Economist: ‘ISDS disconnect between rhetoric and reality’


Fredrik Erixon [ECIPE]

This article is part of our special report TTIP and the arbitration clause.

SPECIAL REPORT: The integrity of EU trade policy, and the European Commission’s capacity to negotiate, are on the line in the current ISDS debate, according to a proponent, economist Fredrik Erixon.

A Swedish economist and writer, Fredrik Erixon is the director of Brussels-based think tank the European Centre for International Political Economy (ECIPE). He previously worked as an economist for the Swedish government and the World Bank.

He spoke to EURACTIV’s Jeremy Fleming in Brussels

How do you assess the way in which the ISDS debate is being conducted?

It has become a very ideological debate, at least as far as the general debate is concerned. There is a general disconnect between the rhetoric and the reality of investment agreements and how they are used. That is unfortunate and it has put some governments around Europe on the defensive. They now make policy via press releases rather than thinking about what is necessary for investment too to be subject to international rules and disciplines. 

Are you surprised by how contentious the issue seems to have become?

Yes and no. I was around during the big debate over a Multilateral Agreement on Investment in the 1990s and I have seen this travelling band of globalisation sceptics congregating on many other issues in more recent times. There are real issues to address around the current design of investment protection, but I don’t see the anti-ISDS crowd being interested in that discussion.

How important is it from your point of view to include ISDS in TTIP?

ISDS is generally important, also in TTIP. Political interference in investment issues is growing, also in the US and the EU. Investment agreements with ISDS give companies recourse to dispute settlement and arbitration when they believe their rights have been squashed by government. It is especially important to have it in investment agreements, because such agreements don’t have mechanisms to ensure that governments actually make laws and regulations that are compatible with what they have signed up to in investment protection agreements. Some people now say that it is enough that companies have access to local courts.

But what if a government has not introduced changes to their laws and regulations as a consequence of an investment treaty, and if they still allow for say uncompensated expropriation? Companies can’t then claim their right in local courts because the investment agreement is not the law of the land. Given the attack on ISDS, it has become even more important – it is the integrity and authority of EU trade policy, and the Commission’s capacity to negotiate meaningful trade deals, that are on the line. If ISDS is discharged from TTIP, I am afraid that is the end of TTIP. Europe’s trade negotiators could take a long holiday, because other countries that the EU are negotiating with would rightly  worry about the EU’s capacity to command authority in trade policy. 

How much chance does TTIP have of succeeding without ISDS?

I think it would be the end of TTIP. If ISDS is discharged before the negotiations have finished, the criticism will move on to other parts of TTIP. The idea that NGOs then will become silent and accept TTIP is just naive. That is not the way they operate. I expect the US to lose faith in EU’s capacity to stand up for an ambitious trade agreement, if it gave up on ISDS. 

What are you expecting from the Commission report on the issue?

I expect the Commission to set out a policy pretty much along the same lines as the ISDS model used in the Canada-EU agreements. Agreements will be tightened up, and there will be more transparency.

How can issues relating to redress be dealt with through the WTO?

Investment protection is not covered by the WTO. I see no development in that direction in the foreseeable future. A multilateral approach to investment protection and arbitration would anchor them in a treaty and give opportunities to regulate in agreements what governments are not allowed to do. If we build a similar approach to investment as we have done to trade in the WTO, we would get far better rules that would protect against discrimination and unfair practices in a way that BITs (bilateral investment treaties) can’t do.

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