World Economy

Europeans Fear Wave of Litigation From US Firms

Europeans Fear Wave of Litigation From US FirmsEuropeans Fear Wave of Litigation From US Firms

With broad public resistance and a European Parliament majority against it, EU officials are rethinking their positions on the proposed free-trade agreement with Washington. Many fear investor protection rules will wreak havoc on national laws.

When Bernd Lange talks about the advantages of a free trade agreement with the US, he often cites the example of the VW bus. The hippy favorite has been the target of a 25 percent tariff since 1964, a punitive move after the European Economic Community raised levies on imported chicken, shutting the Americans out of the market. Sales have been hampered for decades as a result. But if the levy were significantly reduced, its price tag would plunge, Der Spiegel reported Wednesday.

Lange is a classic car enthusiast – and the chair of the European Parliament Committee on International Trade, which focuses on the Transatlantic Trade and Investment Partnership (TTIP) treaty. But despite the possible benefits for Volkswagen, the Social Democrat has had little choice but to emphasize the negative aspects of TTIP during his public appearances. In Europe’s leading exporting nation, broad swathes of the population are opposed to the free trade agreement. You can even find anti-TTIP flyers in many churches.

The main sticking point is special rights given to investors, who would be able to challenge countries in special international dispute settlement panels that bypass national courts. Some 145,000 European citizens voiced their disapproval in a “public consultation” undertaken by the European Commission, with many expressing fear that US companies might seek to overturn EU laws on genetic engineering, environmental protection and food quality.

  Concerns Justified

Canadian experiences suggest that the Europeans’ collective fears are warranted. During negotiations for the North American Free Trade Agreement (NAFTA), the Americans prevailed in pushing through wide-ranging investor rights, going far beyond what had previously been standard in older US trade agreements, including the one it has with Germany.

Now litigious US companies are bullying the Canadian government. In 2011, the government of the province of Quebec decided to impose a moratorium on drilling for gas and oil under the St. Lawrence River.

In response, Lone Pine Resources, an American firm, sued for $245 million in damages at an international arbitration court. The company claimed that the decision by the Quebec government to cancel a natural-gas exploration permit for its Canadian subsidiary had been “arbitrary, capricious and illegal.” The arbitration court still hasn’t reached a decision in the case.

  Law of the Strongest

So far, companies have largely focused their sights on developing nations, which are forced to accept these kinds of provisions just to be granted the right to export to rich countries. “Investor protection is traditionally a law of the strongest,” says Natacha Cingotti of the non-governmental organization Friends of the Earth. In Central America, the mere threat of expensive proceedings by the Americans has often been enough for them to get what they want.

That’s not always the case though. Six years ago, the Australians prevailed in removing provisions for investor protection in a trade agreement reached with the US. Now TTIP opponents in the European Parliament argue that Brussels must take its cue in negotiations from the Australian government’s success.

Critics of TTIP are united in their opposition to special rights for investors. A handful of Democratic members of Congress has even called on President Obama to exclude the controversial rules from negotiations. Their calls are backed by Richard Trumka, the president of the AFL-CIO union.

German Economics Minister Sigmar Gabriel has proposed the creation of an International Trade Court to arbitrate conflicts as an alternative. Even EU Commissioner Malmstrom says “that would be the best solution.”

Nevertheless, perhaps the US and Europe could agree on a common public court for their conflicts. Doing so would not only create a new global standard for trade conflicts. It might also make people less averse to the idea of investor protections.