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Investment Protection in TTIP: Three Feasible Proposals

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European Yearbook of International Economic Law 2016

Part of the book series: European Yearbook of International Economic Law ((EUROYEAR,volume 7))

Abstract

Investor-state dispute settlement (ISDS) through international arbitration has become a major stumbling block in negotiations of the Transatlantic Trade and Investment Partnership (TTIP).

Despite a number of efforts to fix shortcomings of the existing system especially by the European Commission, many stakeholders still are unconvinced that these incremental adaptations are sufficient to safeguard policy space in Europe. Right or wrong, there is little political appetite to include similar provisions into TTIP. At the time of writing, Washington also showed little appetite for a transatlantic or even multilateral investment court.

In order to avoid losing support for the agreement as a whole, the parties now need to think about alternatives. This brief article proposes three solutions, which could be politically acceptable while at the same time offering meaningful investment protections. Our proposals are intended as a concise but constructive input to the increasingly divisive political debates, which are detracting attention from the broader economic and geopolitical benefits of a transatlantic trade agreement.

We are grateful to David Gaukrodger for comments on a previous version.

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Notes

  1. 1.

    See Poulsen, Bonnitcha, and Yackee (2015).

  2. 2.

    European Parliament (Plenary), text adopted on 23 May 2013 in Procedure 2012/0163(COD), P7_TAPROV(2013)0219, http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+TA+P7-TA-2013-0219+0+DOC+XML+V0//EN (amendment 3) (last accessed 11 August 2015); European Parliament Resolution of 8 July 2015 containing the European Parliament’s recommendations to the European Commission on the negotiations for the Transatlantic Trade and Investment Partnership (TTIP) (2014/2228(INI)), http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+TA+P8-TA-2015-0252+0+DOC+XML+V0//EN&language=EN (para (2)(xv)) (last accessed 11 August 2015).

  3. 3.

    Political risk insurance covers many of the risks protected by investment treaties, such as uncompensated expropriation and contract breach. See generally; Poulsen (2010). On the use of insurance to mitigate against political risks, see generally West (1999).

  4. 4.

    See Ikenson (2014).

  5. 5.

    See Kleinheisterkamp (2014a); Kleinheisterkamp (2015).

  6. 6.

    Several design elements could be reconsidered: On the consolidation of investment disputes through the possibility of treaty claims against investors see Laborde (2010) and Bjorklund (2013). For concerns with using arbitration to resolve investment treaty disputes see Van Harten (2007); Lester (2013).

    For the different use of remedies in investment treaty law compared with most advanced legal systems see Gaukrodger and Gordon (2012). For the inconsistency of investment law with corporate law in the most advanced legal systems see Gaukrodger (2013); see generally Waibel (2013).

    For UNCTAD’s work on sustainability concerns in the existing international investment regime, see http://unctad.org/en/PublicationsLibrary/diaepcb2012d5_en.pdf (last accessed 21 August 2015).

  7. 7.

    See e.g. Bernasconi-Osterwalder and Mann (2013). A more useful formulation is offered in; Bonnitcha (2014), pp. 343–344.

  8. 8.

    See, e.g., the decision of the Court of Justice of the EU in the FIAMM and Fedon case, Joined Cases C-120 & 121/06 P, [2008] ECR I-6513. The need to refer to the general principles common to the laws of the member states for determining state liability under EU law is explicitly enshrined in Article 340(2) TFEU.

  9. 9.

    See e.g., Shenkman (2002). For a comparison of US domestic law and international investment law on contract breach, see; Johnson and Volkov (2013).

  10. 10.

    Montt (2009). See also Schill (2012).

  11. 11.

    Letter by US Trade Representative Marantis to the Speaker of the House of Representatives of 20 March 2013, http://www.ustr.gov/sites/default/files/03202013%20TTIP%20Notification%20Letter.PDF (last accessed 21 August 2015).

  12. 12.

    See European Parliament Resolution of 8 July 2015 containing the European Parliament’s recommendations to the European Commission on the negotiations for the Transatlantic Trade and Investment Partnership (TTIP) (2014/2228(INI)), http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+TA+P8-TA-2015-0252+0+DOC+XML+V0//EN&language=EN (last accessed 21 August 2015).

  13. 13.

    See Poulsen L, Bonnitcha J and Yackee J (2015) Transatlantic Investment Treaty Protection, http://www.ceps.eu/system/files/SR102_ISDS.pdf (last accessed 11 August 2015).

  14. 14.

    An exception to this rule is the North American Free-Trade Agreement (NAFTA), but both the US and Canadian governments did not expect its investment chapter to apply to their own regulatory acts but primarily to Mexico. Another partial exception is the Energy Charter Treaty (ECT), but here again the investment protection chapter was primarily intended as a shield against political risks in the least developed parties (Eastern Europe and Russia). Note also that ECT was concluded as a mixed agreement including the European Union and its member states, yet without any possible intention to modify the existing rules for the internal EU energy market as amongst the then member states, which would have required a modification of the EU Treaties.

  15. 15.

    Text can be found at: www.ustr.gov/trade-agreements/free-trade-agreements/australian-fta (last accessed 21 August 2015).

  16. 16.

    For example, if a European investor in the United States were denied access to justice, as in the Loewen case, this would be undermine the common understanding about the equivalence of the court systems and the European Commission could take up this issue and even bring a state-to-state arbitration against the United States, both for a declaration of the violation of the substantive investment provisions and for damages of the European investor. On the often overlooked promises of state-to-state dispute settlement in international investment law, see; Roberts (2014).

  17. 17.

    Text can be found at: https://ustr.gov/archive/assets/Document_Library/Reports_Publications/2005/2005_TPA_Report/asset_upload_file120_7517.pdf (last accessed 21 August 2015).

  18. 18.

    They would work both in a traditional investment arbitration system as well as a standing investment court, which has recently been proposed by Germany and the European Commission.

  19. 19.

    For a discussion, see Kuijper, Pernice, Hindelang, Schwarz and Reuling (2014).

  20. 20.

    In the light of the US Supreme Court decision in BG Group v Argentina, it would be necessary to clearly formulate the local litigation requirement of 5 years as a genuine condition precedent for the EU’s consent to arbitration under the investment agreement. In this case, the US Supreme Court defined the local litigation requirement in the US-Argentina BIT as a mere question of admissibility. This would therefore fall within the exclusive jurisdiction of the arbitral tribunal as a procedural question and thus outside the scope of judicial review of the tribunal’s jurisdiction, thus potentially allowing arbitrators to dispense with local litigation requirements. For another adjustment of the local litigation requirement, see discussion in Kuijper, Pernice, Hindelang, Schwarz and Reuling (2014).

  21. 21.

    On the legality and practice of state interpretation of investment treaty obligations, see; Roberts (2010).

  22. 22.

    This proposal is supported even by strong defenders of investment arbitration; see e.g. commissioned report to the Dutch government by Tietje C and Baetens F (2014) The Impact of Investor-State-Dispute Settlement (ISDS) in the Transatlantic Trade and Investment Partnership.

  23. 23.

    See contributions in; Sauvant (2008).

  24. 24.

    See in more detail Kleinheisterkamp (2014b).

  25. 25.

    http://www.europarl.europa.eu/sides/getDoc.do?pubRef=-//EP//TEXT+CRE+20130522+ITEM-019+DOC+XML+V0//EN (last accessed 21 August 2015).

  26. 26.

    In the specific case of China note also that Beijing already require investors to go through a domestic administrative review procedure before taking claims to arbitration. See; Gallagher and Shan (2009), ch. 8.

  27. 27.

    See Ginsburg (2005).

  28. 28.

    See, e.g., Baetens F (2015).

  29. 29.

    For a critical discussion, see Paparinskis (2010). For recent empirical evidence, see Jandhyala, Gertz and Poulsen (2015).

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Authors and Affiliations

  1. Law Department, London School of Economics, Houghton Street, London, WC2A 2AE, UK

    Jan Kleinheisterkamp

  2. School of Public Policy, University College London, London, WC1H 9QU, UK

    Lauge N. Skovgaard Poulsen

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  1. Jan Kleinheisterkamp
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  2. Lauge N. Skovgaard Poulsen
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Correspondence to Jan Kleinheisterkamp .

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Editors and Affiliations

  1. Chair for Public Law, International and European Law, Saarland University, Saarbrücken, Germany

    Marc Bungenberg

  2. Faculty of Law, University of Passau , Passau, Germany

    Christoph Herrmann

  3. Chair for Public Law and International Law, University of Erlangen-Nürnberg Faculty of Law, Erlangen, Germany

    Markus Krajewski

  4. Competition and Regulation Institute, Leuphana University of Lüneburg, Lüneburg, Germany

    Jörg Philipp Terhechte

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Kleinheisterkamp, J., Skovgaard Poulsen, L.N. (2016). Investment Protection in TTIP: Three Feasible Proposals. In: Bungenberg, M., Herrmann, C., Krajewski, M., Terhechte, J. (eds) European Yearbook of International Economic Law 2016. European Yearbook of International Economic Law, vol 7. Springer, Cham. https://doi.org/10.1007/978-3-319-29215-1_23

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