EU calls for global trade disputes court

The EU has called for the establishment of a global arbitration court to hear disputes between foreign investors and governments in a bid to defuse what has become the biggest controversy surrounding trade negotiations in the world.

So-called "Investor-State Dispute Settlement" mechanisms (ISDS), which allow foreign investors to bring governments before arbitration panels if they feel that they are being discriminated against, have been a part of trade and investment treaties for decades.

But they have become increasingly contentious in recent years owing to their increasing use by companies to challenge government regulations.

Opponents of transatlantic negotiations between the EU and both Canada and the US have mounted campaigns against the inclusion of ISDS provisions. So too have those fighting against the almost concluded Trans-Pacific Partnership between the US, Japan and 10 other economies.

Unveiling an EU position paper on Tuesday, ahead of discussions this week with both the European parliament and EU leaders, Cecilia Malmstrom, the EU's trade commissioner, said she believed the current system of investor protection was "not fit for purpose in the 21st century".

"We need a robust and serious reform of investment dispute resolution, because it's an important part of global investment policy," she said in a blog post.

"Europe is the biggest investor and recipient of foreign investments in the world. It only makes sense that we lead the way to reform, and set out our vision for better rules on a global scale."

The EU last year suspended negotiations over investment issues with the US while it conducted a public consultation on the issue of ISDS, which led to the proposals unveiled on Tuesday.

Among the reforms proposed by the EU is the creation of appeals processes for investor cases in future trade agreements and moves to ensure greater transparency for proceedings. But the position paper released by the EU on Tuesday also calls for what would be the biggest shake-up of the international arbitration system in decades.

"The EU should pursue the creation of one permanent court [to hear investor-state disputes]," officials wrote in the paper released on Tuesday. "The objective would be to multilateralise the court either as a self-standing international body or by embedding it into an existing multilateral organisation."

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Many investor disputes with governments are now heard at the World Bank's International Centre for Settlement of Investment Disputes (ICDS), which was established in the 1960s.

But neither the EU position paper nor Ms Malmstrom on Tuesday mentioned ICDS, however. Instead, they said work had already begun on what sort of "architecture, organisation, costs and participation of other partners" would be involved.

The proposal by the EU will put pressure on the US, which is facing its own political battles over trade.

A spokesman for the US trade representative's office declined to comment on the EU proposal on Tuesday.

President Barack Obama and senior members of his administration, however, have been forced to fight back hard against criticisms of the ISDS system in recent weeks as he has fought to secure "fast-track" authority from Congress to conclude the TPP and other trade negotiations.

In a conference call with reporters last month Mr Obama acknowledged that some criticism of the system had been legitimate.

But he called the existing infrastructure "a neutral arbitration system" and stressed it had been in place for decades. He also dismissed critics' charge that ISDS provisions could be used to undermine either financial or food safety regulations.

"That's just bunk. It's not true," he said.

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