New Clause 5 - Review: Investor-State Dispute Settlement

Trade (Comprehensive and Progressive Agreement for Trans-Pacific Partnership) Bill [Lords] – in a Public Bill Committee at 4:15 pm on 20 February 2024.

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“The Secretary of State must lay before Parliament a review of the financial risk of the implementation of the Investor-State Dispute Settlement aspect of the Investment Chapter of the CPTPP, not more than 18 months after the day on which this Act is passed.” —

Brought up, and read the First time.

Photo of Tan Dhesi Tan Dhesi Shadow Minister (Exports)

I beg to move, That the clause be read a Second time. [Interruption.] I am most grateful to my hon. Friend the Member for Harrow West for his remarks from a sedentary position. Were he speaking to this new clause, I am sure he would do a much better job. As we delve deeper into the considerations of the CPTPP, our focus now shifts to the investor-state dispute settlement mechanisms. We must pay close attention to the safeguarding of national sovereignty, public welfare and environmental integrity. We in the Labour party have listened to the voices of numerous stakeholders, including the Trades Union Congress, the Trade Justice Movement and Greenpeace, which all express concern at the impact of the ISDS mechanism, particularly highlighting its disproportionate impact on democratic governance and policy autonomy.

As hon. Members will know, the ISDS mechanisms allow private investors to sue Governments for alleged discriminatory practices. I wish to flag concerns about ISDS’s potential to challenge environmental regulations. A poignant example is the 2021 case of Eco Oro Minerals Corp. v. Republic of Colombia, which illustrates the tension between corporate interests and environmental conservation. Colombia’s efforts to protect the páramos—a crucial ecosystem supplying 70% of the nation’s water—were countered by Eco Oro with a substantial legal claim of $696 million in damages due to a mining ban. This case highlights the potential for ISDS mechanisms to be wielded against Government actions aimed at preserving the environment, thereby urging the UK to tread cautiously as we navigate the intricacies of international trade agreements like the CPTPP.

We are particularly wary of how these mechanisms might impede our nation’s progress towards meeting climate targets. Furthermore, the potential jeopardy ISDS poses to public services cannot be overstated. The TUC has raised concerns that the prospect of foreign investors suing over the nationalisation of services, or the introduction of new public health regulations threatens our capacity to govern in the public interest, potentially having dire consequences for essential services such as the NHS and education.

For example, the case of Veolia v. Egypt, which concluded in 2018 after six years of litigation, where Veolia sued over wage increase policies, underscores the risk of ISDS mechanisms being used to challenge policies aimed at improving public welfare, with legal proceedings that can last years and entail substantial financial costs for Governments. Although Veolia eventually lost that case, it is still the case that Governments lose even if they win, because the Egyptian Government had to spend six years defending the case and pay millions of dollars in arbitration and legal costs. Although the costs of that case have not been made public, studies from the OECD show that average costs are $8 million to $10 million, and they can be as high as $30 million. That case serves as a reminder of the potential for ISDS to prioritise profits over the wellbeing of citizens, making it imperative to reform those mechanisms to enhance transparency and fairness in the dispute resolution process.

Historical precedents starkly illustrate the contentious nature of ISDS mechanisms. The shadow Minister for international trade, my hon. Friend the Member for Wigan (Lisa Nandy), proposed amendments, inspired by real world cases like Philip Morris’s challenge against Australia, that highlight the pressing need for stringent scrutiny and limitations on ISDS provisions to prevent corporate interests from unduly influencing national policy. Those instances demonstrate a pattern where ISDS is utilised to contest national policies and regulations, emphasising the need for enhanced parliamentary oversight and public consultation, as proposed in our amendments. Such cases vividly underscore the threat that ISDS poses to environmental policies and actions crucial for combating climate change and protecting biodiversity. Those examples highlight the pressing need for that scrutiny, which is why that enhanced parliamentary oversight is important.

I also want to delve into data from the United Nations Conference on Trade and Development, which indicates that disputes involving environmental regulations are on the rise, emphasising the vulnerability of environmental policies under ISDS. It is imperative to note that, between 1993 and 2020, UNCTAD reported a staggering 1,104 known ISDS cases globally, with a significant number of challenging environmental regulations. That necessitates implementing safeguards in the CPTPP Bill to prevent challenges to measures protecting biodiversity or reducing carbon emissions. That trend once again underscores the urgency of implementing safeguards within the CPTPP Bill to protect against ISDS overreach, ensuring that measures taken to protect biodiversity or reduce carbon emissions are not contested, thus preserving our commitments under international agreements, like the Paris climate agreement.

I also want to discuss public services at risk. A study by the European Federation of Public Service Unions highlights that ISDS mechanisms have been used to challenge public interest measures, such as environmental regulations, health and safety standards, showing a clear conflict with public service provision. The ability for foreign investors to sue over the nationalisation of services or the introduction of new regulations to protect public health poses a threat to our ability to govern in the public interest. That could have dire consequences for the NHS, education and other critical public services, restricting our ability to implement policies without the spectre of costly legal challenges.

None the less, it is also crucial to acknowledge the perspective that ISDS provisions, when applied judiciously, can offer a level of legal protection to investors against genuine cases of expropriation or unfair treatment by host states, thereby contributing to a stable investment environment. The challenge lies in ensuring that those mechanisms do not infringe upon the legitimate policy space of Governments to enact regulations in the public interest.

Considering the critical examination of the ISDS provisions within the CPTPP, it is essential to underscore that ISDS mechanisms can significantly impact the regulatory sovereignty of nations, allowing private corporations to challenge public policies and regulations designed to protect public health, the environment and welfare. I am sure the Minister is aware that we have had several debates over the last few years, and especially over the seven years that I have been in Parliament, around sovereignty and the need to protect national sovereignty, so I hope he will address these concerns.

Our proposed amendments, such as that to clause 2 for enhanced parliamentary oversight, and the requirement for public consultation on ISDS provisions, are informed by the analysis of cases like Veolia v. Egypt and Philip Morris v. Australia, which demonstrate the tangible risks ISDS poses to public welfare and environmental protection. Our amendment to clause 2 for enhanced parliamentary oversight proposes mandating parliamentary approval for regulations relating to ISDS mechanisms by resolution of each House of Parliament, reflecting our commitment to democratic oversight. This step ensures that the ISDS mechanism within the CPTPP undergoes thorough scrutiny, reflecting our dedication to maintaining the integrity of our legislative process.

With regard to public consultation requirements on ISDS provisions, in alignment with our principles of transparency and public engagement we propose adding a requirement for comprehensive public consultations specifically on the ISDS provisions within the CPTPP. This amendment ensures that the diverse viewpoints and concerns of our society, including those from trade unions, environmental groups and sectors potentially affected by our ISDS claims, are duly recognised and addressed.

In relation to safeguard amendments against ISDS overreach, inspired by the consolidated list of amendments by my hon. Friend the Member for Harrow West, the shadow Minister for Business and Trade—he has done a great deal of hard work on this—we advocate for safeguards within the CPTPP Bill to protect against the overreach of ISDS mechanisms. That includes stipulations that prevent ISDS claims from undermining the UK’s legislative autonomy in areas such as public health, environmental protection and labour rights, thereby preserving the UK’s regulatory autonomy and ensuring that ISDS mechanisms cannot be used to challenge legislative and regulatory actions taken in the public interest in our Parliament.

By proposing these focused amendments to the CPTPP Bill, we aim to address the legitimate concerns surrounding ISDS mechanisms and their potential implications for our country. These proposals are founded on our unwavering commitment to upholding the principles of fairness, environmental stewardship and social justice in our trade policy. This ensures that our trade agreements not only pursue economic objectives, but safeguard the broader interests of our society and the protection of our democratic processes.

Photo of Matt Rodda Matt Rodda Shadow Minister (AI and Intellectual Property)

I commend my hon. Friend’s speech. He is making an excellent point. This issue has been raised with me a number of times in my time as an MP, by both charities and other civil society groups. There is a great deal of concern about ISDS in the community, particularly, in my experience, from charities involved in development. My hon. Friend is making an excellent point in trying to address some of those legitimate concerns about the nature of trade policy.

Photo of Tan Dhesi Tan Dhesi Shadow Minister (Exports)

The contributions of my hon. Friend the Member for Reading East and other hon. Members in the Chamber on Second Reading underlined serious, legitimate concerns around ISDS and how it has been utilised around the world. I fear that the Government have not fully addressed those concerns. That is why I have gone to great lengths to delineate the problem. I hope that the Minister will address those points in his concluding remarks.

In conclusion, while recognising the potential economic benefits of the CPTPP, the Labour party remains steadfast in its commitment to protecting the UK’s sovereignty, public welfare and environmental integrity. Our call for a balanced approach to the ISDS mechanism is underpinned by substantial evidence of its potential misuse in challenging public interest measures, necessitating reforms to ensure that trade agreements such as the CPTPP do not undermine democratic governance or the ability of Government to regulate in the public interest. As we proceed in Committee, let us ensure that our trade policies reflect our collective aspirations for a fairer, more sustainable future.

Photo of Greg Hands Greg Hands Party Chair, Conservative Party, Minister of State (Department for Business and Trade) 4:30, 20 February 2024

On new clause 5 on ISDS, I can provide assurance to the Committee that the UK already has investment agreements retaining ISDS provisions with about 90 trading partners, including seven of the 11 CPTPP parties. The UK provides a welcoming investment environment, with a non-discriminatory regime, strong rule of law and good governance. I remind members of the Committee that we have never been a recipient of a successful ISDS case—we have already disposed of the Eurotunnel red herring—from any investors from CPTPP parties or investors from any other country with which the UK has ISDS commitments through its investment agreements.

We are also clear that where we do negotiate investment protection and ISDS provisions in FTAs, we will not hinder our inherent right to regulate in the public interest, including in areas such as the environment, climate and labour standards. The right to regulate is recognised in international law, and CPTPP expressly reaffirms states’ rights to regulate proportionately, fairly and in the public interest.

May I take issue with the hon. Member for Slough and his very unbalanced views on ISDS, which reflect an old-fashioned view in the Labour party, perhaps from a few years ago, that business is always bad? Whatever Keir Starmer or Rachel Reeves might say now, I think that today we are still seeing that attitude that business is always bad.

Photo of Greg Hands Greg Hands Party Chair, Conservative Party, Minister of State (Department for Business and Trade)

Let me finish my argument. ISDS can be of great benefit to British companies abroad, and it protects jobs and livelihoods at home at the same time. It can make the UK a more attractive market to invest in—we are the Europe’s No. 1 destination for foreign direct investment—and it is important that the atmosphere for foreign investors remains strong. It generates jobs and prosperity here in the UK. And yet I hear increasingly in Committee rather the opposite. Contrary to the Labour party centrally saying that it is a pro-business party, I am hearing a very anti-business attitude and that business is always wrong.

Photo of Greg Hands Greg Hands Party Chair, Conservative Party, Minister of State (Department for Business and Trade)

I am not going to give way. We have a balanced approach. ISDS does not prevent a right to regulate. It cannot force a change in domestic regulation, but it does prevent arbitrary discrimination against foreign companies, which in the case of CPTPP means—

Photo of Tan Dhesi Tan Dhesi Shadow Minister (Exports)

On a point of order, Dr Huq. I seek your advice about when a Minister of the Crown mischaracterises what has been said by someone, especially with regards to business. As someone who started and ran my own small business, I do not need lectures from Conservative Ministers about how to operate in business. The mischaracterisation also relates not only to whether our party is pro-business, but to the fact that I gave very balanced pros and cons of ISDS. May I seek your advice as to how that can be remedied in the record?

Photo of Rupa Huq Rupa Huq Labour, Ealing Central and Acton

The hon. Member has made his point. To be fair, it is not compulsory for anyone to take any interventions, but as the Member who moved the new clause, you will give a response in a moment, when the Minister has concluded.

Photo of Greg Hands Greg Hands Party Chair, Conservative Party, Minister of State (Department for Business and Trade)

I thank you, Dr Huq, and the hon. Member for Slough for his point of order. None the less, we have to be clear that ISDS can prevent arbitrary discrimination against foreign companies. In the case of CPTPP, that can mean the same for British companies operating in those 11 existing parties. I just say to the Opposition Front Benchers that if they want Labour to pose as a pro-business party, they should take great care while parroting the arguments of groups like—

Photo of Gareth Thomas Gareth Thomas Shadow Minister (International Trade)

On a point of order, Dr Huq. Again I seek your advice. Have you had any indication as to whether the Minister will answer the question why Britain is not seeking to have ISDS provisions in the Canada FTA but is seeking to have them in the CPTPP?

Photo of Rupa Huq Rupa Huq Labour, Ealing Central and Acton

I am being informed by my learned Clerks that that is a point of information, not a point of order for the Chair to adjudicate. The Minister was concluding, I believe.

Photo of Greg Hands Greg Hands Party Chair, Conservative Party, Minister of State (Department for Business and Trade)

Thank you, Dr Huq. I will answer the hon Gentleman’s point about Canada in due course, but let me finish my point about Labour posing as the party of business when its Front Benchers are parroting the arguments of far-left bodies such as the Rosa-Luxemburg Stiftung and the Trade Justice Movement, which have railed against ISDS for years.

When it comes to why we did not agree an aside with Canada to disapply ISDS in CPTPP, upon the UK’s accession to CPTPP, British investments in Canada, which totalled £40.6 billion in 2021—investments worth protecting by the pro-business party that we are—will now be covered by these protections for the first time. In the light of our CPTPP accession, our bilateral negotiations with Canada will focus on stakeholder priorities, including in market access. That is very important for us.

I understand that there are concerns over the use of ISDS, but I want to be clear to the Committee that when we negotiate investment protection, and ISDS provisions within FTAs, we will not hinder our right to regulate in the public interest, including in areas such as the environment and labour standards. That right to regulate is recognised in international law. The CPTPP protects member states’ rights to regulate proportionately, fairly and in the public interest. That is done in a number of ways, including expressly reaffirming member states’ rights to regulate, as outlined in article 9.16.

Additionally, the UK has investment agreements containing ISDS provisions with seven of the 11 CPTPP countries and 90 countries worldwide. This is not a new issue. The UK has never received a successful claim from any investors of CPTPP countries or of any other country that it has ISDS commitments with. None the less, it protects British businesses abroad and makes Britain a more attractive environment for foreign companies to invest in.

That is why the UK will take a pragmatic approach to ISDS provisions, not the condemnatory, anti-business approach that we hear from the Labour party. I assure members of the Committee that the Government intend to publish an impact assessment in any case, and a comprehensive evaluation report of the agreement within five years of our accession. I therefore ask the hon. Members to withdraw their new clause.

Photo of Rupa Huq Rupa Huq Labour, Ealing Central and Acton

To respond to all that, Tam Dhesi.

Photo of Tan Dhesi Tan Dhesi Shadow Minister (Exports)

Thank you, Dr Huq. I would have thought that new clause 5 was sensible, and something that the Government should accept. All we are asking is that, no more than 18 months after the date on which the Act is passed, we have a review of the financial risk. However, if the Government are not willing to cede on that, we will seek to divide on the new clause.

For the record, I want to state that Labour is not only the party of business, but the party of working people. The Minister gesticulates from a sedentary position, but I think it is incredible that the Labour party’s business conference was sold out within four hours, which is more than I can say for the lacklustre performance from the governing party in terms of its abilities to woo the business community. We cannot dismiss at hand, as the Minister has done, the legitimate concerns of working people, as illustrated by the TUC and other organisations. It is important that those concerns are addressed.

I also note that the Minister did not answer the intervention from my hon. Friend the Member for Harrow West about why the Government are not seeking to have ISDS provisions within the Canada agreement. Perhaps the Minister would like to rise now. He said that he would address that point in due course. That due course has not unfortunately arrived, but it is for those reasons that we believe new clause 5 is important.

Photo of Greg Hands Greg Hands Party Chair, Conservative Party, Minister of State (Department for Business and Trade)

I think the hon. Gentleman was perhaps distracted, but I did actually go into some detail about Canada and listed the fact that £40.6 billion-worth of British investments in Canada should now be covered by these protections for the first time. I did actually give quite a comprehensive answer when it came to Canada, the UK and ISDS.

Photo of Tan Dhesi Tan Dhesi Shadow Minister (Exports)

That still does not deflect from the point that, with respect to ISDS, it is one rule for one nation and another for the rest. That is why it is important that those ISDS provisions are looked at, because they are of serious concern when we are embarking upon this agreement. New clause 5 is very important and I therefore wish to push it to a vote.

Question put, That the clause be read a Second time.

Division number 4 Trade (Comprehensive and Progressive Agreement for Trans-Pacific Partnership) Bill [Lords] — New Clause 5 - Review: Investor-State Dispute Settlement

Aye: 7 MPs

No: 10 MPs

Aye: A-Z by last name

No: A-Z by last name

The Committee divided: Ayes 7, Noes 10.

Question accordingly negatived.

Question proposed, That the Chair do report the Bill to the House.

Photo of Greg Hands Greg Hands Party Chair, Conservative Party, Minister of State (Department for Business and Trade)

On a point of order, Dr Huq. I just wanted to take this opportunity to say a few words of thanks here on the Committee. I extend my appreciation to the Clerks of the House for their invaluable advice, and to the Doorkeepers who, as always, ensure order is maintained well throughout proceedings. My thanks also go to my departmental officials and my private office, all of whom provide me with a tremendous amount of support behind the scenes. The piece of legislation is narrow yet significant, as it will help ensure the UK can successfully accede to the CPTPP and access all the benefits associated with membership.

I would like to thank His Majesty’s loyal Opposition for their active participation in this debate. It has been interesting, and testy at times, but always worth while. I was surprised not to hear a contribution from the SNP during the course of this Committee debate, but perhaps they will reflect on that when it comes to Report stage later on. As we await Report stage and Third Reading, I am sure hon. Members will continue to raise any concerns they may have, and I strongly encourage them to do so. I thank you, Dr Huq, and Mr Davies, for chairing the Committee so capably and ably. My door is always open, and I look forward to continuing to engage with Members from across the House to help ensure that the Bill is passed in a timely manner, so that all our constituents can begin to benefit from the impact of the UK’s acceding to the comprehensive and progressive trans-Pacific partnership.

Question put and agreed to.

Bill accordingly to be reported, without amendment.

Committee rose.