Reforming Investor–State Dispute Settlement: The Need to Balance Both Parties’ Interests

Abstract

The investor-to-State dispute settlement (ISDS) system is undergoing a reform process under the new competence conferred to the European Union (EU) by the Lisbon Treaty. The process pursues the abandonment of the traditional system and its replacement by an International Court System (ICS) with an appellate mechanism to increase consistency of decisions. The European Commission (EC) proposal regarding this reform was first adopted by the EU-Canada Comprehensive Economic and Trade Agreement (CETA) and the EU-Vietnam Free Trade Agreement, to be then proposed to the United States in the context of the negotiation of the Transatlantic Trade and Investment Partnership (TTIP). ICS is composed of a Tribunal of 15 independent members competent to adjudicate disputes between investors and the State under the relevant treaty by an award that may be enforced only if no appeal is filed within the following 90 days with the Appellate Tribunal appointed under the treaty. The analysis of the EC’s proposed ICS points to the political nature of the reform rather than to a serious review of the functioning for over 40 years of the traditional ISDS. The latter has proven to be able to achieve a fair balance between the conflicting interests of the two parties, the investor and the State, and to be able to satisfy by appropriate amendments the key elements on which the EC’s proposal is based. Among such key elements are the States’ regulatory powers, the consistency and predictability of decisions, the transparency of the arbitration process and the prevention of practices such as “forum shopping”.