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Investor-state Dispute Settlement in TTIP

Investor-state Dispute Settlement in TTIP

1 April 2014
2 April 2014
It is preferable not to include ISDS in TTIP.

On 1 and 2 April 2014, Christiane Gerstetter, Senior Fellow on the Ecologic Institute's legal team, gave two presentations in Brussels on investor-state dispute settlement (ISDS) in the Transatlantic Trade and Investment Partnership (TTIP). Based on an earlier study written by the Ecologic Institute on the subject, she concluded that including ISDS in TTIP would entail incalculable risks for environmental regulation that are not counter-balanced by benefits. She therefore recommended not to include ISDS provisions in TTIP. The presentations are available for download.

On 1 April 2014 she spoke at Saint-Louis University of Brussels, at the invitation of the university’s Environmental Law Centre. On 2 April 2014, she gave a presentation in the framework of a debate on "Trade and Sustainability" organised by the Sustainable Development Observatory of the European Economic and Social Committee.

Building on the earlier study by Ecologic Institute Investor-state Dispute Settlement under TTIP - a Risk for Environmental Regulation?, she showed the risks for environmental regulation associated to investment tribunals taking decisions on the basis of broadly worded investment protection norms. The case law on these norms is not consistent. This creates risks for environmental regulation. These risks are exemplified by ongoing disputes: In the case Vattenfall vs. Germany, the energy company is claiming compensation from Germany under the Energy Charter Treaty, because the nuclear power plants it operates will need to close down as a consequence of the German nuclear phase-out. In another case, Low Pine Resources vs. Canada, the investor is claiming damages from Canada over a moratorium on shale gas exploitation in a certain region of Canada; the investor had obtained permits for exploiting the resources at an earlier stage.

No investment without ISDS?

In addition, Christiane Gerstetter discussed some of the central arguments made in favour of ISDS in TTIP. The first argument is that ISDS is needed in TTIP, because investors are not adequately protected through the national judicial systems, to which they could also resort. This might keep them from investing  abroad. In response to this argument, Christiane pointed out the fact that the US has so far only concluded bilateral investment treaties with a limited number of Eastern European EU Member States. Still, there is significant mutual investment between the US and EU. This shows that the existence or non-existence of ISDS provisions does not appear to be a major influential factor in EU and US companies’ investment decisions. She also quoted a study conducted by the London School of Economics on the costs and benefits of investment protection in TTIP [pdf, 386 kB, English]. According to the study there is no convincing evidence that past US treaties with investment protection clauses have had a tangible impact on US outward investment even in "risky jurisdictions"; in other words, such clauses are no reliable means to foster foreign direct investment according to the study.

No sufficient legal protection without ISDS?

A  second, related argument is that the EU and US courts do not use international agreements as a basis for their findings, depriving investors of the investment-related guarantees  that might be included in TTIP.  Discussing this argument, Christiane clarified that indeed individuals and companies cannot normally base their claims before the Court of Justice of the EU on international economic agreements; the Court only recognises in very limited circumstances that such agreements confer rights upon companies, and the situation in US law is similar. However, she also clarified that this is in no way unusual:  international agreements are concluded between states and define rights and obligations for them, not for individuals. This does not mean that investors are left without sufficient legal protection; both the EU and US are rule of law legal systems that do not appear to suffer from fundamental flaws negatively impacting foreign investors. National legal orders such as German law provides investors with legal guarantees and remedies against expropriation, arbitrary treatment or a violation of legitimate expectations.

ISDS in TTIP needed as a blueprint for future negotiations?

A third argument made in favour of the inclusion of ISDS in TTIP is the role of that agreement as blueprint for negotiations with other countries, notably China. In response, Christiane stressed that is neither unusual for different trade and investment agreements to contain different content, nor is it unusual for states to treat other states differently. The latter is evident, for example, in the areas of visa regulations or arms control. 

Christiane also related to the EU Commission's ongoing public consultation on investment protection in TTIP in general and ISDS more specifically. She acknowledged that the proposals made by the Commission could help remedying some of the shortcomings of the existing system, but still argued that it was preferable not to include ISDS in TTIP.

Facultés universitaires Saint-Louis, Centre d’étude du droit de l’environnement (CEDRE), Belgium
European Economic and Social Committee, Sustainable Development Observatory (SDO)
1 April 2014, 2 April 2014
Brussels, Belgium
TTIP, Transatlantic Trade and Investment Partnership, US, EU, investment, trade, investor-state dispute settlement, ISDS, ICSID, USA, Europe