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Dispute Resolution in Poland Issues and new developments in dispute resolution in Poland.

The TTIP, arbitration and copycats

wojciech_s Posted in Investment Arbitration

This week, representatives of the European Commission and the US Government met in New York for the ninth round of negotiations over the proposed trade and investment agreement between the European Union and the United States [http://trade.ec.europa.eu/doclib/events/index.cfm?id=1287]. The agreement will be known as the TTIP. If adopted, it will impact the economies and lives on both sides of the Atlantic, in a way and to an extent we are unable to predict.

Among other things, the TTIP is expected to include a set of provisions offering direct rights to companies willing to invest on the respective opposite sides of the pond. The effectiveness of these rights is to be secured by giving those investors the right to sue the United States, or the EU/Member States before an international arbitral tribunal, bypassing local courts.

This is one of the main arguments the opponents of the TTIP raise in their materials and during the protests, especially in Europe. What they fear is the perspective of US corporations taking European states to international arbitration in disregard of the rule of law and the system of the European and national courts. It is feared in particular that those corporations will challenge European regulations in such areas as protection of the environment, consumers, food safety, or energy.

Accordingly, it is now customary that the TTIP negotiations sessions are preceded with waves of protests across the entire Europe. The protests originating from Western Europe spilled also over to Poland. To the extent I am familiar with, the Polish protesters against the TTIP are using the same arguments as their Western counterparts.

Here is why this copycat approach is simply unjustified.

The fact is that none of the Western European members of the European Union currently have a similar arrangement with the United States. This means that for those states, the entry into force of the TTIP with its expected provisions on resolution of disputes between states and investors, will bring about an important qualitative change.

This is extremely significant, since those states are the greatest recipients of  US investments, and most European investments in the US also originate from those states. Most Western European states also have little or no experience with claims from investors. Accordingly, the fears in the western part of Europe may be understood to some extent.

However, this is not true for Poland or for most other states that joined the EU in 2004 or later.

Unlike its Western partners in the European Union, Poland already has an international agreement with the United States that allows US nationals and corporations to start international arbitrations against Poland, precisely on the grounds indicated by the TTIP opponents. That agreement was signed in 1990.

Over the last 25 years, only 5 arbitrations were started against Poland based on that treaty.

This is not much at all.

There are a few reasons, explaining in a rational way, why this has been the case:

It is not easy to establish that the state has acted in breach of its international obligations. International law is quite demanding in this respect and the burden of proof is on the investor. This holds true for any investment treaty arbitration, whether inside or outside Europe.

Over the last 25 years, Poland has made impressive progress as a state. Poland’s accession to the European Union was an important stimulus for bringing potentially deficient areas of conduct into line with the minimum standards applicable in the most developed European countries.

International arbitration is expensive. Few businesses are willing to invest several million dollars in a process of which the outcome is highly uncertain.

Instead of making war against Poland, US businesses have pragmatically preferred to make money in the country. The gains from good relations with the state with a large, but a highly regulated market, clearly surpass the benefits of going into a multi-year legal battle.

During the same period, not a single case was started by a Polish investor against the United States, even though the treaty works both ways. This is most likely because of the same reasons explained above, but also because the presence of Polish capital on the US market has been incomparably lower than vice-versa.

How would the TTIP change this landscape?

Although the final text of the TTIP is largely unknown, protection of investors under the TTIP is likely to be lower than under the existing 1990 agreement. This is because of the change in approach to the investor-state dispute settlement provisions that was taken by both the United States (since 2004), and the European Union in its most recent treaties.

For example, the existing 1990 treaty does not impose any time limitations on the legal actions of investors. This means an investor may at any time bring a case based on an investment made in the mid-90s. Conversely, the TTIP is supposed to introduce strict limitation provisions.

Another example: the 1990 treaty describes the obligations of states toward investors in a very general manner, which effectively allows investors to complain about any state-related measures taken in almost any sector, including the environment, for example. The TTIP will likely introduce a number of complicated exceptions and definitions, effectively limiting or diluting potential responsibility of the US, EU and the Member States for some of the measures.

In short, for the eastern part of Europe, the TTIP would effectively limit the risk of aggressive claims from US businesses. The existing treaty will likely be replaced by long and complicated provisions, making the prospects of investors winning a case even more costly and uncertain.

Frankly, if the Polish opponents of the investor-state dispute settlement provisions would like to achieve their goal, they should rather support the idea of the TTIP replacing the existing treaties, rather than fighting for the TTIP to be rejected.

Another interesting thing is that the hype created by the TTIP opponents has probably done more for the marketing of the Investor-State Dispute Settlement than a hundred law firms would have been able to do in a decade.

This may indeed help Polish and other CEE companies to think more proactively about protecting their overseas investments with the aid of the same mechanism. This, however, is a topic for a different post.