Why US and Europe Need Not Fear TTIP’s Secret Trade Tribunals

April 21, 2015 Updated: April 22, 2015

The economic case for the Transatlantic Trade and Investment Partnership (TTIP) has been made by its supporters. Free trade, more jobs, and a closer relationship between the United States and the European Union.  

Europeans, never particularly excited about the secrecy of the negotiations, have now increased their opposition against the now infamous “secret” trade tribunals, which could cost European government billions. Just last weekend, thousands of people took to the streets in Europe to protest the free trade deal.

One of the issues is the so-called Investors-State Dispute Settlement System (ISDS)—commonly used under existing trade agreements—which allows individuals and corporations to sue governments in case of a possible breach of the agreement.

On this side of the Atlantic, Democratic Sen. Elizabeth Warren has criticized the ISDS framework, saying it favors big corporations, rather than common workers. “Giving foreign corporations special rights to challenge our laws outside of our legal system would be a bad deal for America,” she writes on her blog.

Warren said it’s a problem that international tribunals, rather than national courts, have jurisdiction in trade disputes.

Historically, however, American companies have done well under this system.

The European press cites the example of U.S. oil company Occidental Petroleum suing the country of Ecuador because it denied it the right to look for oil. Occidental won $1.8 billion and now the whole of Europe is afraid of a wave of U.S. lawsuits.

If countries agree to a provision as part of a treaty, there needs to be a system to enforce it.

While it is true that U.S. companies are aggressive in using the (ISDS), having sued other nations 127 times in the past 15 years, experts think opponents are missing the point.

“The arbitration tribunals form part of all existing trade agreements. How could you enforce the economic agreements unless you have a system of judging how some actors are not following the agreements?” said Geoffrey Sant, a lawyer with Dorsey Whitney.

Better Choice

If countries agree to a provision as part of a treaty, there needs to be a system to enforce it. If European countries do not want to be sued by U.S. corporations, they just have to be careful what kind of things they agree to within the framework of the TTIP.

“Otherwise the country would just follow when they want to. You need somebody who is not controlled by the governments themselves,” says Sant.

International investors also said they trust tribunals more than national courts in some cases.

“Try to sue a French company before a French court,” said Prince Michael of Liechtenstein, who heads the consultancy Global Information Service.

Tribunals of this type have been in place since the advent of free trade agreements, like at the International Centre for Settlement of Investment Disputes (ICSID) at the World Bank, which is used for NAFTA. It will most likely be used for disputes under the TTIP as well.

This is a form of international dispute settlement that has been going on for 50 years.
— Magrete Stevens, lawyer, King and Spalding

Most panels at the ICSID consist of trained lawyers and each party can nominate a certain portion of the panelists. Other panelists are made up of different nationalities so objectivity can be ensured to a maximum degree.  

“This is a form of international dispute settlement that has been going on for 50 years. More than 150 states have signed and ratified the [ICSID]. In the past many European corporations and individuals have taken advantage of this kind of dispute settlement,” said Magrete Stevens, a lawyer with King and Spalding in Washington.

“For European investments in Latin America and Africa, this seems to be preferable to local courts,” she adds. “When it comes to the point now where Europe might suffer from the same laws, this is a bit odd.”

As to why American companies have been so successful in using international arbitration, Stevens thinks having the right infrastructure and people is key, but you also need to have a good basis on where to lay your claim.

“If you look at the overall statistic, most countries are winning half of their cases,” said Stevens. “The United States has for a long time had a dedicated unit in the State Department to deal with these claims as soon as they arrive. Not all states are in this position. They know exactly what is going on.”   

Since Europeans have access to the same infrastructure, they should not be afraid of American companies, unlike small countries from the former communist block or Latin America, which oftentimes do not know how to handle these disputes.

Open to Debate

Another issue Europeans have with the trade tribunals is the lack of transparency, as usually negotiations are conducted behind closed doors. Stevens also believes the ICSID Convention is a bit outdated and needs to catch up with the modern need for ever more information.

“Nobody ever made a positive decision that these kinds of tribunals should be secret. The rules go back to a different time,” she said, adding she hopes they can evolve to reconcile the public’s need for information with the commercial need for confidentiality.

As for the economic benefits, Prince Michael thinks Europeans could learn much from American deregulation in the services sector. “Overall it’s good. In my opinion there is still not enough deregulation in it. But it would be difficult to sell it with too much deregulation,” he said.

He thinks the opponents of TTIP have not done their homework since the European Union published most of the documents pertaining to the negotiations. He himself studied the documents but notes that not many people have also accessed them, despite plenty of accusations that important information about the negotiations has been withheld from the public.

“Up to a week ago, the number of clicks on the German site was less than 5,000. The English website has some 100,000 visitors, but the text on the negotiations has had only 2,300 clicks,” he noted.

In addition, he believes the TTIP is vital for Europe not to fall behind in global commerce: “If the United States succeeds with the Trans Pacific Partnership [a separate agreement under negotiation between the U.S., Canada, Mexico, Australia, and eight East Asian countries] and we don’t succeed with TTIP, Europe risks becoming even more marginal.”