Malmström to unveil investment dispute plan for TTIP

The EU’s trade commissioner says it is time for change for ISDS, the trade deal’s most contentious issue.

The European Union’s top trade official is headed for a big moment this week on a controversial U.S.-EU trade provision that has come under attack by the likes of Sen. Elizabeth Warren and other high-profile lawmakers.

The so-called investor-state dispute settlement clause, which would allow corporations to sue foreign governments over actions that harm their investments, has attracted fierce criticism on both sides of the Atlantic, spurring European Trade Commissioner Cecilia Malmström to make it a top priority in discussions with U.S. and EU officials.

“ISDS is now the most toxic acronym in Europe,” Malmström said on Monday at the Center for Strategic and International Studies before meeting with U.S. Trade Representative Michael Froman to discuss the proposed Transatlantic Trade and Investment Partnership, which would account for nearly half of the world’s gross domestic product.

Although the dispute clause is a standard feature of trade agreements, critics, including Warren and many others in Congress, have latched onto it as a symbol of how trade agreements are tilted to favor big corporations at the expense of average citizens.

“The name may sound mild, but don’t be fooled,” the Massachusetts Democrat said in a recent op-ed in The Washington Post. “ISDS would allow foreign companies to challenge U.S. laws — and potentially to pick up huge payments from taxpayers — without ever stepping foot in a U.S. court.”
The public backlash in Europe on the issue has undermined support for the TTIP agreement. To soothe concerns, the EU suspended negotiations on the investment provision of the pact in January 2014 to thoroughly re-examine the issue.

Now, months after completing the review, Malmström is expected to present the European Commission’s proposal for revamping ISDS to members of the European Parliament and trade ministers from the 28 member states later this week.

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“Everyone agrees, I think, that there is a need to protect investment,” Malmström told POLITICO Pro on Monday evening.

“But in the past, there was more focus on companies” than on ensuring that trade and investment agreements don’t undermine the rights of governments to regulate in areas like health and the environment, she said. “Even if there has not been big cases won, the fact that they are there makes many people worried, so we need to reform.”

The former Swedish politician, who has been on the job for about six months, emphasized the proposal would apply to more than just the TTIP talks with the United States.

“This will eventually be our position on ISDS for the future,” Malmström told POLITICO. “We are negotiating with a lot of other countries as well and opening with even more in the future, so this would be our view on how [ISDS] should look.”

That plan could include an idea put forth by Germany of creating a permanent trade court between the EU and the United States, with public proceedings and an appeals process to replace the existing system, in which arbitration panels settle disputes on a case-by-case basis.

“We have of course talked a lot with the German government,” Malmström said when asked about that proposal. “I think many of our ideas are corresponding. We have looked at the idea of creating some kind of international court mechanism in the long term.”

That’s “not something you create over the weekend. You have to start to discuss it with our American partners and then with others,” Malmström said. But hopefully the TTIP agreement would move both sides “in the direction” of creating such an institution, she added.

However, whatever reforms she proposes won’t satisfy some critics who believe ISDS should be stripped from the pact.

Business groups in both the EU and the United States want keep the provision, which was considered relatively uncontroversial when it was included in the negotiating mandate approved by the EU member states in 2013. But public opinion in some member states, including Germany, has turned sharply since then.

“The German position is very anti-ISDS,” said Heather Conley, director of the Europe program at CSIS. “Other states are concerned, but not at that level. She’s got to manage and find the European approach and then after that, she’s got to turn to the U.S. which is extremely reluctant to reform this instrument.”

One high-profile case that has driven international concern about the mechanism is Philip Morris’ challenge of Australia’s plain-packaging laws to fight smoking. The U.S. tobacco giant has used the ISDS provision of an investment treaty between Australia and Hong Kong to contest plain-packaging — which removes a company’s branding from tobacco packages — as a form of government expropriation.

The investment provision is just one of many difficult issues dogging the TTIP talks, which began under the cloud of Edward Snowden’s revelations about National Security Agency surveillance. Malmström said the havoc caused by the 2008-09 global financial crisis, which many in Europe believe was caused by big corporations acting irresponsibly, has also fueled suspicions of the agreement.

The two sides will hold their 10th round of talks on the proposed trade deal in Brussels in July, which Malmström said she hoped would wrap up most of the technical issues and set the stage for political hard bargaining this fall in difficult areas like agriculture, energy, government procurement and services trade.

“The aim is to finalize it within the Obama administration,” she said. “That is my clear aim and that is the aim of Ambassador Froman as well, very clearly. But whether that’s really possible or not, it’s too early to tell,” partly because of the uncertainties caused by next year’s U.S. presidential election.

But Malmström, who is serving a five-year term as trade commissioner, said she would keep pushing for a deal no matter how long it takes or who’s in the White House. “I’m here until November 2019, so I have time,” she said.

This article was first published on politico.com’s Politico Pro.