a democratic and equitable international order, Alfred de Zayas, went so far as to tell the General Assembly that ISDS "must be abolished."
As a result, the European Commission, feeling the stiff wind of scepticism and opposition, declared its willingness to "reform" ISDS. By the fall of 2015, it presented the "Investment Court System" (ICS) proposal-to reassure the public that granting investors' rights would not hamper public policy-making. Key elements of this ICS proposal have already been included in the EU-Vietnam and EU-Canada CETA deals.
Referring to the above-noted five case studies, the report added: "Close analysis of each case shows that every one of these controversial disputes could still be launched and likely prosper under ICS. There is nothing in the proposed rules that prevents companies from challenging government decisions to protect health and the environment. And there is nothing to prevent arbitrators from deciding in their favour-ordering states to pay billions in taxpayer compensation for legitimate public-policy measures."
One particular observation in the report is quite revealing: "Rather than limit egregious claims," Page 5 of the report says, "ICS actually creates the potential for more arbitration disputes because, unlike existing treaties, it explicitly introduces the notion of investors' 'legitimate expectations.' In all five of the cases examined, investors claimed a breach of legitimate expectations. According to the proposal, an investor can only claim 'legitimate expectations' as the result of 'a specific representation' from the state-but this limitation is so poorly defined that it could mean any measure, action or even verbal indication by a government official that, according to the investor, had induced it to make or maintain the investment."
Challenging European Commission claims, the report argues: "Under the ICS, the interpretation of the expansive rights afforded to corporations and the ill-defined restrictions will still depend on for-profit adjudicators, and not on public, independent judges," adding, "They will be paid by the case and the loopholes in the EU's proposed conflict-of-interest requirements will allow the same pool of corporate arbitrators to continue to sit on arbitration panels. European judges have concluded that the ICS proposals do not meet the minimum standards for judicial office as laid down in the European Magna Carta of Judges and other relevant international texts on the independence of judges."
'Global' court the real goal?
Interestingly, another entity, the American Society of International Law, in a special report, expressed a rosier assessment of the ICS-insisting that nations' right to regulate will be firmly upheld.
Whole noting that the ICS model [as embedded in TTIP for purposes of their study] is two-tiered, "consisting of a Tribunal of First Instance and an Appeal Tribunal,"- the Tribunal is composed of [21] members, who are appointed by the European Union and the U.S. rather than by the disputing parties (investor and host state) and are subject to stricter rules on independence and impartiality. Furthermore, . . . substantive standards . . . are designed to ensure policy space for states to regulate in the public interest."
What's evident, however, is that the ICS and its inclusion in TTIP and CETA represents what the ASIL called a "tectonic change in the approach . . . towards ISDS, bringing back to the diplomatic agenda the serious prospect of a multilateral investment court."
In other words, says, the ASIL, "The proposed investment court system . . . could become a model for a global investment court, as is the stated goal of the [European] Commission."
Indeed, it is. As quoted in a Nov. 12, 2015 European Commission press release, Trade Commissioner Cecilia Malmström said: "Today marks the end of a long internal process in the EU to develop a modern approach on investment protection and dispute resolution for TTIP and beyond. This is the result of far-reaching consultations and debates with Member States, the European Parliament, stakeholders and citizens. This approach will allow the EU to take a global role on the path of reform, to create an international court based on public trust." [All emphasis added]
Notably, the ASIL report takes thinly veiled shots at domestic control of judicial power by saying on the one hand that domestic lawmaking will be protected from corporate overreach, while at the same time noting, "Despite its visionary nature, the proposed [ICS] suffers from two structural weaknesses that reduce its suitability as a global model, namely its bilateral set-up and its relationship with domestic courts."
In other words, even the ICS model, while it clearly points in the direction of globalizing trade courts, needs more tweaking to mold it into the full-fledged legal colossus it was apparently intended to become. Thus, in describing its approach to this issue, the ASIL says its report "elaborates on those weaknesses and explains the changes that could be introduced in order to transform the investment court system ... into a medium for genuine multilateralisation of the ISDS regime."
