Commission proposes public court to settle investment disputes

MEP Bernd Lange believes that the new proposal will win the Parliament´s backing [European Parliament/Flickr]

The European Union on Wednesday (16 September) proposed a special court to resolve disputes arising from a huge trade deal with the United States, instead of the widely criticised tribunals Washington wants.

The investor-state dispute settlement (ISDS) clause has become the main bone of contention to ‘sell’ the Transatlantic Trade and Investment Partnership (TTIP) to the Europeans.

To try and address the main concerns raised by the European Parliament and NGOs, and to pave the way for a successful conclusion of the landmark trade agreement, the European Commission proposed yesterday (16 September) a new model to improve its transparency and let the member states to appeal any decision.

“There is a fundamental lack of trust from the public about the fairness and the impartiality of the traditional ISDS model,” Commissioner for Trade, Cecilia Malmström told reporters in Brussels.

Instead of having a private settlement system of international arbitration tribunals, she announced a new public court system. But, Malmström insisted, “investment protection as such is an important element of investment policy”.

In a later phase, Malmström also announced that the Commission intends to propose a new multilateral system to settle investment disputes, although she recognised that this idea would take time.

She emphasised that the goal is to introduce “trust” in the trade agreement. To that end, the Commission wants to replace the private courts with a public court system, in which 15 members would resolve the disputes. The members would be either retired judges or senior academic experts on this field, with no link to ongoing investment dispute cases.

A joint committee of EU and the US authorities would appoint the members, who should meet “very stringent requirements” in terms of qualifications and conduct, a Commission official said.

Five of them will come from the US, another five from the EU, and the rest from elsewhere. Only three judges will be involved in each case. The court would not have a specific venue, and cases would be dealt in Brussels, Washington, or any EU capital, the officials said.

Transparency will be increased by making all the hearings and documents open to the public. Moreover, the EU executive addresses some concerns regarding the limitation of national sovereignty under this private settlement schemes. Malmström underlined that the national authorities’ right to regulate will be “fully respected” and member states involved in a dispute will be able to appeal.

MEPs welcome the proposal

The Commission will discuss now the new proposal with the Parliament and the member states but the two legislative branches would not have to formally endorse it to take it to the negotiating table with the US.

Malmström said that the new model “meets the expectations for reform” coming from the capitals and the MEPs. “We are delivering what we promised”.

Most of the groups in the Parliament welcomed the new text.

Bernd Lange, chairman of Trade Committee, said that the new court system “represents a radical change of course in the EU’s trade policy”.

But he would like to see this new system applied not only to future trade agreements or under negotiation, but also to old ones, he told EURACTIV.

The new proposal failed to convince its critics among NGOs. Although campaigners acknowledged some improvements, they said that details were vague on how the independence and fairness of the court will be guaranteed.

“The Commission continues to back a two-speed justice system – a privileged justice for multinational corporations to protect their private interests, and a basic justice for citizens and small and medium enterprises,” Greenpeace trade expert Jürgen Knirsch said. “Environmental, health and consumer protection remain at risk”, he added.

ISDS agreements date back to the 1960s. Today there are more than 3,000 international investment agreements containing ISDS provisions. EU member states account for 1,400 of these agreements. Despite this high penetration, 97% of respondents to a Commission’s recent public consultation opposed the inclusion of private investment courts.

>>Read: Commission swamped by 150,000 replies to TTIP consultation

No EU court opinion

Last week, some organisations urged the Commission to request an opinion from the European Court of Justice (ECJ) to settle whether ISDS is in line with EU law.

>>Read: Commission won’t ask EU judges to decide on legality of ISDS

Malmström said that the Commission “never consults with the ECJ”, as the EU judges control the Commission’s powers once the legislative process is concluded.

In the context of international agreements, the treaty says that a member state, the Parliament or the Commission could ask for the court’s opinion on the compatibility with EU law.

A Commission official said that the TTIP agreement, and in particular this new court system, falls under international law and not under EU law. As the agreement doesn’t interfere with EU law, the institution does not consider necessary to request the EU judges’ view.

The US and the EU began talks on what would be the world’s biggest free trade deal in 2013 with hopes for a quick agreement.

Hopes to conclude this year now seem in doubt, with Malmström’s announcement only a first step in potentially lengthy consultations with member states and the European Parliament.

Asked when a final proposal might be submitted to the US side, a Commission source said, “It is too early to say whether it will be for the October round or for the next round.”

The US says ISDS must be in any deal.

MEP Daniel Caspary (EPP, Germany) said: The proposal “lays the ground for fairness, equitability and trustfulness in investment protection worldwide."

MEP Marietje Schaake (ALDE, The Netherlands) underlined that “the EU can play a leading role in reforming the current fragmented and outdated system of investment protection. European member states together have more than 1,300 agreements containing clauses which need to be reformed. Aside from the US, the Commission needs to engage China and Canada to work towards an international court, because negotiations on bilateral agreements are ongoing with these countries."

MEP Emma McClarkin (ECR, the UK) commented: “Of course, we will continue to see the usual reflex negativity and scaremongering from the old fashioned protectionist lobby, but I hope these new blueprints can help to allay some of the legitimate concerns that have been expressed."

John Hilary, Executive Director of War on Want, said: “Cecilia Malmström has today delivered a cosmetic rebranding of the hated investor state dispute settlement system. She knows the strength of feeling against these corporate courts, yet has refused to take any notice of people’s wholesale opposition.”

Cécile Toubeau, Senior better trade officer, Transport & Environment said: “Citizens will continue to unfairly shoulder private risks taken by foreign investors, while lawmakers will be deterred from regulating in the public interest.”

Natacha Cingotti, trade campaigner at Friends of the Earth Europe stressed that “as long as companies can sue governments if they act in the public interest, the ability of governments to regulate is undermined. It should be resisted at all costs.”

Although investor-state arbitration clauses have been included in investment deals since the late 1950s, arbitration has emerged strongly in the last two decades.

Since the 1950s, EU member states have concluded over 1,400 bilateral investment treaties (BITs) with a large number of third countries, representing roughly half the total number of BITs world-wide.

In Germany, the debate over ISDS has been raging since a similar arbitration was launched against the country in 2012. The case was brought by the Swedish company, Vattenfall, for €4.7bn worth of compensation. It followed Germany’s decision to phase out nuclear power plants, which led to the closure of two of Vattenfall’s atomic power stations in the country.

Opponents of ISDS argue that the mechanism allows a foreign investor to bypass domestic courts, and to challenge what may otherwise be a legitimate policy objective.

Critics also cite another investment treaty arbitration, brought by tobacco company Philip Morris, against both Uruguay and Australia, for introducing plain packaging laws on cigarette packets. The company argued that the laws were a form of expropriation. Although these cases are still pending, some argue that ISDS provisions tilt the balance of power away from governments and towards global corporations.

>> Read our Special Report: TTIP and the arbitration clause

  • 21-26 Sept.: Parliament discusses new court system proposal.
  • October (2nd half): Next round of TTIP negotiations in the US
  • 27 Nov.: Trade Council meeting

European Commission

Subscribe to our newsletters