Profiting from injustice - international investment treaties
by Pia Eberhardt
27 November 2012
Investor-state arbitration allows corporate profits to trump environmental protection, public health and democratic decision-making - says researcher
Foreign investors are suing European Union governments if their profits are hit by changes in legislation – and the risks and the costs for taxpayers are likely to increase unless the EU amends plans for new free trade and investment agreements with countries such as Canada, Singapore, China and the US. Profiting from injustice, a report published by Corporate Europe Observatory and the Transnational Institute, sets out clear reasons why policy-makers should ensure foreign investors are not given the right to sue governments in future deals.
Member states could be hit by multi-million euro lawsuits for enacting laws for the public good. Under existing investment treaties, Swedish energy giant Vattenfall is already claiming €3.7bn in compensation from Germany, because the Fukushima catastrophe prompted the country to phase-out nuclear energy. Slovakia is defending a €100m claim from a Dutch insurer because it required health insurers to operate on a not-for-profit basis.
Specialised arbitration law firms, which line their pockets through investment arbitration, are encouraging corporate clients to sue more countries, including Greece because of its debt-restructuring policies. Investor-state disputes cost taxpayers dearly. At least two astronomical awards of a billion dollars-plus and many over $100m have already been made against countries. Legal costs average more than $8 million per dispute and have exceeded $30m in some cases. And states can still face big legal bills, even when they win. Bulgaria was ordered to pay more than $6m of its $13m-plus legal costs in one case, even though the claim was rejected.
The costs would have paid the annual salaries of more than 1,796 nurses – much needed at the time. Investor-state arbitration allows corporate profits to trump environmental protection, public health and democratic decision-making. Tobacco giant Philip Morris is suing Uruguay and Australia over anti-smoking laws. Canada has been threatened with a $250m lawsuit because Quebec introduced a moratorium on 'fracking'. There is even evidence that proposed and already adopted laws have been abandoned or watered down because of the threat of investor-state claims. Investment arbitration is no longer a last resort, but a political weapon in a war of attrition against states and regulation.
The investor-state dispute settlement system is biased in favour of investors and the lawyers who make money from it. Just 15 arbitrators - nearly all from Europe, the United States or Canada have determined 55 per cent of all known investment-treaty disputes. This small group of lawyers, referred to as an 'inner mafia', earn handsome rewards for their services; amounting to almost $1m in one reported case. They have a personal commercial interest in ruling in favour of the investor, because this increases the prospect of future claims.
A statistical study based on 140 investment-treaty cases showed that arbitrators tend to adopt an expansive - claimant-friendly - interpretation of investment treaty law. Investment treaties do not bring any wider economic benefits, but can have substantial legal, budgetary and political costs. A researcher from the University of Oxford recently told members of the European Parliament that the proposed EU-China investment deal would not bring significantly more investment and economic welfare. And he warned that consenting to investment arbitration is a serious commitment for governments.
One arbitrator even admitted: "When I wake up at night and think about arbitration, it never ceases to amaze me that sovereign states have agreed to investment arbitration at all. Three private individuals are entrusted with the power to review, without any restriction or appeal procedure, all actions of the government, all decisions of the courts, and all laws and regulations emanating from parliament." Across the world, other countries have learned their lessons and are initiating a retreat from the unjust investment arbitration system.
In 2011, the Australian government announced that it would no longer include investor-state dispute settlement provisions in its trade agreements. Bolivia, Ecuador and Venezuela have terminated several investment treaties. South Africa has announced it will not enter into new agreements nor renew old ones due to expire. International investment treaties are a powerful corporate weapon to rein in government and make taxpayers pay for business losses. Policy-makers who sign such treaties are handcuffing themselves and their successors for decades to come.
Pia Eberhardt is a researcher at the Corporate Europe Observatory campaign group and one of the authors of the report Profiting from injustice: how law firms, arbitrators and financiers are fuelling an investment arbitration boom
Foreign investors are suing European Union governments if their profits are hit by changes in legislation – and the risks and the costs for taxpayers are likely to increase unless the EU amends plans for new free trade and investment agreements with countries such as Canada, Singapore, China and the US. Profiting from injustice, a report published by Corporate Europe Observatory and the Transnational Institute, sets out clear reasons why policy-makers should ensure foreign investors are not given the right to sue governments in future deals.
Member states could be hit by multi-million euro lawsuits for enacting laws for the public good. Under existing investment treaties, Swedish energy giant Vattenfall is already claiming €3.7bn in compensation from Germany, because the Fukushima catastrophe prompted the country to phase-out nuclear energy. Slovakia is defending a €100m claim from a Dutch insurer because it required health insurers to operate on a not-for-profit basis.
Specialised arbitration law firms, which line their pockets through investment arbitration, are encouraging corporate clients to sue more countries, including Greece because of its debt-restructuring policies. Investor-state disputes cost taxpayers dearly. At least two astronomical awards of a billion dollars-plus and many over $100m have already been made against countries. Legal costs average more than $8 million per dispute and have exceeded $30m in some cases. And states can still face big legal bills, even when they win. Bulgaria was ordered to pay more than $6m of its $13m-plus legal costs in one case, even though the claim was rejected.
The costs would have paid the annual salaries of more than 1,796 nurses – much needed at the time. Investor-state arbitration allows corporate profits to trump environmental protection, public health and democratic decision-making. Tobacco giant Philip Morris is suing Uruguay and Australia over anti-smoking laws. Canada has been threatened with a $250m lawsuit because Quebec introduced a moratorium on 'fracking'. There is even evidence that proposed and already adopted laws have been abandoned or watered down because of the threat of investor-state claims. Investment arbitration is no longer a last resort, but a political weapon in a war of attrition against states and regulation.
The investor-state dispute settlement system is biased in favour of investors and the lawyers who make money from it. Just 15 arbitrators - nearly all from Europe, the United States or Canada have determined 55 per cent of all known investment-treaty disputes. This small group of lawyers, referred to as an 'inner mafia', earn handsome rewards for their services; amounting to almost $1m in one reported case. They have a personal commercial interest in ruling in favour of the investor, because this increases the prospect of future claims.
A statistical study based on 140 investment-treaty cases showed that arbitrators tend to adopt an expansive - claimant-friendly - interpretation of investment treaty law. Investment treaties do not bring any wider economic benefits, but can have substantial legal, budgetary and political costs. A researcher from the University of Oxford recently told members of the European Parliament that the proposed EU-China investment deal would not bring significantly more investment and economic welfare. And he warned that consenting to investment arbitration is a serious commitment for governments.
One arbitrator even admitted: "When I wake up at night and think about arbitration, it never ceases to amaze me that sovereign states have agreed to investment arbitration at all. Three private individuals are entrusted with the power to review, without any restriction or appeal procedure, all actions of the government, all decisions of the courts, and all laws and regulations emanating from parliament." Across the world, other countries have learned their lessons and are initiating a retreat from the unjust investment arbitration system.
In 2011, the Australian government announced that it would no longer include investor-state dispute settlement provisions in its trade agreements. Bolivia, Ecuador and Venezuela have terminated several investment treaties. South Africa has announced it will not enter into new agreements nor renew old ones due to expire. International investment treaties are a powerful corporate weapon to rein in government and make taxpayers pay for business losses. Policy-makers who sign such treaties are handcuffing themselves and their successors for decades to come.
Pia Eberhardt is a researcher at the Corporate Europe Observatory campaign group and one of the authors of the report Profiting from injustice: how law firms, arbitrators and financiers are fuelling an investment arbitration boom
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