Current portal location

Website content

Consultations

Respondent details

  • Company/Organisation: Center for European Enterprises providing Public services (CEEP)
  • Location: Belgium
  • Activity: CEEP, the European Centre of Employers and Enterprises providing Public Services, established in Brussels since 1961, represents employers and enterprises providing Services of General Interest in such vital sectors as Transport, Energy, Water, Environment, Housing, Hospitals, Education and Training, Postal Services, Communications, Central and Local Administrations etc. We believe that modern Public Services, or Services of General Interest (SGIs), serve the fundamental goals of the EU, its Member States and its regions, supporting business, social and territorial cohesion, economic and social solidarity and a better quality of life for all citizens. We strive to ensure that SGIs play a key role in contributing to and encouraging the integration of the EU Member States into a common economic area in a manner supportive of the internal market concept, while at the same time ensuring the widest possible choice to local and regional democratic institutions as to how Public Services are delivered. As one of the three recognised European general cross-sectoral Social Partners, we believe that employer consultations as well as social dialogue are essential to promote the Lisbon Treatys targets for innovation and growth. In order to help our members achieve these goals, we focus on the European Employment Strategy (EES), promoting adaptability to change, addressing regional disparities and helping build partnerships at regional and local levels. We support sustainable development and call for social and environmental criteria to be considered in all decisions implementing EU policies such as transport, energy, water supply, waste disposal and telecommunications.
  • Profile: Trade association representing EU businesses
  • Transparency register: Yes
  • Prior investment in the US: No

Contribution

A. Substantive investment protection provisions

Explanation of the issue

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

Approach in most investment agreements

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

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

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

The EU's objectives and approach

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

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

Link to reference text

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

The CETA text defines investment as “every kind of asset.” The CETA text also provides an indicative list of such assets that can qualify as investment, covering enterprises, equity, bonds and debt instruments, intellectual property rights and others—independent of whether or not they are associated with an existing enterprise in the host state. CEEP sees the open-ended list as problematic because it introduces elements of vagueness and allows for the most expansive interpretation by tribunals of what that definition encompasses, since the list that follows is merely indicative. This definition is therefore the least suitable for host states. CEEP believes that the scope of the substantive investment protection provisions increases the risks of being sued for states. For instance, in the field of fracking (shale gas) it is unclear if a moratorium (state decision) could lead to claims at the arbitral tribunal. In this respect, CEEP proposes that:  the notion “concession” should be restricted to permits for extraction or exploitation of natural resources.  the definition of “investment” should only cover the capital employed and a reasonable equity yield rate, excluding expressly all kinds of future returns on the investment.  The Commission and Member States consider the inclusion of exceptions or carve-outs, such as prudential, essential security and taxation carve-outs. This would help to achieve a proper balance between investor’s protection and government’s right to regulate by enhancing the host state’s policy space.

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.

On the basis of the “Most favoured nation” (MFN) clause, arbitrators now routinely allow investors to essentially cherry-pick provisions from other investment treaties that are more favourable to it. As a consequence, this clause alone is sufficient to undermine all of the objectives the European Commission states that it seeks in its approach. To be more precise, it is not clear in the CETA text whether the non-discrimination clause of the investment chapter only covers investors which have already made an investment or also investors which plan to do so. In addition, the Commission explains, that “exceptions allowing the Parties to take measures relating to the protection of health, the environment, consumers etc. (...)” should “allow differences in treatment between investors and investments where necessary to achieve public policy objectives.” Until now, public services have been subject to specific treatment and protective measures in many previous FTAs and in the GATS; due to their special nature they have benefitted from a positive list approach. Although the TTIP negotiations seem to favour the negative list approach, or at least the US does, a negative list approach would require all sectors that should not be included to be expressly referred to in the agreement, which would require that Member States actively campaign to the EC for exclusions in the agreement. Otherwise, all services are de facto within the scope. CEEP favours a positive list approach and the same approach should be kept across the document in order to provide an adequately strong shield for public services. Potential consequences of other approaches could be that public service markets could become, without public debates, subject to liberalisation. Naturally, this is not within the competence of the EU, but it should be up to the Member States to initiate such changes. Decisions and regulations in the field of public services (in particular protocol no 26 TFEU) and at the level of regional and local authorities (Article 4(2) TEU) should explicitly be excluded from the MFN. CEEP suggests:  to ensure that an MFN clause applies only to treaties later in time, or not included in that no other investment treaties or chapters are included at all. To a certain extent the Commission is aware of this problem as it has excluded the market access provisions and the investor to state procedures of the investment chapter from the scope of the MFN clause.  to clarify the way investment protection standards have been formulated. CEEP believes that the non-discrimination clause of the investment chapter should only apply to investments already made. Therefore, the Commission should consider the exclusion of pre-admission protection in TTIP, so that investors who feel they have been treated unfairly in the process of establishing an investment cannot bring a claim on the basis of TTIP. CEEP calls for decisions on this matter to be taken in line with the future EU offer on services in order to avoid the risk of making a possible agreement on TTIP internally inconsistent.

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?

CEEP welcomes the Commission’s initiative on the general objective of clarifying the Fair and Equitable Treatment (FET) standard as a significant step towards greater protection of the foreign investors and their investments. Thus, CEEP can only agree with the presented closed list which summarizes manifest breaches. This closed list seems very reasonable and also useful to provide the investor with clear protection from unacceptable treatment by the state. Yet, article 2(f) of the reference text states, that a party breaches the obligation of FET where measures constitutes “A breach of any further elements of the fair and equitable treatment obligation adopted by the Parties in accordance with paragraph 3 of this Article”. This introduces elements of vagueness and subjectivity into the abovementioned closed list and could therefore lead to multi-interpretations by arbitrators in an investment tribunal. Furthermore, CEEP asks for more detailed information on the frequency and on the accountability of the review process of the content of the obligation to provide FET under article 3. Indeed, if the Commission aims at making TTIP a “live” agreement that can be adapted to circumstances, the question is how parliaments, civil society and the general public will be able to scrutinize the continuous expansion of the agreement. In this case the competences and the subsidiarity principle have to be considered. In addition, CEEP supports the Commission’s approach which ensures that the standard is not understood to be a “stabilization obligation” that would prevent legal regimes of host states to change. Yet, article 4 claims that “ (…) a tribunal may take into account whether a Party made specific representation to an investor to induce a covered investment, that created a legitimate expectation upon which the investor relied in deciding to make or maintain the covered investment (…)” this does not seem to provide the legal certainty, that national legal systems will not be circumvented by private corporations. For instance, the text refers to “a specific representation”, which is a very open term. CEEP would like to know whether or not the Commission intends to include a so-called “umbrella clause” into TTIP. Clarification on this would help stakeholders to have a better overview of host states’ specific undertakings towards its foreign investors. In other words, CEEP still sees the potential for foreign investors to attain more enforceable rights against States, in situations where a State’s conduct or legislative actions have been contrary to a company’s commercial interest by implementing social and environmental policies that would inadvertently decrease the company’s profit. Indeed, the FET definition as proposed in the CETA investment chapter has already sparked several lawsuits, such as one by Philip Morris challenging Australian government’s stricter restrictions for cigarette packaging. Defining and implementing social and environmental policies must remain under European national regulation in accordance with the treaties and should not be regulated by a transatlantic agreement. CEEP proposes:  that any kind of representation has to be existent in writing to be accepted as evidence by the arbitrators. In addition, FET provisions could include wording stating that an investor claiming that a state has violated a customary international law obligation has the burden of demonstrating that the obligation exists based on evidence of actual state practice and opinio juris, and that such an obligation may not be established solely through arbitral awards or secondary sources.  Not to include an ‘umbrella clause’ into a possible agreement on ISDS in TTIP. An ‘umbrella clause’ would provide investors with an additional redress mechanism for the settlement of contractual disputes between them and the host state. This would consequently limit governments’ right to regulate.  To further clarify key investment protection standards and the scope of notions such as ‘fair and equitable treatment’ (FET) in order to provide sufficient guidance to tribunals and to limit States’ exposure to a possible ISDS. Thus, FET provisions could include “an exhaustive list of State obligations under FET,” as the United Nations Conference on Trade and Development (UNCTAD) has suggested. Furthermore, a so-called ‘umbrella-clause’ should not be included and the definition of the ‘right to regulate’ for parties should be extended and included into other investment chapters.

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.

No comment

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?

CEEP notes that the Preamble of the CETA text recognizes “the right of the Parties to take measures to achieve legitimate public policy objectives on the basis of the level of protection that they deem appropriate.” Regarding this paragraph, CEEP expresses the following suggestions:  The well-established precautionary principle should be mentioned as such. Furthermore, referral to or incorporation of the Organization for Economic Co-operation and Development (OECD) Guidelines on social corporate responsibility and International Labour Organization (ILO) Declaration could/would be of value.  The right for states to regulate encompasses a far broader scope than “legitimate public policy objectives on the basis of the level of protection that they deem appropriate”. Indeed, European policies are constantly evolving as they respond and react to new technological, environmental, social, economic and democratic challenges, as well as new expectations of citizens and businesses. In a democratic system, competent authorities (European, national, regional or local level) are expected to reflect these norms and wishes.  CEEP also notes the presence of a similar paragraph in the annex on expropriation. CEEP supports the fact that similar provisions should be included for instance in articles on MFN and on FET. Indeed, expropriation is less used to attack general policies than the MFN or the Fair and Equitable Treatment (FET) standard. To be more precise, the mention of a “right to policy” principle in the preamble might be insufficient and such provisions should be a general principle of the investment chapter. CEEP considers essential that any provision proposed in the TTIP does not hinder the ability of the EU Member States to regulate in the public interest.  “CEEP calls the Commission to resist the inclusion of a so-called ‘ratchet provision’ into a future FTA with the US’. Such provision will significantly undermine the right for states to regulate”. If there is an agreement on ISDS, this should not take away States’ right to regulate. Therefore CEEP thinks that a consultative body on regulation’s right within TTIP could be set up among Member States. For example, regards to the conventions of the International Labour Organisation (ILO) in Geneva, there is a advisory body composed of international lawyers that releases opinions on disputes between, States and companies and States and Non Governmental Organizations. Even if this body is ‘only consultative’, its opinions are often taken into account by disputing parties.  Finally, CEEP notes that the Commission gives some room for manoeuvre and wants to give “Parties the possibility to adopt interpretations of the investment protection provisions which will be binding on arbitral tribunals”. Yet, CEEP raises serious concerns about the arbitral body and about the transparency of the whole process (questions, 6, 8 and 12).

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

Explanation of the issue

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

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

Approach in most existing investment agreements

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

The EU’s objectives and approach 

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

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

Link to reference text

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

The Commission states that “all documents will be publicly available” and “hearings will be open to the public”. The Commission bases its argumentation on the new United Nations rules on transparency (UNCITRAL) and especially on Articles 2 and 3 of UNCITRAL. However, article 7 of UNCITRAL foresees several exceptions allowing arbitral tribunals to hold information confidential. According to article 7 “The arbitral tribunal may, on its own initiative or upon the application of a disputing party, after consultation with the disputing parties where practicable, take appropriate measures to restrain or delay the publication of information where such publication would jeopardize the integrity of the arbitral process (…)”. With regard to hearings, both the CETA and the UNCITRAL documents foresee exceptions to hold parts of hearings in private, for instance to protect the “integrity of the arbitral process” or “confidential business information” (Article 7(2)(a) of UNCITRAL), but also for “logistical reasons.” A similar provision can be found in point 5 of the provided CETA document on “Transparency of Proceedings”. Thus, article 6(2) of the UNCITRAL document states, that “Where there is a need to protect confidential information or the integrity of the arbitral process pursuant to article 7, the arbitral tribunal shall make arrangements to hold in private that part of the hearing requiring such protection.” Article 6(3) says, that “The arbitral tribunal shall make logistical arrangements to facilitate the public access to hearings (…). However, the arbitral tribunal may, after consultation with the disputing parties, decide to hold all or part of the hearings in private where this becomes necessary for logistical reasons, such as when the circumstances render any original arrangement for public access to a hearing infeasible.” These rules apply to investor-State arbitration initiated under the UNCITRAL Arbitration Rules pursuant to an International Investment Agreement concluded on or after 1 April 2014. It is therefore difficult at this stage to assess whether or not parties have made an extensive use of the above-quoted exceptions. However, CEEP argues that an improvement of the transparency under UNCITRAL mostly depends on the composition of the arbitral tribunals (question 8) since “Any determination as to whether information is confidential or protected shall be made by the arbitral tribunal after consultation with the disputing parties.” (Article 7(3) of UNCITRAL) and since it is in charge of allowing third-person submissions by determining “Whether the third person has a significant interest in the arbitral proceedings” (Article 4 (3)(a) of UNCITRAL).

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.

Under question 7 the Commission states that ISDS tribunals cannot order governments to reverse measures. The provided CETA text does indeed allow the Arbitration tribunal to only impose monetary damages or restitution of property. However, CEEP is concerned that the threat of such damages or simply the threat to use ISDS tools may be enough for targeted governments to repeal measures. Previous ISDS cases demonstrate that ISDS and the arbitrational courts have ensured that countries have been subject to severe financial punishments after having for instance enacted stricter environmental laws. Furthermore, the Commission leaves the choice for investors to choose between domestic courts and the ISDS tool. CEEP supports this approach: investors should be allowed to choose domestic courts since experience shows that the development of international arbitration mechanisms tends to favour business at the expense of the states, it is therefore likely that investors will choose the ISDS tool. Indeed, under the ISDS tool foreign investors often acquire more rights on the market, than national players, because as opposed to national legal systems, ISDS provisions are often wider and vaguer. This leaves substantial room for corporations to sue states for implementing stricter social policies, if it causes financial loss to the company, while national companies are bound by more precise national legislation that does not allow for such frivolous claims. Consequently, countries may be punished for updating social policies within their territory, should they not be agreeable to commercial interests of foreign investors. The introduction of an ISDS in transatlantic partnership could therefore be costly to Europe and force it to abandon some of its core values and principles. On the whole CEEP does not see enough incentives in the text that “encourage the use of domestic courts” as the European Commission claims it does. On the other hand, we agree with the European Commission that the CETA text tries to address the problem of multiple parallel proceedings. The text succeeds in this respect. In order to submit a claim to arbitration, the claimant investor is barred from engaging in a parallel domestic process about the same measure. If the investor wishes to submit to arbitration, proof will have to be provided that the domestic proceeding has been completed and closed or that the investor has withdrawn from the proceeding. Moreover, the investor must waive the right to initiate such proceedings. In our view, this is a positive development. However, we do not consider that this favours or encourages domestic courts in any way.

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?

The EU claims that it “will introduce specific requirements in the TTIP on the ethical conduct of arbitrators, including a code of conduct”. However that code of conduct is not available yet. According to the CETA text, this code of conduct shall be adopted by a join committee “no later than two years after the entry of the Agreement.” CEEP finds it consequently difficult to assess the credibility of EU’s intentions. CEEP also notes that this code of conduct “may address topics including: i. disclosure obligations; ii. the independence and impartiality of arbitrators; and iii. confidentiality.” CEEP thinks that issues such as “the independence and impartiality of arbitrators” should be addressed by the code of conduct because they have been identified as problematic. However, we cannot know whether this Code will adequately deal with these problems because the adoption of the Code is postponed by up to two years after the entry into force of the agreement. In our view, the Code of Conduct should be finalized along with the rest of the investment text. Given the uncertainty as to whether this Code will ever be finalized and the uncertainty regarding its content, we cannot, at this point in time, agree with the European Commission that steps have been taken to address the issue of arbitrator impartiality and independence. Any assessment of impact of the Code would be mere speculation. What is more, the Commission states that “This code of conduct will be binding on arbitrators in ISDS tribunals set up under TTIP”. CEEP finds no clear evidence in the text that this code of conduct will be binding. On the contrary, the Commission makes a clear reference to the International Bar Association Guidelines on Conflicts of Interest in International Arbitration (Article x-25(6)). CEEP reminds the Commission that those guidelines are a general code not elaborated for ISDS. Regarding the creation of a roster, it is true that to date investment treaties often do not provide for a “roster” of arbitrators, but the ICSID system does use a roster system under which the Secretariat maintains a list of Conciliators and of Arbitrators, so the idea is actually not new. Also, the roster approach at ICSID has not helped mitigate concerns of impartiality and independence of arbitrators. CEEP is of the view that the kind of roster approach proposed in the CETA will also fail to address these concerns. As for ICSID, the first two arbitrators under CETA are unilaterally nominated by the investor and the state and there is no need whatsoever to choose an arbitrator from the roster. The roster only comes into play where the parties fail to appoint the presiding arbitrator within three months of the submission of the claim, or fail to appoint their own arbitrator (this latter situation is not expected to be common under CETA). This is very similar to the ICSID roster system, where the presiding arbitrator is only chosen from the roster when one of the arbitrators is not nominated. The roster is therefore only a backup and does not have the power of an exclusive roster for all the arbitrators fulfilling strict conditions of experience, independence and impartiality. As a consequence, all the problems resulting from party appointments, such as arbitrators focusing more on pleasing the nominating parties and being re-appointed in future cases, are not resolved through the roster system proposed in the CETA draft. To summarize, CEEP asks for:  The finalization of the code of conduct along with the rest of the text on investment protection. This code of conduct should be binding and should deal with issues such as “the independence and impartiality of arbitrators” in order to improve the transparency and legitimacy of the arbitral tribunals.  A more extensive use of the roster list. The roster list should not be a last resort remedy. On the contrary, the roster should become exclusive and the listed persons should fulfill strict conditions of experience, independence and impartiality. In case a roster system is implemented, parties should be involved in the choice of the conciliators and arbitrators in order to guarantee a fair and transparent process.

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.

No comment

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?

No comment

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?

No comment

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.

The idea of introducing an appellate system is a good one in our view. As we can see from the WTO experience, the WTO appellate mechanism is working well. The Appellate Body is well respected, and has contributed to a more predictable trading system through its clarifications regarding key questions of interpretation. The result has not only been better law and consistency but also improved compliance and trust in the system. Thus, the European Commission states that it aims at establishing an appellate mechanism in TTIP. Yet, the CETA text is only an incentive to the Committee on Services and Investment “to provide a forum for the Parties to consult on issues to (…) “whether, and if so, under what conditions, an appellate mechanism could be created under the Agreement”. It might therefore be taken as an indication that such a provision might fail to materialize. Certainly, at this stage, we cannot conclude that the ISDS in CETA has solved the problems relating to lack of consistency, predictability, and legal correctness just by including the possibility of establishing an appellate mechanism. In case of the creation of an ISDS tool in TTIP, CEEP asks for:  The creation of a real appellate mechanism largely based on the WTO appellate mechanism model.  A deadline for the delivery of the appellate report itself. Indeed, the draft CETA text only provides the deadline of filing an appeal and the time-period of the adoption of the appellate body’s report by the tribunal, omitting the timetable for the delivery of the appellate report itself. This is a vacuum to be filled since it could delay the whole appellate process.  Relevant provisions regarding the composition of the appellate body. The WTO Arbitral Body model, based for instance on collegiality, could be employed in case of ISDS in TTIP.

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?

In addition to its previous comments, CEEP would like to make the following remarks and statements:  CEEP is concerned about the final impact of the EC Consultation on modalities for investment protection and ISDS on negotiation on TTIP.  The Commission has clearly identified and defined a number of issues raised by CEEP as well as by numerous stakeholders. However, CEEP notes several discrepancies between the Commission’s approach and the CETA text. Furthermore, CEEP notes that negotiations on ISDS in CETA are still ongoing and that the text might be consequently amended. CEEP hopes that the final result of the negotiation on TTIP will reflect stakeholders’ concerns and invites the Commission to stand firm in the negotiations.  The European Commission statement does not address the role of the CETA as a forerunner to the TTIP negotiations. It will, of course, be much more difficult for the EU to conclude an agreement with the United States that does not include an ISDS clause if the CETA does contain one. However, regarding the CETA, the European Parliament stated in its resolution from 8 June 2011 that the negative list approach in the CETA should be seen as a mere exception. Thereby, the CETA should not serve as a precedent for future negotiations.  CEEP agrees with the text voted by the European Parliament on Financial responsibility linked to investor-state dispute settlement tribunals established by international agreements to which the EU is party, when it states, that “Union agreements should afford foreign investors the same high level of protection as Union law and the general principles common to the laws of the Member States grant to investors from within the Union, but not a higher level of protection. Union agreements should ensure that the Union's legislative powers and right to regulate are respected and safeguarded” (point 4 of the preamble). CEEP calls for the full implementation of these principles, especially when it comes to health and environmental policies.  CEEP notes with satisfaction that, in Questions 2 and 5 of the consultation, the European Commission explicitly foresees a "carve-out" of the audiovisual sector from investment protection. CEEP invites the Commission to carefully cater, in application of its mandate, for an effective exclusion of audiovisual services - irrespective of the platform used, the technology, or the bundling with other services- from a future agreement.  CEEP could in principle support the inclusion of investment protection chapters in recent and forthcoming EU FTAs, provided that this protection is not traded against market-opening and does not endanger services of general interest as well asEuropean standards. CEEP thus accepts the need for an enforcement mechanism and for investment protection. Such an enforcement mechanism should provide for a fact based and neutral dispute resolution mechanism, in accordance with established and recognized law enforcement principles, e.g. possibilities of remedies, public disclosure of information and holding of public hearings, creation of a real appellate mechanism and of a binding and exclusive code of conduct for arbitrators. Concerning the provisions on the protection of investors, CEEP is concerned that there may be significant potential for harm in allowing foreign investors to bypass domestic courts and specific contract-based remedies in favour of treaty arbitrations that include elements going well beyond the rights domestic investors have. Therefore, CEEP asks the Commission to pay special attention to the scope of the definition of ‘investment’, to clarify the way investment protection standards have been formulated by ensuring, for instance, that the non-discrimination clause of the investment chapter only applies to investments already made. Furthermore, a so-called ‘umbrella-clause’ should not be included and the definition of the ‘right to regulate’ for parties should be extended and included into other investment chapters, such as the ‘Most favoured Nation’ clause and the ‘Fair and Equitable Treatment’ clause. Clear references to the ILO conventions and to the Organization for Economic Co-operation and Development (OECD) Guidelines on social corporate responsibility would help safeguard European social standards. In addition, the local and regional self-government (Article 4(2) TEU), the principle of subsidiary and the principle of proportionality (Article 5 (3)) shall not be undermined by special rights for private international investors. The decision-making and regulatory right of the regional and local authorities in the area of public services must be guaranteed. Moreover, incentives for investors to choose a national court could be further developed. Finally, the Commission should first assess whether all those kinds of guarantees could not be best achieved within current legal system frameworks.