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The opposition to having an investor-state dispute settlement (ISDS) mechanism in an EU-US trade deal is growing, with civil society groups worried that such a tool would allow big energy companies to undermine governments' attempts to regulate or ban fracking in member states. Fracking, or hydraulic fracturing, is the process of extracting natural gas from shale rock layers.

"We are concerned about the extra rights given to companies, which allow them to circumvent existing court systems and democratic processes," Natacha Cingotti from Friends of the Earth Europe told Europolitics Environment, while commenting on a new report her organisation released on 6 March together with other civil society groups like the Corporate Europe Observatory, the Sierra Club and the Transatlantic Institute.

The report 'No fracking way: How the EU-US trade agreement risks expanding fracking' comes a few days before the two parties embark on their fourth round of negotiations in Brussels, on 10 March. It also precedes the release by Trade Commissioner Karel De Gucht later this month of the EU text on investment as part of the Transatlantic Trade and Investment Partnership (TTIP) talks, followed by a three-month public consultation - a move which came due to strong public concerns on this matter.

In a nutshell, the ISDS is a provision that allows corporations to seek compensation from states if government policies hurt their business interests. Such a provision already exists in the North American Free Trade Agreement (NAFTA, between the US, Canada and Mexico) and a similar mechanism was also introduced in the Canada-EU trade agreement (which has only been initialed but not yet ratified). In fact, in the latter case, it was the first time the EU as a whole negotiated such a provision as part of its trade talks.

Those in favour of such a tool argue it is necessary to protect the rights of investors as guaranteed by bilateral agreements and international law. Opponents say this a privileged and biased system, pointing to its perceived lack of transparency, since cases do not go through domestic court systems but are being settled through appointed arbitrators.

Civil society groups worry this is exactly the kind of rights big energy companies will have under the TTIP, "potentially paving the way for millions of euro in compensation paid by European taxpayers".

While countries like Romania, the United Kingdom and Poland are enthusiastically pursuing shale gas exploration projects, France and Bulgaria have banned induced hydraulic fracturing - a type of fracking. This occurs by injecting a mixture of water, sand and chemicals into the ground at high pressure, which creates small fractures in the shale rocks that release the gas.

US companies investing in the EU - and vice versa - could challenge federal and state-based regulations on fracking under the ISDS mechanism, the report notes. Furthermore, even the threat of an investor-state dispute can deter governments from regulating, the groups worry.

" We can see it as having a chilling effect on local and national governments, which are keen on introducing progressive regulations in favour of the environment," Cingotti said.

The report points to an already existing case of this nature. In 2012, oil and gas company Lone Pine Resources used the ISDS mechanism under NAFTA to sue the Canadian federal government over Quebec's moratorium on fracking. Although headquartered in Canada, the company used its US incorporation in Delaware, US, to challenge the move. The case is still ongoing.

Cingotti said it is unclear whether an ISDS under the TTIP would allow energy companies to only challenge member states' future regulations on fracking, or whether existing ones would fall under the same umbrella. It depends on how "investment" is defined in the text, she said.

Unsurprisingly, companies have been pushing for the inclusion of an ISDS mechanism in the TTIP. Speaking on the sidelines of the informal Trade Council, on 28 February, officials from the powerful lobby group BusinessEurope said "the [upcoming] public consultation on ISDS should not be considered as a referendum but as a means to obtain concrete and realistic proposals on how the mechanism can be improved".
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Publication:Europe Environment
Date:Mar 21, 2014

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