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27 May 2015

Author of German ISDS-reform report criticises stance of Commission & German Ministry.

Smoke and mirrors “reform” agenda sowing confusion – clearing way for ISDS in TTIP.

Simon McKeagney, Editor

The author of a key report commissioned by German Finance Minister Sigmar Gabriel on possible reforms for the controversial ISDS-mechanism, has said while the report offers some suggestions for reforming the mechanism in the future, he still does not see the need for ISDS in TTIP.  

Professor Markus Krajewski, whose report has been used in recent weeks to quell the debate amongst S&D members on their stance on ISDS, criticised the Commission and the German government for their efforts to reform the mechanism, saying that in reality “the only thing that we really need if we want to give something to foreign investors is the right to non-discrimination”.

The Gabriel report, in tandem with a position paper by DG Trade released on May 6, now forms the joint-effort to tie in support for a tweaked ISDS model under TTIP in the run up to the vote in European Parliament. But neither paper addresses the fundamental issues with ISDS, including the right to fair and equitable access to justice, and judicial independence.

In a meeting in the European Parliament on Tuesday 26, Krajewski noted that the reform papers demonstrated the nervousness and lack of plan surrounding the issue in relation to the EU-US deal:

“It shows that the Commission and the German ministry, are really on the run. They really don’t know where to go, they’re really in a completely defensive position, which is thanks to all the critique that has been issued.”

Opponents to ISDS are concerned that the suggested reform agenda, including the formation of an international investment court, is a distraction from the real issue; whether or not ISDS is needed in TTIP. Already EU and US national courts provide efficient and effective protection for international investors on both sides of the Atlantic, while also providing legal clarity on investor obligations, something that is not covered under the reform plans. Moreover, ISDS causes further uncertainty over its compatibility with EU law, something that has already caused huge problems in recent settlement cases

Members of the European Parliament’s International Trade Committee will vote on Thursday 28 of May whether or not to include a clause to oppose or include ISDS for an eventual vote in plenary on June 10.

Krajewski said it was not clear what the main goals of Malmström's reform aims were, and said in some instances the Commission’s proposal “fails on every account”.

“Why is she proposing an arbitration system which relies on a pre-selected set of arbitrators? That to me makes no sense at all." 

Right to be heard

Many have expressed support for the right to be heard for affected third parties, as currently they have no legal standing under ISDS. But Krajewski was quick to point out the flaws of including this provision without the ability for citizens to also take claims against investors or other parties:

“Affected third parties having legal standing to me would mean that affected communities or other stakeholders would actually have the right to come up with their own claims, not just state something as an amicus to the court. So I think here again there are a number of things where both proposals would certainly not meet what I would suggest is necessary for a paradigm shift.”

He also noted that both proposals failed to provide content on investor obligations noting that “all of these things we would expect in a more balanced system are not there in both proposals.” 

Don’t confuse the wood from the trees

Professor Harm Schepel, who also attended the event, detailed evidence showing ISDS adds no increase in foreign direct investment, and argued that the effort to fix the various legal and political problems with ISDS is avoiding the crux of the issue: that it is not needed, and there is no economic reasons to support its inclusion. Schepel said it was instead imperative to focus our attention on the "shameful, horrible" 1,200 bilateral agreements containing ISDS that European countries have made with developing countries, which the Commission has no current plan to address. 

He also noted that "arbitration is not compatible with an appeals [process]" because arbitrators do not consider themselves judges, but "service providers" whose job it is to resolve disputes between two parties. This is despite the fact that the outcomes often have huge impacts for third parties, including affected communities and countries' finances.

Schepel’s comments were echoed by Professor Krajewski who doubted the seriousness of the Commission’s reform agenda for ISDS over all.  Refering to Malmström's statement that the Canadian and Singapore deals, which both contain ISDS, would not be reopened, he stated:

“It is politically but also legally not conceivable to talk about a reform agenda in the TTIP context but leave CETA untouched… How can we tell the Canadians that we negotiated something with them that we now consider not to be the standard?” 

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If he doesn't see the need for ISDS in TTIP, why are you still supporting it? It's undemocratic and it will ruin the whole economy of the EU.

a

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