My Lords, it has certainly been an erudite and extraordinarily interesting debate, and I congratulate all noble Lords who have taken part in it. I certainly understand the point made by the noble Baroness, Lady Chakrabarti, that it is right and proper that noble Lords should be allowed a free rein in debating these matters, and I entirely recognise the legal competence that we have in this House, which has been displayed to such great effect in the Grand Committee today.
Your Lordships might expect me to start off, as I always do, by saying that this Trade Bill does not deal with the implementation of FTAs with new partners, such as the USA or Australia. Instead, as noble Lords are no doubt tired of hearing me say, the Trade Bill provides powers to implement those trade agreements to which the EU and third countries were already signatories before we left the EU. I will come back later to the points that noble Lords have raised about the status of ISDS in those agreements.
Having said that, of course I understand completely the concerns that have been raised about ISDS, but I believe that these may be overstated. Perhaps I may be allowed a couple of minutes to try to elaborate this argument. We have heard that the UK has never faced an ISDS claim before an arbitral tribunal; nor has the threat of an ISDS claim affected our legislation. We are clear that the UK and treaty partners retain the right to regulate in the public interest, and this is already recognised under international law.
Before going into the detail of the amendments, which, understandably perhaps, focus on foreign investors in the UK, it is important that we remember that there are two sides to ISDS. It would not be right to let go unremarked the great benefit that UK investors overseas obtain from ISDS. Arguably, the benefit that our investors overseas obtain from ISDS is, for reasons that I will come to later, significantly greater than the benefits that overseas investors obtain in the UK.
We should not forget that ISDS disputes generally arise when private assets are expropriated by the state without paying compensation or where foreign investors are discriminated against compared to domestic investors. These two factors are the essence of the ISDS mechanism. I would suggest that these are perfectly laudable matters to want to protect for investors—either our investors overseas or foreign investors here. I ask that we remember these two points as we debate these amendments.
On Amendment 17, in the names of the noble Lords, Lord Hendy and Lord Hain, and the noble Baronesses, Lady Blower and Lady Chakrabarti, the proposed new clause would result in the UK being unable to implement a continuity agreement that contains ISDS unless the matter in respect of which an ISDS claim was brought had its exact parallel in UK domestic law for UK investors.
Of course, foreign investors in the UK already have access to legal redress against the UK Government through domestic remedies. These will often be quicker and more cost-effective than resorting to ISDS, and the UK’s courts and legal system are held in high regard internationally, so it is not surprising that people
often choose to go to our courts in the UK. However, it is important for foreign investors to have a means of redress which is seen to be completely independent of the UK state, and, as I said previously, ISDS remains valuable for UK businesses when investing overseas. It is very much seen as a mechanism of last resort but may in some cases be the only form of legal redress available to investors.
Like other noble Lords, I admired the erudition of the speech made by the noble Lord, Lord Hendy, to which I listened closely. He set out a long list of cases and argued cogently that ISDS may have a chilling effect on a state’s ability to regulate in the public interest. My noble friend Lord Caithness also made that point. However, while some cases that were cited are examples of ISDS impinging on the rights of the state, investor protection agreements do not eradicate the Government’s ability to regulate in the public interest, and it is this right to regulate that is recognised in international law.
The UK has more than 90 bilateral investment treaties in place with other countries, and there has never been a successful ISDS claim brought against the UK, nor, importantly, has the threat of potential claims ever affected the Government’s legislative programme. Let me be clear to put people’s minds at rest: ISDS tribunals cannot overrule the sovereignty of Parliament; they cannot overturn or force any changes in law.
Further, it is likely that the UK’s treaty partners would insist on reciprocal provisions—if I may come back to the amendment—for the implementation of trade agreements. This would result in UK investors overseas being unable to bring an ISDS claim unless there are also equivalent forms of domestic legal redress in those states, which in many cases, or some cases, there will not be.
One of the key benefits of investment treaties is to agree the precise details for an effective and common form of legal redress. Requiring this to reflect different domestic laws could disadvantage UK investors overseas by introducing uncertainty in a well-understood mechanism and denying them the same means of legal redress available to other international investors. I will come later, if I may, to the point that these mechanisms evolve and improve over time.
The noble Baroness, Lady Blower, raised the potential impact of ISDS on the NHS, and I would like to deal with that quite straightforwardly. ISDS does not and cannot force the privatisation of public services. Under current UK agreements, claims can be made only in respect of established investments—that is when a company is already operating in the United Kingdom—and claims cannot be made in relation to an alleged failure to open up public services to a potential investor. ISDS claims can only lead to compensation where the tribunal finds that treaty commitments or obligations have been breached, and they do not lead to a change in the law.
To be absolutely clear, ISDS will not oblige the Government to open the NHS to further competition, and overseas companies will not be able to take legal action to force us to do so. The NHS will continue to be free at the point of use for everyone who needs it. Protecting public services, including the NHS, remains of the utmost importance to the United Kingdom.
Similarly, Amendment 43, in the names of the noble Lord, Lord Purvis of Tweed, and the noble Baroness, Lady Kramer, would require that the UK 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 investor-state disputes. This would apply to both continuity agreements and future trade agreements, even though the latter are outside the scope of this Bill.
Not all trade agreements include investment protection and investment dispute settlement. It is therefore not appropriate to require all trade agreements to include a commitment to pursue a multilateral investment tribunal system. To include such a requirement on the UK and our treaty partners for ratification in such a manner would hinder the progress of UK trade policy. It would also require reopening agreements to make these significant changes.
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However, things move on, and negotiation of options to reform investor-state dispute settlement and the possible establishment of a multilateral investment court—or MIC, as it is known—is in its early stages at the UN Commission on International Trade Law, and I can reassure noble Lords that we are fully engaged in those discussions. As the noble Lord, Lord Fox, said, that could be a very good idea but, to answer the point of the noble Baroness, Lady Blower, we cannot yet say whether we support that idea because the negotiations are at a very early stage. Picking up the point made by the noble Baroness, Lady Kramer, if improvements can be made and generally accepted, we would certainly want to consider them.
I put on record to my noble friend Lord Lansley that the United Kingdom supports a modernised version of ISDS that is effective, proportionate and transparent while minimising the financial risk to HMG. I hope that that also reassures the noble Lord, Lord Fox. Of course, every international treaty is created through negotiations between states. Therefore, every aspect, including ISDS, is subject to discussion and agreement by both parties and cannot be imposed unilaterally by one party.
Returning to the amendment, binding both the UK’s and our treaty partners’ hands before these negotiations have concluded to commit ourselves to a way forward which, by definition, is still unknown, and before countries have even decided whether to set up a permanent court, cannot be in either their or the UK’s best interest. I assure noble Lords that we must, and we will, examine all the proposals as they develop to ensure that any system for reforming the investment dispute settlement system is cost effective and improves on existing investment dispute settlement procedures.
Turning to Amendment 44, again in the name of the noble Lord, Lord Purvis of Tweed, and the noble Baroness, Lady Kramer, this new clause would have the effect of requiring ISDS claims against the UK Government to be heard by UK courts or tribunals in all instances. As I said earlier, investment protection provisions in FTAs aim to ensure that foreign investors, including SMEs and pension funds, are treated fairly
and in a non-discriminatory manner, in line with domestic and other overseas investors in the territories where they are established.
It is important that foreign investors have an independent means of redress, as they may be more susceptible to certain risks in certain countries, such as discrimination and expropriation without fair compensation. ISDS through independent, ad hoc arbitration is an internationally accepted framework used to resolve investment disputes and, as I said, remains important to UK businesses when investing overseas.
We should not think that arbitration is somehow a dirty word. It is widely used as a way of resolving disputes under both international law and domestic law. Indeed, the UK is a global centre of international arbitration and remains an attractive jurisdiction for cases across a range of commercial transactions.
With all due respect, the amendment overlooks the fact that foreign investors in the UK will, depending on the circumstances, already have significant rights to seek legal redress against the UK Government without resorting to ISDS through domestic laws and procedures —for example, through access to judicial review or commercial arbitration. I suggest to noble Lords that, if an investor in the UK ever found himself in a position where his assets were expropriated by the UK Government without being paid any compensation, it would be to the courts that he or she would first go to seek redress. That is one reason why the UK has never faced an ISDS claim at an arbitral tribunal.
More importantly, the amendment would undermine access to independent ad hoc arbitration for UK investors, which has successfully supported UK investors in many countries worldwide for the past 40 years. We have to remember that this is because our treaty partners would also insist on reciprocity for future agreements if we asked for this, and they would seek to amend existing agreements accordingly. This would mean that any disputes brought by UK investors against a host state would also be required to be heard in their national courts. I humbly suggest that that may be perfectly appropriate in some cases but, depending on the treaty partner concerned, it could well be to the disadvantage of our investors overseas. I urge the noble Baroness, Lady Kramer, to reflect on that point.
This would likely lead to increased risk for UK investors, who have to date benefited from, and in several cases have had no option but to rely upon, international arbitration as an independent means of legal redress. As we have heard, UK investors have been responsible for around 80 ISDS claims internationally out of a total of around 1,000 known claims. It would also deny equal rights to UK investors as they would lack the same legal means of redress that is available to many other international investors. I am afraid that, ultimately, this could discourage UK investors from investing in particular countries, including in vital infrastructure projects. As we know, British investors overseas contribute to the economic development of states across the world, creating jobs and supporting local communities.
Amendment 52, in the name of the noble Lord, Lord Stevenson of Balmacara, would insert a new clause that would have the effect of requiring the Government
to obtain the advance approval of Parliament where they wished to include an investor-state dispute settlement chapter in the mandate for a free trade agreement. As I have said on previous occasions in this Grand Committee, the Government have committed to publishing their negotiating objectives alongside an initial impact assessment and a government response to any public consultation before entering into negotiations. The Government will lay the final treaty text alongside an Explanatory Memorandum before both Houses of Parliament under the CRaG procedure for 21 sitting days. Should the ISDS provisions in the proposed treaty not be to the satisfaction of noble Lords, your Lordships’ House has the power through this process to prevent ratification and the other place can do so indefinitely.
I turn now to Amendment 91, in the name of my noble friend Lord Lansley and the noble Lord, Lord Purvis of Tweed. It seeks to ensure that all regulations pertinent to the variation of import duties made under Section 15 of the Taxation (Cross-border Trade) Act 2018 will be made under the affirmative parliamentary procedure. Section 15 provides the power to vary import duties to deal with an international dispute or issue in a way that is authorised under international law.
First, I thank my noble friend for his diligent engagement on this issue. May I reassure your Lordships that we look forward to engaging with Parliament at every opportunity on these important issues? The Government recognise that international trade disputes serve different functions and can have wide-ranging impacts on sectors and industries across the UK. Naturally, some of these impacts will be of interest to Parliament. In recognition of this, I am happy to give an assurance to noble Lords that Parliament will be updated on the UK’s international disputes where it is appropriate to do so.
However, I am sure that noble Lords recognise that the conduct of state-to-state trade disputes is a matter of foreign diplomacy and is covered by the royal prerogative. International litigation, including launching and defending trade disputes, can be extremely sensitive, with far-reaching geopolitical implications. Where the UK seeks to impose retaliatory duties on the products of a responding state to induce it to comply with its obligations under a trade agreement, the choice of products to target involves a strategic and often very sensitive exercise.
I suggest to my noble friend Lord Lansley and the noble Lord, Lord Purvis, that it would be highly inappropriate for matters of such diplomatic sensitivity to be debated in Parliament, which is why we have put the negative procedure in this Bill. It is important that the Government can take swift and effective action against trading partners that have failed to comply with their obligations under the WTO agreements or an FTA, where their actions are affecting UK exporters. It could damage the UK’s position in sensitive international litigation if action taken to encourage compliance ceased to have effect under an affirmative procedure.
The Delegated Powers and Regulatory Reform Committee previously scrutinised this power when the TCBTA was laid before Parliament in 2018. The committee scrutinised the Section 15 power in its
11th report of Session 2017-19, and it did not report a concern with this power. I reassure noble Lords that, in exercising this power, the Government will always be required to have regard to international arrangements, including WTO law. This assessment must be made before laying regulations that vary import duty.
I turn to Amendment 94, in the name of the noble Lord, Lord Stevenson of Balmacara, which seeks to provide additional reporting duties that the Secretary of State must comply with following arbitration or alternative dispute resolution procedures provided for within international trade agreements. I recognise the noble Lord’s desire to ensure that Parliament is kept fully informed of any implications on UK legislation due to the outcome of disputes with our trading partners. Of course, the Government recognise that international trade disputes serve different functions and can have wide-ranging impacts on sectors and industries across the UK. Naturally, some of these impacts may be of interest to Members of this Parliament. However, we consider the additional reporting requirements as proposed by this amendment unnecessary.
First, if the Government intend to bring themselves into compliance with their obligations under the international trade agreement by amending legislation, this will of course be adopted following normal legislative procedures. Moreover, it is established practice under most FTA dispute settlement mechanisms that the reports of arbitration panels are made public. That is an important principle, which the UK Government are seeking to maintain in our FTA negotiations, as we recognise the importance of transparency. Furthermore, the UK Government will also address important considerations around trade disputes within a report that the Department for International Trade already lays before Parliament each year.
I come to some of the other points that noble Lords raised in the debate. The noble Lord, Lord Purvis, and the noble Earl, Lord Caithness, asked what the Government were doing to prevent ISDS cases arising from Covid emergency measures. No ISDS claims have been commenced against the UK over Covid-related measures, nor would the Government expect any claims to be made resulting from non-discriminatory measures taken to protect public health. We are not discriminating between domestic and foreign entities when taking these public health measures. Of course, the Government recognise the importance of strengthening international investment in response to Covid-19 and the continuing important role played by investment protection and ISDS provisions in safeguarding British investments overseas.
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Various noble Lords, including the noble Lords, Lord Purvis, Lord Hendy and Lord Stevenson, asked where we are on ISDS in the various EU continuity agreements that we either have signed or hope to sign shortly. I can inform noble Lords that none of the agreements signed so far has ISDS in them. Some have clauses that will allow us to review them at some point in the future to include investment protection and ISDS. This was a standard clause for EU agreements; we have carried it over. The Canada, Singapore and
Vietnam agreements contain ISDS clauses, but the Canada agreement is presently under negotiation so it would not be appropriate for me to comment on the exact position of those negotiations.
My noble friend Lady McIntosh of Pickering asked about the Airbus/Boeing trade dispute, which we of course have a significant interest in. It has been at the WTO, where we have worked closely with all parties for many years regarding its handling of the case. Since July 2019, the UK has raised the issue of tariffs during several meetings and calls with the highest level of the US Administration. I assure my noble friend that we continue to work closely with other Airbus nations, including France, Germany and Spain, to press for a negotiated settlement. I will happily write to her on the important point that she made about Scottish whisky.
I will also write to my noble friend Lord Caithness about the report to which he referred during his intervention as, unfortunately, I am not familiar with it.
That brings me to the conclusion of my remarks. I hope that what I have said has reassured noble Lords and I ask the noble Lord, Lord Hendy, to withdraw his amendment.