European Commission formally presents proposed Investment Chapter for TTIP to the US

Yesterday, 12 November, the EU formally presented its proposed language for the Investment Chapter of the TTIP to the US. As discussed in our earlier blog piece here, the EU is suggesting an "Investment Court System" to resolve disputes between investors and states under the TTIP.

The 12 November text is very similar to that seen in the previous draft, with a number of small changes. These changes include (but are not limited to):

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European Commission publishes draft investment chapter for the TTIP, including investment protection provisions and the establishment of an International Investment Court

On 16 September the European Commission published detailed draft proposals for the investment chapter in the proposed Transatlantic Trade and Investment Partnership treaty between the EU and the US (“TTIP”). The full text is available here. The chapter includes detailed investment protections and the establishment of an International Investment Court to resolve disputes under the TTIP. These proposals follow the Commission’s 5 May 2015 Concept Paper (discussed in our earlier blog here), which looked at reforming the ISDS system and proposed moving away from the current system of Investment Treaty arbitration.

The Commission has made it clear that this draft is for discussion and consideration within the EU before being put to the US as part of the TTIP text.

We explore and summarise below some of the key issues raised in the chapter.

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The future of ISDS in the TTIP: European Parliament recommends a “new system” of judicial decision-making

As reported in our previous blog posts (please click here and here), the proposed inclusion of investor-state-dispute settlement (ISDS) provisions in the Transatlantic Trade & Investment Partnership (the TTIP), has caused considerable debate amongst many stakeholders. Against this backdrop of heated public discussion, the European Parliament (the EP) has drawn up recommendations on the TTIP, including on ISDS. Whilst it is the European Commission (the Commission) which is negotiating the TTIP with the US on behalf of the EU, there can be no final agreement without the EP’s approval. The EP’s recommendations are a crucial indication of what it would want to see in the final agreement and will undoubtedly shape the Commission’s negotiating position. Continue reading

EU Commission issues “Concept Paper” on ISDS in the TTIP and beyond: proposals for “profound reform”

Further to its report on the outcome of the consultation on investment protection and investor-state dispute settlement in the TTIP, the EU Commission has issued a “Concept Paper” which envisages a very different future for resolution of investor-state disputes.

The Concept Paper builds on the four key areas which the Commission previously identified as requiring further consideration, explaining that there is opportunity for “profound reform” of the investment protection and ISDS systems. It also elaborates on the steps it has already taken in the EU-Canada FTA (the CETA) and the EU-Singapore FTA to improve the systems, and makes proposals which it considers will offer further progress towards its goal of protecting and encouraging investment without affecting the ability of the EU and its Member States to pursue policy objectives.

The Commission has proposed what it terms “concrete ideas” and a “concrete solution” (as summarised below). The Concept Paper is not binding and the Commission states that the content is without prejudice to its final position. However, the Concept Paper is a clear indication of the evolving thinking of the Commission in these areas. In particular, the Concept Paper contains two clear messages:

  • Despite the outcome of last year’s consultation and the apparent weight of opinion in the European Parliament, the Commission is not minded to remove substantive investment protections or investor-state arbitration from the TTIP.
  • The Commission envisages major changes in the future for ISDS which, if adopted in the TTIP and accepted more broadly in other free trade and investment agreements, would have significant implications for the way in which investors are able to protect their investments and resolve disputes with host states.

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Indian Government seeks comments on a proposed draft Model Text for the Indian Bilateral Investment Treaty

The Government of India (“GOI“) has recently published a draft “Model Text for the Indian Bilateral Investment Treaty” (“Model BIT“), which is understood to be intended to revise India’s model bilateral investment treaty of 1993 and to serve as a framework for the renegotiation of India’s over 80 bilateral investment treaties (“BITs“) which are currently in force. The GOI has asked for public comments on this Model BIT by 10 April 2015.

There are a number of significant features in the Model BIT that appear to be reactions to the BIT claims that India has been faced with over the last few years. These include the only concluded BIT case against India, namely the White Industries award of 2012 (discussed here), in which a BIT tribunal found against the GOI on the basis that delays in enforcing an international arbitration award through the Indian court system had amounted to a breach of its obligation to provide investors with an “effective means of asserting claims and enforcing rights” (which obligation had been imported into the relevant India-Australia BIT from the India-Kuwait BIT using the most favoured nation (“MFN“) provisions of the former). More recently, the GOI has faced several claims relating to retrospective changes to its tax legislation in 2012 (e.g. the Vodafone case).

In this regard, and perhaps unsurprisingly, many parts of the Model BIT appear to be framed as an attempt to limit protections afforded to inbound investors into India, rather than ensuring the protection of outbound Indian investors into overseas markets. Several of the provisions appear to be squarely aimed at preventing repeats of these previous claims; for example, the absence of an MFN clause, and specific exclusions of claims based on taxation or the provision of non-commercial services by the host state.

On the other hand, various portions of the lengthy draft, such as the detailed provisions prescribing the contents of a Notice of Claim and Notice of Arbitration under the Investor-State dispute settlement (“ISDS“) provisions, and the provisions on arbitrator independence and challenge, appear to be attempts to incorporate aspects of the current debate around ISDS in the TPP (“Trans-Pacific Partnership“) and TTIP (“Transatlantic Trade and Investment Partnership“) as a template for more explicit treatment of such matters in future BITs.

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Leaked Investment Chapter of the TPP: broad similarities to the US Model BIT, a nod to the ongoing debate and some outstanding issues

On 25 March the 20 January 2015 working draft of the Investment Chapter of the Trans-Pacific Partnership (TPP) was posted on Wikileaks. (There may be later drafts not yet publicly available, but this is the best guide yet to what is coming.) As discussed in our earlier article here, the investment protection and Investor-State dispute settlement (ISDS) provisions of the TPP have proved to be one of the most contentious elements of the agreement and a major battleground in the negotiations, particularly between the United States and Canada.

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“Company vs Country”: BBC documentary on investor-state dispute settlement on BBC Radio 4 tonight

After decades of governments concluding international investment agreements, reservations concerning free trade agreements (such as the TTIP, between the US and the EU) have led to unprecedented levels of public debate, focussing largely on the proposed inclusion of investor-state dispute settlement (ISDS) provisions.

Matthew Weiniger QC was interviewed for a BBC Radio 4 programme to be broadcast at 8pm tonight, titled “Company vs Country“. It will discuss the nature of investment protections and ISDS, including the high profile investor-state disputes which are relied on as evidencing the alleged threat ISDS poses to democracy.

The programme will be available here shortly after the broadcast.

For further information, please contact Matthew Weiniger QC, or your usual Herbert Smith Freehills contact.

Matthew Weiniger QC
Matthew Weiniger QC
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+44 20 7466 2364

Herbert Smith Freehills hosts TTIP event in partnership with Chatham House

On Wednesday 4th March Herbert Smith Freehills hosted an event in partnership with Chatham House (the Royal Institute for International Affairs, London), seeking to explore the opposition to the TTIP and, in particular, the Investor State Dispute Settlement (ISDS) chapter within it. Chaired by HSF partner, Andrew Cannon, the panel represented a broad range of stakeholders from in-house counsel, government officials, academia and civil society, together with HSF partner, Christian Leathley. The panel explored why ISDS arouses such opposition, and whether and how it can be improved to strike a balance between investment protection and the right of governments to regulate. The panel also considered whether the TTIP and its ISDS provisions will be a blue print for future free trade agreements.

The proposed Transatlantic Trade and Investment Partnership (TTIP) free trade agreement between the EU and the US, two of the world’s largest economies, is intended to remove trade barriers, create wealth and promote investment. On 13 January, the European Commission published the results of its public consultation on the investment protection and investor-state dispute settlement (ISDS) chapter in TTIP. Of the 150,000 responses, 97 per cent were negative. Critics have stated that the ISDS proposals would allow corporates to undermine regulation by governments in fields such as environmental protection.

The event was very well attended with around 100 delegates from across a broad spectrum of sectors and backgrounds. Held under the Chatham House rule, the event opened with presentations by each of the five panellists, followed by questions from the floor. Of particular focus was whether the European Commission’s efforts to revise the substantive standards in the draft TTIP consultation text were merely “tinkering”, doing little to address the legitimacy crisis in ISDS. The panel went on to consider whether a broader shift in mind set towards investor protection was required which gave greater significance to states’ other international obligations such as Human Rights and the environment.

Andrew Cannon comments, “this event gave us a unique opportunity to draw together viewpoints from the two sides of this very current debate at the historic venue of Chatham House. The ISDS system continues to come under ever-closer scrutiny and we will continue to follow developments closely.”

A fuller report of the seminar will be posted shortly.

For further information on the TTIP please contact partners Andrew Cannon, Christian Leathley, Matthew Weiniger and Laurence Shore or your usual Herbert Smith Freehills contact.

Andrew Cannon
Andrew Cannon
Partner
+33 1 53 57 65 52
Christian Leathley
Christian Leathley
Partner
+44 20 7466 2532
Matthew Weiniger QC
Matthew Weiniger QC
Partner
+44 20 7466 2364
Laurence Shore
Laurence Shore
Partner
+1 917 542 7807

Forthcoming Chatham House and Herbert Smith Freehills Symposium: “TTIP: shaping the future for investor-state dispute settlement” – 4 March 2015

The proposed Transatlantic Trade and Investment Partnership (TTIP) between the EU and the US, two of the world’s largest economies, is intended to remove trade barriers, create wealth and promote investment.  On 13 January, the European Commission published the results of its public consultation on investment protection and investor-state dispute settlement (ISDS) in  TTIP.  Of the 150,000 responses, 97 per cent were negative.  Critics have stated that the ISDS proposals would allow corporates to undermine regulation by governments in fields such as environmental protection.  A further consultation is promised.

But why has ISDS in TTIP aroused such opposition?  Can it be improved to strike a balance between investment protection and the right of governments to regulate?  And, if TTIP is a blueprint for future free trade agreements (FTAs), what lies in store for this form of dispute resolution?

Chatham House in partnership with Herbert Smith Freehills are holding a symposium to bring together voices from across a broad range of stakeholders.

Participants:

Sapfo Constantatos, Senior Group Legal Counsel, Dispute Resolution in the General Counsel’s Office, Standard Chartered Bank
Andrew Coop, Senior Legal Adviser, EU and International Trade, Department for Business, Innovation and Skills
Lorenzo Cotula, Principal Researcher, Law and Sustainable Development, International Institute for Environment and Development
Andrea Shemberg, Lead, Investment and Human Rights Project, London School of Economics; Legal Adviser to UN Secretary-General’s Special Representative for Business and Human Rights (2007-11)
Christian Leathley, Partner, International Arbitration and Public International Law, Herbert Smith Freehills LLP, London

Chair:
Andrew Cannon, Partner, International Arbitration and Public International Law, Herbert Smith Freehills LLP, London

For further information, please click here.

Christian Leathley
Christian Leathley
Partner
+44 20 7466 2532
Andrew Cannon
Andrew Cannon
Partner
+33 1 53 57 65 52

Investment protection and ISDS in the TTIP: the discussion continues with more consultation around the corner

Yesterday afternoon, the EU Commission issued its Report on the outcome of the public consultation on the inclusion of investment protection and investor-state-dispute-settlement (ISDS) in the Transatlantic Trade and Investment Partnership (TTIP) being negotiated between the EU and the US. As discussed in our blog post here, the public consultation was launched against the backdrop of vociferous debate about the nature of ISDS and investment protection more generally and in relation to the TTIP. The controversy surrounding investment protection and ISDS in connection with the TTIP is described in our recent podcast.

It is no surprise that the Report reveals strong opposition to, and concerns about, ISDS in the TTIP. It is also no surprise that the discussion as to both the content of the investment protections (including any “right to regulate”, as it is known), and the nature of the mechanism by which these can be enforced, will continue. In its Report, in response to the criticisms of inclusion of ISDS in the TTIP, the Commission refers back to the fact that the consultation takes place in specific circumstances in which the Council (and therefore, to all intents and purposes, each Member State) has unanimously entrusted the Commission to negotiate high standards of investment protection and ISDS within the TTIP, providing the final outcome corresponds to EU interests.   Further, whilst the negotiating directives include an element of conditionality and make clear that a decision on whether or not to include ISDS is to be taken during the final phase of negotiations, it cannot be ignored that the US position is also that investment protection and ISDS should feature in the TTIP.

Whilst the consultation received an extremely high proportion of pre-populated responses organised by NGOs (which generally opposed the inclusion of ISDS), it also solicited responses from a broad cross-section of stakeholders which has allowed the Commission to identify a number of key points areas (or “core issues”) to develop. These are:

  • The protection of the right to regulate
  • The supervision and functioning of arbitral tribunals
  • The relationship between ISDS arbitration and domestic remedies
  • Review of ISDS decisions for legal correctness through an appellate mechanism

The Commission has committed to further consultation with EU stakeholders in the first quarter of 2015.  However, at this stage it is not clear how further consultation on these “core issues” will put the Commission in a better position to develop the investment chapter. For example, the “right to regulate” is the flip-side of the guarantee to an investor of fair and equitable treatment. Any re-consideration of the right to regulate will be deficient if it does not take into account the positive rights of investors which impact on the state’s right, as well as the sectors in which such right should exist without limitation. Again, the relationship between ISDS arbitration and domestic remedies depends on the balance struck between investment protections and the rights of states.  A holistic approach is needed.

The Commission’s Report on the responses to the Consultation is found here, and the accompanying Commission Memo is found here. Aspects of the Report are considered in further detail below. You may also wish to hear Herbert Smith Freehills public international law partner Matthew Weiniger QC discussing these issues on the Today programme on Radio 4 on 14 January 2014 (at 18.55 mins into the broadcast).

For further information, please contact Matthew Weiniger QC, partner, Christian Leathley, partner, or Andrew Cannon, partner, or your usual Herbert Smith Freehills contact.

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