Investor-state dispute settlement – also known under the even less transparent acronym ISDS – is one of the most harmful features of modern trade agreements. Under this mechanism foreign companies can use private tribunals to sue governments if they deem their profits or investment potentials are affected by new laws or changes in policy. The companies can seek compensation which may mount to millions of Euros.
In other words, companies are given powers to contest – and potentially reverse – government decisions.
The system is designed specifically for foreign investors – domestic investors have no access to the international private tribunals. Domestic investors rely on existing judicial processes if they are unhappy about regulatory changes.
The system operates outside existing court systems. The tribunals are biased in favour of investors, with corporate lawyers often acting as the judges and parties. And they are only open to corporations to make claims over their investments (including their expected profits). This makes ISDS a clear violation of the right to access to justice and the rule of law.
Not only does the system allow companies to circumvent established judicial processes, it also allows them to challenge and overturn previous legal judgements. Public outcry is growing over the (mis-)use of the ISDS mechanism, and in particular its detrimental impact on democracy and policies that are made for the public interest.
Negotiations for a trade deal between the EU and US – known as the Transatlantic Trade and Investment Partnership (TTIP) – are shrouded in secrecy so it is difficult to know exactly what is being negotiated. Leaked information suggests that ISDS is intended to be included in the final agreement.
Experience of settled ISDS cases tells us that this system does negatively impact regulatory standards. Two emblematic cases illustrate this threat very well:
Friends of the Earth Europe is campaigning to stop the inclusion of the ISDS in an EU-US trade deal. We believe such a mechanism would risk seriously deterring governments from introducing regulations that protect people and the environment.
The mere threat of multi-million euro claims by large companies is likely to be too big a risk for governments with limited public budgets. For this reason, we believe ISDS would be bad for citizen and environment safeguards.
We fear that the prospect of potential lawsuits would put states off passing strong laws. The ISDS is in direct conflict with nations’ rights to regulate and the fundamental precautionary principle and polluter-pays principles which are enshrined in EU treaties.
Friends of the Earth Europe alongside many other civil society organisations is asking the European Commission, the European Parliament and EU member states to reject any future trade deal including this harmful system, starting with the Transatlantic Trade and investment Partnership (TTIP) and the EU-Canada Comprehensive Economic and Trade Agreement (CETA).