CHAMBER OF DEPUTIES, XVII LEGISLATURE, 485th MEETING, 18 SEPTEMBER 2015

On 18 September 2015, the Government was asked to express its position on the controversial investor-State dispute settlement clauses (ISDS clauses) contained in relevant commercial treaties the European Union has negotiated, or is negotiating, with some of its trade partners (in particular, the EU-Canada Comprehensive Trade Agreement, CETA, and the EU-US Transatlantic Trade and Investment Partnership, TTIP). On behalf of the Government, the Deputy Minister of Economic Development, Mr Carlo Calenda, replied that

[I]n the framework of the common commercial policy, Italy and the European Union are committed to the protection of non-economic values, as well as the promotion of the principles of legal certainty and legitimate expectations of private parties vis-à-vis the public administration. Thus, our country incorporated these very same principles within bilateral investment treaties, and is committed to consistently pursue this effort with respect to all the agreements between the EU and third States.

As an exporting country with great economic interests abroad, Italy deems the protection of such interests instrumental to the safeguard of the future of our economy. Italian companies often operate in countries where the judicial system fails to meet the minimum standards of independence, impartiality and neutrality, as they are applied within the EU.

At the international level, UNDP has acknowledged that those principles serve as key preconditions for the sustainable economic growth of developing countries, since legal uncertainty and the breach of the principle of legitimate expectations negatively impact on private investments. Therefore, we actively pursued, within the EU investment policy, the establishment of a dispute settlement mechanism able to protect companies from the risk of being discriminated.

Today’s debate takes place following an important day for the European Union and Italy itself, during which many Italian proposals for an ISDS reform were accepted. The College of Commissioners submitted a new draft agreement on the protection of investments, a document that closes the democratic process initiated with the 2014 public consultation. Following this consultation, the Commission produced a “non-paper”, to which Italy had the chance to contribute by highlighting the importance of four elements now included in the new EU guidelines.

First, the so-called right to regulate, the importance of which Italy has repeatedly underscored also through requests for clarification of the expressions “fair and equitable treatment” and “indirect expropriation”, with a view to avoiding the discretionary interpretations of arbitral tribunals.

Second, the improvement of arbitral tribunals. Italy highlighted that arbitrators shall be appointed through selection from a pre-established roster agreed upon in advance by the Parties. They shall be professionally qualified, capable of performing their decision-making tasks, renowned experts of international law, and capable of avoiding any conflict of interest thanks to their transparency.

Third, the appeal mechanism. We considered that a mechanism warranting a two-tiered jurisdiction had to be included in the agreements to counter possible errors of law or manifest errors in the assessment of facts committed at first instance.

Finally, the decision on the relationship between the arbitral court and national tribunals, with the aim of excluding double proceedings as usually done through fork-in-the-road or “no u-turn” clauses.

The above-mentioned elements are now part of the European approach, which Italy actively contributed to, and constitute the foundation of a new multilateral system for investment protection through a permanent Court.

[…]

The so-called Lange resolution, a non-binding document voted in Strasburg on 8 July 2015, pointed out that the key issue is “which” dispute settlement mechanism needs to be included in international agreements, rather than “if” it should be included. Well, a dispute settlement mechanism shall be well-balanced, warrant transparency, be limited in scope and have an unambiguous relationship with national jurisdictions. The European Parliament affirmed this principle and we share its view.

Furthermore, during the CETA negotiations with Canada, a first step along this path was already taken. Italy had already successfully suggested including in the text of the agreement a reference to the right to regulate and pursue political objectives – for instance, in the sectors of public health, safety, environment, public morals, and the promotion and protection of cultural diversity. We got the adoption of a clear-cut definition of “fair and equitable treatment” of investors and investments, as I mentioned before (Article X.9 “Treatment of Investors”). Italy’s demand for a binding code of conduct for arbitrators engaged in an investor-State dispute was also accepted, in order to avert conflicts of interest. In addition, the text was supplemented with the possibility for an appeal mechanism as well as the attribution to ICSID of a role as appointing authority, should there be disagreement between the Parties on the choice of the members of the arbitral panel.

The positive outcome that I have just mentioned in relation to the ISDS system, already manifest in the CETA, together with other general goals attained by the Agreement and, particularly, by its chapter on geographical indications – that we deem of the utmost relevance – advise against resuming the negotiations, save for a few modifications at the stage of  so-called legal scrubbing.

CETA is a closed Agreement; should we reopen it, we would affect the credibility and reputation of the European Union as a Party to commercial agreements.

Considering the upshot of CETA, we have moved even further: the new Commission Strategy Paper on Investment Protection focuses on the TTIP to eventually encompass all negotiations, aiming to become the basis for the protection of investments in subsequent international treaties. We deal with the proposal for a New Investment Court System that relies on the lessons of the “Lange resolution” and is firmly buttressed by Italy.

The text outlines the mid- and long-term European investment policy, as Italy requested in 2014. Indeed, various aspects of the Strategy Paper mirror Italian proposals: an Investment Court System, composed of a Tribunal of First Instance with 15 judges (5 appointed by the EU, 5 by the USA and 5 by third States), replaces the ISDS mechanism and its party-appointed arbitrators. The adjudicators are appointed on a case-by-case basis, among national judges or highly qualified experts of international law, according to a non-predetermined but random model of selection. Moreover, an Appeal Tribunal will be present, similar to that of the WTO.

De facto, the Court’s jurisdiction only applies to breaches of the fair and equitable treatment, that is, violations stemming from the arbitrary conducts of national courts or from illegitimate and discriminatory treatments carried out by national administrations.

The right to regulate is now in the binding part of the text, not only in its Preamble. As Italy claimed, the document includes the right to access information on donors financially supporting one of the Parties and outlaws mass claims (which we believe can be dealt with more appropriately in State-to-State disputes). All other measures on transparency are ratified, including those on open hearings, minutes available online and amicus curiae briefs.

The use of such a mechanism in agreements with developed Countries, with the USA at the forefront, is […] crucial to strengthen the negotiating power of the Commission vis-à-vis those States that have low judicial transparency and where our entrepreneurs often face difficulties as they are deprived of basic rights such as intellectual property rights or trademark protection.

Should this standard fail to become an international standard, we would barely have any chances to demand its implementation, for instance, in our investment treaty with China. An investment treaty with China devoid of such a protective clause would totally lack enforceability.

As noted, Italy is involved in disputes within the framework of the Energy Charter Treaty (ECT), from which – it should be noted – it has notified its withdrawal and which incorporates a first-generation ISDS clause of the kind that Italy would like to leave behind. The recent ICSID and SCC arbitral disputes against Italy were initiated by invoking the ECT only and the Government is monitoring the cases closely. Clearly, these pending cases do not affect our view that these instruments must be included in investment agreements as well as in commercial agreements more generally.

[…]

Let me conclude with a relatively unknown piece of information to show Italy’s degree of consistency in this matter: the overall number of arbitral cases that I have cited before [that is, 608 cases between 1987 and 2014, including 99 claims submitted by investors residing in EU member States, Ed.] also covers 99 disputes based on bilateral treaties between EU Member States. Contrary to nearly all EU Member States (26 out of 28), already in 2009 Italy denounced its intra-EU investment treaties, since it considers them in conflict with the EU-law principle of mutual trust. Put simply, we have perhaps denounced less than Germany publicly, yet we did act accordingly by denouncing the treaties.

We demand that the agreements effectively regulate investment protection, in the interest of companies and in compliance with the rights of European citizens, safeguarding the EU and Member States’ right to adopt policies in the public interest in all relevant areas.

The new EU strategy puts on paper our objectives: the international Court – an impartial and independent body governed by specific rules and endowed with well-defined powers – will serve as a guarantor of the rule of law, the non-discrimination of our companies, the protection of our citizens and their rights under the Constitution and other international agreements, their personal data and, in conclusion, democracy.

The full Italian version of this statement can be downloaded here.