European Commission Releases Draft Proposal on TTIP Investment Court

17 September 2015

The European Commission released on Wednesday a long-awaited draft proposal on a possible “investment court system,” one that it says could replace the controversial investor-state dispute settlement system in all current and future investment negotiations – starting with the planned Transatlantic Trade and Investment Partnership (TTIP).

The 39-page draft proposal released on Wednesday is not yet a formal text proposal to the US for the TTIP talks, the Commission notes. Rather, it is a document that will now be discussed with the EU’s 28 member states in the Council, along with the bloc’s parliamentarians, as part of the work toward developing a final, formal version for negotiation.

Negotiations with the US on this bilateral trade and investment deal are now over two years in, with reports generally indicating the talks to be lagging, despite a pledge to make a “fresh start” in 2015 and a call by G-7 leaders for at least an outline of a deal by year’s end. (See Bridges Weekly, 23 July 2015)

The talks specifically on TTIP investor protections and investor-state dispute settlement have been on hold since early 2014, after the European Commission announced it would be suspending these in order to solicit public comment on the matter. (See Bridges Weekly, 23 January 2014)

In January of this year, the final results of the public consultation were released. EU Trade Commissioner Cecilia Malmström then presented in May a concept paper outlining a proposal for a permanent multilateral investment court and appellate mechanism, as well as other possible reforms, in light of the main areas isolated by the public consultation as being in most need of improvement. (See Bridges Weekly, 15 January 2015 and 7 May 2015, respectively)

“Today we’re delivering on our promise – to propose a new, modernised system of investment courts, subject to democratic principles and public scrutiny,” Malmström said on Wednesday, noting that the old system has led to a “fundamental lack of trust.”

Given that EU investors are those that use the current ISDS system the most, she added, the 28-nation bloc “must take the global lead on the path to reform.”

The US has long held that ISDS should be included in any final TTIP deal, despite facing its own domestic opposition to the mechanism.

The suggested reforms would not alter what is in already completed trade deals, such as the EU-Canada Comprehensive Economic and Trade Agreement (CETA), Malmström told reporters on Wednesday.

“The Canadian agreement is closed, we are not reopening that,” the EU trade chief said.

That particular deal has attracted significant public scrutiny over the ISDS question. While the agreement has been signed by both parties, the ratification stage is not yet completed. (See Bridges Weekly, 4 December 2014)

Court system

According to the Commission’s draft proposal, this new public Investment Court System for TTIP would feature both a first-instance Tribunal as well as an Appeal Tribunal, with publicly appointed, qualified judges.

The former tribunal would have 15 judges, including five EU nationals, five US nationals, and five from other countries. The latter tribunal would have six members, with two EU nationals, two US nationals, and two from other countries. The Appeal Tribunal would follow similar principles to that of the WTO’s Appellate Body, which is the highest court at the latter organisation.

The allocation of these judges to specific cases would be done on a randomised basis – a change from existing practice, where disputing parties are able to choose the arbitrators that hear their cases.

Furthermore, the draft proposal includes an article specifically on “ethics,” which would require that judges on both tribunals not be affiliated with any government; that these persons have “independence… beyond doubt,” and that prohibit them from serving in cases where there may be a direct or indirect conflict of interest. Judges would also be prohibited from serving as legal counsel in other investment disputes

Should a disputing party deem that there is a conflict of interest for a tribunal judge, they may challenge the appointment, with procedures in place for the judge to either resign from that position or for the tribunal’s president to hear the complaint and issue a decision.

Right to regulate

One of the issues at the heart of the debate over ISDS provisions in trade and investment deals is what effects these rules and other investor protections may have on a government’s right to regulate in the domestic public interest, such as regarding issues of public health and safety or protection of the environment.

The draft proposal thus includes language specific to the “right to regulate” question. Specifically, Article 2 affirms that the provisions “shall not affect the right of Parties to regulate within their territories through measures necessary to achieve legitimate policy objectives, such as the protection of public health, safety, environment or public morals, social or consumer protection or promotion and protection of cultural diversity.”

The document also notes that its provisions “shall not be interpreted as a commitment from a Party that it will not change the legal and regulatory framework, including in a manner that may negatively affect the operation of covered investments or the investor’s expectations of profits.”

The Commission document also includes a series of fundamental principles of treatment that foreign investors would be able to rely upon when choosing to invest in a partner country. To file a complaint with the Investment Court, an investor would have to claim that one of these guarantees has been violated by a host country.

These include guarantees against expropriation without compensation; the possibility of transferring investment-related funds; commitments to ensure fair and equitable treatment and physical security; commitments that governments respect obligations to investors that are written and legally binding; and guarantees of compensation for those losses that arise in specific circumstances, such as armed conflicts.

Domestic versus international courts

Another concern that has been raised in the past by ISDS opponents is whether such international courts would supersede the authority of domestic ones.

The draft proposal attempts to respond to such concerns, essentially suggesting that investors may first present cases domestically. However, if they wish to have their case heard by the Investment Tribunal – for instance, in cases where the domestic system does not have the needed investor guarantees – any ongoing domestic proceedings must then be withdrawn.

The document also includes a series of provisions regarding the interpretation of domestic laws when addressing these international investment disputes. For one, the Investment Tribunal’s interpretation of a party’s domestic law must be in line with that of domestic courts. Furthermore, the tribunal’s interpretation would not be at all binding on domestic courts.

Months ahead

The news comes ahead of a meeting between Malmström and her US counterpart – Trade Representative Michael Froman – in Washington on 22 September regarding the progress of the overall TTIP negotiations, according to Politico.

Such a meeting would serve as a planned “political stocktaking” ahead of additional TTIP negotiating rounds this year, though the dates and venues for those have not been formally announced. Whether a formal version of the Commission’s proposal would be ready in time for the next negotiating round was not yet clear at the time Bridges went to press on Thursday, given the internal EU discussions that must first take place.

Alongside the TTIP talks, the EU executive also plans to begin work with other “like-minded countries” on a permanent International Investment Court – one that would eventually replace all investment dispute resolution mechanisms in EU deals.

ICTSD reporting; “EU Proposes New Trans-Atlantic Court for Trade Disputes,” WALL STREET JOURNAL, 16 September 2015; “TPP talks motor on,” POLITICO, 14 September 2015.

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