In the spring of 2017, I was fortunate to have been a AICGS/DAAD Fellow at the American Institute for Contemporary German Studies at the Johns Hopkins University in Washington, DC. The purpose of that stay was to dig deeper into the rules governing foreign direct investment. The fruits of some of that research were just published on the AICGS website (linked here).
Below is a longer, more contextualized, version of the same piece.
Below is a longer, more contextualized, version of the same piece.
This paper is about the controversy
swirling around foreign direct investment rules generally, and
recent U.S. and
European experiences in helping reshape their design. When this research
project was proposed in mid-2016, its purpose was to look ahead at how
investment protection rules had evolved on both sides of the Atlantic as a
window into how investment rules might have evolved in the proposed Transatlantic
Trade and Investment Partnership (TTIP).
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| To TTIP or Not to TTIP? |
It’s normally ill advised to begin a paper
by offering qualifications to what is about to follow. But the analysis below
is being advanced at a unique moment in time that cannot be ignored—there’s a
large, populist, elephant in the room.
The conclusions and point of this paper are
that the United States and Europe were on a path toward convergence on
investment rules that would have made them less contentious within the TTIP
negotiations than many assumed. It’s a conclusion that remains valid, but one
that has been overtaken by a much larger set of challenges to the politics of
the global economy.
Into
A Perfect Storm
The electoral tumult of 2016 on both sides
of the Atlantic—June’s Brexit vote, and the election of Donald Trump in November—has
shaken the foundations of the consensus around broad swaths of the postwar
economic and political order. Not since the “Nixon Shock” of August 1971 that
effectively ended the Bretton Woods system of fixed exchange rates has there
been such an open reconsideration of patterns of global governance, U.S. and
European leadership, or even the basic premise behind international
cooperation.
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| Detroit: Rust Belt Poster Child |
While no formal action has been taken on
the part of the United States or European Union to stop TTIP negotiations
(formally begun in 2013), the future of the TTIP is uncertain. A German
official described the status of the TTIP this way: “In normal times, the TTIP
would probably be in the refrigerator, being chilled until the politics were
right to advance it. With Brexit and Trump, it’s in the freezer. Even it’s taken
out, it will be a while before it’s thawed.”
Hence, a key assumption of this paper is the
need to return to normal levels of controversy over trade liberalization. Not
long after the formal launch of TTIP negotiations, it became clear the
investment provisions were poised to be a major point of contention in the talks.
Investment protections are not a new source of controversy. Indeed, investment
rules in the NAFTA were a key source of anti-globalization sentiment in the
late 1990s and early 2000s. Yet, the antecedents of contemporary investment
rules—bilateral investment treaties (BITs)—have been around for decades and
generated virtually no controversy.
The proximate source of controversy over
investment was Europe, specifically Germany. In 2009 and again in 2012, the
Swedish power company Vattenfall pursued investment arbitration against Germany
under the terms of the Energy Charter Treaty alleging the expropriation of
property as a result of Berlin’s decision to, in the first instance, phase out
certain coal fired power generation (Vattenfall
I), and, in the second, shutter it’s nuclear power generation in the wake
of Japan’s Fukushima nuclear disaster (Vattenfall
II).
The controversy over investment rules that
erupted in Germany, hijacked the EU’s virtually completed free trade negotiations
with Canada (CETA) in 2014, forcing Brussels to re-think its approach to
investment. It was a re-think that added to the assumption that the United
States and Europe were on divergent paths and that investment would be a major
sticking point in the TTIP talks.
BITs,
BITs, and More BITs
Although foreign direct investment is
widely viewed as an important potential source of economic development, very
little FDI flows toward the developing world. According to the United Nations,
in 2015 there were nearly US$ 3Trn worth of foreign direct investment flows
globally. Unfortunately, the lion’s share of those flows are between wealthy
OECD countries, accounting for more than 70 percent of all outflows and more
than 50 percent of all inflows (see Table I).
Table I: Global Flows and US, EU Shares
2015 (in millions $US)
|
|
Global Outflows
|
1, 474, 424
|
Global Inflows
|
1, 762, 155
|
Hi-Income OECD Outflows
|
1, 098, 527 (74.5% of total)
|
Hi-Income OECD Inflows
|
698, 064 (55% of total)
|
US Outflows
|
316, 549
|
EU (28) Outflows
|
487, 150
|
US Inflows
|
379, 894
|
EU (28) Inflows
|
439, 457
|
US + EU(28) Outflows
|
803, 699 (61% of Global Flows
|
US + EU(28) Inflows
|
819, 351 (54% of Global Flows)
|
LDC Outflows (- China)
|
701, 090 (47% of global total)
|
LDC Inflows (-China)
|
335, 121 (19% of global total)
|
Source: UNCTADstat
Moreover, if we take away the large flows
into and out of China, investment flows into the developing world represent a
paltry 19 percent of all global inflows. Economic theory suggests that capital
ought to naturally flow from regions in which capital is abundant (rich,
industrialized, OECD countries), and therefore inexpensive, to those regions in
which it is scarce (poor, developing countries) and therefore expensive. The
reasons for this discrepancy are multifold and include things such as poor
infrastructure, the lack of market proximity, or access to a skilled labor
force.
However, one of the most important
historical challenges concerns the rule of law, or lack thereof. Unlike official
development assistance (ODA) from governments and institutions, FDI is held by
publicly traded firms. A major hole in international law historically has been
the lack of “standing” or “personality” for private actors. The challenge for
private actors contemplating the commitment of investment capital in parts of
the developing world is simple; the potential for discriminatory treatment,
including expropriation, by host governments. Private actors can complain to
home-country governments about their treatment abroad, but the sovereign state
remains paramount.[ii]
Since the late 1950s, states have sought to
fill this legal vacuum through the use of bilateral investment treaties (BITs)
setting the legal terms under which private capital flows will be treated by
host nations. Such legal mechanisms have a utility for all involved; the home
government negotiates a secure legal framework for its firms operating
overseas, the firm can invest knowing it will not be subject to arbitrary
measures based on its national origin (“national treatment”), and the host
country establishes a degree of credibility regarding the rule of law as
applied to foreign investment that will (in theory) stimulate needed capital
inflows.[iii]
According to UNCTAD, there are currently
nearly 3000 BITs and more
than 350 other treaties with investment provisions, the very first of which
was the Germany-Pakistan BIT in 1959.
1994
Was a Very Big Year
For most of the postwar period, BITs
generated virtually no controversy. Indeed, in 2015, Germany and the United
States had more than 300 BITs between them and developing countries.[iv]
However, two things happened in 1994 that would bring investment rules out of
relative obscurity, making them a focus of broader opposition to economic
liberalization. In January 1994, the North American Free Trade Agreement
(NAFTA) entered into force. One of the most consequential elements of the NAFTA
was the incorporation of U.S. BIT Model language (Chapter
11), effectively creating the world’s first trilateral BIT. Yet, doing so
soon generated some unintended consequences. The NAFTA negotiators assumed that
Mexico, with its 20th Century history of expropriation, was the
natural target of investment rules and that the so-called investor-state
dispute settlement (ISDS) provisions would, if invoked at all, likely be
deployed as a defense against discriminatory treatment by Mexico. Starting in
1997 with Metalclad’s claim that Mexico failed
to live up to its contractual obligations over the firm’s investment in a
hazardous waste project, it appeared the NAFTA was working as intended.
However, that same year, The Loewen Group, a Canadian funeral
services firm, challenged
an adverse Mississippi court ruling under the terms of NAFTA Chapter 11,
significantly altering the political dynamics of investment protection rules.
Never before had such rules been used by a firm from a developed country
to challenge treatment of an investment in another developed country.
Such cases under the NAFTA began to pile
up. As of 2017, there were 50 Chapter 11 cases alleging discriminatory
treatment at the hands of a NAFTA government. Interestingly, only 14 of the 50
have been filed against Mexico; Canada and the United States have had 18 each
filed against them. It wasn’t supposed to be this way, yet controversy flowed
as the NAFTA experience with Chapter 11 lead critics to conclude investment
rules were being used to undermine (not enhance) the rule of law by giving
firms a pathway for challenging the state’s sovereign power to regulate through
a legal process unavailable to domestic firms. The perception that ISDS
provisions in Chapter 11 were being used to attack the state’s regulatory power
was compounded in late 1999 when Methanex
Corp., a Canadian petrochemical firm, challenged a
California regulation banning a fuel additive proven to be toxic to groundwater
supplies. For critics, Chapter 11 had provided a set of legal tools for
foreign firms to challenge a host of regulatory measures, including those
protecting the environment.
Across the Atlantic, the European Energy
Charter was expanded, renamed the Energy
Charter Treaty in late 1994 and, like the NAFTA, infused with ISDS
provisions. Much as Mexico was the assumed target of investment protections in
the NAFTA, it was those with checkered histories of property rights
protections—such as Russia or former Soviet republics—who were assumed to be
the likely defendants in ISDS cases. Indeed, as the charts below depict, ISDS
cases within the Energy Charter Treaty unfolded with much the same pattern as
the thousands of BITs the world over; private, developed country litigants,
developing country defendants.
Yet, in recent years, Energy Charter Treaty
ISDS cases have spiked, and increasingly included measures in ostensibly
developed countries with stable histories of property rights. A case in point
is Spain that had 16 new filings 2015 alone under the Energy Charter Treaty
arising from reduced domestic subsidies to the renewable energy sector. Again,
like the NAFTA, most of these suits allege state measures have been tantamount
to the expropriation of private property; the state moved the regulatory goal
posts.
Source: Dr. Dorte
Fouquet, Becker Buttner Held Consulting AG, “Current Arbitration Cases Under
the Energy Charter Treaty,” Vienna Forum on European Energy Law, April 15,
2016.
Source:
International Energy Charter
Table 2: International Energy Charter Case
Distribution
Spain 32
Italy 7
Germany 2
Czech Republic 7
Poland 1
Slovakia 1
Russia 6
Ukraine 4
Romania 1
Hungary 5
Slovenia 1
Croatia 2
Bosnia Herzegovina 2
|
Albania 3
Macedonia 1
Bulgaria 4
Romania 1
Moldova 2
Turkey 6
Georgia 1
Azerbaijan 2
Kazakhstan 5
Uzbekistan 1
Tajikistan 1
Kyrgyzstan 1
Mongolia 2
Total: 101 Cases
|
An
ISDS Earthquake and Tsunami in Germany
The ISDS provisions of the Energy Charter
Treaty have recently generated mountains of controversy in Europe, nearly
derailing an important trade liberalization negotiation with Canada (CETA) in
2016.[v] Yet, the controversy initially erupted in
Germany, not Spain.
In 2009, the Swedish power company,
Vattenfall, invoked the ISDS provisions of the Energy Charter Treaty alleging
Germany was unfairly and arbitrarily phasing out certain kinds of coal-fired
power generation; generation Vattenfall had only recently invested in. Yet, in
2012, Vattenfall set off alarm bells all over Europe when it again invoked
Energy Charter Treaty provisions to challenge Germany’s decision to rapidly
phase out all nuclear power generation in the wake of the Fukushima nuclear
disaster. The political consequences of the Vattenfall cases could not have
been worse. Canada and the EU were actively negotiating a broad-based economic
liberalization agreement that included an investment chapter complete with ISDS
provisions. European civil society’s objections to the Canada-EU Comprehensive
Economic and Trade Agreement (CETA) included typically controversial issues
such as agriculture, intellectual property, and culture, but ISDS became a
lightning rod of controversy
capable of drawing tens of thousands of protesters into the streets of European
cities.
Most importantly, the controversy flowing
from Vattenfall and into the CETA forced the EU into a rapid rethink about its
position on ISDS, ultimately making
the CETA a test-bed for reforms. The CETA’s rapidly growing importance for
Europe in 2015-2016 was not about trade or investment with Canada, per se, but
the looming TTIP negotiations with the Americans.
The
Big Investment Fish
As noted above, global investment flows
have overwhelmingly been between advanced industrial countries (see Table I),
and the lion’s share of that has flowed between the United States and Europe.
Moreover, large stocks of existing U.S. and European investment are already
present in each other’s jurisdictions. As depicted in Table II, in 2015 nearly
60 percent of all U.S. investment abroad was located in Europe and nearly 70
percent of all overseas European investment is located in the U.S.
Table II: US-EU FDI Flows
2015 (in millions of $US)
|
|
US Direct Investment position abroad,
all countries
|
5,040,648
|
Direct Investment Position in US, all
countries
|
3,134,199
|
US Direct Investment position in EU
|
2,949,235
(59% of US FDI abroad)
|
EU Direct Investment Position in US
|
2,162,845
(69% of all FDI in US)
|
Source: US Bureau
of Economic Analysis
With such large volumes of investment
across the Atlantic, formalizing investment protection rules has, to some,
seemed an obvious goal. Indeed, investment was to have featured prominently in
the proposed Transatlantic Trade and Investment Partnership. However, it was
not the first time developed countries have tried to agree on a common set of
rules. In 1995, the members of the Organization for Economic Cooperation and
Development (OECD), essentially a group of developed economies, began talks
aimed at concluding a multilateral set of investment rules known as the Multilateral
Agreement on Investment (MAI). By early 1998, the talks had collapsed in
spectacular fashion. Civil society, alarmed by the early experience with the
NAFTA, breathed a sigh of relief and declared victory. The OECD membership, on
the other hand, was deeply divided over what the terms of those rules ought to
be.[vi]
Indeed, the failure of the MAI forms part of the backdrop for what it is
assumed investment within the TTIP would be so contentious.
But is it really destined to be so?
Transatlantic
Shock and Awe
There are many interesting parallels in the
contemporary experiences with investment protections in North America and
Europe, starting with the fact that the agreements from which controversy over
ISDS has flowed on both continents were implemented in 1994; respectively, the
NAFTA and the Energy Charter Treaty. In the case, off-the-shelf investment
provisions, complete with ISDS, were simply inserted into new agreements. There
had never been cause for excitement over investment when such agreements were
between developed and developing countries.
One reason for little controversy is that
in the context of most BITs, the FDI that is stimulated continues to flow
mostly in one direction; from rich to poor countries. There simply isn’t a lot
of FDI flowing from developing countries into developed countries over which an
investment dispute could be filed.
Yet, when negotiators inserted stock ISDS provisions into agreements covering flows of investment between developed states, the volume of investment flows among them inherently suggests the potential for disputes. Negotiators for both the NAFTA and Energy Charter Treaty should have seen this coming. They did not.
Instead, governments were taken aback by
the incidence of disputes attacking regulatory measures developed states with
strong property rights protections, but claiming those measures amounted to
expropriation. Similarly interesting has been the response of the United States
and Europe to these challenges. Indeed, although the surprise and response on
both sides of the Atlantic was separated by nearly two decades, they have been
remarkably similar in terms of sparking reforms to investment protections.
In the United States, the 1999 Methanex case under Chapter 11 of the
NAFTA rattled nerves inside and outside government. Methanex prompted the three governments to intervene that summer
with a ministerial “interpretation” of the meaning of parts of Chapter 11.[vii]
Yet, as worrisome NAFTA cases advanced, the Department of State launched a
review of the U.S. BIT program in 2004, the first revision of the U.S. BIT
Model since it was inserted into the NAFTA in 1994. The 2004 BIT Model
formed the template for subsequent U.S. trade and investment agreements until
2009 when yet another revision exercise made further changes, resulting in the 2012
Model BIT.
In Europe, the furor arising from the
Vattenfall cases prompted German officials to press the Commission for changes
to how the EU pursued investment. In March 2014, German
officials signaled that the CETA negotiations could be imperiled without
significant changes to the investment chapter.
Largely at the behest of Germany, the Commission
surveyed member state governments via the Council of the European Union
(government ministers) about whether ISDS should even be a part of future
European trade agreements.
Hearing that the answer was “yes,” the Commission
initiated an online public comment period seeking views on changes to
future investment chapters.
A number of those suggestions
were inserted at the 11th hour as a way to save the CETA from
being rejected. More importantly, many of those comments made their way into EU
proposals on investment to be tabled in the context of the TTIP
negotiations with the United States.
Hence, on separate tracks, the United
States and Europe responded to the unfolding case histories arising from ISDS
and civil society’s pointed criticisms of those provisions. It would be a
stretch to suggest that the evolution of ISDS cases in North America and Europe
were, by themselves, enough to alarm governments to take action. Civil society
critiques were undoubtedly influential in raising the profile of the “threat”
to state sovereignty represented by a number of cases. However, the states’
responses amount to a significant set of reforms that have modernized ISDS,
reasserted state power, enhanced protections for labor and the environment, and
moved both sides of the Atlantic far closer to one another than many analysts
have acknowledged.
What follows is a side-by-side comparison
of the respective reforms to ISDS on each side of the Atlantic. They are
reforms borne of near-misses, controversies, and surprises with ISDS provisions
as crafted in 1994, but hitherto never applied to developed country groupings
with significant levels of cross-border investment. The United States has been
through two reform processes, the most significant of which was in 2004, and
most clearly reflected anxieties about emergent patterns of legal argumentation
in the NAFTA’s case history. However, the most up-to-date language in the 2012
BIT will be highlighted here. In Europe, controversy over Vattenfall v. Germany galvanized public opposition, threatened the
viability of the CETA, and forced the Commission into an accelerated reform
process, the results of which represent an emergent EU model investment
proposal for TTIP. Highlighted below are elements of the EU approach that found
their way into the CETA text as well as formal proposals that go beyond and
were aimed at TTIP.
Models
of Convergence?
E.U. Investment Proposal 2015 U.S. BIT Model
2012
Right to Regulate
EU
·
Environment (CETA
8.4.2.4)
·
Affirms right to
regulate in public interest (CETA 8.9)
·
No “forum
shopping” or “mailbox companies”
|
U.S.
· Environment: race to bottom inappropriate.
State maintains right to regulate (Article 12)
o
State-to-State
consultation
· Labor: Race to bottom inappropriate. State
maintains right to regulate (Article 13).
o
State-to-State
consultation
· Waive rights to all other legal proceedings-
No U-Turn, “forum shopping”
|
Easily one of the most potent public critiques
of ISDS provisions is that they afford foreign investors a set of mechanisms
for challenging the state’s regulatory power. Moreover, because those
mechanisms are unavailable to domestic firms, critics also allege ISDS creates
an unconstitutional legal forum with no domestic judicial review. Indeed, in
both the NAFTA and Energy Charter Treaty contexts, private firms have alleged
regulatory measures adversely affecting revenue streams amount to forms of
expropriation. In multiple instances, the measures being challenged were
environmental in nature.
Reforms in Europe and the United States
have strongly affirmed the state’s right to regulate in the public interest.
Moreover, that power is explicitly upheld where labor and environmental
regulation is concerned—State Parties may not weaken labor or environmental
laws to incentivize FDI flows. Moreover,
reforms now severely limit the capacity to abuse ISDS provisions as part of “forum shopping” or the establishment of
“mailbox companies” to seek damages.
Definitions
EU
· Expropriation, direct and indirect (CETA
8.12, Annex 8-A)
· Clearer boundaries on “fair and equitable”
and “indirect expropriation”—withdraw of state aid/subsidy is NOT expro.
|
U.S.
· “Investment” clearer, more detailed. Includes
financial assets.
· CIL standard for “minimum standard of
treatment,” “fair and equitable,” and “full protection and security.”
· “Expropriation” defined. Clearer about it
being allowed for public purpose, with fair compensation.
· “Essential security” – National security
exceptions to expro and transparency (Article 18)
· Financial Services—State power to regulate
cemented. Tough language on capacity to use ISDS to challenge State measures
(Article 20)
|
Another important area for reform of
investment rules is simply definitional. In the NAFTA context, firms began
exploiting an absence of definitive language over what an “investment” actually
was, what were “fair and equitable” or “minimum standards” or treatment, what
was the state’s obligation to provide “full protection and security,” and, of
course, “expropriation” itself. Whereas NAFTA
Chapter 11 was just 22 pages long, the 2012 BIT Model is over 40, in part,
because of far more attention paid to definitions in an effort to limit the use
of ISDS to all but clear-cut violations of property rights. Europe has also
moved in the direction of definitional clarity setting out much clearer
boundaries on many of the same issues.
Transparency
EU
· CETA 8.36
· Documents to be made public; request for consultations,
determination of respondent (EU competent authority), Amicus, open hearings,
· Proprietary info can be withheld
· Tribunal rules on issues on proprietary info.
· Committee on Services and Investment (CETA 8.44) Interpret
anything within.
|
U.S.
· Transparency—proprietary info can be
withheld, but only at discretion of Tribunal. Open public hearings (Article
29)
· State Parties get to rule on all transparency
issues.
· Non-disputing Parties can make submissions to
a proceeding (Article 28).
· Amicus
curaie submissions can be
accepted (Article 28).
|
One of the most basic critiques of ISDS has
been the lack transparency. One of the challenges here has been the sensitivity
of proprietary information held by private litigants; in short, open
arbitration proceedings would expose proprietary information to competing
firms. However, the absence of public scrutiny over a process used to challenge
state measures has become politically untenable. On both sides of the Atlantic,
public access to ISDS proceedings through amicus
submissions, public hearings, publication of government pleadings, and a much
stronger preference for releasing even proprietary information to the public
are helping to improve the perceived legitimacy of ISDS.
ISDS
EU
· Arbitration process:
o
Replace
case-by-case selection of panellists with permanent roster of judges.
o
Addresses
ethics concerns re: lawyers in one case serving as arbitrators in another.
|
U.S.
· Arbitrators selected—1 each, and chair by
mutual agreement (Article 27).
· Conduct of Arbitration, incl. capacity for
quick and early dismissal by State (Article 28 (4))
· Parties also get to rule on definition of
Customary International Law (Annex A) and Expropriation (Annex B).
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The ISDS arbitration process itself was
thought to be one of the most important sources of disagreement between the
U.S. and Europe within the TTIP negotiations. Indeed, some advocates on both
sides of the Atlantic have argued ISDS should be scrapped entirely. After all,
they argue, why do you need an arbitration mechanism for investments in
developed country jurisdictions with virtually no history of nationalization or
expropriation for reasons other than the public interest? Moreover, while there
is some variability in the domestic property rights regimes among developed
states, virtually all have a strong commitment to fair compensation of rights
owners in the event of expropriation in the public interest; say for a major
public infrastructure project. Hence, it is curious that EU member states were
unanimous in their support for including ISDS in future EU trade negotiations.
The major difference remaining between the
U.S. and EU in ISDS is with respect to the process by which arbitration
proceedings are populated with jurists. The United States continues to favor an
ad hoc process of selection of
panelists, none of who need necessarily be lawyers, whereas Europe would like
to establish a permanent roster of possible panelists comprised entirely of
judges. Proponents of the U.S. approach argue
the character of investments may necessitate sector-specific, rather than
purely legal, expertise. Moreover, they argue, an ad hoc system is no more susceptible to ethics problems than the
permanent roster of judges proposed by the EU.
Institutions
EU
· WTO-style Appellate system
o
Currently
only “set aside” or “annulment” of awards possible.
o
7
permanent members (2 from each Party, 3 non-nationals)
· ISDS and Appellate system Stepping stones
toward a multilateral system—one permanent international investment court
(opt-in membership).
|
U.S.
· State-to-State arbitration (Article 37).
· Openness to “appeals process” (Article 28
(10))
|
Both the EU and U.S. have put the idea of
some kind of “appellate system” on the table for future investment chapters,
the EU proposal going furthest in suggesting it be modeled on the WTO’s appellate
mechanism. Historical skepticism about such institutions in the U.S.,
particularly some Congressional factions, might make this difficult no matter
how it’s designed. However, the U.S. hand in first designing and using the
WTO’s appellate mechanism suggests an appeals process for ISDS cases is
possible. Moreover, an appeals process would directly address one of the most
pointed critiques of ISDS; that proceedings are both secretive and lack
oversight.
Yet, it is over the EU’s proposals for an
“international investment court” that the biggest divisions with the U.S. could
develop. The traditional U.S. aversion to binding institutions is usually
strongest in instances where pooled sovereignty is proposed. The EU’s proposal
calls for a multilateral court and roster of judges to rule on investment
disputes between member states and their private sector investors. It raises a
set of long-standing issues that, in part, contributed to the failure of the
Multilateral Agreement on Investment back in 1998.
The substantive differences between the EU
proposal and existing multilateral mechanisms for investment arbitration in the
World Bank (ICSID) or United Nations (UNCITRAL) is unclear. It’s also unclear
whether the EU’s proposal is designed to supplant those institutions, or work
in conjunction with them. The United Nations Commission on International Trade
Law (UNCITRAL) and the International Center for Settlement of Investment
Disputes (ISCID) were created in 1958 and 1968, respectively, and have long
track records of facilitating the resolution of investment disputes. Indeed, under
the terms of both the NAFTA and the Energy Charter Treaty, ICSID and UNCITRAL
are enshrined as locations dispute resolution.
Conclusions
The foregoing isn’t meant to suggest U.S.
and EU investment negotiators would join hands and sing Kumbaya with respect to
the investment chapter of a revived TTIP. In the context of the contemporary
populism roiling global politics, no trade liberalization agreement,
particularly one as large as the proposed TTIP, is going to be straightforward.
However, this analysis highlights that the
respective experiences with investment protections in the United States and
Europe have paralleled one another in many ways, starting with the insertion of
previously innocuous, uncontroversial BIT-like provisions into the terms of the
NAFTA and Energy Charter Treaty in 1994. In both instances, and for the first
time, formal investment protections were being applied to developed country
jurisdictions into and out of which there were substantial flows of FDI.
Controversy ensued, first in the NAFTA area, as foreign firms creatively
availed themselves of ISDS mechanisms, exploited the NAFTA’s linguistic
vagaries, and seemingly challenged the state’s power to regulate in the public
interest. A decade later, the terms of the Energy Charter Treaty generated a
similarly surprising set of cases.
The parallels multiply in examinations of
the state responses to the challenge of ISDS. In both the United States and Europe,
the apparent shortcomings of early 1990s investment models prompted reforms
over the same issues on both sides of the Atlantic. In both cases, the reforms
maintain the utility of investment protections, but recalibrate the state’s
relationship to the private firms in the context of robust flows of FDI.
Finally, this paper argued that the respective
experiences of the United States and Europe with respect to investment was
driving them toward a convergence of views, particularly on issues of
transparency and assertion of sovereign regulatory power, that may shift
contention within TTIP negotiations away from investment.
[i] See Irwin, Douglas A. Against
the tide: An intellectual history of free trade. Princeton University
Press, 1996.
[ii] See Salacuse, Jeswald
W. "BIT by BIT: The growth of bilateral investment treaties and their
impact on foreign investment in developing countries." The
International Lawyer (1990): 655-675; Salacuse, Jeswald W. "The
Treatification of International Investment Law." Law & Bus. Rev.
Am. 13 (2007): 155; Graham, Edward Montgomery. Fighting the wrong enemy:
Antiglobal activists and multinational enterprises. Peterson Institute,
2000.
[iii] See Swenson, Deborah
L. "Why do developing countries sign BITs." UC Davis J. Int'l L.
& Pol'y 12 (2005): 131.
[iv] Germany, 203; the United States 114. Source: http://investmentpolicyhub.unctad.org/IIA/IiasByCountry#iiaInnerMenu
[v] Formally the Canada-EU Comprehensive Economic and Trade Agreement.
[vi] Graham, Edward
Montgomery. Fighting the wrong enemy: Antiglobal activists and multinational
enterprises. Peterson Institute, 2000.
[vii] The July 2001 Free Trade Commission Interpretation made minor
clarifications in the areas of transparency and the meaning of “fair and
equitable treatment,” while being unable to agree on important others, such as
“expropriation,” “national treatment.” http://www.iisd.org/pdf/2001/trade_nafta_aug2001.pdf.
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