The European Commission has published a negotiation draft of the hotly debated investment chapter which is to become a key part of the proposed Transatlantic Trade and Investment Partnership (TTIP) between the EU and the US. If completed, the TTIP would be the largest bilateral trade and investment pact ever negotiated. Following consultations with the European Parliament and the EU Member States in the European Council, the draft text will be presented formally to the United States. 

Following a public consultation and an unfavourable position adopted by the European Parliament, the European Commission abandoned an earlier proposal to entrust investment disputes between an investor and a host State or the European Union to determination by ad-hoc arbitration tribunals, the customary forum for resolving investment disputes. Instead, the European Commission is proposing the creation of permanent first-instance and appeal tribunals comprising publicly-appointed judges serving one or two six-year terms. The standing first-instance court would be composed of fifteen permanent judges appointed jointly by the EU and the US. Five judges would be EU nationals and five would have US nationality, to be supplemented by another five nationals from third countries. Three judges would be assigned randomly to an individual case and the panel would be chaired by a third-country judge. The permanent appeal tribunal would comprise six judges. Of those six judges, two would be EU nationals and two would have US nationality, with another two nationals originating from third countries. The appeal tribunal would sit in a three-member format. 

Under the current proposal, in contrast to arbitrations conducted under the traditional investor-State dispute settlement mechanisms, the investor-claimants would have no role in the formation of the arbitral tribunal in a given case. Any claims would still be heard under the International Centre for Settlement of Investment Disputes (ICSID), UN Commission on International Trade Law (UNCITRAL) or other arbitration rules agreed by the disputing parties. The proposed appeal grounds are limited and the appeal proceedings cannot exceed 270 days. The draft text clarifies that the arbitrators are to apply the provisions of the TTIP in accordance with international law. As in the current ICSID system, TTIP awards would not be subject to any review by the national courts. 

In respect of the traditional investment protection standards, such as fair and equitable treatment, the Commission’s draft text reflects the evolution of the jurisprudence arising from investor-State disputes. The proposal makes it clear that the investment protection standards shall not be interpreted as a commitment from governments not to change their legal framework, including in a manner that may negatively affect the operation of covered investments or the investor’s profit expectations. The draft text also clarifies that the investment protection standards shall not affect the right of the state signatories to regulate in the public interest in order to achieve legitimate policy objectives such as the protection of public health, safety, environment or public morals, social or consumer protection or promotion of cultural diversity. 

The draft text responds to growing ethical and transparency concerns that have dominated public debate in recent years. For example, a disputing party is required to disclose to the other party and the tribunal if it is third-party funded. The recently adopted UNCITRAL Transparency Rules would apply to investment disputes and add certain transparency obligations. 

If adopted, the proposed investment court system would herald a new era in investor-State dispute settlement. The European Commission has announced that, in parallel with the TTIP negotiations, it will start work, together with other interested countries, on the establishment of a permanent International Investment Court. 

The full draft text is available here.