Client Earth | 23 October 2015
Is investor-state dispute settlement legal? A plea for EU judges to check
By Laurens Ankersmit
Last month, the European Commission proposed reforms to the controversial investor-state dispute mechanism (ISDS), part of the EU-US trade deal known as the Transatlantic Trade and Investment Partnership (TTIP). ISDS mechanisms, including the Commission’s ‘reformed’ ISDS proposal, let foreign investors sue the EU and Member State governments. These cases take place in front of specialised courts only open to foreign investors, where claims for compensation can run to billions of euros.
ISDS has important implications for the daily lives of people in the EU. ISDS, for example, can be used by foreign investors to challenge the revocation of a fracking permit following protests and new environmental studies. This is a disconcerting development, especially because a US trade agreement containing ISDS would expose Europe to law suits from the country that uses ISDS the most.
Is ISDS legal?
Considering the important implications ISDS has for Europe, its people and its trade partners, it is essential that governments ask themselves whether ISDS is legal in the first place. We have severe doubts that ISDS is compatible with EU law, as we show in our new study.
ISDS allows foreign investors to sideline national courts and the European Court of Justice when suing governments over decisions based on EU law. This not only affects important powers granted only to those courts, it is also a fundamentally discriminatory tool, because it is not available to EU citizens, workers and companies. This is deeply unfair, and undermines the proper functioning of the EU and its internal market.
A simple check
A simple legal check is readily available to avoid this looming threat. It lets judges in the European Court of Justice examine the legality of an agreement like TTIP, to make sure it doesn’t undermine laws put in place to protect people. Article 218 (11) of the Treaty on the Functioning of the European Union allows EU countries, the European Parliament, the Commission and the Council to ask the European Court of Justice whether an envisaged agreement is legal under EU law. This simple procedure has already been used 24 times to stop the EU getting into trouble with other countries after an agreement has been signed. It is therefore very important to the United States and other EU trade partners as well.
Why a request matters
A legal check is all the more the essential for the EU institutions, because they are legally bound to respect each other’s powers. Since the Commission, the Council and the Parliament are taking away important powers from the European Court of Justice, it is essential that they consult judges on the legality of ISDS.
President of the Commission, Jean-Claude Juncker, promised that he will not accept “EU courts’ jurisdiction to be limited by special regimes that limit parties access to national courts or that allow secret courts to have the final say in disputes between investors and states.” What is more, the European Parliament wants “the jurisdiction of courts of the EU and of the Member States [to be] respected.” It is time for these institutions to live up to their promises and make their words credible by checking the legality of ISDS.
It is not only concern for the rule of law that should inspire this request. Much more importantly, EU citizens and organisations like ClientEarth do not have the right to make such a request themselves. Most people like to think that it is not only individuals and charities who need to comply with the law, but also our governments. EU leaders can assure us that they want to comply with the rule of law – and protect the interests of people over big business – by making a request on ISDS to the Court on our behalf.