Jean-Claude Juncker wants to style the EU as the undisputed champion of global trade when he steps up to deliver his State of the Union address in Strasbourg Wednesday.
The European Commission president’s pièce de résistance will be to propose a fast-track system to ensure Brussels can clock up quick trade deals while U.S. President Donald Trump lurches toward protectionism and Brexit tarnishes Britain’s international standing. He will announce that his first targets for streamlined agreements will be Australia and New Zealand, according to trade diplomats.
While Juncker may win kudos as a short-term savior of EU trade policy, his approach to securing fast deals will require slicing out contentious clauses on protecting foreign investors. ...
It is worth noting that this a Commission proposal, and the Council still needs to weigh in.
One question I have is whether it is both the substantive and procedural aspects of ISDS/investment protection that are being split from trade. Are substantive protections such as fair and equitable treatment staying in, but now subject only to state-state dispute settlement? Or will both the substance and procedure of investment protection come out?
Politico describes this move as "risky," and coming "at a heavy price for the EU," citing the following reasons offered by a number of sources:
-- "In rescuing trade deals, Juncker has fallen into another legal and political quagmire over how to protect European businesses in far-flung corners of the world, should their factories be seized or nationalized";
-- "Several analysts and lawyers accused the Commission president of seeking to pass the responsibility for protecting investors onto a body [a multilateral investment court] that will not exist for years"; "it’s quite difficult ... to imagine the U.S. under Donald Trump supporting this concept.”
-- this is "nothing more than a procedural trick" "to avoid the involvement of national parliaments in EU trade policy."
-- "One of the other key dangers is that the Commission will set a precedent with the Australian and New Zealand deals — but then be unwilling to follow it in riskier emerging markets"; “The Commission needs to be quite sensitive to not give the impression it discriminates between countries.”
-- "A final concern over slicing investment out of EU deals is that investment protection will revert to the turbid world of bilateral investment agreements that EU member countries have with other nations."
Here are a few thoughts on those points.
First, when evaluating the risk of this decision, it should probably be compared to the existing approach of doing trade and investment protection together, which comes with its own risks. My guess is that negotiating trade agreements with Australia and New Zealand that exclude ISDS/investment protection will go much more smoothly than what we have seen with many recent EU trade negotiations that included ISDS/investment protection. But we shall see.
Second, it is hard to imagine the U.S. supporting an independent multilateral investment court under Donald Trump or a future President. Maybe in the 1990s, before there was so much investment litigation, but it would be hard today.
Third, the question of the role of national parliaments in EU trade policy is an important one, but I don't think it is relevant to the question of whether trade policy and ISDS/investment protection should be split. EU member states should definitely consider what role they want to play in both of these issues, but that is the case regardless of whether trade liberalization and ISDS/investment protection are together or separate.
Fourth, should the EU be worried about treating developing countries differently with regard to investment protection? If it is based on evidence -- e.g., Country X expropriated the factory of a European company, and thus ISDS/investment protection is needed in relation to Country X -- then it does not seem all that controversial.