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TTIP, arbitration and double standards of treatment

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International law requires that a host State should treat investments made by foreign companies in the same manner as investments made by domestic operators. Beyond being necessary to attract capitals from abroad, this rule corresponds to high ideals of fairness and justice and is one of the numerous variations on the theme of “do not do unto others what you do not want others do unto you”.

Given the noble origin of the principle of “national treatment” and the central role that it plays in the system of protection of foreign investments, it is somewhat paradoxical that the EU debate on the possibility of introducing a set of dispute settlement clauses in the proposed TTIP has lost sight of it almost completely. The EU is unfortunately assessing the potential and the risks of the free trade agreement with the US with double standards.

Essentially, the crux of the problem boils down to one question: should the TTIP agreement include a dispute resolution mechanism to allow investors to submit potential disputes with the host State to international arbitral tribunals, rather than to its domestic courts? In other words, should the TTIP replicate the dispute resolution system incorporated in Bilateral Investment Treaties concluded between virtually all European States and many developing countries? According to an overwhelming 97% of European stakeholders who responded to an interview commissioned by the EU, the answer should be in the negative.

The reasons behind this stand are various. Some of them have to do with the specificities of the potential investment disputes between US investors and EU Member States. It is explained, for instance, that the rule of law is strong enough on both sides of the Atlantic and that, therefore, the traditional reasons for resorting to external tribunals are not applicable in the context of the EU-US relations. Others, however, seem to challenge the validity of the system of international arbitration per se: dispute settlement mechanisms are biased towards investors, they are costly, they run counter States’ freedom to enact policies and pursue regulatory objectives, to the point of impinging upon a host State sovereignty.

The most quoted example in this respect is the Philip Morris arbitration. The tobacco giant has sued Australia and Uruguay before two international tribunals because the respondents, by strictly regulating the packaging of cigarettes in an effort to discourage smoking, has allegedly infringed intellectual property rights protected by the BIT. Put it simple, Australia and Uruguay got sued by big tobacco for enacting legitimate policies against smoking.

There are a number of technical and political arguments that could be used to counter criticism of this kind. For instance, that modern-generation BITs have specific clauses that expressly safeguard a host State’s freedom to adopt regulatory measures and pursue policy objectives; or, with respect to the EU-US case, that, as the Portuguese Minister for EU affairs put it, “dispute settlement provision in the TTIP will never touch the public power to regulate in the public’s interest in the areas of health, labour standards, safety and environment”.

But there are other considerations to be made too: EU Member States have concluded thousands of BITs with developing countries and EU investors have benefited from those and from the dispute resolution mechanisms that they provided. And yet, the freedom of a State to regulate in the public interest is no less pressing in Latin America or in Africa than it is in Europe. A developing country’s right to enact certain policies is no different from the right of a European country to do so. Europe must make a choice of coherence and one of credibility: either we agree that the system of investment dispute resolution is good as it is, and therefore there is no reason why we should not accept it; or we admit that certain critical issues in the BIT system need to be addressed and reformed to bring investor protection, as someone put it, into the third millennium. In this event, if Europe “ditched” the TTIP dispute resolution system in its entirety, it would have a lot to lose, other than investments: its credibility as a moral actor, for it would be seen as applying double standards in the very field where equality is a cornerstone; the central role it intends to have as an international law player, for not seizing the opportunity to take the lead in reforming a system that needs partial rethinking; its expectation to operate as one political actor, because the particular interests of individual Member States would hinder the bargaining power of the EU as global economic actor.

by Paolo Busco, LLM PhD Candidate (Scuola Sant'Anna/Paris 1 Sorbonne)

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