This contradiction is most evident in the concept paper’s discussion on the “right to regulate”. In responding to the Commission’s document, it would be easy (and perhaps most appropriate) to simply re-state the objections of civil society. But instead let’s seize the opportunity to constructively discuss a viable alternative to ISDS – an international investment court.
ISDS is a mechanism that allows businesses to bypass national courts to sue governments, i.e. taxpayers, in arbitration panels over public-interest laws. This would happen in the context of Europe’s two proposed trade deals; the first with Canada (CETA) and the second with the United States (TTIP).
Civil society, including Transport & Environment in our submission to the Commission ISDS consultation, has been arguing that ditching ISDS altogether is the best of course of action as it is fundamentally flawed and unfair. ISDS makes it more risky for governments to adopt consumer, health or environmental protection laws that foreign investors may not like. It gives foreign investors more legal avenues for redress than citizens. Arbitrators have a financial incentive to decide that cases are eligible. And in the end governments, i.e. citizens, pay the corporate bill of any agreed damages.
In the midst of all of the pro and anti-ISDS mud-slinging, a new idea is being touted and it’s called the international investment court. Initially mooted by the European Parliament’s Social Democrats in their March 2015 position paper on ISDS, it was also backed by centre-right MEP and former commissioner Viviane Reding.
But the idea is actually almost a decade old. Back in 2007 Canadian Gus van Harten, then a PhD student, hit upon the idea while concluding his thesis on investment arbitration and internal law. Mr van Harten offered several options for such a court: it could be multilateral, regional or bilateral; housed within an existing institution or autonomous entity; staffed by dedicated judges or via a roster of jurists who sit on domestic courts.
An international investment court addresses virtually all the major flaws of ISDS. It would have elected and independent judges with fixed salaries instead of case-by-case arbitrators who have a financial interest in cases moving ahead. Parties would be obliged to exhaust all local remedies first before seeking an international remedy, similar to the International Court of Human Rights. Symmetry would be established so that investors can sue – but also be sued. The states’ right to regulate, as well as investor responsibility, would be enshrined. Crucially, there would be an enforceable code of conduct for judges to rule out conflicts of interest, and a system for objective case assignment. Finally, compensation awards would be capped.
A separate issue is who should fund such a court. Since it ultimately serves as an insurance policy for investors, and since awards would be paid by taxpayers, it does not seem unreasonable to demand a contribution from the business community.
What is clear is that trade agreements with ISDS mechanisms cannot also include the international investment court mechanism – the two systems cannot coexist.
The creation of an international investment court cannot be done overnight. In the best-case scenario the Commission and other governments would be undertaking a 20-year project that would require significant drive, dedication and resource allocation. Realistically, that could splutter, falter and never see the light of day. Under the guise of developing a new court system the Commission would continue to happily negotiate agreements with ISDS chapter en attendant.
To those who suggest that an international investment court is a red herring to distract us, I suspect that at this point there is a genuine interest in it from certain politicians trying to find common ground between the yes and no camps.
Clearly the Commission is best advised to look at it very seriously not just as a long-term option alongside a ‘reformed’ ISDS, but as a genuine alternative to ISDS. ISDS has become a major political liability for future trade deals in general, and TTIP in particular, and for very good reasons. The system is so flawed that political resistance will only rise over time.
Let’s first decide to ditch it, and then look for a sensible solution. A proper international court could be one.