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The litigation against governments that raises the cost of going green



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Hello from Brussels. Top scoop by my colleagues here who have got hold of a European Commission strategy paper on repairing relations with the US under the Biden administration. One conclusion is that tech is one of the biggest areas where convergence is needed. True enough: if EU governments push forward with the digital services tax, the row is going to blow up again pretty quickly. Also, we know we sound like a broken record (or some more modern form of audio playing on loop) but as long as the EU can’t get it together to discuss data regulation beyond just saying that everyone should CTRL-C CTRL-V the General Data Protection Regulation, there’s going to be a problem with building a tech alliance with the US. Also: Huawei and 5G, which we’ll come back to.

Today’s main piece is on how the controversy over companies suing governments using investor-state dispute settlement is coming back in a new and politically sensitive area — renewable energy. Tit for tat is with John Springford of the Centre for European Reform, while our Chart of the day is on the recovery in global trade.

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The Energy Charter Treaty is a new arena for an old battle

Seldom can an abbreviation have become as notorious as quickly as “ISDS”. Former EU trade commissioner Cecilia Malmstrom observed that at the beginning of her term in 2014, the first Google hit for ISDS returned the International Sheep Dog Society ( if that’s your thing). Within a few years there were thousands of people on the streets of Berlin — and several hundred in the hospital car parks of Britain — demonstrating against the alleged threat that the investor-state dispute settlement in the EU-Canada trade deal posed to public services.

Brussels got a major placate-and-reform operation under way, which aimed to make investor-state tribunals look more like public courts. It seems to have succeeded in drawing much of the poison from the issue in the EU, and has informed more general discussions about reforming ISDS. Those talks are grinding their slow and bureaucratic way through Uncitral, the UN body where such things are debated (if you want to follow this, hook yourself up to the excellent European Journal of International Law blog, particularly these two authors). 

In the meantime, the investor-state controversy has popped up with more immediacy in another place, the Energy Charter Treaty. The treaty is an international investment agreement with binding dispute settlement to which the EU centrally and nearly all its member states individually are signatories. The original aim of the ECT, which dates to 1994, was to integrate the resource-rich former Soviet Union and central and eastern Europe into western European and world energy markets. The idea, essentially, was to substitute international treaty law for the, ahem, “unreliable” national legal systems of the countries involved. Its most famous case was when shareholders of the former oil and gas giant Yukos won a $50bn settlement against Russia for expropriating their investments, an action that continues to rumble on.

But the ECT is now intervening substantially — and expensively — in the renewable energy policies of western European governments. Going back more than a decade, EU countries have been sued by energy companies claiming expropriation of their property and violations of “fair and equitable treatment” for the way those countries phased out fossil fuels and nuclear power without satisfactory compensation. More recently, Spain in particular has been hit by a new wave of claims from generating companies after it cut back generous official incentives to supply green energy.

Nord Stream 2 has brought an ECT case against the EU, arguing that new European gas regulations damage the profitability of the gas pipeline project © Alex Kraus/Bloomberg

Meanwhile, Nord Stream 2, a Russian company majority-owned by Gazprom that is building the controversial eponymous gas pipeline to Germany, has brought an ECT case against the EU, arguing that new European gas regulations damage the profitability of the project. It could well launch another against Germany if Berlin accedes to pressure and cancels the pipeline (the irony of the original aim of the ECT being turned on its head, with Russian companies suing western governments, is not lost on the latter).

The rush of litigation under the ECT feels a bit like the Philip Morris-Australia case on plain packaging of cigarettes, which did so much to give ISDS a bad name internationally. An expanding and politically sensitive area of government policy (public health in the Australia case, renewable generation and energy security in this) butts up against an arbitration system from an earlier era with what critics say is a broad definition of what constitutes expropriation.

The political backlash is getting serious. Environmental campaigners are concentrating their fire on the ECT. European governments are frothing about sovereignty. Members of the European Parliament are calling on the EU to pull out. Italy left the ECT in 2016, though the treaty’s provisions are still binding on departing members for 20 years.

Many governments increasingly seem to believe that ISDS is expendable in part or altogether if it becomes politically toxic. Governments have sometimes restrained dispute settlement systems with strict procedural rules, as has the EU. Or they have negotiated partial or total carve-outs, as New Zealand has with several partner countries in the CPTPP. Or they may not sign an ISDS agreement at all, as with the EU in its recent bilateral with Japan.

The ECT’s governments are negotiating reform of the treaty to reduce its reach, but some prominent countries, particularly Japan, are resisting. Some ISDS experts say the ECT secretariat, which like its World Trade Organization counterpart has a fair amount of influence in framing the debate, is unhelpfully resistant to change.

That may prove a dangerous tactic. Inflexibility might well prove the ECT’s downfall. If the ECT cannot bend to the new reality of huge investment and shifting regulations in green energy, it may well break.

Charted waters

Global trade continued its dramatic recovery over the summer months. The question now is whether that continued throughout October and November, when European governments have imposed stringent lockdowns to contain a second wave of the pandemic. It may well do. While restaurants and cultural venues have shut, manufacturers — which rely far more on global trade — have remained open for business here and elsewhere.

Line chart of Index of global trade volume showing Global trade continues to recover

Tit for tat

John Springford, deputy director of the Centre for European Reform think-tank in London, joins us to answer three quick questions.

Will it actually make much difference whether the UK and EU reach a Brexit deal or not?

A free trade agreement (FTA) is so disappointing compared with the single market that it’s tempting not to care. But if an FTA means the economy is 5 per cent smaller, and no deal means 7 per cent, take the deal. And more importantly, the Northern Ireland-Great Britain border will be harder if there is no deal, because tariffs will be applied to some British goods coming into Northern Ireland, if there’s a risk they could be re-exported to Ireland. That is, unless Boris Johnson or a successor decides to rip up the protocol in part or entirely, forcing Ireland to erect a land border. No deal could thus destabilise Northern Ireland, and it’s vital to avoid that. 

The Northern Ireland-Great Britain border will be harder in the event of a no-deal scenario © Charles McQuillan/Getty

Does the EU’s new strategy of ‘open strategic autonomy’ make any sense?

It could make sense. The member states could cede more power over immigration, corporation tax, and the regulation of capital, services and digital markets to EU institutions. That would make Anu Bradford’s “Brussels effect” more powerful, because the EU’s market would be more integrated and its rulemaking more extensive. And if global companies followed more EU standards and other countries copied its rules, the bloc could be more confident about opening its market. But, as the slow progress towards a capital markets union shows, it’s not apparent that the member states prioritise such “geoeconomic” power over the right to regulate their own markets.

How will Covid change the way the EU is governed?

Covid has strengthened the EU by reinforcing the case for orthodox macroeconomics. Government borrowing costs are now at record lows, thanks to the European Central Bank intervening in sovereign debt markets. German conservatives have gone quiet about that. The League had a chance to try to take Italy out of the euro and balked, and now eurozone policy is less damaging to Italy’s interests. The recovery fund is very likely to go ahead, with a stronger rule of law mechanism to constrain would-be autocrats in Poland and Hungary. Over time, thanks to Brexit, life may become more uncomfortable for euro “outs”, forcing them to choose between influence over the EU project or maintaining their own currency.

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EU pledges aid to Lithuania to combat illegal migration from Belarus




EU immigration updates

In the latest sign of deteriorating relations between the EU and Belarus, Brussels has promised extra financial aid and increased diplomatic heft to help Lithuania tackle a migrant crisis that it blames on neighbouring Belarus and its dictator Alexander Lukashenko.

Lithuania detained 287 illegal migrants on Sunday, more than it did in the entirety of 2018, 2019, and 2020 combined, the vast majority of them Iraqis who had flown to Belarus’s capital Minsk before heading north to cross into the EU state. Almost 4,000 migrants have been detained this year, compared with 81 for the whole of 2020. 

“What we are facing is an aggressive act from the Lukashenko regime designed to provoke,” Ylva Johansson, the EU commissioner for home affairs told reporters on Monday after talks with Lithuania’s prime minister Ingrida Simonyte. “The situation is getting worse and deteriorating . . . There is no free access to EU territory.”

The EU imposed sweeping sanctions against Lukashenko’s regime in June, after he fraudulently claimed victory in last year’s presidential election and then led a brutal campaign to violently suppress protesters and jail political opponents. Lukashenko has ruled Belarus since 1994.

The rising concern over the migrant crossings, which EU officials say is a campaign co-ordinated by Lukashenko’s administration, comes as one of the country’s athletes competing in the Tokyo Olympic Games sought refuge in Poland after team management attempted to fly her home against her will after she publicly criticised their actions.

Johansson said the EU would provide €10m-€12m of immediate emergency funding and would send a team of officials to the country to assess the requirements for longer-term financial assistance, including for extra border security and facilities to process those attempting to enter.

Simonyte said that Vilnuis would require “tens of millions of euros” by the end of the year if the number of people attempting to cross the border continued at the current pace.

Lithuania’s foreign minister Gabrielius Landsbergis told the Financial Times in June that Belarus was “weaponising” illegal immigration to put pressure on the Baltic country over its housing of several opposition leaders. Since then, the flow of illegal immigrants from Iraq, Syria, and several African countries has increased sharply.

Iraqi diplomats visited Vilnius at the end of last week after Lithuania’s foreign minister flew to Baghdad in mid-July. Johannson said on Monday that EU diplomats were engaged in “intensive contacts” with Iraqi officials, which she said were “more constructive than we had hoped”.

State carrier Iraqi Airways offers flights from four Iraqi airports to Minsk, according to its website. Former Estonian president Toomas Ilves suggested on Twitter that the EU could cut its aid to Iraq “immediately until they stop these flights”.

Speaking at the border with Belarus on Monday, Johansson added that the tents provided by Lithuania were unsuitable for families. Lithuania’s interior minister Agne Bilotaite said she hoped the number of illegal migrants would subside in the coming months but that Vilnius was planning to build some housing to accommodate them over the upcoming winter.

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Britain’s wrong-headed approach to refugees




UK immigration updates

Thanks to the bravery of volunteers who run towards storms at sea to rescue ships’ crews, few British institutions command as much respect as the Royal National Lifeboat Institution. The charity, however, has recently had to negotiate a different kind of storm, over its efforts to help refugees who get into difficulties crossing the Channel from France. Nigel Farage, the former Brexit party leader, accused it of running a taxi service for illegal trafficking gangs. Last week, the RNLI said it had received hundreds of thousands of pounds of extra donations in response.

The RNLI has become embroiled in a now familiar story when the summer months allow more small boats to make the Channel crossing. Compared with the flows to other countries such as Spain, Italy and Greece, only a handful of migrants attempt the journey. That makes the UK’s inability to control the border in an effective and humane way — and shabby treatment of those who do make it across — no less of a scandal.

Britain’s strategy for stemming the flow has relied mostly on paying the French authorities to limit the number of boats crossing and return any that leave to France, while deterring would-be migrants through the unwelcoming environment that awaits them. Just as EU countries are dependent on their neighbours for keeping entrants down — whether Morocco for Spain or Belarus for Lithuania — the UK needs French co-operation to control the mutual border. Diplomatic spats, whether over Brexit or extra Covid quarantine restrictions on arrivals from France, have made that harder.

The UK approach manages to be simultaneously ineffective and cruel. Yvette Cooper, chair of the home affairs select committee, wrote last week to home secretary Priti Patel to complain of unacceptable conditions in the holding facility for migrants who make it to the Kent coast. A recent unannounced visit by MPs found most of those remaining in the overcrowded facility sitting on a thin mattress on the floor, with women and children in the same room as adult men.

Earlier this year, the High Court ruled that “squalid” conditions in the Napier Barracks, a temporary centre set up last year to house asylum seekers during the pandemic, were so bad as to be unlawful. While arrivals have declined since the peak seven years ago, cutbacks have led to a backlog in processing claims, leaving more in a legal limbo.

Since the start of the pandemic Britain has shut down other paths into the country, ending a resettlement scheme. This has ceded the ground to people traffickers. The “push factors” of the risk of violence and torture at home and “pull factors” of higher living standards mean many are still willing to resort to risky and illegal methods to try to reach the UK. Creating a harsh environment for those who make it has done little to dispel the widespread belief among migrants that Britain is a better destination than other European countries, and stem the flow.

That will not stop the government trying. Barristers have warned that a clause in draft border legislation could potentially make it a crime to help asylum seekers arrive in the UK, with a maximum penalty of life imprisonment; at present it is illegal to do so to earn a profit. The Home Office says the clause is aimed at criminal traffickers. But along with a suggestion to set up offshore processing centres, the provision has rightly earned criticism from human rights groups. If the government is unwilling to create safe and legal routes, its only option is to prevent people from coming in the first place. That, ultimately, will mean relying on France.

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Olympic organisers investigate after Belarusian runner seeks refuge




Tokyo Olympics updates

A Belarusian runner due to compete at the Tokyo Olympics was taken to the airport against her wishes after making complaints about her coaches, according to media reports on Sunday night.

The International Olympic Committee, the Games organisers, said it had asked for clarification from the Belarus team about the status and whereabouts of Krystina Tsimanouskaya, who is due to compete in the women’s 200m sprint on Monday.

Belarus’ dictatorial leader Alexander Lukashenko and his regime are widely seen as international pariahs after he fraudulently claimed victory in last year’s presidential election and then embarked on a brutal campaign to suppress protesters and supporters of his rival, which has seen thousands beaten and jailed. 

Images and video circulated on social media sites by Belarusian opposition activists appear to show Tsimanouskaya at Tokyo’s Haneda airport, where she refused to board a plane and instead sought refuge with Japanese police.

Krystsina Tsimanouskaya took part in the heats for the women’s 100 metres on Friday but narrowly missed qualifying for the semi-finals © Aleksandra Szmigiel/Reuters

The IOC said it “has seen the reports in the media, is looking into it and has asked the [Belarus] national Olympic committee for clarification”.

Japanese police did not immediately respond to requests for comment.

The Belarusian Olympic Committee did not immediately respond to requests for comment, but a statement attributed to the body suggests she had been removed from competition by coaches on the advice of doctors advice about her “emotional, psychological state”.

Late on Sunday, Tsimanouskaya shared a screenshot of that statement on Instagram with the message: “This is a lie.”

“I am asking the International Olympic Committee for help, they are putting pressure on me and they are trying to take me out of the country without my consent,” Tsimanouskaya said in a video message reportedly recorded on Sunday evening from the airport and posted on social media.

A person close to Olympic officials said there remained “confusion” around the incident, adding they had been told that Tsimanouskaya had boarded a coach to the airport and had gone through the departures area to board a plane to Istanbul, where she then sought Japanese police to ask for asylum.

Belarusian opposition leader Sviatlana Tsikhanouskaya tweeted that she was grateful to the IOC for its quick reaction. “She has a right to international protection and to continue participation in the Olympics. It is also crucial to investigate Belarus’ NOC violations of athletes’ rights,” she said.

Tsimanouskaya on Friday appeared to criticise her coaches and team management in an Instagram post that said she had been “ignored” and that “people in higher ranks should respect us as athletes”.

The 24-year-old had taken part in the heats for the women’s 100 metres on Friday but narrowly missed on qualifying for the semi finals of the event. She is listed on official Olympics sites as due to compete in the first round of the 200 metres at the Olympic stadium on Monday morning.

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