A Case For Investor-State Arbitration Under the Proposed Transatlantic Trade and Investment Partnership

Arbitration Brief Volume 4 | Issue 1 Article 5 2014 A Case For Investor-State Arbitration Under the Proposed Transatlantic Trade and Investment Partnership Jessi Patton American University Washington College of Law Follow this and additional works at: http://digitalcommons.wcl.american.edu/ab Part of the Law Commons Recommended Citation Patton, Jessi. "A Case For Investor-State Arbitration Under the Proposed Transatlantic Trade and Investment Partnership." The Arbitration Brief 4, no. 1 (2014): 75-91. This Article is brought to you for free and open access by Digital Commons @ American University Washington College of Law. It has been accepted for inclusion in Arbitration Brief by an authorized administrator of Digital Commons @ American University Washington College of Law. For more information, please contact . 2014 A Case For Investor-State Arbitration Under The Proposed Transatlantic Trade And Investment Partnership 75 A CASE FOR INVESTOR-STATE ARBITRATION UNDER THE PROPOSED TRANSATLANTIC TRADE AND INVESTMENT PARTNERSHIP Jessi Patton1 INTRODUCTION ..................................................................................................75 I. The Growth of the ISDS Mechanism and Growing Concern of Litigation and Corporate Power ......................................................................................77 II. Unfounded Fear of Increase in Investor Disputes and Corporate Control In EU and U.S. ...............................................................................................80 A. Less Favorable Post-NAFTA Agreements ..........................................80 B. Existing BITs between U.S. and EU Members and Track Record for Disputes Against Good Governing Countries ....................................83 C.Cost ......................................................................................................84 III. Justification for ISDS Between Developed Countries .............................85 IV. Further Safeguards and Alternatives.........................................................88 CONCLUSION .....................................................................................................91 INTRODUCTION The proposed Transatlantic Trade and Investment Partnership (TTIP) between the United States (U.S.) and European Union (EU) is the most ambitious bilateral trade agreement of all time.2 Although average tariff levels between the two partners are relatively low, various non-tariff barriers (NTBs)—often in the form of domestic regulations—continue to create obstacles for transatlantic investors.3 The TTIP negotiations will focus on reducing NTB costs and increasing investor protection with the addition of a controversial Investor-State Dispute Settlement (ISDS) Juris Doctor Candidate, American University-Washington College of Law, 2014. Countries and Regions: United States, EUROPEAN COMMISSION DICTORATE GENERAL FOR TRADE, http://ec.europa.eu/trade/policy/countries-and-regions/countries/unitedstates/ (last visited Jan. 3, 2014). 3 See Joseph Francois et al., Reducing Transatlantic Barriers to Trade and Investment, CTR. FOR ECON. POLICY RESEARCH (MAR. 2013) AT 1, available at http:// trade.ec.europa.eu/doclib/docs/2013/march/tradoc_150737.pdf. 1 2 76 THE ARBITRATION BRIEF Volume 4 mechanism that allows foreign investors to sue host states for alleged breaches of the treaty’s substantive rules through private arbitration.4 NGOs and government officials from the EU and U.S. have expressed concern regarding investor-state arbitration under TTIP including the potential for increased litigation and the compromise of public policy.5 As a result, opposition toward investor-state arbitration may have a detrimental effect on negotiations due to the intense political scrutiny. The European Commission (“EC” or “Commission”) has faced a significant amount of pressure from public interest groups and recently announced it would hold public consultations on the proposed EU text of TTIP’s ISDS mechanism.6 This article argues that critics’ fears are exaggerated and an ISDS mechanism within TTIP would not result in increased disputes or compromised public policy. By exploring how past agreements and the increase of investor-state arbitration, provide the foundation for these concerns, this Article explains how critics fail to consider the U.S. and EU’s extensive efforts to limit foreign investor protection. Additionally, the aim is to assess the unique characteristic of the US-EU partnership and how the existing investment relationship decreases the risk of increased investor-state arbitration under TTIP. The Article will also explore justification for the ISDS mechanism within agreements between developed countries and elaborate on additional steps the U.S. and EU could take to suppress remaining fears surrounding an increase in investor-state arbitration. If installed correctly, the TTIP ISDS mechanism would increase transatlantic investment by instilling confidence and reducing risk for foreign investors without forcing countries to alter public policy or national laws that protect their citizens. Glyn Moody, EU Mandate For TAFTA Leaked: Includes Investor-State Dispute Resolution For Intellectual Monopolies, TECH DIRT BLOG (MAY 31, 2013), available at http://www.techdirt.com/articles/20130530/12171523255/eu-mandate-tafta-leakedincludes-investor-state-dispute-resolution-intellectual-monopolies.shtml. 5 European Commission Faces Serious Debate Over TTIP Investment Rules, INSIDE U.S. TRADE (Oct. 18, 2013), https://wtonewsstand.com/index.php?option=com_ppvu ser&view=login&return=aHR0cHM6Ly93dG9uZXdzc3RhbmQuY29tL2NvbXBv bmVudC9vcHRpb24sY29tX3Bwdi9JdGVtaWQsNDQ1L2lkLDI0NTAxNjMv. 6 Press Release, Commission to Consult European Public On Provisions in EUUS Trade Deal on Investment and Investor-State Dispute Settlement, European Commission (Jan. 21, 2014), available at http://trade.ec.europa.eu/doclib/press/index. cfm?id=1015. 4 2014 A Case For Investor-State Arbitration Under The Proposed Transatlantic Trade And Investment Partnership 77 I. The Growth of the ISDS Mechanism and Growing Concern of Litigation and Corporate Power ISDS is a system that allows private investors to sue a host state for the alleged violation of an investment treaty concluded between the host state and the investor’s country of origin. These ISDS rules are included in most of the nearly 3,000 international investment agreements (IIA)7 and are unique in that they often allow investors to file claims with international arbitration tribunals without initiating proceedings before a national court.8 ISDS rules are included in all of the bilateral investment treaties (BIT) between new EU Member States and the U.S and mentioned in the EC’s negotiating mandate as an element the Commission intends to include within the TTIP.9 The US 2012 Model BIT, a blueprint for US investment negotiations, also contains extensive rules on investment protection and arbitr (...truncated)