By Ethan Bilby
BRUSSELS (Reuters) - The European Union wants to exclude much of the utility sector from a prospective EU-U.S. free trade agreement in order to protect government controlled infrastructure, the latest draft of the EU's mandate for the negotiations showed on Tuesday.
Unlike in the United States, many national European electricity grids and power generators are state controlled, and governments fear that a deal supporting the free flow of U.S. companies and money into the sector would erode their influence over assets seen as vital to national infrastructure.
"The high quality of the EU's public utilities should be preserved," said the draft, seen by Reuters, which sought in particular to exclude "services supplied in exercise of government authorities."
An EU official familiar with the documents said the document's language was intended to ensure member states were able to regulate utilities and maintain their ability to control investment in these sectors.
Another EU source confirmed this, saying the idea was to prevent member states from having to open access to investment in their electrical grid or water supply.
EU trade chief Karel De Gucht and British Prime Minister David Cameron last week separately called for EU member states not to introduce exclusions and carve-outs into the 27-member bloc's negotiating mandate.
The latest draft follows talks with member states after the European Commission proposed a negotiating mandate in March.
The United States and the European Union aim to start negotiating a transatlantic free trade pact by the end of June. The talks are expected to take two years, and would embrace half of world economic output and a third of all trade.
The Commission has said that the deal could add 0.5 percent to the EU economy and 0.4 percent to the U.S. economy by 2027, according to the European Commission.
Some EU member states are also concerned that a procedure included in the mandate to allow for resolving disputes between investors and states.
While such dispute mechanisms are increasingly common in free trade agreements, some EU diplomats say they are not necessary for two parties with strong legal systems already. EU countries have worried it could result in excessive lawsuits challenging national regulations.
The updated draft includes language designed to calm such fears.
"Investor-to-state dispute settlement mechanism should contain safeguards against frivolous claims," the draft said.
"The inclusion of investment protection and investor-to-state dispute settlement will depend on whether a satisfactory solution meeting EU interests... is achieved."
Campaigners in the United States and the European Union are concerned that the dispute mechanism would open EU members to lawsuits from firms seeking to weaken environmental and public health provisions. Campaigners also say the mere threat of a dispute could force states to give in to business.
"You could make a case for investor-to-state dispute settlement in judicial systems that lack judicial independence, where you have corruption and massive delays of court cases, but I think this is a very difficult case to make in the EU and the U.S.," said trade specialist Pia Eberhardt, a researcher for Brussels-based watchdog Corporate Europe Observatory.
"The experience that companies have, that this tool does actually work in weakening or preventing legislation, will trigger a number of frivolous claims, and I don't think any safeguards in the treaty language will prevent that as long as you have the legal mechanism."
(Editing by Patrick Graham and Henning Gloystein)