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Respondent details

  • Company/Organisation: GMB
  • Location: United Kingdom
  • Activity: GMB is the UK’s third largest trade union with approximately 628,000 members across a wide range of sectors, both public and private. We confirm that this response is on behalf of our GMB members. GMB has long been active in campaign work around EU and international trade issues and has been critical of the increasing number of bilateral trade deals and deals between groups of countries and the EU that are being agreed as negotiations for comprehensive global agreements through the World Trade Organisation (WTO) have broken down. More and more of these agreements are increasing and entrenching corporate power, pushing for ever more deregulation to boost company profits, whilst forgetting that these very regulations exist for a reason: to protect the social, employment and environmental rights of workers and their families. In particular, GMB has major concerns about the EU and US Transatlantic Trade and Investment Partnership (TTIP) currently being negotiated and the threat it poses to our members and the wider UK, EU and global economies on a number of levels. As the biggest ever international trade deal, the stakes could not be higher. Its impact will be huge, and it will act as the blueprint influencing all other future global trade agreements. The proposed inclusion of an Investor-State Dispute Settlement (ISDS) is particularly alarming as this extremely dangerous mechanism will effectively limit, weaken and undermine the power of democratically elected national governments and public authorities to legislate in the public interest, whilst giving unelected and unaccountable foreign businesses and investors unprecedented control to challenge directly state actions which they perceive to be a threat to their profit-making. It also poses a major threat to public services and labour standards. We believe ISDS is unnecessary and impinges on state sovereignty in any trade agreement. Moreover, the EU and US have more than adequate legal systems to deal with disputes.
  • Profile: Trade union/organisation representing EU trade unions
  • Transparency register: Yes
  • Prior investment in the US: No

Contribution

A. Substantive investment protection provisions

Explanation of the issue

The scope of the agreement responds to a key question: What type of investments and investors should be protected? Our response is that investment protection should apply to those investments and to investors that have made an investment in accordance with the laws of the country where they have invested.

Approach in most investment agreements

Many international investment agreements have broad provisions defining “investor” and “investment”.

In most cases, the definition of “investment” is intentionally broad, as investment is generally a complex operation that may involve a wide range of assets, such as land, buildings, machinery, equipment, intellectual property rights, contracts, licences, shares, bonds, and various financial instruments. At the same time, most bilateral investment agreements refer to “investments made in accordance with applicable law”. This reference has worked well and has allowed ISDS tribunals to refuse to grant investment protection to investors who have not respected the law of the host state when making the investment (for example, by structuring the investment in such a way as to circumvent clear prohibitions in the law of the host state, or by procuring an investment fraudulently or through bribery).

In many investment agreements, the definition of “investor” simply refers to natural and juridical persons of the other Party to the agreement, without further refinement. This has allowed in some cases so–called “shell” or “mailbox” companies, owned or controlled by nationals or companies not intended to be protected by the agreement and having no real business activities in the country concerned, to make use of an investment agreement to launch claims before an ISDS tribunal.

The EU's objectives and approach

The EU wants to avoid abuse. This is achieved primarily by improving the definition of “investor”, thus eliminating so –called “shell” or “mailbox” companies owned by nationals of third countries from the scope: in order to qualify as a legitimate investor of a Party, a juridical person must have substantial business activities in the territory of that Party.

At the same time, the EU wants to rely on past treaty practice with a proven track record. The reference to “investments made in accordance with the applicable law” is one such example. Another is the clarification that protection is only granted in situations where investors have already committed substantial resources in the host state - and not when they are simply at the stage where they are planning to do so.

Link to reference text

Taking into account the above explanation and the text provided in annex as a reference, what is your opinion of the objectives and approach taken in relation to the scope of the substantive investment protection provisions in TTIP?

GMB is dismayed that the EU Commission has restricted the ISDS consultation only to TTIP and that it has skewed the questions, asking only what kind of ISDS should be in TTIP rather than whether or not it should be in at all. The Commission knows there is growing opposition to ISDS in any trade deals, which led to the launch of the consultation originally. ISDS directly impinges on state sovereignty and is unnecessary when trade partners have more than adequate legal systems to deal with disputes. There is no evidence companies invest less in countries without ISDS provisions. GMB has long campaigned against ISDS as it gives unprecedented powers to unaccountable and often tax-dodging corporate investors to sue public authorities for vast sums of money for denting their profit-making abilities by legislating in the public interest. Faced with multibillion dollar law suits, many States are wary of regulating in the public interest. The Czech Republic had to compensate Central European Media Enterprises $354mn in an ISDS case – equalling the country’s entire health budget. ISDS undermines democratic accountability of authorities elected on policy manifestos, who lose control over public services and policy and over their ability to promote social, employment and environmental rights and protections. Corporations know the ‘chilling effect’ even the threat of an ISDS lawsuit can have and are using ISDS to challenge legitimate public policy. Yet ISDS does not tie investors to respect obligations on human rights and social justice. The impact of ISDS across a range of sectors cannot be underestimated – jobs in manufacturing, chemicals and pharmaceuticals, transport, utilities, health (including corporate take-over of key NHS services) and education are all at risk. GMB opposed the negotiators’ aim to include all public services in the deal, revealed in recently leaked documents. This will mean more liberalisation, privatisation and outsourcing of vital services, whereas services under accountable local authority control maintain high levels of quality, safety, affordability, user rights and universal access. Liberalising these risks exacerbating the effects of the financial crisis for the 120mn Europeans living in poverty or at risk of poverty and who rely on these vital services. ISDS threatens the public procurement policies that public authorities have put in place based on quality, fairness and sustainability, not on lowest costs, to avoid undermining service quality and working conditions. ISDS could undermine progressive procurement policies, e.g. promoting employment of vulnerable groups, especially given the incompatibility of EU and US procurement legislation. We know the US will not accept new EU public procurement social and environmental clauses. The Commission claims public policy legislation, e.g. on the minimum wage, will be protected under ISDS yet it only commits to protecting public policy that is “legitimate” and “proportional”. Who will determine what is legitimate, proportional and frivolous? Corporations will decide on these definitions and will manipulate them and other loopholes to force ISDS cases against public authorities’ right to regulate. Moreover, corporate arbitrators will determine how definitions are applied, including that of ‘investment’ itself, with no possibility to appeal. Small wonder many countries are refusing to include ISDS in trade deals or are repealing existing deals with the provision. Australia pushed for the mechanism to be excluded from its deal with the US and has not included it in any trade deal since 2011. South Africa, Indonesia and many Latin American countries are exiting deals with ISDS. Controversy around TTIP and the Trans Pacific Partnership Agreement has ignited public concern and debate on ISDS and the power trade deals hand to unaccountable corporate interests. The Commission must respond to this widespread concern about ISDS and remove it.

Explanation of the issue

Under the standards of non-discriminatory treatment of investors, a state Party to the agreement commits itself to treat foreign investors from the other Party in the same way in which it treats its own investors (national treatment), as well in the same way in which it treats investors from other countries (most-favoured nation treatment). This ensures a level playing field between foreign investors and local investors or investors from other countries. For instance, if a certain chemical substance were to be proven to be toxic to health, and the state took a decision that it should be prohibited, the state should not impose this prohibition only on foreign companies, while allowing domestic ones to continue to produce and sell that substance.

Non-discrimination obligations may apply after the foreign investor has made the investment in accordance with the applicable law (post-establishment), but they may also apply to the conditions of access of that investor to the market of the host country (pre-establishment).  

Approach in most existing investment agreements

The standards of national treatment and most-favoured nation (MFN) treatment are considered to be key provisions of investment agreements and therefore they have been consistently included in such agreements, although with some variation in substance.

Regarding national treatment, many investment agreements do not allow states to discriminate between a domestic and a foreign investor once the latter is already established in a Party’s territory. Other agreements, however, allow such discrimination to take place in a limited number of sectors.

Regarding MFN, most investment agreements do not clarify whether foreign investors are entitled to take advantage of procedural or substantive provisions contained in other past or future agreements concluded by the host country. Thus, investors may be able to claim that they are entitled to benefit from any provision of another agreement that they consider to be more favourable, which may even permit the application of an entirely new standard of protection that was not found in the original agreement. In practice, this is commonly referred to as "importation of standards".

The EU’s objectives and approach

The EU considers that, as a matter of principle, established investors should not be discriminated against after they have established in the territory of the host country, while at the same recognises that in certain rare cases and in some very specific sectors, discrimination against already established investors may need to be envisaged. The situation is different with regard to the right of establishment, where the Parties may choose whether or not to open certain markets or sectors, as they see fit.

On the "importation of standards" issue, the EU seeks to clarify that MFN does not allow procedural or substantive provisions to be imported from other agreements.

The EU also includes exceptions allowing the Parties to take measures relating to the protection of health, the environment, consumers, etc. Additional carve-outs would apply to the audio-visual sector and the granting of subsidies. These are typically included in EU FTAs and also apply to the non-discrimination obligations relating to investment. Such exceptions allow differences in treatment between investors and investments where necessary to achieve public policy objectives.

Link to reference text

Taking into account the above explanations and the text provided in annex as a reference, what is your opinion of the EU approach to non –discrimination in relation to the TTIP? Please explain.

The EU Commission says it wants to stop discrimination, but discrimination is embedded in TTIP and the ISDS mechanism. The concept of non-discrimination seems to apply only to foreign corporate investors, who themselves will be given free rein to discriminate against the general public by stopping democratically elected governments and local authorities from providing public services or legislating in the public interest. A report from the London School of Economics (LSE) commissioned by the UK Government’s Department for Business, Innovation and Skills highlights how the public sector has already been one of the main victims of ISDS claims. Poland and Slovakia have both been sued under ISDS for bringing parts of their health services back into public control and at least 15 different EU Member States have already faced investor-state challenges. By allowing corporations to block the provision of public services which workers and their families are relying on more and more since the financial crisis, ISDS has the potential to increase and aggravate inequalities. The EU Commission also states that foreign investors “are not always guaranteed” the same rights as local investors, but the LSE report highlights that there is no evidence that US or EU investors face discrimination in the other country. Tellingly, the report then goes on to warn the UK against the inclusion of ISDS in TTIP, as this would lay the country open to costly legal challenges and limit its ability to pursue public policy goals. This does not seem like the “level playing field” the EU Commission says it will put in place. The EU Commission notes that “exceptions” will be applied to “protected” areas in the fields of “health, the environment, consumers, etc”, but is silent on whether this would be a closed or open list, and on whether or not other crucial rights and protections, for example in the field of social and employment or health and safety, would be included. The lack of legal clarity leaves the door wide open for investors to abuse the system, with corporate lawyers given the main responsibility for defining what constitutes ‘discrimination’ and ‘exceptions’. The negative list with annexes is insufficient to protect key public and health services. Only outright exclusion can provide protection. Ordinary Europeans also risk being discriminated by TTIP more widely. With half of US States denouncing trade union rights and freedoms by being ‘right-to-work’ states, and with the generally lower social and employment standards and protections in the US (a country which has not even ratified the most basic ILO conventions on labour standards or trade union rights and freedoms ), GMB has little confidence that TTIP will ‘level up’ standards. Rather, we believe we will see a race to the bottom as companies relocate to the US to take advantage of these lower working conditions – leaving thousands of Europeans out of work. Will the ISDS model proposed by the EU Commission ensure the right for workers to defend collectively agreed terms and conditions and trade union rights? Although the Commission says it will protect public policy decisions on the minimum wage, it is silent on what public policy attacks it would deem “frivolous”, and which public policies it considers ‘non-legitimate’ or “disproportionate”. It is equally silent on where ‘living wage’ policies would stand, which is a key objective of GMB. We are not optimistic that these would be protected from corporate creep. National legal systems already legislate on the basis of non-discrimination and equal treatment, and it should be under these systems that any investor challenge should be brought.

Explanation of the issue

The obligation to grant foreign investors fair and equitable treatment (FET) is one of the key investment protection standards. It ensures that investors and investments are protected against treatment by the host country which, even if not expropriatory or discriminatory, is still unacceptable because it is arbitrary, unfair, abusive, etc. 

Approach in most investment agreements

The FET standard is present in most international investment agreements. However, in many cases the standard is not defined, and it is usually not limited or clarified. Inevitably, this has given arbitral tribunals significant room for interpretation, and the interpretations adopted by arbitral tribunals have varied from very narrow to very broad, leading to much controversy about the precise meaning of the standard. This lack of clarity has fueled a large number of ISDS claims by investors, some of which have raised concern with regard to the states' right to regulate. In particular, in some cases, the standard has been understood to encompass the protection of the legitimate expectations of investors in a very broad way, including the expectation of a stable general legislative framework.

Certain investment agreements have narrowed down the content of the FET standard by linking it to concepts that are considered to be part of customary international law, such as the minimum standard of treatment that countries must respect in relation to the treatment accorded to foreigners. However, this has also resulted in a wide range of differing arbitral tribunal decisions on what is or is not covered by customary international law, and has not brought the desired greater clarity to the definition of the standard. An issue sometimes linked to the FET standard is the respect by the host country of its legal obligations towards the foreign investors and their investments (sometimes referred to as an "umbrella clause"), e.g. when the host country has entered into a contract with the foreign investor. Investment agreements may have specific provisions to this effect, which have sometimes been interpreted broadly as implying that every breach of e.g. a contractual obligation could constitute a breach of the investment agreement.

EU objectives and approach

The main objective of the EU is to clarify the standard, in particular by incorporating key lessons learned from case-law. This would eliminate uncertainty for both states and investors.

Under this approach, a state could be held responsible for a breach of the fair and equitable treatment obligation only for breaches of a limited set of basic rights, namely: the denial of justice; the disregard of the fundamental principles of due process; manifest arbitrariness; targeted discrimination based on gender, race or religious belief; and abusive treatment, such as coercion, duress or harassment. This list may be extended only where the Parties (the EU and the US) specifically agree to add such elements to the content of the standard, for instance where there is evidence that new elements of the standard have emerged from international law.

The “legitimate expectations” of the investor may be taken into account in the interpretation of the standard. However, this is possible only where clear, specific representations have been made by a Party to the agreement in order to convince the investor to make or maintain the investment and upon which the investor relied, and that were subsequently not respected by that Party. The intention is to make it clear that an investor cannot legitimately expect that the general regulatory and legal regime will not change. Thus the EU intends to ensure that the standard is not understood to be a “stabilisation obligation”, in other words a guarantee that the legislation of the host state will not change in a way that might negatively affect investors. In line with the general objective of clarifying the content of the standard, the EU shall also strive, where necessary, to provide protection to foreign investors in situations in which the host state uses its sovereign powers to avoid contractual obligations towards foreign investors or their investments, without however covering ordinary contractual breaches like the non-payment of an invoice.

Link to reference text

Taking into account the above explanation and the text provided in annex as a reference, what is your opinion of the approach to fair and equitable treatment of investors and their investments in relation to the TTIP?

The fair and equitable treatment clause is one of the most dangerous features in investment protection provisions. It has been one of the most relied-on clauses within ISDS disputes, where it has been dangerously abused time and time again to advance claims against regulations and procedures that had been established democratically and in the public interest (as recognised by the EU Commission itself). The EU Commission has itself noted that the lack of clarity in establishing what exactly constitutes ‘fair and equitable treatment’ has fuelled large numbers of ISDS claims – but only corporate and unaccountable ISDS arbitrators have been left to interpret the meaning. Why seek to develop a mechanism that is so obviously flawed? National courts already protect both foreign and domestic investors from arbitrary, unjust, offensive or otherwise unacceptable treatment, in a transparent and impartial manner and without putting the right to regulate in the public interest at risk. There is therefore no way to justify the introduction of ISDS and give unprecedented powers to foreign investors over domestic investors and over national courts, democratically elected public bodies, and citizens. Under no circumstance can a government or public authority’s right to regulate be called into question by private and unaccountable corporations. The EU Commission should be honest about how difficult it will be to curb corporate power even in a modified ISDS system.

Explanation of the issue

The right to property is a human right, enshrined in the European Convention of Human Rights, in the European Charter of Fundamental Rights as well as in the legal tradition of EU Member States. This right is crucial to investors and investments. Indeed, the greatest risk that investors may incur in a foreign country is the risk of having their investment expropriated without compensation. This is why the guarantees against expropriation are placed at the core of any international investment agreement.

Direct expropriations, which entail the outright seizure of a property right, do not occur often nowadays and usually do not generate controversy in arbitral practice. However, arbitral tribunals are confronted with a much more difficult task when it comes to assessing whether a regulatory measure of a state, which does not entail the direct transfer of the property right, might be considered equivalent to expropriation (indirect expropriation).

Approach in most investment agreements

In investment agreements, expropriations are permitted if they are for a public purpose, non-discriminatory, resulting from the due process of law and are accompanied by prompt and effective compensation. This applies to both direct expropriation (such as nationalisation) and indirect expropriation (a measure having an effect equivalent to expropriation).

Indirect expropriation has been a source of concern in certain cases where regulatory measures taken for legitimate purposes have been subject to investor claims for compensation, on the grounds that such measures were equivalent to expropriation because of their significant negative impact on investment. Most investment agreements do not provide details or guidance in this respect, which has inevitably left arbitral tribunals with significant room for interpretation.

The EU's objectives and approach

The objective of the EU is to clarify the provisions on expropriation and to provide interpretative guidance with regard to indirect expropriation in order to avoid claims against legitimate public policy measures.  The EU wants to make it clear that non-discriminatory measures taken for legitimate public purposes, such as to protect health or the environment, cannot be considered equivalent to an expropriation, unless they are manifestly excessive in light of their purpose. The EU also wants to clarify that the simple fact that a measure has an impact on the economic value of the investment does not justify a claim that an indirect expropriation has occurred.

Link to reference text

Taking into account the above explanation and the text provided in annex as a reference, what is your opinion of the approach to dealing with expropriation in relation to the TTIP? Please explain.

GMB is concerned with the lack of a clear definition of “expropriation” and the fact that any state measure or policy (even general and not intentionally discriminatory) which may potentially impact on profits, future profits or even just potential profits could be considered ‘expropriation’ and open to an ISDS claim. The process is unjustifiably skewed in favour of foreign investors, operating in secret through private corporate courts. This is inequitable and undemocratic. Dutch company Achmea has launched an ISDS case along these lines against Slovakia, demanding it compensate the company and does not implement draft legislation which would establish a single public health insurance scheme. ISDS has allowed this corporation to undermine a democratically elected government’s right to regulate, before a law has even been implemented, or the company has suffered any actual damages. Meanwhile, Slovakia must waste valuable time and resources to challenge the claim. It has already had to pay Achmea $22 million in compensation under another ISDS health-related case. It is clear that corporate interests circle like vultures on states they deem to be ‘soft targets’, bleeding them dry. This is completely unacceptable. Public interest regulations, from labour rights to healthcare and environmental provisions, all risk being challenged by investors as ‘indirect expropriation’, forcing democratically elected governments and local authorities to use disproportionately large sums of taxpayers’ money to cover legal fees and eventual investor compensation. The EU Commission says “legitimate public purposes” will be exempt from expropriation claims, but fails to define what exactly a ‘non-legitimate’ public policy is or when it could be deemed “manifestly excessive” and thus open to an ISDS claim. Rather than leaving democratically elected bodies to regulate in the public interest as mandated by the people they represent, through ISDS the EU Commission wants to give the final say on public policy and expropriation to unaccountable corporate lawyers, whose interests are served by siding with business, rather than public authorities or ordinary people. This leaves the mechanism open to abuse and manipulation, and public authorities vulnerable and reticent in pursuing progressive public interest policy objectives. GMB already finds it indicative that the EU Commission does not list social or employment legislation in its examples of a legitimate public policy, even though there is a worrying trend of workers’ rights legislation being termed as indirect expropriation in corporate ISDS claims: French company Veolia has sued Egypt for increasing the minimum wage and American steel company Nobel Ventures has sued Romania for failing to stop workers from going on strike. Cases such as these will only increase if ISDS is included in TTIP and other global trade agreements, and GMB doubts the commitment of the EU Commission to protect social and workers’ rights, given its failure to support and promote the development of Social Europe for the past decade.

Explanation of the issue

In democratic societies, the right to regulate of states is subject to principles and rules contained in both domestic legislation and in international law. For instance, in the European Convention on Human Rights, the Contracting States commit themselves to guarantee a number of civil and political rights. In the EU, the Constitutions of the Member States, as well as EU law, ensure that the actions of the state cannot go against fundamental rights of the citizens. Hence, public regulation must be based on a legitimate purpose and be necessary in a democratic society.

Investment agreements reflect this perspective. Nevertheless, wherever such agreements contain provisions that appear to be very broad or ambiguous, there is always a risk that the arbitral tribunals interpret them in a manner which may be perceived as a threat to the state's right to regulate. In the end, the decisions of arbitral tribunals are only as good as the provisions that they have to interpret and apply.

 Approach in most investment agreements

Most agreements that are focused on investment protection are silent about how public policy issues, such as public health, environmental protection, consumer protection or prudential regulation, might interact with investment. Consequently, the relationship between the protection of investments and the right to regulate in such areas, as envisaged by the contracting Parties to such agreements is not clear and this creates uncertainty.

In more recent agreements, however, this concern is increasingly addressed through, on the one hand, clarification of the key investment protection provisions that have proved to be controversial in the past and, on the other hand, carefully drafted exceptions to certain commitments. In complex agreements such as free trade agreements with provisions on investment, or regional integration agreements, the inclusion of such safeguards is the usual practice.

The EU's objectives and approach

The objective of the EU is to achieve a solid balance between the protection of investors and the Parties' right to regulate.

First of all, the EU wants to make sure that the Parties' right to regulate is confirmed as a basic underlying principle. This is important, as arbitral tribunals will have to take this principle into account when assessing any dispute settlement case.

Secondly, the EU will introduce clear and innovative provisions with regard to investment protection standards that have raised concern in the past (for instance, the standard of fair and equitable treatment is defined based on a closed list of basic rights; the annex on expropriation clarifies that non-discriminatory measures for legitimate public policy objectives do not constitute indirect expropriation). These improvements will ensure that investment protection standards cannot be interpreted by arbitral tribunals in a way that is detrimental to the right to regulate.

Third, the EU will ensure that all the necessary safeguards and exceptions are in place. For instance, foreign investors should be able to establish in the EU only under the terms and conditions defined by the EU. A list of horizontal exceptions will apply to non-discrimination obligations, in relation to measures such as those taken in the field of environmental protection, consumer protection or health (see question 2 for details). Additional carve-outs would apply to the audiovisual sector and the granting of subsidies. Decisions on competition matters will not be subject to investor-to-state dispute settlement (ISDS). Furthermore, in line with other EU agreements, nothing in the agreement would prevent a Party from taking measures for prudential reasons, including measures for the protection of depositors or measures to ensure the integrity and stability of its financial system. In addition, EU agreements contain general exceptions applying in situations of crisis, such as in circumstances of serious difficulties for the operation of the exchange rate policy or monetary policy, balance of payments or external financial difficulties, or threat thereof.

In terms of the procedural aspects relating to ISDS, the objective of the EU is to build a system capable of adapting to the states' right to regulate. Wherever greater clarity and precision proves necessary in order to protect the right to regulate, the Parties will have the possibility to adopt interpretations of the investment protection provisions which will be binding on arbitral tribunals.  This will allow the Parties to oversee how the agreement is interpreted in practice and, where necessary, to influence the interpretation.

The procedural improvements proposed by the EU will also make it clear that an arbitral tribunal will not be able to order the repeal of a measure, but only compensation for the investor.

Furthermore, frivolous claims will be prevented and investors who bring claims unsuccessfully will pay the costs of the government concerned (see question 9).

Link to reference text

Taking into account the above explanation and the text provided in annex as a reference, what is your opinion with regard to the way the right to regulate is dealt with in the EU's approach to TTIP?

Governments and local authorities have been granted the right to regulate in the public interest through a democratic voting process. It is absurd for ISDS to put this democratically mandated right at risk from vested private sector corporate interests. The EU Commission claims it wants to find a balance between protecting investors and ensuring the right to regulate in the public interest, but this guarantee is only mentioned in TTIP’s preamble and is not binding. Furthermore, the EU Commission’s list of public policy issues is far too limited and does not, for example, include fundamental areas such as employment, social, human and trade union rights, education, care, financial market regulation, or regional, industrial or tax policy. What the EU Commission conversely refuses to acknowledge is that in reality, faced with billion dollar ISDS lawsuits, especially in these times of crisis and austerity, many Member States will simply feel they have no other choice but not to regulate in the public interest so as to avoid the wrath of corporate giants. Giving such unprecedented powers to unaccountable corporations completely undermines governments’ democratically mandated right to protect and serve their citizens and will at best lead to a so-called ‘chilling-effect’ on policy making, or at worst block and get rid of altogether social, employment and environmental rights and protections workers and trade unions have spent decades building and fighting for. As the International Union of Food, Agricultural, Hotel, Restaurant, Catering, Tobacco and Allied Workers’ Associations (IUF) notes, trade deals and investment chapters by their very nature give corporations the right to pursue maximum profit whilst removing and undermining restrictions which seek to regulate corporate activities in the interest of public health, worker and consumer health and safety, public services and the environment. GMB also has serious concerns about the EU Commission’s apparent intention to take a negative-list approach and the so-called ‘ratchet clause’ this would create – binding future governments to past liberalisation measures and stopping them from introducing new regulatory initiatives or from reversing privatisations, even when this is in response to new and unanticipated threats, for example at the social or environmental level. The right to regulate must be fully protected and under no circumstance undermined by provisions to protect corporate investors or liberalisation, as ISDS seeks to do.

B. Investor-to-State dispute settlement (ISDS)

Explanation of the issue

In most ISDS cases, no or little information is made available to the public, hearings are not open and third parties are not allowed to intervene in the proceedings. This makes it difficult for the public to know the basic facts and to evaluate the claims being brought by either side.

This lack of openness has given rise to concern and confusion with regard to the causes and potential outcomes of ISDS disputes. Transparency is essential to ensure the legitimacy and accountability of the system. It enables stakeholders interested in a dispute to be informed and contribute to the proceedings. It fosters accountability in arbitrators, as their decisions are open to scrutiny. It contributes to consistency and predictability as it helps create a body of cases and information that can be relied on by investors, stakeholders, states and ISDS tribunals.

Approach in most existing investment agreements

Under the rules that apply in most existing agreements, both the responding state and the investor need to agree to permit the publication of submissions. If either the investor or the responding state does not agree to publication, documents cannot be made public. As a result, most ISDS cases take place behind closed doors and no or a limited number of documents are made available to the public.

The EU’s objectives and approach 

The EU's aim is to ensure transparency and openness in the ISDS system under TTIP. The EU will include provisions to guarantee that hearings are open and that all documents are available to the public. In ISDS cases brought under TTIP, all documents will be publicly available (subject only to the protection of confidential information and business secrets) and hearings will be open to the public. Interested parties from civil society will be able to file submissions to make their views and arguments known to the ISDS tribunal. 

The EU took a leading role in establishing new United Nations rules on transparency[1] in ISDS. The objective of transparency will be achieved by incorporating these rules into TTIP.

Link to reference text

Taking into account the above explanation and the text provided in annex as a reference, please provide your views on whether this approach contributes to the objective of the EU to increase transparency and openness in the ISDS system for TTIP. Please indicate any additional suggestions you may have.

The EU Commission refuses to accept that a growing body of public and governmental opinion does not want any form of ISDS, so asking us what kind we would like is a non-question. Attempts to improve transparency within ISDS will not solve its fundamental flaws nor make it acceptable to the general public. The bottom line is that foreign investors should never be granted privileged rights nor allowed to bypass transparent and impartial domestic courts in favour of unaccountable private corporate arbitrators. ISDS allows these arbitrators – whose impartiality must be called into question, and who earn a significant income from these disputes – to make decisions behind closed doors and determine what corporate information can still be kept secret. Only by ensuring that claims are pursued in public through domestic courts can full transparency and openness be assured. On a wider level, GMB has frequently raised serious concerns about the lack of transparency and consultation in the TTIP negotiations as a whole, and on ISDS discussions in particular. Neither lawmakers nor the general public have been given full access to TTIP papers, and yet corporate leaders and lobbyists have been invited to the table from the very conception of the trade deal, helping to draft and share the negotiating texts. This inequality of voice in the process is startling, and trade unions and NGOs are not seriously seen as ‘interested parties’ by the EU Commission. The civil society dialogue process shows that concerns are being raised but that the EU Commission is not listening. Meanwhile, backroom talks continue with TTIP’s corporate sponsors, on an ISDS ‘light’ that the EU Commission will no doubt try to quickly usher into the EU-Canada (CETA) agreement as a precedent. There is nothing democratic about this consultation and EU Commission assurances on transparency are becoming harder and harder to swallow as the cards remain stacked in corporate hands. As the economist Joseph Stiglitz points out, “When negotiations are secret, there is no way that the democratic process can exert the check and balances required to put limits on the negative effects of these agreements.” The same is true of ISDS – only by allowing investors recourse solely through domestic courts can full transparency and independence of rulings be guaranteed.

Explanation of the issue

Investors who consider that they have grounds to complain about action taken by the authorities (e.g. discrimination or lack of compensation after expropriation) often have different options. They may be able to go to domestic courts and seek redress there. They or any related companies may be able to go to other international tribunals under other international investment treaties.

It is often the case that protection offered in investment agreements cannot be invoked before domestic courts and the applicable legal rules are different. For example, discrimination in favour of local companies is not prohibited under US law but is prohibited in investment agreements. There are also concerns that, in some cases domestic courts may favour the local government over the foreign investor e.g. when assessing a claim for compensation for expropriation or may deny due process rights such as the effective possibility to appeal. Governments may have immunity from being sued. In addition, the remedies are often different. In some cases government measures can be reversed by domestic courts, for example if they are illegal or unconstitutional. ISDS tribunals cannot order governments to reverse measures.

These different possibilities raise important and complex issues. It is important to make sure that a government does not pay more than the correct compensation. It is also important to ensure consistency between rulings.

Approach in most existing investment agreements

Existing investment agreements generally do not regulate or address the relationship with domestic courts or other ISDS tribunals. Some agreements require that the investor choses between domestic courts and ISDS tribunals. This is often referred to as "fork in the road" clause.

The EU’s objectives and approach

As a matter of principle, the EU’s approach favours domestic courts. The EU aims to provide incentives for investors to pursue claims in domestic courts or to seek amicable solutions – such as mediation. The EU will suggest different instruments to do this. One is to prolong the relevant time limits if an investor goes to domestic courts or mediation on the same matter, so as not to discourage an investor from pursuing these avenues.  Another important element is to make sure that investors cannot bring claims on the same matter at the same time in front of an ISDS tribunal and domestic courts. The EU will also ensure that companies affiliated with the investor cannot bring claims in front of an ISDS tribunal and domestic courts on the same matter and at the same time. If there are other relevant or related cases, ISDS tribunals must take these into account. This is done to avoid any risk that the investor is over-compensated and helps to ensure consistency by excluding the possibility for parallel claims.

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Taking into account the above explanation and the text provided in annex as a reference, please provide your views on the effectiveness of this approach for balancing access to ISDS with possible recourse to domestic courts and for avoiding conflicts between domestic remedies and ISDS in relation to the TTIP. Please indicate any further steps that can be taken. Please provide comments on the usefulness of mediation as a means to settle disputes.

GMB believes that every investor invests in a foreign country at its own risk. If it wants to launch legal proceedings, it can do so through domestic courts, as local investors must do, and can always take out additional investment protection should it deem this necessary. The EU Commission tries to suggest that national courts can be “biased” , yet there is absolutely no evidence proving that either EU or US investors would be discriminated in this way. There is no justification therefore for an ISDS mechanism which gives unaccountable corporations unprecedented powers and special privileges to bypass domestic courts and national jurisprudence. Indeed, France and Germany are arguing against ISDS on the grounds that investors already have enough protections in national EU courts. Yet amazingly, the EU Commission appears unconcerned about the very real and well documented bias of ISDS courts, and seems oblivious to the regularity with which they find in favour of corporate interest on the most spurious and undemocratic challenges of legitimate and worthy public interest policy. ISDS does not per se stop investors from bringing their claim to a domestic court, but the proposed EU Commission reforms do nothing to encourage companies to do so. With privileged corporate rights under ISDS, it is obvious companies will choose this route instead. They are not even obliged to enter mediation before starting the arbitration process, as the EU Commission proposals on this subject are non-binding. What is more, if a claim is filed through ISDS first, it cannot go through a domestic court later. However, if an investor does not like the conclusions of the domestic courts, it will be allowed to appeal via ISDS, giving it unjustified and boundless rights, whilst further undermining domestic jurisprudence and any potential appeal process. This is perverse and unacceptable. The EU Commission’s proposals could also open the door to parallel ISDS and domestic court proceedings being launched at the same time by a parent company on the one hand and shareholders on the other – allowing the corporation once again to choose which verdict suits it best.

Explanation of the issue

There is concern that arbitrators on ISDS tribunals do not always act in an independent and impartial manner. Because the individuals in question may not only act as arbitrators, but also as lawyers for companies or governments, concerns have been expressed as to potential bias or conflicts of interest.

Some have also expressed concerns about the qualifications of arbitrators and that they may not have the necessary qualifications on matters of public interest or on matters that require a balancing between investment protection and e.g. environment, health or consumer protection.

Approach in existing investment agreements

  Most existing investment agreements do not address the issue of the conduct or behaviour of arbitrators. International rules on arbitration address the issue by allowing the responding government or the investor to challenge the choice of arbitrator because of concerns of suitability.

Most agreements allow the investor and the responding state to select arbitrators but do not establish rules on the qualifications or a list of approved, qualified arbitrators to draw from.

  The EU’s objective and approach

The EU aims to establish clear rules to ensure that arbitrators are independent and act ethically. The EU will introduce specific requirements in the TTIP on the ethical conduct of arbitrators, including a code of conduct. This code of conduct will be binding on arbitrators in ISDS tribunals set up under TTIP.  The code of conduct also establishes procedures to identify and deal with any conflicts of interest.  Failure to abide by these ethical rules will result in the removal of the arbitrator from the tribunal. For example, if a responding state considers that the arbitrator chosen by the investor does not have the necessary qualifications or that he has a conflict of interest, the responding state can challenge the appointment. If the arbitrator is in breach of the Code of Conduct, he/she will be removed from the tribunal. In case the ISDS tribunal has already rendered its award and a breach of the code of conduct is found, the responding state or the investor can request a reversal of that ISDS finding.

In the text provided as reference (the draft EU-Canada Agreement), the Parties (i.e. the EU and Canada) have agreed for the first time in an investment agreement to include rules on the conduct of arbitrators, and have included the possibility to improve them further if necessary. In the context of TTIP these would be directly included in the agreement.

As regards the qualifications of ISDS arbitrators, the EU aims to set down detailed requirements for the arbitrators who act in ISDS tribunals under TTIP. They must be independent and impartial, with expertise in international law and international investment law and, if possible, experience in international trade law and international dispute resolution. Among those best qualified and who have undertaken such tasks will be retired judges, who generally have experience in ruling on issues that touch upon both trade and investment and on societal and public policy issues. The EU also aims to set up a roster, i.e. a list of qualified individuals from which the Chairperson for the ISDS tribunal is drawn, if the investor or the responding state cannot otherwise agree to a Chairperson. The purpose of such a roster is to ensure that the EU and the US have agreed to and vetted the arbitrators to ensure their abilities and independence.  In this way the responding state chooses one arbitrator and has vetted the third arbitrator.

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Taking into account the above explanation and the text provided in annex as a reference, please provide your views on these procedures and in particular on the Code of Conduct and the requirements for the qualifications for arbitrators in relation to the TTIP agreement. Do they improve the existing system and can further improvements be envisaged?

The EU Commission states it wants to ensure that ISDS arbitrators “are independent and act ethically”, but this can never be fully regulated or guaranteed as long as ISDS arbitrators continue to be chosen from a small elite of private sector, specialist corporate lawyers who work for international, commercial law firms. With these proposals, the EU Commission is effectively putting the fox in charge of the chicken coop. Furthermore, the EU Commission’s proposals on reforming the ethics, conduct and qualifications of the arbitrators within a code of conduct are only non-binding recommendations, with no legal validity. This is not acceptable and will not work as a deterrent. ISDS is a lucrative industry and its corporate arbitrators will always have a fundamental conflict of interest, with their independence and impartiality called into question. Paid by corporate interests to represent them, they stand to earn a significant amount of money from settling disputes in the corporation’s favour and generating more cases for themselves in the future. Even with the questionable code of conduct (which would in any case apparently only cover a broad mandate, though it has yet to be made available for public scrutiny), these arbitrators would still be publically unaccountable, with no compulsory knowledge of the domestic legal system. They also exercise sole discretion on the allocation of costs and amount of compensation to be paid, which are invariably eye-watering and obscene.

Explanation of the issue

As in all legal systems, cases are brought that have little or no chance of succeeding (so-called “frivolous claims”). Despite eventually being rejected by the tribunals, such cases take up time and money for the responding state. There have been concerns that protracted and frequent litigation in ISDS could have an effect on the policy choices made by states. This is why it is important to ensure that there are mechanisms in place to weed out frivolous disputes as early as possible.

Another issue is the cost of ISDS proceedings. In many ISDS cases, even if the responding state is successful in defending its measures in front of the ISDS tribunal, it may have to pay substantial amounts to cover its own defence.

Approach in most existing investment agreements:

Under existing investment agreements, there are generally no rules dealing with frivolous claims. Some arbitration rules however do have provisions on frivolous claims. As a result, there is a risk that frivolous or clearly unfounded claims are allowed to proceed. Even though the investor would lose such claims, the long proceedings and the implied questions surrounding policy can be problematic.

The issue of who bears the cost is also not addressed in most existing investment agreements. Some international arbitration rules have provisions that address the issue of costs in very general terms. In practice, ISDS tribunals have often decided that the investor and responding state pay their own legal costs, regardless of who wins or loses.

The EU’s objectives and approach

The EU will introduce several instruments in TTIP to quickly dismiss frivolous claims.

ISDS tribunals will be required to dismiss claims that are obviously without legal merit or legally unfounded. For example, this would be cases where the investor is not established in the US or the EU, or cases where the ISDS tribunal can quickly establish that there is in fact no discrimination between domestic and foreign investors. This provides an early and effective filtering mechanism for frivolous claims thereby avoiding a lengthy litigation process.

To further discourage unfounded claims, the EU is proposing that the losing party should bear all costs of the proceedings. So if investors take a chance at bringing certain claims and fail, they have to pay the full financial costs of this attempt.

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Taking into account the above explanation and the text provided in annex as a reference, please provide your views on these mechanisms for the avoidance of frivolous or unfounded claims and the removal of incentives in relation to the TTIP agreement. Please also indicate any other means to limit frivolous or unfounded claims.

The fact that the EU Commission has to put in a clause within its ISDS provisions against “frivolous and unfounded” claims shows just how inadequate the mechanism is and how corporations will seek to abuse it. Even if a corporation’s case cannot be justified, it can still force the State to use valuable resources and taxpayers’ money to justify its democratic right to regulate. The costs of arbitration proceedings under ISDS are disproportionately high (around $6-8 million on average), turning the filing of claims, including the frivolous and unfounded ones, into a booming business for corporate lawyers. The EU Commission itself acknowledges that ISDS cases “take up time and money” and could have an effect on the policy choices made by states, but it still refuses to abolish ISDS altogether. Vague interpretations of how to define “frivolous and unfounded” cases leave ISDS riddled with loopholes for businesses to take advantage of, in collusion with the corporate arbitrators, who have the sole responsibility of deciding on these definitions and are skilled enough to be able to portray public policy as discriminatory expropriation. Even the right-wing US-based Cato Institute has stated that “ISDS is ripe for exploitation by creative lawyers.” The EU Commission should admit that it knows it cannot reduce the risk of frivolous and unfounded cases, and stop patronising the respondents to this consultation.

Explanation of the issue

Recently, concerns have been expressed in relation to several ISDS claims brought by investors under existing investment agreements, relating to measures taken by states affecting the financial sector, notably those taken in times of crisis in order to protect consumers or to maintain the stability and integrity of the financial system.

To address these concerns, some investment agreements have introduced mechanisms which grant the regulators of the Parties to the agreement the possibility to intervene (through a so-called “filter” to ISDS) in particular ISDS cases that involve measures ostensibly taken for prudential reasons. The mechanism enables the Parties to decide whether a measure is indeed taken for prudential reasons, and thus if the impact on the investor concerned is justified. On this basis, the Parties may therefore agree that a claim should not proceed.

Approach in most existing investment agreements

The majority of existing investment agreements privilege the original intention of such agreements, which was to avoid the politicisation of disputes, and therefore do not contain provisions or mechanisms which allow the Parties the possibility to intervene under particular circumstances in ISDS cases.

The EU’s objectives and approach

The EU like many other states considers it important to protect the right to regulate in the financial sector and, more broadly, the overriding need to maintain the overall stability and integrity of the financial system, while also recognizing the speed needed for government action in case of financial crisis.

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Some investment agreements include filter mechanisms whereby the Parties to the agreement (here the EU and the US) may intervene in ISDS cases where an investor seeks to challenge measures adopted pursuant to prudential rules for financial stability. In such cases the Parties may decide jointly that a claim should not proceed any further. Taking into account the above explanation and the text provided in annex as a reference, what are your views on the use and scope of such filter mechanisms in the TTIP agreement?

As in our response to question 9 above, there are recurring problems with definitions – what is a “prudential reason” for intervening in an ISDS case? The EU Commission states it wants to use a filter mechanism within ISDS to “protect the right to regulate in the financial sector”, but what about the right to regulate in the public sector, or in protecting workers’ social and employment rights? Investors already have more than enough protection, so why does the EU Commission not concentrate on enabling government and public authority action in favour of employment and social policies, and protecting these from spurious corporate ISDS claims? ISDS has already been abused by financial speculators in crisis-hit countries such as Greece, Cyprus and Spain – which are facing claims from speculative investors totalling more than €1.7 billion and jeopardising the very financial stability the EU Commission pretends it wants to protect. In Cyprus for example, a Greek private equity investor is seeking €823 million in compensation for “losses” from the re-nationalisation of Cyprus’ Laiki Bank. Yet the EU Commission seems to turn a blind eye to this. Adequate regulation of the financial markets can never be assured under ISDS. The fact that the EU Commission foresees a special filter mechanism for ISDS claims against rules relating to financial stability is in itself an acknowledgment that the mechanism is dangerous, arbitrary and cannot be regulated. Furthermore, there is not even any international-level agreement on what a “prudential measure” within financial services regulation could constitute, making this clause even more open to varying interpretations and vulnerable to corporate attack.

Explanation of the Issue

When countries negotiate an agreement, they have a common understanding of what they want the agreement to mean. However, there is a risk that any tribunal, including ISDS tribunals interprets the agreement in a different way, upsetting the balance that the countries in question had achieved in negotiations – for example, between investment protection and the right to regulate. This is the case if the agreement leaves room for interpretation. It is therefore necessary to have mechanisms which will allow the Parties (the EU and the US) to clarify their intentions on how the agreement should be interpreted.

Approach in existing investment agreements

Most existing investment agreements do not permit the countries who signed the agreement in question to take part in proceedings nor to give directions to the ISDS tribunal on issues of interpretation.

The EU’s objectives and approach 

The EU will make it possible for the non-disputing Party (i.e. the EU or the US) to intervene in ISDS proceedings between an investor and the other Party. This means that in each case, the Parties can explain to the arbitrators and to the Appellate Body how they would want the relevant provisions to be interpreted.  Where both Parties agree on the interpretation, such interpretation is a very powerful statement, which ISDS tribunals would have to respect.

The EU would also provide for the Parties (i.e. the EU and the US) to adopt binding interpretations on issues of law, so as to correct or avoid interpretations by tribunals which might be considered to be against the common intentions of the EU and the US. Given the EU’s intention to give clarity and precision to the investment protection obligations of the agreement, the scope for undesirable interpretations by ISDS tribunals is very limited. However, this provision is an additional safety-valve for the Parties.

Link to reference text

Taking into account the above explanation and the text provided in annex as a reference, please provide your views on this approach to ensure uniformity and predictability in the interpretation of the agreement to correct the balance? Are these elements desirable, and if so, do you consider them to be sufficient?

Not content with allowing ISDS to bypass publically accountable national courts, the EU Commission now seeks to overrule national jurisprudence altogether by allowing impartial and unaccountable ISDS rulings to become de facto binding international law across the US and EU Member States. This is not acceptable as a concept. The fact that a private company can launch an ISDS claim via private corporate lawyers who have no duty of public accountability will also lead to further unpredictability in the interpretation of global trade agreements.

Explanation of the issue

In existing investment agreements, the decision by an ISDS tribunal is final. There is no possibility for the responding state, for example, to appeal to a higher instance to challenge the level of compensation or other aspects of the ISDS decision except on very limited procedural grounds. There are concerns that this can lead to different or even contradictory interpretations of the provisions of international investment agreements. There have been calls by stakeholders for a mechanism to allow for appeal to increase legitimacy of the system and to ensure uniformity of interpretation.

  

Approach in most existing investment agreements

No existing international investment agreements provide for an appeal on legal issues. International arbitration rules allow for annulment of ISDS rulings under certain very restrictive conditions relating to procedural issues. 

The EU’s objectives and approach 

The EU aims to establish an appellate mechanism in TTIP so as to allow for review of ISDS rulings. It will help ensure consistency in the interpretation of TTIP and provide both the government and the investor with the opportunity to appeal against awards and to correct errors. This legal review is an additional check on the work of the arbitrators who have examined the case in the first place.

In agreements under negotiation by the EU, the possibility of creating an appellate mechanism in the future is envisaged. However, in TTIP the EU intends to go further and create a bilateral appellate mechanism immediately through the agreement.

Link to reference text

Question 12. Taking into account the above explanation and the text provided in annex as a reference, please provide your views on the creation of an appellate mechanism in TTIP as a means to ensure uniformity and predictability in the interpretation of the agreement.

Although the EU Commission claims the introduction of an appeals mechanism would render ISDS rulings more legitimate and uniform, in reality this would be quite the opposite as the appeal would only be valid within individual trade agreements (and not in all ISDS cases across the board) and could see different interpretations being issued by different arbitrators in different cases – leading to more confusion, fragmentation, and arbitrary decisions within ISDS case law.

C. General assessment

General assessment
  • What is your overall assessment of the proposed approach on substantive standards of protection and ISDS as a basis for investment negotiations between the EU and US?
  • Do you see other ways for the EU to improve the investment system?
  • Are there any other issues related to the topics covered by the questionnaire that you would like to address?

ISDS is a biased and undemocratic mechanism, led by corporations and corporate lawyers, and giving unprecedented power and privileged status to foreign investors (without any matching responsibilities) to threaten and undermine the democratic mandate of governments and local authorities and block them from regulating in the public interest – and all this whilst bypassing domestic courts and legal systems. GMB is dismayed that although mounting public pressure against ISDS pushed the EU Commission into launching this consultation, it has failed to honour a serious and unbiased consultation process. This is disrespectful to those responding. It is clear that, as far as the EU Commission is concerned, the inclusion of ISDS within TTIP (a blueprint for all future global trade agreements), is already a foregone conclusion. GMB clearly states its fundamental opposition to ISDS in any form, in any trade agreement. We know the EU Commission will receive a substantial number of responses saying the same, and we urge it to acknowledge and act on this view. As we have already stated, ISDS is an extremely dangerous mechanism and no amounts of tinkering with its wording and processes can make it any less of a threat to the democratic process, to our public services and to governments’ and local authorities’ right to regulate in the public interest. Furthermore, despite EU Commission assurances, there is no reliable evidence to indicate that TTIP will create jobs and economic prosperity. In our experiences of restructuring within trade agreements, we should expect job losses. Even the Centre for Economic Policy Research’s pro-TTIP study estimates only 0.48% growth of GDP for the entire EU over 10-20 years – about 0.04% growth a year. Moreover, the negative effects of TTIP on health, environment and social protection will far outweigh any doubtful benefits. The case for jobs and growth has not been made for TTIP; positive estimates are unsubstantiated, and we only have to look at NAFTA for the reality: 1 million jobs were promised in the US and Mexico, but many more ended up being lost instead. GMB is even less optimistic about TTIP delivering improved labour standards, wages and social dialogue, and is incredulous that the EU would even enter into negotiations with the US when it has not even ratified the most basic ILO conventions on labour standards and trade union rights and freedoms, and in which half of its states practice ‘right-to-work’ rules, gagging trade unions and their members. For the GMB, this makes pursuing the negotiations completely untenable. GMB is also concerned at the lack of a real strategy from the EU Commission on how to proceed following the conclusion of this consultation. ISDS is an inherently flawed mechanism, run by corporations, for corporations. The only way to ensure a truly transparent and well-functioning dispute mechanism is to go through national courts, and national courts only. ISDS therefore must not be included in any trade agreement. GMB does not accept ISDS as a model in any trade agreement, and we urge the EU not to bounce any ISDS model into CETA as a precedent for inclusion in TTIP, behind closed doors and in the face of massive opposition. There is wide suspicion that this is what the EU Commission is planning to do. EU public opinion on the EU institutions is already low – this would lead to a complete meltdown. GMB is also unhappy with the EU Commission’s decision to allow responses to this public consultation to be made only through the online format, which is limited both in terms of questions asked and room provided to respond. GMB confirms this PDF document we have attached to our online submission is our definitive response to the public consultation and should be regarded as such by the European Commission.