Amendment 15

Trade Bill - Report (Day 2) – in the House of Lords at 4:30 pm on 15th December 2020.

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Votes in this debate

Baroness Kramer:

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 statementThis 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.

Photo of Baroness Kramer Baroness Kramer Liberal Democrat Lords Spokesperson (Treasury and Economy)

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.

Photo of Lord Lansley Lord Lansley Conservative

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.

Photo of Baroness Bennett of Manor Castle Baroness Bennett of Manor Castle Green

My Lords, I offer my support to Amendment 19 in the name of the noble Lord, Lord Stevenson of Balmacara. I regret that we have not yet heard his explanation for it, but I look forward to that. Like the noble Lord, Lord Lansley, I also speak in opposition to Amendment 15 in the name of the noble Baroness, Lady Kramer, although for somewhat different reasons. I regret we are not being joined in this debate by the noble Lord, Lord Hendy, who gave an excellent outline of the problems with ISDS in Committee, and I urge noble Lords who have not caught up with that to go back to it, because it is an excellent explanation from an expert viewpoint.

I am going to offer a climate viewpoint on this, as I did on the last amendment, and point out that 70% of the biggest ISDS awards since 2012 have been to fossil fuel companies. One of the large awards was $50 billion to a Cypriot company in a dispute over the confiscation of oil and gas assets in Russia. Russia did not pay that money because it pulled out of ISDS, but none the less it is a large award. This is a huge issue when you think of what is known as the carbon bubble. Most of the known fossil fuel reserves we have cannot be developed. Countries will have to stop them being developed. We have to do that through the COP climate talks, but countries are going to have to decide which companies cannot develop those reserves, and there will be very large sums of money that fossil fuel companies in particular could try to hold countries to ransom over, saying they cannot take climate action.

It is not just me saying this. I note that 150 MPs and MEPs, referring particularly to the energy charter treaty, which was signed in 1994 with the aim of integrating the energy industry of the former Soviet bloc into the broader European systems, said that the strong climate ambitions of the EU, domestically and internationally, are at risk due to the ISDS provisions in the energy charter treaty, and they are calling for it to be renegotiated. We have to draw a line in the sand here and say that Governments have to be able to make decisions in the interests of their own citizens and the planet and not face being held to account by undemocratic, untransparent ISDS tribunals.

Briefly—because I think this may be slightly academic so I will not take too much of the House’s time—I suggest that a multilateral investment tribunal and appellate mechanism, as suggested by Amendment 15, is essentially an ISDS wolf in sheep’s clothing. It is arguably a little more transparent and slightly less slanted in favour of the multinational interests, but it is still not what we need; we need to be able to rely on the courts and on democratic Governments.

Photo of The Earl of Caithness The Earl of Caithness Conservative 4:45 pm, 15th December 2020

My Lords, my memory goes back to Committee and the powerful speech of the noble Lord, Lord Hendy, who set out the arguments against ISDS extremely well. There was a lot of powerful argument there. But I am also grateful for the intervention of my noble friend Lord Lansley, who always manages to sow those little seeds of doubt as to whether we are going in the right direction. Notwithstanding those seeds of doubt, I believe we are going in the right direction with these amendments, on the simple basis that ISDS permits any investor in this country to sue the UK Government for anything that might harm their profits in any way.

Therefore, I have one particular question on this matter for my noble friend Lord Grimstone. I believe I am right in saying that, since 1986, we have had an ISDS agreement with China. If that is the case, are the UK Government not widely exposed on the Huawei case? In relation to banning Huawei from operating in this country, there is no clause within the agreement, as I understand it, that says that we can ban a company from operating for national security purposes—so is not the UK hopelessly exposed? As a result of that, should not all our bilateral agreements be rethought, as suggested by my noble friend Lord, Lansley, because there is this loophole?

My second question to my noble friend concerns the Government’s eagerness to join the Trans-Pacific Partnership. As my noble friend will be aware, New Zealand is seeking an exemption from the ISDS. In our negotiations to join this organisation, will we also seek an exemption from ISDS, and if not, why not? If New Zealand has set a precedent, it would be only logical for us to follow because that must be the right way forward.

Photo of Baroness Chakrabarti Baroness Chakrabarti Labour

My Lords, it is a pleasure briefly to follow those who have already spoken on this group, and I support Amendment 19 in particular. I am no expert in international trade law, but I rest assured that my noble friend Lord Hendy will speak very shortly.

Briefly, my concerns about ISDS are that the mechanism overrides the supremacy of Parliament—including your Lordships’ House and the other place—overrides the domestic rule of law, discriminates on grounds of nationality in favour of foreign investment corporations and prioritises the profits of investor corporations over people and the planet, as we heard from the noble Baroness, Lady Bennett of Manor Castle. Therefore, I see the mechanism as a fundamental challenge to the rule of law, both domestically and internationally, and not what taking back control is about in the minds of most people in the United Kingdom and further afield, I suggest.

My one question to the noble Baroness, Lady Kramer, who spoke so clearly about her own concerns, is: will the multilateral tribunal that she anticipates really be capable of addressing those fundamental concerns about prioritising corporations over the wider public interest—climate catastrophe, human rights and so on? Will it be capable of designing something that is not the wolf in sheep’s clothing that the noble Baroness, Lady Bennett, described? With those concerns firmly on the table, I support Amendment 19.

Photo of Baroness McIntosh of Pickering Baroness McIntosh of Pickering Conservative

My Lords, the authors and mover of these two amendments have done the House a great service. I welcome my noble friend the Minister to his place for the first of these debates that he will be summing up this afternoon. This is a very vexatious area in trade disputes, and it has been very much at the fore of this critical stage of an agreement on free trade with our EU partners— I know that is not the subject of this afternoon’s debate. It is worrying that, at this late stage, we are still arguing—and have been for two years, since the European Union (Withdrawal) Act was passed—about what the dispute resolution mechanism will be.

I will make a general point: it is extremely important at this stage that we know what the dispute resolution mechanisms will be. I place on record my acceptance as less than satisfactory of the arrangements of the World Trade Organization. I think it fair to say that the current position of the United States in this regard is less than clear. As I understand it, in his time, President Obama made moves to remove the US from the general World Trade Organization dispute resolution mechanism scheme—the next stage after disputes have been raised. It is by no means clear, and I have not yet heard—I may have missed it—what the incoming Biden Administration will do in this regard.

My noble friend Lord Caithness mentioned the Huawei decision, and, obviously, we are also caught, as I understand it, in the Boeing situation, with infringement tariffs being whacked on us for the Airbus scenario—and, latterly, we have come forward, seeking to do the same to Boeing, for similar infringements of the World Trade Organization arrangements there. As such, I am very uneasy that, in the current state of the Bill, I do not see any reference to what the dispute resolution mechanism will be in the agreements that fall under this—unless I have missed it—so I would like confirmation of what that resolution mechanism will be.

I welcome that the noble Baroness, Lady Kramer, said that the UK has been at the forefront of setting this in the EU-Canada arrangement—but then my noble friend Lord Lansley said that those arrangements have never been brought into effect in relation to the EU. This is a very grey area, and it is vital that, before the Bill leaves Parliament, we know what the dispute resolution mechanism in this regard will be. Mindful of the lengthy debate that we had in Committee, I seek further clarification at this stage, using these two amendments as an opportunity to probe in this regard.

Photo of Lord Hendy Lord Hendy Labour

My Lords, I am grateful to the noble Baroness, Lady Kramer, and my noble friend Lord Stevenson, for moving and speaking to Amendments 15 and 19, respectively. They significantly improve, but do not eliminate, ISDS. On that basis, I support them, since my assessment is that the elimination of ISDS is not currently politically feasible.

We now know a lot about ISDS, which is relatively common in international trade agreements. We know how objectionable it is and the chilling effect it can have. It is objectionable because it overrides the supremacy of Parliament, defeats the rule of domestic law—a concept familiar to all of us after recent debates—and discriminates on grounds of nationality. Far from taking back control and asserting British sovereignty, the current catchwords of government, ISDS surrenders both.

A couple of years ago, a petition against the inclusion of ISDS in the then-proposed EU-US trade deal, TTIP, attracted 3 million signatures—500,000 of them in the UK. The legitimacy of ISDS in EU agreements is now doubted by the Court of Justice of the European Union as well as by EU citizens. In Slovak Republic v Achmea, the court held that ISDS in the Netherlands-Slovakia trade agreement

“has an adverse effect on the autonomy of EU law” and is therefore incompatible with it. By like reasoning, ISDS in UK trade deals will adversely impact the autonomy of UK law.

ISDS is a mechanism whereby a corporation of one state party to the international trade agreement can bring a claim for compensation against the other state. It sounds fair, but it is not fair. ISDS claims bypass the courts of both state parties, and bypass the laws of both states. ISDS is a special privilege accorded only to foreign corporations, for use, in the case of the UK, against a democratic sovereign Government. ISDS is a right to claim compensation against the host state in which the corporation has made its investment—a right denied to the corporations and citizens of that state. That point is important and goes beyond the insult to sovereignty.

ISDS offends against the rule of law because a right and remedy against a host state is given to one class of putative claimant—foreign investment corporations—and denied to all the citizens, companies, co-operatives, trade unions and other organisations in the host state. ISDS offends against the rule of law, whereby that right and remedy is exempt from the courts and the legal system of the host country. It offends the principle of non-discrimination because that right and remedy is only available to non-nationals of the host state.

An ISDS claim is never that the host state has breached the law of the land. Indeed, it is invariably the converse: that a provision of domestic law has caused the foreign corporation loss of hoped-for profits. I refer again to the Philip Morris case as an exemplar, much cited in Committee. The Australian parliament passed legislation requiring plain-paper packaging for cigarettes. It was a democratic decision of a sovereign parliament. Philip Morris challenged the legislation in the Australian courts. It failed at every level, up to and including the High Court of Australia. Philip Morris then transferred ownership of its Australian companies to a subsidiary that it had set up in Hong Kong to enable an ISDS claim under the Australia-Hong Kong trade agreement. That claim ultimately failed but only because the transfer of ownership of the companies to Hong Kong post-dated the legislation giving rise to the claim.

Successful or not, ISDS claims can override the sovereignty of a parliament and domestic law by the chilling effect of the size of the compensation sought and often awarded. These amounts can be so large that even wealthy states shudder. The UN Conference on Trade and Development monitors international trade agreements and ISDS claims and awards. Although most ISDS proceedings are secret, of 1,023 known claims, UNCTAD has provided detail on 710. Your Lordships should know that no less than 104 of them—nearly 15%—were claims in excess of US $1 billion. In Committee, I gave an array of examples of multi-billion dollar claims and multi-billion dollar awards. I will not weary your Lordships by repeating them; they are set out in Hansard for 6 October. I am grateful for the generous comments of the noble Baroness, Lady Bennett, and the noble Earl, Lord Caithness, for their endorsement of some of the points I made then.

It is sometimes asserted that ISDS is necessary to allow the corporations of developed states to avoid having to litigate in the corrupt or ill-administered courts of developing countries. However, UNCTAD’s analysis undermines that justification. As the noble Lord, Lord Lansley, indicated, corporations have brought multiple claims against the USA, Canada, Australia, Germany and other states with well-developed legal systems, which have been bypassed in favour of using the special privilege of ISDS. The UK, under the wing of the EU, has so far been sheltered, but in future it will not be immune. For example, the UK seeks a trade deal with the USA. US corporations, as the noble Lord pointed out, have been frequent users of ISDS. We know that corporations have been establishing subsidiaries in other countries to facilitate possible claims against the UK.

The nature of ISDS claims is well established. The usual basis is that the accused state has failed to ensure fair and equitable treatment or has expropriated some asset of the investing corporation. Reported cases, such as that involving Phillip Morris, show how ISDS claims threaten Governments that exercise their democratic mandate to do such things as phase out nuclear power, renationalise a metro, exclude mining from national parks, limit pharmaceutical charges and so on. A future UK Government seeking to renationalise domestic power, water or railways, or, for example, to bring the disastrous and exorbitant track and trace regime into NHS ownership, could be at risk of ISDS. Such policies are controversial, but those who oppose them should defeat them at the ballot box—as, indeed, they have done so far—rather than by legitimating the offensive machinery of ISDS.

Nor should we support ISDS for use by UK corporations against other states. The ISDS challenge to our state cannot be justified by permitting similar challenges to other states. In any event, when UK corporations make investments overseas, they evaluate the risk that things could go wrong or that the state might change the law. That is a matter for them. Why should we risk our democratic decision-making to give UK commercial investors overseas a special legal privilege?

Finally, I note the benefits of the proposal for a multinational investment court in place of secret arbitration under ISDS. Transparency instead of secrecy and a fixed body of professional judges in place of ad hoc arbitrators, drawn often from those who conduct ISDS cases, are improvements. However, the central evil of ISDS is not resolved. ISDS before a panel of judges still remains an assault on the rule of law, parliamentary sovereignty and the principle of non-discrimination.

Photo of Baroness Jones of Moulsecoomb Baroness Jones of Moulsecoomb Green 5:00 pm, 15th December 2020

My Lords, one of the things that has often been frustrating in your Lordships’ House in the seven years that I have been here is that we talk about incredibly important things, yet often our language is so obtuse and complex that, although we understand what we are talking about, other people outside do not. Therefore, a lot of these important issues do not get the sort of publicity that they ought to.

Following the noble Lord, Lord Hendy, is a mixed blessing. He gave a devastating outline of exactly why ISDS should not be any part of trade negotiations. At the same time, he has reduced my speech to ashes because that was exactly what I was going to argue. I honestly do not understand how any member of the Conservative Party can support the concept of not just countries but other corporations having any rights over our country. The mechanisms of ISDS are far worse than any charge that could be brought against the EU courts system. I do not understand how the Government think that it ISDS is reasonable.

The rule of law and the right to legal remedy are both important and are best served not by shady arbitration but openness and transparency and our legal court proceedings. The Minister should argue to everyone in his department that ISDS should not be any part of our trade negotiations. Your Lordships should now make it clear that we will reject any treaty that contains ISDS. The Government have made all sorts of promises about reclaiming sovereignty, but how on earth can they claim with straight faces that ISDS is an appropriate mechanism to put in any trade Bill.

While I have the Floor, I should like to say that the Minister in the previous group said something about the Bill being a useful mechanism for fighting climate change. The noble Viscount, Lord Trenchard, mentioned lifting other countries out of poverty through trade. Perhaps he could do something about that in Britain and start lifting out of poverty the millions of people who are on, below or close to the poverty line. There must be some mechanism that this Government could use. In any case, the whole concept of ISDS should be thrown out as fast as possible.

Photo of Lord Purvis of Tweed Lord Purvis of Tweed Liberal Democrat Lords Spokesperson (International Trade)

My Lords, my noble friend Lady Kramer moved this amendment very ably and indicated that, because of the cross-party support and the degree of consistency with Amendment 19, she would be minded to test the opinion of the House. So I will be brief, because I suspect that the only service I could bring would be to undermine her arguments if I speak at length.

I want to pick up on one point. I agree with others that the noble Lord, Lord Lansley, provides us with a service to make sure that we are as on the ball as we can be with regard to making our case. My noble friend’s point about Canada is illustrative in trying to find out what the Government’s intention is for the long term for the replacement of ISDS.

We already know two things. The Minister said at Second Reading:

“ISDS is a subject which often causes excitement … I confirm that ISDS tribunals can never overrule the sovereignty of Parliament … There has never been a successful ISDS claim against the United Kingdom, but our investors operating overseas have often benefited from these agreements”.—[Official Report, 8/9/20; col. 749.]

He gave the impression that the Government’s position is that they are, at the very least, relaxed about ISDS being in agreements, and that they would not seek to move to a multilateral system as a replacement for ISDS.

The second thing we know is that, since 2008, after the European Council made the decision for the EU policy to move beyond ISDS, it has systematically sought to include provisions in agreements going forward; those can include changes to the ISDS mechanism and having a different form of tribunal process. Further, as the EU-Canada joint statement with the signing of CETA said:

“The EU and Canada commit to join efforts with other trading partners to set up a permanent multilateral investment court with a standing appellate mechanism.”

The issue then is: what was in CETA? We know that the changes to CETA included a right to regulate by both parties—the European Union and Canada—across all levels of government, regardless of investment protection; that there would be a clear break from an ad hoc arbitration system and a move to a permanent and institutionalised dispute settlement tribunal; and that members of the tribunal would no longer be appointed by the investor or the state but would instead be appointed in advance in a neutral manner.

My noble friend asked what the Government’s position is regarding the UK replacement for CETA; this is illustrative of where the Government are, going forward. Inevitably, the Minister was not able to share that information in Committee but, as the noble Lord, Lord Lansley, indicated, we have now seen the text of the agreement. It is very interesting. As has been referred to, page 103 of 109 lifted our hopes against the noble Lord’s fear that we would not be in a position to move to a multilateral system. It states:

“Therefore, the TCA represents an important and radical change in investment rules and dispute resolution. It lays the basis for a multilateral effort to develop further this new approach to investment dispute resolution into a Multilateral Investment Court. The United Kingdom and Canada will work expeditiously towards the creation of the Multilateral Investment Court. It should be set up once a minimum critical mass of participants is established, and immediately replace bilateral systems such as the one in TCA, and be fully open to accession by any country that subscribes to the principles underlying the Court.”

That was reassuring from our point of view and it gave a signal, but there is a sting in the tail: this is subject to a comprehensive review within three months. If the noble Lord, Lord Lansley, is correct—he often is—the Government will have acceded to what Canada wanted but are holding their position. They are holding their position for this review so that they are not in a position where, effectively, they will have their sovereignty restricted because they know that, in entering into the CPTPP or any agreement with America, their partners will not be in favour of moving to a multilateral system.

Perhaps this is just like some of the other discussions taking place now. There is what the Northern Ireland announcement called a grace period. There is a grace period for the agreement for moving to a multilateral system, as in our amendment, but the Government are trying to triangulate. The Government need to be clear, because this cannot go on for much longer. The amendment moved so ably by my noble friend Lady Kramer is an opportunity for the Government to be clear. This is such an important issue, which is why we want to press the amendment: to get clarity from the Government.

At this stage, if the Minister can respond clearly on Canada, that would be a reassurance, but it does not negate the issue. The noble Lord, Lord Lansley, made the point that this amendment is perhaps unnecessary; the text of the UK-Canada agreement and the review means that this amendment is even more necessary to replicate in this Bill what the Government indicated in the UK-Japan agreement.

Photo of Lord Stevenson of Balmacara Lord Stevenson of Balmacara Opposition Whip (Lords), Shadow Spokesperson (Digital, Culture, Media and Sport), Shadow Spokesperson (Business, Energy and Industrial Strategy and International Trade) 5:15 pm, 15th December 2020

My Lords, this has been a good debate on an important issue. We have heard some very expert contributions from all sides of the House set out the scene clearly. In responding to the debate, I will also speak to Amendment 19 in my name, which I am pleased has some support from the noble Lords who spoke before me.

The issue that distinguishes my amendment from those in the names of the noble Baronesses, Lady Kramer and Lady Boycott, and the noble Lord, Lord Purvis, is—if I can use an inelegant term—the fact that I was trying to provide in the amendment a little wiggle room for the Government on ISDS. I mean that in the sense of offering the Minister and the Secretary of State, when a proposal for an ISDS mechanism comes forward within a trade agreement, the chance to argue the case in Parliament and get support for it, should that be necessary in his or her judgment in relation to the particular case concerned. However, today’s debate has polarised the views of those who are concerned about ISDS. Probably the right thing to do is to signal at this stage that I support the amendment moved by the noble Baroness, Lady Kramer, and we would be prepared to follow her into the Lobbies if she wished to test the opinion of the House.

The reasons for that are easily summed up; we can look to the cases drawn up by my noble friend Lord Hendy, the points made by the noble Earl, Lord Caithness, and the concerns expressed by the noble Lord, Lord Lansley. For a moment, I thought that he was going to turn into a serial rebel with his victory earlier on in our debates this afternoon; I also thought that he might wish also to move against his own Government on this issue, but he was able to draw a line and point out both the transgressions that were being perpetrated within the Government and the opportunity for a rethink, in his terms, in the light of the schemes before us.

As the noble Lord, Lord Purvis, concluded, we probably need to draw a line in the sand and explain why we do not believe that ISDS is the model that the Government should be thinking about going forward. It may well be that the multilateral tribune approach is not yet right. There may also be a better case to be made for the use of our own courts; after all, we have an experienced and expert judiciary and a lot of court experience in these matters. If we are doing trade deals with countries that also have mature legal systems, it is hard to see why an ISDS scheme needs to be there unless, as my noble friend Lord Hendy said, this is part of some overall scheme of preferential treatment for those who have investment to spare but find the risks too great and need the assurances of an ISDS system to back up their support.

We live in different times. I do not know whether the old arguments will work, but I do know that what we see before us with ISDS is not right. It is no longer fit for purpose— it must change. We should start that progress by supporting the amendment moved by the noble Baroness, Lady Kramer.

Photo of Lord Grimstone of Boscobel Lord Grimstone of Boscobel The Minister of State, Department for International Trade, The Minister of State, Department for Business, Energy and Industrial Strategy

My Lords, I turn to Amendment 15, in the names of the noble Baroness, Lady Kramer, and the noble Lord, Lord Purvis, and Amendment 19, in the name of the noble Lord, Lord Stevenson. These proposed new clauses concern the approach taken to investment protection and the settlement of investment disputes where these provisions are included in free trade agreements. I will try to restrict my comments to points germane to these amendments.

The UK has included these provisions in more than 90 bilateral investment treaties, which have been crucial for our overseas investors. The UK is one of the most open countries for investments. That is because one of the great attractions for foreign investment is the fair and independent legal system underpinning domestic and foreign investment. We look to use investment provisions in trade agreements to guarantee equivalent levels of legal certainty for our businesses expanding overseas. These businesses make sizeable investments and incur significant risks. It is therefore vital that they can operate in a free and fair environment with a means of independent redress where treaty commitments have been breached.

In response to points made by the noble Lord, Lord Hendy, and the noble Baroness, Lady Jones of Moulsecoomb—not that I expect I will cause noble Lords to change their minds, sadly—many major British companies tell me that the existence of ISDS in certain overseas countries is absolutely germane to their decision to invest in that country. I recognise that noble Lords are concerned that these interests are correctly balanced in our free trade agreements with the Government’s right to regulate in the public interest. That is an objective I share. I was grateful to my noble friend Lord Lansley for answering the noble Baroness, Lady Kramer, on Canada in such depth and with such erudition—in words I could not hope to better.

Amendment 15 would permit the UK to sign a trade agreement only if it commits all parties to pursue the establishment of a multilateral investment tribunal system and an appellate mechanism for the settlement of investment disputes. It would also require all such disputes against the UK to be heard by UK domestic courts until such a system is in place. Your Lordships will no doubt be aware that not all trade agreements include investment protection and dispute settlement. It would not be appropriate to require all trade agreements to include a commitment to pursue a multilateral investment tribunal system or for disputes to be heard in UK domestic courts. In the absence of such a system, including this requirement would only hinder the progress of UK trade policy.

The UK is fully engaged in negotiations at the UN Commission on International Trade Law on the options to reform investor-state dispute settlement and the possibility of establishing a multilateral investment court —MIC. I confirm to the noble Lord, Lord Purvis, that the process of triangulation continues, and we have not yet come to a conclusion on the most appropriate way forward. Binding the hands of both the UK and our treaty partners before negotiations are concluded may not be in either their or the UK’s best interests, especially, as my noble friend Lord Lansley noted, some of our major trading partners are against the concept of the MIC. My noble friend Lord Caithness asked about ISDS and China. I confirm, perhaps surprisingly, that we have had a bilateral investment treaty with China since 1986. However, perhaps to the relief of noble Lords, there has never been a case brought against the UK under that treaty—nor do I expect there to be.

As for the requirement for UK courts to hear investment disputes, depending on the circumstances foreign investors in the UK will already have a means to legal redress against the Government without resorting to ISDS. It is likely that if we impose a requirement for disputes to be handled only by national courts, this will need to be agreed on a reciprocal basis with treaty partners. This would then require disputes brought by UK investors against a host state to be heard in their national courts, undermining the access to independent ad hoc arbitration for UK investors which has successfully supported UK investors worldwide for the past 40 years. I have no doubt that our major investing companies would oppose this.

ISDS in its current form is valuable for UK businesses investing overseas. This in turn benefits UK citizens as their shareholders. Conversely, the UK has never been a respondent in an investment dispute before a tribunal that has gone against it. The UK’s existing stock of bilateral investment treaties all contain ad hoc arbitration as the form of dispute settlement. Arbitration is a widely used means of resolving disputes between parties, including under international and domestic law.

Amendment 19 would similarly require the UK to pursue the establishment of a multilateral investment tribunal system and appellate mechanism. It would also result in the UK being unable to implement trade agreements containing ISDS unless the subject matter of a claim is something under which UK domestic law offers redress to UK persons. It would require the Government to approve a mandate for a free trade agreement containing ISDS provisions through regulations of both Houses of Parliament.

I will start with the redress available to investors under domestic law. The amendment overlooks the fact that, depending on circumstances, foreign investors in the UK already have the means to seek legal redress against the UK Government through domestic law, without resorting to ISDS. I humbly suggest that is one reason cases have never been brought against the UK under ISDS. As I mentioned, UK courts are regarded internationally as reliable and independent. It is worth reiterating that this is one reason the UK has never been a respondent in an ISDS case.

The amendment requires that the Government approve the inclusion of ISDS provisions through both Houses of Parliament. The Government have already committed to publishing their negotiating objectives, along with an initial impact assessment and a response to any public consultations, before entering negotiations. I humbly suggest that noble Lords know well that, as required under the CRaG procedure, the Government will lay the final treaty text alongside an explanatory memorandum before both Houses for 21 sitting days. This House has the power to prevent ratification should the ISDS provisions in the proposed treaty not be to the satisfaction of noble Lords. The House of Commons can do so indefinitely.

On the point raised by my noble friend Lady McIntosh about dispute resolution in any EU agreement, I am afraid that, like me, noble Lords will have to wait and see. I hope this reassures noble Lords and, on that basis, I ask for the amendment to be withdrawn.

Photo of Baroness Kramer Baroness Kramer Liberal Democrat Lords Spokesperson (Treasury and Economy) 5:30 pm, 15th December 2020

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.

Ayes 265, Noes 269.

Division number 2 Trade Bill - Report (Day 2) — Amendment 15

Aye: 265 Members of the House of Lords

No: 269 Members of the House of Lords

Ayes: A-Z by last name

Nos: A-Z by last name

Division conducted remotely on Amendment 15

Amendment 15 disagreed.

Photo of Baroness Morris of Bolton Baroness Morris of Bolton Deputy Chairman of Committees, Deputy Speaker (Lords) 5:48 pm, 15th December 2020

My Lords, we now come to the group beginning with Amendment 16. I remind noble Lords that Members, other than the mover and the Minister, may speak only once and that short questions of elucidation are discouraged. Anyone wishing to press this or anything else in this group to a Division must make that clear in debate.