By Sunny Lewis
BRUSSELS, Belgium, September 25, 2015 (Maximpact News) – Europeans no longer trust the way the EU resolves disputes between investors and states, says European Trade Commissioner Cecilia Malmström. The Swedish politician proposes to restore that trust by establishing a “modern and transparent” Investment Court System to replace the existing investor-state dispute settlement (ISDS) arbitration model.
The Investment Court would be part of all Europe’s ongoing and future trade negotiations, particularly the Transatlantic Trade and Investment Partnership between the European Union and the United States now under negotiation.
EU Trade Commissioner Cecilia Malmström debates with Members of the European Parliament the best dispute resolution system for investors in the context of the Transatlantic Trade and Investment Partnership. (Photo © European Union 2015 – European Parliament creative commons license)
The existing ISDS system enables an investor to bring a dispute before an arbitration tribunal. It operates on an ad hoc basis with arbitrators chosen by the disputing parties.
Instead, Malmström proposes a permanent tribunal of 15 publicly appointed, highly qualified judges and an accompanying six-judge appellate panel.
ISDS provisions appear in trade agreements such as the North American Free Trade Agreement and in such international investment agreements as the Energy Charter Treaty, but there is widespread disatisfaction with the ISDS system.
“From the start of my mandate almost a year ago, ISDS has been one of the most controversial issues in my brief,” blogged Malmström on her official site last week. “I met and listened to many people and organizations, including NGOs, which voiced a number of concerns about the old, traditional system.”
“It’s clear to me that all these complaints had one common feature – that there is a fundamental and widespread lack of trust by the public in the fairness and impartiality of the old ISDS model,” she wrote. “This has significantly affected the public’s acceptance of ISDS and of companies bringing such cases.”
Malmström has her eye on eventually establishing a permanent international investment court.
But a senior U.S. trade official has criticized the proposal.
Stefan Selig, U.S. undersecretary for international trade at the Commerce Department, told Agence France Presse in May that the United States prefers the ISDS mechanism because it “increases the security of companies willing to make investments…”
EU investors are the most frequent users of the existing system. To Malmström this means that the EU must take responsibility for reforming and modernizing the system.
“Some have argued that the traditional ISDS model is private justice,” she wrote. “What I’m setting out here is a public justice system – just like those we’re familiar with in our own countries, and the international courts which Europe has so actively promoted in the past.”
In crafting the proposal, Malmström has engaged in extensive public consultations, followed by detailed discussions with the 28 EU Member States, the European Parliament, national parliaments and stakeholders.
Setting up an Investment Court System would create trust, Malmström believes, if it is “accountable, transparent and subject to democratic principles.”
Judges, not arbitrators, would decide cases, and the judges would be publicly appointed. “We will guarantee there is no conflict of interest,” wrote Malmström.
Proceedings would be transparent, hearings open and comments available online, and a right to intervene for parties with an interest in the dispute would be provided.
And an Appeal Tribunal would form an essential part of the Investment Court System.
On September 16 Malmström made the proposal public and sent it to the European Parliament and the Member States.
EU First Vice-President Frans Timmermans likes the idea, which he says breaks new ground.
“The new Investment Court System will be composed of fully qualified judges, proceedings will be transparent, and cases will be decided on the basis of clear rules. In addition, the Court will be subject to review by a new Appeal Tribunal,” Timmermans explained. “With this new system, we protect the governments’ right to regulate, and ensure that investment disputes will be adjudicated in full accordance with the rule of law.”
“I’m convinced that this system will also benefit investors,” Malmström wrote. “These changes will create the trust that is needed by the general public, while encouraging investment.”
An overview of the proposal Transatlantic Trade and Investment Partnership and a reader’s guide to the proposal Guide to the Draft text on Investment Protection and Investment Court System in the (TTIP) is also available.
Featured Image: Trade Commissioner Cecilia Malmström discusses the Transatlantic Trade and Investment Partnership at a breakfast with women of the ALDE party, the Alliance of Liberals and Democrats for Europe Group, July 9, 2015 (Photo courtesy ALDE Group via Flickr creative commons license)
Award-winning journalist Sunny Lewis is founding editor in chief of the Environment News Service (ENS), the original daily wire service of the environment, publishing since 1990.