Brussels is promising more transparency in a controversial system companies use to sue governments, as it seeks to remove one of the most intractable political obstacles to a landmark EU-US trade deal.
Hopes have faded that the Transatlantic Trade and Investment Partnership, potentially the world’s biggest trade deal, will be concluded this year, primarily because of opposition from politicians and campaign groups, particularly in Germany and Austria.
Among their biggest complaints is that large corporations could use provisions of the trade deal to bypass national courts and take investment disputes to international tribunals, undermining European standards in health, food and the environment.
Cecilia Malmström, EU trade commissioner, conceded on Wednesday that the so-called Investor-State Dispute Settlement system needed to be overhauled to ensure successful conclusion of the TTIP negotiations.
“It is clear from the debate that there has been a fundamental lack of trust by the public about the impartiality and fairness of the old ISDS system,” she said. “European countries are the most frequent users of the current system, so it is logical that we from the EU side took the lead in …modernising this system.”
Ms Malmström said the EU was proposing a new investment court that would comprise five judges each from the EU, US and elsewhere.
Cases would be presided over by a trio of judges representing each of the trading blocs.
Ms Malmström also insisted that all court proceedings would be open to the public and that documents would be posted online.
“Some will argue that the traditional ISDS model is a kind of private justice. What we are setting out here is a public justice system,” she said.
The court would be convened only when needed and would have no specific base.
However, that proposal, first made to the European Parliament this year, has drawn a sceptical response from many in the global business community. They argue such a court exists in the form of the World Bank’s International Centre for the Settlement of Investment Disputes, which has presided over such cases since 1966.
The US, which on Wednesday said it welcomed the proposals as a way to resume negotiations on investment that have been suspended since early 2014, also appears unlikely to support the proposal, having proposed its own reforms.
The US Chamber of Commerce said it recognised “the EU has a political problem relating to future investment treaties” but rejected the new proposals, arguing that they were the response to a debate that “is not grounded in the facts”.
“The distortions in this debate cannot be allowed to trump sound policy,” the chamber said. “If the EU still regards the TTIP as a serious objective, today’s proposal is deeply flawed. Tough negotiations lie ahead, and the reforms the United States has undertaken in recent years in its own investment agreements represent a far superior starting point for these important deliberations.”
The current ISDS system emerged in the early 1960s as a result of bilateral investment treaties pushed by Germany and other western economies as a way to offer legal protections to companies doing business in the developing world.
Without ISDS, some businesses say they would not otherwise risk making sizeable investments in countries with weak judicial systems. Although US companies have been held up as the bigger threat by campaign groups opposed to TTIP, European companies have filed more ISDS cases.
While the new system has been proposed primarily for TTIP, EU officials stressed that it could be adapted for other possible trade deals, including with Japan, or even China.
Ms Malmström said that Germany had played an important role in helping to shape the EU’s proposal. The commission must now finalise it with the European Parliament and the 28 member states before presenting it to the US for discussion.
While the commission’s proposals enjoy broad support among the main political groupings in the European parliament, they still face resistance from critics of the system among groups on the left opposed to TTIP.
“Cosmetically changing the mechanism but keeping the same prerogatives for corporations is a marketing stunt, which fails to address the core problems of ISDS. We cannot allow the commission to simply put lipstick on the ISDS pig,” said Ska Keller, a green lawmaker in the European parliament.
Ms Malmström argued there was a block of antitrade activists who would continue to oppose any new framework.
“If you said ‘free ice-cream for everyone’, they would still not like the proposal,” she said.
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