GENEVA—May 6, 2015—The International Institute for Sustainable Development (IISD) welcomes efforts taken by the European Commission to address serious weaknesses in the global governance of foreign investment, announced this week by European Commissioner for Trade, Cecilia Malmström. However, IISD cautions against including a special mechanism to settle disputes between foreign investors and governments in the Transatlantic Trade and Investment Partnership (TTIP)—even with the innovations proposed by the Commission. There are no compelling arguments for the inclusion of such a mechanism in a treaty between parties with established democracies and independent court systems.

In preparations for talks with the European Parliament and European Council today and Thursday, Ms. Malmström has released a new set of ideas on improvements to the way disputes between foreign investors and states are settled under the TTIP.   

The prevailing system of dispute settlement in investment agreements, commonly referred to as investor-state dispute settlement (ISDS), has been subject to wide-spread criticism by civil society groups and parliamentarians, as well as some EU member states. IISD has for many years exposed the problems with ISDS and promoted practical solutions.   

“Ms. Malmström has rightly focused on the arbitration system as a key source of concern,” said Nathalie Bernasconi, group director of IISD’s Economic Law and Policy Program. “But that discussion is mostly relevant for the 1200 treaties that EU member states have signed in the past and that need to be renegotiated and replaced. There is no urgency to reform the arbitration system in TTIP; it should simply be left out of the agreement. The European Union and United States have courts that are perfectly capable of handling these disputes in a way that is fair and transparent.”

Among Ms. Malmström’s proposals are that all arbitrators are selected from a roster of competent professionals chosen by the state parties to the investment agreement. Those arbitrators would need to be “independent” and “impartial,” although what that means in practice is not spelled out.

The creation of such a roster moves ISDS procedures closer to a permanent court, which Ms. Malmström says should be the EU’s ultimate objective.

“The creation of a permanent court to settle investment disputes requires serious consideration,” said Ms. Bernasconi. “However, multilateral solutions require multilateral approaches. We look forward to knowing more about Mss Malmström’s ideas on a possible multilateral architecture, which hopefully includes thoughtful options for mediation and broad stakeholder participation when necessary.”

For more information please contact Sumeep Bath at sbath@iisd.org or +1 (204) 958 7740 (in Canada) or Damon Vis-Dunbar at dvis-dunbar@iisd.org or +41 22 917-8848 (in Switzerland).