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Media (FT): Arbitration may be dropped from EU-US trade deal, says Malmström

By Peter Spiegel in Brussels and Shawn Donnan in London. September 29, 2014 8:33 pm Find the article at the Financial Times.

The EU’s incoming trade chief on Monday raised the possibility that controversial investor protections which she described as politically “toxic” could be dropped from a new transatlantic trade deal, suggesting the pact could be less ambitious than Washington and Brussels had hoped.

Breaking with her predecessor, Cecilia Malmström, a Swedish Liberal, said a highly contentious arbitration system that opponents believe would allow international corporations to sidestep national courts may be left out of the EU-US trade deal despite an agreement last year to include it. Ditching arbitration would essentially mean a deal would not cover investment. “It is indeed a very toxic issue in this parliament and elsewhere,” Ms Malmström said at her confirmation hearing as EU trade commissioner before the European parliament. “Will it stay in [the EU-US deal]? I don’t know. Maybe not. But it is too early to judge on that.” The US said it remained committed to including investor protections in any EU-US trade pact, the latest round of negotiations for which got under way in Washington on Monday. “Our hope is that TTIP will set the standard for trade agreements around the world and we look forward to working with the new Commission,” said Trevor Kincaid, spokesman for the office of the US Trade Representative.

Vehement objections in Germany and the European parliament to the arbitration system, which would allow companies to use international dispute settlement panels instead of national courts to seek compensation, has caught advocates of the trade deal by surprise.

The EU has hundreds of similar arbitration systems in place – most prominently in a trade deal with Canada that is nearing completion – and the EU’s outgoing trade chief, Karel De Gucht, has forcefully defended their inclusion in the past. According to the United Nations Conference on Trade and Development, 568 cases have been brought under such arbitration systems around the world over the last 50 years, with 53 per cent of those cases launched by EU companies. The US accounted for 22 per cent of the cases. EU companies are behind many of the cases because EU governments have since the 1950s put in place hundreds of bilateral investment treaties with developing countries that allow for arbitration. But criticism of the system has become a rallying cry for Sigmar Gabriel, leader of Germany’s social democrats and the vice-chancellor in the German government. Jean-Claude Juncker, the incoming Commission president, has also publicly expressed scepticism about them.

In an interview with the FT last week, Mr De Gucht criticised Mr Juncker’s stance, accusing him of allowing political expedience to undermine a proven international trade practice.

“I do not understand at all that Mr Juncker has been making this statement in parliament,” Mr De Gucht said. “What is it useful for, apart from giving in to populism?” In a sign of how radioactive the politics surrounding the arbitration system has become, Ms Malmström on Monday was forced to disavow written answers submitted to the European Parliament under her name which promised “no investor-state dispute settlement mechanisms will be part of” the US deal. Ms Malmström said there was a technical error with the wording of her submission, but Marietje Schaake, an influential Dutch Liberal MEP, told the hearing she had evidence the text was personally written by Martin Selmayr, a German lawyer who will be Mr Juncker’s new chief of staff. Two people briefed on the incident confirmed Ms Schaake’s account, saying Mr Selmayr made the additions without Ms Malmström’s knowledge. A spokeswoman for Mr Juncker declined to comment on the original submission; a revised version was released Monday morning. In her testimony, Ms Malmström walked a delicate line on the arbitration systems, saying they should not be ruled out completely – but agreeing they could be improved. As a member of the outgoing European Commission, Ms Malmström approved of the system in the EU-Canadian deal, and defended it as a model that could be used for the US pact. But officials familiar with Mr Juncker’s thinking said he explicitly does not want the Canadian version imported into the US deal, the first sign of a possible rift between the president-elect and his new trade chief. Ms Malmström denied any disagreement. “He and I agree there are several problems with the [arbitration systems] as they are today,” Ms Malmström said.