Mediating Investor-State Disputes in Free Trade Agreements: An Evaluation of the EU’s Proposal

Abstract

Foreign investment is an important economic driver, and thus typically benefits from substantial legal protection under international investment agreements (IIAs). When a dispute arises between a foreign investor and a State, the main dispute settlement mechanism provided under IIAs is arbitration, a system which has raised controversy both within legal circles and public opinion. Against this background, the EU recently proposed to use mediation more frequently, especially for disputes arising out of the investment chapters of EU free trade agreements. This article argues that this proposal may be beneficial, primarily because it assuages the strict legalism which characterizes this area of the law. Yet, mediation is a subtle process which purports to instil a dialogue between disputants. This article takes the view that this dialogue may, however, be greatly hindered by political factors. It posits that two fundamental elements of mediation theory have been insufficiently considered within the EU’s proposal, namely, the nature of the relationship between the parties, i. e. the asymmetrical relationship between the investor and the State, and the influence that external stakeholders may have on the resolution process. In this respect, the role that the European Commission will play is axiomatic to the efficiency of this mechanism.