When it comes to the Transatlantic Trade and Investment Partnership (TTIP), a proposed trade agreement between the United States and the European Union, there are many opinions on how to structure the arrangement. One disagreement concerns how to protect investors.
With any large trade agreement, disputes between investors and governments are bound to arise. To address these disputes, the European Commission (EC), the executive body of the European Union, has proposed the establishment of a new international investment court, attempting to displace the current arbitration system.
The current, widely used model of Investor-State Dispute Settlement (ISDS) panels, which is customarily built into trade agreements, gives investors a way to protect their rights if a foreign country violates the agreement by discriminating against the investor. The system has worked well and accommodated the needs of all parties to the agreement.
ISDS panels have come under fire in the EU because of accusations that they inhibit the ability of governments to regulate their own economies. However, the flexibility of the ISDS system allows governments to design arbitration in ways that protect the states from frivolous disputes. The accusations against the current ISDS system are unfair.
The EC wants to do away with ISDS in favor of a new Investment Court System (ICS). The ICS would be made up of judges selected from a larger pool appointed by the governments of the United States and the EU’s member states. This system will be more rigid and lean heavily in favor of the national governments, as they would be the ones selecting the judges. Only the ICS would be eligible to rule on TTIP disputes, completely cutting out ISDS arbitration.
Regrettably, the EC’s proposal provides no accountability structures for the ICS and is vague on how it intends to insure ICS impartiality. Placing the power to make monetary awards in the hands of a permanent supranational court would challenge U.S. sovereignty.
It is foolish to abandon a system that has worked well in addressing disputes. The EC has proposed a solution to a non-existent problem. The current ISDS system is flexible and is endorsed by the Office of the U.S. Trade Representative. Any legitimate criticisms of ISDS can be addressed as the U.S. and the EU draft the TTIP agreement. There is no need to create a new international tribunal.
It is not in U.S. interests to dismantle the ISDS system in favor of such a narrow court. The U.S. should reject attempts to establish the ICS. While ISDS is certainly no exception to the rule that nothing in the world is perfect, scrapping the ISDS system for the ICS would be a big mistake.