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Trade Bill - Report (1st Day)

Part of the debate – in the House of Lords at 8:45 pm on 6th March 2019.

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Photo of Baroness Fairhead Baroness Fairhead The Minister of State, Department for International Trade 8:45 pm, 6th March 2019

I thank the noble Lord, Lord Stevenson of Balmacara, for tabling this amendment. I will make some statements about why we are much more supportive of ISDSs and these dispute resolutions. I draw noble Lords’ attention to the fact that, as this House is aware, the Trade Bill is not intended to cover future free trade agreements or the investment policies associated with them. As a result, Clause 2 allows the Government to change domestic law where necessary to ensure that these continuity agreements can operate in a UK context. To be clear, no powers in the Trade Bill will be used to implement investment protection provisions, because such provisions in trade agreements do not require legislation.

I want to comment about investment protection provisions more generally because I believe they have a place. According to UNCTAD, foreign direct investment in 2017 was around $30.8 trillion. There are around 3,000 international investment agreements, most of which include these sorts of provisions. They have been going for over 40 years and, to date, only 855 claims have ever been completed. This means that, for the vast majority of investment agreements, no claims have been made. Furthermore, states have won more claims than investors—37% to 28%—with the rest either settled or discontinued. This does not suggest a bias in favour of investors and, I hope, offers a bit of comfort.

I understand the concerns that have been raised in the past, but our assertion is that many have been overstated. Often, ISDS mechanisms are attacked because they seem able to force a Government to regulate in a particular way in the public interest. However, they do not infringe on that right to regulate. The right of Governments to regulate is protected in international law. I reassure the noble Lord that the threat of potential claims has never affected the UK Government’s legislative programmes. We have more than 90 agreements with these clauses, as the noble Lord said. We have never had a successful claim made against us.

The amendment would require investment disputes to be heard by UK courts or tribunals in all instances, which has the potential to undermine what we think has been quite an effective process—an internationally accepted framework which has successfully supported our investors worldwide. The noble Lord, Lord Stevenson, mentioned new concepts, including the multilateral trading court. I agree with him that that is just one of a number of concepts. Work is at an early stage internationally. Future negotiations should take place in a forum where states will be fully involved to ensure that the system delivers. I fully agree with the noble Lord on that. We support the objectives of ensuring fair outcomes of claims, high ethical standards for arbitrators and increased transparency, which is another of the points that have been held against the previous systems. We have pushed hard for greater transparency.

As the noble Lord is aware, we in the UK expect other countries to treat our businesses operating abroad as we treat their investors in the UK. Our concern is that if the amendment were passed, it would be likely that any future partners would also insist on reciprocal provisions. That would mean that any disputes brought by UK investors against a host state would be required to be heard in its national court. This has the potential to be to the disadvantage of our investors.

The amendment could also create a precedent by encouraging some existing bilateral investment treaty partners to seek amendments with the UK to ensure consistency. UK investors—I am sure we all agree—can make incredible contributions to the countries in which they invest, including in hospitals, schools and other infrastructure. Potentially, this amendment could lead to decisions by UK investors to not invest. These countries would therefore not benefit; indeed, our assertion is that countries could be damaged in investment terms. I also ask noble Lords to note that, while international arbitration has been a valuable tool for our investors—who, in some cases, have been subject to egregious treatment by local Governments—we have never been successfully sued.

Most of our future negotiating partners who favour the inclusion of investment protection and ISDS would expect this to include some form of dispute resolution through a means that the international community is trying to work out. Securing agreement on an alternative domestic process could lead to the UK having to accept an unwelcome trade-off.

Additionally, as I highlighted at the start of my comments, the Trade Bill is not intended to deal with future free trade agreements. Therefore, we do not propose coming back with any changes on this at Third Reading. I am very happy to have discussions with the noble Lord outside the Chamber, but in respect of the true aims of this Bill and the systems already in place to resolve those disputes, I ask him to withdraw the amendment.