ISDS must be replaced by a public court

DISCLAIMER: All opinions in this column reflect the views of the author(s), not of EURACTIV Media network.


EU Institutions are currently discussing several options for the reform of Investor-to-State Dispute Settlement (ISDS). Yet, only a public court can yield the targeted public policy objectives: investment protection, judicial independence and right to regulate, writes Viviane Reding.

Viviane Reding is a centre-right Member of the European Parliament for Luxembourg. She is a member of the Parliament’s international trade committee and rapporteur on the Trade in Services Agreement (TiSA).

Until the end of last year she was vice-president of the European Commission in charge of justice.

As former vice president in charge of Justice and fundamental rights, Member of the European Parliament responsible for trade, I remain firmly supportive of an international Investment Court, whose embryonic form should be created in TTIP. Why so? Because trade and justice must reinforce each other, not undermine one another.

Because we need investment protection

When unfairly treated, judicial remedies must be at the disposal of companies. Otherwise, there simply is denial of justice. As first source and first destination of foreign direct investments, Europe surely wants to avoid a reduction in its protection abroad and its attractiveness at home. Yet, the ever-increasing number of cases (58 requests in 2012) account for the rise in discriminatory practises. While the debate is centred on highly sensitive cases (Vattenfall, Philip Morris), which have not yet been decided, biased cancellations of licences really are a problem for our investors, hence for our workers.

Accordingly, there needs to be a system in place, where investors can bring their claim and invoke international agreements, once they have exhausted national remedies. On-going trade negotiations have an impact on every bilateral relationship, not least with those countries with a less developed and less independent judiciary. Let’s not look at the EU-US negotiations with blinkers. Instead, let’s think about their possible interplay with the EU- China negotiations.

Because we need legitimacy

That being said, investment protection cannot come at the expense of basic judicial principles: independency and impartiality of judges, transparency of proceedings, consistency and predictability of decisions. In this respect, the outcome of the negotiations with Canada and Singapore represents a significant step ahead. It reaffirms the right to regulate, provides for precise definitions of investor protection standards, prohibits parallel claims and establishes a code of conduct for arbitrators. Is the right of redress of investors questionable in cases of “manifest arbitrariness”, “breach of due process” and “gender- or religion-based discrimination”? No, certainly not!

But much more still needs to be done. The voices of 150,000 citizens, who answered the Commission’s online consultation, must be heard. And what do they tell us? That ISDS lacks institutionalisation and legitimacy. The 2009 Lisbon Treaty granted the EU full competency on the matter. It is our responsibilities as European parliamentarians to take the views of the citizens on board.

Because we need judicial independence

In the current debate, highly polarised within the European Parliament, there is room for a third way. Between a small reform and a complete scrapping of ISDS. Between those in favour of maintaining the ad hoc nature of the arbitration and those preferring the dubious use of certain state-to-state dispute settlement, which could potentially lead to trade wars and force the withdrawal of democratically-agreed legislation. Between blissful optimism and widespread fear. Between ultra-liberalism and protectionism.

This is why I propose as a third way, the creation of a unique and permanent international investment Court, applying a common set of international rules: One World, One Law, One Court! The creation of an independent, visible and stable institution, which can be held accountable for its case law and for its jurisprudence, is the only way forward. Only such a public Court can guarantee the legitimacy of the proceedings, the consistency in the rulings and the independence of the arbitrators. The setting of balanced and multilateral rules on investment is equally indispensable to close the loopholes contained in the 1,400 bilateral treaties already signed by EU countries. Only a global solution can address widespread challenges.

Because we need state-of-the-art standards

Past experiences have shown that it will take time before we have a multilateral investment agreement with a centralised dispute settlement mechanism. But political courage requires bold actions! Now that the WTO is back on track, there is a window of opportunity we cannot afford to miss.

In the meantime, I will push for TTIP to include an “embryonic version” of my proposal. Together, MEPs should elaborate on a TTIP investment chapter to provide for a permanent Court with clear location, for publicly-paid judges appointed for a specific term, for transparency and for unequivocal investment standards. Don’t we want TTIP to be a global standard-setter? Don’t we want transatlantic talks to be a stepping stone towards renewed multilateral ambitions? Then, Europeans and Americans must speak with one voice.

For ambitious and complex negotiations to succeed, trust is a must. If we are off to a truly fresh start, let’s re-instigate trust in the public by replacing ISDS with an international investment Court. Let’s turn the transatlantic debate upside down by agreeing upon the race-to-the-top principle. Let’s give new impetus for TTIP and trade, which our companies and citizens need.

European Parliament

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