New Zealand open to ditching old ISDS model under NZ - EU trade deal

Groser said the existing model for ISDS procedures including the one in the TPP was a model New Zealand governments had used for a quarter of a century. Photo / AP

Trade Minister Tim Groser says New Zealand has an open mind about replacing traditional investor-state dispute settlement (ISDS) with a new international court-based system proposed by the European Union.

ISDS, sometime called "private justice" has been the most controversial aspect of the Trans Pacific Partnership (TPP) talks involving New Zealand and has been a controversial part of EU talks with the United States (TTIP).

But in September the EU proposed an open international court with appeal processes, that and two weeks ago said it would insist upon the court in other trade negotiations - which now includes New Zealand.

Mr Groser has been in talks with European Union Trade Commissioner Cecilia Malmstrom, preparing for the visit of Prime Minister John Key to Brussels where free trade negotiations were expected to be formally launched overnight.

Mr Key was due to hold meetings with European Council President Donald Tusk, who chairs the council of European political leaders, and European Commission President Jean-Claude Juncker, who runs the executive arm of the EU.

When Malmstrom announced the international court proposal as part of the TTIP talks, she said the traditional form of dispute resolution "suffers from a fundamental lack of trust."

EU investors were the most frequent users of the existing model.

"That means that Europe must take responsibility to reform and modernize it."

Mr Groser told the Herald that the existing model for investor-state dispute procedures including the one in the TPP was a model New Zealand Governments had used for a quarter of a century.

"That doesn't mean to say it is the best model there is," he said.

He had told Ms Malmstrom New Zealand was interested in her ideas and "absolutely open" to exploring it.

"Nothing ever stands still in these negotiations.

"They have got a new model in their mind. We have got a completely open mind on it."

The proposed international court for investor disputes is just one of several new approaches the EU has vowed to take in future trade talks.

Table: NZ International Business Forum

Another pledge by Europe is to conduct trade talks with a far greater level of transparency between rounds over what is proposed and what has been agreed than has been the case in previous negotiations.

The EU will publish its proposals and position papers during talks; engaging more openly with civil society about talks, and requiring FTAs to include chapters specially aimed at small and medium enterprises.

And as it did after it concluded an agreement with Canada, the EU released the CETA agreement immediately, not waiting around for legal experts to turn the agreement into legal text - as is the case currently with the wait for the Trans Pacific Partnership.

None of those should be a problem for New Zealand because the EU is setting the ground rules for itself, not its negotiating partner.

The EU proposal includes a tribunal and appeal tribunal which would be conducted in public; an appointments process comparable for members of other international courts such as the International Court of Justice and the World Trade Organization Appellate Body; strict rules about criteria for taking cases such as targeted discrimination on the basis of expropriation without compensation, denial of justice or discrimination on the grounds of gender, race or religion, or nationality.

Controversially for business, there is also a suggestion that loser of the dispute pays the court costs.

Malmstrom has spoken at hundreds of meetings in the past year with free trade friends and opponents alike in a bid to build confidence in her approach and earlier this month she released her strategy for the next four years, Trade for All.

In it she has set some bottom lines pledging that:

• No trade agreement will ever lower levels of consumer, environmental or social and labour protection;
• Any change to levels of protection can only be upward;
• Never compromising on the right of Government to make policy in the public interest.

She has also said that EU free trade agreements would promote European values such as sustainable development, human rights, faith and ethical trade and anti-corruption principles.

Like the TPP, TTIP has attracted vocal opponents, especially in Germany, where 150,000 protestors took to Berlin streets three weeks ago.

Malmstrom says polling points to opponents being part of a vocal minority.

But with the EU having 20 agreements on the go with the EU, covering 60 countries, Malmstrom is devoting a huge amount of energy to simply making the case for free trade.

The main objections by the Berlin protestors were reported by Reuters as being concerns that the deal could lower food safety, labour and environmental standards and was anti-democratic.

Malmstrom says the EU Commission welcomes the debate over the US talks about and has learned from it.

On the issue of practicing the new approach, she has published the EU proposals about a new international court for investment disputes publicly before even tabling it in the TTIP talks.

Not everyone is happy, however.

Europe Business, the equivalent of Business New Zealand, says it accepted that the system needed to be reformed but the scope of protection for investors had been considerably limited.

Luisa Santos, director for international relations, said there were some positive elements "but we see a lot of negative elements because the scope of protection of investors has been considerably limited."

"We always recognised there was a need to make it more modern, to make it more transparent is some cases, to introduce some mechanisms to avoid frivolous claims, to bring more impartiality, to define the rules better to select the arbitrators and a code of conduct for arbitrators."

In the future it would be very difficult for an investor to use the new court system, if the proposal was agreed.

"Loser-pays" was clearly a problem but the problems began before that.

The defined situations in which investors had the right to compensation for indirect expropriate combined with the right to regulate which was "highly reinforced" in the proposal meant it would be very difficult for a company to even start a procedure.

EU sets new course in transparency

One of the foremost experts in the EU - United States trade negotiations, Jacques Pelkmans, said while complete transparency was not possible, the EU had shown that "Total secrecy is also certainly not necessary."

"The US were very irritated that the EU threw everything into the public. They didn't like it."

The EU transparency processes head meant the US had had to give way on some procedures, such as allowing certain European Members of Parliament into their mission to read documents confidentially.

Pelkmans, of the Centre for European Policy Studies, has just edited a 560-page book on various aspects of TTIP [Rule-Makers or Rule-Takers] and would like to know more about it but the negotiators had been disciplined, including at their press conferences held after each round.

"They have a beautiful technique of avoiding what you really want to know."

"But what there is no transparency about for understandable reasons is what they talk about, whether they quarrel, how far they are, or how not far, the difficulties they face, that is not public."

And he said was a virtue to having a degree of confidentiality for negotiators.

"They have to be able to make deals. They also have to be able to make mistakes and not be out in the open or too quick, or there may be tactics in making an modest offer in one area and an ambitious in another but they don't want that to be known because that might then hinder them.

"I am in favour of transparency until it becomes its own enemy."