The consequences of Brexit

Since 2016 I have been writing on the potential consequences of Brexit. Before the referendum, the aim was to inform the public of the dangers ahead, were Leave to prevail. After the referendum, the aim is to steer policy away from a hard-Brexit.

After Theresa May confirmed she is after a Hard Brexit, I wrote an explanation of what this means for the City, and by consequence the country.


The prospect of Brexit is already making every wage earner in Sterling poorer, as explained in my Marmitegate piece for The Conversation.


While we knew of the potential effects of a Brexit vote on currencies, few people appreciate what a hard-Brexit (with no successor agreement) will mean for investment and trade. My article on opportunities for Eastern European investors in a hard-Brexit scenario should surprise many on the Leave side.


My other published work on Brexit can be accessed via this link.


Making a success of Brexit, but for whom?

brexit reality
Our new Prime-Minister, Theresa May has promised to make a success of Brexit. I am sure she can do it. I am less certain it will be a success for the people of Britain though. The following expands on my recent post in The Conversation on the trade consequences of Brexit.

There is strong evidence to suggest that Brexit, if it also means loss of access to the EU’s single market imperils the fortunes of a nation who exports half its output to the EU. Brexit with access to the single market on the other hand entails significant costs of compliance and continuation of freedom of movement (which presumably is a source of great anxiety to Leavers) . This leads to a Norwegian of Swiss model of having all the burdens of membership without the benefit of influencing decisions as a full member. Could it be that the allure of a brave new world of international deals and worldwide trade expansion, outside the confines of EU rules and negotiators can compensate for the above? The following briefly examines the veracity of such claims and reflects on the future of the Transatlantic Trade and Investment Partnership (TTIP) with Britain outside the EU.

The country, presumably under its brand new leadership, is rapidly having to consider, plan and (if we believe the new PM) implement a British exit from the European Union. With all that this entails we are now forced by the decision of the people to address seriously the hopes of the Leave campaign as to the reality of a post-Brexit world.One of the key themes of the Leave campaign was the return of Britain as a global trading power, negotiating and concluding agreements under its own steam. This hope seems to rest on a number of foundations. Firstly, it assumes that the European Union is not in a position to achieve terms in trade deals preferable to those that any single member state could achieve. Secondly, it rests on the premise that other nations would be willing to offer equal or even better terms to the UK, as opposed to the entire Union.

Foreign investment and to a large degree trade are facilitated via Bilateral Investment Treaties (BITs). The UK has 96 BITs (in force) some of which are with (the newest) EU member states. It does not have BITs with the United States, Japan and the major European nations. The reason for the lack of intra-EU BITs is the Lisbon Treaty which gave the EU exclusive competence on foreign direct investment. This allows the EU to conclude comprehensive investment agreements such as the one with Canada in 2014. The EU is currently negotiating the TTIP with the USA and a deal with Japan.  Leaving the EU means that the UK will no longer be covered by multilateral agreements between the EU and other states and will seek to negotiate alternative bilateral ones. The UK will not be able to pursue new bilateral agreements with any EU member state. To link this with trade, in terms of WTO membership, the UK is a member, both through its membership of the EU and in its own right. WTO membership offers an avenue to the reduction of tariffs and a mechanism for resolving trade disputes, but does not constitute a free trade area agreement, nor does it contain provisions for significant aspects of investment.

Can Britain become a trade superpower away from the stifling clutches of the EU as it is often claimed? This is extremely unlikely for the following reasons. Firstly, trade deals take a lot of time to negotiate. The EU is having such a hard time concluding deals not because it is bureaucratic and sclerotic, but because it has to negotiate a long series of contentious issues. To take the example of the TTIP, negotiations have been bogged down by recognition and protection of agricultural products. It sounds trivial but it is not; trade in agricultural products is a major issue for negotiators trying to satisfy say on the one hand, French wine and cheese producers and on the other hand American GM crop growers and enhanced meat producers. Secondly, one could argue that the UK currently lacks the manpower to set up experienced negotiating teams and that it will take some time anyway before deals can even begin to be discussed. Further, arguing that any one country on its own (regardless of relative economic size) can fare better outside the largest trade group in the world is like arguing that a single employee can achieve better terms of employment negotiating directly with management, than through an organised union. It could happen, but in all probability it won’t. Last but not least, we are assuming that if other countries wanted to do great deals with the UK they will have the capacity to do so. During a new global recession sparked by the consequences of Brexit, even those who do want to do business with Britain may be unable to respond.

Returning to the TTIP, one has to wonder whether Brexit makes the UK safer or more liable to accept unwanted terms. It is widely acknowledged that the main driver for TTIP has been the UK. Without the British push towards liberalisation the deal risks dying a quick death, despite proclamations from both the EU and the US that a deal is expected by the end of 2016. If the UK seeks an investment and trade deal with the US, how likely is it that it will differ the TTIP? Considering the British desire for openness and liberalisation and the diminished negotiating power of a post-Brexit UK who can seriously argue that the environment and small farmers will be a negotiating priority? As regards other aspects of the negotiations such as access to courts and Investor State Dispute Settlement (ISDS) who has any hope that the UK will resist attempts to solidify a pro-investor status quo?

Assuming Britain could even get its foot in the door (President Obama showed no desire to prioritise a lonesome UK over other nations), could we avoid a lowering of standards and ISDS? Do we have more in common with the USA in our method of doing business than with the EU? An illustrative example is consumer arbitration clauses. In the US, if your computer malfunctions after a defective installation of some software, you may well be bound to take any resulting dispute to an arbitrator because you clicked ‘accept’ on a licence agreement that appeared on your screen. Currently in the UK, losing access to the courts for consumer disputes is prevented by European legislation. Were the UK to negotiate deals with the USA directly, could it avoid the import of these practices? It would be extremely unlikely considering its relegation to junior trading partner status.

It seems that are heading for TTIP on steroids. Will the post-Brexit world be one where the UK sails away under its own steam? It could, but on someone else’s terms. The silver lining of Brexit may turn out just to be tin.
brexit cartoon

Public Interests, Private Disputes: Investment Arbitration and the Public Good

MJIEL cover

NEW PAPER at the Manchester Journal of International Economic Law, published April 2016

This paper seeks to investigate the bases for resistance to arbitration in general -and investor arbitration in particular- focusing on the way in which arbitral tribunals deal with notions of public interest and the public good. The paper hypothesises that while courts have within their terms of reference the capacity to consider notions of public interest, arbitral tribunals do not. It is this core difference in the scope of decision making between the two bodies that could render privately organised dispute resolution unsuitable for disputes that have public aspects, like investor-state disputes. The paper discusses the meaning of public interest and the public good as found in the literature. It then proceeds to consider how tribunals in the investment field have dealt with these concepts. This leads to a conclusion urging not abandonment of arbitration as a component of dispute resolution, but caution. It is argued that unchecked growth in private dispute resolution can threaten perceptions of legitimacy and democratic accountability. The paper adopts a socio-legal methodology in considering the effect of legal mechanisms on social and political phenomena. It is also informed by a law and economics methodology in addressing impacts of dispute resolution mechanisms on economic efficiency. The contribution of the paper rests on theorising motivations for resistance to private dispute resolution, a topical issue in light of the TTIP debate.

See also the recently published Lessons from the Great Recession by Emerald, containing my Chapter on Spain’s recent ISDS cases.


Laiki strikes again. Second PSI challenge faces Greece at ICSID


It seems one cannot live without lawyers. As anxiety over the legality of the Greek Private Sector Involvement (PSI) deal was abating, Cyprus Popular Bank (Laiki) filed an investment arbitration claim at the International Centre for the Settlement of Investment Disputes (ICSID) against Greece, claiming billions of euros in compensation for losses suffered in the 2012 Greek bond haircut. Laiki is a known enthusiast for Investor State Dispute Settlement (ISDS) and is involved in another action against Greece, this time for the provision (or lack thereof) of Emergency Liquidity Assistance (ELA) to its Greek subsidiaries during the events of 2012 that led to the resolution of Cyprus’ two biggest banks.

The PSI deal, forming the core of this action, has been a key component of the Greek Bailouts and is equally blamed and celebrated for moving the burden of any potential sovereign default from private hands onto public coffers. The PSI deal worked by offering to swap in early 2012 Greek bonds with new ones of a lesser value, a reduction of 53.5%. Why would anyone, however, voluntarily agree to accept such a significant haircut? Bondholders were offered this choice after Greece enacted retrospective legislation inserting what are known as Collective Action Clauses (CACs) in the bond contracts. Such clauses provide that if the majority of bondholders in any given bond issue vote in favour of accepting the offer, then all bondholders are obligated to participate. CACs in other words make bonds similar to shares in corporations: if the majority of shareholders vote for a resolution, an objecting minority cannot block it. A significant number of bondholders roped into this deal through the operation of CACs sought legal redress arguing that their investments had been forcefully expropriated.

One group protesting the PSI haircut consisted of 7000 small-holders, who joined a class suit against Greece arguing expropriation under the Greek Constitution and violations of Human Rights provisions under the European Convention of Human Rights. These arguments were tested in the Greek Council of State in March 2013. The court found for the Greek government arguing that losses were due to the activation of CACs, not by the state act that retrospectively inserted the CACs and found no violations of Article 1 of the Protocol to the ECHR.

A second challenge to the PSI came at ICSID from a Slovakian bank. Poštová Banka and it Cypriot subsidiary Istrokapital argued that, under the Greece-Slovak Republic and the Cyprus-Greece bilateral investment treaties, they were entitled to compensation for losses they suffered due to the PSI, amounting roughly to half the invested amount of €504m. The Poštová claim was the first challenge under Bilateral Investment Treaties (BITs) and is similar to the new case brought on behalf of Laiki. The objective of an investment treaty, Poštová argued, was for the signatories to create favourable conditions for investments. As the Treaty offered standards of protection and a mechanism for dispute resolution when those standards were violated, ICSID was the appropriate forum to discuss any claims arising out of PSI. BITs are aimed at encouraging foreign investment and for that reason make a series of binding promises to investors. They may, as a result, offer a more varied menu of options to someone wishing to sue, than mere reliance on domestic constitutional and human rights provisions. ISDS clauses in BITs have faced criticism for offering a parallel legal system that exists beyond the reach of domestic courts. Concerns has been especially pronounced in the context of the Transatlantic Trade and Investment Partnership (TTIP) negotiations. Greece prevailed at ICSID as the Tribunal found that for a variety of technical reasons it did not have jurisdiction to hear the Poštová claim. This finding ended the process without an examination of the substantive claims.

Is the Greek PSI deal in danger after this latest challenge? The short answer is yes. It is unlikely that the advisors of Laiki would have brought a claim if they thought that their client will have the same difficulty on jurisdictional grounds that led to failure in Poštová. While Greece won two challenges on the PSI, one in domestic courts and one in ICSID, the Argentine precedent is not a good omen. The Abaclat case, where a number of Italian bondholders sued Argentina, is illustrative of the sort of action that is becoming more common in the Greek context. While the case is still pending, we have a decision on jurisdiction accepting that the claim comes within BIT provisions and can proceed for consideration on the substantive grounds. Is this the sort of answer one should expect in the new case against Greece? Poštová lost on jurisdiction because of the exact wording of the BIT it was relying on. Investors from one of the other states Greece holds BITs with may have better luck. Bondholder BIT arbitrations remain a danger for Greece.