TiSA: Analysis of the EU s Dispute Settlement text July 2016 (Professor Jane Kelsey, Faculty of Law, University of Auckland, New Zealand, September 2016) The EU proposed a draft chapter on dispute settlement in the July 2016 round of the negotiations for the Trade in Services Agreement (TiSA). This was tabled as a non paper the kind of secret squirrel language that typifies these negotiations. The proposals are based on the old EU FTA template, which relies on panels of trade experts to act as judges in disputes over whether states have breached their obligations under the agreement. These panels can effectively decide that governments must change their laws, policies or decisions relating to a wide range of services from finance and broadcasting to health care and data privacy and face economic penalties until they do so. There is no appeal mechanism because the US was strongly opposed, even though the EU has included appeals in the recently concluded Canada EU FTA and the Vietnam EU FTA. That means there is no oversight of the panels. The only innovation is an expanded form of consensual mediation. It has been agreed that TiSA will not have an investor state dispute mechanism, which would have allowed a foreign investor from TiSA countries to sue a government directly in controversial arbitral tribunals for monetary compensation for alleged breaches of its proinvestor laws. However, that does not prevent an investor bringing a dispute under a separate bilateral investment treaty for claims that argue, in part, that the government has breached its obligations in TiSA. Why does the TiSA dispute settlement mechanism matter? There are at least four reasons why this chapter is important: TiSA is not a World Trade Organisation (WTO) agreement so it cannot use the WTO s dispute mechanism. But because its proponents intend to export TiSA back into the WTO its mechanisms need to be WTO compatible. But as they are not intending to have an institutional framework of the kind that exists in the WTO, it will be a WTO style system without some of its (limited) checks and balances. Both the WTO and FTA mechanisms perpetuate the power of arbitrators who are trade experts, former negotiators, and academics to make decisions affecting social, environmental, cultural, economic and developmental policies and laws. As the TiSA rules are more extensive than in the General Agreement on Trade in Services (GATS) and in many TiSA countries free trade agreements (FTAs) the enforcement of those rules will have a correspondingly greater impact. It seems likely that compliance with the rules on trade in services (which includes foreign direct investment) may be enforced through retaliation against exports of goods and agriculture or monopolies on intellectual property, or other penalties, such as monetary compensation. 1
Which approach to dispute settlement does the EU proposal take? Because the ultimate goal is to export TiSA into the WTO the EU proposal uses a dispute system this modelled on the WTO, rather than the stand alone mechanism that is found in free trade agreements (FTAs). But it adopts a light touch approach without the institutional framework, (relative) transparency and appeal mechanisms found in the WTO. What is the proposed process? The steps are accurately summarised in paragraph 4 of the paper (the original numbering in the paper repeats point 4: (1) If consultations failed and a mutually agreed solution cannot be reached, disputing Parties can resort to binding adjudication. (2) A panel can be composed by agreement of the disputing parties. Failing that, the panel can be composed by appointment from the pre established lists agreed by TiSA Parties. If that also fails, a panel can be appointed by lot. (3) Panel procedures are detailed to preserve the due process of the defendant, and provide for an effective mechanism to solve the disputes for the complainant. (4) The timeframes are in line with DSU timeframes. (5) Third parties can participate in the procedures, from consultation stage. (6) Transparency is ensured inter alia through public participation in hearings, the possibility to submit amicus curiae and the publication of reports. (7) It provides for compliance review, temporary remedies, and clear rules regarding "sequencing" and post compliance (when the respondent undertakes a second compliance effort while being subject to retaliatory measures). (8) To ensure that complainants have effective means of redress available, it includes a provision on cross retaliation in areas other than services, which is coupled with an express jurisdictional waiver. Is everything in TiSA subject to the dispute system? Yes, unless there is an explicit statement in another part of TiSA that certain provisions are not subject to the dispute settlement mechanism. What happens if the same law or policy can be challenged in WTO and/or another FTA? Where the substance of the rules is the same, the country making the complaint can choose which forum it uses. Once the forum has been chosen the complainant can only use that forum, unless the first forum declines to hear the case for procedural or jurisdictional reasons. 2
Could a claim still be brought under a bilateral investment treaty (BIT)? Yes, the same measure could be challenged where it affects a foreign investor s rights under a BIT. The investor could also refer to the breach of TiSA rules as part of its case that its legitimate expectations of fair and equitable treatment had been violated an extremely open ended and unpredictable concept that investors rely on most often to challenge government regulations and decisions, even when they are made in the public interest. These claims are heard by ad hoc international tribunals of investment arbitrators who are often also practicing investment lawyers but are not covered by conflict of interest rules. Their interpretations are notoriously inconsistent and pro investor, and they are not subject to any appeal mechanism. The EU has attempted to stem the controversy around investorstate dispute settlement (ISDS) by proposing an appeal mechanism, which only addresses a small number of the problems with BITs and which the US is unlikely ever to accept. What if a penalty is authorised following a dispute under another agreement that would breach that country s obligations under TiSA? Where the WTO or a similar arbitration panel has authorised one TiSA country to impose sanctions for a breach ( suspension of obligations ) against another TiSA country, and those sanctions would breach TiSA, they could still be imposed. In similar vein, TiSA parties could not invoke the WTO to claim that sanctions under TiSA are a breach of WTO obligations. Who get to be the judges under TiSA? Under the proposal there would be a roster of arbitrators established by the TiSA committee (made up of all the parties). Each party can nominate up to 5 arbitrators who have special knowledge in law, international trade, and services sectors covered by the agreement, and nominate up to 2 people for a separate list of panel chairpersons. How are arbitrators appointed for a particular dispute? If parties to a dispute can t agree on all 3 members of a panel for a dispute, each party can appoint one each. If the parties cannot agree on a panel chair, the chairperson of the TiSA committee can be asked to select a chair from a separate list of chairpersons. Would the hearings and reports be public? A hearing would be open to the public except for confidential aspects of submissions and arguments. But the panel s deliberations would be confidential and if they have a split decision the dissenting view will not be released. The final report will be made public, with any confidential information removed. Can anyone aside from the disputing parties be involved in the hearing? There is provision for other TiSA parties who say they have a substantial interest in the matter to attend and participate in the hearings. The panel can ask for information from any 3
source and can seek opinion of experts as it deems appropriate, and consult the parties on who those experts are. What about amicus briefs from people who are not parties? Amicus curiae briefs by people from the TiSA parties can be submitted, subject to the Rules of Procedure that will set out the terms on which a brief would be accepted, what it can address, and how it is treated. However, these Rules are yet to be developed so it is impossible to assess them. What law would the panels apply? In addition to customary international law, including the Vienna Convention on the Law of Treaties, a panel must take into account relevant interpretations in WTO panel and Appellate Body reports although they are not binding, as indeed they are not in the WTO itself. However, where there are substantially equivalent obligations in the WTO and in TiSA the EU proposal says a panel cannot depart from the legal interpretations of the WTO Appellate Body in the absence of cogent reasons. Are there any limits on legal interpretations by panels? A party can ask for an authoritative interpretation by the TiSA parties of provisions in the agreement (which is in a separate chapter). That will not be a straightforward process. The other parties would have to agree on an interpretation within the permitted time frame. While the tribunal is meant to be bound by that interpretation, investment tribunals have on occasions rejected the parties shared interpretations of texts, preferring their own. Is there an appeal mechanism? It was originally expected to include an appeal mechanism. However, the US firmly rejected that option, and Canada, Australia, Japan, Mexico, Switzerland, Mauritius, and Israel, did not accept it was necessary or practicable. The EU reportedly planned to include an appeal mechanism, then dropped it because it would be too controversial and hold up agreement. What other checks are there? There does not seem to be any other means of overturning a panel s decision, even where it has ignored the joint interpretation of the TiSA parties or did not have cogent reasons for not following WTO Appellate Body decisions. Whereas the WTO Dispute Settlement Body could, in theory, refuse to adopt a decision of a panel (although that requires the winning party to agree to doing so), there does not appear to be any similar provision for the TiSA Committee to refuse to adopt the panel s report and recommendations. The parties can comment on the panel s preliminary ruling, but the proposed Article 18 says The final panel report shall be unconditionally accepted by the Parties. 4
Are there any ethical codes or conflict of interest rules for panels? The EU refers to an Annex which contains a Code of Conduct for members of arbitration panels and mediators, but that is not included in the proposal. Another Annex would set out the Rules of Procedure. What happens if a government is found to breach TiSA? The losing country is required to withdraw or adapt the measure so that it complies with its obligations. If it can t do so immediately, it can have a reasonable period as agreed by the parties, or if they disagree as set by the panel. The period should not exceed 15 months from the final report. The complaining (winning) country can ask for temporary compensation if there is still no compliance by the end of that period. What penalties can be imposed if a country doesn t comply? If no compensation is requested, or it is not agreed on by the time the reasonable period to comply has expired, the complaining (winning) party can suspend its obligations to the losing country to an equivalent amount to what it says it has lost through the breach. Those penalties can extend beyond TiSA to include obligations any international trade agreement to which the two countries are parties. It does not say these are limited to services obligations. The target country can object that the amount is greater than the loss caused by its breach and ask the panel to decide. The suspension of obligations and compensation are meant to be temporary and removed once the country complies. So penalties could go beyond services into goods or IP? Yes. It appears that sanctions for a breach of TISA could be applied, for example, to rights under WTO agreements on intellectual property, goods, agriculture, textiles, or to the investment or government procurement chapter of bilateral free trade agreements. Who pays the costs of a TiSA dispute? The EU proposal would require each party to a dispute to cover its own costs, while the TiSA parties as whole share the organisational costs equally among them. Is there any alternative process to avoid a formal dispute? As usual there is a period of consultations before a dispute can be brought. The EU also has a long section on mediation that is undertaken by mutual agreement to reach a mutually acceptable solution. Mediation can be an alternative to a dispute hearing or precede one. Undertaking mediation is without prejudice to the right to bring a dispute. 5