Current portal location

Website content

Consultations

Respondent details

  • Company/Organisation: Trans-Atlantic Business Council
  • Location: Belgium
  • Activity: The Trans-Atlantic Business Council is a cross-sectoral business association representing more than 70 global companies and more than 5.6 million employees. We work with companies across multiple sectors and policy levels, including the strategic level with the Trans-Atlantic Business Dialogue (TABD), a program which brings together C-suite executives and high level government officials. We stand out as the only transatlantic business organization uniquely placed to provide one voice for EU and U.S. companies in the Transatlantic Trade and Investment Partnership (TTIP).
  • Profile: Trade association representing EU businesses
  • Transparency register: No
  • Prior investment in the US: Yes

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?

1. SCOPE OF THE SUBSTANTIVE INVESTMENT PROTECTION PROVISIONS The definitions of "investor" and "investment" are foundations to determining the scope of the rights and obligations provided for in international investment agreements (i.e., bilateral investment treaties (BITs) and the investment chapters of free trade agreements (FTAs)). For this reason, a TTIP investment chapter should define these terms consistent with the overarching principle of increasing investment activity across the Atlantic. With regard to the definition of “investment”, the TABC supports a comprehensive, asset-based definition that encompasses the broad array of forms used by European and American investors in the US and EU markets. Such a definition should take into account that capital is fungible, and that investors are continuously adopting sophisticated structures through which they make their investments for a host of legitimate business reasons. In this regard the TABC supports the negotiation of a durable TTIP that will serve as a high-standard model for future agreements. Accordingly, the definition of "investment" should be broad and non-exclusive such that it will cover the types of investments being made today as well as those that may proliferate in the future. Furthermore, the scope of the definition of "investment" should cover all products and services to safeguard investments from discrimination against specific sectors, services, or products. The Commission has proposed that the definition of a “covered investment” include investments “made in accordance with the applicable law at that time.” The TABC shares the aim of the Commission to prevent bribery and fraud and illegal procurement practices. However, it would be necessary to provide guidance on the violations of substantive laws which would prevent protections for "covered investments". TABC considers that minor deficiencies, such as technicalities or errors in administrative procedures should be disregarded because of their limited impact. For example, an investor should not be denied the protections of a TTIP investment chapter if, for example, permits are obtained lawfully but filed incorrectly as a technical matter, a common mistake for foreign investors attempting to navigate often complex legal and administrative regimes at different levels of government. On the definition of “investor”, we concur that the investment protections to be provided for in the TTIP should be limited to investors from the European Union and the United States. Such protections should be afforded regardless, however, of the way in which such investments are structured. To the extent that there are cases where such structures are being used to invest improperly or fraudulently, it is our view that a “denial-of-benefits” clause, which is not uncommon in international tax or investment treaties, can sufficiently address these concerns. The TABC also supports a definition of “investor” that makes clear that the pre-establishment phase of an investment is covered. This is particularly critical in setting a global standard that will help protect EU and US investors seeking to enter other markets on fair and non-discriminatory terms. Finally, TABC members believe that an “umbrella clause” should be included in TTIP. Such a clause guarantees that if a host state fails to abide by its contractual obligations to the investor, that the investor may have recourse under the investor-state dispute settlement provisions of the agreement. An umbrella clause, viewed together with the agreement’s other substantive investment protections, provides greater certainty to foreign investors who are often making complex foreign investments that include contractual and other undertakings.

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.

2. NON-DISCRIMINATORY TREATMENT FOR INVESTORS Non-discrimination is a cornerstone of international economic law and is a core principle of international investment law. However, customary international law and most jurisdictions’ domestic law do not provide a general obligation to treat foreign investors no less favorably than domestic nationals. It is therefore important for a TTIP investment chapter to contain both national treatment and most-favored nation (MFN) obligations. The TABC's view is that the Commission should seek to avoid the inclusion of general exceptions – other than those identified in the reserved list and the sectors traditionally exempted from international investment agreements, such as public procurement and subsidies – that would reduce the scope of the non-discrimination principle. Accordingly, in order to provide greater legal certainty to investors, any non-conforming measures set forth in the TTIP should be explicitly listed and drawn as narrowly as possible. Finally, the TABC's members are concerned about the application of measures, including those that are reasonable on their face, in an arbitrary or discriminatory manner. In this regard the TABC is concerned about the Commission’s proposal to limit the TTIP's MFN clause, which should ensure that covered investors and investments under the TTIP receive at least the same protections for their investments than other foreign investors.

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?

3. FAIR AND EQUITABLE TREATMENT "Fair and Equitable Treatment" (FET) ensures foreign investors receive a minimum level of protection against harmful government actions against their investments. As the Commission itself has recognized, a FET provision is incorporated in almost all modern investment agreements, including those of EU Member States and the United States. Since it is not practicable to anticipate the range of future State actions taken against investors, the FET standard should remain sufficiently flexible and act as a safety net to safeguard investors where the other more specific standards of protection to be provided in the TTIP cannot provide adequate protection. On the other hand, the TABC sympathizes with the Commission's aim to provide legal certainty and clarity on the scope of application of the FET clause. These clarifications can provide guidance to the ISDS tribunals when interpreting the FET standard with respect to particular fact patterns. At the same time, the TABC does not endorse the inclusion of a closed, exclusive list of State measures and actions that may be inconsistent with the TTIP's FET standard. Such an approach would not only run the risk of undermining the core investor protections afforded by the agreement but would also set a negative precedent in third country markets. Rather, the Commission may wish to provide illustrative examples of State measures and actions that are de facto inconsistent with the FET standard

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.

4. EXPROPRIATION As stated in the Commission's consultation questionnaire, guarantees against expropriation are “at the core of any international investment agreement.” The TABC supports strong protections in a TTIP investment chapter against all forms of expropriation, including both direct and indirect expropriation. The legal standard for this protection is well-established in investment treaties and ISDS jurisprudence and is part of customary international law: foreign investments shall not be expropriated except for a public purpose, on a non-arbitrary or discriminatory basis, with full due process, and with prompt, adequate and effective compensation. The TABC is of the view that it is important that a TTIP investment chapter apply the same standard of protection for indirect expropriation as it does for direct expropriation. The TTIP's protection against indirect expropriation should encompass any covered investment, including intellectual property rights without qualification. On the other hand, the TABC fully recognizes that reasonable State measures or actions that regulate investment may not necessarily constitute an expropriation; a fact specific inquiry is required in each instance. The TABC welcomes the opportunity to work with the Commission to develop a TTIP investment chapter that will provide greater clarity around when a State's reasonable measures may constitute an indirect expropriation by enumerating relevant factors to be considered. Such factors may include: (1) the economic impact of a measure; (2) the necessity and proportionality of the measure in order to achieve the public objective; and (3) whether the measure interfered with an investor's reasonable expectations, among others. A TTIP investment chapter need not carve out specific types of regulatory measures or provide for general exceptions to the scope of its expropriation protection.

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?

5. ENSURING THE RIGHT TO REGULATE AND INVESTMENT PROTECTION The TABC does not believe that the protection of foreign investment is at odds with a sovereign government’s legitimate right to regulate in the public interest. With more than 1400 investment protection agreements in place, EU Member States’ ISDS history suggests that the protections provided to foreign investors in these treaties have not circumscribed the flexibility of States to regulate. A TTIP investment chapter should continue the long-standing practice of many Member States and the United States by including strong foreign investment protections. Such protections serve both the host States and the foreign investors by supporting the promulgation and enforcement of well-designed, clear and efficient government regulations. The TTIP should discourage government measures that are unreasonable or discriminatory. One of the over-arching objectives of a TTIP investment chapter should be to reduce the risk to investors of government measures that contain disguised restrictions that harmfully impact foreign investment. TABC supports an appropriate balance among the particular areas of substantive investment protection. The TABC opposes broad general exceptions such as those detailed in the reference text. Such broad exceptions would unduly diminish investment protections. The TTIP should establish a model for future bilateral and multilateral international investment agreements, and a long list of general exceptions would create the risk of diminishing the high standards of investment protection needed in future agreements. General exceptions could increase uncertainty in a TTIP investment chapter. A ratified TTIP will apply for decades to come. In light of the changing landscape for foreign investment, a TTIP investment chapter should be flexible enough to permit the assessment of State regulatory measures based on their particular facts. Accordingly, the TABC is of the view that particularized concerns about State regulation should be addressed through clear definitions of key substantive protections, including, as discussed above, "FET," "expropriation" - both direct and indirect, and "national and MFN treatment," rather than through a list of general exceptions.

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.

6. TRANSPARENCY IN ISDS An important element of a TTIP investment chapter is to ensure transparency in the ISDS process. The TTIP is intended to be a model FTA. As transparency has increased in the ISDS system, it is important that the TTIP reflect these modern trends. Consistent with efforts by ICSID and UNCITRAL to move toward greater transparency, the parties to an ISDS dispute and the tribunal should make available to the public the essential documents of the dispute, including: awards, decisions and orders of the tribunal; the pleadings of both parties to the dispute; pleadings of any non-disputing party or amicus curiae submissions; notice of arbitration and response to the notice of arbitration; any additional written statements or submissions; and expert reports and statements. The public should have access to the key details of international investment disputes due to the inherently public nature of the State measures underlying ISDS cases but safeguarding companies' confidential business information. Updates on the progress and resolution of an ISDS case are important to keep the public informed of the status of these disputes and the consistency of State measures with international law. Moreover, increased transparency will promote increased certainty and coherence in the ISDS system and assist investors in their assessment of the climate for future investments. The TABC also supports the ability of third parties to submit amicus curiae written submissions to ISDS tribunals, provided this does not interfere, nor cause undue delay, to the tribunal process. Allowing these third party submissions enables tribunals to receive broader viewpoints with respect to the public policy issues at stake in a particular investment dispute. The TTIP thus should ensure that tribunals and Parties have sufficient discretion to permit third party submissions and to accord them due weight. This approach will help to ensure that key stakeholders are able to participate meaningfully in the ISDS process. Finally, in considering the level of transparency to be required in ISDS proceedings, the Commission should balance the public's "right to know" with legitimate confidentiality issues. Tribunals must be permitted the latitude to promulgate reasonable rules to safeguard sensitive and confidential information from public dissemination. This is particularly the case with respect to business and commercial information such as trade secrets, internal financial information, and other proprietary and sensitive information (including but not limited to information protected by legal and/or accountant privilege).

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.

Link to reference text

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.

MULTIPLE CLAIMS AND RELATIONSHIP TO DOMESTIC COURTS The TABC agrees that a claimant should not receive more than one award for the same claim. We therefore support the Commission’s desire to prohibit claimants from pursuing the same claims at the same time in domestic courts and before an international tribunal. At the same time, TABC also believes it is important that investors not be prohibited from choosing whether to pursue claims before domestic courts or through ISDS. As the Commission itself notes, there may be times when domestic courts may favor the local government over the claimant. There may also be instances where certain investment treaty claims do not have a direct corollary under domestic law. Any obligations that essentially require a claimant to exhaust local remedies first would therefore be counter-productive and delay recourse to effective relief. Moreover, an investor should not be prohibited from withdrawing from domestic court proceedings in order to pursue ISDS. TABC would also like to note that while we have no objections to a cooling-off period, 180 days seems excessive. We believe a 90 day period would be more appropriate.

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.

Link to reference text

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?

ARBITRATOR ETHICS, CONDUCT AND QUALIFICATIONS It is essential to the integrity of the ISDS process that arbitrators be held to the highest ethical standards. We therefore support concrete suggestions that would provide additional guidance for the ethical conduct of arbitrators, including independence and impartiality. We appreciate the Commission’s reference to the development of a “Code of Conduct” but are not in a position to endorse this code absent more specifics. It is worth noting that the International Bar Association already maintains Guidelines on Conflicts of Interest in International Arbitration, and we recommend that if the Commission does seek to develop its own Code, it takes these Guidelines into account. We also urge the Commission to take precautions to ensure that any ethical guidelines are not abused by those who might disagree with an arbitrator’s judgment. For that reason, remedies for any breach of a code of conduct would need to be appropriately tailored and not result in an automatic reversal of a judgment. TABC would also discourage the creation of an approved list of arbitrators. Predetermined, closed lists of arbitrators have proven problematic in practice. ICSID, for example, has difficulty keeping the list updated, and since no one can anticipate which disputes may arise, the arbitrators are chosen in a relative vacuum. Also, to the extent potential conflicts are a concern and there is an interest in seeing a diverse pool of arbitrators in ISDS disputes, a closed list can unfortunately limit the options available to the parties. Finally, TABC also suggests specific qualification requirements for arbitrators, such as experience in “international law and international investment law and, if possible, experience in international trade law and international dispute resolution,” are not necessary.

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.

Link to reference text

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.

REDUCING THE RISK OF FRIVOLOUS AND UNFOUNDED CASES It is appropriate for investment treaties to include rules on the dismissal of frivolous claims. The ICSID Arbitration Rules, for example, provide for expedited dismissal of such claims. Such rules, however, should not be so restrictive as to serve as a barrier or disincentive to pursuing justified investor claims under TTIP. TABC strongly opposes a blanket “loser pays” rule. Many cases are difficult and complex, and losing a case does not necessarily mean that the loser should bear all costs. We believe the better practice is to provide the tribunal with discretion to determine fees and costs.

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.

Link to reference text

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?

ALLOWING CASES TO PROCEED (FILTER) As the Commission itself notes, some investment agreements have introduced mechanisms granting the regulators of the Parties to the agreement the possibility to intervene, particularly in cases that involve measures taken for prudential reasons. While TABC supports efforts to protect the integrity of the financial system, we also oppose any sector specific or product carve outs. As such, we believe that any use and scope of a filter for prudential measures must be carefully defined and circumscribed so as not to sweep in legitimately covered activity.

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?

GUIDANCE BY THE PARTIES (THE EU AND THE US) ON THE INTERPRETATION OF THE AGREEMENT TABC is generally supportive of the Commission’s proposed approach. We do not have concerns about general guidance being provided by the parties so long as it is clear that any guidance would not be retroactive, i.e., it would not apply to existing cases filed before the interpretation issues.

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.

APPELLATE MECHANISM AND CONSISTENCY OF RULINGS TABC is not convinced that an appellate mechanism is necessary, and there are a lot of questions about how such a mechanism would operate and be constituted within the confines of a single investment agreement. Absent greater details about how such a mechanism would work, we would request that the Commission provide additional guidance about how such a mechanism would work in practice before moving forward with any such proposal

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?

13. GENERAL ASSESSMENT ISDS is an integral part of any modern investment treaty. It provides an efficient and neutral forum for the resolution of disputes arising out of foreign investment. ISDS and the substantive protections in an investment treaty also greatly increase legal certainty and minimize risk when an investor is assessing whether to invest in a particular foreign market. Therefore, the TABC is strongly of the view that ISDS should be included in a TTIP investment chapter. We are concerned that many of the questions in this survey suggest that there is a crisis in today’s system. TABC would argue that EU experience, based on the more than 1400 Member State investor protection agreements, suggests otherwise. While the TTIP provides an opportunity to address any significant, evidence-based criticisms of existing agreements, it is also important not to lose sight of the importance of robust investor protections for both economies. Anything less would create significant uncertainty for investors, rollback existing protections in this area and set a negative precedent in third country markets. European and American investment represents the majority of the world’s foreign investment. There is thus a transatlantic common interest in ensuring that the TTIP supports a secure and stable investment climate, protected by the rule of law and clear, transparent standards. This is critical not only for the investments to be made under the auspices of the TTIP but also to set a high standard for future investment agreements.
** List of members: Accenture Liz Arky m.elizabeth.arky@accenture.com; Accenture Jennie Massey jennie.massey@accenture.com; Accenture Patrick Oliver patrick.oliver@accenture.com AIG Ed Lee ed.lee@chartisinsurance.com; AIG James Chin james.chin@chartisinsurance.com; Airbus Rob Wrigley rob.wrigley@airbus.com; Albemarle Barbara Little barbara_little@albemarle.com; Applied Materials Bill Morin william_morin@amat.com; ASTM Jeff Grove jgrove@astm.org AT&T Eric Loeb loeb@att.com; Autodesk David Crane david.crane@autodesk.com; BASF Mark Washko mark.washko@basf.com; BDO Noel Clehane nclehane@bwsbrussels.com; Boehringer Ingelheim Paul Romness Paul.Romness@boehringer-ingelheim.com; BP Emmanuel Haton emmanuel.haton@bp.com; BP Gregory Saunders greg.saunders@bp.com; BT Larry Stone larry.stone@bt.com; BT Jennifer Taylor jennifer.taylor@bt.com; BT Jessica Jones jessica.jones@bt.com; Cisco Systems Pastora Valero pvalero@cisco.com; COCIR Nicole Denjoy denjoy@cocir.org; Cognizant Stephanie Childs stephanie.childs@cognizant.com; Covidien Tim McBride timothy.mcbride@covidien.com; Covington & Burling Stuart Eizenstat seizenstat@cov.com; Crowell & Moring Chris Wilson CWilson@crowell.com; Crowell & Moring Doral Cooper dcooper@crowell.com; Cubist Mark Battaglini Mark.Battaglini@cubist.com; Deloitte Charlie Heeter cheeter@deloitte.com; Deloitte David Gruner dgruner@deloitte.com; Deloitte Madonna Jarrett mjarrett@deloitte.com; Deutsche Bank Frank Kelly francis.j.kelly@db.com; Deutsche Telekom Reinhard Wieck reinhard.wieck@usa.telekom.de; EABO Sven Oehme oehme@eabo.biz EADS Georgina Browes georgina.browes@airbus.com Electrolux Gregoire Letort gregoire.letort@electrolux.se Endo Pharmaceuticals Brian Munroe Munroe.Brian@Endo.com; ENI Fabio Marchetti fabio.marchetti@eni.it; Ericsson Barbara Baffer barbara.baffer@ericsson.com; Ernst & Young Jeremy Jennings jeremy.jennings@be.ey.com; Ernst & Young Felice Friedman felice.friedman@ey.com; Ernst & Young Bridget Neill Bridget.Neill@ey.com; European-American Business Organization Sven Oheme oehme@eabo.biz; Experian Tony Hadley Tony.Hadley@experian.com; First Data Joe Samuel joe.samuel@firstdata.com; Ford Dr. Clemens Doepgen cdoepgen@ford.com; Ford Simonetta Verdi sverdi@ford.com; Ford Stephen Biegun sbiegun@ford.com; Fragomen Jo Antoon JAntoons@Fragomen.com; Freshfields Tim Coleman tim.coleman@freshfields.com; GE Mike Fitzpatrick michael.fitzpatrick@ge.com; GE Eric Pelletier eric.c.pelletier@ge.com; GE David Malkin David.Malkin@ge.com; GE Karan Bhatia Karan.Bhatia@ge.com; GE Sandy Merber sandy.merber@ge.com; GE Susan Nelson susan.nelson@ge.com; GE William Behrens william.behrens@ge.com; GE Sarah Bonner sarah.bonner@ge.com; Grant Thornton Jon Block Jon.Block@gt.com; IBM Chris Padilla padillac@us.ibm.com; Intel Peter Pitsch peter.pitsch@intel.com; Intel Christoph Luykx christoph.luykx@intel.com; Intel Greg Slater greg.s.slater@intel.com; Johnson & Johnson Gary Reedy greedy@its.jnj.com; Johnson Controls Mark Wagner Mark.F.Wagner@jci.com; Johnson Controls Keith McCoy Keith.McCoy@jci.com; KPMG Stephen Allis sallis@kpmg.com; KPMG Stacie Thomas Morales stmorales@kpmg.com; Kreab Gavin Anderson Tapio Christiansen tchristiansen@kreabgavinanderson.com; Lilly David Talbot talbot_david@lilly.com; McKenna, Long & Aldridge Dan Caprio dcaprio@mckennalong.com; Merck Geralyn Ritter geralyn.ritter@merck.com; Microsoft John Vassallo v-jovass@microsoft.com; Microsoft Betsy Brady betsyb@microsoft.com; Microsoft Susan Mann susanman@microsoft.com; Microsoft Dorothy Dwoskin ddwoskin@microsoft.com; NCR Marija Zivanovic Marija.Zivanovic-Smith@ncr.com; OMV Martina Schubert martina.schubert@omv.com; Oracle Joseph Alhadeff joseph.alhadeff@oracle.com; Pfizer Doug Goudie Douglas.Goudie@pfizer.com; Pfizer Claudia Poteet claudia.poteet@pfizer.com; Philip Morris International Jon Huenemann Jon.Huenemann@pmi.com; Philip Morris International Brandie Davis Brandie.Davis@pmi.com; Philip Morris International Steve Jacobs Stephen.Jacobs@pmi.com; Phillips Electronics Thomas Patton Phillips Electronics Randy Moorhead randy.moorhead@philips.com; PhRMA Jonathan Kimball jkimball@phrma.org; PwC Kenneth Chatelain kenneth.r.chatelain@us.pwc.com; PwC Fiona Bell fiona.m.bell@us.pwc.com; Qualcomm Sean Murphy smurphy@qualcomm.com; Qualcomm Monique Rodriguez monique@qualcomm.com; Qualcomm Laurie Self lself@qualcomm.com; Qualcomm Alin Stanescu alins@qualcomm.com; Qualcomm Robert Jarrin rjarrin@qualcomm.com; Red Hat Paul Brownell paulb@redhat.com; Rx&D Declan Hamill dhamill@canadapharma.org; SAP Andreas Tegge andreas.tegge@sap.com; Siemens Colin Stackhouse colin.stackhouse@siemens.com; Siemens Patricia Sherman patricia.sherman@siemens.com; Statoil Jan Karlsen jkk@statoil.com; Statoil Anne Cavendish acav@statoil.com; Telecom Italia Luigi Gambardella luigi.gambardella@telecomitalia.it; Telefonica David Frautschy david.frautschy@telefonica.com; Texas Instruments Paul Collins pcollins@ti.com; Texas Instruments Stephen Bonner s-bonner@ti.com; The Coca Cola Company Kate Irvin kirvin@na.ko.com; Thyssen Krupp Christian Koenig christian.koenig@thyssenkrupp.com; Thyssen Krupp David Campbell david.campbell@thyssenkrupp.com; TOTAL Marlene Troosters TRUSTe Saira Nayak snayak@truste.com; TRUSTe Danilo Labovic dlabovic@truste.com; Umicore Holly Chapell Holly.Chapell@am.umicore.com; Underwriters Laboratories Dustin Antonello dustin.amtonello@ul.com Underwriters Laboratories Myriet Jno-Lewis myriet.jno-lewis@ul.com Verisign Shane Tews stews@verisign.com Verizon Jacquelynn Ruff jacquelynn.l.ruff@verizon.com; VW Anna Schneider anna.schneider@vw.com; Wiley-Blackwell Pat Kelly pkelly@wiley.com; Xerox Michele Cahn Michele.Cahn@xerox.com;