This month, the European Commission announced a series of initiatives to ensure its free trade policy benefits everyone. Among them, a proposal to member states to mandate the Commission to negotiate the establishment of a Multilateral Investment Court (MIC). Is this a step in the right direction? And what can be its impact on developing countries?
One clear manifestation of unequal power between the Global North and the South is the shrinking policy sovereignty of governments from developing countries as a result of trade and investment agreements. Those governments are trapped in investment and trade agreements that prevent them from using protectionist and redistributive measures needed to develop and diversify their economy and build more equal societies. Even worse, many such agreements include a mechanism prioritising the economic interests of foreign investors over citizens’ public interest.
This is the Investor-State Dispute Settlement mechanism (ISDS), which has been a major driver behind millions of people across Europe rejecting the EU-US trade deal (TTIP) last year. This mechanism allows foreign investors to sue governments before international arbitration bodies to stop regulation protecting the health of their citizens, to prevent redistributive agendas such as agrarian reforms, increases in minimum wage or affirmative action, or to inhibit measures to protect the environment. All those measures may indeed have a negative impact on foreign investors’ anticipated profits. ISDS represents an obstacle to the realisation of the Sustainable Development Goals and the respect of human rights and gender equality by governments, both in Europe and in the Global South.
Is there a solution? Yes, and developments over the last few years point the way. Some countries – South Africa and Ecuador – have terminated the investment treaties that included such a mechanism and replaced them with a different approach. Their approach includes domestic regulation to foster a favourable investment climate and to guide foreign investments to the sectors of the economy where they are most needed. Brazil never signed any bilateral investment treaty and was therefore able to propose an alternative model facilitating investments and dispute prevention, with a different system of dispute resolution. India started reviewing its investment treaties as well and integrates in its approach the obligations of foreign investors rather than just their rights. In case of dispute, domestic courts are the place to go first.
Could that be an avenue for other countries? Certainly, but this may be more difficult for countries vulnerable to withdrawal of foreign investments, or who have less leverage to demand a re-negotiation or termination of such treaties. When the ISDS is part of a trade treaty, it may be difficult to get rid of that mechanism without jeopardising the continuation of the other provisions in the treaty, which may dissuade some countries. This is why the EU, as the main source of foreign investments in the world, could definitely play a role to facilitate such process for the trade and investment agreements to which European countries are a party.
In fact, the European Commission recently came up with a new proposal: The establishment of a Multilateral Investment Court, alias MIC. At first sight, that may seem to be a response to the criticisms about the ISDS, since it would improve the procedure to adjudicate investor-state disputes by introducing transparency and the possibility to appeal decisions. However, the fundamental idea remains the same: Offer foreign investors the possibility to circumvent domestic courts, and sue directly governments before a special court that can consider domestic regulation incompatible with investors’ rights and condemn governments to pay huge amounts to the foreign capital owner. In fact, the MIC initiative may further cement a system giving more power to the most powerful actors, precisely at a moment where several developing countries are pursuing a different avenue. The inclusion of ISDS with a slightly improved procedure in the deal with Canada (CETA) and in its recently concluded trade agreement with Vietnam, show that the EU has no intention to fundamentally change the existing approach.
If the EU really wants to put in place redistributive policies and foster a green and fair economic development, as per the SDGs, it should instead propose the renegotiation of the 1,200 treaties concluded by the EU and its member countries that include ISDS. The EU should also contribute constructively to the elaboration of a UN treaty on business and human rights to provide access to remedy to victims of corporate abuses – a process that the EU has criticised so far, including because not enough companies were at the negotiating table! It is urgent for the EU to adopt a deeply reformed trade policy that prioritises respect for human rights and the environment and support to localised economies based around local resources, over increasing trade flows.
Start from scratch – that’s what a panel convened few days ago by Friends of the Earth, SOMO and others concluded –i.e. do things completely differently.