Opinion: TTIP: a taxpayer funded safety net for the super-rich

Few things are more complicated and opaque than the Transatlantic Trade and Investment Partnership (TTIP), a trade deal being hammered out between the EU and the USA. It has been criticized by activists and journalists such as George Monbiot, but Vince Cable asserts there is nothing to worry about. Who is right?

When things get complicated, follow the money. Fortunately we now have a money bloodhound. The economist Thomas Piketty has spent a decade or more producing a huge scholarly work which reveals where the money is. His answer is simple: unless active measures are taken an ever larger proportion ends up in the hands of the already very rich. TTIP will make this even worse.

Picketty shows that the richer the individual, the larger the proportion of his or her wealth is held in paper assets such as stocks, trusts and shares in hedge funds. When paper holdings lose value, for example due to a stock market slump, the super-rich lose out most. TTIP will act as a taxpayer funded compensation scheme that will insulate wealthy shareholders from any risk due to changes in government policy.

The key provision is called the Investor-state dispute settlement (ISDS). The real function of ISDS is to insulate large investors from the risk of losing money due to unexpected policy changes. A sort of safety net for the ultra-rich.

Vince Cable soothingly claims that ISDS is designed to prevent unfair discrimination between domestic and foreign companies, which is true as far as it goes.On this site, Nick Thornsby has pointed out since the mid-1990’s many free trade agreements have included ISDS provisions. The UK alone is signatory to over 90 such agreements, and no case brought against it has been successful. Should we be reassured?

Two current cases illustrate the dangers of ISDS. In the first, Vattenfall, a Swedish nuclear energy firm, is suing the German government through an ISDS process. After the Fukushima incident in Japan, Germany (rightly or wrongly) decided to phase out nuclear energy, and closed a plant part-owned by Vattenfall. Vattenfall is suing for loss of potential profits. If successful, they will set an astonishing precedent for rich corporations: unlike all other members of society, they will have the right to sue and be compensated for adverse impact of democratically taken political decisions. A second case is that of Philip Morris, the US cigarette manufacturer, which is trying to prevent the Australian government from persuading their populations to smoke less, on the grounds of loss of potential profits.

A current EU factsheet contains the alarming observation

While some [ISDS] tribunals have interpreted the provisions to confirm the right of states to regulate for the public good… other tribunals have not made this sufficiently clear.

Should the right of a democratic state to govern depend on the whim of an unelected international tribunal?

If you follow the money it leads to the wealthiest in society. The EU will provide arbitration courts whose proceedings are confidential and are apart from the normal judicial process. They will exclusively benefit corporations that are rich enough to sue governments. Small and medium enterprises won’t get a look in, since they won’t be able to afford the costs. TTIP will further distort competition in favour of companies with a complex multi-national structure, exactly those already engaging in offshore tax avoidance. The paper assets of the stupendously rich will be insulated from any risk due to changes in government policy, and everyone else will pay.

* David Cooper is a member and constituency treasurer of the Newbury Liberal Democrats and has been a party activist for over a decade. He is also secretary of Libdem ALTER (Action for Land Taxation & Economic Reform). The views expressed are his own.

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57 Comments

  • Adam Corlett 22nd Jan '15 - 3:07pm

    ISDS is only a small part of TTIP and they’re certainly not synonymous. Don’t throw the baby out with the bathwater. In fact, the ISDS part has been suspended for now:

    “The negotiations on investment in TTIP have been suspended and will only resume once the Commission has come to the assessment that its new proposals guarantee among other things that the jurisdiction of courts in the EU Member States will not be limited by special regimes for investor-to-state-disputes. Other parts of the TTIP negotiations have continued as planned.”

  • It is increasingly difficult to see how any TTIP deal which includes ISDS could get through the European Parliament, and then through every national legislature, which it would need to do in order to be successfully ratified.

    The sensible position, which seems to slowly be gaining traction throughout Europe, is that we favour open markets and free trade where the wealth gap between participants is narrow, but that we do not favour ill-defined structures of law that undermine our ability to conduct policy.

  • David Cooper 22nd Jan '15 - 3:41pm

    @Adam Corlett,

    I agree TTIP and ISDS are not necessarily synonymous. However the current description of TTIP still includes strong investor protection provisions. The EU continues to adopt a weak position by demanding that “that the jurisdiction of courts in the EU Member States will not be limited by special regimes”. The default position should be that laws made by national legislatures shall not be limited by ISDS, let alone courts. Anything less is giving wealthy investors a competitive advantage relative to small domestic competitors, and amounts to a taxpayer funded compensation scheme for the very rich.

  • Alex Macfie 22nd Jan '15 - 3:45pm

    Just to be clear, ISDS is the antithesis of “open markets and free trade”, because it gives special privileges to multinational corporations. If you support free trade, you have to oppose ISDS. (It is also inconsistent with another liberal principle, that of equality before the law. )

  • jedibeeftrix 22nd Jan '15 - 5:05pm

    I have no love of isds, but as a free market Briton that treasures the countries long respect for contract law I likewise have little fear of them.

    Business does not fear that popular will might demand their investments nationalised, or corrupt government strip it of assets.

    If this was a us/UK free trade agreement isds would not even be a consideration.

  • I have no fear of saying we ordinary people and farmers hospitals and many other sectors will be sold out to seal the deal in US and the Super Rich to benefit Another good reason to pull out of EU

  • David Cooper 22nd Jan '15 - 7:11pm

    @George Potter “And now the ISDS mechanism isn’t even going to be in TTIP”

    This is still under review, see EU website. It is premature to say that ISDS is not in TTIP. While it may be, TTIP is unacceptable.

    Link: http://trade.ec.europa.eu/doclib/press/index.cfm?id=1234

  • David Cooper 22nd Jan '15 - 7:51pm

    @George Potter

    Investment in any industry carries a risk that policy decisions will devalue the investment. For example, if nuclear energy generating are compelled by new legislation to (say) add new safety equipment, they may lose money (unless they can recoup it from their customers). Normally this legislative risk is borne by the shareholders, who would require higher capital returns to balance the risk. Since a tribunal might take the view that such legislation is appropriation of profits, ISDS transfers part of this risk to the taxpayer, who would have to provide compensation: i.e. a taxpayer funded safety net THAT WOULD NOT BE AVAILABLE TO DOMESTIC COMPETITORS.

  • David Cooper, thanks for a balanced and well informed article.

    I think some Liberal Democrats (some of them old friends of mine) read the words “free trade” and something flicks a switch in their brain which reduces their ability to see things clearly.

    My simple way or working out if something like TTIP is a good thing — is to ask who are the people who are spending millions lobbying to have TTIP.

    I read that some of the keenest supporters of TTIP are the lobbyists working for Big Tobacco.
    Do I need to read anything more?

  • “It has been criticized by activists and journalists such as George Monbiot, but Vince Cable asserts there is nothing to worry about. Who is right?”

    Unlikely to be Vince Cable! I doubt he has had the time to actually read and reflect on any of the drafts and negotiating positions and his entire understanding has been drawn from “briefing sessions” from lobbyists and ‘advisors’; this isn’t totally Vince’s fault, just the nature of the job he is doing in government won’t give him time to give something the attention it really needs…

  • Nick T Nick Thornsby 22nd Jan '15 - 9:48pm

    I have yet to hear, in the responses to this piece or to my piece which David links to, the answer to this question: What is it about the ISDS provisions in TTIP that is so different from the 90 other similar provisions we are signed up to (or indeed the EU-Candada agreement currently being negotiated) that makes TTIP’s ISDS provisions worthy of so much protest?

    And if ISDS is as bad as is being made out, should we be seeking to negotiate our way out of those 90+ agreements?

  • David Cooper 22nd Jan '15 - 10:17pm

    @Nick Thornsby “should we be seeking to negotiate our way out of those 90+ agreements?”

    Is there a list of these 90+ agreements? What do you know about them? On the face of it, signing 90+ agreements which give special privileges to companies explicitly because they are not based (or for that matter taxed) in the UK might seem poor value for the exchequer, but this would be nothing new.

  • @NIck Thornsby: Your argument seems to be that because our government has previously negotiated trade agreements with ISDS (WITHOUT meaningfully consulting the public on it, which is why there has not been protest about it previously) it should just continue doing the same. This is the very definition of policy laundering: adopt a policy without informing the public, then when the public find out about it, say “but this is the way it’s always been done and you’ve never complaiend until now”. Surely the fact that when the public become aware of ISDS they are strongly opposed to it should give you the answer you are looking for.
    And let’s be clear: ISDS is a protectionist policy, as it gives special protection to foreign investors. It is therefore antithetical to free trade.

  • Little Jackie Paper 22nd Jan '15 - 10:22pm

    Nick Thornsby – I see your point. As someone else has mentioned above, ISDS per se is not anything novel.

    But is the debate here about symptom or cause? Maybe there is not much new as such in ISDS. But I would suggest the cause of problems here is the tendency to sign up to far-reaching agreements that are de facto binding on future governments. If, as a matter of public policy, elected governments wish to do something why exactly should agreements signed upto by previous governments override that. You ask, ‘should we be seeking to negotiate our way out of those 90+ agreements?’ Isn’t the real problem that the can’t easily be unwound be elected governments that didn’t sign up to them?

    The If governments wish to make themselves less attractive to overseas investors then so be it.

    It’s not just agreements like TTIP, those are just symptoms. PFI contracts for example last for decades. The cause of problems is a tendency to bind future governments.

    jedibeeftrix – ‘If this was a us/UK free trade agreement isds would not even be a consideration.’

    Can you elaborate on this?

  • ‘If this was a us/UK free trade agreement isds would not even be a consideration.’

    I suspect given the maturity of our legal systems, the ISDS would be as per the extradition treaty… and we all know how that went…

    No the big issue with the TTIP ISDS is that it seeks to create a wholly new ISDS outside of existing proven arrangements and recognised international organisations… For TTIPs ISDS to work, it needs to work for the EU’s real power house, it’s 100’s of thousands of SME businesses, when the supporters of TTIP can show how TTIP will enable an EU David to take on a US Goliath, I might be a little less sceptical about TTIP.

  • Nick T Nick Thornsby 22nd Jan '15 - 11:13pm

    I am trying to work out why ISDS in TTIP is causing so much controversy while many similar provisions are ignored.

    Where is the campaign against the Canadian trade deal?

    I’m happy to argue the merits of ISDS in principle and have done so in the piece linked to, but the inconsistency is important.

  • Nick Thornsby 22nd Jan ’15 – 11:13pm
    I am trying to work out why ISDS in TTIP is causing so much controversy while many similar provisions are ignored.

    Nick, could it be for the same reason that a huge amount of attention is given to breast cancer whilst nobody seems to be doing much about some other cancers?

    You may have heard that Bill Gates in his role as world philanthropist is trying to eliminate polio within 15 years.
    That does not mean that Bill really likes throat cancer or thinks that leprosy is good for you.

  • Tsar Nicolas 23rd Jan '15 - 8:42am

    i am still trying to work out why anyone should think that a treaty written in secret by the corporations is going to be of any benefit to ordinary people, Do we even now have the full text of the treaty available?

    I first heard of TTIP by listening to an alternative media podcast about the US-Pacific equivalent – the TPP, or Trans-Pacific Partnership. That’s how much in the open things are about this horror.

    It’s worth pointing out that even the rather lame progressive sin the American Congress, and in particular the Senate, have woken up and are now standing up to Obama about that particular monstrosity.

  • Alex Macfie 23rd Jan '15 - 8:44am

    There have been campaigns against CETA, again with particular reference to ISDS.

    Anyway what can be said is that opposition develops whenever public awareness is raised of ISDS in a proposed treaty. Remember the Multilateral Agreement on Investment? This proposed treaty, which would have provided for a global ISDS, was scuppered by public protests. This was in the late 1990s.
    http://en.wikipedia.org/wiki/Multilateral_Agreement_on_Investment

  • Alex Macfie 23rd Jan '15 - 9:09am

    Someone mentioned contract law. If a government may have breached a contract, or otherwise acted unlawfully, we already have a court system to deal with such cases. In a jurisdiction that follows the rule of law, there is no place for ISDS.

  • Toby Fenwick 23rd Jan '15 - 9:31am

    I’m with Nick and George. The ISDS proposals aren’t novel- and in fact aren’t in the TTIP at the moment.

    Investor protection of this sort isn’t unusual (see the WTO) and underpins FDI worldwide. Vatterfal is a great example of why is useful. The cost of incorporating the risk of the German Government doing something as unlikely (& stupid) as just closing down some if the world’s newest and safest nuclear plants midway through their life would make the risk capital so expensive that you’d end up pauong massively over the odds for everything.

    Thus ISDS is therefore a proportionate response to this.

  • Simon McGrath 23rd Jan '15 - 10:04am

    @John Tilley “My simple way or working out if something like TTIP is a good thing — is to ask who are the people who are spending millions lobbying to have TTIP.”
    On this basis you would have voted against joining the EU and will vote to leave if there is another referendum.

  • Stephen Campbell 23rd Jan '15 - 11:46am

    From your constitution’s preamble:

    We aim to disperse power, to foster diversity and to nurture creativity. We believe that the role of the state is to enable all citizens to attain these ideals, to contribute fully to their communities and to take part in the decisions which affect their lives.

    It seems more than a few Liberal Democrats, in supporting TTIP, have forgotten what your party is supposed to stand for (not that that is anything new these days). How does supporting a treaty, enacted in secret, which gives more power to unelected, unaccountable corporations sit with your supposed commitment to “disperse power” and give people the right to “take part in the decisions which affect their lives”? From all I can gather, TTIP will further concentrate power into the hands of global corporations (who only care about profit, not us) and leave people with even less power.

    Since when has the act of giving more power to undemocratic global corporations, many of which are more powerful and rich than many nation states, ever been good for anyone but said corporations?

  • @Toby Fenwick: The question is why should a foreign company enjoy protection from the risk of a change in government policy (however stupid) that a domestic company would not have. And secondly, I’m no expert on German government or law, but I’ve been led to understand that Germany is a mature democracy, not some tinpot dictatorship. I would expect there to be a judicial review process that anyone could use to challenge the law or policy there, and if they wish, they could then take their case to the European Court of Justice. One of the problems with ISDS is the way foreign investors can just go straight to the ISDS tribunal to challenge a law they don’t like — they do not have to exhaust the established legal channels. Again, why should foreign companies have this shortcut option unavailable to domestic companies?

  • If you visit a country, you still have to follow its laws even though you cannot vote there or participate in the political process. This doesn’t mean that non-citizens have any sort of special parallel tribunal for challenging their host country’s laws. It should be the same principle for foreign investors.

  • David Cooper

    A rather disappointing approach. As others point out you insist on picking on ISDS and use that to state the all of TTIP must be wrong which isn’t helpful for a complex issue.

    ISDS has many weaknesses (some issues over transparency, who is able to access) which impact on the “equality before the law side. But the response to this should be to look to improve it. The point it they are intended to address another “rule of law” issue where if contracting between tow companies the law is the neutral framework which ensure consistent treatment. When contracting between a company and a government the government is able to fiddle the system which undermines the rule of law.

    It is interesting that you cite two cases one where the company was in the right (and the won) on Nuclear Power plants, and one where the company is clearly in the wrong (Philip Morris) where the case has not been ruled upon. Interesting as alkinds of silly cases get taken to courts and tribunals we don’t normally criticise the law under which they are taken unless the ruling shows that the law produced a perverse outcome.

    “Should the right of a democratic state to govern depend on the whim of an unelected international tribunal?”

    The answer to that is whether you are a liberal or not just because something is democratic does not make it liberal, that is the tyranny of the majority. Also known as “populism” when LibDems are criticising it in other cases.

  • Richard Easter 23rd Jan '15 - 1:45pm

    ISDS is utterly corrupt, a parallell secret unaccountable legal system for big multinationals.

    It beggars belief that any country would sign up to such a lunatic scheme, which overrides all national soveriengty in favour of unelected multinationals. The only reason anyone could support this lark, is if they were in the pay of the corporations who negotiate this.

    As for the European Court of Justice, it is not in any way comparable to ISDS. The judges are independent, elected and appeals can be made. ISDS tribunals are comprised of corporate lawyers and held in secret, with no accountability or right of appeal.

    An appropriate quote here is “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 restrictions or appeal procedure, all actions of the government, all decisions of the courts and all laws and regulations emanating from Parliament”. This comes from Juan Fernandez-Armesto, an investment arbitrator from Armesto & Asociados. I would wager he is more clued up about such things than Vince Cable or indeed many of the apologists for this.

  • David Cooper

    “Investment in any industry carries a risk that policy decisions will devalue the investment […] this legislative risk is borne by the shareholders, who would require higher capital returns to balance the risk”

    This is the important point which I’m surprised that as know this you still come to the conclusion you do. You suggest that we want higher required rates of return when private companies make investments in infrastructure.

    Higher rates of return will result in higher prices in the future for the public. It will result in less investment in infrastructure for the public to benefit from, again the suffering this is in the future.

    This is rather like the PFI contracts where a politician gets to open a shiny new building now and have their photograph taken and put in the paper but the higher costs are hidden and hit the public in the future. Or Politicians running up unstainable deficits so the debt piles up and in the future other politicians have to make cuts to the public who have planned their lives according to the unsustainable level.

    The some applies to an even greater extent with governments having unfunded public sector pensions, the liability is hidden, and as they did/do with PFI. This behaviour if practiced by executives in the pantomime “big business” would result in criminal investigation (sadly these days too few are then prosecuted and sent to prison).

    Your suggestion appears to be that we should want politicians to be able to move the goal posts and renege on previous agreements without compensating those who lost out. Well that is certainly populist and you may be able to claim it is democratic as it uses a representative system (would the public choose it if they were offered in informed vote with the costs explained) but it is at best the tyranny of the majority and at worst intentional dishonesty by politicians. It certainly isn’t good public policy.

    I’m surprised recognising what you do (if you were ignorant I could understand) that you advocate the position you do. I could see that case being promoted by UKIP (probably in relation to other issues) but not someone who uses the title “liberal” however loosely.

    By all means the systems are flawed but how about we come up with positive proposals to improve rather than claim that because something is a problem for populism that is inherently wrong.

  • Richard Easter

    You make some legitimate criticisms, but you r quote goes beyond that. Even in a legal system in the end you have judges who are just indoviduals making the decision, and appeals don’t go on for ever.

    I would rather we had a system more akin to the ECJ, something open and transparent with clearer rules to make decisions more predictable but many people here are arguing against this as being undemocratic, which if it were really a problem we should do away with the legal system and judiciary and have elected politicians making arbitrary decisions about everything. Not an attractive proposition.

  • Alex McFie

    “If you visit a country, you still have to follow its laws even though you cannot vote there or participate in the political process. This doesn’t mean that non-citizens have any sort of special parallel tribunal for challenging their host country’s laws. It should be the same principle for foreign investors.”

    That is not the appropriate comparison, if I visit a foreign country I do so under the expectations that I will follow the law. I during the course of my trip the host country decides to change its law so I have to pay a bribe to leave or they will retain all my possessions as I leave that would not be fair.

    You are right there are not international tribunals that deal with the sort of tin pot dictators that engage in this sort of activity but we know what we think of this behaviour. These tribunals are intended to stop the very occasional behaviour in developed countries which is common in unsavoury regimes.

    The fact we don’t have an international regime for dealing with low-level mistreatment of tourists and expat workers does not mean that we shouldn’t have some system (not necessarily this one) for holding the developed countries to a standard of keeping their word.

  • David Cooper 23rd Jan '15 - 2:50pm

    @Psi: “you insist on picking on ISDS and use that to state the all of TTIP must be wrong which isn’t helpful ”

    It is, since there is a matter of trust. The TTIP negotiating team has been prepared to sell us down the river with ISDS. I wouldn’t trust them to negotiate lollipop allocation with a five year old.

    @Psi: “the company was in the right (and the won) on Nuclear Power plants”.
    As it happens I believe the German nuclear policy is mad, and if I had just invested millions I would be furious. Nevertheless, that is no reason why multinational investors (who typically are rather good at avoiding tax) should get privileged access to taxpayer funded compensation. All investment carries policy risk, even in the most transparently governed democracies. This risk is best compensated by investment returns rather than decided by arbitrators.

  • Jenny Barnes 23rd Jan '15 - 2:51pm

    George Potter “(such as banning foreign companies from bidding to supply the government with IT equipment and then banning them from suing that government in the courts of that country).”
    Or, possibly to supply health services etc etc.

  • It’s perfectly possible for countries negotiating ISDS-style arbitration arrangements to exclude any areas they want such as health as has been promised in the case of the NHS for example.

    That’s what Uruguay did a few years ago when they negotiated a bilateral investment treaty with Switzerland. The relevant clause is article 2(1) and reads;
    ” Each Contracting Party shall in its territory promote as far as possible investments by investors of the other Contracting Party and admit such investments in accordance with its law. The Contracting Parties recognize each other’s right not to allow economic activities for reasons of public security and order, public health or morality, as well as activities which by law are reserved to their own investors.

    Some time later Uruguay, which has one of the highest rates of smoking in Latin America, began to enact anti-smoking legislation to improve health outcomes which resulted in a complaint by Philip Morris under the treaty. Any common sense ready of the treaty would say that Philip Morris had no case but the arbitration tribunal decided otherwise – that it DOES have jurisdiction under the treaty. It concluded in effect that because Uruguay HAD allowed the investment it wasn’t allowed to change its policy. So responding to new and better information, to a changed political climate etc. – normal democracy in fact – is allowed only if the ‘rights’ of international investors are first guaranteed. How exactly is that anything to do with free trade except in a purely Orwellian sense?

    https://en.wikipedia.org/wiki/Philip_Morris_v._Uruguay

    It’s a disgraceful episode in every way. Meanwhile, anyone who imagines that the EU intends any more than purely cosmetic changes following their temporary suspension for consultations of the ISDS element of TTIP has forgotten the EU constitution which was abandoned due to strong public opposition in several countries only to reappear as the Lisbon Treaty. TTIP really doesn’t make a great deal of sense absent the ISDS so it will come back in new clothes as soon as it’s judged politically expedient. Clearly also, there is a high risk to the NHS following the Uruguayan precedent or something like it notwithstanding the assurances to the contrary.

    Another aspect of ISDS that hasn’t received nearly enough attention is how it can sometimes lead to awards of damages for the loss of estimated future profits. Thist is totally mad and will prove vastly profitable to plausible fraudsters if allowed. For instance the mining industry has an old saying that “many a profitable prospect has had its profitability entirely ruined by being put into production”. Translation: profits sometimes flow easily from exploiting the stock market while actually working the deposit can loose money.

    For example Occidental won damages against Ecuador equal to the amount the nation’s annual spend on health care which included an amount for the loss of profits on oil discoveries they had not even made even though it was agreed they had flagrantly broken the terms of their licence agreements.

    http://www.nakedcapitalism.com/2014/10/public-citizen-top-ten-pernicious-investor-state-dispute-settlement-lawsuits.html

  • Simon McGrath 23rd Jan ’15 – 10:04am

    Where is your evidence for making the comment you have made?
    You say that lobbyists for Big Tobacco were instrumental in setting up the European Steel and Coal Community?
    Seems unlikely.
    The fact that Big Tobacco is funding Farago amd UKIP seems to indicate that you are talking out of the back of your head.

  • SIMON BANKS 23rd Jan '15 - 6:12pm

    Eliminating barriers to trade is one thing, but committing future governments to pay compensation if, in response to public concern, maybe as a result of an election, they change public policy in a way that disadvantages companies is profoundly anti-democratic and illiberal and will of course be used to block environmental protection. I can’t understand how there can be a Liberal case for doing this.

  • An unstated set of assumptions underpin the debate about TTIP and similar ‘free trade’ treaties; the view perhaps most succinctly expressed by the saying, “What’s good for General Motors is good for America”. In other words the way to a future flowing with milk and honey is to give large companies everything they want.

    The implicit theory is that giving big companies what they want will kick start a beneficial chain reaction that goes something like this:
    Provide guarantees against losses on international investments > increase said international investment > increase corporate profits > increase investment and employment > happiness abounds.

    In reality every step in this chain is logically flawed. It may be that specific examples exist where it works but the steps are not generally true – are not, in fact, mostly true. It’s just the old and discredited ‘trickle down’ theory re-presented in new clothes and made rather more opaque. As the record shows it actually leads to increased inequality, financial crisis and large companies and banks that are above the ordinary law. Even some plutocrats now get that their wealth depends on having customers who have money to spend.

    And by the way, that General Motors quote is a politically spun version that inverts the original that ran, “What’s good for America is good for General Motors”. That makes far more sense but then it comes from the era when the US was an industrial powerhouse that made it’s people wealthy and stood for liberty not everlasting war. It represents an older and saner understanding that the Rule of Law imposed duties and obligations that may at times have been irksome and in the way of making a quick and easy financial killing but equally protected large and small alike. That matters economically as well as morally because it’s overwhelmingly small companies (that by and large lack political clout) that create new jobs and disrupt the old vested interests.

    How odd it is that the Liberal Democrats, who once stood against vested interests and supported the weak, have so lost the plot that they have switched sides even as many of the members and supporters are appalled. The coming GE will be a fascinating test of this master plan by the party leadership.

  • Simon McGrath 23rd Jan '15 - 7:04pm

    John Tilley : Its actually very well know that the Yes side in the refrnedum campaign was backed by big bsuiness ( and therefore on your own logic you should have voted No).
    for example from wikipedia :
    “The “Yes” campaign enjoyed much more funding, thanks to the support of many British businesses and the Confederation of British Industry. According to the treasurer of the “Yes” campaign, Alastair McAlpine, “The banks and big industrial companies put in very large sums of money”. At the time, business was “overwhelmingly pro-European”,[12] and Harold Wilson met several prominent industrialists to elicit support. It was common for pro-Europeans to convene across party and ideological lines with businessmen.[12] John Mills, the national agent of the “No” campaign recalled “We were operating on a shoe-string compared to the Rolls Royce operation on the other side,”.
    http://en.wikipedia.org/wiki/United_Kingdom_European_Communities_membership_referendum,_1975

  • GF
    “…How odd it is that the Liberal Democrats, who once stood against vested interests and supported the weak, have so lost the plot that they have switched sides …”

    GF — not that odd given what hs happened since 1979.
    Consider one of the big things to have changed in the last thirty years — the river of cash flowing from Lobbyists working on behalf of those vested interests.
    See the Owen Jones book ‘ The Establishment – And how they get away with it.’ Chapter 2, The Westmnster Cartel.

    Comservative, Blairite and sadly even some Liberal Democrats have been swept away in the flood of money, lobbying and buying of influence. It is everywhere!

  • Simon McGrath

    Do you have difficulty keeping to the same argument from one comment to the next ?
    Look back at what I said at —
    JohnTilley 22nd Jan ’15 – 8:00pm
    Your subsequent comments are a series of non-sequiturs and you contradict yourself.
    Like I said — if you think the not insignificant financial support given to UKIP by Big Tobacco is a sign of that particular commercial interest favouring the European Union you are beyond help.

    BTW — is your little group ‘Liberal Reform’ also funded by Tobacco interests?

  • Alex Sabine 23rd Jan '15 - 7:58pm

    The ISDS issue is discussed in some detail in this interview:

    http://www.euractiv.com/sections/ttip-and-arbitration-clause/economist-isds-disconnect-between-rhetoric-and-reality-310728

    As this Swedish economist says: “There are real issues around the current design of investment protection, but I don’t see the anti-ISDS crowd being interested in that discussion…

    “Some people now say that it’s enough that companies have access to local courts. But what if a government has not introduced changes to their laws and regulations as a consequence of an investment treaty, and if they still allow for say uncompensated expropriation? Companies can’t then claim their rights in local courts because the investment agreement is not the law of the land.”

    And, while acknowledging the need for greater transparency, I’m sure he’s right to observe that: “If ISDS is discharged before the negotiations have finished, the criticism will move on to other parts of TTIP. The idea that NGOs then will become silent and accept TTIP is just naive. That is not the way they operate. I expect the US to lose faith in the EU’s capacity to stand up for an ambitious trade agreement…”

    Indeed, as the Economist notes, TTIP is less of a priority for the Obama administration than the Trans-Pacific Partnership, part of Obama’s strategic ‘pivot’ towards Asia, and American negotiators are becoming increasingly frustrated by European feet-dragging: “A failure to deliver TTIP could also feed adversely into a putative EU referendum, since those arguing for ‘Brexit’ often claim that Britain on its own would find it easier to strike trade deals with America.”

  • What the supporters of ISDS in TTIP have yet to do is demonstrate is why ISDS provisions are at all necessary between the USA and the EU; two political entities with well developed legal institutions and government.
    Whilst some may point at some country within the EU that might be a bit behind the curve, that is largely irrelevant, the EU is acting as the front man, in the same way Washington is fronting each of the individual states in the federation known as the USA.

  • “TTIP is less of a priority for the Obama administration than the Trans-Pacific Partnership, part of Obama’s strategic ‘pivot’ towards Asia”

    That is because US businesses are running scared of what is happening in Asia and its growing economies that are not dependent upon the US. looking at the rhetoric being used in the US regarding China and other Asian nations and the various US court cases and trade disputes to see that the problem is protectionism in the US, whilst also wanting preferential access to foreign markets – note how all the ISDS examples against TTIP involve US companies – please give some examples of non-US companies going to ISDS with respect to US trade…

    As I keep saying TTIP has to benefit SME’s in Europe..

  • David Cooper 23rd Jan '15 - 8:38pm

    @Alex Sabine “Companies can’t then claim their rights in local courts because the investment agreement is not the law of the land.”

    The very idea of special arbitration courts, administering special rights for the exclusive benefit of companies typically operating from offshore tax havens, is offensive to both democracy and the free market. The thought that these courts will have the ability to write compensation cheques on drawn on the UK exchequer is an outrage against taxpayers. ISDS needs to be junked and if this kills TTIP so be it.

  • First, some context: As Nick Thornsby and others have pointed out, there is absolutely nothing new about ISDS provisions. They first appeared in a bilateral trade deal between Germany and Pakistan in 1959. The Economist recently estimated that EU members have signed 1,400 trade and bilateral investment treaties involving ISDS, while America is party to 50 trade deals that include it. The UK has more than 90 bilateral investment treaties, all of which contain ISDS provisions. A recent OECD study found that 93% of bilateral investment treaties among its members contained ISDS provisions.

    They were invented for good reason. As a parliamentary briefing note on the subject explains, “prior to the emergence of the ISDS system, investor-state disputes that could not be resolved by direct investor-state dialogue or proceedings in domestic courts were either not settled, or were handled by diplomatic action and, in extremis, the threat or use of military force.”

    http://www.parliament.uk/Templates/BriefingPapers/Pages/BPPdfDownload.aspx?bp-id=SN06777

    Those who are against ISDS tout court may not realise that the logical conclusion of their position is to unscramble the vast majority of trade and investment treaties worldwide. If that isn’t their position, they need to show that TTIP has particularly opaque or egregious ISDS provisions that distinguish it from all those other treaties. Yet this isn’t supported by the evidence.

    The parliamentary briefing paper cites analysis of the European Commission’s draft text for ISDS provisions which found that “the text contains considerably more detail on transparency, enforcement of awards, and the constitution of tribunals than is tupically found in other ISDS arrangements.”

    Detailed analysis by the International Institute for Sustainable Development came to this conclusion: “The Commission’s draft on ISDS incorporates a number of elements to improve investor-state dispute settlement, long overdue. Notably, it enhances transparency in the process and improves the independence requirements for arbitrators. While the Commission could have been more bold and innovative in some areas, the draft does provide the institutional basis for additional improvements to be made in the near future. A key task now is to gain consensus among the member states and European Parliament on the need for change.”

    I am not a lawyer or an expert on either TTIP or ISDS provisions. But as far as I can see the opposition appears ludicrously disproportionate and threatens to scupper yet another trade deal using a convenient pretext.

    I agree that there is a danger of companies exploiting ISDS clauses. I want to see the maximum transparency as well as making arbitrations subject to a right of appeal, greater reliance on precedent and protections against frivolous lawsuits. The definition of expropriation, and the substantive clauses, need to be more precise and narrower in scope, as in fact has been the trend in recent trade treaties. ISDS proceedings and findings should be made public. On some of these fronts there is considerable scope for improving the ISDS provisions in TTIP.

    However, the basic idea that when a government treats a foreign firm in an arbitrary or discriminatory fashion the firm should have recourse to an independent arbiter who can adjudicate on whether compensation is due, is sound in my view. To call it “offensive to both democracy and the free market” is to confuse the rule of law with majoritarian populism.

    Moreover, as Vince Cable stated in his detailed written response to the anti-TTIP campaigners: “There is no evidence to suggest ISDS tribunals favour big business. In fact, governments win more cases than investors. Cases are regularly brought by individuals and small companies, not just large multinationals.”

  • @George – “in western Europe you have good rule of law but in the Balkans and in Greece you don’t.”

    But you miss my point, the agreement is between the USA and the EU, not between the USA and the individual countries within the EU. It is an internal matter for the EU to resolve the issues it has created for itself by allowing states with poor rule of law to become members. Or should we (the member states of the EU) be demanding that every individual state in the USA be treated likewise?

  • Alex Sabine 24th Jan '15 - 2:04am

    @ Little Jackie Pepper
    “I suggest the cause of problems here is the tendency to sign up to far-reaching agreements which are de facto binding on future governments. If, as a matter of public policy, elected governments wish to do something why exactly should agreements sined up to by previous governments override that?”

    You raise an important constitutional question about the nature of sovereignty, democracy and the rule of law. Parliamentary sovereignty means that, in principle, Parliament has exclusive law-making power and absolute discretion to change the law as it sees fit.

    But as the late Conrad Russell once observed: “Parliamentary sovereignty is a steamroller. We have to put a few pebbles in its path.” Those pebbles include the independent judiciary upholding individual rights and the rule of law, and a range of international treaties and private law contracts the British government has entered into.

    If we had a codified written constitution there would be more extensive checks and balances, larger pebbles if you like; but even as it stands Parliament is constrained for as long as it remains party to international treaties and international organisations like NATO or the WTO.

    Supranational organisations like the EU are a different animal, since the doctrine of ‘direct effect’ and the primacy of EU law – controversially established by the jurisprudence of the ECJ – means that in theory national laws can be overriden by Community law. But ultimately Parliamentary sovereignty remains intact because the UK reserves the right to withdraw from the EU by an act of Parliament repealing the European Communities Act 1972 – in other words it has voluntarily limited its own sphere of competence through membership of the EU. (Or from a more constitutionally purist/eurosceptic standpoint, as Tony Benn used to complain, “we in this place have handed away powers fought for over generations that were not ours to give away”.)

    You ask why elected governments should have to abide by agreements signed up to by previous governments. Well the first answer is because it’s the law, whether in the form of legislation or a private law contract. Governments are expected to perform their contractual obligations just as much as any other person under the law.

    If they don’t like the law, or dislike it strongly enough that they feel they cannot live with it, they need to bring forward new legislation that will supersede it. Even then, it is Parliament – not the government – that will pass any change to the law, though in our system a government that commands a majority of MPs can usually get its way. What they cannot do, and should not be able to do in a society based on the rule of law, is simply ignore or renege on agreements they have signed up to.

    You rightly point out that this constrains what governments can do. This is a ‘feature, not a bug’ of law-based societies. It is open to to future governments to try to negotiate our way out of the 90+ bilateral investment treaties that we have with other countries, all of which contain ISDS provisions – though it would be foolish and counter-productive to do so (there is an appealing theoretical case for unilateral free trade, but I admit this is probably a pipe dream).

    But if we take the line that newly elected governments should have a tabula rasa instead of being bound by international treaties, trade agreements or contractual undertakings, this argument would surely apply much more powerfully to our membership of the EU, given the primacy of its law, the scope of its influence and the extent to which it constrains the choices of British governments. Indeed, a stipulation not to bind future governments would seem to be wholly incompatible with EU membership, which does that on a daily basis.

    Instead, we reconcile this by accepting that governments are bound by the obligations of our membership while reserving the right to leave should Parliament decide to do so.

  • Little Jackie Paper 24th Jan '15 - 10:30am

    Alex Sabine – My point was not, ‘You rightly point out that this constrains what governments can do.’ My point was about FUTURE governments. As Greece may yet show, these arguments are far from theoretical whimsy. You are of course right in many regards. In a modern, complex world we can’t have a Lockean tabula rasa and we must, of course have a rule of law. There is a great deal of cant regarding the word democracy. But I am uncomfortable about the ever more open-ended nature of some of these agreements and I sense you take the point.

    The first and most obvious question is what pebbles are there in front of ISDS. It is hyperbole to talk of corporate sovereignty (for the moment) but if checks and balances are necessary I’d have to ask what the checks are on ISDS. Secondly, I’d also have to ask about reciprocity. You say, ‘What they cannot do, and should not be able to do in a society based on the rule of law, is simply ignore or renege on agreements they have signed up to.’ Fine. Can therefore multinational corporates be pursued by states/trade unions/civil society in an ISDS process.

    You and others mention the EU. Frankly the argument that it binds future governments is something I have found to be one of the stronger anti-EU arguments. But inevitably as members of the EU we have some control over its direction. Can the same be said of ISDS – perhaps.

    More widely I still fail to see why multinationals should not look to privately insure their risks. Let the market price it in. If states wish to be less attractive to investors then so be it.

    Regardless, I imagine we agree on much here.

  • Alex Sabine 24th Jan '15 - 2:37pm

    @ Little Jackie Pepper
    You’re right to pick up on the sense that I share some of your concerns about decisions taken by one government that bind future governments in perpetuity.

    These include, inter alia:
    – poorly defined PFI contracts entered into by the last government
    – the open-ended nature of the indemnities that private railway operators enjoy
    – the botched 2004 reform of GP contracts which, so far from delivering the promised more flexible opening times, led directly to a decline in out-of-hours care and contributed to A&E overstretch
    – the fact that through our membership of the EEC and then the EU we have been party to a protectionist racket in agriculture that has enriched large grain producers at the expense of small farmers, consumers, taxpayers and the environment (through CAP) and criminally mismanaged our fish stocks (through the CFP) – the defects have been known for decades but successive governments have only been able to negotiate piecemeal reforms on a glacial timescale
    – the appalling record of defence procurement and the knock-on effects on the armed forces budget
    – the long-running problems caused by the invasion of Iraq and the failure to plan for the aftermath
    – Godon Brown’s decision as Chancellor to use the long period of global growth to go on a sustained pro-cyclical spending binge (financed by a mixture of borrowing and tax receipts artificially inflated by asset bubbles) and hand the bill to his successors and a generation of taxpayers

    The last two items might seem a different kettle of fish but in fact they are the most egregious examples of the lot. So, yes, there are lots of ways in which one government can tie its successors up in knots. I agree that legal contracts (say PFI contracts or the GP contract) are different from mere policy choices in that theoretically a new government can start afresh; but as the last item in my list demonstrates especially, the consequences of policy choices can take many years to unwind and massively constrain the next government’s real freedom of action.

    An illuminating (and disturbing) book by the respected academics Anthony King and Ivor Crewe, The Blunders of our Governments has legions of such examples. The implementation of Universal Credit and HS2 are two other potential cock-ups on the horizon that future governments will have to grapple with.

    I suppose I draw a couple of conclusions. One is that this frustrating feature of governmental decision-making is fundamentally unavoidable; if we expect governments to take long-term decisions in the international as well as domestic arena then they will sign treaties, agreements, contracts, join organisations and engage in military operations that will necessarily shape and constrain (in practice if not in theory) what their successors can do. They may be wise or unwise decisions, we may approve or disapprove of them, but we cannot realistically time-limit their effects. We can only fall back on the fact that Parliament can ultimately chart a new course.

    Another conclusion is how important it is, when a government signs up to a contract or treaty or procurement deal that will involve long-term obligations, to be sure that there is a good case for it on the merits and that it gets the detail right. Many of the PFI contracts failed on both these counts: the idea was not wrong in principle, but many of them were poor value for money in practice and were used for essentially political reasons (to disguise the true level of government borrowing by shunting a lot of it ‘off the books’ and leaving future generations to pick up the tab). The record with large IT projects and with procurement across much of the public sector is, if anything, worse.

    There is no way of guaranteeing these failures aren’t repeated, of course; but there needs to be a higher quality of due diligence by the senior civil servants involved, better scrutiny by select committees of both Houses, greater transparency and much tighter conditions on commercial confidentiality, the inclusion of appropriate ‘break clauses’ and so on. On the issue of the TTIP I explained in an earlier post the ways in which I think the ISDS provisions should be improved, though I also noted that much of the opposition seems to have little foundation in reality and is just the latest frontier of an anti-globalisation agenda.

    One final thought, though: sometimes the frustrating long-dated or open-ended commitments are simply the quid pro quo for a beneficial change that the government is seeking and which its successors also intended to enjoy. A good example is the decision to indemnify train operators against increases in charges mandated by the rail regulator to improve the condition of the rail network, which was a precondition of drawing in private investment by the train operators. Stephen Byers fundamentally breached that when he forced Railtrack into administration in 2001 and sought to dishonour the indemnities. The rail regulator Tom Winsor gives a fascinating account of this in this FT article:

    http://www.ft.com/cms/s/1/03ebedf8-01c5-11da-9481-00000e2511c8.html?siteedition=uk#axzz3PfZrFugV

    As Winsor concludes: “…The supposed surrender of control was something government does every day – honouring a simple promise to pay money in a contract which it has voluntarily signed. The seven-year old Railtrack [which Winsor rightly describes as incompetent and a “dreadful company”] may have been finished anyway. But surely several centuries of the sanctity of contract and the rule of law count for rather more.

  • Alex Sabine 24th Jan '15 - 2:45pm

    @ Little Jackie Paper
    PS: Apologies for mis-spelling your name/handle not once but twice! Very careless of me. It’s as in Puff the magic dragon, right? 😉

  • William Davison 25th Jan '15 - 9:23pm

    TTIP type agreements are not going to benefit SME’s, small businesses don’t have the resources to use them, big corporation do and they are ones that are arguing for this. There seems to be a blind faith that any legal processes are going to work in the favour of the weak, when time and time again we see evidence that those that can afford teams of lawyers can twist laws to their advantage by lobbying regulators and legislators. Goldman Sach even negotiated their own tax bill a few years ago. Andy Wrightmans “The poor had no lawyers” shows how much of the land grab in Scotland was done using legal processes.

    As someone who has a business that exports to North America; why do we need TTIP, there plenty of free trade between EU and North America already. I can think of lots of things we desperately need but TTIP is not one of them, such as; enforcement of existing laws and regulations in the banking would nice; splitting up the too big to fail banks; stop merges where 4-6 companies dominate a market; Tax land to stop land banking and create a real free market in land without creating a rentier class; feed QE into the real economy rather than bailing out banks and inflating asset prices. All would help avoid concentration of power/wealth and would look more like a true free market where there are many suppliers and many buyers, where no large player can set prices or corner a market .

    A free market is not where large corporations set the rules through lobbying for things like TTIP. We must distinguish between being pro free enterprise and being pro business.

  • @ William Davison
    “We must distinguish between being pro free enterprise and being pro business.”

    That I can agree with. For instance, businesses and business organisations often argue for economically irrational or undesirable things that may be in their particular interest but are not beneficial to the economy as a whole. Examples that spring to mind include: tax breaks for specific industries, producer/export subsidies, patent boxes, corporate welfare masquerading as green initiatives, changes to the takeover rules that would discriminate against foreign firms, looser competition policy, and (pre-crisis) joining a one-size-fits-all single currency zone and giving up our independent monetary policy. Such calls must be resisted.

    My favourite example of dodgy business advice comes from 1980, when a soaring pound and the emergence of sterling as a ‘petrocurrency’ after North Sea oil came on stream was causing understandable concern in industry, and among exporters in particular.

    The former Labour trade secretary Edmund Dell recounted in typically dry style in his magisterial book The Chancellors: “Michael Edwardes, the protectionist chairman of British Leyland – which depended on government money for its survival – provided further useful guidance by declaring that if the government could find no other way of living with North Sea oil, it should be left in the ground. But if the oil was left in the ground, where would the government get the revenue from which to subsidise British Leyland?”

    So I am the first to acknowledge that – particularly when the arguments are of that calibre – business advice to government should be treated with a pinch of salt. The case for expanding EU-US trade does not rest on business support for it, but on the fact that increasing trade is one of the surest ways of creating a freer, more prosperous and more peaceful world.

    It is every bit as important in 2015 that two great regions like Europe and America should allow goods and services (and people for that matter) to move freely across their borders as it was in the 19th century, or when GATT was established in the late 1940s – more so in fact given our increasingly integrated world economy. I don’t follow the logic that because “there is plenty of trade between Europe and North America already”, more of it would be a bad thing – unless you regard the existing trade as a problem.

    One organisation that clearly does is the Green Party, whose short-term policy proposals include the imposition of tariffs and import controls, and whose long-term goal is “to redesign trade policy so that it is based on less, not more, international trade” (Green Party economic policy statement, clause EC941). Indeed, we are told that this is a matter of principle: “Green policies are based on the principle that we need to reduce to a minimum the overall volume of international trade.” (EC904)

    I’d say that is a strong contender for the most alarming statement of any of the 5 ‘main’ parties – and to think that someone as economically literate as Lord Oakeshott thinks this sort of agenda is worthy of his support and deserves its place in a Miliband-led government…

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