Concerned about ISDS? The EU has a solution

In 2013, many European citizens began to question whether existing rules governing investor-state dispute settlement (ISDS) were fair and just. As demonstrated by a resolution debated earlier this month in Chicago at the National Conference of State Legislatures’ (NCSL) 2016 Policy Summit, many U.S. citizens share these same concerns. The European Union has a potential solution.

At my first Policy Summit, I was energized by the breadth of topics considered by those in attendance. Legislators, staff and other attendees had four days to share ideas, experiences, legislation and policy prescriptions across a broad range of subjects. Standing committees debated policy platforms and resolutions, including a resolution calling into question continued U.S. reliance on ISDS in trade agreements. While the resolution failed to carry, a lively debate revealed that many of the concerns identified by U.S. legislatures with existing ISDS paralleled the debate in Europe. Namely, U.S. legislators are concerned that existing ISDS rules might limit the state’s right to regulate, unfairly advantage big business, and permit unfair “private justice.”

Photo via @NCSLorg

In remarks before the Committee and guests, I identified some of these parallels, noting that a current NAFTA dispute involving the denial of a permit to build the Keystone pipeline has the potential to spark the public’s attention on ISDS in the same way the Vattenfall case did in Europe. Indeed, public concern about ISDS grew so great that the EU suspended investment negotiations with the United States in order to launch a public consultation. That consultation revealed the public had three main concerns about ISDS:

(1) preserving government’s right to regulate;
(2) ensuring the fairness, impartiality and transparency of arbitral panels; and 
(3) having a means of reviewing arbitral awards through an appeal mechanism.

Identification of these concerns helped shape the EU’s response, by developing a new policy to govern investment disputes, the Investment Court System (ICS).

The ICS goes a long way towards addressing the concerns raised by the NCSL attendees. Features of the ICS include:

• Replacing party-appointed arbitrators with a permanent court of publicly-appointed judges, so as to eliminate double hatting, strictly enforce an ethics code and minimize bias.
• Creating an appellate tribunal that will ensure consistency across decisions and correct manifest error.
• Adopting a “loser pays” system that will deter frivolous cases, but special SME provisions will ensure that the ICS is available to all investors.
• Enshrining the “right to regulate” in the investment protection text, and limiting the scope of “fair and equitable” claims.

This new policy to settle investment disputes is already included in the EU’s trade agreements with Canada and Vietnam and is an integral part of the EU’s negotiations of trade agreements with other potential trading partners.

The EU welcomes concerned citizens and legislators to review the ICS as proposed to the United States in the Transatlantic Trade and Investment Partnership agreement, and to contact the undersigned should they have any questions.