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16 September 2015
ISDS is dead! Long live ISDS!
The European Commission today announced a long-awaited reform plan for the controversial Investor-State Dispute Settlement (ISDS), 18 months after the investor protection negotiations were suspended in TTIP due to public outcry over the mechanism.
In a press conference held this afternoon, Trade Commissioner Cecilia Malmström presented a proposal for a “new court system” that would replace the current ISDS mechanism in TTIP and in other ongoing and future trade deals.
Investment Court System (ICS)
The proposal sees the acronym ‘ISDS’ dropped, replacing it instead with ‘ICS’ or ‘Investment Court System’, though the concept of private arbitration for foreign investors remains intact.
Criticising today’s reform proposal, Greens/EFA MEP and rapporteur on TTIP Yannick Jadot said:
"Instead of responding to the widespread concerns with ISDS and shelving it, trade commissioner Malmström is desperately trying to force through some form of private court for corporations. The notion that the choice in the Commission proposal somehow represents an improvement from ISDS is misguided. As under ISDS, businesses would retain their prerogative to sue state authorities and they would continue to be able to choose to do so through private courts outside the legal system.”
The reform plan also envisions some changes to the current ISDS system, such as an appeals mechanism, greater transparency and the use of publicly appointed arbitrators to counteract the perception that the system is dominated by privately appointed corporate lawyers, who often serve as both arbitrators and representatives for businesses in the secretive process. Foreign investors will also no longer be able to “forum shop”, choosing under which FTA to file a claim or going back and forth between national courts and private arbitration to settle a dispute.
The Commission maintains that the right to regulate will be upheld by enshrining written provisions in the new system, and ensuring that investors would have limited scope for taking cases against governments.
But Green/EFA MEP Ska Keller said today that these changes did not go far enough:
"The system being proposed by the Commission has another name and some structural differences but it retains all the hallmarks of the deeply flawed ISDS system: it would remain a private arbitration body, outside the legal system, created for the benefit of corporations to challenge state authorities and democratically-approved laws. Cosmetically changing the mechanism but keeping the same prerogatives for corporations is a marketing stunt, which fails to address the core problems of ISDS that have provoked such widespread public concern and opposition. We cannot allow the Commission to simply put lipstick on the ISDS pig."
What will Washington say?
The draft legal text, which has been presented as ‘an internal document of the European Union’, will be discussed with members of the Council and the European Parliament before it is presented as a EU position in the TTIP negotiations with the US. However, to date US negotiators have rejected the EU’s call for an investment court, insisting on holding on to the current ISDS system without changes.
On top of this, Washington is close to finalising the Trans-Pacific Partnership, another mammoth trade deal involving 12 Pacific nations that includes an unchanged ISDS mechanism. Any agreement with the EU to reform ISDS would therefore be seen as tacit admittance that indeed ISDS is problematic and in need of change, which could further complicate securing the TPP deal.
CETA, Singapore and a whole lot of BITs…
In today’s press release, Malmström noted that "What has clearly come out of the debate is that the old, traditional form of dispute resolution suffers from a fundamental lack of trust”. However she refrained from committing to reforming the old-style ISDS systems in agreements like CETA and Singapore FTA, which have not yet been ratified, but are due to come to the European Parliament in the coming year.
Other agreements, such as the thousands of bilateral trade and investment agreements negotiated by EU countries containing ISDS will also not come under the scope of any reform plans, which critics say is only further evidence that the Commission’s reform proposal is not credible.
In parallel with the new ICS plan, the Commission hopes to develop a new International Investment Court in the future that 'would replace all investment dispute resolution mechanisms' in EU and member state agreements. However no timeline on how best to achieve this was presented.
Read the full draft proposal here.
Read the press release here.
Watch the press conference here.