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The German “Mittelstand” also needs investor protection

Interview with Dr Heike Wagner, a partner at the law firm CMS HascheSigle in Frankfurt, Germany a EACCNY Member.

By Tobias Anslinger of Markt und Mittelstand: Das Wachstumsmagazin

Many German Mittelstand companies are reluctant to enter the US market. We interviewed Heike Wagner, Partner at CMS Hasche Sigle, who explained how the TTIP might change this.

Markt und Mittelstand (MuM):The USA is currently enjoying an economic boom and is an attractive market. So why are many Mittelstand companies still reluctant to invest there?
Heike Wagner:In many cases this is because of the perceived legal risks. Huge compensation awards for product liability claims as well as seemingly uncontrollable legal fees that can ruin a Mittelstand company discourage many. Even if a claim is successfully defended, costs are not reimbursed. Although insurance can provide some protection against claims this can drive up prices.

MuM:Are there any other pitfalls in American law for German Mittelstand companies?
Wagner:In addition to the particularities of the litigation system, there are non-tariff barriers such as regulatory requirements, different product and technical standards which impede market access. These regulatory trade barriers which require an investment in time, money and technical effort are a particularly heavy burden for Mittelstand companies and further increase product prices. The TTIP would remove these trade barriers and the German Mittelstand could significantly increase its engagement in the attractive US market.

“TTIP would be a toothless tiger”

MuM:At the moment it is an open point as to whether and when the TTIP might come. The proposed investor protection and arbitration regime has been strongly criticised. Why are they necessary?
Wagner:It is proposed to protect foreign investors against discrimination as well as the arbitrary exercise of regulatory authority and legal procedural barriers. Export orientated German businesses already rely on the protection of public international law for the investments they make abroad. In the past twenty years German companies have invoked such investment protection and brought claims in about thirty cases.

Alongside the subjective perception of greater neutrality,using arbitration proceedings for these claims has most importantly the advantage that arbitration judgments are easier to enforce as there already exist international treaties forrecognitionand enforcement.

MuM:Would it be a solution to exclude the issue of investor protection from the TTIP?
Wagner:Not really. This could possibly lead to the treaty being agreed quicker but whether effective protection of investors could be implemented at a later stage would seem more than questionable. TTIP without an investment protection regime would be a “toothless tiger”. It would make more sense to address the criticism currently directed against arbitration proceedings and to deal with it in advance.

There is also a psychological aspect: TTIP could be a “blueprint” for other worldwide or bilateral treaties, such as for example treaties with China or India. At the moment Mittelstand companies have great interest in investment treaties with these countries.

Published with authorization by Markt und Mittelstand: Das Wachstumsmagazin