Special rights for investors

What is the 'investor-state dispute settlement'?

Investor-state dispute settlement – also known under the even less transparent acronym ISDS – is one of the most harmful features of modern trade agreements. Under this mechanism foreign companies can use private tribunals to sue governments if they deem their profits or investment potentials are affected by new laws or changes in policy. The companies can seek compensation which may mount to millions of Euros.

In other words, companies are given powers to contest – and potentially reverse – government decisions.

The system is designed specifically for foreign investors – domestic investors have no access to the international private tribunals. Domestic investors rely on existing judicial processes if they are unhappy about regulatory changes.

The system operates outside existing court systems. The tribunals are biased in favour of investors, with corporate lawyers often acting as the judges and parties. And they are only open to corporations to make claims over their investments (including their expected profits). This makes ISDS a clear violation of the right to access to justice and the rule of law.

Not only does the system allow companies to circumvent established judicial processes, it also allows them to challenge and overturn previous legal judgements. Public outcry is growing over the (mis-)use of the ISDS mechanism, and in particular its detrimental impact on democracy and policies that are made for the public interest.

ISDS in the EU-US trade talks

Negotiations for a trade deal between the EU and US – known as the Transatlantic Trade and Investment Partnership (TTIP) – are shrouded in secrecy so it is difficult to know exactly what is being negotiated. Leaked information suggests that ISDS is intended to be included in the final agreement

Learning from bad experience

Experience of settled ISDS cases tells us that this system does negatively impact regulatory standards. Two emblematic cases illustrate this threat very well:

  • Vattenfall I vs Germany: In 2009, Swedish energy company Vattenfall started an ISDS procedure against Germany. Vattenfall had engaged in the construction of a coal fired power plant in Hamburg-Moorburg, located on the Elbe river. When Hamburg‘s Environmental Authority imposed quality controls for the waste waters released into the river from the power plant, Vattenfall claimed that those standards made the investment project unviable. Using ISDS provisions, the company asked Germany for compensation totalling €1.4 billion. The case was eventually settled when the City of Hamburg agreed to lower the environmental requirements previously set.
  • Ethyl vs Canada: Chemical manufacturer Ethyl sued Canada using ISDS over the introduction of a ban on a toxic chemical, MMT. The settlement of the case saw Canada reverse the ban and agree on a US$13 million payment. Incidentally, the same chemical was banned in the US.

ISDS facts and figures

  • Globally, there were 514 known investor-state disputes at the end of 2012
  • 58 claims were launched in 2012 alone, the highest number ever in one year
  • More than one in three cases at the International Center for Settlement of Investment Disputes related to oil, mining or gas in 2013. More than half of foreign direct investment in the EU comes from the US; and over half the foreign direct investment in the US comes from the EU.
  • Around 42% of the known completed investor-state cases in 2012 were decided in favour of the state, 31% in favour of the investor and 27% of cases were settled (which could also involve payments or other concessions for the investor). So in 58% of cases, companies were partly or fully successful.
  • Legal costs in investor-state disputes average over US$8 million, and exceed 30 million US$ in some cases. They are not always awarded to the winning party.

Protecting people and planet

Friends of the Earth Europe is campaigning to stop the inclusion of the ISDS in an EU-US trade deal. We believe such a mechanism would risk seriously deterring governments from introducing regulations that protect people and the environment.

The mere threat of multi-million euro claims by large companies is likely to be too big a risk for governments with limited public budgets. For this reason, we believe ISDS would be bad for citizen and environment safeguards.

We fear that the prospect of potential lawsuits would put states off passing strong laws. The ISDS is in direct conflict with nations’ rights to regulate and the fundamental precautionary principle and polluter-pays principles which are enshrined in EU treaties. 

Friends of the Earth Europe alongside many other civil society organisations is asking the European Commission, the European Parliament and EU member states to reject any future trade deal including this harmful system, starting with the Transatlantic Trade and investment Partnership (TTIP) and the EU-Canada Comprehensive Economic and Trade Agreement (CETA).

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