Socialising losses, privatising gains (in trade and investment agreements)

25 Mag

Il documento  25–5-2015

 by SOMO and other associations

Socialising losses, privatising gains.

Socialising losses, privatising gains.

2.4. Regulatory chill

The limitation of policy space as a result of investment protection provisions is often termed ‘regulatory freeze’. Bilateral investment treaties, as well as other trade and investment agreements like CETA and TTIP ensure that any changes in the regulatory framework, whether or not they relate directly to trade and investment, are open to challenges from foreign investors who can argue that policy changes constitute a regulatory taking and therefore equate to an indirect expropriation, or that they violate their right to a ‘stable regulatory environment’, their entitlement to ‘fair and equitable treatment’ or their ‘legitimate expectations’ in relation to their investments.

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2.5. Undermining development policies

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The frameworks for social corporate responsibility remain non-binding, while the legal separation that exists between different entities within a multinational enterprise can make it extremely difficult for victims of corporate human rights abuses to achieve any remedy from a parent company, especially where the parent company is domiciled in a different country. Meanwhile, transnational companies can directly challenge sovereign states through Investor-State Dispute Settlements (ISDS). This creates an enormous power imbalance not only in financial resources, but also in redress to courts between citizens and large corporations.

Investment protection frameworks as enshrined in bilateral investment treaties … further tilt the balance between investor rights and obligations in favour of the investor. Former UN Special Representative on business and human rights, John Ruggie, writes: “Investor protections have expanded with little regard to states’ duties to protect, skewing the balance between the two. Consequently, host states can find it difficult to strengthen domestic social and environmental standards, including those related to human rights, without fear of foreign investor challenge, which can take place under binding international arbitration.”

Investment protection agreements favour foreign investors by giving them access to a parallel and exclusive legal system that is not open to domestic investors, and allowing them to refer to the broadly phrased protections mentioned above that in many instances would fail if brought under the domestic legal systems of the countries concerned.

Investment treaties can also get in the way of development policies as they can restrict “the ability of developing countries to take certain measures which would benefit domestic firms (such as subsidies for infant industries) or give preferential treatment to disadvantaged persons (such as indigenous persons who might require special or differential treatment).”

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2.6. Eroding democracy

Even insiders agree that ISDS undermines democratic decision making. … That many “healthy, vibrant democracies have signed on to investor state dispute settlement” does not change the fact that national legal (democratic) systems are by definition bypassed when international investors – mostly transnational corporations – are enabled to challenge democratic policies for interfering with their profits before ad hoc and non-transparent investment tribunals. In addition, international investment agreements generally do not contain any provisions to exhaust local remedies before reverting to international arbitration.  ISDS enables transnational corporations to bring a case directly against a country. In the eyes of its advocates this adds to the expediency of the system. But critics argue that ISDS gives transnational corporations a powerful tool to challenge a wide range of government regulation and public interest measures. Direct access to investment arbitration allows foreign investors to bypass the domestic legal system and effectively grants them more rights than domestic investors, effectively and unfairly undermining their competitiveness. The ISDS system not only lacks independence, accountability, transparency and coherence in law, it also makes little sense in economic terms as it appears to be inconsistent with the general free market paradigm.

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2.7. Conclusion

ISDS enables transnational corporations to bring a case directly against a country. In the eyes of its advocates this adds to the expediency of the system. But critics argue that ISDS gives transnational corporations a powerful tool to challenge a wide range of government regulation and public interest measures. Direct access to investment arbitration allows foreign investors to bypass the domestic legal system and effectively grants them more rights than domestic investors, effectively and unfairly undermining their competitiveness. The ISDS system not only lacks independence, accountability, transparency and coherence in law, it also makes little sense in economic terms as it appears to be inconsistent with the general free marked paradigm. Foreign investors can readily avail themselves of adequate market-based solutions such as commercial investment insurance schemes if they feel the need to insulate themselves from political risk relating to their investments abroad.

(from SOMO, Both ENDS, Milieudefensie, TNI, “Socialisng losses, privatising gains. How Dutch investment treaties harm the public interest”, Briefing January 2015, on-line, pp. 6-7).

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