ISDS: A Fact- and Experience-Based Review

Summary by Linda Dempsey, NAM, and Hendrike Kuehl, TABC

 

Thursday, 4 December – BRUSSELS – The National Association of Manufacturers and the Trans-Atlantic Business Council (TABC) co-hosted a seminar on the high-profile investor-state dispute settlement (ISDS) mechanism that is being negotiated as part of the Transatlantic Trade and Investment Partnership – ISDS: A Fact- and Experience-Based Review. This event brought together representatives from the EU Parliament, EU Commission, academia, think tanks and arbitration experts and businesses to put the ISDS mechanism into its international law context and discuss its use and implications for both the U.S. and EU. A few notable discussion points from this morning’s conference include:

  • ISDS is a decades old enforcement mechanism, first created in Europe, that seeks to ensure enforcement of international law obligations that nations undertake, typically related to treating foreign investors fairly and without discrimination and providing compensation for government seizure (direct or indirect of property). It provides a strong protection against political risk in developed and developing countries.
  •  While the number of cases have grown, so too have investment flows. A few countries have faced a high number of cases, while most have not faced any cases at all.
  • ISDS is important for small businesses who have no other recourse to a foreign government’s actions, although it can be costly for small businesses to use ISDS cases typically involve government actions regarding individual investors (including relating to permits, licenses and contracts) rather than broad policies, laws or public welfare regulations and have not produced any significant restriction in governments’ desire or action to take regulatory measures to protect the environment, public health or welfare.
  • EU member states face an increasing number of cases by investors from other European countries. At the same time, some member states are not willing to annul their intra-EU BITs, thereby renouncing investment protection. The EU also has many offensive reasons to care about ISDS given its substantial outbound investment levels worldwide, particularly with the United States, and its continuing desire to attract investment to boost its economy.
  • The U.S. Model BIT has undergone several reviews. The EU in contrast does not have a model text yet since investment policy has become an EU competency fairly recently. The TTIP is an opportunity to modernize the complex system of existing BITs of EU member states. The investment provisions can be improved to ensure they are designed to protect investors from political risks of government action and clarifying the core rules.
  • There has been an increasing trend toward transparency in ISDS with changes made by the United States in the North American Free Trade Agreement (NAFTA) and subsequent investment models and by UNCITRAL, whose transparency rules came into force earlier this year. The rules have been developed by UNCITRAL member and observer states on the basis of consensus. Notably, the transparency requirements in the Comprehensive Economic and Trade Agreement (CETA) go beyond UNCITRAL.
  • ISDS is important to include in TTIP given the important role that investment plays in growth in both the United States and Europe and in order to enhance the integrity of the international rule of law
  • Businesses are concerned about investment protection provisions in the EU-Canada Comprehensive Economic and Trade Agreement (CETA), emphasizing that the compromise reached in the EU-Canada text provides for a lower level of protection in comparison to existing BITs of both the United States and European member states.
  • As policymakers and the public consider further changes to the investment rules, there needs to be consideration of the integrity of the international legal system and the effects of such changes. The ability of countries to show a stronger investment climate is aided by the adoption of investment rules with ISDS enforcement mechanisms. At the same time a trend to erode the integrity of treaties has emerged along with increasing politicization of investments, even in countries with high investment protection.  This is in addition to the increase of industrial policy interference in markets. Alternative solutions to prevent mistreatment of investors are limited and may lead back to power politics if the rules of international law are disregarded.
  • ISDS is important to include in TTIP given the important role that investment plays in growth in both the United States and Europe. The negotiations should not be considered in isolation since other bilateral FTAs of the EU such as with Japan and Singapore also include ISDS provisions. Both, the EU and the U.S. are currently negotiating BITs with China. The outcomes of the TTIP talks are likely to impact the agreements with China.
  • Businesses are concerned about investment protection provisions in CETA, emphasizing that the compromise reached in the EU-Canada text provides for a lower level of protection in comparison to existing BITs.

The full detailed summary of the event prepared by NAM and TABC is available here. Additionally, below are some of the materials from several of the conference panelists:

Event Photos