The EU is one the world’s most active and vocal supporters of free trade and continues to push the envelope. One of its most ambitious projects is the creation of a multilateral investment court, or MIC. The commission claims it would be a major break from the flawed ISDS. But is that really true? 

The MIC focuses on procedural issues such as transparency, impartiality and accountability of judges. It doesn’t touch the crux of the matter: poorly phrased substantive investment provisions that can be detrimental to society. These provisions range from the definition of an investor, to fair and equitable treatment of a foreign corporation, and how legitimate expectation is now extended to potential future profits. Does a foreign investor really have the right to sue a government for putting in place carbon-cutting, climate change mitigation policy as required by the Paris climate agreement? Does the state really need to protect an investor’s potentially curbed earnings – even if such earnings would have come with a negative impact on the climate? We have argued – and continue to argue – that no, it does not.

The UNCITRAL meetings will focus on the creation of the MIC, the bricks and mortar of the court, without touching on an inherently unbalanced ‘judicial’ system. We fear that a huge amount of effort will be poured into mere cosmetic reforms instead of seeking to ensure truly democratic investment policy.

Importantly, in her 2017 Davos speech, EU Trade Commissioner Cecilia Malmström focused specifically on the MIC. It is clear that Europe, with the tacit support of Canada and a few others, is putting a lot of political capital into it. But while the process is well under way, the outcome is far from clear.

Commission must ‘hit the pause button’

A recent landmark case at the EU Court of Justice casts serious doubts about the legality of investment protection in trade agreements. In the Achmea case, the court found that the arbitration mechanism in EU internal bilateral investment pacts is incompatible with European law. The ruling makes it crystal clear that investment arbitration between two member states is illegal and must be dismantled, confirming what many – including Transport & Environment – have been saying for a long time.

The commission and some member states might claim that the Achmea case outcome cannot simply be rolled over to the investment court system, or the MIC, in free trade agreements. 

However, there is broad agreement among academics and arbitration representatives alike that the Achmea case can have far-reaching consequences. As such, the commission has a responsibility to hit the pause button on the development of an entirely new court until we have the outcome of a Belgian request to check the legality of the EU executive’s investment court system.

It would be reckless of the commission to pursue international negotiations on setting up a court that may well be deemed illegal at home. It wants to create a Versailles garden, but its own backyard is a landfill of questionable arrangements.

The MIC as it now looks is not fit for purpose. To avoid a cure that is worse than the disease, a number of red lines need to be addressed.

The commission needs to sort out its mess at home. What good is it to spend time creating a court that could be found illegal? The executive should restock, rethink and reflect on the analysis put forward by academics and civil society.

As an accredited observer, T&E’s Cecile Toubeau, Director, Better Trade and Regulation (cecile.toubeau@transportenvironment.org Tel: +32 (0)475 226 997) will be attending the week-long meeting in New York.