Plans by leading Brexiters to power British economic growth by a sweeping free trade agenda could undermine the fundamental rationale for quitting the European Union – defending British sovereignty.
Trade policy experts have pointed out that it will be impossible for the UK to complete the free trade agreements (FTAs) it will need to secure its goal of being a global trade leader without accepting provisions in those agreements which could limit the British government’s ability to legislate policy changes needed to reform the economy and other key policy areas.
This is because likely partners to FTAs with the UK – including the European Union (EU), United States and China – will insist on including so-called Investor-State Dispute Settlement (ISDS) clauses in these agreements to give their own corporations international legal rights to sue Britain for compensation if they are adversely affected by changes made by the British government.
Critics of ISDS protections for transnational corporations argue that they limit the capacity of governments to implement reforms and to legislate their own policy programmes. They warn that progammes in areas such as the National Health Service (NHS), environmental protection measures and human rights protections are particularly at risk.
The backlash against CETA and TIPP raise fundamental questions about the UK’s post-Brexit, go-it-alone strategy.
The issue of ISDS provisions was a key factor in the near collapse of the EU-Canada free trade deal, CETA (Comprehensive Economic and Trade Agreement).
The campaign by public interest groups which led to the Belgian region of Wallonia rejecting CETA at a regional referendum targeted the ISDS provisions, as well as mobilising farmer opposition to the treaty.
The ISDS provisions will be the chief target of on-going efforts by anti-CETA forces within the EU to derail the agreement, which still requires the consent of all 38 national and regional governments to come into permanent effect.
Fierce opposition to ISDS provisions is also a major factor threatening the collapse of negotiations on the Transatlantic Trade and Investment Partnership (TIPP) trade deal between the US and the EU.
The backlash against CETA and TIPP raise fundamental questions about the UK’s post-Brexit, go-it-alone strategy.
Free trade agreements have been put at the centre of the May government’s plans for future growth and prosperity outside the European Union and already the key Brexit ministers are talking optimistically of the prospects for wide-ranging free trade deals with countries in the so-called “Anglosphere” as well as in the Asia-Pacific region where Asian economies are growing strongly.
In the lead up to the Brexit vote and since, the fundamental justification for quitting the European Union has been that leaving the EU would allow Britain to regain full control of its national sovereignty.
But, at the centre of the growing global backlash against the sort of free trade agreements Britain is contemplating, is the argument that they allow big companies to trample all over national sovereignty through ISDS provisions.
The importance of ISDS in free trade agreements was revealed three years ago when Australia signed off on three major FTAs with China, South Korea and Japan only after it dropped years of resistance to opening itself to legal action for compensation by foreign corporations.
The change came after the 2013 general election when Labor (which was strongly opposed to ISDS provisions in trade agreements) lost to a conservative government that decided the risk of foreign corporations suing was worth taking to secure the deals.
The Labor Government’s objection to ISDS’s was intensified after the Phillip Morris tobacco conglomerate used ISDS provisions in a trade agreement between Australia and Hong Kong to claim more than A$4 billion in damages after Australia introduced plain packaging laws for tobacco products marketed in Australia.
Phillip Morris lost the case but hundreds of other cases using ISDS provisions have been won by transnational corporations.
Currently, the German government is fighting an ISDS action being brought by the Swedish nuclear power utility Vattenfall for almost €4bn in compensation for Germany’s decision to phase out nuclear power generation.
The ISDS provisions first started being included in free trade agreements in the late 1990s when the US insisted on them being included in the North American Free Trade Agreement. NAFTA was a landmark FTA because it expanded the scope of such agreements from tariff barriers to cover investment and services. But this was agreed to only with the inclusion of provisions to protect American corporations from potential damage from policy changes in the countries that were parties to the agreement.
Trade policy diplomats have warned that the controversies surrounding CETA and TIPP could lead to governments being forced to settle for much less ambitious trade negotiations in the future, with agreements being restricted to tariff barriers and excluding investment and services.
The EU and Canada have attempted to overcome one of the major objections to ISDS provisions – that actions are heard in secret by panels of non-experts – by establishing an Investment Court System (including an Appeals body) to adjudicate compensation claims with more open and transparent processes.
But public interest groups across the EU maintain their fierce opposition to these provisions, arguing that they allow big corporations to become more powerful than sovereign governments, unrestrained by democratic accountability – much the same argument as used by Brexiters against membership of the EU.
How the British government intends to deal with the ISDS issue and protect its “pure sovereignty” will be a defining issue for post-Brexit Britain.
By Geoff Kitney
