The biggest objection from the European public to the proposed TTIP trade deal (see here if you don’t know about it) is that multinational corporations will be able to sue elected governments (national or local) if it can be shown that legislation reduces corporate profits in any way. This could mean legislation for environmental protection, supporting local, small businesses or public health – in fact Philip Morris have already taken two governments to court in exactly this way (Australia and Uruguay, for introducing plain cigarette packaging).

This provision for corporations to sue governments (and remember that any compensation comes from taxpayers) is called the ‘Investor-to-State Dispute Settlement’ (ISDS) mechanism, and the EU Trade Commission is suggesting that it’s replaced with the ‘Investment Court System’ (ICS). First a report of the proposed changes from viEUws, the EU policy broadcaster, and below, the reaction from the US Chamber of Commerce.

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After months of consultations and heated debates, EU Trade Commissioner Cecilia Malmström presented, on 16 September, the Commission’s blueprint for a new dispute settlement mechanism called Investment Court System (ICS) to be part of the Transatlantic Trade and Investment Partnership (TTIP) agreement with the US.

The ICS is meant to replace the currently used Investor-to-state dispute settlement (ISDS) mechanism that has been heavily criticised by politicians from several member states, including Germany, France and Austria as well as business organisations and civil society groups. Under the blueprint that has been kept in strict secrecy, disputes between companies and states would be settled by 3 judges drawn from a roster of 15 pre-established by the EU and the US, this website has learned. The judges will not be allowed to act as lawyers (e.g. preparing the investor’s claims) in other ICS cases.

The proposal will provide for the establishment of a bilateral appellate body consisting of 6 judges – a solution strongly supported by the European Parliament, business organisations as well as civil society groups. Their qualifications would need to be similar to those possessed by judges who work for the WTO Appellate Body or the International Court of Justice. The appellate mechanism will, inter alia, review decisions as regards errors of law and manifest errors in the assessment of facts, and ensure consistency in the interpretation of TTIP.

In order to address the general public’s concerns about the potential threat the dispute settlement system poses to governments’ rights to regulate in the public interest, the European Commission will propose to include in the TTIP text a full article that would make clear that governments are free to pursue public policy objectives and they can choose the level of protection that they deem appropriate.

On the relationship between domestic legal systems and the ICS, the Commission will force investors to choose between the two from the outset. Investors will have to withdraw from any domestic proceedings they have started before submitting a claim to the ICS and they will not be allowed to go back to a domestic court after losing the ICS case (the so-called no U-turn rule). In addition, the so-called “treaty shopping” will be forbidden under the new rules, this is a practice of some organisations that choose most favourable dispute settlement treaties to sue governments, e.g. Philip Morris Asia (PMA) brought proceedings against the Australian government with regard to plain-packaging under the 1993 Agreement between Australia and Hong Kong.

Next steps

The Commission’s blueprint will be transferred to member states and the European Parliament for further discussion, a trade press official told this website. “A legal proposal will follow suit,” he added, without going into details.

Background

Investor-state dispute settlement (ISDS) is a legal mechanism that grants an investor the right to use dispute settlement proceedings against a foreign government. It first appeared in a bilateral investment (BIT) agreement between Germany and Pakistan in 1959, and since then over 3,400 BITs, most of them including ISDS have entered into force around the world. EU member states have 1,228 BITs with third countries. There are also 211 active BITs signed between EU member states. The number of treaties per EU country varies significantly, with Germany currently being a signatory to 129 BITs and Ireland being party to none. ISDS is associated with arbitration under the rules of ICSID (International Centre for Settlement of Investment Disputes of the World Bank), but in fact it often takes place under the auspices of international arbitral tribunals governed by different rules or institutions.

The extremely bad image of the ISDS has prompted the Commission to come up with a proposed set of new rules for the bilateral dispute settlement mechanism in TTIP. If approved by the EU and the US, the new system will be introduced in other free trade agreements the EU would seal with third countries as well as providing a basis for an international investment court. Presenting her concept paper back in May, Malmström argued that the creation of “one permanent court” for all bilateral investment treaties currently in force would be the next logical step.

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Below is the reaction from the US Chamber of Commerce to the proposed changes. The US Chamber of Commerce is the best-funded corporate lobby group in the world, and is undoubtedly a major driver behind US negotiations on TTIP. The UK and US Chambers of Commerce are very closely linked – together they comprise British American Business (BAB), so it’s very likely that the UK Chamber of Commerce will strongly oppose the changes too.

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Statement from the U.S. Chamber of Commerce’s Vice President for European Affairs, Marjorie Chorlins:

U.S. Chamber Statement on European Commissions Investment Court System

WASHINGTON, D.C. U.S. Chamber of Commerce Vice President for European Affairs Marjorie Chorlins issued the following statement on the announcement by the European Commission on their intent to adopt the Investment Court System, a new approach to the investor-state dispute settlement system:

While we recognize the EU has a political problem relating to future investment treaties, the U.S. business community cannot in any way endorse todays EU proposal as a model for the Transatlantic Trade and Investment Partnership (TTIP). The recent European debate around investment treaties the obligations governments accept in them and the methods they provide for dispute settlement is not grounded in the facts, and the distortions in this debate cannot be allowed to trump sound policy.

If the EU still regards the TTIP as a serious objective, todays 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.

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If TTIP and the thought of elected governments being sued by the corporate sector makes you angry, contact StopTTIP uk or War on Want to ask how you can help fight it.