At a time when the European Commission wants to set up a special arbitration court, the Multilateral Investment Court (MIC) , to which corporations dissatisfied with the pro-social or pro-environmental policies of states will be able to complain to states for policy decisions that reduce their potential profits, two reports are worth reading.

The first is a report published in early December 2017: “A World Court for Corporations: new report exposes dangers of proposed Multilateral Investment Court”. This report warns that the European Commission’s proposed Multilateral Investment Court (MIC) risks introducing an undemocratic investor-state dispute settlement system that undermines democratic authority at the national level and prioritises the profits of foreign investors. Authored by the Centre for International Environmental Law (CIEL), the Seattle to Brussels Network (S2B) and the Rose Luxembourg Foundation, the report shows that the EU’s plans to strengthen and institutionalise investor-state dispute settlement are a dangerous attempt to salvage the flawed investor-state dispute settlement system known as Investor State Dispute Settlement (ISDS), replacing it with a rebranded copy.

The report was published as countries were wrapping up a week-long discussion on ISDS reform at the UN Commission on International Trade Law (UNCITRAL), where the EU hopes to negotiate an MIC. Many countries noted that growing public concerns about the excessive powers granted to multinational corporations under ISDS had led to a crisis of legitimacy for the premise itself. As in the Commission’s proposal for the MIC, many of the countries that met in Vienna were more concerned with how to restore public legitimacy to ISDS than with solving the underlying problems. While countries were quite frank about the significant risks ISDS poses to their national laws and courts, few manifested a political appetite to confront the system.

“In the EU, member states are considering giving the European Commission a mandate to negotiate an agreement to set up a multilateral investment court with other countries,” says Lucile Falgueyrac, S2B coordinator. “They cannot be fooled: The MIC will extend and strengthen the current system of corporate privilege in future trade agreements.”

The second report , authored by Pia Eberhardt of the Corporate Europe Observatory, was released in 2016, when the multilateral investment court project emerged as a proposal from the European Commission during the negotiations of the EU-Canada free trade agreement CETA , and which the Green Zone Foundation translated: “A Zombie Called ISDS: The Regime to Protect the Rights of Corporations, Just Renamed the Investment Court System, Still Refuses to Die”. Already at that time, the author clearly pointed out that the ICS (Investment Court System), as the multilateral investment court appeared under that name at the time, has the same fundamental flaws as the ISDS system, which was heavily criticised by EU citizens and NGOs:

1. the number of lawsuits filed by investors against states, as well as the amount of damages sought, has increased dramatically over the last two decades: whereas in 1995 three such cases were known, in January 2016 there were already nearly 700 disclosed lawsuits, with 70 new cases filed in 2015 alone, an absolutely record high number. The amount of money at stake in these proceedings has also increased dramatically, with one case awarding the state a gigantic $50 billion in damages. The main beneficiaries were large corporations and wealthy individuals.

2 Over the past two decades, investors have been suing for billions of dollars in damages to their companies’ profits, resulting, in their view, from laws and government decisions introduced in the public interest. Countries on all continents have faced lawsuits after passing anti-tobacco laws or bans on toxic chemicals, taking anti-discrimination or financial stability measures, imposing restrictions on dirty mining ventures, etc. In the case of the European Union, 60 per cent of the lawsuits against its member states had to do with environmental protection. One lawyer defending the interests of states in these cases called their legal basis enshrined in international investment agreements ‘legal weapons of mass destruction’.

3 The EU’s proposed ‘new’ ISDS model (renamed ICS) is just as dangerous to democracy, the public interest and public money as the old model we face in, for example, the EU-Singapore agreement. Not counting some procedural improvements, such as an improved procedure for the selection of arbitrators, strengthened ethical rules and the establishment of an Appeals Chamber, the renamed version essentially provides the same privileges for investors, often encapsulated in exactly the same words as the EU-Singapore Agreement.

4. under the new EU proposal, investors will be able to sue for non-discriminatory and lawful actions to protect health, the environment and other public interest objectives, as the proposal provides the same broad rights for investors that have so far been invoked by companies such as Philip Morris (which sued Uruguay over the country’s introduction of anti-tobacco legislation) and TransCanada (which intends to seek $15 billion in damages from the US government over the rejection of its permit application for the controversial Keystone XL pipeline).

5 Under the EU’s proposals, it will be possible to pay corporations billions of dollars in damages out of taxpayers’ money, including for the loss of future potential profits (as in the case of Libya, which was ordered to pay US$905 million to a company that invested just US$5 million). It will also be possible to award damages for laws and regulations that serve the public interest. The EU’s proposed provisions to protect states’ right to regulate will not protect governments from having to bear such potentially incapacitating costs.

(6) The EU proposal even increases the risk of costly lawsuits against public interest measures because it gives investors even broader rights than many existing investment treaties,

on the basis of which investors have so far brought hundreds of lawsuits against states around the world:

(a) introduces the protection of investors’ ‘legitimate expectations’ under the ‘fair and equitable treatment’ clause, thereby risking a very broad interpretation of this provision being codified in law, establishing a ‘right’ to a stable regulatory environment. This would give investors a very powerful tool to fight regulatory changes, even those that are introduced in the light of new knowledge or as a result of a specific democratic choice made by the people.

(b) The peculiar umbrella clause present in the EU proposal transfers all written agreements entered into by a state in connection with an investment to the level of international law, multiplying the risk of costly lawsuits. This clause is not present in the CETA agreement between the EU and Canada, probably because the Canadian side rejected it as too risky.

(7) If the FTA contains the proposed investor rights provisions, it will multiply the liability and financial risks for EU Member States compared to what they currently face under the agreements signed to date: CETA could result in nearly 900 new lawsuits by US investors, through their subsidiaries operating in Canada, against EU Member States (compared to 9 such lawsuits currently pending under existing agreements).

(8) Under the EU’s proposal, transnational companies will even be able to sue their own country’s government by setting up an investment structure, including a foreign subsidiary, or by asking a foreign shareholder to sue them.

(9) The investor rights provisions in the EU proposal are a straightforward way to intimidate policymakers, potentially making it more difficult for countries to implement needed solutions. Already there are examples of environmental and health legislative projects being abandoned, delayed from entering into force or tailored to the wishes of corporations as a result of an investor bringing a costly lawsuit or formulating such a threat. Canada and New Zealand, for example, have delayed the entry into force of anti-tobacco legislation because of the risk of lawsuits from large tobacco companies.

10 The EU’s proposed dispute resolution process does not guarantee independence, but instead has a built-in tendency to favour investors. Since only investors can bring actions under the ICS, this creates an incentive for arbitrators (now renamed ‘judges’) to keep them on their side when hearing actions – because this means more actions, more fees and more prestige in the future. Restrictive criteria for the selection of arbitrators, the lack of grace periods and loopholes in the proposed ethical conduct rules for arbitrators could result in tribunals being staffed by the same private lawyers who have so far fuelled the boom in investment arbitration and built their own businesses on encouraging investors to file lawsuits and broadly interpreting investment law with a view to attracting more clients.

11 There are serious doubts as to whether the ICS is compatible with EU law, as it amounts to bypassing the European courts and is fundamentally discriminatory in that it gives special rights only to foreign investors. They are given the ability to challenge court rulings, government decisions and laws passed by parliaments, ranging from the local to the European level.

12 The EU’s proposed investment protection regime, rather than consigning ISDS to oblivion, threatens to lock EU countries into this arrangement forever. Countries will have virtually no option to free themselves from investor privileges once they are enshrined in major trade agreements such as CETA (as this would involve leaving the EU). The European Commission’s proposed creation of a multilateral investment court – essentially a global supreme court that only corporations would have access to – risks perpetuating a system that is already grossly unfair because it gives one side, most often large corporations and wealthy individuals, extremely strong and enforceable rights, while the other side, ordinary citizens, get only obligations.

The report in full: “A zombie called ISDS. The regime to protect the rights of corporations , just renamed the investment court system, still refuses to die”.