Is Investor-State Dispute Settlement (ISDS) Superior to Litigation Before Domestic Courts? An EU View on Bilateral Trade Agreements
18 Journal of International Economic Law 655-677 (No. 3, 2015)
23 Pages Posted: 15 Sep 2015
Date Written: September 14, 2015
The mechanism of Investor-State Dispute Settlement (ISDS) allows private foreign investors to challenge government measures before an ad hoc international arbitral tribunal. ISDS has been in existence for a long time. Yet recently this mechanism has proven very controversial, notably in the European Union and then the United States, when it became part of the negotiations on a comprehensive free trade agreement (TTIP) between them. According to critics, ISDS unduly limits the policy space of the signatory governments, and suffers from inadequate procedures. Some have argued that foreign investor claims should be dealt with like other private claims, by domestic courts. Others have argued that domestic courts should not become involved at all, and that foreign investor claims should be dealt with exclusively by state-to-state dispute settlement. This debate about ISDS is actually connected to broader discussions in the EU about whether private parties (not just foreign investors) should be permitted to invoke international law before domestic courts.
The paper's two main contentions are: First, the limited role domestic courts can play in resolving treaty-based claims is not a fact. This is largely the result of a surreptitious, and unfortunate policy choice of the EU institutions and Member States. Second, even if one assumes that relying on domestic courts could be problematic where treaties are concerned, it makes little sense to allow only foreign investors a better shot at enforcing treaty provisions through some kind of international mechanism. The new generation of bilateral agreements cover multiple subjects, from trade to investment, from environment to labor rights. Accordingly, beyond foreign investors other private stakeholders also have an interest in the correct implementation of these agreements. By denying all these stakeholders the right to rely on treaties the governments are putting a firm brake on the benefits they were hoping to generate. This contradicts the high expectations governments like to raise about the positive impact of the new bilateral trade agreements on economic growth, environmental protection etc.
Keywords: Investor-State Dispute Settlement; international law; international investment; domestic law effect of international law; EU trade policy; EU bilatreal trade agreements; Transatlantic Trade and Investment Partnership (TTIP); Comprehensive Economic and Trade Agreement (CETA)
JEL Classification: F02, F13, F21, K33, K42
Suggested Citation: Suggested Citation