The European Commission on Wednesday (16 September) unveiled plans to let firms challenge government decisions in a special court as part of a larger free trade pact with the US.

Its proposal says the “investment court system”, to be set up jointly with the United States, would be presided by a panel of 15 judges and include an arbitration tribunal.

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The introduction of judges and arbitration marks a change from the alternative model, the much-loathed ISDS (investor-to-state dispute settlement) mechanism, which typically makes decisions via panels of three arbitrators, hand-picked by the opposing sides.

“We want to establish a new system built around the elements that make citizens trust domestic or international courts”, said EU trade commissioner, Cecilia Malmstrom.

Malmstrom, who is steering EU talks with her American counterparts on an EU-US trade agreement (known as TTIP), said the new court would seldom be used.

“I foresee not very many cases”, she said.

It would include a tribunal of first instance composed of 15 judges, five each from the EU, the United States, and a third country.

Individual judges hearing a particular case would be selected at random. Judges are to get a retainer fee per month to ensure availability and a fee for the number of days they have worked on a specific case.

“The judges do not get a percentage of the final award, that is absolutely not the case”, said a commission official.

There is no set location of the court. It can take place in Brussels, Washington, or EU member state capitals. Hearings would be made public and all documents put online.

Grievances brought to the court by firms would be limited to areas like expropriation, losses linked to war or armed conflict, and government contractual obligations.

The wider plan is to have the new EU-US court grow into a global, multilateral tribunal.

“Rather than have a bilateral court with China, we would get to the stage where we would have a single multilateral investment court that could serve as a court for all these potential disagreements”, said a commission official.

ISDS

First used by the Germans with Pakistan in the 1950s, ISDS was set up to protect the rights of companies by ensuring arbitration standards in countries with questionable legal systems.

The past 15 years have seen hundreds of foreign investors suing countries and reaping billions.

The threat of an ISDS dispute, has in some cases, also been used to coerce governments into changing or repealing regulation that could undercut corporate profit.

Critics say, among other things, that foreign investors deserve no special treatment outside existing domestic court systems.

“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”, said French Green MEP Yannick Jadot.

Greenpeace’s Jurgen Knirsch described it as a “two-speed justice system” that benefits multinational corporations.

Last nail in the coffin

But others, like the centre-right, socialist and liberal groups in the European Parliament, back the commission proposal.

Bernd Lange, the centre-left German MEP who heads the file at the parliament, praised the commission court proposal and described it as “the last nail in the coffin for ISDS”.

The Belgian leader of the liberal group, Guy Verhofstadt, said an alternative to ISDS is needed and welcomed Malmstrom’s proposal.

"Today's announcement shows the Commission is responding to the legitimate concerns of the European Parliament and European citizens”, he noted.

The commission will next discuss its plan with the European Parliament and member states before presenting a formal text to the US.