ENDitorial: EU Commission ISDS proposal – a threat to democracy

The European Commission has published its investor-state dispute settlement (ISDS) reform proposal for the Transatlantic Trade and Investment Partnership (TTIP), the EU-US trade agreement currently under negotiation, and future trade agreements between the European Union and third countries.

On the positive side, the reform proposal removes unfair procedural advantages for the United States and tries to address some of the concerns raised by the responses to the public consultation.

On the negative side, the reform proposal does not represent a rejection of ISDS. It replaced the ISDS acronym with a new one, ICS, which stands for Investment Court System. In fact, the proposal contains several loopholes.

First, the reform proposal discriminates amongst investors, as it gives foreign investors, and only foreign investors, the right to circumvent domestic legal systems and use supranational adjudication to challenge government decisions. Supranational adjudication places the development of law outside democratic oversight.

Secondly, the reformed ISDS proposal contains procedural loopholes. If adopted, the proposal would create perverse incentives. The adjudicators would be paid per day worked and would be able to receive outside remuneration. This creates incentives to give foreign investors value for the money, as only foreign investors can start cases, leaving domestic investors in a less advantageous position.

Thirdly, reform still fails to protect EU policy making. Democratic societies have to be able to change course, for instance to reform their copyright laws, or to effectively protect the privacy of their citizens. The proposal would place for-profit supranational investment adjudicators above democracies. The adjudicators would assess whether democratic decisions are arbitrary from the point of view of the protection of foreign investments. This creates major risks for democracies and civil rights.

Finally, the European Commission undermines any possible positive element in its reform proposal, as it still intends to keep the “old ISDS” in trade agreements whose negotiations have been concluded, but not yet ratified, such as the trade agreements with Canada and Singapore. The result is that foreign investors would have the possibility to route their investments into the EU through these countries.

From a rule of law perspective, a more valid solution would be to to improve weak aspects of domestic legal systems. This would provide equal access to the law, and would not remove democratic oversight of the development of law. There are other ways for investors to achieve additional certainty for their investments than ISDS; they can for example take a political risk insurance.

European Commission’s ISDS reform proposal
http://trade.ec.europa.eu/doclib/docs/2015/september/tradoc_153807.pdf

EU Commission’s ISDS proposal a threat to democracy and civil rights (20.09.2015)
https://blog.ffii.org/eu-commission-isds-proposal-a-threat-to-democracy-and-civil-rights/

Vrijschrift letter to European Parliament’s international trade committee on Commission’s ISDS proposal (21.09.2015)
https://www.vrijschrift.org/serendipity/index.php?/archives/186-Vrijschrift-letter-to-EU-parliament-INTA-committee-on-commission-ISDS-proposal.html

(Contribution by Ante Wessels, EDRi member Vrijschrift, The Netherlands)