The Investor State Dispute Settlement mechanism would help to standardise the level of protection for businesses across the EU’s member states, according to the European Commission. EURACTIV France reports.
The Investor State Dispute Settlement mechanism (ISDS) is designed to protect companies’ foreign investments against harmful or illegal rulings in the countries where they operate. It gives companies the chance to take legal action against a state whose legislation negatively impacts their economic activity.
The European Commission hopes the TTIP agreement will offer greater protection to investors. Until now, companies have relied on diplomacy to solve their disputes with foreign governments, their only option being to gain the support and lobbying power of their own country’s diplomats.
The European Commission hopes that TTIP will eventually replace the bilateral trade agreements that currently exist between EU member states, which, it says, do not offer the same level of protection to businesses.
Leopoldo Rubinacci, the chief negotiator from the European Commission’s DG Trade, explained that “legal attacks on states are very rare, and can only take place in very specific circumstances”.
The limits of the current system
During a recent speech to the French Senate, Matthias Fekl, France’s Secretary of State for Foreign Trade, made it clear that France does not want to see the ISDS mechanism included in the final TTIP agreement.
Germany has joined France in stating their opposition to ISDS.
The Commission has tried to deflect criticism of the ISDS mechanism by drawing attention to the limits of the current system, under which the parties concerned are free to choose their own arbitrators, leading to possible conflicts of interest.
Leopoldo Rubinacci said that “the European Council should only accept these investment and arbitration agreements if they believe they respond to the needs and interests of the European Union”.
Reforming the arbitration process
Diego Fernandez Arroyo, a professor at the Law School of Paris’ University of Political Sciences, said “we must use the TTIP discussions to improve the dispute settlement system and make it more transparent, and to put in place a system for holding politicians accountable”.
He believes the ISDS mechanism, which was designed to protect businesses in countries with inadequate legal systems, has no place in the European Union.
Bertrand Warusfel, a Professor at the University of Lille II and a lawyer at the Paris bar, argues that a better definition of the role of arbitrators would improve the TTIP text. He argues that disputes should first go through mediation on a national level, making the ISDS mechanism “the last resort after all other possibilities have been exhausted”.
But for the Commission, things are not quite so simple. “The alternatives are not as efficient as the Dispute Settlement mechanism, especially as we are talking about the opinions of 28 different states”.
Negotiations between the US and the EU on the Transatlantic Trade and Investment Partnership (TTIP) began in July 2013.
If the treaty is signed, it will affect almost 40% of world GDP. The transatlantic market is already the most important in the world.
This agreement could save businesses millions of Euro and create hundreds of thousands of jobs. It is estimated that TTIP could save the average European household €545 each year, and could cause the European Union's GDP to grow by 0.5%.