* Transatlantic trade pact would be world's biggest
* Investment arbitration issue most contentious
By Robin Emmott
BRUSSELS, Sept 16 (Reuters) - The European Union's trade chief outlined a plan on Wednesday for a new European court system to settle trade disputes, aiming to unblock negotiations with the United States and achieve the world's biggest free-trade agreement.
Fears that U.S. multinationals could use private arbitration rules in the proposed trade pact to challenge European food and environmental laws have overshadowed a transatlantic project meant to ease business and compete with China's economic might.
"We want to establish a new system built around the elements that make citizens trust domestic or international courts," EU Trade Commissioner Cecilia Malmstrom told a news conference.
"The old, traditional form of dispute resolution suffers from a fundamental lack of trust," she said, following up on an earlier, less detailed plan on May 5.
The idea of a 15-judge court system with an appeal tribunal open to the media and others should allow EU trade negotiators to restart discussions with Washington on the issue of investor-to-state disputes, or ISDS, by the end of this year.
The court system could become a feature of the EU's trade agreements around the world, becoming multinational. In the EU-U.S. agreement, judges would be appointed by the European Union and the United States and could not act as lawyers in cases.
Negotiations on the Transatlantic Trade and Investment Partnership (TTIP), which would encompass a third of world trade, are already under way, but talks on ISDS were suspended by Malmstrom's predecessor because of public opposition.
While many businesses welcome the trade accord to create a market of 800 million people, hoping it will add $100 billion a year to economic output on both sides of the Atlantic, European consumers, particularly in Germany and Austria, are very wary.
Some note a U.S. tobacco company's use of ISDS to challenge Australia's laws on cigarette packaging. They worry about special privileges for private investors.
EU lawmakers and non-governmental organisations both praised and damned the Commission's proposal, meaning its passage to become operational is likely to be difficult.
"The EU's investment court system ... is a mere rebranding exercise of ISDS," said Cecile Toubeau, a Brussels-based campaigner for green group Transport and Environmental. Centre-right lawmaker Daniel Caspary said it was "a firewall that will ensure transparency and reliability."
The United States says ISDS must be in any deal. (Reporting by Robin Emmott; Editing by Ruth Pitchford)
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