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26/08/2016

MEPs unimpressed with Commission’s ISDS proposal

Trade & Society

MEPs unimpressed with Commission’s ISDS proposal

Cecilia Malmström, with Bernd Lange. [European Parliament]

Trade Commissioner Cecilia Malmström tried to convince MEPs that there are ways to keep the Investment-State Dispute Settlement in the Transatlantic Trade and Investment partnership deal (TTIP). But unimpressed lawmakers failed to greet it as a full-fledged reform.

“The proposal is a step in the right direction but it still does not go far enough to restore public confidence on the issue,” said S&D MEP Bernd Lange, who chairs the international trade committee in the European Parliament, and is also the author of the parliamentary report on TTIP.

“We need reassurance that a standing court is a clear commitment and not merely part of a plan for the future. The Commission must take this into account, as well as the other demands we have outlined, if we are to support the agreement in the European Parliament,” he added.

Currently, the ISDS system allows investors to take governments to international arbitration tribunals rather than to domestic courts.

Even though the US has insisted that ISDS be included in the landmark free trade agreement, it is unlikely to be kept in its current form when the trade pact is finally agreed on, because of wide protests across Europe.

Lawmakers insist that ISDS remains an extrajudicial system, which has no place in European jurisdiction.

“We need investment protection chapter in TTIP, but not ISDS,” said one MEP.

The Commission’s proposal supporting what has already been achieved in the EU-Canada Comprehensive Economic and Trade agreement (CETA) was considered insufficient.

Take the right to regulate, say MEPs: Having it only in the preamble is not enough. It has to be spelled out in the text.

The proposals to have a permanent investment court with full-time judges, and a clear appeal mechanism, is a possible option.

“We have always argued that this is a much better solution than the opaque private arbitration previously proposed. However on this and on other issues the paper is still too vague,” said Lange.

“We need reassurance that a standing court is a clear commitment and not merely part of a plan for the future,” he added, warning the Commission should take on-board all the other concerns.

The Commissioner published proposals for an ISDS reform in a concept paper on Tuesday (4 May).

>> Read: Commission floats ISDS reform ahead of EU ministerial trade talks

Politicians and campaigning organisations have been unanimous in welcoming the move to reform. However, the paper failed to make the case for reformed ISDS.

Professor Gus Van Harten of Toronto’s Osgoode Hall Law School, an expert on ISDS, said his primary message was that the Commission’s approach to reform is seriously inadequate.

“The Commission must by now be well aware of fundamental flaws in ISDS and the threat it poses to democracy, courts and public budgets. It must also be aware that the evidence to show that ISDS delivers a public benefit commensurate with the potentially huge public subsidy it provides, mostly to large corporations and very wealthy individuals, is sparse at best,” he noted in a 15-page analysis of the proposal.

EPP MEP Christofer Fjellner is critical of those challenging ISDS.

“ISDS has existed since the 1960s, but since then, only about 650 cases have been brought forward. The critics make it seem as if most of these cases end up being quite profitable for the investor. As if an investor simply by filing a claim gets the right to million euros or dollars in compensation. Wow, if that was the case, I’m sure we would have seen more than just 650 cases! But in fact, only 31 per cent of the investors (have won cases) against the state. Bummer for the anti-ISDSers,” he wrote in his challenge.

Malmström conceded she did not present a legal text but just a base for discussion to reform ISDS. “The key challenge for the EU’s reformed investment policy is the need to ensure that the goal for protecting and encouraging investment does not affect the ability of the EU and its member states to continue to pursue policy objectives. A major part of that challenge is to make sure that any system for dispute settlement is fair and independent,” the Commissioner said.

Positions

Monique Goyens, Director General of BEUC, the European Consumer Organisation commented

“We commend Commissioner Malmström’s intention to reform the Investor-State Dispute Settlement system. But the plans fail to acknowledge ISDS is not needed in TTIP. Existing levels of protection in the EU and the US fully suffice to guarantee legal security for investors.

“The plans also do not address the fundamental flaw of this mechanism which is the discriminatory character of these tribunals. They remain available only to foreign businesses, thereby giving them greater rights than domestic companies, civil society organisations or citizens.

“The Commission’s approach is to ‘patch up’ what is a deeply flawed system. Including ISDS in a deal with the US would cement such an impression. The correct move would be to scrap ISDS altogether and not delay a fix endlessly.

The European Services Forum (ESF) said: "Investment is about trust. Investment protection, including the right to defend it through a neutral dispute settlement, provides that trust. ESF is strongly in favour of having a state of the art ISDS mechanism in TTIP and in any other agreement which will include investment protection rules.

We welcome the debate around this important issue and believe that it will be useful to reform the system to make it more transparent and more efficient. ESF agrees that there are legitimate concerns about the ISDS mechanism and therefore we welcome the initiatives recently made by the EU to improve the system and we strongly encourage further improvements. We believe that the changes that the Commission is considering will make the new ISDS system even more efficient and respond to the concerns raised by the S&D group and by some EU Member States and other stakeholders."

"The European Commission’s new concept is a good basis for the next rounds of negotiations with the United States", said Godelieve Quisthoudt-Rowohl MEP, EPP Group Rapporteur for the TTIP Resolution in the European Parliament. "It is inconceivable for us to finalise an investment partnership without giving our investors legal protection by modern arbitration. We have already shown in the Comprehensive Economic and Trade Agreement (CETA) that the modern rules are necessary and possible in order to protect investors more effectively without compromising the regulatory sovereignty of the States. We continue working for the TTIP to be a success and we will actively shape our future, instead of bringing things to a halt and being defensive like the opponents of the TTIP."

“In times when the EU is keen to attract investment and generate growth and jobs, we must have a framework that supports investors and is simple and accessible to small, large and medium-sized companies. Finding the right balance between state’s right to regulate and protecting investors is key for a successful investment policy in the EU. TTIP offers a unique opportunity to achieve this goal”, stated Markus J. Beyrer, Director General of BUSINESSEUROPE.

"The concept paper presented by the European Commission explores further ISDS reforms, taking as basis what is included in the Canada-EU agreement (CETA) and the EU-Singapore agreement. While some of these reforms are going in the right direction, we should be aware of the fact that they have not been tested yet. Therefore their possible impact on investment is still unknown. Talking about the concept paper Markus J. Beyrer added: “The ideas in this paper are a good basis for discussion and we are ready to make a constructive contribution to the debate”.

“The European Commission proposed reforms in CETA and TTIP make no meaningful difference to the investor protection regime. Instead, they lubricate the system to make it more palatable to critics. These reforms are a slap in the face of public opinion that has outright rejected the inclusion of ISDS in these agreements during the EC’s public consultation", says Cecilia Olivet, researcher with the Transnational Institute.

“The European Commission proposal for an international investment court will not ensure the level of judicial independence that is required when the decision over public policies is at stake. It is no more than an attempt by the Commission to divert the attention that ISDS, with all its flaws, is still negotiated in TTIP", she added.

Corporate Europe Observatory's trade campaigner Pia Eberhardt said: "The Commission's so called reforms for investor rights in TTIP are nothing but a smokescreen to divert attention from what ISDS in TTIP is really about: a massive power grab from foreign investors and a dramatic transfer of powers from independent courts to private, for profit arbitrators."

The fundamental question remains: why would we give extra rights to foreign investors in TTIP, threatening democracy, public budgets and our court system?"

Background

So far, nine TTIP negotiating rounds have been held, the latest in New York (20-24 April).

In June 2013, EU heads of state and government mandated the Commission to start negotiating a free trade agreement with the US, giving guidelines concerning what the negotiations should include.

The guidelines stated that the EU should seek to include provisions on investment protection and investor-to-state dispute settlement (ISDS) in the proposed agreement.

Member states already have 1,400 ISDS-type agreements with other countries, some dating back to the 1950s. There is an urgent need for reform, and everybody agrees.

Read>>Special report: TTIP and the Arbitration Clause

The EU executive consulted the public on its approach to investment protection and ISDS in the TTIP, asking whether the EU’s strategy achieves the right balance between protecting investors, and safeguarding the EU's right and ability to regulate in the public interest.

Negotiations on investment in TTIP were suspended in January 2014. They will only resume once the Commission believes its new proposals guarantee, among other things, that the jurisdiction of national courts won’t be limited by special regimes for investor-to-state disputes.

The final decision, which must be ratified by both EU Council and Parliament in a full vote, will only be taken with the agreement of European Commission First Vice-President Frans Timmermans. Commission President Jean-Claude Juncker gave Timmermans the veto. He will ensure ISDS complies with the rule of law, and principles of equality and transparency, according to a memo published by the executive.

Read>>Linksdossier: TTIP for dummies

Timeline

  • 7 May: Commission presents ISDS proposals to EU trade ministers

Further Reading

European Union

Academia

Professor Gus Van Harten from the Osgoode Hall Law School: A parade of reforms: The European Commission's latest proposal for ISDS