In his reply to our latest #ECIPEdebate, Simon Lester – trade policy analyst at Cato Institute – expresses the feeling that many of us share on the issue of ISDS.The inclusion of the mechanism in TTIP is likely to induce a surge in the number of cases across the Atlantic, given that currently only a handful of European countries have signed a BIT with US. Yet, the presence of ISDS in the agreement is essential to avoid “trouble”.
First of all, the inclusion of an investor protection mechanism in the TTIP negotiations falls under the Council mandate given to the Commission. Questioning its presence in the agreement, therefore, jeopardizes the Commission credibility as a trade policy negotiator.
Secondly, a golden opportunity for addressing the flaws of the current ISDS system would be missed. The European Commission has stated clearly that it wants to improve the system by making the investor protection rules clearer, more transparent and impartial than they are today. If the ISDS is simply excluded from TTIP, then the nine BITs between US and individual Member States would remain in force, and the problems emphasized in the public debate will not be addressed.Thirdly, the exclusion of ISDS from trade and investment agreements would put additional pressure on national courts, which might not have the necessary expertise to deal with these cases. The arbitration tribunals are in fact constituted ad hoc for each individual case and comprise highly specialized arbitrators.
Fourthly, as stated in a recent ECIPE paper, bringing the case in front of a national court might put the national policy itself on trial, while arbitration does not require the State to withdraw or change the measure that violated the investment agreement.
Finally, the EU should be consistent in its request to include ISDS in the agreements it is negotiating. Excluding the mechanism from TTIP would put the EU in the awkward position of having to differentiate between countries whose quality of the legal system is considered sufficient to protect its investors and countries that it does not trust. Alex Berger – researcher at the German Development Institute – has replied to our debate by pointing out that such an exclusion from TTIP would not necessarily impede the EU from including the mechanism in the on-going negotiations of EU-China investment agreement.
This is probably true – given China’s interest to increase protection for its steadily rising investment in the EU – but it does not necessarily apply to other third countries with whom the EU is (or plans to) negotiate. Moreover, the issue is not only about third countries, but also about those European countries that are brought to court under intra-EU BITs. Three quarters of all cases against EU countries since 1987 have been filed by another EU country, and in 2013 only one of the cases against EU countries was brought by a non-EU investor (from Turkey). How could it be acceptable that the same national courts of certain European countries are considered to offer “sufficient legal protection” vis-à-vis the United States but not vis-à-vis other European Member States?
German stubborn opposition to the inclusion of ISDS in trans-Atlantic trade agreements relies on the consideration that “US investors in the EU have sufficient legal protection in the national courts”. Quite surprising to hear such a statement from the country with the highest number of BITs in the world and which has led the opposition to Czech Republic request to terminate intra-EU BITs only few years ago. Germany is acting in its self-interest showing no willingness (and even opposition) to a modernization of the system and at the same time taking advantage of this mechanism – only in 2013 Germany has initiated four cases against Czech Republic.
These inconsistencies pose a serious threat to EU’s credibility in the international trade policy arena. It is hard to expect the world to take Europe seriously if it accepts the request to exclude ISDS from certain agreements while at the same time the number of intra-EU cases keeps soaring. If Member States are not willing to cooperate for a serious improvement of the system, then they should terminate all their BITs with other EU countries.