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Proposed TTIP investment court system divides opinion
17/03/2016
Arbitration analysis: In November 2015, the European Commission finalised proposals for a new system of
investor-state dispute settlement (ISDS) in the EU-US free trade agreement, known as the Transatlantic Trade and
Investment Partnership (TTIP). Tom Cummins, partner, and Thomas Karalis, senior associate, at Ashurst look at
the reactions to these proposals.
Briefly, what would the investment court system in TTIP look like?
The thrust of the Commission’s November 2015 proposals is to bring ISDS closer to a permanent court-type system
through the creation of an ‘Investment Court System’ (ICS) comprised of a Tribunal of First Instance and an Appeal
Tribunal. Disputes will be heard by publicly appointed judges—not arbitrators—who must have qualifications comparable
to those found in national domestic courts. The proposal also provides for the creation of an appellate mechanism which
will include the ability to appeal on points of law and manifest errors in the appreciation of facts, in addition to annulment
type appeals on procedural grounds.
The proposals include other substantive and procedural innovations. Crucially, they also contain a provision aimed at
safeguarding governments’ right to regulate in the public interest.
How have these proposals been received in the Member States? What do the
proponents/opponents say?
The Commission, supported by a number of governments (including Germany and the UK), believes it has struck the right
balance between protecting investors’ rights and safeguarding the governments’ right to regulate and determine policy.
Opponents have, however, been more vocal, taking the view that the proposals do not go far enough. ICS still represents
a system where investors have remedies against states not open to ordinary citizens. In a recent opinion, the German
Association of Judges (DRB) criticised the Commission’s proposals to establish an ICS, stating that it sees neither a legal
basis nor a need for it. According to the DRB, the courts of the EU Member States are able to grant effective judicial
protection. There is no need for special courts for certain groups of litigants.
Why do the policy makers think such a system is necessary, what are the concerns?
The current ISDS system is seen by governments as a ‘private justice’ system favouring investors. There are no
guarantees over arbitrators’ qualifications, and the appeal options if the arbitrators get their decisions wrong are limited.
Concerns often arise over arbitrators’ impartiality due to their often acting as legal advisors in similar cases.
A number of NGOs and consumer bodies who are fierce opponents of ISDS see it as a means for powerful multinationals
to challenge food safety and environmental laws against the public interest.
Does the EU have the power/competence to create such a system?
After the entry into force of the Lisbon Treaty, the EU has exclusive competence on foreign direct investment (FDI).
Certain Member States have objected that investment protection (including ISDS) does not fall within FDI. To clarify the
issue, the Commission has requested an opinion from the Court of Justice in the context of the EU-Singapore Free Trade
Agreement (FTA). The Court of Justice has yet to render its opinion. The Commission commented that the opinion will be
specific to the Singapore FTA. In relation to the TTIP, it added that ‘there will most likely be a number of elements that will
require ratification by national parliaments’—however, the Commission did not specify which aspects of the TTIP it
believed would require ratification.
Concerns have also been raised as to whether the ICS trespasses into the Court of Justice’s jurisdiction—the Court of
Justice being the sole court that can rule on the validity and interpretation of EU law. The Commission has rejected calls
to request an opinion from the Court of Justice on this question.
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What are your predictions for the future in relation to this? Are there any detectable trends?
The desire to conclude the TTIP before Mr Obama leaves office in January 2017 is strong on both sides of the Atlantic.
The Commission’s proposals can be seen as an attempt to break through with the negotiations, while appeasing fierce
public opposition against the ‘unpalatable’ old-style ISDS. Long term, the Commission’s aspirations are for a permanent
multilateral investment court.
In a statement, the US Chamber of Commerce commented that the Commission’s proposals are ‘deeply flawed’.
However, the EU has already been successful in reaching agreement to include the new approach on investment
protection and ISDS in agreements negotiated with Canada and Vietnam. As for the US, it has already agreed to
provisions such as enhanced safeguards on governments’ right to regulate in the recently concluded Trans Pacific
Partnership Agreement. The gap is therefore not as large as it may at first seem—although there remains much to do to
achieve a deal under the present US administration.
Interviewed by Jenny Rayner.
The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor
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