Why is the EU still clinging on to ISDS?

March 03, 2015

Traidcraft has long been concerned about the impact of trade and investment agreements on developing countries. Today we published a new report highlighting the damaging Investor State Dispute Settlement (ISDS) clause in investment agreements.

PRESS RELEASE

As emerging economies turn their backs on ISDS - why is the EU still clinging on? Asks new report

An increasing number of emerging, developing and industrialised economies are turning their backs on Bilateral Investment Treaties (BITs) designed to protect companies operating abroad.

It comes as countries see a rise in the number of legal challenges to their own policies, which companies deem to be affecting their profitability, and the extremely high costs incurred by governments in defending these cases.

According to a new report by Traidcraft in partnership with ten other European campaign groups,[1] countries around the world are exploring alternatives to BITs in an attempt to regain their sovereignty and keep costs down. The number of cases has rocketed from 10 known cases in the beginning of the 1990s to 568 cases by the end of 2013.

The cases have been brought about by the most controversial part of a BIT, the Investor-to-State Dispute Settlement (ISDS) mechanism.

Countries signed BITs to attract foreign investment, while many were unaware of the range of policies that could be challenged by an investor using the ISDS mechanism claiming unfair treatment under these treaties. Overall, the report asks, are BITs worth it?

“The myth that BITs are necessary to attract foreign investment has been challenged by the fact that Brazil, as the largest FDI recipient in the Latin American region, has never signed an Investment Treaty,” says Rebecca Varghese Buchholz, senior policy advisor at Traidcraft. “Instead countries are strengthening their own legal systems and exploring less damaging alternatives.”

ISDS which allows companies to sue states in private, often in secret tribunals, for policies ranging from increasing minimum wages to introducing plain cigarette packaging, is now risking to derail the proposed Transatlantic Trade and Investment Partnership (TTIP), the ambitious trade deal between the EU and the US. But this is not just an issue for the EU-US trade deal.

“Even more worrisome is the disproportionate impact of investor challenges to developing countries’ public policies – defending a case alone costs on average $8 million while compensation awards can go into billions of dollars. These are significant numbers,” says Rebecca.

Countries around the world are reviewing their policy on Bilateral Investment Treaties and investor protection in an attempt to regain their sovereignty. 

Rebecca adds: “If the EU-US TTIP agreement ends up including ISDS, it risks setting a global blueprint for investor protection. Countries could feel the pressure to reverse their policy positions. The European Commission should drop ISDS from the TTIP agreement and refrain from pressuring developing countries to negotiate or sign IIAs with ISDS. ISDS is a risky, outdated and redundant mechanism. Much more effort needs to be put into exploring alternative dispute resolution mechanisms that avoid granting such far-reaching and exclusive rights to investors.”

Media contact:

For more information, please contact Roderick Stuart, Head of Communications and PR at Traidcraft on 07920 066033 or rodericks@traidcraft.co.uk

 

About Traidcraft

Traidcraft is the UK’s leading fair trade organisation and has been fighting poverty through trade since 1979. Supported by its unique structure – a trading company and a development charity working together – Traidcraft runs development programmes in some of the poorest countries in the world, campaigns in the UK and internationally to bring about trade justice and sells the UK’s widest range of fair trade products.

 

[1] The report is launched today in Brussels. It sets out the rise in ISDS cases, explores the costs to developing countries in terms of policy space and budgets, and sets out what is being done. It is produced by Traidcraft in partnership with TNI-Netherlands; SOMO-Netherlands; Powershift-Germany; FAL-France; Ecologistas en Accion-Spain; AK-Austria; 11.11.11-Belgium; ReCommon-Italy; Vedegylet Egyesulet-Hungary; IGO-Poland; AfrikaKontakt-Denmark