EU Proposes Dispute Rules to Boost SME Access to Investment Court

The European Commission proposes supplemental dispute resolution rules to facilitate SMEs' access to the investment court system under the EU-Canada trade agreement. The proposed rules aim to increase accessibility and reduce costs for individual claimants and SMEs.

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EU Proposes Dispute Rules to Boost SME Access to Investment Court

EU Proposes Dispute Rules to Boost SME Access to Investment Court

The European Commission has proposed supplemental dispute resolution rules to facilitate small and medium-sized enterprises' (SMEs) access to the investment court system under the EU-Canada Comprehensive Economic and Trade Agreement (CETA). Published on April 26, 2024, the proposal aims to increase accessibility and reduce costs for individual claimants and SMEs, responding to concerns raised by the Court of Justice of the European Union (CJEU) in 2019 that the Investment Court System (ICS) may only be accessible to investors with significant financial resources.

Why this matters: This proposal has significant implications for the fairness and accessibility of international trade agreements, as it addresses concerns about the unequal playing field for SMEs and individual investors. By increasing accessibility and reducing costs, this proposal could pave the way for more inclusive and equitable trade agreements in the future.

Over 2,500 SMEs based in the EU have begun exporting to or investing in Canada since CETA provisionally entered into force in 2017. The dispute resolution mechanism in CETA departs from traditional bilateral and multilateral investment treaties, which have faced criticism and scrutiny in recent years. CETA establishes a permanent and multilateral system comprising a first-instance CETA Tribunal and an Appellate Tribunal.

The CETA Tribunal will have a permanent roster of 15 or more adjudicators, with three members appointed within 90 days of the submission of a claim to resolve all first-instance disputes. The Appellate Tribunal will review decisions rendered by the first-instance Tribunal, with a broad remit to uphold, modify, or reverse an arbitral award.

The proposed supplemental rules on expedited procedures (Expedited Rules) will be available to all investors, with individual persons and SMEs having preferential access. Article 1 of the proposed new rules states, "The purpose is to increase the accessibility and reduce the costs of investor-state dispute settlement procedures for individual claimants and SMEs, to ensure that all segments of society can benefit from the economic opportunities arising from trade and investment."

To apply for the Expedited Rules, investors must submit a request no later than the date of the submission of a claim under CETA. The rules will only apply if the respondent State consents, and States are asked to give sympathetic consideration to requests if the investor is a natural person or an SME and the amount of damages sought does not exceed SDR 40 million (around EUR 49 million).

Expedited proceedings can be heard by a one-member instead of a three-member tribunal, with shorter timelines and an arbitrator appointed within 30 days of the notification of the respondent's consent. Awards issued under the Expedited Rules will be subject to appeal before the CETA Appellate Tribunal in the same way as an award rendered in the traditional ICS procedure.

While CETA has been applied provisionally since September 2017, Chapter 8, Section F of the Resolution of investment disputes will enter into force only after all 27 EU member states have ratified the treaty. Recently, obstacles to CETA's ratification have emerged, including a vote against ratification by the French Senate on March 21, 2024.

The European Commission's proposal for supplemental dispute resolution rules under CETA represents a significant step towards making the investment court system more accessible to SMEs and individual investors. By reducing costs and streamlining procedures, the Expedited Rules aim to ensure that all segments of society can benefit from the economic opportunities provided by the EU-Canada trade agreement. The implementation of these rules will be closely watched by investors and interested parties during the ratification process's continuation.

Key Takeaways

  • EU proposes new dispute resolution rules to aid SMEs under CETA.
  • Rules aim to increase accessibility and reduce costs for individual claimants and SMEs.
  • Expedited procedures available to all investors, with preferential access for SMEs and individuals.
  • Streamlined process includes shorter timelines and a one-member tribunal.
  • Implementation will be closely watched during CETA's ratification process.