EU proposal for TTIP trade deal: a new model for dispute resolution?

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The European Union’s executive body recently proposed replacing the much-criticized investor-to-state dispute settlement (ISDS) with an “Investment Court System” to ensure that disputes between international investors and national governments “will be adjudicated in full accordance with the rule of law.” [1] The draft proposal, which has not yet been formally presented in negotiations,[2] would be attached to the much-debated Transatlantic Trade and Investment Partnership agreement (TTIP) now being negotiated between the United States and the European Union.[3] In a nutshell, TTIP is “the biggest trade agreement of its kind.”[4] TTIP creates a “free trade deal between the US and Europe, currently under negotiation, that would cut tariffs and lower regulatory barriers to make trade easier between the two markets.”[5] Proponents of the Investment Court System believe that this change will lay the foundation for a “permanent International Investment Court.”[6]

ISDS has been used to “resolv[e] [foreign] investment conflicts without creating state-to-state conflict”, “protect [a given Country’s] citizens’ [investments] abroad”, and “signal to potential investors that the rule of law will be respected”. [7] ISDS created a legal forum where, in relevant part, American investors, with foreign investments could sue a foreign government for "breach[ing] its international [treaty] obligations" such as enacting regulations that allegedly targeting investors from one or more foreign countries.[8] The ISDS dispute-resolution process has been fraught with complaints of unfairness, as well as criticism that it yield arbitrary and unpredictable results.[9] At times, the mere threat of an ISDS dispute has caused legislation to be withdrawn.[10] ISDS is believed to favor investors by limiting legislatures' ability to make legitimate policy decisions that even marginally hurt foreign investors.[11] Various forms of ISDS are now incorporated into more than 3,000 trade agreements, of which the United States is party to at least 50.[12]

Opponents of ISDS believe the current system has allowed transnational corporations to sidestep social and environmental regulations for profit. [13] For example, in 2011 the German government settled a lawsuit in which the Swedish energy company Vattenfall sought damages of “1.4 billion euro . . . for restrictions imposed on a coal-fired power plant it was planning to build on the banks of River Elbe”. [14] Germany and Vattenfall are now three years into a separate lawsuit over Germany’s decision to phase out nuclear power. [15] The new proposal by the European Commission—the EU’s executive branch—would set up an Investment Tribunal and an Appeal Tribunal and make many documents—including proceedings before the Appeal Tribunal—public record. [16] This proposal’s focus can be distilled down to “dispute procedure”, “arbitration”, and “transparency”, according to one business group . [17] European Commission First Vice-President Frans Timmerman believes that the new system’s highly qualified judges, transparency, and appeals tribunal will resolve European companies’ “fundamental lack of trust” in the dispute-resolution process. [18]

Although the United States Chamber of Commerce denounced the proposal, following the lead of those who believe that ISDS agreements are a “routine part of trade deals,” critics of ISDS believe that the proposal is at least a step in the right direction. [19] Before finalizing the proposal for presentation to U.S. negotiators, the E.U. Commission "will consult [with] the EU’s Member States in the Council and will discuss the proposal with the European Parliament....[20] The text will be presented as an “EU text proposal in the EU-US trade talks and used in other ongoing and future negotiations.”[21] The European Commission hopes that this proposal will increase the “efficiency, consistency and legitimacy of the international investment dispute resolution system”.[22]


[1] Press Release, European Commission, Commission Proposes New Investment Court System for TTIP and other EU Trade and Investment Negotiations (Sept. 16, 2015), http://europa.eu/rapid/press-release_IP-15-5651_en.htm [http://perma.cc/HN45-HDDU].

[2] Transatlantic Trade and Investment Partnership, Trade in Services, Investment and E-commerce, Chapter II – Investment, European Commission 1, http://trade.ec.europa.eu/doclib/docs/2015/september/tradoc_153807.pdf (PDF)[http://perma.cc/P5YV-S9UA].

[3] See id.; see generally John Hilary, What is TTIP?, Waron WANT (Sept. 24, 2015), http://www.waronwant.org/what-ttip [http://perma.cc/BBT8-NWP3], (“[TTIP] is a comprehensive free trade and investment treaty currently being negotiated—in secret—between the European Union and the USA.”).

[4] Isabelle Fraser, What is TTIP and why is it so controversial?, TELEGRAPH (LONDON) (June 11, 2015), http://www.telegraph.co.uk/finance/11664750/What-is-TTIP-and-why-is-it-so-controversial.html [http://perma.cc/JPB2-2UMC].

[5] Id.

[6] Commission Proposes New Investment Court System, supra note 1.

[7] OFFICE U.S. TRADE REPR., EXEC. OFFICE PRESIDENT, INVESTOR-STATE DISPUTE SETTLEMENT (ISDS), (Mar. 11, 2015), https://ustr.gov/about-us/policy-offices/press-office/fact-sheets/2015/march/investor-state-dispute-settlement-isds [https://perma.cc/5U34-RFZ9].

[8] Id.

[9] See Charles N. Brower & Sadie Blanchard, What's in a Meme? The Truth About Investor-State Arbitration: Why It Need Not, & Must Not, Be Repossessed by States, 52 COLUM. J. TRANSNAT'L L. 689, 725-26 (2014); AFL-CIO, WHAT IS ISDS? (last visited Sept. 24, 2015), http://www.aflcio.org/Issues/Trade/What-Is-ISDS [http://perma.cc/J5DH-MQDB] (“[A]rbitrators have the power to make decisions in cases, but they are not democratically elected or appointed, and they are not subject to stringent conflict of interest rules.”) The labor organization derides ISDS panels as "corporate courts".

[10] AFL-CIO, supra note 9.

[11] Id.

[12] OFFICE U.S. TRADE REPR., supra note 7.

[13] Hilary, supra note 3.

[14] Jess Hill, ISDS: The devil in the trade deal, ABC Radio National (September 14, 2014), http://www.abc.net.au/radionational [http://perma.cc/FMT7-QCY8].

[15] See Int’l Ctr. Settlement Inv’t Disputes, Case Details: Vattenfall AB et al v. Federal Republic of Germany (ICSID Case No. ARB/12/12), https://icsid.worldbank.org/apps/icsidweb/cases/Pages/casedetail.aspx?caseno=ARB/12/12&tab=PRO [https://perma.cc/V9D2-3VAV].

[16] See ISDS Blog, A Quick Read of the EU Commission’s Investment Court Proposal, Stockholm Chamberof Commerce (Sept. 17, 2015), http://isdsblog.com/2015/09/17/a-quick-read-of-the-eu-commissions-investment-court-proposal [http://perma.cc/C4M4-3KRD].

[17] Id.

[18] Commission Proposes New Investment Court System, supra note 1.

[19] Tom Fairless, EU Proposes New Trans-Atlantic Court for Trade Disputes, Wall St. J., Sept. 16, 2015, http://www.wsj.com/articles/eu-proposes-new-trans-atlantic-court-for-trade-disputes-1442404979 [http://perma.cc/3C7E-VHP3].

[20] Transatlantic Trade and Investment Partnership, supra note 2.

[21] Commission Proposes New Investment Court System, supra note 1.

[22] Id.


Posted by Nicholas S. Millington on Fri. October 2, 2015 12:12 AM
Categories: Conflict of Laws, Direct foreign investment, European Union, Free Trade, International Dispute Resolution, United States

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