IISD Speech: IISD President and CEO Scott Vaughan at PAGE Ministerial Conference, Berlin
March 27, 2017 – This is an historic, unstable and bleak moment. Long-held assumptions about the rules-based, multilateral trading systems are under siege.
Two weeks ago, the G20 finance ministers for the first time failed to support an open, rules-based trading system. Language on climate change was also expunged.
Until the G20 can find common language on such core issues, they should cease issuing communiqués. This session is on trade and investment.
Last week the European Commission Trade Commissioner was in Canada, and hailed the EU-Canada CETA agreement as the new template to shape globalization. CETA has been hailed as a new generation of progressive trade policy.
Many in the public still don’t see it that way. Instead, they see CETA as the continuation of the liberal free trade agenda that has negatively affected jobs and constrained the ability of governments to protect the environment and public health.
Much of the public rejection of CETA, especially within European countries, has focused on Investor-State Dispute Settlement (ISDS). So I wanted to concentrate on ISDS issues, and explore in the next few minutes if CETA is a solution going forward.
CETA has made some positive steps. First, it consolidates the nine separate bilateral investment treaties between European member states and Canada under a new, single umbrella. Given that there are over 3,300 bilateral investment treaties and measures to consolidate and narrow, this number is welcome, provided consolidation is led by substantive improvement. This is important, as Brussels and others are advocating the creation of one multilateral investment court.
CETA makes a number of improvements from the investor-state arbitration model, notably improving overall transparency and creating a roster of independent judges. In addition, it clarifies some key concepts, such as expropriation, which in the past have been interpreted expansively and wrongly by investment tribunals.
However, CETA begs the question as to why any international mechanism is needed that protects investors without also setting out their responsibilities, and that allows local remedies to be circumvented. This circumvention has opened basic questions about the right of domestic governments to regulate.
While there have been only a few cases where local remedies have been circumvented, they have been especially egregious settlements that have overturned the democratic right of governments to regulate.
IISD isn’t against rules and disciplines needed to support investment. Both Paris and the SDGs won’t matter if we don’t ramp up investment. So rather than tweak a flawed model that arose from NAFTA Chapter Eleven—precisely because of this convergence of challenges around climate and SDG implementation, coupled with growing anxiety about wages, jobs and inequity—let’s think about a new conceptual framework for investment that does something beyond a knee-jerk reaction to protecting investors.
There are alternative options, notably following the leadership of Brazil in investment agreements. Instead of focusing on investment protection and litigation, Brazil’s model proposes hands-on tools to promote and facilitate trans-border investment.
The question now is whether investment facilitation and other investment issues should be dealt with at the multilateral level through the WTO. As a former member of the WTO Secretariat, I don’t think the WTO is the obvious place to house a new multilateral investment agreement.
Let me briefly explain why. The WTO is primarily about disciplines. These are obviously at the heart of a rules-based trading order. Yet in our collective search for new and transformative models of investment that will decarbonize economies and make the SDGs real, we need to begin from a position of cooperation rather than arbitration. There has been thoughtful work on a new vision of investment that accelerates sustainability, as well as equity and jobs. See Columbia FDI Perspectives: Perspectives on topical foreign direct investment issues, Karl P. Sauvant, Columbia Center on Sustainable Investment.
To date, the WTO has tried but fallen short of integrating goals other than trade and economic liberalization. At the heart of the SDGs is this concept of integration. Perhaps more timely, given the backlash against the WTO, its best salvation may be to return to its core areas of competence rather than trying to expand its mandate. See The WTO Reborn?, Arvind Subramanian, Project Syndicate.
Finally, when you compare the HLPF and Open Working Group that produced the SDGs with the WTO, we face important barriers in terms of multistakeholder approaches like the UN.
Perhaps the WTO can accommodate these challenges. India, for example, submitted a proposal on trade and investment in late 2016 that went beyond a traditional focus on GATS mode 4 coverage to reference mode 3 as well. Propsoal can be be downloaded directly from the WTO here (76KB).
IISD will look carefully at whether sustainable and equitable investment conditions fit inside, outside, or alongside the WTO.
I’m really pleased that my colleague Aaron Cosbey is here. He will be showing us an updated UNEP toolkit on trade and green economy.
Let me conclude by mapping out what my IISD colleague, Nathalie Bernasconi thinks a new multilateral investment court should look like. Nathalie posted last week an overview in her response to the European Commission proposal. She argues that the court should be inclusive, ensuring meaningful (not merely formal) access to justice for all stakeholders, including governments, communities and individuals, and investors.
The court should address the variety of legal and actual relationships involved in transnational investments, including State–Investor; Investor–Community/Citizen; State– Citizen/Community.
It should also have a broad base of law beyond contract law, to include different international legal obligations, for example Paris climate action, ILO Convention 169, human rights and other laws and norms, as well as different standards.
This is complicated. Yet repeating the models of more than six decades ago simply isn’t tenable today. Those models—that are closed to public scrutiny, that fail to give a voice to communities, that narrowly extend private contractual rights to international public law—have helped fuel much of the rage in Western democratic societies about elites doing very well and forgetting wages, jobs, equity and democracy. We can do better.