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*Columbia FDI Perspectives*

Perspectives on topical foreign direct investment issues
No. 132   October 13, 2014
Editor-in-Chief: Karl P. Sauvant ([log in to unmask])
Managing Editor: Adrian P. Torres ([log in to unmask])

*Germany, the Transatlantic Trade and Investment Partnership and
investment-dispute settlement: Observations on a paradox*
Ralph Alexander Lorz* <#1490aaf0e9c66d8c__edn1>

The Transatlantic Trade and Investment Partnership (TTIP) currently being
negotiated between the European Union (EU) and the United States (US) could
become the most comprehensive international agreement on free trade and
investment protection. The negotiations have mostly been met with the usual
criticism that accompanies attempts to expand free trade, despite
overwhelming evidence that free trade fosters global economic development.

But the debate, especially in Germany, has taken a surprising and critical
turn, focusing on the investor-state dispute-settlement (ISDS) provisions
that are envisaged to give the TTIP procedural teeth. Various
non-governmental organizations (NGOs) argue that TTIP would establish an
extrajudicial mechanism for settling disputes that would subject Germany to
the caprice of the US and its multinational enterprises, while undermining
its political sovereignty.[i] <#1490aaf0e9c66d8c__edn2> This criticism has
had an impact on the political scene. For example, the Federal Ministry of
Justice has voiced grave concerns about the inclusion of ISDS provisions in
TTIP, and the Federal Council has recently followed suit, pointing to the
high risks allegedly associated with ISDS.[ii] <#1490aaf0e9c66d8c__edn3>
Even agreements that seemed to be uncontroversial are called into question.
For example, the EU-Canada free trade agreement (FTA), the wording of which
was basically finalized in 2013 and which contains a progressive ISDS
system designed to address critical issues discussed in the recent debate,
[iii] <#1490aaf0e9c66d8c__edn4> is now the subject of reservations raised
by Germany (a move that could jeopardize the agreement if Germany insists
vis-à-vis the Commission that its final ratification requires the assent of
the national parliaments of the EU member states[iv]
<#1490aaf0e9c66d8c__edn5> - an issue the European Court of Justice would
eventually have to decide).

Given Germany’s contribution to the development of ISDS, the country’s
current stance belies its longstanding attitude toward ISDS. It was Germany
that spearheaded bilateral investment treaties that form the basis of ISDS;
it is Germany that has concluded more of these agreements than any other
country—and with good reason: as an industrialized nation dependent on
exports and, therefore, on the existence of free and legally-protected
trade and investment, German investors, and thus Germany itself, would
benefit most from the inclusion of ISDS provisions in the TTIP. Other EU
countries would similarly benefit, as European claimants accounted for more
than half of the investment arbitration cases registered between 2008-2012.
The *Loewen* case[v] <#1490aaf0e9c66d8c__edn6> demonstrates that reliance
on the US legal system alone is not a dependable safeguard for foreign
investors there. On the other hand, the concern of a “regulatory chill”
that would endanger European environmental and health protection standards
seems exaggerated: notwithstanding the difficulty in assessing the impact
of settled cases, only 31% of the almost 300 cases concluded so far have
yielded an award in favor of the investor, with only a tiny fraction of
these cases concerning legislative measures, as opposed to individual
decisions by the executive.

So what explains Germany’s about-face on ISDS? The easiest explanation is
the change in government. Whereas the negotiations on TTIP were initiated
by the old coalition of Christian Democrats and Liberals, Chancellor Merkel
now governs with the Social Democrats; practically all the voices cited
above come from Social Democrats, who control the Ministry of Justice, as
well as the Ministry for the Economy and the Federal Council. But the roots
of this change go much deeper, as the Social Democrats themselves have
reversed their stance on FTA’s since they last held the Chancellorship ten
years ago. Accordingly, Germany’s current stance appears to be infused by a
contentious mix of anti-American sentiment, most recently fueled by the NSA
affair;[vi] <#1490aaf0e9c66d8c__edn7> a general aversion against
globalization and international capitalism, also as a result of public
perception of the US; and the confident, albeit misguided, feeling that
Germany is sufficiently well-off so as not to need an agreement like TTIP.
In sum, these sentiments foster indifference toward strengthening
international economic relationships in general and with the US in
particular -- a hazard that must be addressed seriously. Otherwise, the
further build-up of a consistent international investment law regime, and
perhaps the liberalization of world trade -- for which TTIP is a
cornerstone -- could grind to a halt. If it becomes necessary for
negotiators to abandon ISDS to save the material contents of TTIP, this
would only produce a second-best solution, if any at all.


* <#1490aaf0e9c66d8c__ednref1> Ralph Alexander Lorz, LL.M. (Harvard),
Attorney-at-Law (New York), is Professor of Law at Heinrich Heine
University in Duesseldorf (Germany); he is currently serving as Secretary
of Public Education in the State Government of Hesse (Germany). The author
is grateful to Andrea Bjorklund, Marc Bungenberg and Federico Ortino for
their helpful peer reviews. *The views expressed by the author of this *
*Perspective** are strictly personal and do not necessarily reflect the
opinions of Columbia University or its partners and supporters. **Columbia
FDI Perspectives** (ISSN 2158-3579) is a peer-reviewed series.*

[i] <#1490aaf0e9c66d8c__ednref2> *See*, for instance, most recently the
dossier published by LabourNet Germany on August 20, 2014, available at

[ii] <#1490aaf0e9c66d8c__ednref3> BR-Drs. 295/14, Resolution of July 11,
2014, available at

[iii] <#1490aaf0e9c66d8c__ednref4>* See,* European Commission, “Investment
provisions in the EU-Canada free trade agreement”, December 3, 2013,
available at

[iv] <#1490aaf0e9c66d8c__ednref5> *See* “European Commission denies reports
that Germany is derailing CETA”, *International Business Times*, September
23, 2014, available at
ndanger the  address theitical pfor more than half of the globally
registered investment arbitration cases from 2008-2012. treat

[v] <#1490aaf0e9c66d8c__ednref6> Loewen Group v. USA, ICSID Case No.
ARB(AF)/98/3, award of June 26, 2003.

[vi] <#1490aaf0e9c66d8c__ednref7> The latest survey by the Allensbach
Institute shows a so-called “cross pressure” of conflicting loyalties in
many Germans when assessing the US. The US appears more than ever like the
big brother, triggering aversions by his rudeness but representing the only
reliable force when bad boys surface along the way. *See* “Der Groll ueber
den grossen Bruder”, *Frankfurter Allgemeine Zeitung, *September 17, 2014,
p. 8.

*The material in this Perspective may be reprinted if accompanied by the
following acknowledgment: “Ralph Alexander Lorz, ‘Germany, the
Transatlantic Trade and Investment Partnership and investment-dispute
settlement: Observations on a paradox,’ Columbia FDI Perspectives, No. 132,
October 13, 2014. Reprinted with permission from the Columbia Center on
Sustainable Investment (
<>).” A copy should kindly be sent to the
Columbia Center on Sustainable Investment at [log in to unmask]
<[log in to unmask]>.*

For further information, including information regarding submission to the
*Perspectives*, please contact: Columbia Center on Sustainable Investment,
Adrian Torres, [log in to unmask] or [log in to unmask]

*Most recent Columbia FDI Perspectives*

   - No. 131, Kenneth P. Thomas, “How to deal with the growing incentives
   competition,” September 29, 2014.
   - No. 130, Catherine Kessedjian, “Good governance of third party
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   - No. 129, Armand de Mestral, “The Canada-China BIT 2012: Perspectives
   and implications,” September 2, 2014.

*All previous **FDI Perspectives** are available at
<>**. *

*Other relevant CCSI news and announcements:*

   - On *December 5, 2014*, CCSI is offering a one day workshop with CLE
   credit on investment arbitration and human rights
   This workshop will examine which human rights issues may be implicated in
   investment disputes, as well as how and to what extent the issues have been
   handled by parties and arbitrators. *Philippe Sands* (Barrister in the
   Matrix Chambers, Professor of International Law at University College
   London; and frequent arbitrator in investor-State disputes) will deliver
   the Keynote.
   - On *November 12-13, 2014*, CCSI will host its Ninth Annual Columbia
   International Investment Conference, entitled* “Raising the Bar: Home
   Country Efforts to Regulate Foreign Investment for Sustainable
   Development” *at *Columbia University.* More information about the
   Conference, including the current program, information about logistics, and
   the registration link, is available at:
   Registration for the conference is *free, but required*.
   - *Call for Papers:* The *Yearbook on International Investment Law and
   Policy* is currently accepting submissions for the 2014/2015 edition.
   Papers will be accepted on a rolling basis up to the deadline of October
   15, 2014. For more information, please download our complete *call for
   Please also adhere to the citation guidelines posted *here

Karl P. Sauvant, Ph.D.
Resident Senior Fellow
Columbia Center on Sustainable Investment
Columbia Law School - Earth Institute
Ph: (212) 854-0689
Fax: (212) 854-7946

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