Is Investor–State Dispute Settlement (ISDS) Superior to Litigation Before Domestic Courts? An EU View on Bilateral Trade Agreements

The mechanism of Investor–State Dispute Settlement (ISDS) allows private foreign investors to challenge government measures before an ad hoc international arbitral tribunal. ISDS has been in existence for a long time. Yet recently this mechanism has proven very controversial, notably in the European Union and then the United States, when it became part of the negotiations on a comprehensive free trade agreement (TTIP) between them. According to critics, ISDS unduly limits the policy space of the signatory governments, and suffers from inadequate procedures. Some have argued that foreign investor claims should be dealt with like other private claims, by domestic courts. Others have argued that domestic courts should not become involved at all, and that foreign investor claims should be dealt with exclusively by state-to-state dispute settlement. This debate about ISDS is actually connected to broader discussions in the EU about whether private parties (not just foreign investors) should be permitted to invoke international law before domestic courts. Efforts by the EU institutions to limit the impact of bilateral trade agreements have been under way, though mostly surreptitiously, for several years. This article seeks to analyze the merits and implications of this policy shift, while tracing the development of the European debate on ISDS.