European governments – including Britain – have paved the way for the European Union to negotiate trade deals that could see governments being sued by corporations...

Protection for investors, not for the people

WORKERS, NOV 2011 ISSUE

On 12 September the EU Council, made up of Member States representatives, gave the European Commission the mandate to introduce “investor protection” into its trade deals, thus putting the rights of investors above those of elected governments.

Investor protection allows investors to sue governments for any loss of future profits stemming from any government action judged to negatively affect or “expropriate” those profits, directly or indirectly. Until now the EU’s trade deals have only involved state-to-state dispute mechanisms, with penalties in the form of trade sanctions.

The provision has been included in the bilateral investment agreements that some EU Member States have signed individually, and also in the North Atlantic Free Trade Agreement (NAFTA) between the US, Canada and Mexico. It has resulted in very large payouts, and also had a chilling effect on proposed legislation, even when the people of the country want that legislation.

Tobacco giant Philip Morris is using the Trans-Pacific Partnership Agreement to sue Australia over its laws on plain packaging for cigarettes, and EU member states have also had to pay up on bilateral investment commitments. Canada failed to proceed with legislation for cleaner petrol out of fear of the financial consequences in relation to NAFTA commitments.

The European Commission, Brussels
Photo: Workers

So, in its effect, investor protection gives corporations control over government’s legislative initiatives that may for instance be for social welfare, health, industrial policy, or the environment.

For Britain, the important implications are in respect of control over policy on labour migration. The EU offers corporations based outside Europe Mode 4 access – that is, the chance to bring their workers into the EU – to get those countries into trade deals, but Britain will be affected more than other EU member states by Mode 4 offers. If Britain tries to pull back on these Mode 4 commitments and limit temporary migrant labour, for instance, could invoke legal action by corporations for compensation for lost profits if they have to employ more expensive staff locally instead of bringing them over from, say, India.

The new mandate utilises the Lisbon Treaty, which shifted competency (control) of trade and investment from member states to the EU. It will be applied to the three Free Trade Agreements under negoiation: EU/India, EU/Singapore and the Canada and Europe Trade Agreement (CETA). The EU mandate gives maximum rights to investors, beyond those granted by NAFTA. “Unqualified national treatment” is specified – which means any transnational investor must be given conditions at least as beneficial as those given to any domestic investor, regardless of sector or company size.

Here comes the law

Although the EU version provides for “social, environmental, security, public health and safety objectives to be pursued in a non-discriminatory manner”, other parts of the text prohibit “unreasonable, arbitrary or discriminatory measures”. This indicates prospective legal battles over the legitimacy of legislation. In trade disputes judges lean towards free trade decisions.

Note that the European Council has gone even further than the European Commission, which recommended some safeguards on industrial and labour policy, including in relation to Mode 4 – and the Council is also overriding the recommendations for balance and caution made by the European Parliament. While speculative investment is not excluded, very full investors’ freedoms to move cash in and out of a country are specifically included, forestalling a state’s right and need to impose restrictions in the event of, for example, a run on their currency.

Argentina has been sued by 15 corporations for financial measures of this sort that it took to protect its economy and population. Awards against the state have been made, but Argentina continues to argue that its measures were legitimate social measures.

Investor protection is a threat to all levels of governmental action: at the EU level; for member state governments; for provincial governments in Federation states and local government. Yet a major issue still undecided in relation to EU investor protection is where the financial responsibility lies between the EU and any member state that is judged to be liable. It is also not clear in which judicial system such a dispute could be held. The Commission is committed to producing a proposal on these two issues by the end of the year.

In the current climate of eurozone cross-border bailout, member states particularly want the financial responsibility question settled before any of these agreements are ratified, which occurs when the European Parliament “gives assent”, as the final process is called. But the EU/India Free Trade Agreement is in the stage of finalising actual negotiations and is expected to be completed by December this year. What happens with individual states’ existing Bilateral Investment Agreements is also undecided, with the EU deals being hastily pushed through.

International trade agreements contain an inherent contradiction. While negotiations are state-to-state, these deals are carried out on behalf of and for the benefit of the investors in private corporations. These corporations have a major influence on the substance and direction of trade deals while the content, progress and implications of those deals are, for the most part, kept from the public.

This makes it hard for people to act against the trade agenda. Information dissemination is a key part of resistance on what may seem like “technicalities”. ■