5 June 2015

By Professor Keith Ewing and John Hendy QC

1

The Transatlantic Trade and Investment Partnership (TTIP) is the secret trade deal currently being negotiated between the EU and the USA. Its text is a closely guarded secret shared only by the negotiators (including representatives of multinational corporations). Drafts are withheld from both MEPs and members of all the European national Parliaments (as well as US congress and senate members).

On 28 May 2015 the voice of almost two million Europeans who have petitioned against TTIP was ignored when the European Parliament’s International Trade Committee (INTA) led by the Socialist and Democrat group of MEPs agreed to a shabby compromise resolution supporting TTIP. The compromise paves the way to a vote of the full European Parliament in the week of 8 June 2015.

Amongst other things, the compromise supports the much criticised ‘Investor-to-State Dispute Settlement’ procedure (ISDS) known to be in the TTIP draft. ISDS is found in practically all of the new generation of international trade agreements between States (of which there are now some 3,000). ISDS is a legal procedure which allows multinationals (“investors”) to sue States for millions of dollars on the basis of (actual or threatened) alleged breaches of international trade agreements such as TTIP. The usual claim is for future loss of profits on the ground that the laws of the State have not accorded the multinational “fair and equitable treatment”, or because national law has resulted in “expropriation” of the multinational’s assets.

The most recent United Nations survey of ISDS proceedings in international trade agreements (where they have leaked into the public domain) shows that the number of claims by multinationals against States under ISDS mechanisms is rising and that claims in 2014 ranged between US$ 8 million and US$ 2.5 billion. The largest award made in 2014 was US$ 50 billion, though the median award in 2012 was a mere US$ 10,694,000.

ISDS claims made in 2013 included claims for alleged losses arising from the imposition of levies on solar power plants in the Czech Republic and from a reduction of subsidies for renewable energy in Spain. There was a claim (for €824m) against Cyprus for increasing its stake in the Cyprus Popular Bank as a stability measure in the crisis. A claim was made for the equivalent of an injunction against the Slovak Republic for proposing legislation said to involve the expropriation of a privately held stake in a Slovak health insurer. Canada is being sued by one company for compensation for the loss of its gas exploration permits as a consequence of Quebec’s moratorium on fracking, and by an electricity supplier for contractual losses arising from Ontario’s moratorium (on health and environmental grounds) on offshore wind-farms. Swedish power company Vattenfall has brought a claim against Germany for €4.7bn for lost profits caused by Germany’s decision to phase out nuclear power stations.

II

The EU recently carried out a consultation exercise amongst European citizens on ISDS and found 97% of the 150,000 responses to be opposed to ISDS. But ISDS has not been left out of TTIP. The compromise agreed by INTA addresses a couple of the objections to ISDS but simply ignores the major problem.

First and foremost, the Socialist and Democratic majority of MEPs on the International Trade Committee having been formerly totally opposed to ISDS have reversed their position. The Committee resolved to accept that ISDS is to remain part of TTIP – though it avoids use of the name “ISDS”. It confronts the problem of secrecy of ISDS private arbitration by lawyers by proposing that ISDS should be, in the long term, conducted by publicly appointed, independent professional judges in public hearings. “In the medium term, a public International Investment Court” is proposed as the acceptable form of ISDS.

Those proposals would certainly improve on the standard ISDS mechanisms already built into the EU trade agreements with Canada (CETA), South Korea and Singapore – and dozens of other EU international trade agreements.

But in reaching their compromise, the Committee seems to have blinded itself to the fundamental flaw in any form of ISDS. The elephant in the room, invisible to the Committee, is evident in the very name “Investor-to-State Dispute Settlement” procedure. It reflects the extraordinary nature of ISDS. The multinational corporations seeking profit (“investing”) in the States to be covered by the agreement make a jaw-droppingly arrogant demand of those very States. They seek the unique legal privilege of a special procedure to enable them – and no-one else – to bring claims for alleged breach of the agreement. And such claims are to be against … those very States!

This demand is in addition to the unique privilege of limited liability conferred on these very corporations by the law of every State in the EU and by the US. The demand is on top of the benefits to the multinationals of TTIP itself, an agreement which is intended to achieve “harmonisation of regulations” – i.e. to reduce legal obligations on corporations to the lowest common denominator (so much for the sovereignty of Parliaments).

The fact that the State parties to the agreement are not permitted to bring claims against the multinationals through the ISDS mechanism is not enough. Nor can a citizen of the States involved use ISDS to bring a claim for breach of the trade agreement against a multinational – nor even against a State. So workers (and their trade unions) cannot claim that a multinational has subjected them to a lack of “fair and equitable treatment” or expropriated their wages or other property. So lop-sided is ISDS, that even if a multinational claimed against a State that its laws on trade unions were not fair and equitable and so caused it loss of profit (perhaps because its laws permitted a strike), the union would have no right to be heard in the ISDS hearing.

Yet these failures present only a frontal view of the elephant. A side view highlights that if a multinational were unhappy with a judgment of a national court (or the Court of Justice of the EU), it could seek to override the court by taking its case to the ISDS. This is not, of course, an option for citizens or governments. But it is exactly what a large tobacco corporation did in challenging legislation requiring plain paper packaging for cigarettes in Australia. Having lost its case in the highest Court of Australia, Philip Morris then took its case to an ISDS tribunal in a trade agreement between Australia and Hongkong (outcome of the arbitration is awaited). Likewise the drug company Eli Lilly has sought $500 million compensation against Canada (under the ISDS of the North America Free Trade Agreement) by way of challenge to Canadian court decisions that patents on two drugs were invalid.

The EU International Trade Committee refers to the legitimacy of the ordinary courts but does not suggest that the multinationals should be obliged to use them instead of the separate ISDS scheme. In fact the proposal to refine the ISDS scheme by using qualified judges in public hearings is an acceptance by the Committee that multinationals will be able to use ISDS to circumvent the ordinary courts. The compromise resolution even proposes a special right of appeal from ISDS, not to proper courts, but to a special ISDS appellate panel. So much for the rule of law. So much too, for the distaste of the present government to judgments of ‘unelected foreign judges’ which usurp the function of our Supreme Court.

III

The fact that citizens and their organisations – such as trade unions – cannot sue either multinationals or States under ISDS is important in relation to one of the justifications for the decision of the International Trade Committee to back TTIP. TTIP (like CETA, the EU-Korea and EU-Singapore agreements) contains reference to the minimum core labour standards of the International Labour Organisation (ILO). These deal with freedom of association, the prohibition of forced labour, the elimination of discrimination, and the abolition of child labour, with the EU and Korea committing themselves to respect, promote and realize in their laws and practices the principles concerning these ‘fundamental rights’.

The latter seem to be standard provisions in free trade agreements negotiated by the EU, and they are also to be found in the many free trade agreements to which the US is a party. In the case of the US agreements there is often an additional commitment relating to wages, working time, and health and safety at work. The undertakings are, however, largely meaningless given that the United States has not ratified several of the core ILO Conventions on which these principles are based, and that it has no intention of ever doing so. Nor is there any evidence that the Americans have changed their federal labour law to bring it into line with ILO standards, despite having been told by the ILO Freedom of Association Committee that its law fails to meet ILO standards.

On freedom of association alone, this would be true in relation to the right to organise, the right to bargain and the right to strike. All of which is to suggest that the labour chapters of these agreements contain hollow commitments by which no one intends to be bound. But we should not single out the United States. The EU entered into a free trade agreement with Korea in which both parties undertook to abide by the provisions of a labour chapter. But not only has Korea ratified just four of the eight core ILO conventions, it has been found to be seriously in breach of ILO principles on freedom of association. Korea is a country with serious restraints on the right to strike, with trade unions routinely sued for substantial damages in a manner without parallel in any industrialised country.

There is no possibility of the United States being required by TTIP to ratify ILO Conventions 87 and 98, or to change the National Labor Relations Act to give effect to these obligations. Any such obligation would in any event be unenforceable, as both measures would almost certainly be vetoed by the US Congress, in thrall to US corporate special interests. So how are these ILO standards in TTIP to be enforced? The International Trade Committee compromise undertakes to ensure that “the sustainable development chapter” of TTIP “is enforceable”. Whether this chapter of the secret text of TTIP is substantially the same as the “trade and labour chapter” in the CETA (which is published) is not known. CETA certainly does not require that the core ILO standards in the trade and labour chapter are enforceable, merely that each State “shall ensure that its labour law and practices embody and provide [the] protection” of ILO core standards.

In other words, the free trade agreements impose obligations on States not on corporations, albeit the obligations on States are very weak. Trade agreements – including EU free trade agreements to date – do not require the multinational investors to observe those ILO standards. That being so, it is inconceivable that TTIP will permit unions (or even States) to sue multinationals in the ISDS for breach of labour standards. TTIP will certainly not give unions or workers the right to sue the multinationals for breach of ILO standards in ordinary national courts or the Court of Justice of the EU. The trade agreements such as TTIP do not even require ILO standards to be taken into account in ISDS cases. Yet the only serious way in which the International Trade Committee could have achieved its ostensible objective (given that it accepted the principle of ISDS) was to open the doors of ISDS to trade unions (and States) so they could sue corporations for breach of core ILO Conventions.

But the political realities of global corporate power are such that this will not happen. The danger of the International Trade Committee’s position is that we will end up with an ISDS mechanism in which the elephant is more visible, with all manner of dubious claims being made about the new legitimacy of ISDS. Alongside that we will continue with a meaningless commitment to labour standards by parties who have no intention to be bound by the obligations they undertake, and with no machinery in place to ensure that they are bound. The reality is highlighted by the British government which will no doubt accept the labour chapter in TTIP (as Cameron accepted the labour chapter in the EU-Korea FTA), while being about to introduce new restrictions on the right to strike that will take the United Kingdom even more deeply into violation of ILO standards which TTIP is supposed to enshrine.

Finally, it is a matter of great regret that the Socialist and Democratic Group of MEPs has not demanded observance of the core ILO standards as a non-negotiable condition for any multinational investing in the EU (or the USA come to that) and a non-negotiable condition for tendering for public contracts. Having established that principle, the only question would then be how to satisfy the need for the proper auditing of companies to ensure that they do comply with minimum ILO standards. Labour standards are non negotiable, and they should not be part of a bargaining process about ISDS, which has no place in a democratic society governed by the rule of law. As pointed out succinctly by Adrian Weir of Unite the Union, ‘a different version of ISDS in exchange for the chimera of binding ILO Conventions seems a poor exchange’.

This article first appeared in the Morning Star