Trade Pact Blaming the U.S. for Everything

Sabine Konrad, a judge who presides over an arbitration court at the World Bank, sees some xenophobia in German public concerns about U.S. corporations gaining too much influence in a proposed trans-Atlantic trade pact.
Demonstration against the tabacco industry in Montevideo.

Sabine Konrad was only 33 when the German government appointed her in 2007 as a judge on the World Bank's International Centre for Settlement of Investment Disputes, or ICSID. She became the youngest judge in the history of the arbitration panel, which was founded in 1996 and rules on claims for damages filed by foreign investors.

Ms. Konrad, who studied law in Munich and London, thinks the concerns of protest groups and the European Union over an arbitration panel with the authority to rule over disputes within the planned US-E.U. free trade deal known as TTIP are nothing short of absurd.

Handelsblatt: Philip Morris is suing Uruguay for $2 billion, or $1.76 billion, in damages over claims that anti-smoking laws are cutting its sales. Veolia is filing a complaint against Egypt at the International Centre for Settlement of Investment Disputes, the ICSID, because it wants to be compensated for that country's introduction of a minimum wage. Isn't the primacy of business over politics, criticized by protest groups like Attac, already a bitter reality?

Ms. Konrad: No. Investment protection treaties by no means prevent governments from taking regulatory action and enacting new laws. The provisions merely state that this should be part of a constitutional process and that individuals should not be required to make any special sacrifices. The guarantees in the investment protection treaties ensure that governments do not illegally infringe on the rights of the individual.

But in the case of Uruguay and Egypt, this intervenes deeply in the countries' health and labor market policies.

We don't know how these cases will ultimately be decided. Complaints filed by unsavory individuals are occasionally successful, even in Germany's Federal Constitutional Court. The amendment of the 5-percent threshold in the European Parliament was the result of a complaint by the NPD [Eds. Germany's far-right National Democratic Party]. But that's why no one tries to abolish the Federal Constitutional Court.

The U.S. demand for an investment arbitration panel is one thing that is stalling TTIP. Doesn't this type of arbitration court already exist at the ICSID?

As the English saying goes, if it ain't broke, don't fix it. What is currently being touted as modernization is a step back in the international rule of law. The result of many so-called reform approaches is that the process becomes more inaccessible to small and mid-sized businesses, due to rising costs. This would send a fatal message, especially for the German export industry.

Many argue that the arbitration process is not transparent.

And that argument is unjustified. Anyone can go online and quickly get answers to questions like: Who is suing? Why? Who are they suing? Which law firms are involved? Or when was the last brief filed? Just for the fun of it, you should try getting that sort of information from the Federal Constitutional Court.

The public takes a different view. Many are suspicious about arbitration panels, which are also supposed to protect U.S. investors in the European Union.

I don't understand that. And I also don't know where the discussion is coming from. It's being conducted in such a way that business owners and attorneys no longer dare to say anything about it anymore, because they are being personally attacked.

Many seem very concerned about U.S. corporations gaining too much influence over European policies.

I think there’s a bit of xenophobia involved here. I wasn’t surprised to see the anti-TTIP signs at the Pegida demonstrations. By the way, it isn't just big companies that are filing the complaints. A German couple, the Unglaubes, are small business owners who won their case against Costa Rica before the international arbitration panel, because the country had expropriated the land they had intended to use for an ecotourism business. They wouldn't have stood a chance without the protection of this investment treaty.

Only foreign investors can file complaints before investment arbitration panels. Doesn't that seem unfair to you?

In 1986, the European Court of Human Rights ruled that foreigners have a greater need for protection, on the grounds that they can’t vote a government out of office when it makes unpopular decisions. That's why foreigners need international legal protection to prevent them from being disadvantaged.

But that certainly doesn't mean that these arbitration panels are democratically controlled.

The same applies to the Federal Constitutional Court. If you don't want a democracy to turn into a dictatorship of the masses, you need minority rights and an independent judiciary that protects minorities from the majority. In this sense, jurisdiction always restricts democracy.

Economy Minister Sigmar Gabriel is also calling for options to appeal an arbitration award. Do you disagree?

These arbitration procedures are already very costly, especially for small and mid-sized companies. A court of appeal, however, means costs will double. Add to that the fact that government officials being sued in a developing country will not even face criticism if they appeal in completely hopeless cases. Instead, they will be credited for having defended their country with every means possible. Companies filing suits will almost automatically have to be prepared for a procedure to last six years instead of three.

The loser should pay the costs. Why hasn't this been the case already?

The loser already pays the costs today. However, there are exceptions that moderate hardship cases, such as when the legal situation was not clear, so that the outgunned investor had grounds to file a suit. I think it's more alarming that we have no legal aid for small and mid-sized companies, so that the funding of such cases is often left to private financiers, who demand a portion of the award in return.

In the ICSID procedure, you yourself sometimes work on the complainant side and sometimes for countries that are being sued – and, in other cases, as an arbitrator. Critics would call this a conflict of interest.

There is no conflict of interest if you carefully consider which cases you accept. The test for bias on the international arbitration panel is much stricter than on German courts. If there is the slightest doubt, the case has to be rejected or the arbitrator has to turn it over to someone else. In contrast to domestic courts, direct contact between attorneys and arbitrators is strictly prohibited.

So what is the purpose of playing multiple roles?

I think it makes sense to combine the roles of arbitration and legal defense. If someone has experience as an arbitrator, he or she is better able to determine, as an attorney, if a case is promising for a client. Besides, if people only serve as arbitrators, we run the risk of perpetuating the dominance of "old white men."


Christoph Schlautmann reports on the consumer goods industry and trade issues. To contact the author: [email protected]