The European Commission’s Public Consultation on Investment Policy
On January 13, the European Commission released a report on its public consultation about investment protection and investor-state dispute settlement (ISDS) in the Transatlantic Trade and Investment Partnership (TTIP) agreement. The consultation was conducted online over a period of 15 weeks (March-July 2014), during which the Commission received nearly 150,000 submissions. Commenting on the results of the consultation, EU Trade Commissioner Cecilia Malmstrom said that “…there is a huge skepticism against the ISDS instrument,” and stressed that further consultations with member state governments, the European Parliament, and civil society will be required.
By way of background, EU member states are parties to over 1200 bilateral investment treaties (BITs) that are currently in force, many of which are between EU member states. Europe is the source of 46 percent of the global stock of foreign direct investment (FDI) and over half of all ISDS claims have been filed through European BITs.
Q1: Why did the EU conduct a public consultation on investment protection and investor-state dispute settlement (ISDS) in TTIP?
A1: The 2009 Lisbon Treaty transferred competence for negotiating investment protection agreements from member states to the EU. Prior to the onset of the TTIP negotiations, the Commission and member states agreed to grandfather existing BITs, including intra-EU treaties and those between the United States and EU member states, until such time as the Commission negotiated replacement agreements with non-EU members and a solution to the intra-EU treaties could be worked out. Following the launch of TTIP negotiations, the Commission chose to respond to public opposition from NGOs, trade unions, and other stakeholders to including ISDS in TTIP by seeking public comments on the issue. The Obama administration also undertook a period of public comment during the 2009 review of the U.S. Model BIT.
Q2: Who participated in the consultation and what were the European Commission’s conclusions?
A2: Comments were submitted by individuals, NGOs, trade unions, government organizations, consumers, business associations, companies, and academics. According to the Commission’s report, the vast majority (145,000) of comments were collective, “copy and paste” submissions coordinated by several NGOs. Nevertheless, the Commission’s report asserted that the diversity of the organizational responses was broadly representative of EU civil society. Notably, less than 1 percent of respondents stated that they were investors in the United States.
Not surprisingly, a majority of responses opposed TTIP, and those responses that supported TTIP generally opposed including ISDS in the agreement. Business representatives supported the negotiation and including ISDS in the agreement. In response to questions about the specific elements of international investment agreements, business and NGO representatives rarely agreed, and NGO responses exhibited a cavalier approach to the historical record, surfacing unsubstantiated claims such as ISDS causes “chilling effect on regulators” and that ISDS is a tool of wealthy multinational corporations. The Commission reported some consensus among contributors on pursuing some reforms to EU investment agreement practices, e.g., the protection of governments’ right to regulate, the establishment and function of arbitral tribunals, the relationship between domestic judicial systems and ISDS, and the review of ISDS decisions through an appellate mechanism. These reform elements are not dissimilar to issues covered during the 2002 and 2009 U.S. Model BIT reviews, and indeed, the 2012 U.S. Model BIT contains multiple provisions to address these particular concerns.
Q3: What are the Commission’s next steps?
A3: During the first quarter of 2015, the Commission will hold a number of consultations with EU stakeholders beginning with a February 22 presentation to the International Trade Committee of the European Parliament. These consultations with EU member governments, parliamentarians, and civil society representatives will provide input towards developing concrete proposals for negotiations on investment protection in the TTIP, which the Commission report stressed have not yet begun.
Q4: What are the implications for the TTIP negotiations?
A4: The European debate on investment in TTIP is closely tracking past U.S. debates that ultimately produced the 2012 U.S. Model BIT, but it also reveals a key characteristic of this trade negotiation that is new for both Europe and the United States. Because the 2009 Lisbon Treaty granted the European Parliament the power to approve new trade agreements, the locus of political debate about TTIP is actually in Brussels and Strasbourg, rather than Washington which experienced multiple rancorous debates on trade agreements during the last decade while Europe quietly negotiated a worldwide network of free trade agreements.
Given Europe’s historical contributions to the development of international investment protections and ISDS, as well as European companies’ benefits from the system, the unexpected scale of European skepticism is shocking and clearly presents a significant challenge to achieving the promised high-standard “twenty-first century trade agreement” to establish a common set of rules for the Transatlantic economic community.
The United States gained considerable experience and knowledge through its previous public consultations on these issues and its trade policy officials are well versed in the provisions of the 2012 Model BIT that directly address them. The United States’ top trade officials, its 29 ambassadors in Europe and their embassies’ economic and public affairs officers should be fanning out in the next weeks to make this point and relate the 2012 Model BIT’s solutions to the issues identified by the Commission to consultation participants. Recognizing this alignment with the past experience of the United States and building off of U.S. solutions could accelerate agreement between negotiators and ultimately improve the chances that a final agreement will be approved by both the U.S. Congress and the European Parliament.
Greg Hicks is a State Department fellow at CSIS. The views expressed herein are those of the author and do not necessarily reflect the views of the U.S. Department of State or the U.S. government.
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