Info Service on Finance and Development (Jun13/01)
14 June 2013
Third World Network
EU-US deal could unleash a "corporate litigation boom"
Published in SUNS #7601 dated 10 June 2013
Geneva, 7 Jun (Kanaga Raja) -- Investor-state dispute settlement under
the proposed Transatlantic Trade and Investment Partnership (TTIP)
between the European Union and the Untied States would empower EU
and US-based corporations "to engage in litigious wars of attrition
to limit the power of governments on both sides of the Atlantic,"
Corporate Europe Observatory (CEO) and the Transnational Institute
(TNI) have warned.
In a new briefing paper titled "A Transatlantic Corporate Bill
of Rights" released recently, CEO and TNI said that the tremendous
volume of transatlantic investment, with both partners accounting
for more than half of foreign direct investment in each others' economies,
hints at the sheer scale of the risk of such litigation wars.
[The issue has figured at the US Senate confirmation hearing for USTR
nominee Mike Froman, according to a post by Simon Lester at the IELP
blog. According to the post, Sen. Sherrod Brown (a trade critic) asked
at the hearing something along these lines: "Given that EU property
rights protection is pretty good, do we need investor-state in the
TTIP?" Mr. Froman's answer was basically, "we're still consulting
on this and haven't made a decision." In follow-up questions,
with Brown trying to prod Froman a bit on why investor-state was needed
in this context, Froman responded with something like, "we need
to be aware of what excluding investor-state in this agreement would
mean for the system as a whole." - SUNS]
According to CEO and TNI, leaked draft versions of the EU negotiating
mandate for the far-reaching free trade agreement with the US reveal
the European Commission's plans to enshrine more powers for corporations
in the deal.
The Commission's proposal for investor-state dispute settlement under
the TTIP would enable US companies investing in Europe to skirt European
courts and directly challenge EU governments at international tribunals,
whenever they find that laws in the area of public health, environmental
or social protection interfere with their profits. EU companies investing
abroad would have the same privilege in the US, said the briefing
In a press release accompanying the briefing paper, Cecilia Olivet
from TNI said: "It is only a matter of time before European and
US taxpayers start paying the costs. Not only will our money go to
pay for expensive lawsuits that compensate big business, but we will
also pay as critical environmental and social regulations and policies
are dismantled to clear the way for corporate profiteering."
Pia Eberhardt of CEO, the report's author, said: "Politicians
might think they are acting in the interests of ‘their' investors
overseas, but they are in fact exposing themselves to predatory legal
action from corporations. It is high time that Parliaments on both
sides of the Atlantic grasp the political and financial risks of investor-state
dispute settlement and axe plans for this looming transatlantic corporate
bill of rights."
The CEO-TNI report notes that as the main users of existing international
investment treaties, US and European companies have driven the investor-state
litigation boom of the past two decades.
By far the largest number of the 514 known disputes initiated by the
end of 2012 were launched by US investors. They have filed 24% (123)
of all cases. Next in line are investors from the Netherlands (50
cases), the UK (30) and Germany (27). Together, investors from EU
member states have filed 40% of all known cases.
The US has faced over 20 investment claims under NAFTA's (North American
Free Trade Agreement) investment chapter, while 15 EU member states
are known to have faced one or more investor-state challenges. The
Czech Republic is the fifth most sued country in the world, the report
"EU and US companies have used these lawsuits to challenge green
energy and medicine policies, anti-smoking legislation, bans on harmful
chemicals, environmental restrictions on mining, health insurance
policies, measures to improve the economic situation of minorities
and many more. Now they are enthused about the prospect of an investment
chapter in the EU-US free trade deal (TTIP), the biggest investment
deal ever negotiated."
The report highlights some "emblematic" investor-state disputes
such as that of Vattenfall v. Germany, whereby in 2012, Swedish energy
giant Vattenfall launched an investor-state lawsuit against Germany,
seeking 3.7 billion euros in compensation for lost profits related
to two of its nuclear power plants. The case followed the German government's
decision to phase-out nuclear energy after the Fukushima nuclear disaster.
Also cited was Philip Morris v. Uruguay and Australia: Through bilateral
investment treaties, US tobacco giant Philip Morris is suing Uruguay
and Australia over their anti-smoking laws. The company argues that
warning labels on cigarette packs and plain packaging prevent it from
effectively displaying its trademark, causing a substantial loss of
When Argentina froze utility rates (energy, water, etc.) and devalued
its currency in response to its 2001-2002 financial crisis, it was
hit by over 40 lawsuits from companies like CMS Energy (US) and Suez
and Vivendi (France). By the end of 2008, awards against the country
had totalled US$1.15 billion.
According to the report, in May 2013, Slovak and Cypriot investors
sued Greece for the 2012 debt swap which Athens had to negotiate with
its creditors to get bailout money from the EU and the International
Monetary Fund (IMF).
On the basis of the NAFTA between the US, Canada and Mexico, US company
Lone Pine Resources Inc. is demanding US$250 million in compensation
According to CEO and TNI, the ‘crime': The Canadian province of Quebec
had put a moratorium on ‘fracking', addressing concerns about the
environmental risks of this new technology to extract oil and gas
The report notes that corporate lobby groups in both the EU and the
US have pressured for the inclusion of investor-state arbitration
in TTIP. The European employers' federation, BusinessEurope, the US
Chamber of Commerce, AmCham EU, the Transatlantic Business Council
and other corporate lobby heavyweights all advocate such privileges
for foreign investors.
"This is also part of a hope that an EU-US deal would set a global
‘gold standard', a model for investment protection for other agreements
around the world."
The report asserts that if big business has its way, TTIP's investment
protection provisions will be even more slanted in favour of corporations
than current EU and US practice.
US energy giant Chevron, too, is lobbying for an investment chapter
which goes beyond the current US model treaty. Having been sued several
times by Canadian companies under NAFTA, the US has twice revised
its template for international investment treaties to better protect
Chevron wants a revival of some of these excessive investor rights
such as the ‘umbrella clause' in TTIP, which would considerably expand
a state's obligations.
The report notes that Chevron is currently engaged in a controversial
legal battle with Ecuador. The company initiated arbitration to avoid
paying US$18 billion to clean up oil-drilling-related contamination
in the Amazonian rainforest, as ordered by Ecuadorian courts.
"The case has been lambasted as ‘egregious misuse' of investment
arbitration to evade justice. No wonder Chevron dedicated its complete
contribution to the US government's TTIP consultation to investment
protection, ‘one of our most important issues globally' as they put
In Europe, says the report, Chevron wants the "the strongest
possible protection" from government measures to "mitigate
the risks associated with large-scale, capital intensive, and long
term projects [...] such as developing shale gas". Because of
its health and environmental impacts, several EU governments have
decided to put a break on shale gas development (‘fracking').
"TTIP's proposed investment protection chapter would empower
energy companies like Chevron to challenge such precautionary measures
because it would oblige governments ‘to refrain from undermining legitimate
investment-backed expectations', as Chevron demands," the report
further states, adding that the mere threat of a million-Euro investor-state
lawsuit could be enough to scare governments into submission and weaken
or prevent fracking bans and strict regulation.
Eberhardt from CEO said, "Chevron's agenda shows what investor-state
dispute settlement is all about. It's a power grab from corporations
- to rein in democracy and policies to protect people and the planet."
The CEO-TNI report also found that whenever policy-makers in the EU
and the US have set out to change international investment treaties
in recent years, law firms and investment arbitrators together with
industry associations have mounted fierce lobbying campaigns to counter
reforms to better balance public and private interests.
"This is not surprising - investment arbitration is big business
for them. The tabs racked up by elite law firms can be US$1,000 per
hour, per lawyer in investment treaty cases, with whole teams handling
them. The private lawyers who decide these disputes, the arbitrators,
also line their pockets, earning daily fees of US$3,000 and more."
EU and US lawyers dominate the field, seeking out every opportunity
to sue countries. Nineteen of the top-20 law firms representing claimants
and/or defendants in such disputes are headquartered in Europe or
the US, the large majority of them (14) US firms. Out of the 15 arbitrators
who have decided 55% of the total investor-state disputes known today,
ten are from the EU or the US, the report said.
One of the usual arguments for investor-state arbitration - the need
to grant legal security to attract foreign investors to countries
with weak court systems - "turns to dust" in the context
of TTIP, say CEO and TNI, arguing that if US and EU investors already
make up for more than half of foreign direct investment in each others'
economies, then it is clear that investors seem to be happy enough
with the rule of law on both sides of the Atlantic.
This is confirmed by an internal European Commission report from 2011
stating that "it is arguable that an investment protection agreement
with the US would be needed with regard to the rule of law."
The report notes that citizens and organised civil society, on the
other hand, oppose investor-state dispute settlement, citing, for
example, a statement by the Transatlantic Consumer Dialogue, supported
by consumer groups from the EU and the US, as saying that the TTIP
"should not include investor-state dispute resolution. Investors
should not be empowered to sue governments to enforce the agreement
in secretive private tribunals, and to skirt the well-functioning
domestic court systems and robust property rights protections in the
United States and European Union."
According to the report, some EU member states also seem to question
the need for investment protection clauses between two legal systems
which are as sophisticated as in the EU and the US. Some fear a flood
of claims from the US with its more aggressive legal culture. There
are concerns that the US financial sector could attack policies to
tackle Europe's economic crisis such as bail-outs and debt restructuring.
On the other hand, member states such as Germany and the Netherlands,
which support far-reaching investor rights, rather want to avoid pro-public
interest legal language which is more common in the US and which,
in their view, would ‘dilute' investment protections.
"But the US government and the European Commission seem to be
determined to use TTIP to empower foreign investors to bypass local
courts and sue states directly at international tribunals when democratic
decisions impede their expected profits."
The report finds that in leaked versions of its proposed negotiation
mandate, the Commission made detailed suggestions for a "state-of-the-art
investor-to-state dispute settlement mechanism" and investor
rights which mirror the proposals from business lobby groups.
"The proposal will put many policies at risk and most likely
create a chilling effect on governments looking to pass new rules
to protect the environment and society," say CEO and TNI.
CEO and TNI stress that it is "high time that governments and
parliaments on both sides of the Atlantic grasp the political and
financial risks of investor-state dispute settlement and axe the plans
for this looming transatlantic corporate bill of rights. The European
Parliament in particular should put a leash on the Commission which
is obviously disregarding MEPs' call for ‘major changes' in the international
"Why on earth should legislators grant business such a powerful
tool to rein in democracy and curb sound policies made in the interest
of the public," they ask. +