New Investment Court System for All

In the middle of October, the European Commission introduced its proposal on creation of a new system for resolving disputes between investors and states, the Investment Court System.

The system proposal has been introduced after results coming from a public consultation on the modernization of the existing Investor-to-state dispute settlement (ISDS), which was criticized by the civil society with regards to the Transatlantic Trade and Investment Partnership (TTIP) and rejected by the European Parliament earlier in July. The new proposal consists of two parts, the substantive investment protection provisions and the functioning of the system that focuses on the settlement of the disputes between states and investors.

The new court system is comprised by a first instance Tribunal and an Appeal Tribunal, that would be run by highly qualified and publicly appointed judges. Furthermore, the proposal defines conditions, under which the investor is entitled to take a case before the Tribunal and provision to avoid frivolous claims are included as well. The main focus of the proposal is to guarantee the right to regulate for the governments, which was the main point of concern with regard to TTIP negotiations. The business community welcomes the aim of the European Commission to modernize the system of dispute settlements between investors and states, however, the current proposal contains several provisions that are rather worrisome for businesses.

First of all, the initial aim was to announce a mechanism that would replace the ISDS system in current TTIP negotiations. However, the intention of the Commission now is to implement the new system into all ongoing and future free trade negotiations, including Japan, China and others. Furthermore, the new system includes the so-called “Loser Pays” principle, meaning the party that loses the case would have to pay all the related costs. This could be discouraging mainly for small and medium-size companies that would think twice before entering into a dispute even if they had a legitimate case.

Therefore, the business community calls on the Commission to conduct a deep and proper impact assessment that would evaluate all the consequences of introducing the new investment system.