Current portal location

Website content

Consultations

Respondent details

  • Company/Organisation: Federation of German Industries (BDI)
  • Location: Germany
  • Activity: The Federation of German industries is the umbrella organization of German industry and industry-related service-providers. It speaks on behalf of 38 sector associations and represents over 100,000 large, medium-sized and small enterprises with a good eight million employees. The BDI ensures that industry speaks with one voice vis-à-vis political institutions at national, European and international level.
  • Profile: Trade association representing EU businesses
  • Transparency register: Yes
  • 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. BDI welcomes the asset-based definition of investment. However, the term covered investment may be a source of uncertainty. The CETA text uses a broad, asset-based definition of investment, which is preferable over a company-based definition. It has proven to be effective over the last 20 years and it allows coverage of new forms of investment. BDI welcomes that the definition of investment in the CETA text extends to portfolio investment. Not only should the shares of a company be protected, but all of its assets. BDI also recognizes, however, that this broader coverage of various forms of investment might entail new challenges. The CETA text refers to covered investment. All possible investments should be covered by the treaty while exceptions should be noted explicitly in the treaty text. As the term covered can lead to uncertainty, it should be deleted from the treaty text. 2. Investment protection should extend to both the pre- and post-establishment phase. The CETA text lacks clarity on the pre-establishment phase. The text’s def-inition of an investor includes parties that seek to make an investment, which could be interpreted as a guarantee to protect investments also in the pre-establishment phase. German industry agrees that market access should be addressed in an investment chapter in TTIP. Accordingly, substantive provisions should apply to making an investment, including MFN and Na-tional Treatment. Furthermore, the text should specifically prohibit certain market access restrictions such as local ownership requirements or require-ments to transfer intellectual property. Should the Commission wish to give these provisions teeth, it also needs to discuss a dispute settlement provision for the pre-establishment phase. A TTIP investment text needs to be more precise regarding the application of provisions to the pre- and post-establishment phase of an investment. A lack of clear distinction could have a very harmful consequence: If a sector was excluded from disciplines on market access, investment in this sector, having been made legally, would also not be protected against state inter-ference during post-establishment. This would mean a deterioration of in-vestment protection in comparison to existing BITs. 3. BDI welcomes the CETA approach to curtail treaty shopping. In an attempt to prevent individuals or entities from setting up shell or mail-box companies to gain access to ISDS under an investment treaty, CETA requires a company to have substantial business activities in the country from which the claim is filed. BDI welcomes the Commission’s attempt to curtail treaty shopping. Chal-lenging is, however, that available jurisprudence is scarce and does not offer great insight into what tribunals might consider substantial business activi-ties. It could be advisable to further define this term. Overall, TTIP should not try to overly condition how, where, and in what form investments are planned or made. This would be contrary to the aim of creating an open investment climate. Moreover, the above-mentioned ex-clusion should not apply to German and U.S. companies covered by Article XXV of the 1954 Treaty of Friendship, Commerce, and Navigation. As confirmed by the Bundesgerichtshof, U.S. companies enjoy the protection of the 1954 Treaty even if they are located in Germany. 4. The term in accordance with applicable law should be phrased more precisely. BDI fully supports that investors have to conduct their investment in ac-cordance to domestic law. CETA makes this very explicit by requiring in-vestments to be in accordance with the applicable law. However, such wording might invite States to use minor errors in formalities as grounds to deny investment protection. As a compromise could be: like investments made in accordance with the rules governing the admission of investments of that party at the time of making the investment. The Treaty party has to make public these rules in a transparent manner.

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.

1. German industry is in favor of strong MFN and National Treatment obligations. Exceptions should be narrowly defined and restricted to actual/genuine sensitivities. The German model BIT, the U.S. model BIT, and CETA include wording that guarantees that investors in the territory of each State will be accorded the same treatment, regardless of whether they are domestic or foreign in-vestors (National Treatment). Both the CETA text and the U.S. model BIT state that the treatment of the foreign investor should be compared to other like situations or like circumstances of domestic investors. Protection against discrimination is one of the most important aspects of in-vestment protection treaties. TTIP should protect investors from EU coun-tries sufficiently against discrimination, both in relation to U.S. citizens as well as in relation to other foreign investors in the United States. Non-discrimination should apply to the pre- as well as post-establishment phase. Long lists of carve-outs should be avoided. At the same time, the State’s sovereignty must be ensured. As such, the Commission needs to strike the right balance. While exceptions to National Treatment may be warranted, exceptions to MFN are hard to reconcile with the idea of an FTA and the need to create a level playing field for investors from Europe and from other third countries. In any event, exceptions on the basis of protecting public health or the envi-ronment should not be misused for disguised protectionism. General excep-tions should thus be precisely defined. 2. The CETA text states that the treatment of foreign investors should be compared to that of domestic investors in like situations. The phrase in like situations could be omitted. The provision in the CETA draft provides that foreign investors shall not be discriminated against, but treated equally to nationals of the respective State. The language in like situations used in the CETA draft reflects the widely accepted notion that equal treatment has to be afforded to two or more parties only in comparable (or like) situations. BDI does not consider the formulation in like situations to be particularly harmful. But in cases where there is no comparator, according to this wording, there can be no discrimination. In practice, all disputes are very specific. As a consequence, there might not always be a suitable comparison. If it is generally recognized that non-discrimination must be ensured only in comparable situations, the formulation in like situations could be omitted. 3. The Commission aims at establishing a high standard of investment protection in TTIP. BDI acknowledges the Commission’s ambition to prevent circumvention of these standards by curtailing access to ISDS of other BITs (treaty shopping) through MFN. The core of the MFN provision is to gain access to substantive and the so-called procedural provisions contained in other treaties. This well-established principle should not be reversed lightheartedly. It bears noting that the right to access to ISDS is a substantial right, even though it relates to arbitral procedure. This is easily explained by reference to Art. 103 of the German Basic Law (access to justice) – which is generally recognized as a substantive right. Should the Commission nonetheless choose to exclude access to ISDS-provisions of other investment treaties, BDI would accept this decision, given the controversy which has arisen around the issue of treaty shopping. With regard to substantive provisions, one need not fear that MFN leads to a circumvention of explicitly negotiated restrictions of CETA (or possibly TTIP). That is for two reasons: firstly, MFN only operates within the scope of application of the “primary treaty”, and secondly, it cannot be used to ex-clude important public policy considerations. Restrictions on the application of MFN to substantive provisions are thus neither necessary nor desirable.

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?

1. German business opposes a closed list to define fair and equitable treatment. Fair and equitable treatment is one of the most important principles in inter-national investment law. TTIP should therefore also contain strong FET clauses. BDI also acknowledges the Commission’s desire to prevent FET from unduly limiting the policy space. However, the attempt to define FET in CETA does not reach the Commission’s goal and leads to unintended consequences. The CETA draft tries to define the scope of fair and equitable treatment by focusing on examples taken from other treaty provisions. Accordingly, the violation of these would also constitute a violation of FET. The text poses two problems: rather restrictive language, and a closed list of examples. Language: Firstly, the language used in the CETA text limits the application of FET to very serious violations of provisions other than FET, e.g. fundamental breach, manifest arbitrariness, and targeted discrimination. While the Commission’s aim is to increase certainty with these new terms, it risks creating more uncertainty. Furthermore, the new terms could lead to a lowering of investment protection. One example of this risk is the term manifestly. In practice, providing proof of manifestly arbitrary behavior will be very difficult for investors. Moreover, the core content of FET is no longer included in the new defini-tion. FET protects the individual from an imposition of an excessive burden and requires the State to apply the principles of proportionality and legality to its conduct. This core notion of the rule of law has been eliminated from the new definition. Lastly, unlike in NAFTA, the new definition does not include a reference to the customary international law standard for FET. BDI therefore suggests revising the language to allow for a broader applica-tion of the provision. For example, the terms manifest and targeted should be deleted without replacement. The requirements that a State (i) may not violate the principles of proportionality and legality; (ii) may not impose an excessive burden on an investor without providing compensation, and (iii) must treat investors and investments also in accordance with the interna-tional minimum standard need to be emphasized. List approach: Secondly, BDI opposes a closed list approach. This is for three reasons: Firstly, policy-makers today will find it difficult to foresee all possible cases in which a measure might be seen as unfair and inequitable. Secondly, as the legal environment changes constantly, the list would re-quire a regular revision and adaptation. While in theory this is possible, in practice it is doubtful whether the parties to the investment agreement would ever exercise their right to amend the list. Lastly, a closed list would also put U.S. and EU investors in a weaker position vis-à-vis investors from other countries, who enjoy stronger FET protection under other treaties. Therefore, we suggest including a provision allowing for the application of FET in cases which are as serious as the ones defined in the list, but chang-ing the provision from a closed to an open list. 2. TTIP should require arbitrators to take the legitimate expectations of investors into consideration. CETA limits the protection of an investor’s legitimate expectations to cases where such expectations are based on specific representations by the host State, which the investor had relied upon when making or maintaining the investment. This definition is too narrow and limits protections to situations where the State has assumed an explicit obligation vis-à-vis the investor. Furthermore, the CETA text is more limited as it only stipulates that legiti-mate expectations may be taken into account in establishing whether a breach of one of the enumerated list reasons exist. The word may should be replaced by the word must to give the protection of the legitimate expecta-tions of companies more emphasis.

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.

1. Protection against expropriation (without compensation) stands at the centre of international investment protection and should not be weakened. As a matter of international law, but also of German Constitutional Law, expropriation may not occur except for a public purpose, on a non-discriminatory basis, and with prompt, adequate, and effective compensa-tion of the investor. Investors also need to be afforded due process of law. This should not be changed through TTIP.

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?

1. Any investment treaty must strike a balance between States’ right-to-regulate and the right of investors to be protected. As such, BDI acknowledges the Commission’s attempts to more explicitly protect policy space in investment treaties in the preamble. Investment protection and ISDS do not stand at odds with the right of States to regulate. The right to regulate is recognized and generally accepted in international law. BDI also recognizes the need for the preservation of adequate policy space, including for social, health and environmental purposes, to protect the bal-ance-of-payments, or concerning the stability of the financial system. BDI agrees that future investment treaties must reaffirm the balance between a government’s right-to-regulate and the investor’s right to protection. Preamble: Preambles are taken into account by tribunals when interpreting an investment treaty. In order to avoid a misunderstanding, the reference to the right-to-regulate must be combined with a clarification that the right-to -regulate only exists in the limits of the rule of law. Most notably, the princi-ples of proportionality, legality, and transparency need to be stressed. Fur-thermore, the text needs to underline that an excessive burden may only be imposed on an individual against compensation. General expectations: BDI also recognizes the Commission’s aim of secur-ing the right-to-regulate by including general exceptions in the Treaty text, for example by referring to GATT Article XX. These references could pro-vide guidance for interpreting the States’ right-to-regulate, and connect the investment treaty to internationally recognized standards. However, it has to be noted that there is little experience with the application of WTO rules to international investment law. Some guidance might be necessary to reduce uncertainties in the interpretation of said rules. 2. The right-to-regulate needs to be guaranteed, but the new clauses should not result in a limitation of the protection of investments. While BDI acknowledges the Commission’s attempts to strengthen State’s right-to-regulate, it is important to recognize that the CETA text also poses risks. If the new clauses were interpreted too generously, all government regulations could be found to be in the public interest. As a consequence, the investor would not have access to protection anymore. Government measures should therefore be reasonable and in line with the policy objec-tives they aim to achieve. The right-to-regulate should be bound to the prin-ciples of proportionality, legality, and transparency, as well as the principle that the State may not impose an excessive burden on an individual without providing compensation. Introducing a proportionality test in the expropria-tion provision would give claimants the ability to succeed in expropriation claims on the basis that a less intrusive measure could have been adopted.

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.

1. BDI welcomes transparency in ISDS procedures and public partici-pation according to the UNCITRAL rules, but suggests that TTIP also defines a precise procedure for withholding documents that contain confidential information from the public. ISDS is one of the most transparent mechanisms for dispute resolution and has already achieved a higher level of transparency than for example inter-national trade dispute settlement. CETA bases transparency procedures for ISDS cases on the new transpar-ency rules of the United Nations Commission of International Trade Law, which call for enhanced transparency procedures. These include public ac-cessibility to documents, public hearings, and the ability of non-parties to file submissions to the ISDS procedures. There is also a provision that al-lows the tribunal to protect confidential information. German industry wel-comes that CETA makes UNCITRAL rules binding, while proposing to in-troduce a procedure for withholding documents that contain confidential in-formation from the public. Thus, while maximizing transparency, appropri-ate confidentiality needs to be granted for documents and discussions that either party identifies as requiring protection for essential security or com-mercial reasons. The Commission also needs to take into account that increasing the scope of documents which have to be disclosed will increase the costs for companies. Pleadings in ISDS may amount to tens of thousands of pages for each pleading (including exhibits and attachments). If all pleadings and exhibits were to be disclosed, parties would have to spend tens of thousands of euros on redacting each document for confidential information. This could easily lead to a financial burden, which small and medium-sized companies cannot shoulder.

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.

1. BDI welcomes that the CETA texts aims to prevent simultaneous pursuits of the same case under national and international law (multiple claims). But TTIP should not require that national legal remedies be exhausted. In contrast to the U.S. model and other BITs, CETA prohibits the investor from bringing a case to a domestic court and an international tribunal at the same time. The investor must first show proof that the case was concluded or that the investor withdrew the claim before proceeding to an ISDS tribu-nal. If a claim is brought simultaneously under another international agree-ment and under CETA, these two courts must communicate to avoid con-flicting decisions. There is also a fork-in-the-road provision that once an in-vestor has brought a case to an international tribunal, he or she can no longer revert to domestic courts. Simultaneous claims: In general, BDI agrees that the same case should not be pursued simultaneously under local courts and under ISDS, even though this can lead to a weakening of local courts. Experience in Germany (which allows simultaneous claims) shows that in the case of parallel proceedings, the case is often resolved on the national plane. No double-dipping for damages: It is generally recognized by ISDS tribu-nals that compensation should not be awarded more than once. Tribunals have developed a sophisticated means to make sure that this does not hap-pen. BDI welcomes this. No exhaustion of domestic remedies: TTIP should not require that national legal remedies first be exhausted. This would lead to a massive increase in costs which would make ISDS unavailable for SMEs. No-fork-in-the-road: BDI also opposes the fork-in-the-road approach, as it is neither sufficient to strengthen the national courts, nor to increase the pro-tection of investors. This approach instead limits the choices for investors to seek remedy in the case of State misconduct and could be counterproduc-tive. When in doubt, an investor will likely immediately seek investment protection under an investment agreement instead of pursuing local reme-dies. Without a fork in the road scheme, the investor could try the national courts first. If an investor loses the right to submit a case to ISDS after hav-ing submitted it to the local courts, the number of ISDS cases is likely to rise, as few investors will take this risk. Furthermore, having both options available to investors increases pressure on the State to modernize its court system. Experience shows that the best way to strengthen local courts and motivate investors to take a case to the local courts is not to include a fork-in-the-road provision. 2. If, in the judgment of a national court, the investor is calling an in-ternational arbitral tribunal, the tribunal should examine the case completely anew (de novo). At present, arbitral tribunals often evaluate only whether the negotiation of the national court is run correctly in procedural terms. It is, however, crucial to the investor that the arbitral tribunal re-examines the entire case (de novo) in order to get an independent assessment. 3. Regarding the cooling-down period BDI cautions that this might con-tradict the goal of fast and effective conflict resolution. The CETA text stipulates that “an investor may submit a claim to arbitration under Article x-22 (Submission of a Claim to Arbitration) only if the investor […] allows at least 180 days to elapse from the submission of the request for consultations and, where applicable, at least 90 days to elapse from the submission of the notice requesting a determination.” The stipulated cooling-down period neglects the fact that cases usually have a long history and that no company files a complaint lightheartedly. Ac-cordingly, a cooling-down period would not be necessary.

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?

1. BDI agrees on the importance of the integrity and qualifications of arbitrators. Each party must retain the right to select one of the three arbitrators, and the selection of the chairman should be done by an in-dependent body, such as ICSID. BDI agrees that integrity and a high standard of qualifications for arbitrators is essential to the effectiveness and legitimacy of any ISDS case and the system as a whole. It should be noted that the standards established by international law, arbitration rules, arbitration institutions, as well as national law and international soft law (such as the International Bar Association Rules) already provide for very high standards. CETA aims at further strengthening these rules: Firstly, a Committee on Services and Investment is to be established between the parties, which will introduce a code of conduct to set standards for the independence and im-partiality of arbitrators. Secondly, a list of individuals will be put together. Thirdly, parties can challenge one another’s selection of arbitrators. Committee on Services and Investment: As the wording is somewhat am-biguous in the CETA draft, there is a risk that the Committee will have to decide on all arbitrators. BDI prefers each disputing parties to choose an ar-bitrator. Furthermore, each Party should be allowed to challenge the choice in arbitrator made by the opposing Party, as is currently common practice under ICSID rules and other investment agreements. This will ensure that the arbitrators enjoy the trust of both parties. The Chairman could then be appointed by an independent body. It is ques-tionable, however, whether the Committee on Services and Investment is the right body to do so, as it will not be perceived a neutral. If TTIP is to provide for an entity that selects arbitrators, this should be a neutral instance such as ICSID or the Permanent Court of Arbitration (PCA), which has more than 100 years of experience. As far as qualifications are concerned, arbitrators must have experience in international investment law, must bring along the necessary expertise for specific cases, be impartial and follow the highest ethical standards. Given the necessary experience in international law, BDI questions the wisdom of the Commission’s proposal to draw on retired judges in particular to settle international investment disputes. Code of Conduct: BDI notes that such rules already exist in soft law compi-lations such as the ones developed by the IBA. Arbitrators should be held to the highest standards of ethical behavior, including that no arbitrator may have a conflict of interest. This is central to both the effectiveness and legit-imacy of investment treaties List of arbitrators: BDI generally welcomes the idea of creating a pool of arbitrators. However, the list should not be binding and should include a sufficient number of people to allow the investor and State to select suitable experts for specific disputes. In practice, even ICSID’s list, which includes more than 400 candidates, has proven to be too small. A list of 15 arbitra-tors would neither give the investor nor the State sufficient choice. It is very likely that for many cases no arbitrators can be found on that list. Another problem is that a closed list of arbitrators, put together by the Treaty Parties without input by the investors, would seriously undermine the principle of neutrality.

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.

1. BDI acknowledges the Commission’s aim to strengthen mechanisms against unjustified or frivolous claims (noting that such mechanisms can already be found under existing treaties). However, regulations to reduce frivolous claims should not be phrased in such a way as to block justified claims from reaching arbitration. Among others, the ICSID Convention allows for tribunals to review and dismiss claims that are manifestly without legal merit or unfounded as a matter of law. BDI supports this approach. The new regulations proposed in CETA to reduce frivolous claims are phrased in a slightly confusing way and lead to multiple proceedings, which can be used by a respondent State to delay proceedings. The mechanisms proposed in CETA could invite abuse. BDI re-emphasises that mechanisms against unjustified or frivolous claims should not be phrased in such a way as to block justified claims from reach-ing arbitration. Claims brought before an arbitral tribunal should generally be subject to a preliminary review, corresponding (among others) to Rule 41(2) of the ICSID Convention, Regulations and Rules. This mechanism has proven effective and balanced in practice. Looser-Pay Principle: Entitling the winner of the proceedings to reim-bursement of the costs of arbitration could, in theory, be a mechanism to re-duce the risk of frivolous claims. At the same time, the looser-pay principle poses some risks and challenges: Firstly, the risk of high costs could deter small and medium-sized enterprises from using ISDS. A blanket approach to the loser-pays principle could also be counter-productive if it prevents le-gitimate claims (e.g. claims where the tribunal decides against the investor on disputed legal issues, or considers evidence to be insufficient for reasons outside the control of the investor). Secondly, it is often difficult to establish which party is the losing party of a dispute, as often one party wins with regard to some but not all claims. If the looser-pay principle was included in TTIP, the tribunal should at least be granted the discretion to allocate the costs among the parties in exceptional circumstances. Thus, the tribunal should apply principles of equity where ordering the unsuccessful party to bear the entire costs would be unjust.

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?

1. The recent financial and economic crises underlined the need for prudential measures to ensure the integrity and stability of financial markets. BDI acknowledges this need. However, the screening mecha-nism proposed could interfere with the right to judicial review and en-dangers the fairness of proceedings. It should not be used to circumvent the obligations under the treaty. In contrast to the German and the U.S. model BIT, CETA provides for the establishment of a Financial Services Committee in the event of an ISDS case relating to prudential measures adopted for financial stability. This committee will be led by financial authorities from the government of both Parties to the Treaty. In the event of an ISDS case based on prudential measures adopted for financial stability, this committee can review the case before it proceeds to a tribunal. Preventing abuse of the filter mechanism: To prevent that this filter mecha-nism is used to circumvent obligations under the Treaty, it should be put in the hands of the ISDS tribunal as a judicial body in order to protect the gen-erally accepted principle of separation of powers. The determination of ap-plicable cases should not be left only to the discretion of the Financial Ser-vices Committee. Preventing politicization: The screening mechanism poses the risk that arbi-tration procedures will be politicized. This could happen if States are enti-tled to block or allow claims to proceed.

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?

BDI welcomes the Commissions’ desire to improve the continuity of in-terpretation of contract terms. Thus, some guidance can assist arbitra-tors to rule within the spirit of a Treaty. However, this guidance should not be made binding. Outside guidance can help reduce the risk that the Treaty text is interpreted differently by different tribunals. BDI supports the Commission’s approach in this regard. However, this should be limited to a right of the Contracting Parties to offer evidence on the negotiating positions of the Contracting Parties at the time. Otherwise, outside guidance could be used to circumvent the rules for amending treaties. Outside guidance could also be used to circumvent the division of powers between the EU and its Member States (which would have to be involved in any process of formally amending a treaty) as well as the division of competencies between the EU’s organs. The latter risk has become very apparent considering the Commissions submissions in ISDS as amicus curiae which were submitted without consultation and approval of the Council. In any event, interpretations of the Treaty should not be binding, as an in-terpretation in one case might not always be suitable in all other cases.

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.

1. BDI positively noted the idea of establishing an appellate mechanism as a means to improve the legitimacy of ISDS while cautioning that this might lengthen arbitration and increase costs. Arbitral decisions are currently final and binding, and the ability to appeal against questionable decisions depends on the forum in which the case was brought. Like the U.S. model BIT, CETA leaves room for an appellate mechanism to be established at a later time, while being very vague on its possible design. An appellate mechanism could strengthen the administration of justice and thereby the legitimacy of the investment arbitration system, provided the arbitrators are selected from a standing body free from conflicts of interest. BDI warns, however, against creating ad hoc appellate mechanisms, as this would do little to enhance consistency of rulings. Thus, an appellate mecha-nism should be multilateral in character. One has to note critically that pre-vious attempts to establish such a mechanism have failed and that currently there seems to be very little appetite for such a mechanism internationally. BDI also cautions that an appellate mechanism could entail higher costs, which would increase the financial burden particularly for small and medi-um-sized companies considerably.

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?

BDI supports the negotiation of an investment chapter of TTIP that includes ISDS. A TTIP investment chapter should provide adequate protection to an investor, while also maintaining the State’s right-to-regulate in areas such as public health, social issues, and the environment. The ISDS mechanism itself should be transparent, frivolous claims should be curtailed, and the quality of arbitrators maintained. The idea of an appellate mechanism should be further developed. In light of increasing global investment and the overall depth of the current EU-U.S. investment relationship, the TTIP negotiations are a unique opportunity to reform the system of international investment agreements (IAAs) and set higher investment standards for the future. Umbrella clause Many European BITs contain umbrella clauses, meaning that any contrac-tual promise a State makes to an investor is also protected under the IIA. The German model is no exception, and includes this clause. The U.S. model and many U.S. BITs also contain umbrella clauses as part of their dispute resolution provisions. Unfortunately, the CETA text does not in-clude an umbrella clause. While BDI acknowledges that not all breaches of contracts between the State and the investor are actually a breach of the in-ternational treaty, a TTIP investment chapter should contain an umbrella clause for certain contract breaches. The umbrella clause does not impose an excessive burden on a State, as the State is only held to fulfill obligations it assumed voluntarily. The time-honored principle of pacta sunt servanda is one of the cornerstones of international law. Market access Market access based on performance requirements are handled similarly in the CETA text and the U.S. model BIT. A party cannot condition market access or the continuance of an operation upon certain requirements. These include, for example, requirements for export volumes, domestic content provisions, preferences for goods or services produced or delivered in the territory of the investment, the value of imports as compared to foreign ex-change flows, the transfer of technology, etc. However, under both agree-ments the State reserves the right to enforce compliance with requirements to locate production, provide a service, train or employ workers, construct or expand facilities, or carry out research and development. Furthermore, in CETA, the following measures restricting market access are permissible: measures intended for zoning and land use, for fair competition in the fields of energy, transportation, and telecommunication, for restrict-ing ownership to ensure fair competition, to conserve and protection natural resources, limiting authorizations under technical or physical constraints (such as in telecommunications), and requiring a that a certain percentage of workers in an enterprise have a specific educational background or profes-sion. BDI acknowledges that the negotiating parties will have different sensitivi-ties, and exceptions will be unavoidable. However, we also note that the critical area of government procurement is excluded from the articles ad-dressing performance requirements. Furthermore, as previously mentioned, it is essential to clearly distinguish the market access/pre-establishment pro-visions from the provisions for the post-establishment phase of an invest-ment. General transparency, including on proposals for new regulations The U.S. model BIT includes a section covering general transparency, out-lining the way that parties to the treaty are to announce the proposal of new regulations and be involved in standard-setting. In CETA, there are no stip-ulations for general transparency. General transparency rules through which investors are alerted to new regulations and able to provide input are not in-cluded. Such an obligation, if complied with, could in the end reduce the number of ISDS cases.