German judges slam EC proposals to reform ISDS

Diego Zuluaga // 05.02.2016

The German Association of Judges has rejected the European Commission’s proposals for a separate public court to handle investment disputes. This reform to the system, introduced by Trade Commissioner Cecilia Malmström last year to try and overcome the opposition of campaign groups to the TTIP free trade agreement, would replace the existing model of private arbitration between states and corporations with a public system. This is intended to bolster transparency and accountability, although, as EPICENTER research has shown, there is little reason to believe the current system is rigged against governments: as of the end of 2013, 43 per cent of cases handled by the private arbitration system had concluded with rulings in favour of the state, versus 31 per cent in favour of the investor and another 26 per cent settled.

The German judges’ response highlights some of the problems of the Commission’s half-baked solution: As they state, there is “neither a legal basis nor a need” for such a system. Furthermore, “the creation of special courts for individual groups of plaintiffs is the wrong path” to follow.
From our perspective, the statement also underlines how unnecessary such a reform would be. The Commission’s proposal came following months of misleading and downright untrue attacks on the prevailing system of private arbitration by anti-trade interest groups. A cursory look at the evidence, on the other hand, belies the claim that private arbitration courts are designed to promote corporate interests. Indeed, if anything, the existing investor-state dispute settlement (ISDS) regime shows that private governance mechanisms can mediate legal disputes in a satisfactory way, without the need for public courts to take over their role.

The German judges’ statement could well mean the still birth of the Commission public arbitration proposal. It underscores the perils of policy-making on the basis not of evidence and legal argument, but rather in response to the pressures and shrieking of activist groups.

Diego Zuluaga is Head of Research of EPICENTER.

EPICENTER publications and contributions from our member think tanks are designed to promote the discussion of economic issues and the role of markets in solving economic and social problems. As with all EPICENTER publications, the views expressed here are those of the author and not EPICENTER or its member think tanks (which have no corporate view).


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