The controversial tribunals used by foreign investors to sue governments may be no more if Europe gets its way.
New Zealand and the European Union put out an information paper on the scope of proposed trade talk negotiations last week, with the EU seeking to introduce a trade court under the Investor-State-Dispute Settlement (ISDS) system to hear disputes.
The European Union wants to introduce a trade court system under the Investor-State-Dispute Settlement system to hear disputes. Photo: 123RF
The ISDS system has existed since the 1960s, and underpins all New Zealand's trade deals, including the stalled Trans Pacific Partnership Agreement (TPPA).
Green MP Barry Coates said the controversial and secretive ISDS tribunals gave private firms too much power to sue governments for lost profits.
"If New Zealand wants an agreement with the European Union it'll probably have to come into the 21st century, rather than follow the ISDS model in the TPPA."
The government said it was interested in learning more about the EU's proposal, but insisted it would not agree to an outcome that would prevent the government from regulating in the national interest.
Mr Coates said while the EU's approach was a step in the right direction, ideally it should be domestic courts that ruled over trade disputes.
"Why do we need a separate international system for foreign investors and we don't give it to anyone else?
"We don't give it to people who may be victims of unjust actions by companies. We just give it foreign investors," Mr Coates said. "That case has yet to be made."
A former trade negotiator, Charles Finny, agreed that allowing domestic courts to rule on investor state disputes could be an option, given both Europe and New Zealand had strong institutions with a robust and independent judicial system.
"It may well be that the EU just decides well actually do we really need ISDS provisions particularly when negotiating with a country like New Zealand or a country like Australia where you can reply on the courts."
Mr Finny believed the fear and suspicion surrounding ISDS had been overblown.
But he conceded the damage had been done, and he would support a different model that could soothe concerns about any alleged loss of sovereignty.
"This issue of ISDS has been misunderstood. It was the cause of a lot of the angst around TPPA and other trade agreements and I don't believe it needs to be.
"And if we could develop a model such as the EU is talking out about - an international ISDS court - that might not be a bad way to go."
Mr Finny warned the talks with the EU could be complicated by a new ruling from the European Court of Justice that established ISDS would have to be ratified by each country inside the EU.
He said some may use that as a bargaining chip against New Zealand.
"Let's say you're the French parliament and you don't like the agricultural liberalisation that's part of the NZ-EU free trade talks. Wouldn't this be a wonderful way to express that displeasure?"
Mr Finny also pointed out the scoping paper indicated New Zealand farmers may get a worse deal from the Europeans than their Australian counterparts.
Australia is also preparing to enter trade talks with the EU, and their scoping study does not include any reference to longer tariff phase-outs or quotas for agricultural products as in the New Zealand study.