The European Commission has asked the EU council a mandate to open negotiations on a multilateral investment court. However, the accompanying impact assessment obscures environmental and social impacts. The council should refuse to provide the mandate.
The European Commission published an impact assessment of a multilateral reform of investment dispute resolution. The current supranational system is known as investor-to-state dispute settlement or ISDS. ISDS gives multinationals far reaching supranational privileges to challenge government decisions.
Would a multilateral investment court have environmental, social or civil rights impacts?
The first question to look at is: What will happen without policy changes? The commission does not expect environmental or social impacts. 1 This is strange as the commission is well aware of impacts. It filed amicus briefs in various ISDS cases arguing against damages awards and it ordered Romania to not pay ISDS damages. And in the impact assessment the commission lists many shortcomings of the ISDS system. 2
The commission uses a flawed reasoning to be able to not expect environmental and social impacts:
“As the reform being analysed here is the reform of the procedural elements of the dispute settlement system, not a reform of the substantive provisions, no further impacts (e.g. environmental and social impacts) are expected. It is only with regard to the substantive provisions that one can have a debate on such potential impacts.” 3
The reasoning does not convince. 4 First, contrary to the commission’s statement, we can have a debate on whether procedural/institutional elements have an effect on impacts. 5 Furthermore, we can have a debate on whether the level of coverage of foreign direct investment, which falls outside a substantive/procedural divide, has an effect on impacts. Moreover, it follows from the commission’s reasoning that impacts caused by substantive provisions will continue, but the commission does not investigate whether such impacts exist or not. In sum, the commission does not seem interested in any environmental or social impact of the baseline scenario – despite being alerted three times of its flawed approach. 6
To be comprehensive and informative a baseline scenario impact assessment has to assess the impact of a system as a whole. The reform scenarios can then apply changes and assess the impacts again.
A more inclusive baseline scenario shows growing impacts, as, (a) the substantive provisions together with ISDS have environmental and social impacts; (b) no policy change means the impacts will continue; and, (c) new (trade and) investment agreements would greatly expand coverage of foreign direct investment.
In the multilateral investment court scenario the commission does not expect environmental impacts. It expects
“a better balance between the objectives pursued by international trade and investment agreements (i.e. ensuring freedom to trade and investment whilst respecting the ability of states to regulate to protect e.g. the environment).” 7
Procedural aspects could not play a role in the baseline scenario assessment, according the commission. They do play a role in the court scenario assessment. This is inconsistent; the commission is cherry-picking. More importantly, this assessment is under-inclusive as well. 8 Arguably, the commission’s approach amounts to maladministration. 9
The right approach is to start with the growing impacts the baseline scenario showed and apply the changes: (a) better institutional safeguards, however, specialised courts and tribunals tend to interpret expansively and the supranational level lacks effective instruments to correct expansive interpretations; (b) the establishment of the court subjects the EU to far reaching and vague supranational investment rules; and (c), further growing coverage of investments.
A more inclusive assessment shows growing environmental and social impacts. In a consultation submission, the FFII concluded that a multilateral investment court strengthens investments vis-à-vis democracy and fundamental rights. See also BEUC, ClientEarth, and S2B.
In the light of the need to protect fundamental rights, and in the light of the risks of climate change, the EU cannot ignore, legitimise, cause, or perpetuate growing impacts. The commission’s approach is irresponsible.
The commission should withdraw its impact assessment and the request for a mandate. The council should refuse to provide the mandate.
In an EU impact assessment, social impacts include civil rights impacts.
In addition to the main text: the language used (“reform”, “further”, “potential”) rather refers to a reform scenario than to a baseline scenario.
For instance these elements: making rights actionable, forum design, institutionalisation, legitimisation, conservative or expansive interpretation of substantive rights, enforceability of awards, and democratic influence on the development of law or lack thereof.
Section 5.2.4. The commission notes a concern with the long-term interpretation of the underlying substantive rules, but permanency would still provide a better balance. (?)
In addition, the impact assessment expects only minor social impacts: “Minor social impacts have been anticipated regarding the professional opportunities of the arbitrator/judge community in becoming adjudicators under the Court.” The commission disregards other social impacts (including civil rights impacts).
The commission had been made aware its assessment is under-inclusive (one, commission answer, two, three). The impact assessment doesn’t seem to comply with the commission’s guidelines as it is not comprehensive and it’s qualitative analysis is not rigorous and thorough. The commission doesn’t act in a manner consistent with the highest values and principles on which the EU is based. Compare Ombudsman.