The European Commission has proposed a new court to replace the contentious investor court that is threatening the negotiation of a free-trade agreement with the US.
The revamped dispute settlement court would replace the investor-state dispute settlement (ISDS) clause that has become the main obstacle in negotiating the EU-US Transatlantic Trade and Investment Partnership (TTIP), which seeks to lower tariffs and expand common standards and regulations.
Trade Commissioner Cecilia Malmström said the new court will have 15 independent judges, jointly-appointed by the EU and US, with transparent procedures. This court would also have an appellate mechanism of six judges.
“There has been, and is, a fundamental lack of trust by the public in the fairness and impartiality of the old traditional ISDS model,” Malmström said. “It is logical that we, from the EU side, take the lead in reforming and modernising this system.”
If ever passed, TTIP would turn the EU and US into the largest free-trade area in the world. But the main obstacle to getting there is disagreement over ISDS, an ad-hoc court system found in many trade agreements and a lightning rod for a barrage of politicians and campaign groups, who characterise it as an obscure arbitration system where multinationals can sue governments over decisions that threaten their investments.
The EU’s new plan will ensure all court proceedings are open to the public and related documents posted online, the Commissioner said. The court would not have a specific base: cases would be heard in Brussels, Washington, or any EU capital.
“In addition, the court will be subject to review by a new Appeal Tribunal,” said Commission vice-president Frans Timmermans. “With this new system, we protect the governments' rights to regulate, and ensure that investment disputes will be adjudicated in full accordance with the rule of law."
Far-left, far-right and Green campaigners and lawmakers are desperate to keep ISDS out of TTIP; lately even centrist politicians, particularly in Germany, France and Austria, have voiced concerns over the court. Ninety-seven per cent of respondents to a recent Commission survey opposed its inclusion.
In July, the European Parliament called for an arbitration system in which, “the jurisdiction of courts of the EU and of the member states is respected, and where private interests cannot undermine public policy objectives.”
TTIP has occupied trade negotiators since mid-2013, and with a new court structure now on the table for discussion, chances for a draft deal by year-end are fading.The Commission will next present the proposal for a new court to European governments and to Parliament, but does not need the two legislative branches to formally endorse it to take it to the negotiating table with the US.
It is far from clear that the new court will be acceptable to the US, which has maintained a firm line on ISDS so far. Looming 2016 presidential elections in the US could further complicate negotiations.
“Lipstick on a pig”
Bernd Lange, a centre-left member of the Parliament (MEP) and chairman of the assembly’s trade committee, hailed the Commission’s proposal as “a radical change of course in the EU's trade policy”.
However, Ska Keller, a Green MEP, was unimpressed, calling the announcement a "deft sleight of hand”.
The new court “retains all the hallmarks of the deeply flawed ISDS system,” she said. “Cosmetically changing the mechanism but keeping the same prerogatives for corporations is a marketing stunt, which fails to address the core problems of ISDS that have provoked such widespread public concern and opposition. We cannot allow the Commission to simply put lipstick on the ISDS pig."
Keller’s colleague, Yannick Jadot, walked a similar line. “As under ISDS, businesses would retain their prerogative to sue state authorities and they would continue to be able to choose to do so through private courts outside the legal system,” he said.
Business groups, which overwhelmingly support the talks, struck a cautious tone. “These new ideas need to be further assessed as they have never been implemented before,” said Markus Beyrer, director general of BusinessEurope, a business lobby organisation. “For us it is critical to ensure that investors will not be denied access to justice and to a fair and equitable treatment regardless of their nationality or size.”
ISDS is considered an important carrot for businesses: without it, some say they would not otherwise risk large investments in countries with untrusted judicial systems.
Beyrer added, “We understand that the intention of the European Commission is to make the system more transparent, more liable and objective. But we have to be careful as introducing too many conditions can limit the scope of the protection and make the system unworkable in practice.”
Malmström demonstrated she was well aware of the level of resistance to TTIP in Europe, and how it will be impossible to placate all of its many detractors. “If you said ‘free ice-cream for everyone’, they would still not like the proposal,” she said.