The Commission proposal to drop ISDS in favour of an independent permanent court addresses a key concern about TTIP. However, major obstacles remain for the negotiating process and its acceptance by key civic actors.

On September 16th, the European Commission responded to widespread concerns about the Investor State Dispute Settlement (ISDS) clause in the Transatlantic Trade and Investment Partnership (TTIP) agreement currently under negotiation by proposing a new Investment Court System. Its move was prompted by the European Parliament’s (EP) rejection of the clause in July, and although the EP cannot amend the agreement, any TTIP deal will need to pass its vote of approval.

Under ISDS, foreign companies can take host countries to court whenever they feel new legislation changes the legislative environment in the host-country in such a way that it impinges on their ‘reasonable expectations of turning a profit’. The key objections to the traditional clause is that the proceedings would take place in a private court, populated by corporate lawyers, that operates outside of public view, and that there is no possibility of appeal to a higher court.

The proposed Investment Court System addresses this by instituting a public system with independent judges and supplementing it with an Appeal Tribunal operating like the Appellate Body of the World Trade Organisation. The Commission promises this ensures transparency and public accountability.

Moreover, the Commission will seek to set up an international court for investment. A key element is that judges would be appointed by a joint committee of EU and US authorities on a permanent basis, instead of being chosen by the defender and the claimant on a case-by-case basis. This would remedy concerns about lawyers acting as judges in one ISDS case and suing for multinationals in another.

Mixed effects on TTIP’s chances of success

Over the past months, public outcry has centred on the ISDS clause, which was portrayed as exemplifying the unduly strong influence of multinationals and corporate lobbying on the negotiations. The Commission’s proposal will make it harder for detractors to frame the agreement as a corporate ‘Trojan Horse’ aimed at breaking down legal protections for anything ranging from environmental regulations to worker protections.

Conversely, it will strengthen those who argue that TTIP will set a global ‘Gold Standard’ for future investment agreements with major trading partners that have less well-developed legal regimes. Commissioner Malström has indicated that this is one of her goals.

All this will serve to improve TTIP’s chances of success in the European Parliament. Indeed, the proposal has been welcomed by Bernd Lange, chairman of the EP’s Trade Committee and member of the S&D grouping whose support is critical in guiding any TTIP deal through Parliament.

At the same time, American businesses have already signalled their opposition to the reforms, with the US Chamber of Commerce arguing that the reforms undertaken by the US in its own trade agreements are a “far superior starting point” as negotiations go forward.

Criticism will shift focus

While criticism about investor arbitration may be mollified for the moment, public outcry will be far from quelled. Instead, the focus is likely to shift to a major concern that has not been addressed by the Commission’s revised proposal: TTIP’s potential to lower standards on anything ranging from food quality to product safety and workers rights.

The Commission has emphatically denied that TTIP may lower European standards. Many NGOs nevertheless claim the deal would allow a new generation of GMOs to escape EU legislation which requires them to pass a strict approval process before being allowed on the European Common Market.

Moreover, trade unions on both sides of the Atlantic fear TTIP will have adverse effects on job security, as multinationals will threaten to move production unless regulations are eased, setting off a regulatory “race to the bottom”. American unions in particular fret about losing jobs to Eastern Europe where wages are lower.

It is not hard to imagine concerns like these dominating the news as the process goes forward.

The next round of TTIP-negotiations will be held in the US in the second half of October. Negotiators have understandably grown less optimistic about turning TTIP into a success. There’s still a long way to go.