By Robin Emmott and Francesco Guarascio
BRUSSELS (Reuters) – France and Germany on Thursday backed proposed reforms to the way disputes in international commercial accords are settled, raising hopes the European Union may unblock an issue holding up trade negotiations with the United States.
Opposition to investment arbitration threatens to derail talks between Europe and the United States on forming the world’s largest free-trade zone, as some EU governments say the current system lets companies bully governments and undermines the rule of law.
Reacting to a European Commission proposal for a change to the rules that includes setting up a permanent arbitration court, Paris and Berlin said “a revolution” was under way.
“This is a first political revolution that now needs to be made more concrete,” said Matthias Fekl, France’s state secretary for trade in a joint news conference with his German counterpart Matthias Machnig after an EU meeting in Brussels.
Other EU governments, including Italy, welcomed the reforms.
Cecilia Malmstrom, the European Union’s trade commissioner, presented the ideas to ministers after months of protests against the investor-to-state dispute settlement (ISDS) mechanism, which is among the most contentious issues in the proposed EU-U.S. pact.
The Commission, which handles trade policy for the EU’s 28 countries, froze negotiations with Washington over ISDS and hopes to restart talks once it has eased European concerns.
At a time of disappointing economic growth on both sides of the Atlantic, the Transatlantic Trade and Investment Partnership (TTIP) could generate new jobs and $100 billion a year in additional output, according to the Commission.
Malmstrom’s proposals include ensuring that a state can never be forced to change legislation, even if a company argues that it restricts free commerce, and establishing an appeals system to make arbitration tribunals more like traditional courts, with a code of conduct.
The Commission must now come forward with a legal proposal to win the formal backing of EU governments and the European Parliament, which is still divided over ISDS.
French Green Yannick Jadot told the parliament’s influential trade committee on Wednesday that Malmstrom’s proposals were “a smoke screen.”
Many Europeans, particularly in Germany, worry the accord would lower food and environmental standards and give U.S. multinational companies too much power in Europe.
A Pew Research Center poll on Thursday showed only 41 percent of Germans think the TTIP is a good thing, compared to 50 percent of Americans.
(Reporting by Robin Emmott; editing by John Stonestreet)