EU's Malmström Makes Global Investment Court Pitch to Stakeholders

2 March 2017

EU Trade Commissioner Cecilia Malmström reiterated calls for a multilateral investment court earlier this week, holding a meeting with stakeholders in Brussels on Monday on the subject. A public consultation on the court is currently underway, having been launched in December 2016, and is due to close on 15 March.

The multilateral investment court that is the topic of these consultations would aim to reform the past models of investor-state dispute settlement (ISDS) mechanisms, proponents say. The EU trade chief first announced her goal of developing such a court in May 2015. (See Bridges Weekly, 7 May 2015)

The proposed model would aim to ensure that investors can count on their rights being protected and on operating conditions that guarantee them fair treatment, while also ensuring that domestic public policies relating to areas such as health and environment are not encroached upon.

While the investor-state dispute system has long drawn scrutiny for its application and structure, another debate raised by some trade observers over the years is the use of special tribunals for foreign investors versus relying on national court systems and laws – and concerns over a potential asymmetry of treatment under these special tribunals between foreign investors and host country stakeholders.

Speaking to stakeholders from trade unions, business organisations, legal experts, academia, and consumer groups, Malmström urged participants to provide inputs on scoping a possible multilateral investment court to replace the existing ISDS system.

The ISDS system, based around ad hoc tribunals, can be found in over 3,000 investment agreements currently in force around the world and has been in practice for more than four decades. In her remarks on Tuesday, Malmström termed the system “old-fashioned” and “far from perfect,” raising “questions about fairness and impartiality” in balancing investor and state interests.

The consultation period, which will focus on assessing the impact of a new multilateral system on areas such as small business and developing countries, will continue for two more weeks, at which point the results will be channelled into the Commission’s impact assessment report on options for multilateral reform, which has been ongoing since August 2016.

The consultation follows talks held in Davos, Switzerland, in January between 30 trade ministers to explore options and gauge the interest for a multilateral investment court at a political level, organised by the Canadian government and the European Commission. An expert-level meeting featuring officials from over 60 countries and several international agencies was also held in Geneva this past December.

System overhaul

“The system is in clear need of an overhaul,” the Commissioner said on Monday, citing a need to evaluate whether ad hoc arbitration is out of touch with the current public policy landscape, particularly given the “high-profile” uses of ISDS mechanisms in cases that have implications for social and environmental issues.

She also called for an upgrade to ensure that investment dispute settlement is held to high standards of accountability, including by making the proposed future court significantly more transparent than previous ISDS iterations, including through suggesting the inclusion of public hearings and the publishing of case-related documents online.

“It's not enough for justice to be done; it must also be seen in order to be done,” she added when identifying key principles that would need to be embodied in a replacement system, including transparency, effectiveness, and adherence to cornerstone EU values and standards.

“Having multiple, potentially inconsistent, courts or panels is costly and complex and it undermines, potentially, the credibility and predictability investors and governments rely on,” she elaborated.

The proposed multilateral investment court would represent a permanent body open to all interested countries to join. Officials say that it would safeguard the right to regulate in the public interest and health, safety, and environmental concerns, responding to popular concerns that the ISDS system did not provide sufficient protections for these.

“In an era when many are sceptical about the benefits of globalisation, this is a chance to ensure trade is not at the expense of values; rather supporting them. A chance to show that we can reform so trade and investment continue to boost our economy but also to work for everyone, and for the public interest, and do so in a way perceived as legitimate and trustworthy,” said the EU trade chief.

The idea for the multilateral court has been credited by EU Commission officials as one of the main innovations inspired from an earlier public consultation held in 2014 about the ISDS system in the EU-US negotiations for a Transatlantic Trade and Investment Partnership (TTIP). The TTIP talks are currently on hold pending further clarity from the new US administration on the direction of Washington’s trade policy priorities regarding the EU.

The multilateral court would build on the investment court system already enshrined in two EU deals, including the EU-Canada Comprehensive Economic and Trade Agreement (CETA), approved by the European Parliament last week, and in the Vietnam-EU free trade agreement. Both agreements contain a reference nodding to a potential future multilateral system. (See Bridges Weekly, 16 February 2017)

Malmström outlined on Monday the Commission’s intention to include the system in all future trade negotiations, listing planned or ongoing talks with Australia, Chile, China, Indonesia, Myanmar, New Zealand, the Philippines, and Tunisia as examples.

The investment court system has already met some early questions and represented a hurdle in the run-up to the signing of CETA, where opponents in the Belgian region of Wallonia cited concerns that the mechanism could risk making governments vulnerable to big business, despite assurances to the contrary. The issue was ultimately addressed after a joint EU-Canada “interpretive instrument” was released clarifying that and other points.

CETA’s mixed agreement status requires that issues of shared or member state competence, including investment protection, be subject to ratification at the member-state level. This means that these will not apply when the agreement enters into force provisionally, but will require the sign-off of national – and in some cases regional – legislatures to take effect.

ICTSD reporting; “European Parliament Passes CETA After Debate Over Whether It’s A Good Or Bad Deal,” IP-WATCH, 15 March 2017; “A global investment court for a changing era of trade,” FINANCIAL TIMES, 24 January 2017.

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