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Politics Faded Out the Constitutional Offensiveness of Trade Agreements

The arbitration jurisdiction with the ISDS mechanism is the most controversial point of the two trade agreements CETA and TTIP. US corporations could file lawsuits against the German prohibition of gas production through fracking. They could demand compensation in the billions from the state. States could be deterred by the threat of lawsuits from environmental and labor protective regulations. Public interest laws could be stylized as "indirect expropriation."

Professor Axel Flessner on free trade agreements, the possibilities of the German Constitutional Court and the failure of politics

By Rolf-Henning Hintze

[This interview is translated from the German on the Internet.[

The arbitration jurisdiction according to the ISDS mechanism is the most controversial point of the two trade agreements CATA and TTIP. Despite strong resistance, Axel Flessner, emeritus law professor at the Berlin Humboldt University, expects the majority of the SPD in the Bundestag to vote for CETA. But he sees chances in this case that the German Constitutional Court could hinder the German president from signing the law. Over 17,000 German citizens support a constitutional challenge.

If the investor-protection of the TTIP agreement with the US had legal force, US corporations could file lawsuits against the German prohibition of gas production through fracking. They could demand compensations in the billions from the state whose amount would be set by three private lawyers in the framework of the ISDS (Investor to State Dispute Settlement), not by independent courts. Is this fear justified\?

Axel Flessner: The apprehension is justified when an American corporation invests in Germany and its investment loses value or its activities in Germany are impeded by the prohibition on fracking. Other persons than lawyers could be ISDS arbitrators appointed by the World Bank on the basis of an international agreement or by the parties themselves - for example, business persons, business advisors, academics, former judges and government officials expert in legal and economic affairs.

The contents of the two planned trade agreements with Canada and the US, CETA and TTIP, reach far beyond trade. The corporate right to sue states before private arbiters would narrow the sovereignty of participating states. Is this in harmony with the legal position according to which EU member states hand over authority in questions of foreign trade to the EU\?
Axel Flessner: The EU is given this authority and must exercise this authority in accord with its basic principles like democracy and the rule of law. For example, the Union does not have the right to prohibit taxes of member states for non-economic reasons that are compatible with European treaties or are defined through member-state cultural policy like schools, universities and the operation of theaters and museums. However CETA would allow foreign investors to file lawsuits against new taxes and fees - if Germany introduces a property tax or a street toll - and foreign investors can criticize state financing of theaters as a competition-inhibiting subsidy.

To what extent in your opinion will the past authority of the Bundestag and the parliaments of other EU member states be reduced\?

Axel Flessner: The parliaments must allow for the financial liability of their state for losses of an indeterminate number of North American investors before every law that concerns the economy. They are intimidated and induced to dysfunctional considerations. A central parliamentary right in democracy is prevented - its budget sovereignty - if the state is actually ordered to pay and must pay!

Professor Andreas Fischer-Lescano from the University of Bremen has serious reservations about "regulatory cooperation." In an expert opinion commissioned by Attac, he criticizes the great influence of the "Joint Committee" that should form out of executives of the EU and Canada and its administrative sub-structure. For example, this committee can exempt from import duties and also expand other rules. Can you imagine how participation of the EU Parliament can be guaranteed\?

Axel Flessner: This is hard to imagine. The participation of the EU Parliament in legislation is governed by European treaties. These can only be changed and supplemented by all member states, not by the EU itself, that is not by an international agreement signed by the EU.

How do you see the chances of the majority conservative EU Parliament and the Bundestag majority of the CDU/CSU and the SPD rejecting the agreement with Canada\?

Axel Flessner: Trifling. Many social democrats are impressed by the argument of growth and jobs put forward for the agreement. Christian-democratic conservatives and social democrats have a large majority; the Liberals are second. In the Bundestag, the SPD shares in the government and German politics is very out of tune with the US and stands there as a European troublemaker.

"All state authority comes from the people" according to the German Basic Law. If CETA actually reduces the power of the people's representatives, must not the German Constitutional Court intervene in the case of a constitutional complaint\? Could the German Constitutional Court hinder the German President in signing the agreement after a majority approval of the Bundestag\?

Axel Flessner: The German Constitutional Court can ask for legal protection in advance against laws that cannot be corrected and could later he held unconstitutional and void. A German approval law in CETA or TTIP would be such a vital corrective. If the EU Parliament, the council of the EU and all other member states agree, the agreement would then become European law if the other negotiating partner (Canada, US) also agreed. Even a later decision of the German Constitutional Court could not change anything anymore. To prevent this, the court could order the German President not to sign the authorization law until the decision of the court. The court could hold approval as unconstitutional.

For years, CETA was negotiated in secret. The abridged agreement text is presented in an unofficial German translation. The agreement includes the order to treat foreign businesses in a "fair and equitable" way, a very elastic or expansive formulation. Isn't it suited to give free reign to arbitrary decisions of private arbitrators\? Private arbitrators are not usually judges.

Axel Flessner: The arbitrators were carefully selected by the participating governments, the EU commission and the World Bank and have a reputation to lose. The text of CETA diminishes the elasticity of "fair and equitable" through narrower additional definitions. Therefore we cannot speak of a wider doorway for arbitrariness. The arbitrators are appointed and paid by the litigating parties for the concrete dispute. Therefore no agreement with past decisions of other arbitrators in other matters must be sought.

The demand for a world court for trade questions instead of private arbitration jurisdiction will become louder and louder. Even German economics minister Gabriel now has sympathy for this. However conceiving and realizing such a world court will take a long time. Can you imagine that such a substantive change can still be worked in CETA whose ratification process could begin in a few months\?

Axel Flessner: That seems inconceivable to me. In CETA, there can only be a European-Canadian court of justice, not a world court. Even only a common bilateral tribunal would be a completely new concept for investor protection. The expert circles (governments, international organizations, and academia) were not prepared for its conception and discussion after prescribing the offensive special jurisdiction for foreign investors. On the other hand, there will also be massive resistance, above all from the World Bank and the circles working in it that must expect a drying up of their past special jurisdiction.

Were the serious constitutional objections against the free trade agreements with Canada and the US publically identified and discussed\? Was that a failure of the media\?

Axel Flessner: This is firstly a failure of politics. In the past, politics faded out the constitutional offensiveness of the agreements - perhaps because people in Europe could not initially imagine that European states that export capital could be drawn before the arbitration courts as importers of capital and then perhaps out of acclimatization in the seemingly good functioning system of many bilateral agreements and more distantly on pressure of the home economy. With every agreement, this gains an additional legal claim and option abroad that it would not have without the agreement.

Finally, politicians, in any case the government parties, do not like to hear that their freedom of action could be limited by constitutional law. Still the constitutional problematic is obvious today. The media could take this up. Suspicions remain why they do not do this. Editorial comfort, property relations in media businesses and political herd conduct could play a role.

Axel Flessner recently spoke [1] on this theme at a legal symposium of the Max-Planck-Institute.

Gus Van Harten, "Comments on the European Commission's Approach to Investor-State Settlement in CETA and TTIP," July 3, 2014, 55 pages
Scott Sinclair, "Investor-State Dispute Settlement," July 2014, 20 pp
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The End of Democracy\?

By Joachim Baertner

[This article published on 3/22/2015 is translated from the German on the Internet,  http://www.daserste.de.]

Nearly 20,000 persons demonstrated this week in Frankfurt against the excesses of capitalism. Riots occurred. The conflicts became more intense as people's anxieties become greater and greater. Who has the real power in the state\? The banks and international combines or the people\? "Global capitalism is in a crucial phase," the philosopher Slavoy Zizek says. "Global capitalism needs less and less democracy. The really important decisions on wars and on the economy will be made more and more in secret."

We face a decision pointing the way to the future. Free trade agreements like TTIP should simplify the transactions of goods and services. The negotiations between Europe and the US are strictly secret. The responsible argue our economic future in competition with China depends on the TTIP. Because of massive protests, the German government did an about-face and declared citizens have nothing to fear from the TTIP. "When you see how intensely China and Asia grow in population and economic significance, you note how much Europe has simultaneously shriveled," German economics minister Sigmar Gabriel says. "Europe needs partners to not be steamrolled or overrun in an open world trade."

Do you want our economy to be oriented in China, that the labor- and living-conditions there become the standard\? Intelligent economists say the competition between Europe and Asia will be decided in the question who supplies the best products, not in dismantling trade barriers. "What will that look like\?" asks Thilo Bode of Foodwatch. Will the Chinese suddenly have better standards for baby food in ten years\? That would be super. Then we will shop again. At the moment, the Chinese only shop with us because they do not trust their own goods. I find this whole argument totally nuts."


The great chance in the discussion around the TTIP is that the question how we really want to live and work is suddenly raised in a very new way. What labor rights, what food and what environmental standards do we want\? In the American meat industry, animals are fattened with growth hormones, antibiotics and genetically engineered corn. Nothing illustrated the conditions in the huge slaughter houses more than aerial photos of seas of blood. Still the European food industry is hardly better; critics describe it as a catastrophe for humans and animals. "Regarding trade standards, European or German consumer protection standards, health protection, conservation and labor standards will not be lowered in any case," Sigmar Gabriel says.


For Thilo Bode, that is not a comfort. "That is a threat for us. That is a weakness of the past debate that we want to overcome." We want to further develop and not freeze social-political standards. If we keep to the status quo, that means abandoning all positive development." In the future, corporations will have massive influence when individual states want to strengthen social- or environmental standards. In a so-called "Council for Regulatory Cooperation," lobby groups should be bound legally before the national parliaments. Before the controversial arbitration courts, firms could sue for compensation when a country introduces new rules. "These arbitration courts act as a parallel justice," Bode says. "They encroach in the budget sovereignty of nation-states, make the states liable and prevent legislation because states cannot pass any public interest laws any more out of fear of compensation payments."

There are already examples of this. When Germany exited from nuclear power after the catastrophe of Fukushima, the Swedish energy company Vattenfall sued for five billion Euros compensation because of a free trade agreement between Sweden and Germany outside all regular courts. "Corporate interests become international law," Thilo Bode says. "That seems to be the main problem of TTIP. TTIP does not really involve free trade. The auto industry can agree today on common screw lengths. That is not a problem anymore than uniform blinker colors. However corporations do not want the state meddling too much in their affairs. They want to prevent regulation. That is a power question."


The politically accountable only want to cover up their powerlessness. Wikileaks published a draft for the free trade agreement TISA. The text should remain secret for five years - after it comes into effect.

Is global capitalism really moving in the direction of China\? The most dynamic economy of the world is so strong because it can ignore democratic processes. Obviously neither the EU commission nor the German government wants Chinese conditions. But the dynamic of capital leads to suspending democratic regulation. Critics fear that TTIP and other free trade agreements are an important step on this way.


"Ex-communist states like China or Vietnam - disregarding a few mad countries like North Korea - are the most successful managers of global capitalism today," the philosopher Slavoy Zizek says. "TISA for me is a typical Chinese operation. Who really has the power in China\? The standing committees of the politburo. Once there were nine committees and today there are seven. Politics in China today is based on the idea that society can have its little debates but the fundamental decisions are made in secret."

We stand at a crucial turning point today. Is our democracy able to restrain the power of global capitalism, maintain humane living conditions in Europe and safeguard basic rights\? With the TTIP, the responsible want to protect their rights. However the self-dynamic of capitalism could bring about the exact opposite.
Thilo Bode, "The Free Trade Lie," March 2015

John Hilary, "TTIP: A Charter for Deregulation, Attack on Jobs and Destruction of Democracy," revised February 2015, 58 pp
 link to www.rosalux.de


By Silvia Liebrich

[This article published on April 8, 2015 is translated from the German on the Internet,  http://www.sueddeutsche.de. Businesses sue the state. Demonstrators protest before the World Bank in Washington against the lawsuit of a raw material corporation against El Salvador.]

In the free trade agreement TTIP, investors will have a special legal protection. They can sue governments.

Critics of private arbitration warn that the special rights to sue will only serve the interests of mammoth corporations.

Protecting the population and environment cost the Central American state of El Salvador an enormous amount of money. A penalty of more than $300 million now threatens because the country rescinded the license for a gold mine. The government acted because the project endangered the drinking water for 60\% of the population. The Canadian-Australian raw material company Pacific Rim cannot understand that and sues - before a private arbitration court in Washington, not before a public court in El Salvador. A free trade agreement with rules of investor protection is its basis, in short ISDS.

Such clauses are also provided in the European-American TTIP agreement and provoke protests worldwide. Displeasure over the Pacific Rim case also reached the World Bank in Washington where the most important arbitration court, the International Centre for Settlement of Investment Disputes. Has its seat. In March 2015, activists presented 174,000 signatures urging the court to stop the proceeding against El Salvador.

Critics of private arbitration lament that the special rights to sue only serve the interests of mammoth corporations. TTIP supporters argue this instrument benefits the whole economy including smaller firms. The BDI also supports that, the central organization of German industry. But is that really true\? A new study from Canada makes clear at least who profited in the past. Massive international corporations were the real winners, said Gus Van Harten, author of the study and professor at the Osgoode Hall Law School in Ontario, one of the oldest law faculties in Canada.


TTIP supporters promise jobs. Opponents fear the destructive force of the market. Both campaign with great zeal. The public has a great influence on the free trade agreement.


64 percent of all known compensation payments went to businesses with annual sales of more than ten billion dollars, 29 percent to smaller companies with sales between one and ten billion dollars and only seven percent to firms with less than a billion dollars in sales.

The jurist says medium-size and small businesses will not use the protection clauses because the costs of such procedures are much too high. "ISDS procedures are not accessible for smaller businesses," Van Harten told the Sueddeutsche Zeitung newspaper. According to data of the Organization for Economic Cooperation (OECD), the average legal costs are more than eight million dollars and even reach double-digit millions in isolated cases. Most businesses in Germany cannot afford that. The Federal association for the economy supports the TTIP but is against investor protection clauses and also fears the prohibitive lawsuit costs.

The high costs for lawyers and arbitrators make the procedure expensive, more costly than a trial before a regular court. The hourly rate of a private arbitrator is $3000 a day according to the lobby-critical organization Corporate Europe (CEO). Highly specialized law offices usually charge $1000 an hour. Often the procedures take years and the total costs are incalculable. The rivals must share the costs however it turns out.

The number of lawsuits has clearly risen in the last years like the amounts in dispute. This is not surprising for other experts. In the past years, a justice industry has arisen that exploits investment protection to the legal limits, criticizes Professor Peter-Tobias Stoll from the Georg-August-University in Gottingen. In the past, firms successfully enforced their interests in more than three-quarters of all known cases. They were either confirmed or gained a settlement. The taxpayers of the concerned countries were made liable.

Arbitration courts are regarded as non-transparent because they are in session under exclusion of the public. The judges are lawyers selected by the parties. They are not subject to any public control. Van Harten holds the ISDS procedures to be unfair because only foreign investors can claim their rights this way. Native firms are denied this way. The jurist also has misgivings regarding states' creative possibilities in environmental protection as in the case of El Salvador. "The clauses are like insurance covered by the public against the business risks caused by democracy and politics," Van Harten said.

A penalty of more than $300 million would be a heavy burden for a poor country like El Salvador. Ecuador was already severely impacted with the highest penalty. US oil conglomerate Occidental Petroleum was awarded $1.8 billion on account of the cancellation of production contracts. Germany's situation could even be worse if the Swedish energy company Vattenfall wins its claim of 4.7 billion Euros because of the German nuclear exit. The German Eon Inc. is also suing.

The EU has announced it will consider criticism of the investor clauses in the agreement with the US. A public arbitration court is discussed. That both negotiating partners will completely renounce on the ISDS clause in the TTIP is unlikely. Van Harten cannot understand this. "ISDS rules are in force in agreements between developed industrial nations." This is also true for the already negotiated CETA agreement between the EU and Canada. For the study, Van Harten and his team analyzed the ISDS procedures known worldwide up to the spring of 2014. These numbers only give an incomplete picture, the authors note. Many procedures are kept secret and nothing is known about their awards. There is no duty of publication.



Gus Van Harten, "Comments on the European Commission's Approach to Investor-State Settlement in CETA and TTIP," July 3, 2014, 55 pages

Scott Sinclair, "Investor-State Dispute Settlement," July 2014, 20 pp

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