The EU’s trade chief has unveiled plans to set up a global court to decide on disputes between investors and governments in a bid to defuse one of the main controversies in the ongoing EU-US trade talks.
A "concept paper" published on Tuesday (May 5), drafted for trade commissioner Cecilia Malmstrom, stated that the EU should “pursue the creation of one permanent court,” to rule on so-called investor state dispute settlement (ISDS).
The EU executive is keen to make clear that investor protection rules offer no guarantees to businesses that the legal regime in which they invested will remain the same. It also wants to include an article in the transatlantic trade and investment partnership (TTIP) stating that governments are free to pursue public policy objectives without fear of being sued.
Meanwhile, it also calls on arbitration panels to be more like the traditional court system, with permanent litigators and tenured judges ruling on cases.
The EU proposal is similar to that advocated by Germany’s economy minister Sigmar Gabriel, one of the strongest critics of ISDS.
Gabriel has called for a public trade and investment court to replace the current system of private arbitration, and to enable appeals against arbitration rulings.
Speaking at a hearing with MEPs in March, Malmstrom commented that, in the future, governments should be expected to nominate “a limited list of trustworthy arbiters who would decide on all TTIP investment cases”.
A multilateral court would “be a more efficient use of resources and have more legitimacy,” she added.
In a blog post on Tuesday, Malmstrom described the ‘traditional ISDS system’ as being “not fit for purpose in the 21st century”.
“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,” she added.
Malmstrom will present her proposals to MEPs on the International Trade committee on Wednesday and to trade ministers the following day. If approved, they could form the basis of negotiations with the US.
ISDS has become one of the most hotly-disputed elements in the EU-US trade talks, which have now completed their ninth round. Critics of the process say that arbitrations are carried out in secret by trade lawyers, and that it allows companies to sue governments that pass social protection legislation that could harm their investments.
Campaigners frequently point to a ongoing case brought by tobacco giant Philip Morris against the Australian government over new legislation requiring plain packaging for cigarettes sold in the country.
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