Trade Bill

Baroness Kramer Excerpts

Report stage & Report: 2nd sitting (Hansard) & Report: 2nd sitting (Hansard): House of Lords
Tuesday 15th December 2020 Lords Chamber

Moved by

[Baroness Kramer]

15: After Clause 2, insert the following new Clause—
“Investor-state dispute settlement
(1) The United Kingdom may only become a signatory to an international trade agreement if the conditions in subsections (3), (4) and (5) are satisfied.(2) The Secretary of State may not lay a copy of an international trade agreement before Parliament under section 20(1) of the Constitutional Reform and Governance Act 2010 unless the conditions in subsections (3), (4) and (5) are satisfied.(3) The condition under this subsection is that an international trade agreement must include a commitment by all parties to the agreement to pursue with other trading partners the establishment of a multilateral investment tribunal and appellate mechanism for the resolution of investment disputes.(4) The condition under this subsection is that legal proceedings brought against the United Kingdom under investment protection provisions included in an international trade agreement must be heard by the courts and tribunals system of the United Kingdom.(5) The condition under this subsection is that the provision in subsection (4) ends for any international trade agreement when a multilateral investment tribunal and appellate mechanism for the resolution of investment disputes is established under that trade agreement.”Member’s explanatory statement
This new Clause would ensure that there is a commitment by all parties to a trade agreement to pursue the establishment of a multilateral investment process to adjudicate on investor disputes.

[Baroness Kramer (LD) [V]]

My Lords, I will speak to Amendment 15 in my name and that of my noble friend Lord Purvis of Tweed. It is in essence very similar to Amendment 19 in the name of the noble Lord, Lord Stevenson of Balmacara. Great minds, as it were, think alike. I should give notice that, given the breadth of the agreement, I am minded to press the matter to a Division, unless the Minister concedes.

If anyone thinks for a moment that dispute resolution in a trade deal is a minor issue, I would point them to the impasse in the UK-EU trade negotiations. A trade dispute resolution goes to the very heart of any trading relationship, and that sits behind these two amendments. Traditionally, disputes under a trade agreement have been adjudicated through arbitration schemes—which are generally labelled investor-state dispute settlement, or ISDS—rather than a court system. To say that this has become problematic is an understatement. Decisions have a history of being inconsistent, they award compensation that can undermine domestic law, they typically act in secret, and they cannot be appealed.

ISDS arrangements are no longer fit for purpose. They have led to public suspicion and, frankly, hindered the drive to increase global trade; they were a major reason for the collapse of the TTIP negotiations. For this reason, during its time in the EU, the UK was instrumental in pushing for the replacement of ISDS with a multilateral investment tribunal and appellate mechanism—the appellate part being very important—thereby removing any suspicion of bias and providing for appeal. The EU has been clear, even with the UK’s departure, that it intends to pursue this change, and it has been introduced in a number of its revised and latest trade agreements, notably, but not exclusively, with Canada.

I would argue, and I think many others were arguing, that the UK needs to remain at the forefront of this change. I am afraid that I am unclear whether the terms that the EU has agreed with Canada over dispute resolution have been replicated in our trade deal with Canada. Perhaps the Minister will enlighten me. The EU-Canada deal gives us a template. It will appoint 15 judges to hear cases on a rotational basis: five from the EU, five from Canada and five from among third-country nationals—in other words, neutrals. The rules ensure transparency of proceedings and clear standards of investor protection. But they also limit the grounds on which an investor can challenge a decision made by a state. For example, a challenge cannot be made simply on the grounds that profits are affected.

Amendment 15 would ensure that in all future trade agreements, the UK agrees with its trading partners at least on the principle of moving to such a mechanism for dispute resolution—it would be even better if it actually achieved it, but at least the principle is agreed. Amendment 15 also ensures that in the interim, until the new system is in place, the UK does not depend on arbitration systems to resolve trade disputes but is heard in the courts and tribunals of the UK. Amendment 19 follows a similar path of logic.

Effectively, these amendments stop the abuses associated with ISDS. I suspect that future speeches will provide some significant illustrations of the problems that have occurred. These amendments provide an incentive and create an opportunity to achieve the goal of a multilateral tribunal system. For that reason, I beg to move.

[Lord Lansley (Con)]

I am very pleased to follow the noble Baroness, Lady Kramer. We are grateful to her and to the noble Lords, Lord Purvis and Lord Stevenson of Balmacara, for raising this important issue. Since we touched on these issues in Committee, events have moved on a bit, which allows us to further explore the Government’s approach. I do not support the amendments, but they create a very good opportunity for the Government to tell us more about their approach to investor-state dispute settlement in the negotiation of international trade agreements.

I say to the noble Baroness, Lady Kramer, just to put Canada in context, that the Government did lay the Canada-UK agreement last Thursday, which I have had a chance to look at. What it effectively does, across a wide range of chapters, is incorporate the EU-Canada partnership agreement. But in this respect, on investor protection, it says that this is not to come into force. It says there will be a period of time during which the United Kingdom and Canada will review what their investor protection arrangement should look like, and, if they agree within something like a three-year period, they will replace what is in the current EU-Canada agreement.

Although the noble Baroness, Lady Kramer, said that the EU-Canada agreement is a model, it is not the model she is looking for in her amendment. The tribunal is a bilateral investor protection arrangement, with judicial members from the two parties plus independent members, but it is not multilateral. What it does say, in Article 8.29, is that both parties agree—and here the words are reflected in her amendment—

“to pursue with other trading partners the establishment of a multilateral investment tribunal and appellate mechanism for the resolution of investment disputes.”

Clearly, Canada has done that; it has put into the United Kingdom-Canada rollover agreement the opportunity to consider a multilateral investment court system. But we are not signed up to one, and we will have to see what the Government’s approach will be. The EU and Canada have not actually brought this into force—it has not been ratified—so we have not seen anything final.

Having a multilateral investment court system depends on the consent of parties around the world, and they have not signed up to it. The New Zealand and Australia Governments resisted ISDS in the context of the CPTPP, or TPP 11 as they call it. That makes it difficult for us, in New Zealand and Australia agreements, to invite them to do more than they have already done. On the other hand, Japan has remained consistently supportive of ISDS provisions, and that, I suspect, is probably a simple reason why the EU-Japan comprehensive economic partnership agreement does not have an investment chapter.

I am afraid that the conditions for an amendment to the Bill that sets such a prescriptive approach to international trade agreements on investor protection do not exist. With too many of our leading partners—including, for example, Japan—we would have no agreement that would allow us to sign an agreement if this provision had been in statute. That is especially true where the United States is concerned. Japan does not have a difficulty with ISDS, not least because it has not been a respondent country to a claim. As it happens, only on five occasions have Japanese companies pursued ISDS claims against other countries. When we come to discuss this with the United States, the difficulties are legion because, when I last looked, the United States had 190 claims against other countries and ISDS procedures reported to UNCTAD and was the respondent to 17 claims. It not only adheres to ISDS provisions but uses them a lot. Therefore, it may be difficult to persuade the United States to adopt a multilateral investment court system. The other difficulty is that it would prevent us from pursuing our bilateral investment treaties in the way we have. We may want to continue with that, and assuredly we will. We have over 100 of them, and I do not think we want to let them go, until and unless there is a multilateral investment court system in place.

It would be interesting to know from my noble friend the Minister if the Government have a plan to pursue a multilateral investment court system, as has been the EU’s approach in its negotiations. If so, I would agree, but that does not mean we should have a prescriptive measure in statute that means we cannot agree an international trade agreement with another country, except in the circumstances in which this is incorporated, not only for us but for the other parties. It is an interesting opportunity, but I fear I cannot support Amendment 15.

--- Later in debate ---

[Baroness Kramer (LD) [V]]

I thank everybody for a superb debate. The noble Lord, Lord Hendy, as always, put the case so powerfully. I thank my noble friend Lord Purvis for following up on the Canada agreement, and the noble Lord, Lord Stevenson, for his recognition that Amendments 15 and 19 are essentially the same. He was a little kinder, providing a little wiggle room for ISDS, under very limited circumstances, in his amendment, but I think he has become convinced that even that degree of wiggle room is probably best removed. I very much appreciate how supportive he has been.

I say to the noble Baroness, Lady Bennett, that we all have so many amendments to read that she may have missed the fact that, other than that little extra leeway for ISDS in Amendment 19, Amendments 15 and 19 take exactly the same tack and frequently use the same language—we derived our language from the same source. If she wants to look herself, if she looks at new subsection (5) in Amendment 19, she will see that the language on the international trade agreement in Amendment 19 is essentially identical to that in Amendment 15. Both amendments look, in the interim, to use the UK courts system.

I say to the noble Lord, Lansley, that I think he actually made a very powerful argument for passing this amendment. He pointed out that, in negotiations with the United States, it will be exceedingly difficult for the UK to object to ISDS language unless it is provided with some weapons, and this amendment is such a weapon. If Parliament makes it clear that it will require commitments to move to a multilateral agreement, that is a position on which the UK can take a stand. Without the amendment, we will face ISDS language in the US trade agreement, if that is ever concluded.

I was a banker in the United States for many years. It is a very litigious country, and I am also well aware that the clients that I dealt with, which were large multi- nationals, viewed ISDS as a weapon. That is often not the attitude in the UK or many other countries across the globe. Just as, internally in the United States, the law is frequently used to add advantage for a company against its competition, ISDS is regarded as a tool to gain advantage over domestic companies in other countries, and it is used effectively by very well-resourced legal departments. We would really regret signing a trade agreement with the United States that could not contain the traditional format of an ISDS arrangement.

The noble Baroness, Lady McIntosh, and, I think, the noble Lord, Lord Lansley, cast doubt on the new arrangements in the EU-Canada deal. I suggested that it provided a template, and my noble friend Lord Purvis was kind enough to expand on that issue and explain that what starts out as a bilateral arrangement is expandable into a multilateral arrangement, which strikes me as a very positive and sensible way to go. It is not yet in place, but that is because the complexities of putting a new system in place are not minimal. A big hurdle was passed in April this year when the ECJ ruled that the multilateral court process anticipated in the CETA agreement was in keeping with EU law. I understand that the first judges will be appointed sometime early next year. That is moving ahead, but it is not an instant process—indeed, the agreement itself anticipated a temporary arrangement while the new scheme was more fully developed.

I think this is a key issue. We really need to put down a marker that ISDS is simply unacceptable. The multilateral court system is one that we have supported and promoted and it very much fits with the UK’s traditions. This is our opportunity to affirm that and ensure that our negotiators have that tool in hand when they step into trade negotiations. For that reason, I will, if I may, divide the House.