One of the biggest bones of contention in the Transatlantic Trade and Investment Partnership talks centres on the proposed Investment Court System. Critics are concerned that the ‘investor-state dispute settlement’ mechanism could weaken the power of governments to act in the best interests of their people. Whilst the EU Commission has sought to allay critics with a reform of the system, Nicolette Butler argues that it is flawed.

 A highly contentious issue

As the 13th round of the Transatlantic Trade and Investment Partnership (TTIP) negotiations takes place in New York this week, the potential inclusion of investor-state dispute settlement (ISDS) continues to be a highly contentious issue.

ISDS is designed to allow businesses to sue foreign governments over claims of unfair treatment and to be entitled to compensation but it continues to attract the attention of commentators, non-governmental organisations (NGOs) and civil society groups. Giving foreign investors the opportunity to, in effect, sue investment host state governments caused such public outcry that the European Commission suspended negotiations on investment protection within the TTIP agreement in order to carry out a public consultation in Spring/Summer 2014.

In response to the many criticisms of ISDS, the EU Commission proposed the establishment of an ‘Investment Court System’ (ICS) in September 2015. More detail emerged on the proposal in November of last year, when the Commission published its draft text on investment in TTIP.

The devil is in the detail

The Commission is brandishing the Investment Court System as a highly innovative proposal which would cure most, if not all of the ills associated with ISDS. However, a close inspection of this text reveals that the proposal does not constitute the radical reform of ISDS that the Commission is touting. Indeed, a comparison of the EU draft text on investment and the USA’s 2012 model bilateral investment treaty (BIT), which represents the US favoured ‘traditional’ approach to investment protection provisions, reveals a rather narrow gap.

The ICS proposal deviates from the ‘traditional’ approach to ISDS in three main ways:

Firstly, court vs tribunal – what’s in a name? The selection of the title ‘court’ is a very deliberate move on the part of the EU Commission, in order to silence the TTIP ISDS critics. However, in this case, the title ‘court’ is a little misleading. The  proposal describes a process which is still very similar to traditional ISDS procedures and which is heavily reliant on arbitration instruments. This is highly undesirable, as the Investment Court System should be distinct from ISDS and the criticisms it has attracted.

Secondly, the appointment of so-called ‘judges’.  In traditional ISDS disputes, three arbitrators are selected by mutual agreement of the aggrieved investor and the allegedly breaching state. With this proposal, the EU Commission proposes that a standing roster of 15 judges should be selected by the US and EU authorities. A pre-requisite to become a judge is that the candidate must be eligible for appointment to judicial office in their own state or be “jurists of recognised competence” with expertise in public international law. This requirement is problematic, as in some states becoming a judge is a separate career (as opposed to states in which lawyers progress to become judges). This may exclude a significant number of suitable potential candidates.

Additionally, judges will be paid a monthly retainer fee as well as a daily rate; this will be funded by the US and EU authorities equally. Such state funding might be tough to secure and to predict, given that the caseload of the new system is an unknown quantity and paying judges to do nothing would be a waste of the tax payer’s money. Furthermore, with the retention of daily fees, judges are still likely to have an interest in a case dragging on. With an ethical code of conduct heavily limiting what other work judges can undertake, the job is likely to be unattractive to many well qualified ‘jurists’ who will be able to earn much more as counsel, for example.

Thirdly, the appeal mechanism. Under the proposal, a tribunal of ‘first instance’ (comprised of three judges) will issue a decision in a particular case. If one, or indeed both parties are unhappy with the decision, they will be able to apply for appeal on issues of law, fact or on the grounds of abuse of procedure. This is an extremely wide set of grounds on which appeal may be launched, and this may result in the losing party simply appealing every case as a default. This could lead to lengthier and more expensive proceedings, as well as a backlog of cases due to a potentially heavy appeal-related caseload.

In terms of the procedure, the appeal will be heard by an appeal tribunal which will consist of three appellate judges. Judges will be selected from a permanent appeals tribunal roster of six members. Appeals tribunal members must have the same qualifications/standing as members of the tribunal of first instance and are paid in the same way (monthly retainer and daily fee). The same problems as above could be repeated in terms of appeal member qualification and payment.

Style over substance

The Investment Court System proposed by the EU Commission appears to have been designed purely to silence the critics of ISDS. However, the Commission has further entrenched arbitration into investment dispute settlement by failing to propose a true ‘court’. In my opinion, the Commission has failed to address the fundamental problems with the system such as the fact that it is discriminatory against domestic investors and fragmented in nature and that it has actually potentially created new ones like the roster system for ‘judges’.

Critics should not be fooled by this proposal, which clearly prioritises style over substance. Whilst the discourse surrounding investment dispute settlement is undoubtedly important, it should not be allowed to overshadow other issues which are also of great concern within the negotiations, such as regulatory co-operation (see my colleague’s post on this issue).

Taken together, these provisions risk undermining the ability of governments to take measures in the public interest in a wide range of areas – from environmental regulation to laws protecting public health – if these imply an additional cost to business. And that’s something all governments should avoid sleeping-walking into.

• This blog post draws on a policy paper written by the author and funded by an ESRC Impact Accelerator grant (‘A TTIP-ping Point for Democracy? Demystifying and Shaping the Transatlantic Trade and Investment Partnership’) jointly held with Dr Gabriel Siles-Brügge from the University of Manchester Politics Discipline Area.