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TTIP: what exactly is the ISDS mechanism for resolving investor disputes?

Plenary Session Article - External/international trade09-06-2015 - 18:24
 
TTIP and the ISDS are back on the Parliament's agenda   TTIP and ISDS are back on the Parliament's agenda ©BELGA/DPA/Daniel Reinhardt

How to resolve disputes between foreign investors and states remains a thorny issue in the Transatlantic Trade and Investment Partnership (TTIP), currently being negotiated by the European Commission and the US. One of the mechanisms for arbitrating these disputes is known as Investor-State Dispute Settlement (ISDS), but what does it really mean and what is the concept behind it? Read on to find out the differences between ISDS and the other options available to protect investors.


Mechanisms to resolve disputes between foreign investors and the countries where they invest are essential.


There are currently two main ways of solving such disputes: domestic courts and international private arbitration. Responding to concerns by the public and MEPs, the European Commission proposed on 6 May two additional options for TTIP: a multilateral investment court and a bilateral appeal body with seven judges.

System to solve disputes

Characteristics

1. National/domestic courts

  • Common instrument in trade deals.
  • Based on trusting the justice system between partners with long traditions of rule of law.
  • Critics say they might be biased in favour of their own country. Also international obligations may not automatically be applied in domestic courts.

2. Private arbitration system

(known as ISDS)

  • Common instrument in trade deals.
  • Arbitrators are not full-time judges, but lawyers specialised in commercial law.
  • It is independent of any state. However critics are concerned that it would restrict the right of governments to regulate in the public interest and could lead to conflicts of interest.
  • To avoid this, the European Commission proposes a pre-agreed TTIP list of arbitrators (agreed by the EU and the US).

3. A multilateral investment court

  • New option proposed by the European Commission.
  • Long-term instrument.
  • It will take time to establish it (10-15 years) and would require funding.

4. A bilateral appeal body with seven judges exclusively for TTIP

  • New option proposed by the European Commission.
  • This instrument could be in place relatively quickly.
  • The seven judges would be agreed by the EU and the US (two judges from the EU, two from the US, three from elsewhere).

According to the Commission's proposed reform of investor protection, in case of a dispute investors would be free to select the mechanism they prefer. In order to avoid double compensation or contradictory rulings, investors would be obliged to choose one option at the outset and then stick to it. They cannot use parallel mechanisms and then choose the most favourable decision.

REF. : 20150605STO63242