By Heini Järvinen

On 3 December 2013, the Dutch Parliament requested the government to investigate the potential social and environmental risks and the consequences of investor-to-state dispute settlement (ISDS) and the consequences of ISDS for the Netherlands as well as the financial risks for the Dutch government.

On 17 April 2014 companies and civil society organisations met at the Ministry of Foreign Affairs to discuss the ongoing “ISDS – TTIP (Transatlantic Trade and Investment Partnership) study”. The ministry invited participants to send in further comments. The Foundation for a Free Information Infrastructure (FFII) submitted the note “ISDS threatens privacy and reform of copyright and patent law”.

The note concludes that the EU Commission’s timid reform proposals would create an ISDS system that is wide open for abuse and fundamentally incompatible with Europe’s human rights system. Given ISDS’s inherent design flaws which threaten democracy and human rights that can only be solved by abolishing the system, it is imperative that the EU will exclude ISDS from its trade and investment agreements. In doing so, the EU would give direction to the debate and create room to strengthen alternatives.

ISDS gives multinationals the right to sue states before special tribunals if changes in law may lead to lower profits than expected. Multinationals can challenge reform of copyright and patent law, challenge environmental and health policies.

FFII’s note is divided into three sections. The first section analyses the system’s design flaws. It argues that ISDS has four inherent design flaws which can only be solved by abolishing the system: ISDS gives companies equal standing to states, unequal standing creates pressure on human rights, ISDS places specialised investment panels above general supreme courts, and the system lacks a legislative feedback loop. Further, the section notes that the inherent design flaws are aggravated by non-inherent design flaws: the tribunals are not courts, the arbitrators are not judges, there is no tenure and there is a lack of openness. It concludes that the 2013 UNCTAD investment report shows that these flaws can be solved but that this would require a complete overhaul of the current regime through the coordinated action of a large number of states – an overhaul which is not likely. The section also notes that ISDS is vulnerable to outside pressure. An argument for inclusion of ISDS in TTIP is that if ISDS is not in TTIP, China may object to having ISDS in its trade agreement with the EU. But the vulnerability to outside pressure defeats the sense of including it in trade agreements. The section raises the question whether China will be able to pressure arbitrators.

The second section discusses the EU Commission’s reform proposals that it presents in its consultation. The Commission reforms both substantive investment protection provisions and procedural (ISDS) rules. Regarding substantive investment protection provisions, it concludes that the Commission’s proposal contains a very broad definition of investment. Contrary to Commission statements, the known Most Favoured Nation loophole still exists. Companies will not only be able to use the substantive investment protection provisions in TTIP, but they can cherry-pick from any other investment agreement the EU or EU member state signed. The text creates supreme investors rights which trump human rights. There is no general exception that safeguards the right to regulate. Specific limitations to safeguard the right to regulate are limited and do not solve the kind of uncertainty the EU is trying to avoid.

The third section argues that the commission’s ISDS proposals are fundamentally incompatible with Europe’s human rights system. It concludes that ISDS threatens our privacy and reform of copyright and patent law. It further argues that ISDS creates a higher chance on compromising the stability and integrity of the financial system. The filter mechanism proposed by the Commission has a very limited scope, is dependent on other parties, doesn’t help against the chilling effect of threats. This section also argues there is a lack of necessity for ISDS.

ISDS threatens privacy and reform of copyright and patent law
http://people.ffii.org/~ante/ISDS/FFII_NL_ISDS-threatens-privacy.pdf

Critical Dutch parliament resolution on investor – state dispute settlement (04.12.2013)
http://acta.ffii.org/?p=1970

(Contribution by Ante Wessels – EDRi member Vrijschrift – The Netherlands)