EU faces double whammy with investor-to-state dispute settlement

In an interview with Inside U.S. Trade, European Parliament International Trade committee chairman Vital Moreira, talking about the trade negotiations with the United States (TTIP / TAFTA), defended the investor-to-state dispute settlement (ISDS) mechanism.

Under ISDS companies can sue states if new laws threaten to make expected profits lower. The cases are handled outside national court systems, by tribunals consisting of three investment lawyers. Civil society groups see ISDS as a threat to democracy.

Moreira’s defense actually shows the discriminatory nature of investor-to-state dispute settlement and that the EU faces a double whammy with ISDS, through direct effect of treaties.

Inside U.S. Trade:

“Moreira said he personally does not have a principled objection to ISDS, and actually argued that its inclusion in TTIP could provide additional protections for EU investors in the U.S.

For instance, Moreira noted that in the EU, once an international investment agreement is approved, it becomes the ‘law of the land.’ This means a foreign investor could bring legal action in a member state court or the European Court of Justice arguing a breach of the treaty. But the same is not true under U.S. law, where, without ISDS, the only recourse for a foreign investor is to argue that a government violated U.S. or state law with respect to the way its investment was treated.”


Moreira notes that in the US the only recourse for a foreign investor is to argue that a government violated US or state law.

That is correct. The same is of course true for local (US) investors, they too can only invoke US or state law. The US is generally regarded as having strong protection of investments and a good court system, so I do not see the problem. Moreira’s words imply that TTIP will have stronger investment protections than US and EU law.

That is legislation by the back door.

In the US, the additional protections will not be available for local investors. They will only be available for EU investors, through ISDS.

That’s discrimination.

Law of the land

In the EU, the extra investment protections will become the “law of the land”, according to Mr Moreira.

Investment treaties give foreign investors extra rights. So, US investors will have more rights before EU courts than EU companies?

On top of that US investors can also use ISDS arbitration, not available to EU companies.

That’s double discrimination.

Double whammy

Direct effect of investment treaty protection (“law of the land”) is a serious issue. Would EU courts follow the interpretations of ISDS tribunals?

That would put a captive in-crowd on top of the EU legal system.

If EU courts do not follow the interpretations of ISDS tribunals, investors can use ISDS tribunals to overturn the EU courts’ decisions.

That would put a captive in-crowd on top of the EU legal system.

That’s a double whammy.

This is where investors would like to see our governments, lawmakers and courts. Checkmate. But why would politicians like this?

Unnecessary risks

It’s unnecessary. Joseph Stiglitz, Nobel laureate in economic sciences, notes that investors that do not trust a foreign legal system can take an insurance.

Problem solved.

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