Malmstroem Gains Investment-Clause Momentum for TTIP

European Union Trade Commissioner Cecilia Malmstroem picked up support from EU lawmakers for her proposals to set checks on investment protection in any free-trade agreement with the U.S., signaling the possible resumption of trans-Atlantic talks on the matter.

Members of the European Parliament’s trade committee praised Malmstroem’s ideas for crafting provisions on Investor-State Dispute Settlement, or ISDS, in any EU-U.S. commercial pact. An ISDS clause would allow foreign investors to use arbitration panels instead of domestic courts to make claims against a national government when an investment is harmed, for example through expropriation.

Such a clause is controversial in some EU capitals because of the limits it could place on European governments’ ability to regulate in the public interest. In a bid to allay concerns that led the EU last year to suspend deliberations on the issue with the U.S., Malmstroem in recent weeks has outlined ways to protect the right to regulate, to ensure the independence of arbitration tribunals, to enable appeals against ISDS-tribunal decisions and to rule out parallel claims by investors through domestic judicial systems and ISDS.

“This is really a big and correct step in the right direction,” Bernd Lange, the German chairman of the EU Parliament’s trade committee, told the panel on Wednesday in Brussels. “I think many fears have been addressed.”

Both Sides

Deliberations on ISDS may signal the speed and ambition of the planned Trans-Atlantic Trade and Investment Partnership, or TTIP, which the EU and U.S. began negotiating in 2013 in an effort to expand the world’s biggest economic relationship. Any draft TTIP deal, much of which both sides are pushing to be ready by year-end, would need the support in Europe of the EU Parliament and member-state governments.

The European Commission, the 28-nation EU’s executive arm, completed a public consultation on the merits of negotiating an ISDS clause in TTIP in January, when Malmstroem said the step faced “huge skepticism” in Europe while being “very important” to the U.S. At the same time, she vowed to hold an “open and frank discussion” on the issue with EU lawmakers and European civil society before making policy recommendations.

Malmstroem, a Swede, outlined her proposals in a speech in mid-March and they became the basis of a commission “Concept Paper” on ISDS released on Tuesday.

On the right to regulate, the commission proposes including an article in the TTIP text referring to the right of governments “to take measures to achieve legitimate public-policy objectives, on the basis of the level of protection that they deem appropriate.”

Disputing Parties

With respect to tribunals, the commission calls for a requirement that all arbitrators be selected from a roster pre-established by the parties to the agreement. The actual choice would be made either by lot or by the disputing parties.

On the question of appeals, the commission proposes to establish a “bilateral appellate mechanism for ISDS,” possibly modeled on the World Trade Organization’s appellate body.

Regarding the risk of parallel claims by investors, the commission says they should be forced to make a “definitive” choice between ISDS and domestic courts at the outset of any legal proceedings and/or to waive their right to go to domestic courts once they submit a claim to ISDS.