EU Trade Chief Suggests New Investment Court Amid ISDS, Right to Regulate Debate

7 May 2015

EU Trade Commissioner Cecilia Malmström has called for the creation of a permanent multilateral court and appellate mechanism to arbitrate investment disputes, as part of a broader set of proposals on how to improve the functioning of the controversial investor-state dispute settlement (ISDS) mechanism in trade deals.

The EU trade chief presented a concept paper outlining the proposed court and other reform ideas on Tuesday, ahead of a meeting with International Trade Committee (INTA) parliamentarians in Brussels on Wednesday that was set to discuss the ongoing negotiations for a Transatlantic Trade and Investment Partnership (TTIP) with the US, as well as the direction of the 28-nation bloc’s future trade strategy.

“Our new approach ensures that a state can never be forced to change legislation, only to pay fair compensation in cases where the investor is deemed to have been treated unfairly –  suffered discrimination or expropriation, for example,” Malmström said in a blog post.

The proposals outlined in the paper, which is entitled “Investment in TTIP and beyond – the path for reform,” focus on the main areas that were isolated as being in need of most improvement following a public consultation by the European Commission last year. The results of the consultation were released in January. (See Bridges Weekly, 15 January 2015)

“Eventually, what will be proposed in the TTIP context will set the standard for the further development of investment protection provisions and investment arbitration in EU investment negotiations. TTIP provides a unique opportunity for reforming and improving the system,” the paper says.

The proposed global court, the paper suggests, could eventually replace the bilateral ISDS mechanism in the medium-term. This court, and its appellate system, would have the advantage of being able to apply to multiple deals among various partners, though the Commission noted that this will require building “a level of international consensus.”

This plan should be pursued in tandem with establishing bilateral appeal mechanisms, with the proposed changes meant to serve as “stepping stones towards a permanent multilateral system for investment disputes.”

Along with suggesting the creation of an international investment court and appellate mechanism, the paper also outlined reforms in the areas of the right to regulate; improving the establishment and functioning of arbitral tribunals; including an appellate mechanism; and addressing the relationship between ISDS and domestic courts.

The paper makes clear that nothing in it is with prejudice to the Commission’s final position on this subject, and is meant to serve as a starting point for talks with EU parliamentarians as well as the Council.

The outcome of these discussions would frame the EU’s negotiating position in this area, though when and whether Brussels may attempt to restart ISDS talks with Washington was not referred to explicitly in the concept paper.

Public debate

The prospect of including an investor-state dispute settlement mechanism, along with other investment protections, in a final TTIP deal has sparked controversy on both sides of the Atlantic, with public debate honing in mainly on whether these provisions could harm a country’s sovereign right to regulate in the public interest, particularly in areas such as public health and safety, or subject such policies to frivolous lawsuits from investors.

The negotiations on these specific subjects within TTIP were suspended by Brussels in early 2014 in order to hold this public consultation. For its part, Washington has consistently argued in favour of including such provisions in the final trade and investment deal, despite similar concerns being voiced by various civil society groups and members of the American public. (See Bridges Weekly, 23 January 2014)

Two of the trade deals that Brussels finished negotiating last year – one with Canada, the other with Singapore – included both investment protection and ISDS, raising questions over the possible TTIP implications.

In the position paper released Tuesday, the Commission outlined a series of improvements to ISDS that were made in the context of the Canada deal, which it said were examples of new innovations in substance and procedure already aimed at improving upon past iterations of this dispute settlement mechanism.

Both the deals with Canada and Singapore must still be ratified before entering into force. Though the negotiations have been completed, the agreement with Ottawa remains controversial, with questions being raised over the ISDS mechanism as well as other provisions, such as those relating to the protection of geographical indications.

Future trade strategy

Earlier this week, Malmström was in Washington to meet with US Trade Representative Michael Froman.

The talks are part of regular check-ins that the top trade officials have said will be a regular feature of the TTIP process, as part of a broader effort to give the lagging negotiations a “fresh start.” This week’s meeting came shortly following the ninth TTIP negotiating round. (See Bridges Weekly, 30 April 2015)

During a speech in Washington on 4 May, the same day she met with her US counterpart, Malmström  noted the importance of the WTO, TTIP, and other trade deals in the 28-nation bloc’s longer term plans. The European Commission is set to release this autumn a document that will outline its future trade strategy for the next five years.

“Doing a deal with our largest trade and investment partner will make a major contribution to expanding the amount of trade covered by ambitious trade rules,” she said during a speech at the Centre for Strategic and International Studies Statesman’s Forum, where she discussed the planned strategy revamp.

Furthermore, she added, the agreement could have a significant impact on areas such as protecting and strengthening shared values, testing new disciplines in areas such as regulatory cooperation, and improving the politics of trade by changing the ways of engaging with the public.

These three areas, together with maintaining the “broad geographical scope of [the EU’s] trade agenda,” are among the issues that this new strategy hopes to address.

ICTSD reporting.

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