A stream of European countries have exited the controversial Energy Charter Treaty (ECT) over the past year. France, Spain, the Netherlands, Germany, Poland, Luxembourg, Slovenia and Denmark have all withdrawn from the ECT, or announced their intention to do so, joining Italy, which left in 2016.
By allowing foreign energy investors to sue national governments for losses caused by policy changes, the ECT prevents countries from delivering on their commitment to meet the Paris climate agreement’s targets and effectively neutralizes their plans to tax oil companies’ windfall profits.
If advanced economies are being cowed by large corporations and struggling to implement urgently needed reforms, developing countries are in a much worse position. Lured by the often deceptive promise of higher capital inflows, many have signed a raft of bilateral and multilateral investment treaties. Like the ECT, these agreements contain investor-state dispute settlement (ISDS) mechanisms that allow foreign investors to bring a claim against a state before a private international tribunal.
Illustration: Yusha
Dissatisfaction with the ECT in Europe could have sparked an important debate on how ISDS affects the future of the planet; instead, many EU member states continue to press developing countries to conclude investment treaties.
Established at the end of the Cold War, the ECT was designed to encourage Western investment in the energy sector of former Soviet bloc countries, particularly the fossil-fuel industry. To assuage concerns about expropriation, breach of contract and other discriminatory treatment, the treaty permits investors to submit disputes to international arbitration, a supposedly neutral forum, rather than national courts. Through this system, corporations can sue governments for investment losses, including future profits, which can amount to billions of US dollars. As of June last year, at least 150 investment-arbitration cases have been brought under the ECT.
However, the ECT is just the tip of the iceberg. Roughly 2,500 investment treaties — most of them bilateral — permit international investors to use ISDS arbitrators to settle disputes with states. Corporations can sue states for any judicial, legislative or regulatory decision, including at the municipal level, that could affect their bottom line. Investment treaties thus make it harder for governments to implement stronger and more effective environmental safeguards, labor rights and safety standards. Even the threat of an investor suit can stymie policymakers.
Not even the promise of reform has tempered key European member states’ resolve to leave the ECT. The European Commission has said that a coordinated EU exit treaty — an outcome called for by the European Parliament — appears inevitable. There is also talk of EU countries agreeing among themselves not to apply the ECT’s sunset clause, which protects any existing investment for an additional 20 years after a state’s exit (the European Parliament also voted in favor of annulling the clause). Many believe that phasing out fossil fuels cannot wait another two decades.
Developing countries could make the most of this unprecedented pushback against the ECT by demanding an overhaul of the many crippling investment treaties to which they are a party. Yet while EU member states are leaving the ECT, a growing number of African countries, including the Gambia, Mali, Burkina Faso, Nigeria, Rwanda, Senegal and Eswatini, are joining it.
Unfortunately, Europe’s refusal to subordinate political decisionmaking to corporate interests has not extended beyond the bloc’s borders. Despite announcing its withdrawal from the ECT, France still has 19 bilateral investment treaties with countries in Latin America and the Caribbean, as well as another 20 with African countries. Spain has 18 and 11, respectively, and the Netherlands has 15 and 22. All three states continue to pressure developing countries to sign new investment treaties. Most research estimates that a majority of investor claimants come from advanced economies, although it is not always easy to determine their nationality.
Ecuador, which has vast oil reserves, is a striking example of this dynamic. The country withdrew from all its investment treaties in May 2017, after the Commission for the Audit of Investment Protection Treaties spent several years analyzing their legality and impact. The commission’s report found shortcomings in many treaties’ ratification and record on attracting foreign investment. Some are still in force because of sunset clauses, but no longer grant protection to new investments. Ecuador did not go as far as the European Parliament in calling for these clauses to be ditched.
However, subsequent Ecuadorian governments, under pressure from transnational corporations, have demonstrated a renewed interest in reinstating ISDS mechanisms, and Europe has reciprocated. In August last year, on an official visit to Ecuador, Spanish Prime Minister Pedro Sanchez, reflecting Spanish companies’ growing interest in the country, said that “it is important that we can conclude a [bilateral investment] treaty before the end of the year.”
Most notably, Repsol, Spain’s biggest oil company, has several projects in Ecuador and previously filed an arbitration against the country over its windfall tax. The Netherlands has likewise pressed Ecuador to sign an investment treaty, ostensibly to protect its energy sector.
A recent award made under the France-Ecuador bilateral investment treaty strikingly illustrates these agreements’ pernicious tendency to prioritize corporate profits over sovereign states’ efforts to ensure sustainable development and shared prosperity. Despite registering its main assets in the Bahamas, a tax haven, the British-French oil corporation Perenco used the arbitration clause in the Ecuador-France treaty to seek compensation for a tax on windfall revenues. The arbitral tribunal awarded US$412 million to Perenco for “indirect expropriation” and Ecuador has agreed to pay.
Such “treaty shopping” allows multinationals to minimize tax liability, while maximizing protection for their investments.
Investment treaties remain a major obstacle to fighting climate change and protecting the dignity of all human lives. The spate of European withdrawals from the ECT is a golden opportunity to roll back many other investment treaties’ ISDS provisions.
However, first Europe must own up to its hypocrisy.
Andres Arauz, a former Ecuadorian central banker, is a senior research fellow at the Center for Economic and Policy Research in Washington. Guillaume Long, a former foreign minister of Ecuador, is a senior policy analyst at the Center for Economic and Policy Research in Washington.
Copyright: Project Syndicate
The return of US president-elect Donald Trump to the White House has injected a new wave of anxiety across the Taiwan Strait. For Taiwan, an island whose very survival depends on the delicate and strategic support from the US, Trump’s election victory raises a cascade of questions and fears about what lies ahead. His approach to international relations — grounded in transactional and unpredictable policies — poses unique risks to Taiwan’s stability, economic prosperity and geopolitical standing. Trump’s first term left a complicated legacy in the region. On the one hand, his administration ramped up arms sales to Taiwan and sanctioned
The US election result will significantly impact its foreign policy with global implications. As tensions escalate in the Taiwan Strait and conflicts elsewhere draw attention away from the western Pacific, Taiwan was closely monitoring the election, as many believe that whoever won would confront an increasingly assertive China, especially with speculation over a potential escalation in or around 2027. A second Donald Trump presidency naturally raises questions concerning the future of US policy toward China and Taiwan, with Trump displaying mixed signals as to his position on the cross-strait conflict. US foreign policy would also depend on Trump’s Cabinet and
The Taiwanese have proven to be resilient in the face of disasters and they have resisted continuing attempts to subordinate Taiwan to the People’s Republic of China (PRC). Nonetheless, the Taiwanese can and should do more to become even more resilient and to be better prepared for resistance should the Chinese Communist Party (CCP) try to annex Taiwan. President William Lai (賴清德) argues that the Taiwanese should determine their own fate. This position continues the Democratic Progressive Party’s (DPP) tradition of opposing the CCP’s annexation of Taiwan. Lai challenges the CCP’s narrative by stating that Taiwan is not subordinate to the
Republican candidate and former US president Donald Trump is to be the 47th president of the US after beating his Democratic rival, US Vice President Kamala Harris, in the election on Tuesday. Trump’s thumping victory — winning 295 Electoral College votes against Harris’ 226 as of press time last night, along with the Republicans winning control of the US Senate and possibly the House of Representatives — is a remarkable political comeback from his 2020 defeat to US President Joe Biden, and means Trump has a strong political mandate to implement his agenda. What does Trump’s victory mean for Taiwan, Asia, deterrence
RSS