Thursday

19th Sep 2019

Opinion

Compatibility with EU law is not real issue with ISDS

The European Court of Justice is about to decide whether the controversial investor-state dispute settlement (ISDS) mechanism in EU trade agreements is compatible with EU law.

But legality should not be our main concern here. There are much better approaches to international investment and we should be considering them.

Read and decide

Join EUobserver today

Support quality EU news

Get instant access to all articles — and 18 year's of archives. 30 days free trial.

... or join as a group

For those who may have forgotten, ISDS is the controversial mechanism in EU trade agreements that allows international investors to sue states for compensation when they don't make as much profit as anticipated - it's the number one reason that millions of Europeans protested against the Transatlantic Trade and Investment Partnership (TTIP) and the Comprehensive Economic and Trade Agreement (CETA) with Canada.

On Tuesday (30 April), the European Court of Justice is expected to hand down its decision on whether ISDS is compatible with European law.

Regardless of the court's decision, amidst all the controversy a whole range of alternatives that could be - or already are - more effective in addressing the kind of problems that arise around international investment have been completely overlooked.

The following are some of the alternatives that the EU must seriously consider.

Simple alternatives

First of all, international investors can simply use the existing legal systems in Europe if they encounter serious problems while investing here.

Member states are required to have fully developed legal systems in place and most require a much more solid legal foundation than an unmet expectation of profit in order for an investor to mount a court case against the state.

However, if the EU does persist with ISDS mechanisms, at the very least these should require that national legal remedies must be exhausted before any international arbitration can begin.

This would not only insist on the primary role of European law courts but also put pressure on investors to act according to national law, thereby reducing the potential for arbitration in the first place.

But respect for European legal systems is not the main issue here.

Bill in billions for taxpayer?

Moreover, such court cases would come at enormous cost to EU member states that could be forced to pay the lawyers and the millions or even billions in compensation to multinational investors using public funds collected from tax payers.

When the legal basis of the cases would be so doubtful and public budgets could be bankrupted, this is totally unjustifiable.

The EU Commission has claimed that ISDS mechanisms would bring income to the EU by encouraging foreign direct investment (FDI).

However, there are significant cases of countries receiving large amounts of FDI that do not have such investment treaties in place, which indicates that ISDS mechanisms are not the key to attracting foreign investment.

If attracting and protecting foreign investment is a primary concern for the EU, then there is also the option of investment insurance.

This is already common practice in the investment sector and, if managed responsibly by governments, can provide a way for investors to mitigate their risks.

If, similar to car or house insurance, investors pay for insurance and when a legitimate claim is made, the pool of funds collected is used to pay compensation, both the costs and the benefits of international investment would remain in the private sector.

This is in contrast to ISDS, which enables the private sector to reap all the benefits of investment while forcing the costs of court cases and compensation onto states.

So, if multinational investors can simply take out insurance, why are their lobbyists pushing so hard for ISDS?

The answer is that it's not really about legal rights, court cases and compensation.

Court cases require significant resources from a company and are risky because they may not succeed.

Multinational investors stand to benefit in much bigger and easier ways: fear of large bills for compensation can prevent governments from adopting new laws that could trigger ISDS cases, thus removing these 'barriers' to profits.

The EU's trade and investment agreements are also 'living' agreements that include clauses on 'regulatory cooperation', which involves ongoing reviews and meetings to continue adapting these agreements to new circumstances.

This means that multinational lobbyists can continue meeting with the commission to push for even more advantageous conditions for their investments on an endless basis.

In stark contrast, if the EU were to reject this approach altogether and consider the alternatives, more balanced proposals such as including binding human rights and environmental sustainability clauses in trade and investment agreements could be adopted.

Alongside developing the binding treaty on business and human rights, this would conversely give states the right to sue and penalise investors when they commit human rights abuses and environmental damage.

By rejecting ISDS in favour of the alternatives, some of the most serious concerns of the millions of citizens who protested against ISDS would be addressed and governments could stop wasting time on this very unpopular proposal.

Multinational investors would lose the right to sue governments and weaken human rights and environmental legislation, but they were never entitled to this in the first place.

Author bio

Anne-Marie Mineur is a Dutch MEP and member of the parliament's international trade committee who has further outlined the options for the EU's approach to international investment regulation in a GUE/NGL position paper.

Disclaimer

The views expressed in this opinion piece are the author's, not those of EUobserver.

TTIP's future in Trump's hands

EU commissioners admit they "frankly don't know" what the US president-elect intends to do with the US-EU trade talks.

Belgium green lights unchanged Ceta

Wallonia and Brussels have voted to give the federal government the power to sign the EU-Canada trade deal, whose content is not altered by the new documents attached.

EU top court backs Canada trade deal in ruling

The European Court of Justice ruled on Tuesday that the EU-Canada free trade agreement, and its controversial dispute settlement mechanism, is in line with the bloc's rules.

EU-Vietnam trade deal a bad day for workers' rights

Behind the smiles and handshakes, the signature of the EU-Vietnam trade and investment deals agreed on Tuesday and to be signed this week have dire consequences for human well-being and our ability to prevent climate and ecological breakdown.

Europe's refugee policy is test of its true 'way of life'

As ex-national leaders, we know it's not easy to withstand public pressures and put collective interests ahead of domestic concerns. But without strong institutional leadership, EU values themselves risk ringing hollow, not least to those seeking protection on Europe's shores.

News in Brief

  1. Kovesi has 'sufficient majority' for prosecutor post
  2. France, Finland give UK ultimatum for Brexit plan
  3. Minsk talks bode ill for EU's peace summit on Ukraine
  4. Poll: Poland's nationalist rulers to win October election
  5. Irish lawyers clash with EU commission in Apple case
  6. NGOs take aim at EU smartphone pollution
  7. EU adds €100m to research and Erasmus budgets
  8. Ambassador: UK Poles should 'seriously consider' leaving

Defending the defenders: ombudsmen need support

Ombudsmen are often coming under attack or facing different kinds of challenges. These can include threats, legal action, reprisals, budget cuts or a limitation of their mandate.

Column

The benefits of being unpopular

Paradoxically, the lack of popularity may be part of the strength of the European project. Citizens may not be super-enthusiastic about the EU, but when emotions run too high in politics, hotheads may take over.

Stakeholders' Highlights

  1. Nordic Council of MinistersNew programme studies infectious diseases and antibiotic resistance
  2. UNESDAUNESDA reduces added sugars 11.9% between 2015-2017
  3. International Partnership for Human RightsEU-Uzbekistan Human Rights Dialogue: EU to raise key fundamental rights issues
  4. Nordic Council of MinistersNo evidence that social media are harmful to young people
  5. Nordic Council of MinistersCanada to host the joint Nordic cultural initiative 2021
  6. Vote for the EU Sutainable Energy AwardsCast your vote for your favourite EUSEW Award finalist. You choose the winner of 2019 Citizen’s Award.
  7. Nordic Council of MinistersEducation gets refugees into work
  8. Counter BalanceSign the petition to help reform the EU’s Bank
  9. UNICEFChild rights organisations encourage candidates for EU elections to become Child Rights Champions
  10. UNESDAUNESDA Outlines 2019-2024 Aspirations: Sustainability, Responsibility, Competitiveness
  11. Counter BalanceRecord citizens’ input to EU bank’s consultation calls on EIB to abandon fossil fuels
  12. International Partnership for Human RightsAnnual EU-Turkmenistan Human Rights Dialogue takes place in Ashgabat

Latest News

  1. France, Italy want 'automatic' distribution of migrants
  2. Europe's refugee policy is test of its true 'way of life'
  3. A new Commission for the one percent
  4. Juncker: No-deal Brexit 'palpable'
  5. Germany adopts blockchain strategy and says no to Libra
  6. Revanchist Russia continues to rewrite European history
  7. How EU trains discriminate against the disabled
  8. These are the crunch issues for the 2019-2024 EU commission

Stakeholders' Highlights

  1. Nordic Council of MinistersNew campaign: spot, capture and share Traces of North
  2. Nordic Council of MinistersLeading Nordic candidates go head-to-head in EU election debate
  3. Nordic Council of MinistersNew Secretary General: Nordic co-operation must benefit everybody
  4. Platform for Peace and JusticeMEP Kati Piri: “Our red line on Turkey has been crossed”
  5. UNICEF2018 deadliest year yet for children in Syria as war enters 9th year
  6. Nordic Council of MinistersNordic commitment to driving global gender equality
  7. International Partnership for Human RightsMeet your defender: Rasul Jafarov leading human rights defender from Azerbaijan
  8. UNICEFUNICEF Hosts MEPs in Jordan Ahead of Brussels Conference on the Future of Syria
  9. Nordic Council of MinistersNordic talks on parental leave at the UN
  10. International Partnership for Human RightsTrial of Chechen prisoner of conscience and human rights activist Oyub Titiev continues.
  11. Nordic Council of MinistersNordic food policy inspires India to be a sustainable superpower
  12. Nordic Council of MinistersMilestone for Nordic-Baltic e-ID

Join EUobserver

Support quality EU news

Join us