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27th Jun 2022

EU commission freezes US talks on company protection

  • De Gucht has come under pressure over the rights of companies to litigate against EU governments (Photo: consilium.europa.eu)

The European Commission has halted EU-US trade talks related to legal protection for companies and launched a three-month public consultation on the matter.

Negotiations between EU and US trade officials began last September. They are meant to lead to a trade deal which the EU claims could be worth an extra 1 percent to the bloc's economic output.

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But the issue of rules to protect investors' rights, known as investor state dispute settlement (ISDS), has proved controversial.

The commission says that ISDS is needed to protect investors from unfair treatment at the hands of foreign governments and discrimination in favour of domestic firms.

Critics say that investor claims can prevent governments from passing legislation in fields such as environmental and social protection, enabling corporations to claim potentially unlimited damages in "arbitration panels" if their profits are adversely affected by new regulations.

They also claim that arbitrations are carried out in secret by trade lawyers.

Campaigners point to a recent move by tobacco giant Philip Morris to sue the Australian government over new legislation requiring plain packaging for cigarettes sold in the country.

They say this is an example of what the EU could face.

In a statement released on Tuesday (21 January), EU trade commissioner Karel De Gucht said that governments needed to "treat investors fairly, so they can attract investment."

But he conceded that "some existing arrangements have caused problems in practice, allowing companies to exploit loopholes where the legal text has been vague."

"Some people in Europe have genuine concerns about this part of the EU-US deal," he added.

De Gucht said he was "determined to make the investment protection system more transparent and impartial, and to close these legal loopholes once and for all."

The commissioner said he would publish an EU text on investment protection in March prior to the next round of talks between EU and US officials - scheduled the same month in Brussels.

A spokesman for consumers' interest group BEUC, Johannes Kleis, welcomed the EU executive's move.

"When the consultation is closed, we expect the commission to explain how they plan taking the feedback they received into account," he said.

The EU executive is anxious to retain public support for the trade talks, following the collapse of the anti-counterfeit treaty Acta in July 2012 at the hands the European Parliament.

Under the EU treaties, the parliament has the final say on whether to approve trade deals brokered by the commission.

MEPs have already expressed concern about ISDR leading to a system where national governments or the EU are sued by companies because of changes in regulation.

"The [ISDS] mechanism is unnecessary in an agreement between two countries that fully respect the rule of law," said the parliament's centre-left socialist and democrat group in a statement Tuesday.

"Accepting the ISDS would mean opening the door for big corporations to enforce their interests against EU legislation," it added.

The commission has also set up an advisory committee representing business and consumer groups, which met for the first time on Tuesday, to feed into negotiations.

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