BRUSSELS (Reuters) - The EU's trade chief sought on Wednesday to overcome one of the biggest disputes blocking an accord with the United States, offering to radically change the way companies would resolve conflicts in transatlantic business.
Cecilia Malmstrom, the European Union's trade commissioner, said arbitration must be part of any EU-U.S. free-trade pact, which would be the world's biggest, but that "it has to be a different animal" from current investment courts.
"The question about investment protection is not whether we should do it but how we can do it right," Malmstrom told the European Parliament's international trade committee.
"We want the rule of law, not the rule of lawyers."
Many Europeans fear U.S. multinationals will use the so-called investor-to-state dispute settlement (ISDS) mechanism to challenge food and environmental laws in Europe on the grounds that these restrict free commerce.
Malmstrom is trying to convince a skeptical European Parliament, which must sign off on any deal, to support an accord containing investment arbitration because the United States says it cannot accept a deal without it.
An accord encompassing almost half the global economy could generate $100 billion a year in additional economic output on both sides of the Atlantic, but in Europe many feel a deal would only benefit big companies.
While sensitive issues range from genetically-modified crops to how chicken is disinfected in the United States, no other subject has united European opposition to the proposed EU-U.S. accord as much as investment arbitration.
Unblocking the issue with a revamped form of ISDS could help negotiators reach a trade deal by the end of 2015.
Malmstrom defended the ISDS mechanism, saying that European companies needed it because U.S. law does not bar discrimination against foreign investors. She said if only state-to-state disputes are allowed, only big cases would be pursued.
If ISDS were modernized, she added, governments would not be bullied by big multinationals to change national legislation.
"We would like to include a full article in the text that makes clear governments are free to pursue public policy objectives and that they can choose the level of protection they deem appropriate," she said.
To prevent companies bringing cases if laws change, Malmstrom said she would propose a clause saying investment protection rules offer no guarantee for investors that the legal regime under which they have invested will stay the same.
Other ideas include allowing governments to nominate a limited list of arbitrators to decide on all disputes, having an appeal mechanism and forcing companies to drop proceedings in national courts if they go to an ISDS tribunal. The EU could even consider creating a permanent investment court.
Editing by Philip Blenkinsop and Gareth Jones