New Leak Reveals Proposal To Extend Corporate Sovereignty Massively To Include Intra-EU Investments

from the most-toxic-acronym-in-Europe dept

As Techdirt has reported, the public backlash against corporate sovereignty in TAFTA/TTIP was so strong in the EU that the European Commission was forced to come up with Plan B. It now wants to replace what has been called "the most toxic acronym in Europe" -- ISDS, which stands for "investor-state dispute settlement" -- with ICS: the investment court system. That was little more than a re-branding exercise, since most of the key flaws remained, but at least it suggested that the European Commission recognized that corporate sovereignty had become a serious problem that needed to be addressed. However, it seems that others didn't get that memo -- or, more likely, just don't care what the EU public thinks. A new leak reveals that a group of EU governments want to extend the use of ISDS, and to embed corporate sovereignty even more deeply in the fabric of the European economy.

The plan by the five countries -- Austria, Finland, France, Germany and The Netherlands -- is to give corporate sovereignty rights for all cross-border investments made within the EU. That would allow EU companies to challenge EU governments over things like local health and safety laws, or environmental regulations, with the public paying for any losses in the ISDS tribunals. The original rationale for corporate sovereignty was to protect only foreign investors when they put money into a country; this has been turned on its head in a so-called "non-paper", now leaked, which calls for domestic investors to enjoy the same special extra-judicial rights (pdf). The background to this extraordinary idea is a move last year by the European Commission to terminate some old bilateral investment treaties (BITs) between European Union members: Many of these intra-EU BITs were agreed in the 1990s, before the EU enlargements of 2004, 2007 and 2013. They were mainly struck between existing members of the EU and those who would become the "EU 13". They were aimed at reassuring investors who wanted to invest in the future "EU 13" at a time when private investors -- sometimes for historical political reasons -- might have felt wary about investing in those countries. The BITs were thus aimed at strengthening investor protection, for example by means of compensation for expropriation and arbitration procedures for the settlement of investment disputes.



Since enlargement, such 'extra' reassurances should not be necessary, as all Member States are subject to the same EU rules in the single market, including those on cross-border investments (in particular the freedom of establishment and the free movement of capital). All EU investors also benefit from the same protection thanks to EU rules (e.g. non-discrimination on grounds of nationality). By contrast, intra-EU BITs confer rights on a bilateral basis to investors from some Member States only: in accordance with consistent case law from the European Court of Justice, such discrimination based on nationality is incompatible with EU law. As the European Commission rightly points out, one of the key points about the EU is that it offers the same protection to all EU investors, wherever they are based, and wherever they put their money in the European Union. And yet, rather than complying with that call from the Commission, the five countries involved in this new plan want to go in precisely the opposite direction. The leaked "non-paper" even has the gall to use the biased nature of ISDS as a reason to extend it yet further: modern guarantees on investment protection are necessary to the level playing field for EU-investors vis-à-vis their foreign competitors, to ensure the continued availability of competitive financing terms for EU-investors and to promote intra-EU investments. The dismantling of intra-EU BITs will be perceived by investors, banks and creditors alike as an overall decrease in the legal protection for EU investors and create a competitive advantage for foreign investors who can rely on clearly defined and uniform protection standards under the forthcoming EU agreements or on Member States’ BITs. If EU investors are not afforded comparable protection as their foreign competitors, incentives for EU investors to locate their foreign investments outside the EU will be created and the functioning of the internal market will be compromised. By an amazing coincidence, in February the Business Europe lobby group sent a letter to the European Commission calling for corporate sovereignty to be extended to intra-EU investments. It's not hard to guess why there is this sudden push from countries and companies. As Techdirt has reported, the corporate sovereignty provisions are without doubt the most contentious part of the proposed TAFTA/TTIP agreement, and many are demanding that they be dropped completely. The introduction of corporate sovereignty for all intra-EU investments would allow supporters of ISDS in the EU-US trade agreement to argue that the same protection must be offered to US companies investing in the EU -- the perfect circular argument.

The reverse is also true, as the leaked document itself recognizes: If one postulates that such provisions are not required within the EU due to the very nature of the internal market or to the level of development of EU Member States, it would then be even more difficult to argue in favour of investment chapters within the TTIP or other FTAs with developed countries. But the European Commission is indeed arguing that such provisions are not needed in the European Union. Awkward.

Follow me @glynmoody on Twitter or identi.ca, and +glynmoody on Google+

Thank you for reading this Techdirt post. With so many things competing for everyone’s attention these days, we really appreciate you giving us your time. We work hard every day to put quality content out there for our community. Techdirt is one of the few remaining truly independent media outlets. We do not have a giant corporation behind us, and we rely heavily on our community to support us, in an age when advertisers are increasingly uninterested in sponsoring small, independent sites — especially a site like ours that is unwilling to pull punches in its reporting and analysis. While other websites have resorted to paywalls, registration requirements, and increasingly annoying/intrusive advertising, we have always kept Techdirt open and available to anyone. But in order to continue doing so, we need your support. We offer a variety of ways for our readers to support us, from direct donations to special subscriptions and cool merchandise — and every little bit helps. Thank you.

–The Techdirt Team

Filed Under: corporate sovereignty, eu, intra-eu, isds