This week, the Trade Commissioner Cecilia Malmström presented her proposals for reforming the controversial Investor-state dispute settlement (ISDS) in TTIP in the EU Parliament. At the same time, the German Ministry of Economics published its model of a permanent international “investment court“, which should replace ISDS in the trade agreement with the USA. Parliament, which is supposed to vote on the TTIP Negotiation recommendations on June 9, continues to remain divided.

Criticism of ISDS shows effect

As already stated, the European Commission this week reacted to the massive criticism of ISDS expressed by employee representations, civil society organisations as well as the media and the broad public. The EU authority identified four points, which required improvements compared to the current proposal. These include establishing the right of countries to regulate, the selection of arbitrators from a previously established “pool” of qualified legal practitioners, establishing an appeal mechanism and the avoidance of double action via ISDS arbitration courts and national legal systems. In the long term, one would have to consider an ordinary court, which could also be open to other trade agreements.

Vice Chancellor Gabriel publishes alternative proposal on ISDS

Almost at the same time, the Federal Minister for Economic Affairs and Energy Sigmar Gabriel published a detailed proposal for the creation of a permanent international investment court, which had been prepared by Markus Krajewski, Professor of Public and International Law. Apart from a “Right to Regulation”, Gabriel is backing non-discrimination standards for foreign investors. Instead of ad hoc arbitration courts of the ISDS system, investor protection shall be guaranteed by bilateral courts with own judges, which are also subject to examination by a supervisory body yet to be established. Similar to the Malmström proposal, the Minister argues the case for a mechanism, which makes multiple actions via ISDS and national systems impossible. Following a meeting of Social Democrat ministers in February, Gabriel is hoping for support from France, Sweden, The Netherlands, Luxembourg and Denmark.

Parliament tends to be critical; AK continues to reject ISDS

The positions remained almost unchanged during the presentation of the ISDS reform by the Commissioner in the European Parliament. Whilst the reaction of EPP shadow rapporteur Godelieve Quisthoudt-Rowohl to Malmström's proposals by was rather reserved and she in particular called a permanent court a long-term objective, both the Left and the Greens continued to voice their opposition to ISDS – even as a reformed version. Investment protection would be an unnecessary privilege for companies; instead one had to talk above all about how one could hold them responsible in case of misconduct in respect of employment, environmental and tax issues. The Social Democrat committee chairman Bernd Lange basically welcomed most of Malmström’s proposals; however, he saw some need of clarification among other with regard to the relationship of ISDS-new to the national legal systems and to the necessary equality of foreign and domestic investors. The former should not be favoured by ISDS. In addition, one had to consider to impose certain duties (e.g. in the social sector) on the “users” of ISDS. Jörg Leichtfried (SPÖ), who was introduced by the chairman as the “critical voice of Austria”, also warned against the preference of foreign investors and emphasised that in a “new” ISDS system “arbitrators” had to be replaced by independent “judges” with appropriate qualifications.