A number of problems with investor-state dispute settlement (ISDS) were outlined by legal experts during a 1 April hearing in Brussels of the International Trade Committee (INTA) of the European Parliament in its last session before the European elections. And the European trade commissioner said he would agree to open the Transatlantic Trade and Investment Partnership (TTIP) talks and to drop ISDS from the TTIP if the United States would agree.

EU Commissioner Karel De Gucht, during a later meeting with the committee, pointed to strong US interest in the ISDS regime, and at the same time blamed the US for limitations in transparency of the TTIP negotiations.

Even transparency with the EU institutions is a difficult topic, De Gucht explained, stating, “The US is against transparency in a way we look at it.” In the US, there is a reading room arrangement where members of the US Congress (no staff permitted) have to leave empty-handed.

“This is not our practice,” De Gucht said, adding, “I have even more problems with the Council on this than with the Parliament.” When technicians in the capitals cannot take a look at bracketed documents, “it drives them mad,” he said.

Discussions with the US on the issue were pursued further, but “they are not easy on this,” De Gucht said.

At the same time, with regard to the EU negotiating mandate, it had been the Council that prevented publication of it. De Gucht said, “I am ready to give you the mandate” of the TTIP. The mandate is one of the texts that has been leaked anyway.

With regard to more transparency for the general public, De Gucht said the discussion is not always fair. He was afraid that draft EU positions put before the public would be taken as final EU positions. Referring to challenges of his repeated confirmations that no hormone beef would be imported the commissioner said: “I cannot afford to lie before Parliament. I can afford to not say the full truth, but I cannot afford to lie.”

In Search of a New ISDS

INTA devoted a two-hour session with trade law and constitutional law experts to ISDS. On ISDS, De Gucht pointed to strong US interests.

“[ISDS] is not a point of my religion,” he said. “If the United States agreed to simply drop it and have all the existing agreements so be it, but they don’t. I already submitted it to them and they don’t.”

De Gucht at the same time promoted ISDS. There are very good reasons to have an ISDS agreement “that is new, that has been rewritten, that is transparent, where you have an appellate body, where you can refuse arbitrators, and where you cannot litigate from place where you only have a post box,” he said.

The EU is interested in having ISDS agreements with China, Myanmar and many other countries, he said. EU companies, German companies in particular, have used ISDS extensively in the past.

Rupert Schlegelmilch, director in the cabinet of De Gucht, during an ISDS hearing earlier in the day underlined several “innovations” to the ISDS system pursued by the EU and presented now during the ongoing public consultation. According to Schlegelmilch, the innovations were no better treatment than national law treatment, a clear reference to the right to regulate and explanations of what constituted and what did not constitute indirect expropriation.

“We will make clear that an environmental law or health law which is non-discriminatory and is in the public interest, cannot be deemed to be an expropriation, unless it is excessive,” Schlegelmilch said. He also reiterated that there would be “no cases out of the public view,” a loser pays system, and no “treaty shopping.”

Nevertheless, the invited experts pointed to some concerns. A question to be answered is about the need for an ISDS regime between countries at the same stage of development where there is trust in the mutual legal system, said Prof. Pieter Jan Kuijper, University of Amsterdam.

While applauding the clarifications on indirect expropriation or fair and equitable treatment – as taken in the Canada-EU Trade Agreement (CETA) ISDS chapter presented by the EU Commission as the blueprint for the current ISDS consultation – it must be explained why exhaustion of national remedies is not made the standard, he said. Originally, the ISDS agreement was made to protect investment in countries with weaknesses in their judicial systems, Kuijper explained.

Kuijper also pointed to problems with overlaps between ISDS and rules of the General Agreement on Tariffs and Trade (GATT) and the General Agreement on Trade in Services (GATS), plus an overlap with IP-related rules and ISDS, as IP is defined in bilateral trade agreements as an investment. The overlaps have to be clarified and the relation between trade and investment chapters carefully monitored, he said.

Steffen Hindelang, Free University Berlin, recommended to allow for a “mandatory review process of draft awards” by state parties in a future ISDS regime. State parties, he said, should be able to send decisions back to the tribunals if they did not match their interpretation. That would also allow to block what Hindelang said was the “cherry picking” of previous awards that were “allegedly supporting a tribunal’s reading of a certain treaty provision.” The system of a “de-facto precedent” is especially risky with regard to distorting states’ original intents when signing the ISDS, Hindelang said.

Constitutional law professor Ingolf Pernice from Humboldt University Berlin warned against the ISDS overriding EU national legislation including national constitutional law provisions. Special effects of a harmonised ISDS, such as a “regulatory chill” on the one hand and a “super-protection privilege” for investors to turn to tribunals instead of the local judiciary, could result in tensions with EU law, Pernice explained.

Pernice therefore suggested that countries with highly developed judicial system adopt a more sophisticated and integrated system of protection for investors, a “European-model oriented system” where fast-tracked local remedies would be promoted by incentives.

“Perhaps it is not required that we have the same rules with China and the US,” he said.

Jeffrey D. Lewis, director of the International Trade Department at the World Bank, touching briefly on TTIP in his exchange with INTA members, said plurilateral agreements could give direction for future trade policies. At the same time, if the EU and the US agree, for instance, on a sanitary standard that developing countries could not implement for years, he said, “it might be trade damaging.”