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The relationship between the Transatlantic Trade and Investment Partnershipand

Edoardo Valentino

Sommario:

Part One: 1. The Transatlantic Trade and Investment Partnership - Part Two: 2. A new International Trade Law (?). The issue of the Investor-State Dispute Settlement (ISDS) - 3. Conclusions: a step towards an international investment court? - NOTE


Part One: 1. The Transatlantic Trade and Investment Partnership

1.1. What is TTIP and how it will influence European Union

The Transatlantic Trade and Investment Partnership (TTIP) is a project that involves the European Union and the United States of America.

Those two federations are discussing the preliminary version of a treaty that will be, if approved, of historical proportions.

The aim of the partnership is very ambitious and it concerns the creation of a common space of investment between EU and USA, a trans-Atlantic commercial alliance that will de facto erase economic the borders between the above quoted subjects.

It is important to notice the magnitude of this operation, since the volume of the trade between EU and USA covers enormous quotas of the global trade, as they account for almost 45% of the global GDP [1].

The TTIP alone will cover around 250 billion USD of FDI (foreign direct investments) either from EU to USA or vice versa [2].

Following the approval of the TTIP other aspect of the global economic assets will be influenced, as the introduction of the TTIP will increase investment in EU and USA and, consequently, generate economic growth all over the world [3].

It is important to notice that, since the parties are still undergoing discussions on the contents of the measure, the final draft may vary from what discussed in the present article.

This document, thus, will take in account all the latest preparatory documents both from the US Government and the European Institutions and take in account the possibility that the final draft of the agreement will present differences from this work.

Another element to take in account in order to understand the present document is the fact that the discussions between US and EU are confidential and it is not possible, since the early stage of the process, to have access to the complete preparatory works.

Even with the aforementioned limitations, the article will use as a reference all the documents issued so far to understand the direction the discussions are going and the probable final results.

The TTIP will undoubtedly be an agreement of historical proportions, involving the most industrialized areas of the world.

In the idea of the USA, the treaty is a part of the ongoing free trade plan that lead to the signing of the TPP [4].

USA is attempting to establish free trade areas with the surrounding countries in order to cope with the competition of other countries that are menacing (or for some markets even surpassed) the American historical leadership in business.

For the European Union, the TTIP is an occasion to constitute a free trade area outside the boundaries of Europe, involving the USA in an attempt to keep European economies competitive in respect to the developing countries and BRICS [5].

In particular EU and USA trade annually almost € 1 Billion in goods and services and investments amounting over € 3,7 Billions [6].

The economic crisis of 2008-2009 entailed a contraption of trade among the Unions, partially due to strict regulatory measures that involved restrictive measures and tariffs.

In this situation, USA and EU have seen the need to change their policies and create a free trade area to compete with the new economies’ markets and to adapt to the new requirements of business.

The European Commission, one of the principal European institutions and its executive body with the task to represent the Union as a whole [7], issued a document called “The Transatlantic Trade and Investment Partnership (TTIP) TTIP explained” [8] in which explains the significance of the treaty, as well as its preliminary draft.

In the said document the EU Commission explains that for the Union the scope of the agreement is “to create growth and jobs on both sides of the Atlantic by removing trade barriers” and that removing those barriers would “boost ad facilitate the buying and selling of goods and services, as well as investment in each of the economies” [9].

In particular, the final structure of the agreement will account three different sections:

1. Market access: removing customs duties on goods and restrictions on services, gaining better access to public markets, and making it easier to invest

2.Improved regulatory coherence and cooperation by dismantling unnecessary regulatory barriers such as bureaucratic duplication of effort

3.Improved cooperation when it comes to setting international standards”.

The aim of the treaty, thus, is to eliminate all the bureaucratic obstacles that avoid the possibility to have a free trade area among the two Unions.

It is important to notice that even if law can be seen as a nuisance, an obstacle to a successful commercial plan, it is necessary to keep a strong basis of ground rules in order to avoid free commerce to become a mere excuse to allow states and multinationals to fight for the upper hand in the international market.

The obstacles the TTIP aims to eliminate are numerous and of various nature.

The first limit to free trade between USA and EU is represented by custom duties.

Even though they are not very high, compared to other areas, the huge commercial flow (almost 2 billion euros daily) entails the necessity to further reduce them or even eliminate them as the treaty is proposing.

Another difficult the commerce among the two areas encounters is the presence of different safety regulations.

European and American agencies, in fact, have the same aim which is to protect consumers from any harm that could derive from the commerce of faulty or toxic goods.

Even if different agencies have the same objectives, regulations are often different and they sometimes represent an obstacle to trade.

The issue of different regulations involving qualitative standards, packaging, labeling and testing methods can be accounted as one of the Non-tariff Barriers to Trade (NTBs) [10].

Concerning the matter of NTBs, the treaty will aim to the creation of common agencies that will elaborate shared quality policies and methods in order to incentivize the sale of goods.

EU Commission stated that the aforementioned matter is under discussion, but there will be no concessions to the safety of the consumers; specifically the mentioned documents say that EU discusses the matters with the US on the grounds that “we neither give up nor dilute the levels of protection we have in Europe. That goes for health and the environment as well as for consumer protection” [11] and that “regulatory alignment and mutual recognition will only be possible if real convergence on the required safety and environmental standards is guaranteed”.

The TTIP, thus, will create a free trade zone in the USA/EU areas and this will allow goods and workers to freely travel among the Unions.

The potential commercial advantages of this operation are huge, since EU and USA are currently commercial partners, but with the creation of a free trade area the partnership will create even more possibility to incentivize market.

The European Commission estimates those advantages in an annual growth for the European market of 119 billion euros, with an estimate € 500 per household and could represent “a sort of growth package without using tax payers’ money” [12].

The treaty, in the EU commission’s estimates, will entail a growth for the European companies’ export and allow a better control European countries’capital investments in the USA [13].

It has been said that TTIP will only benefit multinational companies and governments: the EU Commission answered this critique by underlining the presence in the draft of specific measures aimed to middle and small companies [14].

1.2. The process of negotiation

The American President Mr. Obama and the Presidents of the EU countries started the negotiations on a Transatlantic Trade and Investment Partnership on 13 February 2013.

As seen before, the negotiations’process for the European side is carried out by the European Commission.

The task of the Commission, in this case, is to represent the EU and its states as a whole and constitute a subject to relate with during the negotiations.

It can be said that the aforementioned body has the task to represent the European citizens and their interests in front of a foreign country such as the USA.

The legitimization of the European Commission is granted by the unanimous avail of all the 28 EU Member States.

In particular, the European Commission’s trade department lead by the EU trade Commissioner [15] is responsible to be the negotiator, while receiving advises from other Commission departments such as the department for public health or for commerce.

Other European bodies involved in the process are the European Parliament and the European Council with the roles of consulting and advisory.

In order to grant transparency to the negotiations process, the institutionali­zed bodies also include representatives of the civil society such as non-go­vernmental organizations, business organizations, health groups environmental groups, animal welfare groups, faith-based groups, consumer groups, trade unions and trade associations [16].

The counterpart is the United States Trade Representative [17], which is an office under the direct control of the American President.

It has been said that the creation of a free trade area, even though it is not a definitive solution for the economy, could start a new era of prosperity in the western economies which suffered following to the economic crisis of 2008.

Some authors affirm that “contrary to concerns that another broad-based bilateral accord would further dampen prospects for an international trade agreement, this Policy Brief argues that a TTIP could generate new US-EU initiatives to break the deadlock over the Doha Round negotiations in the World Trade Organization (WTO) and also spur new global trade reforms. A successful effort to resolve disagreements across the Atlantic could become a template for the stalled global trade talks in several difficult areas, from agriculture to cross-border rules on services, investment, and regulations” [18].

The first round of negotiations happened in June 2013 and the last one held is the eleventh (October 2015, Miami USA); the process of negotiations, due to the complexity of the issue and the large number of parties involved, is complicated and takes time.

It is not possible to say with absolute certainty when the negotiations will be over but a final draft of the treaty is not expected before the end of 2016.

1.3. Issues and controversies

Even though the treaty has not been drafted in its final form, and the contents can be modified and vary substantially, the preliminary versions of the documents and the same idea of the agreement have been subjected to huge criticism both by the citizens and the consumers associations and the institutions.

The fear of the citizens is that the TTIP will constitute an umbrella document to allow the passage of unpopular measures that otherwise would not be allowed by the public opinion.

Citizens, in particular, do not feel represented by their own institutions and seem to regard to the TTIP as an agreement that will just benefit few of the great private investment funds and multinational companies.

Their fears, even though very premature, are rooted in the secrecy that involves the TTIP’s negotiations.

In spite of the attempts to keep the process transparent, or to make it look so, there are few official documents regarding the real works of the negotiators involved in the treaty.

Especially the US part is not disclosing all the documents and this lack of transparency lead the people and the citizens’ organizations to believe the treaty is somehow hiding some unpopular measures [19].

One of the preliminary controversies, thus, involves the need to keep citizens informed and to maintain a total degree of transparency on the proposal and the preliminary works of TTIP.

It is important, at the same time, to recognize the historical proportion of the treaty that surely justifies a certain degree of secrecy on the issues discussed, most of all for the elevated technicality of the discussions that may – on certain aspects – entail the birth of misconceptions among the public.

It is important to notice that the European side is not as united as the Ame­rican one.

The Union suffered greatly partly due to the economic crisis and partly for the increasing competition of LCDs and there is mistrust even among the States or between the citizens and the European Institutions.

Thanks to regionalism, in fact, the EU will sign the agreement as a whole subject, involving all the countries that take part in it.

The European Commission decided that the negotiations of TTIP should be conducted as a BIT between EU and USA and in particular, moving from previous studies involving “the potential economic impact of further trade liberalization of ‘Non-Tariff Measures in EU-US Trade and Investment’ with the goal to “shed light on the existence of non-tariff measures6 (NTMs) and regulatory divergence at a sectoral level, the magnitude of this divergence and the potential economic impact of a reduction or harmonization of these mea­sures” [20].

The EU, thus, entered in the preliminary discussions with USA with the intention of signing an agreement for the incentive of free trade among the two macro areas.

One of the various criticisms expressed towards the agreement is that EU lacks the possibility of signing such a treaty because sovereign states should be able to do so (or refuse to do so) without the imposing force of the European Union.

It can be said that this criticism is fundamentally misguided.

The Treaty on the Functioning of the European Union (TFEU) granted the Union the possibility to sign agreements involving foreign direct investments (FDIs).

This principle is stated in article 206 and 207 of TFEU, which provide that the Union is responsible to establish a common commercial policy aimed to the elimination to all possible barriers in international investments towards Europe and creates an exclusive competence to sign such agreements with foreign countries or other Regions.

Those articles in particular state that:

Common Commercial Policy Article 206 (ex Article 131 TEC) By establishing a customs union in accordance with Articles 28 to 32, the Union shall contribute, in the common interest, to the harmonious development of world trade, the progressive abolition of restrictions on international trade and on foreign direct investment, and the lowering of customs and other barriers” [21] and that “The common commercial policy shall be based on uniform principles, particularly with regard to changes in tariff rates, the conclusion of tariff and trade agreements relating to trade in goods and services, and the commercial aspects of intellectual property, foreign direct investment, the achie­vement of uniformity in measures of liberalization, export policy and measures to protect trade such as those to be taken in the event of dumping or subsidies. The common commercial policy shall be conducted in the context of the principles and objectives of the Union’s external action. 2. The European Parliament and the Council, acting by means of regulations in accordance with the ordinary legislative procedure, shall adopt the measures defining the framework for implementing the common commercial policy. 3. Where agreements with one or more third countries or international organizations need to be negotiated and concluded, Article 218 shall apply, subject to the special provisions of this Article” [22].

The legitimization of the European Union to discuss the TTIP agreement with USA is, thus, undeniable.

Another criticism is about the possibility that the introduction of the TTIP tear down all the regulation in EU that aim to keep a fair and sustainable labor standard.

The issue is concerning the lower labor standard guaranteed by the USA and the potential step down of the European rules concerning minimal labor care (such as minimum salary).

It has been declared by a Member of the European Parliament that “is especially important to assess the potential effects of the TTIP on employment and workers’ rights and to then set the right conditions for these to be protected adequately. In this context, he stressed that: the TTIP must not just about “tearing down” trade barriers but about achieving sustainable development, too, and that therefore a special sustainability chapter in the TTIP is vital. The TTIP must also provide for the respect of the ILO’s eight fundamental conventions, of which the USA has so far only ratified two” [23].

On this aspect, the EU leader negotiator on TTIP made the following points.

The introduction of TTIP will contribute to the creation of new jobs, both in America and in Europe.

The TTIP will, taking example from the content of the EU-Canada Comprehensive Economic and Trade Agreement (CETA), take in account the issue at hand and develop a newly recognized set of standard for labor and public procurement.

He went as far as saying that the “strong protection of labor rights” is always important and that in this context a special sustainable development chapter is important to be included in the TTIP, with respect to the ILO standard of safe and decent work conditions.

A similar concern by the European citizens involves the issue of the risk of compromising the strict European regulation on food safety by adopting the less restrictive rules allowed by the USA.

The fear manifested by the citizens and associations is that food and health will be sacrificed on the altar of free trade.

In particular, the criticisms have been directed to the EU proposal for Sanitary and Phytosanitary Measures (SPS) [24].

This document, published on 7 January 2015, contains measures that could undermine existing health and safety regulations.

One of the issues, for instance, is the proposed modification to the existing rule that allows importing countries to examine agricultural imports at the point of entry in the country.

That provision, following said proposal, will be changed allowing the exporting state to carry on the control on the crops and allowing the importing country to do its own examination just in particular cases such as “in the case of an interception of regulated pests” [25].

In general, the criticism in this field concerns the undermining of SPS in order to incentivize commerce.

Article 18 of the above quoted document, for example, embodies those concerns when it includes the creation of a joint USA – EU SPS committee, composed by trade and regulatory experts, with competence in the field of food health and safety.

This panel of experts will have the following functions “a) To monitor the implementation of this Chapter and to consider any matter relating to this Chapter, and to examine all matters which may arise in relation to its implementation; b) To provide direction for the identification, prioritization, management and resolution of issues; c) To address any requests by the Parties for the modification of import checks; d) To review the Annexes to this Agreement; e) To provide a regular forum for exchanging information relating to each Party’s regulatory system, including the scientific basis; f) To prepare and maintain a document detailing the state of discussions between the Parties on their work on recognition of the equivalence of specific SPS measures” [26].

That committee, in fact, seems to advocate competences which are typically demanded to public agencies and thus it could entail a minor level of safety measures of lower quality standards due to the absence of public control.

Other concerns relatively to the aspect of SPS are the difference in regulation in hormone treating for cattle in USA and EU, the lack of legislation concerning novelty food and GMOs and the problem of the standards of animal welfare.

All this concerns deserve a particular attention that cannot be demanded to private companies or commercial agency and must be addressed by public institutions.

Since the state of negotiations, as of today no measure has been definitely established and thus it is important to survey the documents about the negotiations round of TTIP in order to fully understand the direction the SPS are taking in the future asset of the EU – USA free trade area.

Another concern regards the possibility that the introduction of the agreement constitute a step back with respect to the regulation of financial services.

European Union is still struggling to get back after the huge loss in jobs and productivity suffered after the crisis of 2008.

After this financial debacle, both USA and EU developed a reinforced legislation in order to avoid further problems connected with speculation in the financial markets [27].

Critics of the TTIP suggest that the introduction of the agreement will favor a less stringent legislation concerning finance and thus there will be a step back to pre-crisis legislative conditions.

In particular, it appears that USA explicitly called out financial regulation from the joint discussion of the document because “Jacob Lew’s [US Treasury Secretary] stance echoes that of other U.S. officials and lawmakers, who are concerned that putting financial rules on the table in the trade talks risks watering down or abandoning new safeguards that are part of the 2010 Dodd-Frank financial law. The U.S. is seen as having stronger rules in financial services, so there may be more regulation to lose than gain in trade talks, while Europe touts its rules as superior in food safety and other sectors” [28].

It can be said that the exclusion of financial regulation from the document is not necessarily a sign of weakness of the public power to the financial lobbies because both USA and EU have already an established and articulated legislation involving finance and stock exchange.


Part Two: 2. A new International Trade Law (?). The issue of the Investor-State Dispute Settlement (ISDS)

The most controversial part of the preparatory works of the TTIP concerns the investment chapter and, in particular the procedure for conflict resolution.

In practice, it has been envisaged a form of investor-state dispute settlement mechanism in order to resolve conflicts between private investors and a public entity such as USA or EU (and its Member States).

The worst fear concerning ISDS is the assumption of a leveling between investors and hosting States that could lead to an erosion of legitimacy by the public power against the aggressive practices of private investors.

It is feared that in case of approval commercial rules will overcome public laws, thus, undermining a state sovereignty in its own territory.

ISDS is a dispute resolution process that allows, after the failure of negotiations, to solve a dispute arising from the interpretation or application of a set of rules.

The aforementioned dispute resolution procedure is a widespread reality, not limited to TTIP and already settled in other agreements that allows a company to sue a State for believed violations of its rights [29].

In other international treaties, there are already forms of ISDS: Chapter 11 Section B of NAFTA [30] called “Settlement of Disputes between a Party and an Investor of Another Party”, for instance, allows private companies of one NAFTA country (Canada, Mexico or USA) to file a claim against a State taking part in the agreement before going to sue it in front of an arbitral tribunal according to the international law.

The aforementioned section, thus, allows the private investor to seek justice by settling “a mechanism for the settlement of investment disputes that assures both equal treatment among investors of the Parties in accordance with the principle of international reciprocity and due process before an impartial tribunal” [31].

The importance of the matter at hand pushed the EU Commission to issue a proposal for the investment protection in TTIP.

This crucial issue has been already included in two other free trade agreements signed by EU, which are the CETA (with Canada) and the EU– Singapore Free Trade Agreement, that inspired EU to include a similar matter in the TTIP negotiations [32].

The key concepts defined, among others, in CETA (concerning FDIs) were the indirect expropriation and the fair and equitable treatment.

In particular, for the first time CETA defines indirect expropriation affirming that it “can only occur when the investor is substantially deprived of the fundamental attributes of property such as the right to use, enjoy and dispose of its investment” [33] and specifying that “legitimate public policy measures taken to protect health, safety or the environment do not constitute indirect expropriation, except in the rare cases where they are manifestly excessive in light of their objective” [34].

Concerning the fair and equitable treatment, CETA defines that “A breach of the fair and equitable treatment obligation can only arise when there is: Denial of justice in criminal, civil or administrative proceedings; A fundamental breach of due process, including a fundamental breach of transparency, in judicial and administrative proceedings. Manifest arbitrariness; Targeted discrimination on manifestly wrongful grounds, such as gender, race or religious belief; Abusive treatment of investors, such as coercion, duress and harassment” [35].

Another principle included in the aforementioned FTAs (and later included in the EU commission proposal for investment dispute resolution) is the prohibition of forum shopping, in order to avoid the practice of choosing the most favorable court before starting a dispute [36].

The EU Parliament, on the basis of the CETA and Singapore FTA experiences, authorized the EU commission to issue a proposal for an investor-state dispute settlement procedure for the TTIP.

On the 16 September 2015, EU issued a text of that proposal aiming to discuss with USA this important subject [37].

In particular, the EU proposal was included in the chapter of trade in services, investment and e-commerce and aimed to create a new and transparent system for resolving disputes between investors and states – the so called “Investment Court System” [38].

For EU, thus, this new mechanism will substitute the existing ISDS procedure for the present and future controversies concerning investors and States in the TTIP area.

In this chapter, we will analyze the most innovative and controversial elements of the proposal.

The investment court system, as proposed, takes in account all the inputs that Member States, EU Parliament and national parliaments gave during pu­blic consultations held on the matter of ISDS in TTIP and is inspired by the existing procedures, especially concerning the aspects of transparency of the mechanism and accountability of the results.

The first vice-president of EU Commission declared that “with our proposals for a new Investment Court System, we are breaking new ground. The new Investment Court System will be composed of fully qualified judges, proceedings will be transparent, and cases will be decided on the basis of clear rules. In addition, the Court will be subject to review by a new Appeal Tribunal. With this new system, we protect the governments'right to regulate, and ensure that investment disputes will be adjudicated in full accordance with the rule of law” [39].

The EU Commission, thus, openly declared the aim of the creation of a new judicial system aimed to the protection of both investors and States, according to the legal principle of rule of law.

The EU Trade Commissioner Cecilia Malmstrom added to the aforementioned declaration that “today, we’re delivering on our promise – to propose a new, modernized system of investment courts, subject to democratic principles and public scrutinyWe want to establish a new system built around the elements that make citizens trust domestic or international courts.

I’m making this proposal public at the same time that I send it to the European Parliament and the Member States. It’s very important to have an open and transparent exchange of views on this widely debated issue [40].

The draft of the proposal includes both general principles and specific principles for the judicial decision in case of dispute.

In particular, the proposal expressly allows that the right to regulate public policies will be retained by both USA and EU and specifies that “investment protection provisions shall not be interpreted as a commitment from governments not to change their legal framework, including in a manner that may negatively affect the investor’s expectations of profits” [41].

The proposal then introduces various elements that will be included in the new dispute settlement system.

Those elements are the following: the creation of a public Investment Court System composed of a first instance Tribunal and an Appeal Tribunal [42].

In particular, the Tribunal will be called “Tribunal of first instance” and will be composed of fifteen publicly appointed judges.

In order to keep the proceedings as fair as possible those judges will be equally nominated: one third will be appointed by the USA Government, one third will be appointed by the EU institutions and the rest will be appointed by third states.

These judges will be the only judicial review on investment dispute in the TTIP area and will be chosen among professional of “very high technical and legal qualifications, comparable to those required for the members of permanent international courts such as the International Court of Justice and the WTO Appellate Body” [43].

Those judges must “possess the qualifications required in their respective countries for appointment to judicial office, or be jurists of recognized competence. They shall have demonstrated expertise in public international law. It is desirable that they have expertise in particular, in international investment law, international trade law and the resolution of disputes arising under international investment or international trade agreements” [44].

In the new dispute settlement mechanism, the controversies will be randomly distributed to the judges, in order to avoid the risk of influencing the panel.

This specific provision represents a change from the past system of ISDS, whose mechanism was structured as an arbitration and the judges were chosen by the parties.

The Appeal Court (also named Appeal Tribunal) will be the second judiciary body, with the task of reviewing the decision gave by the Tribunal of first instance.

The composition of the Appeal Court will be the following: two judges chosen by the USA Government, two judges by the EU institutions and the remaining two by third states.

This judges, as the ones composing the first instance Tribunal, will have the highest technical requirements and will follow a strict code of conduct that avoid them to consult or work for USA and EU and companies for the duration of the task, in order to preserve their impartiality.

Article 11 of the EU proposal illustrates the judges’ ethics and affirms that “The Judges of the Tribunal and the Members of the Appeal Tribunal shall be chosen from persons whose independence is beyond doubt. They shall not be affiliated with any government. They shall not take instructions from any government or organization with regard to matters related to the dispute. They shall not participate in the consideration of any disputes that would create a direct or indirect conflict of interest. In so doing they shall comply with Annex II (Code of Conduct). In addition, upon appointment, they shall refrain from acting as counsel in any pending or new investment protection dispute under this or any other agreement or domestic law” [45].

After the general elements, the proposal explains in the detail the modifications that will occur in the investment dispute settlement system.

The proposal is divided in two sections which are (i) investment protection and (ii) Resolution of Investment Disputes and Investment Court System.

The investment protection part accounts the right to regulate for the States and the guarantees in case of expropriation.

It has been clearly declared that the right to regulate will be kept intact and the TTIP will not substitute the possibility to regulate in the matter of investment law by both the parties.

Article 2 of the proposal states that “the provisions of this section shall not affect the right of the Parties to regulate within their territories through measures necessary to achieve legitimate policy objectives, such as the protection of public health, safety, environment or public morals, social or consumer protection or promotion and protection of cultural diversity”.

This is of particular importance especially concerning the possibility of keeping public policies (such as EU law on state aids or environment and health safety) which are a milestone of the EU [46].

The aforementioned sections, thus, will include definitions and criteria to manage FDIs and the basic guarantees for foreign investors.

This principles will not substitute all the international law’s principles concerning foreign investments such as the most favored nation’s principle.

The scope of the first section is to give to the investors a clear framework of the FDIs in the new TTIP area.

It has been said that the transparency on the conditions of investment is an important element to determine the possibility for foreign companies to decide to invest in a certain area [47].

In order to attract an high number of third countries’ investors, the TTIP area should provide with a precise and clear FDI plan, including the definition of investments and investors (which usually is unclear and leads to controversies) and the conditions for the beginning of the investment, its fiscal aspects and the end of the commitment, and the protection in case of expropriation by the hosting country.

In order to create a fair and predictable system the proposal includes five elements to protect investors.

This warranties are:

– the impossibility to expropriate assets without a compensation;

– the possibility to transfer (and eventually repatriate) funds relating to an investment;

– a general guarantee of fair and equitable treatment and physical security. a commitment that governments will respect their own written (and legally binding) contractual obligations towards an investor (according to the principle pacta sunt servanda);

– a commitment to compensate for losses in certain circumstances linked to war or armed conflict [48].

In order to avoid the unlawful seizing of foreign assets those rules have been clearly defined and constitute an articulated framework, together with the international principles, that constitute the legal paradigm for foreign investments.

This proposal of EU commission constitutes one of the most discussed aspects of TTIP [49].

The difficult issue of the union of different legal traditions, once seen as almost impossible, will probably take place in the definitive draft of the agreement.

The intent of the EU Commission is to constitute a new investment court system that will be necessary in a future free trade area created with the approval of TTIP [50].

The proposal is drafted starting from the existing legal tradition of investment law, taking into account various principles deriving from the investment institutions, notably from UNCITRAL.

In addition to those principles, the proposal of EU Commission tries to innovate with the prevision of elements such as rules avoiding forum shopping, incentivizing transparency of the proceedings and insuring the qualifications and impartiality of judges.


3. Conclusions: a step towards an international investment court?

In this last section, We will recap the consideration expressed in the previous parts of the document and conclude with come consideration on TTIP, investment arbitration and International Trade Law.

In this article we analyzed the role of commerce for the consolidation international relationships and to be a potential ground for cooperation.

We stressed the circumstance that without a strong law framework international commerce tends to become the turf for plunder and abuse by the most powerful nations towards the least developed ones.

We also focused on the rise of the multinational companies in the international commerce panorama and the fact that these entities have nowadays reached a power sometimes far superior than States and public institutions.

It is fundamental, taking in account the history of international commerce, that every important step taken by the international community is accompanied by the creation of a strong legal framework.

The role of capitalism and, consequently, of companies is to maximize profits; in fact, it can be said that companies exist to gain profits and create resources.

It can not be expected from companies that they voluntarily limit themselves in battle with the competition by creating rules to protect the people of the nation they are working in.

This role of control and regulation have always been and must be of public institutions.

The economic crisis of 2008 is the proof of the need to have a stringent discipline to ensure the protection from unfair practice by the private investors. It is fair to say that such financial crisis is a failure of regulation [51], more than a failure of the markets, pointing out the responsibilities of public bodies in the lack of control.

During the current year a corporation scandal exploded and its consequen­ces are, nowadays far from over.

We are referring to the “Volkswagen Emission Scandal [52], in which was discovered that the German car manufacturer systematically altered the pollution control devices on the cars of its group (Volkswagen and Audi principally) and eluded the American EPA [53] controls [54].

This scandal proved the aforementioned point: it is necessary to create a strong and binding framework to ensure that private companies do not infringe the law to gain an unfair advantage in spite of the competition and public goods such as health and environment.

It is important to notice the crucial aspect of the difficulty in enforcing a judgment against foreign investor.

The creation of the TTIP will surely incentivize the competition among European and American companies to gain clients in the free trade area market.

In order to grant the respect of the general interest and the right of the consumers, though, it is necessary to implement the rules of international investment.

The TTIP negotiations are the living proof of the intention of both parties to create a strict and transparent discipline for the future free trade area.

The EU Commissioner Cecilia Malmstrom stressed the importance of the creation of an international commerce tribunal in order to administrate justice in the case of dispute among investors and hosting States or among States.

After the EU proposal on ISDS was issued [55] Commissioner Malmstrom declared “I’ve presented a major change in our trade and investment policy. I’m proposing to set up a modern and transparent system for resolving disputes between investors and states – an Investment Court System” and that “we need to introduce the same elements that lead citizens to trust their domestic courts. Concretely, I want to restore trust by setting up an Investment Court System under TTIP – one that is accountable, transparent and subject to democratic principles. It will be judges, not arbitrators, who sit on these cases. They must have qualifications comparable to those found in national domestic courts, or in international courts such as the International Court of Justice or the WTO Appellate Body.

Also – the judges will be publically appointed in advance. And, like in courts, you won’t be able to choose which judges hear your case. Furthermore, we will guarantee there is no conflict of interest. Again, like in domestic and international courts, the judges won’t be able to continue any activities which might interfere with their judicial functions. Finally, I want to introduce an Appeal Tribunal. Just like in domestic legal systems and the World Trade Organization [56].

The discussions on TTIP between EU and USA are far from over and the chapter on international investment is one of the most complicated to agree upon.

It is foreseeable that the discussion on the matter of international investment dispute resolution will be one of the last to be resolved by the delegations involved in TTIP negotiations.

We can say that the principles of transparency and publicity that were on the basis of the EU proposal seem to be adequate with the purpose of the discussion.

Even if the American counterparty is far more reserved and applies secrecy to the negotiations of TTIP, the EU efforts to involve the citizens and associations is creditable.

The important element that we want to stress on the merit of the negotiations on ISDS is the attempt not to innovate the existing procedure, but to introduce a new paradigm.

Notably, in the words of the EU Commissioner Malmstrom, the EU sees the need to constitute an international investment court that will manage commercial dispute among international bodies such as multinational companies and countries.

The creation of this court will be a great innovation with respect to the existing methods of dispute resolution – such as international arbitration – that encounter the criticism to be too secret and to have unclear procedure and results.

The modern commercial world, after globalization, involved a shift of the power in a century long process that brought more power to the companies and less to the countries.

As of today the balance of the power, at least concerning international commerce, is totally in favor of the multinationals, that can be in some instances more rich and powerful of the same hosting States.

In order to ensure a fair and open competition and avoid predatory business to take place, the world needs a strong body of international commercial rules and, subsequently, it needs an international tribunal with the power and recognition by the international community to enforce the rules.

It is too early in the process of negotiation to understand what the final form of TTIP will be, even concerning the chapter on ISDS.

We can say, thus, that the creation of an International Investment court by the USA and EU will influence the international community and possibly gather such a consent to allow the creation of a global investment tribunal in the future.


NOTE

[1] See the official World Bank publication of Global GDP 2014, available at http://data
bank.worldbank.org/data/download/GDP_PPP.pdf
.

[2] See http://ec.europa.eu/eurostat/statistics-explained/index.php/Foreign_direct_investment_
statistics.

[3] For an analysis on the impact of TTIP on the other countries see EU Commission, Transatlantic Trade and Investment Partnership: The Economic Analysis Explained, available at trade.ec.europa.eu/doclib/docs/ 2013/september/tradoc_151787.pdf#world.

[4] The Trans Pacific Partnership, signed 5 October 2015 by the Ministers of the 12 Trans-Pacific Partnership (TPP) countries – Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, United States, and Vietnam and fully available at the website https://ustr.gov/about-us/policy-offices/press-office/press-releases/2015/october/
summary-trans-pacific-partnership
.

[5] Brazil, Russia, India, China and South Africa are developing countries with the fastest growing economies in the globe.

[6] See Transatlantic Trade and Investment Partnership, The Economic Analysis Explained September 2013, the official document issued by the EU commission and publicly available at http://trade.ec.europa.eu/doclib/docs/2013/september/tradoc_151787.pdf.

[7] For further information on the European Commission see the official EU website http://
ec.europa.eu/index_it.htm.

[8] The Transatlantic Trade and Investment Partnership (TTIP) TTIP explained fully available at http://trade.ec.europa.eu/doclib/docs/2014/may/tradoc_152462.pdf.

[9] The Transatlantic Trade and Investment Partnership (TTIP) TTIP explained, page 1.

[10] Non-tariff Barriers to Trade (NTBs) are all the obstacled to free trade that are not tariffs, for more informations see WTO website available at https://www.wto.org/english/thewto_e/
whatis_e/tif_e/agrm9_e.htm.

[11] The document then cites the example of the hormone treated beef saying that “Hormone-treated beef is not allowed in the EU, for example, and the planned trade agreement will not change that”.

[12] From The Transatlantic Trade and Investment Partnership (TTIP) TTIP explained, page 2.

[13] The total of European countries'investments in the American market accounts for € 1,6 Billions.

[14] Issues and criticisms towards the TTIP will be addressed in the third chapter of the present article.

[15] EU Commissioner from 2014 to 2019 is Cecilia Malmstrom.

[16] From the European Commission’s official website, available at http://ec.europa.eu/trade/
policy/in-focus/ttip/about-ttip/questions-and-answers/#expandable-benefit-people
.

[17] For further information see https://ustr.gov/about-us/about-ustr.

[18] J.J. SCHOTT-C. CIMINO, Crafting a Transatlantic Trade and Investment Partnership: What Can Be Done, Peterson Institute for International Economics, March 2013.

[19] For further information about the complex process to access TTIP preliminary draft read Z.D. BOREN, TTIP controversy: secret trade deal can only be read in secure reading room in Brussels, published on the Independent on 14 August 2015.

[20] From the study Non-Tariff Measures in EU-US Trade and Investment – An Economic Analysis. Reference: OJ 2007/S 180-219493, available at http://trade.ec.europa.eu/doclib/
docs/2009/december/tradoc_145613.pdf
.

[21] Article 206 TFEU.

[22] From article 207 TFEU.

[23] Content of the declaration of Bernd Lange, member of the EU Parliament, during a pu­blic hearing on employment and social aspects of the TTIP on 1 December 2014.

[24] Full document available at http://trade.ec.europa.eu/doclib/docs/2015/january/tradoc_
153026.pdf
.

[25] See article 13 of the EU proposal for Sanitary and Phytosanitary Measures.

[26] See article 18 of the EU proposal for Sanitary and Phytosanitary Measures.

[27] Those measures are principally, but not only, the Dodd-Frank Act in USA and the EU financial regulatory reform (constituted by 40 separate acts).

[28] From Trindle and Fairless, U.S. Wants Financial Services Off Table in EU Trade Talks Including Financial-Services Regulation in Talks Could Signal Another EU-U.S. Rift, article published on the Wall Street Journal on 15 July 2013.

[29] See UNCTAD IIAs notes recent trends on IIASs and ISDS no.1 published February 2015.

[30] See the full NAFTA available at https://ustr.gov/trade-agreements/free-trade-agreements/
north-american-free-trade-agreement-nafta
.

[31] NAFTA chapter 11, Section B article 1115.

[32] See the agreements at http://trade.ec.europa.eu/doclib/docs/2014/september/tradoc_
152806.pdf
 (CETA) and http://trade.ec.europa.eu/doclib/press/index.cfm?id=961 (EU-Singa­pore Free Trade Agreement).

[33] See CETA investment definitions at http://trade.ec.europa.eu/doclib/docs/2013/november/ tradoc_151918.pdf.

[34] The exclusion of public policy measures from the indirect expropriations was needed because it constitute a large number of the disputes and there was an objective lack of definition by the international community.

[35] From CETA investment definitions at http://trade.ec.europa.eu/doclib/docs/2013/november/ tradoc_151918.pdf.

[36] This inclusion is very important due to the existence of precedents of forum shopping. See, among others, the case Philip Morris vs Australia, available at https://www.ag.gov.au/
tobaccoplainpackaging
.

[37] The EU proposal can be found online at http://trade.ec.europa.eu/doclib/docs/2015/
september/tradoc_153807.pdf
.

[38] See EU proposal, page 1.

[39] The full statement of Mr. Frans Timmermans is available at http://www.ifa.ie/european-commisison-daily-news-16-september/#.Vi-qxLcvfIU.

[40] See the declaration available at http://trade.ec.europa.eu/doclib/press/index.?id=1343.

[41] See EU commission reading guide on the 16 September 2015 proposal available at http:// europa.eu/rapid/press-release_MEMO-15-5652_en.htm.

[42] See Section 3 – Resolution of Investment Disputes and Investment Court System of the proposal

[43] For further information on the qualifications of the judges of WTO Appellate body, which will serve as reference to the new judges of TTIP investment dispute resolution system, see https://www.wto.org/english/tratop_e/dispu_e/ab_members_bio_e.htm.

[44] See art. 9 of the EU proposal.

[45] From article 11 of the EU proposal.

[46] For the necessary background on the European Union’s rules on public aid and public procurement see http://ec.europa.eu/competition/state_aid/legislation/legislation.html.

[47] Z. DRABEK-W. PAYNE, The Impact of Transparency on Foreign Direct Investment, on Economic Consulting Services, Inc. Washington, D.C. November 1999.

[48] See Draft text on Investment Protection and Investment Court System in the Transatlantic Trade and Investment Partnership (TTIP).

[49] There are various articles about the risks concerning the approval of TTIP, among them see Stuart Jeffries, What is TTIP and why should we be angry about it?, The Guardian, 3 august 2015, available at http://www.theguardian.com/business/2015/aug/03/ttip-what-why-angry- transatlantic-trade-investment-partnership-guide.

[50] C. MALMSTROM, Proposing a new court system, 16 September 2015.

[51] The thesis of the failure of regulation as a cause of the crisis of 2008 has been proposed by different authors; i.e. Viral V. Acharya, Thomas Cooley, Matthew Richardson and Ingo Walter, Market failures and regulatory failures, lessons from past and present financial crisis, 5 December 2009 available at http://pages.stern.nyu.edu/~sternfin/vacharya/public_html/market_failures.pdf, or L. COURVILLE, Financial Crisis: a perfect storm or regulatory failure, available at http://
www.hec.ca/iea/seminaires/120508_leon_courville.pdf
.

[52] For further information see US EPA Volkswagen notice of violation of the Clean Air Act, 18 September 2015.

[53] Environment Protection Agency

[54] For the full story see Jack Ewing, Volkswagen Says 11 Million Cars Worldwide Are Affected in Diesel Deception, New York Times, 22 September 2015.

[55] See Chapter two of the present article.

[56] C. MALMSTROM, Proposing an Investment court system, 16 September 2015.