Germany may reject trade deal because of investor protection clause

Germany has told its European Union partners and Canada that a trade pact being negotiated by Canada and the EU should delete the investor protection clause currently in a draft of the treaty. Failure to do so, reports Reuters, may cause Germany to reject the treaty, known as the Canada-EU Comprehensive Economic and Trade Agreement, or CETA.

If the investor protection clause is omitted or if Germany rejects the treaty, the Transatlantic Trade and Investment Partnership (TIPP) treaty being negotiated by the US and the EU could be in trouble.

Negotiations on CETA are in the final stages, but recently the German government has expressed doubt about the necessity of the investor protection clause in the treaty.

The treaty’s clause on investor protection, known formally as Investor-State Dispute Resolution Settlement (ISDS), allows corporations to pursue claims against governments for governmental actions that might harm future profits.

ISDS claims are resolved by an arbitration panel convened either at the World Bank’s International Center for Settlement of Investment Disputes (ICSID) or the United Nations Commission on International Trade Law (UNCITRAL).

According to Consumer International, “These two entities operate with similar rules and procedures, which exclude the public while providing investors with a sympathetic ear. Consumers have no standing, no capacity to intervene. Cases are heard by three private-sector attorneys, unaccountable to any electorate.”

The German government’s reluctance to agree to a treaty containing an ISDS stems from an multi-billion euro investor protection claim brought against the German government by Vattenfall, a Swedish energy company.

Vattenfall in 2012 filed a request for arbitration with ICSID seeking 3.7 billion euros in compensation after German Chancellor Angela Merkel announced that Germany would phase out its nuclear power plants.

Chancellor Merkel announcement came after she made public statements that nuclear energy was no longer a viable energy option for Germany because of the dangers exposed by the Fukushima nuclear plant tragedy in Japan.

Vattenfall is seeking compensation under the terms of the Energy Charter Treaty, an international trade and investment agreement specific to energy production.

The Energy Charter Treaty contains an ISDS clause as do most other multi-lateral and bi-lateral trade agreements, including NAFTA and all other recent trade pacts negotiated by the US.

As the number of treaties containing an ISDS clause has increased, so have the number of claims by multi-national corporations seeking protection from government laws and actions that might harm corporate profits.

Today there are about 500 ISDS claims pending resolution.

According to a paper presented at the July 2014 Australian Supreme and Federal Courts Judges’ Conference, “most of the claims were brought against States by investors from developed countries but mainly by investors from the European Union and United States.”

The Australian paper focuses on the repercussions that a claim filed by Phillip Morris of Asia might have on the Australian court system.

Phillip Morris filed its claim after the Australian High Court upheld the country’s Tobacco Plain Packaging Act.

Phillip Morris claimed that the court’s decision to uphold the law amounted to an illegal seizure of the company’s intellectual property rights. The claim is still pending.

Other claims pending include a suit by Veolia, a French company, against Egypt for raising the country’s minimum wage and a suit by the pharmaceutical company Eli Lilly against Canada.

Eli Lilly is seeking $500 million in damages from the Canadian government because a Canadian court shortened the number of years that an Eli Lilly drug could be protected by patent laws.

The suit against Germany by Vattenfall has raised German public ire against investor protection clauses because the suit so clearly contrasts private interest against public interest.

Should Vattenfall’s claim succeed, the German government and the public in general would be punished for seeking to pursue a safer energy policy.

At this point, the German government’s position is that the investor protection clause should be deleted from CETA. If it is not, however, the German government will have to decide whether to accept or reject CETA, which must be approved by all EU members before it is adopted.

The Transatlantic Trade and Investment Partnership (TIPP), a similar pact being negotiated by the US and the EU, also contains an investor protection clause, and if the clause is omitted from CETA or if Germany rejects CETA because of the clause, it’s questionable whether TIPP could survive with its investor clause intact.

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