Malmström’s “new” ISDS: Same same but different

Cecilia Malmström, EU Commissioner for Trade, presented on May 6th a handful of cosmetic proposals to the Investor-State Dispute Settlement (ISDS) mechanism. ISDS has been a central point of the ongoing discussions about the controversial Transatlantic Trade and Investment Partnership (TTIP) agreement, currently being negotiated between the U.S. and the EU. Malmström’s “new” ISDS reminds us of a Thai turn of phrase, “same same but different“.

ISDS is a widely criticised dispute settlement mechanism giving companies the right to sue EU member states in front of international arbitration tribunals, rather than in national courts. This extrajudicial system could result in giving private companies more power to sue member states that are reforming their legislation, and could ultimately pose a challenge to national sovereignty. (You can read more about the impact the ISDS could have on internet users’ rights here.)

Last year, when the European Commission launched a public consultation on ISDS, more than 90% of the respondents called for excluding such as mechanism in the TTIP (read Access’ input here). Commissioner Malmström has chosen to ignore this result and is now introducing a new proposal for an ISDS, outlined in a concept paper.

The paper elaborates on four areas to reform the ISDS: 1) the protection of government’s’ right to regulate, 2) creation of an appellate mechanism, 3) the prevention of potential conflicts of interest between judges and companies or states bringing a case, and 4) addressing the relationship between ISDS and domestic courts.

The paper promotes the concept of a “new EU approach” on ISDS. While the European Commission aims to include this window-dressed ISDS in the TTIP and all future EU trade agreements, it does not plan to reopen negotiations on the trade agreements that already include ISDS, such as the recently concluded CETA or EU-Singapore FTA. This new “approach” already appears to be lacking consistency and continues to fail to address the result of the public consultation clearly rejecting the ISDS mechanism.

Reactions to this proposal have been muted: numerous MEPs, as well as campaigning organisations, did not see anything other than a consensual statement aiming to facilitate the public debate. While some have welcomed the EC’s apparent desire to reform ISDS, its declaration of intent has been described as lacking clear proposals for tackling the opacity and extra-judicial issues that current ISDS mechanisms pose.

Across the pond, Malmström’s statement did not get enthusiastic support either. Quite the opposite, actually: Stefan Selig, U.S. Undersecretary for International Trade at the Commerce Department, notably declared that there is no reason not to stick with current ISDS mechanisms, and rejected altogether potential reforms and the idea of a permanent court. As much as this reaction is not a surprise, it could give the EC the opportunity to back away from Malmstöm’s already speculative proposals.

Meanwhile, in the U.S., public debate on ISDS has emerged due to the discussions about the highly controversial Trade Promotion Authority Bill. Senator Elizabeth Warren, followed by U.S. presidential candidate Hillary Clinton, have recently taken a strong stance against this mechanism, denouncing the overwhelming power that it would give to corporations and calling for its exclusion from every U.S. trade agreements.

Next steps

Following the presentation, Malmstöm and the EU negotiators will now develop a new legal document on investor protection based on the concept note. This legal text will likely be presented to the EU member states before the summer break. They will have to adopt this ISDS 2.0 before it can be introduced to the U.S. negotiators.

The two-year anniversary of the launch of the TTIP negotiations is soon approaching — June 17 — so stay tuned for updates.

Contibution by Justine Chauvin.