The year started with a bang in the trade world. The Commission published initial findings from a 2014 public consultation on the reform of ISDS, or investor-state dispute settlement. The report found that less than 3% of the 150,000 participants supported this reform agenda. The remaining 97% opposed either ISDS reform or the mechanism altogether.
As the European Commission negotiates ever greater free trade agreements, the inclusion of ISDS, which allow businesses to bypass national courts and sue governments directly in special arbitration panels, has divided public opinion.
In May 2015, the European Parliament made its own position known in a Parliamentary resolution on TTIP which, disappointedly, did not make ISDS a clear red line. Instead, it backed the Commission plan of a reform agenda for the mechanism to include greater transparency, a change from arbitrators to judges, and more public scrutiny. However, the Parliament did not tackle the crux of the issue, which is the bypassing of national courts by not requiring investors to exhaust all national measures first.
In September 2015, a confident Commission presented its reformed ISDS, under the new acronym ICS (Investment Court System). However, many were quick to see that the cosmetic changes proposed would not resolve any of the fundamental concerns about granting special privileges to foreign investors, undermining national laws and bypassing domestic courts.
So is this the end of the road for the ISDS/ICS debate? Actually it’s hardly begun!
The agreement with Canada contains the old ISDS system – can the Commission, Parliament and member states ratify an agreement with a mechanism it no longer supports? Will the new Trudeau government in Canada accommodate a European demand to redraft a new investment chapter? And if it does, what will be asked for in return? And what of the US reaction to the ICS? Might they accept it in return for the preservation of the Buy America Act, a very protectionist, anti-free-trade law?
The Commission needs to come to its senses in 2016: ISDS/ICS is a costly concession that threatens sovereign states and is utterly superfluous. Instead, the Commission should focus on developing trade agreements that support the recent Paris agreement of keeping global warming to below 1.5°C. This effort entails: dismantling direct and indirect fossil fuel subsidies; transitioning into more efficient low-carbon economies; creating a transatlantic renewable energy network; and tackling international shipping and aviation emissions, to list but a few ideas.