EU's Reform Initiatives in Investor-State Dispute Settlement

The evolution of the EU's stance on Investor-State Dispute Settlement (ISDS) since 2010 reflects significant political and legal reforms aimed at addressing criticisms of the traditional arbitration system. The EU's pushback against ISDS became particularly pronounced during the negotiations of the TTIP with the US, leading to substantial reforms to better align with rule of law and democratic principles.

Key Points of the EU's ISDS Reform:

1. Criticisms and Concerns:

- ISDS panels operate outside national judicial systems, raising concerns about the consistency and expertise of arbitral rulings and the panels' ethical standards.

- Democratic concerns arise from the potential for foreign investors to challenge state measures aimed at environmental protection, public health, and labor standards.

2. EU Court of Justice Ruling and BITs:

- The European Court of Justice found ISDS under bilateral investment treaties (BITs) between EU member states incompatible with EU law, leading to the termination of such BITs by 23 member states.

3. Investment Court Systems (ICS):

- In trade agreements with third states (e.g., Canada, Singapore, Vietnam), the EU has proposed ICSs as a replacement for traditional ISDS.

- ICSs feature permanent arbitral systems with independent and expert arbitrators and an appeal mechanism to ensure consistency in rulings.

- Panels cannot question legitimate regulatory decisions, addressing some rule of law and democracy concerns.

4. Multilateral Investment Court (MIC):

- The EU has proposed a more radical reform with the establishment of a MIC, currently under negotiation at the UNCITRAL Working Group III, to provide a global solution to ISDS criticisms.

5. Energy Charter Treaty (ECT):

- The EU aims to modernize the ECT to align with the Paris Agreement commitments, though some member states have chosen to withdraw from the original Treaty due to concerns about its compatibility with climate action goals.

The UK’s Ambiguous Post-Brexit ISDS Agenda:

1. Ambivalent Position:

- The UK's approach to ISDS has been inconsistent, as seen in its negotiations with Canada, where it initially retained ICS provisions from the EU-Canada agreement but later indicated that a future agreement should not contain ISDS.

2. Shared Positions with the EU:

- In areas like the ECT modernization, the UK and the EU have coordinated their positions, advocating for a phased-out protection of existing fossil fuel investments and no protection for future investments.

3. CPTPP and Traditional ISDS:

- The UK's accession to the CPTPP reflects a return to traditional ISDS mechanisms, albeit with some protections for its regulatory rights. However, no ISDS is expected with Australia and New Zealand, showing a varied approach within the CPTPP framework.