Multilateral Investment Court: an utterly flawed and unjust system

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of EURACTIV Media network.

Under the Commission’s proposal, only foreign investors would be allowed to raise claims against states, and not vice-versa. [Shutterstock]

The European Commission’s plans for a Multilateral Investment Court sanctions a biased and ineffective arbitration system, leaving people and the environment exposed to international investors’ whims, writes Fabian Flues.

Fabian Flues is a trade campaigner at Friends of the Earth Europe

Here is a thought experiment. Imagine a new international institution is being established with the following features: it allows foreign investors to claim compensation from governments for laws and regulations that limit their profits, even if these laws are aimed at protecting people’s health or the environment.

It gives those special rights to corporations without requiring them to respect national law, human rights or refrain from polluting the environment. No one else is able to submit a claim to this institution, not even domestic investors.

Citizens whose drinking water is polluted or whose land has been grabbed by foreign mining or palm oil companies have no access to it either. International corporations using it can go there directly without even attempting to solve their problem in a national court. And finally, its rulings are highly enforceable around the world.

Does this sound a bit crazy and contrary to what you would expect an institution committed to the rule of law to come up with? Probably.

Yet, in a nutshell, that’s what the European Commission is proposing. The project is called Multilateral Investment Court and would allow corporations to sue governments on the basis of trade and investment agreements that afford them far-reaching rights.

In fairness, this system already exists in the form of ad-hoc tribunals which are run, often in utter secrecy, by for-profit lawyers (a system called investor-state dispute settlement – ISDS). What the European Commission in effect proposes is institutionalising ISDS by paying a fixed salary instead of hiring arbitrators on a case-by-case basis, installing an appeal body and ensuring that negotiations cannot be held in secret anymore.

Yet, disappointingly, the main features that make ISDS an utterly unjust and fundamentally flawed system remain intact.

Under the Commission’s proposal, only foreign investors would be allowed to raise claims against states. People or countries harmed by the investor would have no recourse to international legal instruments. With these defining features, it perfectly symbolises an unjust model of globalisation.

What’s more, the Commission does not even want to touch on the VIP rights afforded to investors in existing investment treaties, which have been used in the past to attack vital public policies and are widely seen as giving corporations power over democratically agreed public policy. They would become enforceable by this new institution.

The EU is already rolling out this model, which has been included in trade agreements with Canada and Vietnam and is being proposed in trade negotiations with other countries, like Japan, Indonesia, Mexico and others.

Seen in this light, the inappropriately named Multilateral Investment Court serves as a way to legitimise the significant expansion and locking-in of the investor-privilege-system, without touching its fundamentally unfair principles.

Instead of using the opportunity to get rid of a flawed system, the EU is doing its utmost to turn it into a permanent institution focusing solely on procedural fixes. At the same time, it ignores and sometimes even attacks efforts of other countries, such as India, South Africa and Ecuador to take much more far-reaching steps to curtail unjustified investor privileges.

Ironically, as recent research has shown, ISDS has not led to increased foreign direct investment – the reason for which it was purportedly set up in the first place.

Countries have nothing to lose by terminating their investment treaties and companies that feel they can’t invest without additional assurances can take out a political risk insurance. Hence, here is a simple alternative to this deleterious approach to reforming the investment arbitration system: Scrap ISDS completely.

With the recent publication of the draft mandate for the Multilateral Investment Court, the ball is now in the courts of the EU member states and the national parliaments.

Do they want to give the Commission a blank cheque to set up a global VIP court for corporations? Or do they want to use the opportunity to make real changes to the global investment arbitration system – changes that start reversing the shameful inequities that the current model of economic globalisation has created?

In that case, they should not only consider terminating existing investment treaties and stopping the expansion of the system, but also actively support the establishment of legally binding obligations for companies on human rights that will be negotiated this month at the UN Human Rights Council – a process in which the European Union has played a questionable role so far.

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